NEW ISSUE — BOOK ENTRY ONLY RATINGS:See “RATINGS” herein

S&P: “A-”

In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, under existing statutes, regulations, rulings and judicialdecisions, and assuming certain representations and compliance with certain covenants and requirements described herein, interest on theSeries A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculatingthe federal alternative minimum tax imposed on individuals and corporations, but may be subject to the corporate alternative minimum taxbecause of the adjustments for current earnings of certain corporations. In the further opinion of Bond Counsel, interest on the Series A Bondsis exempt from California personal income taxes. Bond Counsel expresses no opinion regarding other federal or state tax consequences relatedto the accrual or receipt of interest with respect to the Bonds. See “TAX MATTERS” herein.

$6,715,000REDEVELOPMENT AGENCY OF THE

CITY OF AZUSAAMENDED AND RESTATED

MERGED CENTRAL BUSINESS DISTRICTAND WEST END REDEVELOPMENT PROJECT AREA

TAX ALLOCATION BONDS(SUBORDINATE LIEN)

2008 SERIES ADated: Date of Delivery Due: August 1, as shown on the inside front cover

The Redevelopment Agency of the City of Azusa (the “Agency”) will issue its Amended and Restated Merged Central Business District and WestEnd Redevelopment Project Area Tax Allocation Bonds (Subordinate Lien) 2008 Series A (the “Series A Bonds” or the “Bonds”), under a FirstSupplement to Trust Indenture dated as of December 1, 2008 that supplements an Indenture dated as of July 1, 2007 (as amended, the “Subordinate LienIndenture”), each by and between the Agency and Wells Fargo Bank, National Association, as trustee. The Bonds will be issued as a separate series ofbonds and are payable from and secured by certain tax increment revenues eligible for allocation to the Agency in connection with the Agency’sAmended and Restated Central Business District and West End Redevelopment Project Area (the “Project Area”) as provided for in the RedevelopmentPlan (as defined herein) and certain funds and accounts held under the Subordinate Lien Indenture.

The Bonds are being issued for sale to the Azusa Public Financing Authority, which is concurrently selling the Bonds to the Underwriter. Proceedsof the Bonds will be used to (i) provide funds to finance redevelopment projects, (ii) satisfy the Reserve Requirement for the Bonds, and (iii) pay costsincurred in connection with the issuance, sale and delivery of the Bonds.

The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The DepositoryTrust Company, New York, New York (“DTC”). DTC will act as securities depository for each series of the Bonds. Individual purchasers of the Bondsmay be made in book-entry form only. The Bonds shall be issued in denominations of $5,000 each or any integral multiple thereof. Purchasers will notreceive certificates representing their interest in the Bonds purchased. Principal of and interest on the Bonds will be paid directly to DTC by the Trustee.Principal of the Bonds is payable on the dates set forth on the inside cover page hereof. Interest on the Bonds of each series is payable on February 1 andAugust 1 of each year, commencing February 1, 2009. Upon its receipt of payments of principal and interest, DTC is in turn obligated to remit suchprincipal and interest to DTC participants for subsequent disbursement to the beneficial owners of the Bonds as described herein.

The Series A Bonds are subject to optional and mandatory sinking fund redemption as described herein. The Series A Bonds are payablefrom and secured by Subordinate Tax Revenues, described herein, and are issued on a subordinate basis with certain other debt of the Agency.Subject to certain conditions, additional obligations on a parity basis with the Bonds may be incurred in the future by the Agency upon thesatisfaction of certain conditions described herein. See “SECURITY FOR THE BONDS” herein.

THE BONDS ARE SPECIAL OBLIGATIONS OF THE AGENCY PAYABLE FROM AND SECURED BY A PLEDGE OF CERTAIN TAXINCREMENT REVENUES, AS DESCRIBED HEREIN, AND AMOUNTS HELD IN CERTAIN FUNDS AND ACCOUNTS HELD UNDER THERELATED INDENTURE. THE BONDS ARE NOT A DEBT OF THE CITY OF AZUSA (THE “CITY”), THE STATE OF CALIFORNIA (THE“STATE”), OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY), AND NEITHER THE CITY, THE STATE, NOR ANYOF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) IS LIABLE THEREFOR, NOR IN ANY EVENT SHALL THE BONDS BEPAYABLE OUT OFANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE AGENCYAS SET FORTH IN THE RELATED INDENTURE.NEITHER THE MEMBERS OF THE AGENCY NOR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY FOR THEBONDS. THE AGENCY HAS NO TAXING POWER. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS IN CONTRAVENTION OFANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

MATURITY SCHEDULE(see inside cover hereof)

This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entireOfficial Statement to obtain information essential to making an informed investment decision.

The Bonds are offered when, as and if issued, subject to the approval as to their legality by Best Best & Krieger LLP, Riverside, California, BondCounsel. Certain legal matters will be passed on for the Agency by Best Best & Krieger LLP, as Agency General Counsel and Disclosure Counsel. It isanticipated that the Bonds will be available for delivery in book-entry form through the facilities of DTC on or about December 18, 2008.

CHILTON & ASSOCIATES

Dated: December 9, 2008

SERIES A BONDS MATURITY SCHEDULE

$6,715,000 Tax Allocation Bonds

(Subordinate Lien) 2008 Series A Bonds

Current Interest Bonds (Base CUSIP: 055031)

Maturity Date (August 1)

Amount

Rate

Yield

Price

CUSIP

2009 $ 70,000 4.500% 4.500% 100.000 FV5 2010 80,000 5.000% 5.000% 100.000 FW5 2011 80,000 5.500% 5.500% 100.000 FX1 2012 85,000 5.750% 5.750% 100.000 FY9 2013 95,000 6.000% 6.000% 100.000 FZ6 2014 100,000 6.250% 6.250% 100.000 GA0 2015 110,000 6.500% 6.500% 100.000 GB8 2016 120,000 6.750% 6.750% 100.000 GC6 2017 125,000 6.750% 7.000% 98.391 GD4 2018 140,000 6.750% 7.125% 97.409 GE2

$1,850,000 7.50% Term Bonds Due August 1, 2023 Yield 7.75% Price 97.822 CUSIP GH5 $1,815,000 7.75% Term Bonds Due August 1, 2028 Yield 8.10% Price 96.574 CUSIP GK8 $2,045,000 8.00% Term Bonds Due August 1, 2034 Yield 8.25% Price 97.336 CUSIP GL6

No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any Bonds by any person in any jurisdiction in which such offer of solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matter of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of fact.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget,” or other similar words and include, but are not limited to, statements under the caption “THE PROJECT AREA – Projected Taxable Valuation and Tax Revenues; Debt Service Coverage.”

The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. While the Agency has agreed to provide certain on-going financial and operating data for a limited period of time (see “CONTINUING DISCLOSURE”), the Agency does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based change.

The information set forth herein has been obtained from the City, the Agency and other sources that are believed to be reliable, but it is not guaranteed as to its accuracy or completeness. The information and expressions of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the City since the date hereof. All summaries of the resolutions, the Indenture, laws and statutes or other documents are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions.

The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

The Bonds have not been registered under the Securities Act of 1933, as amended, nor has the Indenture been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon an exception from the registration requirements contained in such acts. The Bonds have not been registered or qualified under the securities laws of any state.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE UNDERWRITERS MAY OFFER AND SELL BONDS TO CERTAIN DEALERS AND OTHERS AT A PRICE LOWER THAN THE OFFERING PRICE. THE OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE ORIGINAL PURCHASERS.

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AZUSA, CALIFORNIA

AGENCY MEMBERS AND CITY COUNCIL

Joseph R. Rocha, Chairman and Mayor Angel Carrillo, Vice Chairman and Mayor Pro Tem Keith Hanks, Agency Member and Council Member

Uriel E. Macias, Agency Member and Council Member Robert Gonzales, Agency Member and Council Member

AGENCY STAFF AND CITY STAFF

Francis M. Delach, Executive Director

James Makshanoff, Assistant City Manager Alan Kreimeier, Director of Administrative Services/Chief Financial Officer

Marcene Hamilton, City Treasurer Vera Mendoza, Agency Clerk and City Clerk

Roseanna J. Jara, Senior Accountant - Redevelopment

SPECIAL SERVICES

Agency Counsel Best Best & Krieger LLP

Irvine, California

Bond Counsel & Disclosure Counsel Best Best & Krieger LLP

Riverside, California

Trustee Wells Fargo Bank, National Association

Los Angeles, California

Financial Advisor and Redevelopment Consultant Urban Futures, Inc. Orange, California

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TABLE OF CONTENTS

PAGE PAGE INTRODUCTION ......................................................... 1

General ..................................................................... 1 The City, the Agency and the Project Area .......................................................................... 1 Tax Allocation Financing ........................................ 3 Security for the Bonds; Plan of Financing ............... 3 Professionals Involved in the Offering .................... 4 Summaries of Documents ........................................ 4 Continuing Disclosure ............................................. 4 Other Information .................................................... 5

THE FINANCING PLAN ............................................. 5 Use of Bond Proceeds .............................................. 5

SERIES A BONDS SOURCES AND USES OF FUNDS ................................................................... 5 THE BONDS ................................................................ 6

General ..................................................................... 6 Series A Bonds Redemption .................................... 6 Other Redemption Provisions .................................. 7 Book-Entry Only System ......................................... 8

SERIES A BONDS ANNUAL DEBT SERVICE ...................................................................... 9 SECURITY FOR THE BONDS ................................... 9

Tax Allocation Financing Generally ...................... 10 Allocation of Taxes ................................................ 10 Issuance of Additional Bonds ................................ 12 Reserve Account .................................................... 13 Limited Liability .................................................... 14

THE AGENCY ........................................................... 14 Agency Members ................................................... 14 Agency Administration .......................................... 15 Agency Powers ...................................................... 15 Factors Affecting Redevelopment Agencies Generally ................................................ 16 Financial Statements; Agency Budget; Statement of Indebtedness ..................................... 16 Regulatory Issues ................................................... 16

THE PROJECT AREA ............................................... 17 Redevelopment Plan .............................................. 17 History of the Project Area .................................... 17 Redevelopment Projects ......................................... 18 Assessed Valuation ................................................ 19 Land Use in the Project Area ................................. 20 Major Taxpayers .................................................... 20 Bonded Indebtedness and Certain Other Obligations ............................................................. 21 Projected Taxable Valuation and Tax Revenues; Debt Service Coverage ......................... 21 Section 33607.5 Pass-Through Payments .............. 23 Projected Tax Revenues and Debt Service Coverage ................................................... 24

BONDOWNERS’ RISKS ........................................... 26 Limited Obligations of the Agency ........................ 26 Reduction in Taxable Value ................................... 26

Article XIIIA Litigation .......................................... 26 Reduction in Inflationary Rate ............................... 27 Legislation Affecting Redevelopment Agencies ................................................................. 27 Santa Ana Unified School District Case ................ 28 Development Risks ................................................ 29 Levy and Collection ............................................... 29 ERAF; State Budget Deficit ................................... 29 Property Tax Appeals ............................................ 31 Additional Financing ............................................. 33 Seismic Considerations .......................................... 33 Hazardous Substances ............................................ 33 Enforceability of Remedies .................................... 33 Investment of Funds ............................................... 33 Loss of Tax Exemption .......................................... 34 Secondary Market .................................................. 34

LIMITATIONS ON TAX REVENUES ..................... 34 Property Tax Limitations - Article XIIIA .............. 34 Challenges to Article XIIIA ................................... 35 Implementing Legislation ...................................... 35 Proposition 87 ........................................................ 35 Appropriations Limitations: Article XIIIB of the California Constitution ...................... 35 Unitary Taxation of Utility Property ...................... 36 Housing Set-Aside ................................................. 37 Property Tax Collection Procedures ...................... 37 County Tax Allocation Procedures Applicable to the Agency ....................................... 38 Certification of Agency Indebtedness .................... 38 Plan Limitations ..................................................... 39

TAX MATTERS ......................................................... 40 FINANCIAL ADVISOR ............................................ 42 RATINGS ON THE SERIES A BONDS ................... 42 UNDERWRITING ...................................................... 42 NO LITIGATION ....................................................... 42 LEGAL MATTERS .................................................... 42 CONTINUING DISCLOSURE .................................. 43 MISCELLANEOUS ................................................... 43 APPENDIX A - SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA ........ A-1 APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR FISCAL YEAR ENDED JUNE 30, 2007 ................ B-1 APPENDIX C - FISCAL CONSULTANT’S REPORT .................................................................. C-1 APPENDIX D –FORM OF BOND COUNSEL OPINION ................................................................. D-1 APPENDIX E – SUMMARY OF LEGAL DOCUMENTS ........................................................ E-1 APPENDIX F - BOOK-ENTRY ONLY SYSTEM .................................................................. F-1 APPENDIX G - FORM OF CONTINUING DISCLOSURE CERTIFICATE ............................... G-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

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$6,715,000

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

AMENDED AND RESTATED MERGED CENTRAL BUSINESS DISTRICT

AND WEST END REDEVELOPMENT PROJECT AREA TAX ALLOCATION BONDS

(SUBORDINATE LIEN) 2008 SERIES A

INTRODUCTION

This introduction does not purport to be complete, and reference is made to the body of this Official Statement, appendices and the documents referred to herein for more complete information with respect to the matter concerning the Bonds. Potential investors are encouraged to read the entire Official Statement. Capitalized terms used and not defined in this Introduction shall have the meanings assigned to them elsewhere in this Official Statement.

General

This Official Statement, including the cover page and appendices hereto, is provided to furnish information in connection with the sale by the Redevelopment Agency of the City of Azusa (the “Agency”) of the $6,715,000 aggregate principal amount of its Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Subordinate Lien) 2008 Series A (the “Series A Bonds”, or the “Bonds”). The Bonds are being issued for sale to the Azusa Public Financing Authority, which will concurrently sell the Bonds to the Underwriter.

The Series A Bonds are being issued pursuant to (i) the Constitution and the laws of the State of California (the “State”), including the Community Redevelopment Law (codified in Part 1 of Division 24 of the California Health and Safety Code) (the “Redevelopment Law”), (ii) Resolution No. 08-R46 of the Agency adopted on November 3, 2008 (the “Resolution”), and (iii) a First Supplement to Trust Indenture dated as of December 1, 2008, which supplements a Trust Indenture dated as of July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association, as the Trustee (as supplemented, the “Subordinate Lien Indenture”).

Proceeds of the Series A Bonds will be used to (i) fund redevelopment projects of the Agency, (ii) satisfy the Reserve Requirement for the Series A Bonds, and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Series A Bonds.

The Bonds are payable from and secured by Subordinate Tax Revenues (as defined below) allocable to the Agency from the Project Area (as defined below) and certain funds and accounts established pursuant to the Subordinate Indenture. The Bonds are issued on a subordinate basis to the Agency’s outstanding 2003 Tax Allocation Bonds (the “2003 Bonds”) and the Agency’s 2005 Tax Allocation Bonds (the “2005 Bonds”) and are issued on a parity basis with respect to the Agency’s 2007 Series A Tax Allocation Bonds (the “2007 Bonds”). See “Security for the Bonds; Plan of Financing” below. Subject to certain conditions, additional obligations on a parity basis with the Bonds may be incurred in the future by the Agency. See “SECURITY FOR THE BONDS.”

The City, the Agency and the Project Area

The City of Azusa (the “City”) is located in Los Angeles County (the “County”), California. Incorporated in 1898 as a general law city, the City encompasses an area of approximately 9 square miles. The City operates according to the Council/Manager form of government. The City Manager is appointed by the City Council to manage the City’s staff and generally implement policies established by the City Council. See

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“APPENDIX A – SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA” for more general information about the City.

The Redevelopment Plan for the Central Business District Redevelopment Project was adopted on September 18, 1978, by City Council Ordinance No. 2062. The redevelopment plan has been amended twelve times: on July 2, 1979, by Ordinance No, 2077; on July 20, 1981, by Ordinance No. 2113; on November 28, 1983, by Ordinance No. 2197; on December 17, 1984, by Ordinance No. 2249; on December 17, 1984, by Ordinance No. 2250; on November 7, 1988, by Ordinance No. 2382 and on December 19, 1994, by Ordinance No. 94-018; on October 6, 2003, by Ordinance No. 03-06; on December 1, 2003, by Ordinance No. 03-07; on October 4, 2004, by Ordinance No. 04-09; on October 2, 2006, by Ordinance No. 06-011; on February 5, 2007, by Ordinance No. 07-04; on June 18, 2007, by Ordinance No. 07-07; and on June 26, 2008, by Ordinance No. 08-09. The first amendment added territory to the Central Business District Project. The second amendment increased the tax increment and bonded indebtedness limits, and added territory. Third amendment reduced the time limit for commencement of eminent domain proceedings; and added territory. The fourth amendment deleted territory from the Central Business District Project. The fifth amendment revised the financial provisions of the redevelopment plan, extended the debt establishment time limit, and added back the territory deleted by the fourth amendment. The sixth amendment merged the Central Business District Redevelopment Project with the West End Redevelopment Project. The seventh amendment revised the plan’s financial time limits to bring them into conformity with new Community Redevelopment Law maximums established in AB 1290.

The eighth amendment to the Redevelopment Plan for the Central Business District Redevelopment Project and the third amendment for the West End Redevelopment Project was enacted by Ordinance No. 03-06 on October 6, 2003, and enacted the following: 1) replaced the Central Business District Redevelopment Plan, as well as the redevelopment plan for the West End Redevelopment Project, with one amended and restated redevelopment plan applicable to the entire Project Area; 2) added certain territory to the Project Area; 3) established or re-established the time limit for commencement of eminent domain proceedings to acquire certain specified non-residential properties within the Project Area; 4) combined the tax increment limits of the merged component projects into a single tax increment limit applicable to the entire Project Area; 5) extended the time limits for the repayment of Project Area debt with tax increment; and 6) extended the duration of the amended and restated redevelopment plan’s effectiveness applicable to the Project Area. The ninth, tenth, eleventh, twelfth, thirteenth and fourteenth amendments are described below.

The Redevelopment Plan for the West End Redevelopment Project was adopted on November 28, 1983, by City Council Ordinance No. 2196. The redevelopment plan has been amended seven times: On November 7, 1988, by Ordinance No. 2382, and on December 19, 1994, by Ordinance No. 94-020. The first amendment merged the West End Redevelopment Project with the Central Business District Redevelopment Project. The second amendment revised the plan’s financial time limits to bring them into conformity with the new Community Redevelopment Law maximums established in AB 1290. The third amendment is described in the previous paragraph and the fourth, fifth, sixth and seventh amendments are described below.

On December 1, 2003, the City Council adopted Ordinance No. 03-07 which enacted the ninth amendment to the Central Business District Redevelopment Project and the fourth amendment to the West End Redevelopment Project. The amendment eliminated the time limits for the establishment of loans, and indebtedness relating to the Project Area. Additionally, on October 4, 2004, the City Council adopted Ordinance No. 04-09 which was the fifth amendment to the West End Redevelopment Project and the tenth amendment to the Central Business District Redevelopment Project, and extended by one year the effective dates of the Redevelopment Plan and the date for the Agency to receive tax increment pursuant to Section 33333.6(e)(2)(c) of the California Health and Safety Code.

On October 2, 2006, the City Council adopted Ordinance No. 06-011 which permitted the Agency to use eminent domain to acquire non-residential properties within the existing Project Area. Such Ordinance constitutes the eleventh amendment to the Central Business District Redevelopment Project and sixth amendment to the West End Redevelopment Project.

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On February 5, 2007, the City Council adopted Ordinance No. 07-04 which enacted the twelfth amendment to the Central Business District Redevelopment Project and seventh amendment to the West End Redevelopment Project and extended the time to collect tax increment because of the loss of funds resulting from the requirement to make payments to the Educational Revenue Augmentation Fund (“ERAF”) that would have otherwise been used to pay for the costs of projects within the Central Business District Project and the West End Project Area and extend the effective date of the plan for the West End Project Area.

On June 18, 2007, the City Council adopted Ordinance No. 07-07 which enacted the thirteenth amendment to the Central Business District Redevelopment Project and eighth amendment to the West End Redevelopment Project. This ordinance established an eminent domain program and directed staff to record a revised state of proceedings.

On June 26, 2008, the City Council adopted Ordinance No. 08-09 which enacted the fourteenth amendment to Central Business District Redevelopment Project and the ninth amendment to the West End Redevelopment Project. This ordinance amended and restated the Merged Project Area, added territory to the Merged Project Area and eminent domain authority, and increased the tax increment limit.

The Agency’s audited financial statements for the fiscal year ended June 30, 2007, are included in “APPENDIX B” and should be read in their entirety. The Agency’s financial statements were audited by the independent accounting firm of Lance, Soll & Lunghard, Certified Public Accountants. The Agency’s audited financial statements for the year ended June 30, 2006, and prior years are on file for public inspection with the Agency Clerk. Copies can also be obtained from the Agency’s Finance Department, City of Azusa, 213 E. Foothill Boulevard, Azusa, California 91702.

Tax Allocation Financing

The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of tax increment revenues collected within a redevelopment project area. With limited exceptions, taxes collected upon any increase in assessed valuation of a taxable property over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Subject to certain exceptions and prior claims on such tax increment revenues, the Agency has pledged certain tax increment revenues with respect to the Project Area to the payment of the principal of, premium (if any) and interest on the Bonds. See “SECURITY FOR THE BONDS.”

Security for the Bonds; Plan of Financing

The Bonds are special obligations of the Agency payable solely from Subordinate Tax Revenues (defined below) and other funds and accounts pledged therefor pursuant to the Subordinate Indenture. “Tax Revenues” are defined as the taxes eligible for allocation to the Agency pursuant to the Redevelopment Law in connection with the Project Area as provided in the Redevelopment Plan, including housing set-aside revenues to the extent that such revenues are permitted to pay debt service on the Bonds, but excluding amounts of such tax revenues payable to certain taxing agencies pursuant to tax sharing agreements and statutory “pass-through” payments. The Agency has taken necessary statutory procedures to subordinate such statutory pass-through payments to the lien of Tax Revenues on the Bonds. The Agency’s receipt of Tax Revenues is subject to certain risks and limitations. “Subordinate Tax Revenues” (more specifically described below) are Tax Revenues less the debt service on the 2003 Bonds and the 2005 Bonds. See “SECURITY FOR THE BONDS,” “THE PROJECT AREA – Bonded Indebtedness and Certain Other Obligations,” “– Tax Sharing Agreements,” “– Section 33607.5 Pass-Through Payments,” “BONDOWNERS’ RISKS” and “LIMITATIONS ON TAX REVENUES.”

The Bonds are subordinate to the following two outstanding bond issues: $11,580,000 aggregate principal amount of Amended and Restated Merged Project Area Tax Allocation Refunding Bonds, 2003 Series A (the “2003 Bonds”), of which $9,265,000 was outstanding as of October 30, 2008, $9,022,800 Amended and Restated Central Business District and West End Redevelopment Project Area Tax Allocation Bonds, 2005

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Series A (the “2005 Bonds”), of which $8,907,593 was outstanding as of October 30, 2008. The 2003 Bonds and 2005 Bonds are hereinafter collectively referred to as the “Senior Lien Bonds.” The 2003 Bonds were issued under the Trust Indenture, dated as of August 1, 1986 (the “CBD Indenture”), by and between the Agency and Security Pacific National Bank, subsequently succeeded by Bank of America National Trust and Savings Association and further succeeded by Wells Fargo Bank, National Association as trustee (the “Senior Lien Trustee”), a Trust Indenture, dated as of August 1, 1986 (the “West End Indenture”), by and between the Agency and the Trustee, a First Supplement to Trust Indentures, dated as of May 1, 1992 (the “First Supplement”), by and between the Agency and the Senior Lien Trustee, a Second Supplement to Trust Indentures, dated as of March 1, 1994 (the “Second Supplement”), by and between the Agency and the Senior Lien Trustee, a Third Supplement to Trust Indentures, dated as of September 1, 1997 (the “Third Supplement”), by and between the Agency and the Senior Lien Trustee, a Fourth Supplement to Trust Indentures, dated as of December 1, 2003 (the “Fourth Supplement”), by and between the Agency and the Senior Lien Trustee, and a Fifth Supplement to Trust Indentures (the “Fifth Supplement”) dated as of February 1, 2005, by and between the Agency and the Senior Lien Trustee. The CBD Indenture, the West End Indenture, the First Supplement, the Second Supplement, the Third Supplement, the Fourth Supplement and the Fifth Supplement, are collectively referred to herein as the “Senior Indenture.”

The Bonds are being issued on a parity basis with respect to the 2007 Bonds.

Subject to certain conditions, additional obligations on a parity basis with the Bonds may be incurred in the future by the Agency. “SECURITY FOR THE BONDS – Issuance of Parity Bonds,” “APPENDIX E –SUMMARY OF LEGAL DOCUMENTS.”

Professionals Involved in the Offering

Wells Fargo Bank, National Association, Los Angeles, California, will act as Trustee with respect to the Bonds.

Urban Futures, Inc., Orange, California, has served as Redevelopment Consultant in connection with the Bonds, has prepared a fiscal consultant’s report dated September 24, 2008 (the “Fiscal Consultant’s Report”), attached hereto as Appendix “C” and has prepared information used in connection with this Official Statement.

All proceedings in connection with the issuance of the Bonds are subject to the approval of Best Best & Krieger LLP, Riverside, California, Bond Counsel and Disclosure Counsel. Certain legal matters will be passed on for the Agency by Best Best & Krieger LLP, Irvine, California, as General Counsel to the Agency. The fees and expenses of Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds.

Summaries of Documents

There follows in this Official Statement descriptions of the Bonds, the Indenture, the Agency, the City, the Project Area, the Redevelopment Law, and various agreements. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each such document and, with respect to certain rights and remedies, to laws and principles of equity relating to or affecting creditors’ rights generally. Capitalized terms not defined herein shall have the meanings set forth in the Indenture. Copies of the Indenture are available for inspection during business hours at the corporate trust office of the Trustee in Los Angeles, California.

Continuing Disclosure

The Agency has covenanted in a Continuing Disclosure Certificate to prepare and deliver an annual report to certain national and state repositories and to provide certain other information. Wells Fargo Bank, National Association will act as Dissemination Agent on behalf of the Agency. See “CONTINUING DISCLOSURE” and “APPENDIX G – FORM OF CONTINUING DISCLOSURE CERTIFICATE.”

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Other Information

This Official Statement speaks only as of its date, as set forth on the cover hereof, and the information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Agency or the City or the Project Area since the date hereof.

THE FINANCING PLAN

Use of Bond Proceeds

Proceeds from the sale of the Series A Bonds, together with certain other available moneys, will be used to (i) finance various redevelopment projects of the Agency, (ii) comply with the Reserve Requirements for the Reserve Account for the Series A Bonds, (iii) pay costs incurred in connection with the issuance, sale, and delivery of the Series A Bonds.

Anticipated expenditures of amounts deposited to the Series A Redevelopment Fund include the following:

SERIES A BONDS SOURCES AND USES OF FUNDS

The following tables show the estimated sources and uses of the proceeds from the sale of the Series A Bonds and certain other moneys:

Sources: Par amount of the Bonds $6,715,000.00 Less: Original issue discount (162,592.35) Underwriter’s discount (100,725.00) Total Sources $6,451,682.65 Uses: Redevelopment Fund $5,670,000.00 Reserve Account(1) 655,240.76 Costs of Issuance(2) 126,441.89 Total Uses $6,451,682.65

_________________________ (1) Equal to 10% of original proceeds of the Bonds. (2) Costs of Issuance include Bond Counsel, Disclosure Counsel, Fiscal Consultant and Trustee fees and expenses and

rating agency fees, printing expenses and other costs.

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THE BONDS

General

The Bonds are being issued pursuant to the Constitution and laws of the State and under authority granted to the Agency by the Redevelopment Law constituting Part 1 of Division 24 of the California Heath and Safety Code, as amended, the Resolution and the Subordinate Indenture.

The Bonds are special obligations of the Agency and as such are not a debt of the City, the State, or any of their political subdivisions (other than the Agency), and none of the City, the State or any of their political subdivisions (other than the Agency) is liable for the payment thereof. In no event shall the Bonds of each series be payable out of any funds or properties other than those of the Agency as set forth in the Subordinate Indenture. The Bonds do not constitute an indebtedness in contravention of any constitutional or statutory debt limit or restriction. For a discussion of some of the risks associated with the purchase of the Bonds, see “BONDOWNERS’ RISKS.” The Agency has no taxing powers.

The Bonds will be issued as the Series A Bonds in the principal amount of $6,715,000 and will be issued in authorized denominations of $5,000 each or integral multiples thereof and will be dated their date of delivery. The Bonds mature on the respective dates and bear interest at the respective rates per annum set forth on the inside cover page hereof. The Bonds bear interest calculated on the basis of a 360-day year of twelve 30-day months and payable on February 1 and August 1 of each year, commencing February 1, 2009 (each an “Interest Payment Date”), until maturity or earlier redemption thereof.

Series A Bonds Redemption

Optional Redemption. The Series A Bonds shall be subject to call and redemption prior to maturity, at the option of the Agency, as a whole or in part, on any date on or after August 1, 2014, among maturities as shall be determined by the Agency, and by lot within each maturity (each Series A Bond being deemed to be composed of $5,000 portions with each such portion being separately redeemable), from funds derived by the Agency from any source, at a redemption price for each redeemed Series A Bond equal to the principal amount thereof, with accrued interest to the date of redemption.

Sinking Fund Redemption. The Series A Bonds maturing on August 1, 2023, August 1, 2028 and August 1, 2034 are subject to mandatory sinking fund redemption prior to maturity on August 1, 2019, August 1, 2024 and August 1, 2029, respectively, and each August 1 thereafter to maturity from mandatory sinking fund payments equal to the principal amount in the principal amounts as set forth in the table below, with accrued interest to date set for redemption, without premium as follows:

Series A Bonds Maturity August 1, 2023

Redemption Date (August 1)

Principal Amount to be Redeemed

2019 $150,000 2020 165,000 2021 180,000 2022 195,000 2023 (maturity) 1,160,000

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Series A Bonds Maturity August 1, 2028

Redemption Date (August 1)

Principal Amount to be Redeemed

2024 $280,000 2025 305,000 2026 325,000 2027 485,000 2028 (Maturity) 420,000

Series A Bonds Maturity August 1, 2034

Redemption Date (August 1)

Principal Amount to be Redeemed

2029 $455,000 2030 500,000 2032 65,000 2033 75,000 2034 (Final Maturity) 950,000

Other Redemption Provisions

In lieu of depositing cash with the Trustee as a mandatory sinking fund payment, the Agency shall have the option to tender to the Trustee for cancellation at least 60 days prior to a sinking fund redemption date any amount of the Bonds of each respective series purchased by the Agency, which Bonds may be purchased by the Agency at public or private sale as and when and at such prices as the Agency may in its discretion determine. The par amount of any Bonds so purchased by the Agency and tendered to the Trustee in any twelve-month period ending on August 1, in any calendar year shall be credited towards and shall reduce the next mandatory sinking fund payments required to be made in the order in which they are required to be made pursuant to the Indentures, as applicable.

Notice of Redemption. As provided in the Indentures, notice of redemption will be mailed by first class mail, postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, to each of the registered owners of the Bonds of either series designated for redemption at their addresses appearing on the related series Bond registration books of the Trustee. Such notice shall also be given by first class mail, postage prepaid, confirmed facsimile transmission, or overnight delivery service, to each of the Securities Depositories named in the Indentures and to one or more of the Information Services named in the Indenture. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for the redemption of any Bonds or the cessation of interest thereon on the redemption date.

Selection of Bonds for Redemption. Whenever provision is made in the Indentures for less than all of the Bonds of any series or maturity thereof to be redeemed, the Trustee will select the Bonds of such series to be redeemed from all the Bonds of such series not previously called for redemption, by lot in any manner which the Agency in its sole discretion shall deem appropriate under the circumstances. For purposes of such selection, all the Bonds of such series will be deemed to be comprised of separate $5,000 portions and such portions will be treated as separate bonds which may be separately redeemed.

Effect of Redemption. If notice of redemption has been duly given as aforesaid and money for the payment of the redemption price of the Bonds of such series called for redemption is held by the Trustee, then on the redemption date designated in such notice the Bonds of such series so called for redemption will become due and payable, and from and after the date so designated interest on such Bonds of such series will cease to accrue, and the owners of such Bonds of such series shall have no rights in respect thereof except to receive payment of the redemption price thereof.

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Purchase in Lieu of Redemption. In lieu of redemption, the Agency is authorized to purchase Bonds of either series on the open market at any time at a price (inclusive of brokerage fees) not to exceed the par amount of the Bonds of such series so purchased, plus any applicable premium.

Book-Entry Only System

The Bonds of each series will be issued as one fully registered bond without coupons for each maturity of each series and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (the “DTC”). DTC will act as securities depository of each series of the Bonds. Individual purchases may be made in book-entry form only, in the principal amount of $5,000 and integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds of either series purchased. Principal and interest will be paid to DTC, which will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds of each series as described herein. So long as DTC’s book-entry system is in effect with respect to the Bonds of each series, notices to Owners of the Bonds by the Agency or the Trustee will be sent to DTC. Notices and communication by DTC to its participants, and then to the beneficial owners of the Bonds, will be governed by arrangements among them, subject to then effective statutory or regulatory requirements. See “APPENDIX F – BOOK-ENTRY ONLY SYSTEM.”

In the event that such book-entry system is discontinued with respect to the Bonds, the Agency will execute and deliver replacements in the form of registered certificates and, thereafter, the Bonds will be transferable and exchangeable on the terms and conditions provided in the Indenture. In addition, the following provisions would then apply: The principal of, and redemption premium, if any, on the Bonds will be payable on the surrender thereof at maturity or the redemption date, as applicable, at the corporate trust office of the Trustee in Los Angeles, California. The interest on the Bonds will be payable by check mailed on each Interest Payment Date to the registered owners thereof as shown on the registration books of the Trustee as of the close of business on the Record Date immediately prior to such Interest Payment Date; provided, that a registered owner of $1,000,000 or more in aggregate principal amount of Bonds of a series may specify in writing prior to the Record Date that the interest payment be made by wire transfer.

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SERIES A BONDS ANNUAL DEBT SERVICE

The following table shows the scheduled annual debt service for the Series A Bonds.

Year Ending (August 1) Principal Interest

Total Annual Debt Service

2009 $ 70,000.00 $ 312,532.95 $ 382,532.95 2010 80,000.00 501,387.50 581,387.50 2011 80,000.00 497,387.50 577,387.50 2012 85,000.00 492,987.50 577,987.50 2013 95,000.00 488,100.00 583,100.00 2014 100,000.00 482,400.00 582,400.00 2015 110,000.00 476,150.00 586,150.00 2016 120,000.00 469,000.00 589,000.00 2017 125,000.00 460,900.00 585,900.00 2018 140,000.00 452,462.50 592,462.50 2019 150,000.00 443,012.50 593,012.50 2020 165,000.00 431,762.50 596,762.50 2021 180,000.00 419,387.50 599,387.50 2022 195,000.00 405,887.50 600,887.50 2023 1,160,000.00 391,262.50 1,551,262.50 2024 280,000.00 304,262.50 584,262.50 2025 305,000.00 282,562.50 587,562.50 2026 325,000.00 258,925.00 583,925.00 2027 485,000.00 233,737.50 718,737.50 2028 420,000.00 196,150.00 616,150.00 2029 455,000.00 163,600.00 618,600.00 2030 500,000.00 127,200.00 627,200.00 2031 - 87,200.00 87,200.00 2032 65,000.00 87,200.00 152,200.00 2033 75,000.00 82,000.00 157,000.00 2034 950,000.00 76,000.00 1,026,000.00

TOTAL $6,715,000.00 $8,623,457.95 $15,338,457.95

SECURITY FOR THE BONDS

The Bonds are special obligations of the Agency, payable solely from the sources described below. The Bonds are not a debt of the City, the State of California or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable therefor. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limit or restriction.

The principal of and interest on the Series A Bonds are payable from the Subordinate Tax Revenues received by the Agency and of the money on deposit in the respective Reserve Account for the Series A Bonds, including investment earnings thereon, described below. The principal, interest and premium, if any, on the Bonds of either series may also be paid with any other funds the Agency may have available for that purpose.

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Tax Allocation Financing Generally

The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of tax increment revenues collected within a project area. Once the taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. With certain limited exceptions, taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged to the repayment of bonds issued by the redevelopment agency. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of tax increment revenues produced as indicated above.

Allocation of Taxes

As provided in the Redevelopment Plan, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Project Area (or applicable portions thereof) each year by or for the benefit of the State of California, any city, county, city and county, district or other public corporation (the “taxing agencies”) for fiscal years beginning after the effective date of the Project Area (or applicable portions thereof) are divided as follows:

(a) The portion equal to the amount of taxes produced by the then current tax rate, applied to the assessed valuation of such property in the Project Area (or applicable portion thereof) as shown on the applicable base year assessment roll as last equalized prior to the establishment of the Project Area (or applicable portion thereof) shall be, when collected, paid into the funds of those respective taxing agencies;

(b) Except for taxes which are attributable to a tax levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated (and when collected shall be paid) to the respective taxing agency, that portion of levied taxes each year in excess of such amount (including, to the extent permitted by law, all payments and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) will be paid to the Agency to pay the principal of and interest on loans to, money advanced to, or indebtedness incurred by the Agency to finance redevelopment projects.

Revenues generated as set forth above and allocated to the Agency are generally referred to as tax increment revenues. Tax Revenues (as defined below) that secure the Bonds and any additional parity bonds to be issued under the Indenture are a portion of such tax increment revenues. Tax Revenues are generally those tax increment revenues (including housing set-aside revenues to the extent that such revenues are permitted to pay debt service on the Bonds (see “LIMITATIONS ON TAX REVENUES – Housing Set-Asides”) received by the Agency within limitations upon the Redevelopment Plan (“Plan Limitations,” as described below), and remaining after deductions for payments to taxing agencies pursuant to Tax Sharing Agreements (see “THE PROJECT AREA – Tax Sharing Agreements”) or Section 33607.5 of the Redevelopment Law (see “THE PROJECT AREA – Section 33607.5 Pass-Through Payments”) to the extent that such Tax Sharing Agreements or such statutory “pass-through” payments create a prior, unsubordinated lien on tax increment revenues.

As used herein, the term “Plan Limitations” means the limitations contained or incorporated in the Redevelopment Plan on (a) the aggregate principal amount of indebtedness payable from tax increment revenues which may be outstanding at any time, (b) the aggregate amount of taxes which may be allocated to the Agency pursuant to the Redevelopment Plan, (c) the period of time for establishing or incurring indebtedness payable from tax increment revenues, (d) the period of time for receiving tax increment revenues to repay indebtedness and (e) the period of time for the duration and effectiveness of the Redevelopment Plan, in each case established pursuant to Section 33333.2, 33333.4 or 33333.6 of the Redevelopment Law. See “LIMITATIONS ON TAX REVENUES – Plan Limitations.”

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Pursuant to the provisions of the Indentures, the Agency has pledged that portion of the tax increment revenues that constitute the Subordinate Tax Revenues, as defined below, for repayment of the Bonds.

The 2003 Bonds and 2005 Bonds are equally secured by a first pledge of and lien of all of the Tax Revenues and a first and exclusive pledge of and lien upon all of the money in certain funds and accounts created pursuant to the Senior Indenture including all amounts derived from the investment of such moneys, subject to the application in accordance with the Senior Indenture, without preference or priority for series, issue, number, sale date, date of execution or date of delivery.

The Bonds and any parity obligations issued under the Subordinate Indenture are equally secured by a first pledge of and lien of all of the Subordinate Tax Revenues and a first and exclusive pledge of and lien upon all of the money in certain funds and accounts created pursuant to the Subordinate Lien Indenture including all amounts derived from the investment of such moneys, subject to the application in accordance with the Subordinate Indenture, without preference or priority for series, issue, number, sale date, date of execution or date of delivery. Except for the Subordinate Tax Revenues and such moneys, no funds or properties of the Agency are pledged to, or otherwise liable for, the payment of principal of or interest on the Bonds.

Subordinate Tax Revenues are moneys paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth in the Subordinate Lien Indenture, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such from such taxes. Subordinate Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section 33401 of the Law prior to the date hereof, except agreements which are subordinate in payment by their respective terms, (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section 33607.5 of the law, (iii) that portion of Tax Revenues required by Section 33334.2 of the Law to be used by the Agency for increasing and improving the supply of low and moderate income housing, and (iv) the amounts necessary to pay debt service on the Senior Lien Bonds.

Subordinate Tax Revenues are deposited into the Special Fund established pursuant to the Indenture and are pledged in their entirety to the payment of principal of, premium, if any, and interest on the Bonds until such Bonds have been paid or until moneys have been set aside irrevocably for that purpose. Notwithstanding the foregoing, the Subordinate Indenture provides that if the Trustee has deposited in the Special Fund Tax Revenues sufficient to pay 100% of applicable Annual Debt Service on the Bonds for the then current Bond Year (as defined in the Subordinate Indenture) and to maintain the Reserve Account in an amount equal to the Series A Reserve Requirement, then the Subordinate Tax Revenues subsequently received during that Bond Year may be used by the Agency for any lawful purpose. See “APPENDIX E – SUMMARY OF LEGAL DOCUMENTS.”

The Agency has no power to levy and collect taxes, and any legislative property tax de-emphasis or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate must necessarily reduce the amount of Tax Revenues that would otherwise be available to pay the principal of, and interest on the Bonds of each series. Likewise, broadened property tax exemptions could have a similar effect.

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Issuance of Additional Bonds

The Bonds are issued on a subordinate basis to the Senior Lien Bonds. The Agency may not issue additional obligations including bonds on a parity with the Senior Lien Bonds, which are senior to the Bonds pursuant to the Subordinate Indenture. In addition to the Bonds, the Agency may, by a supplemental indenture, issue parity bonds payable from Subordinate Tax Revenues as and to the extent provided in the Subordinate Indenture and secured by the pledge made under the Subordinate Indenture equally and ratably with the Bonds previously issued. The Agency may issue, and the Trustee may authenticate and deliver to the purchasers thereof, parity bonds, in such principal amount as shall be determined by the Agency, but only upon compliance by the Agency with the provisions of the Subordinate Indenture hereof and any additional requirements set forth in said supplemental indenture and subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such parity bonds:

(a) No event of default shall have occurred and then be continuing under the Subordinate Indenture;

(b) A Tax Revenue certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 125% of the sum of Annual Debt Service on the Senior Lien Bonds and the Bonds (including such parity debt) for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Bonds and any parity debt. The Tax Revenue certificate shall also show that the amount of Tax Revenues, including debt service on the Senior Lien Bonds, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, and excluding the taxpayer with the highest assessed value in the Project Area, shall be at least equal to 100% of the sum of annual debt service on the Senior Lien Bonds and the Bonds (including such parity debt). For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State or any other amount appropriated by the State for the Agency; (ii) unless the “Teeter Plan” is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place;

(c) The Agency shall certify to the Trustee that the aggregate amount of the principal of and interest on all Outstanding Bonds (including the Senior Lien Bonds) coming due and payable following the issuance of such parity bonds shall not exceed the maximum amount of Tax Revenues permitted under the Redevelopment Plan to be allocated and paid to the Agency following the issuance of such parity bonds, and shall not exceed any limitation on the time during which such tax increment revenues may be received;

(d) The Supplemental Indenture authorizing the issuance of parity bonds shall provide that (i) interest on such parity bonds shall be calculated at a fixed interest rate if the Agency determines in such Supplemental Indenture that it is to be paid on a current basis, shall be payable on February 1 and August 1 in each year of the term of such parity bonds except the first twelve-month period during which interest may be payable on any February 1 or August 1, and (ii) the principal of such parity bonds shall be payable on August 1 in any year, as determined by the Agency, in which principal is payable;

(e) Money shall be deposited in the Reserve Account or in a sub-account therein (or a reserve fund letter of credit, bank insurance policy or other comparable credit facility provided) in an amount equal to the Reserve Requirement for all Outstanding Bonds, including such parity bonds; and

(f) The Agency shall deliver to the Trustee a certificate of the Agency certifying that the conditions precedent to the issuance of such parity bonds set forth in the Subordinate Indenture have been satisfied and that the deposit into the Reserve Account for the Series A Bonds as set forth above has been made.

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With respect to the issuance of parity bonds, Outstanding Bonds and parity bonds shall not include a principal amount of such parity bonds, determined on such basis among maturities as the Agency may determine, equal to the proceeds of such parity bonds to be deposited in an escrow fund established for such parity bonds (the “Escrowed Bonds”), provided that the Supplemental Indenture authorizing the issuance of such parity bonds shall provide that:

(1) Such proceeds shall be invested in Permitted Investments, and an amount equal to the difference between the projected interest earnings on such proceeds and the interest due on the Escrowed Bonds shall be deposited in the Interest Account so as to pay interest on the Escrowed Bonds as it becomes due and payable;

(2) Moneys may be transferred from the escrow fund established for the Series A Escrowed Bonds only if a Tax Revenue certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 125% of the sum of annual debt service on the 2007 Bonds and Series A Bonds (including such parity debt) and annual debt service on the Senior Lien Bonds for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Bonds and any parity debt, and 100% of annual debt service on the Senior Lien Bonds and the Bonds excluding the taxpayer in the Project Area with the highest assessed valuation. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the “Teeter Plan” is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place;

(3) Such parity bonds shall be redeemed from moneys remaining on deposit in the escrow fund established for the Escrowed Bonds at the expiration of a specified escrow period in such manner as may be determined by the Agency in the supplemental indenture; and

(4) The Insurer for the 2007 Bonds shall be provided with notice of the issuance of such Escrow Bonds and a copy of the related Supplemental Indenture.

The Agency shall not issue any indebtedness bearing interest at variable rates.

For a further discussion of Additional Bonds, see “APPENDIX E – SUMMARY OF LEGAL DOCUMENTS – Issuance of Additional Bonds” herein.

Reserve Account

In order to further secure the payment of principal of and interest on the Bonds, the Agency is required upon delivery of the Bonds of each series to deposit under the Subordinate Indenture an amount at least equal to the Reserve Requirement (as defined in the respective Indenture for each series of the Bonds) with respect to all outstanding bonds in each series of Bonds into the Reserve Account established by the respective Indenture. If the applicable Reserve Account is drawn down to pay debt service, Subordinate Tax Revenues with respect to the Series A Bonds must be transferred by the Agency to the Trustee for deposit in the applicable Reserve Account in order to restore the amount in applicable Reserve Account to the applicable Reserve Requirement.

In consideration of the acceptance of the Bonds by those who hold the same from time to time, the Indentures are deemed to be and constitute a contract between the Agency and the Owners of the applicable

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series of Bonds from time to time of the Bonds and the covenants and agreements therein set forth to be performed on behalf of the Agency will be for the equal and proportionate benefit, security and protection of all Owners of the applicable series of Bonds without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the other Bonds, or of the Bonds over any other parity obligations, by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein.

Limited Liability

THE BONDS ARE SPECIAL OBLIGATIONS OF THE AGENCY AND AS SUCH ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) AND NONE OF THE CITY, THE STATE, OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) IS LIABLE FOR THE PAYMENT THEREOF. IN NO EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE AGENCY SET FORTH IN THE INDENTURE.

Any future decrease in the taxable valuation of property in the Project Area or in the applicable tax rates relating thereto will reduce the tax increment revenues allocated to the Agency from the Project Area and correspondingly will have an adverse impact on the ability of the Agency to pay the principal of and interest on the Bonds. Except for the Subordinate Tax Revenues with respect to the Bonds, and the amounts held in trust under the applicable Indentures, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the respective series of Bonds. The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measures, voter initiative or provisions or additional sources of income to taxing agencies having the effect of reducing the property tax could reduce the amount of Tax Revenues that would otherwise be available to pay debt service on the Bonds. Likewise, broadened property tax exemptions could have a similar effect. See “BONDOWNERS’ RISKS.”

THE AGENCY

Agency Members

The Agency was activated on May 7, 1973, by Ordinance No. 1055 of the City Council pursuant to the Redevelopment Law. The five members of the City Council serve as members of the governing body of the Agency, and exercise all rights, powers, duties and privileges of the Agency. The elected Mayor is also Chairman of the Agency. Current members of the governing body of the Agency are as follows:

Name and Office Term Expires Joseph R. Rocha, Chairman and Mayor March 2009 Angel Carrillo, Vice Chairman and Mayor Pro Tem March 2009 Keith Hanks, Agency Member and Council Member March 2009 Uriel E. Macias, Agency Member and Council Member March 2011 Robert Gonzales, Agency Member and Council Member March 2011

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Agency Administration

The City has agreed to provide the Agency with staff, office space and supplies and the Agency has agreed to reimburse the City for such services, supplies and equipment. The Agency and the City adopt an annual administrative budget delineating the costs of such services. The Agency reimburses the City out of available tax increment revenues. Such reimbursement is subordinate to any outstanding bonded indebtedness of the Agency including the Bonds.

The City is a general law city and operates according to the Council/Manager form of government. The City Manager is appointed by the City Council to manage the City’s staff and generally implement policies established by the City Council. Current staff assigned to administer the Agency activities include:

Francis M. Delach, City Manager/Executive Director. Mr. Delach joined the City of Azusa on June 1, 2005. He previously served as Chief Administrative Officer of HdL Companies from December 1999 to June 2005. HdL is a local government revenue consulting firm serving over 275 cities and counties throughout California. Prior to joining the private sector in 1999, Mr. Delach served in local government management for 22 years, from 1978 to 2000, with almost 7 years as City Manager of the City of Covina.

Graduating from Azusa Pacific University in 1977, he earned a Masters Degree in Public Administration/Finance from California State University (CSU) in Fullerton in 1979. He has taught Public Administration for the University of La Verne and lectured at CSU Fullerton and CSU Los Angeles.

Alan Kreimeier, Administrative Services Director/Chief Financial Officer. Mr. Kreimeier joined the City of Azusa in August, 2005. Immediately prior to coming to Azusa, he served 5 years as Finance Director/City Treasurer for the City of Norwalk, California. Prior to that, previous public sector employment included: Finance Director/City Treasurer for the City of Lawndale (3 years); Assistant Finance Director/Deputy City Treasurer for the City of Lakewood (2 years); Budget & Special Projects Manager for the City of Chino (7 years); Senior Management Analyst in the Public Works Department for the City of Santee (3 years); and Budgetary Accountant for the City of Buena Park (1 year). Prior to joining the public sector, Mr. Kreimeier was employed in the private sector accounting for 4 years while attending school and immediately subsequent.

Mr. Kreimeier graduated from California State University in Fullerton in 1983 with a Bachelors Degree in Business Administration and earned a Masters Degree in Public Administration/Finance from California State University in Fullerton in 1986.

Agency Powers

All powers of the Agency are vested in its members. Pursuant to the Redevelopment Law, the Agency is a separate public body and exercises governmental functions, including planning and implementing redevelopment projects.

The Agency may exercise the right to issue bonds for authorized purposes and to expend their proceeds, and the right to acquire, sell, rehabilitate, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements, including streets, sidewalks, and utilities, and can further prepare for use as a building site any real property which it owns or administers.

The Agency may, from any funds made available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities or other improvements to be publicly owned, provided that such improvements are expressly found to be of benefit to a redevelopment project and cannot be financed by any other reasonable method. The Agency may not construct or develop buildings, with the exception of public buildings and housing, and generally must sell or lease cleared property which it acquires within a redevelopment project for redevelopment in conformity with a particular redevelopment plan, and may further specify a period within which such redevelopment must begin and be completed.

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Factors Affecting Redevelopment Agencies Generally

Other features of the Redevelopment Law that bear on redevelopment agencies include general provisions which require public agencies to award contracts for construction only after competitive bidding. The Redevelopment Law provides that construction in excess of a minimum amount undertaken by the Agency shall be done only after competitive bidding. California statutes also provide for offenses punishable as felonies that involve direct or indirect interest of a public official in a contract made by such official in his official capacity. In addition, the Redevelopment Law generally prohibits any Agency or City official or employee who, in the course of his duties, is required to participate in the formulation or approval of plans or policies, from acquiring any interest in property in the Project Area.

Under a State initiative enacted in 1974, public officials are required to make extensive disclosures regarding their financial interests by filing such disclosures as public records. As of the date of this Official Statement, the members of the City Council and the Agency, and other City and Agency officials have made the required filings. California also has strict laws regarding public meetings (known as the Ralph M. Brown Act) that make all Agency and City meetings open to the public, with certain exceptions not applicable here.

Redevelopment agencies are required to file a statement of indebtedness with the county auditor-controller not later than the first day of October, stating the amount of indebtedness of the Agency for that fiscal year. See “Financial Statements; Agency Budget; Statement of Indebtedness” below.

Financial Statements; Agency Budget; Statement of Indebtedness

Included in this Official Statement as “APPENDIX B” are the audited financial statements of the Agency for the year ended June 30, 2007, reproduced from the report thereon rendered by Lance Soll & Lunghard, L.L.P., Certified Public Accountants, independent accountants for the Agency. The Agency has not requested the consent of auditors for inclusion in this Official Statement, and the auditors have not performed any additional review. Prior years audited financial statements can be obtained from the Agency by contacting the Agency Clerk or the Agency’s Finance Department, City of Azusa, 213 E. Foothill Boulevard, Azusa, California 91702.

The Agency Board has adopted Resolution No. 08-C46 on June 16, 2008, approving the fiscal year 2008-09 Agency budget.

Pursuant to Section 33675 of the Redevelopment Law, the Agency must file, not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief financial officer of the Agency for each redevelopment project for which the redevelopment plan provides for the division of taxes pursuant to Section 33670 of the Redevelopment Law. The Agency has made such a filing for fiscal year 2008-09, and has met all previous requirements with respect to the filing of its statement of indebtedness pursuant to Section 33675. See “LIMITATIONS ON TAX REVENUES – Certification of Agency Indebtedness.”

Regulatory Issues

The Agency is in material compliance with the provisions of the California Environmental Quality Act, constituting Division 13 (commencing with Section 21000) of the California Public Resources Code, with respect to the Project Area.

17

THE PROJECT AREA

Redevelopment Plan

Under the Redevelopment Law, the city council of a city that activates the redevelopment agency is required to adopt, by ordinance, a redevelopment plan for each redevelopment project specifically authorized in the adopted redevelopment plan. A redevelopment plan is a legal document, the content of which is largely prescribed in the Redevelopment Law rather than a “plan” in the customary sense of the word.

The Redevelopment Plan became effective on November 6, 2003 by Ordinance No. 03-06, and it amended, restated and superseded, in their entirety, the redevelopment plans previously in effect for the Central Business District Redevelopment Project Area and the West End Redevelopment Project Area.

The overall objective of the Redevelopment Plan is to eliminate blighted conditions in the Project Area by undertaking all appropriate projects pursuant to the Redevelopment Law. The general objective is to encourage investment in the Redevelopment Project by the private sector, to eliminate blighted conditions and to upgrade the quality of the community. The Redevelopment Plan provides for the acquisition of property, the demolition of buildings and improvements, the relocation of any displaced occupants, and the construction of streets, parking facilities, utilities and other public improvements. The Redevelopment Plan also allows the redevelopment of land by private enterprise, the rehabilitation of structures, the rehabilitation or construction of low and moderate income housing, and participation by owners and the tenants of properties in the Project Area.

Pursuant to the Redevelopment Law, the Redevelopment Plan sets forth a number of limitations with respect to each component of the Project Area, including plan expiration dates, time limits to incur debt, time limits on payment of indebtedness with tax increment revenues, dollar caps on bonded indebtedness and tax increment receipt. For a more detailed discussion on these Plan Limitations, see “LIMITATIONS ON TAX REVENUES – Plan Limitations.”

History of the Project Area

The Redevelopment Plan for the Central Business District Redevelopment Project and the West End Redevelopment Project Merger was approved by the Agency and the City Council on November 7, 1988. This Project Area accomplished the merger of the redevelopment plans for the CBD Project (the “CBD Plan”) and the West End Project (the “West End Plan”).

The CBD Plan was adopted by the City Council on September 18, 1978. Twelve amendments to the CBD Plan were approved by the City Council pursuant to which new areas have been added and financial and program limitations been amended. Amendment I was adopted on July 2, 1979 by Ordinance No. 2077 and added approximately 40 acres to the CBD Project. Amendment II was adopted on July 20, 1981 by Ordinance No. 2113 and added approximately 93 acres to the CBD Plan. Amendment III was adopted November 28, 1983, by Ordinance No. 2197 and added approximately 33 acres to the CBD Plan. Amendments IV and V were adopted on December 17, 1984 by Ordinance Nos. 2249 and 2250, respectively, adjusting the base year valuation on a 24-acre property previously occupied by Miller Brewing Company. Amendment VI was adopted on November 7, 1988 by Ordinance No. 2382 and merged the Central Business District Project with the West End Project. Amendment VII was adopted on December 19, 1994 by Ordinance No. 94-018 and conformed the plan’s financial limits with the provisions of AB 1290. Amendment No. VIII was adopted on October 6, 2003, by Ordinance No. 03-06, and added approximately 56 acres to the CBD Plan. Amendment IX was adopted on December 1, 2003, and eliminated the time restrictions on incurring loans, advances and indebtedness. Amendment X was adopted on October 4, 2004, by Ordinance No. 04-09 and extended the effective date of the plan and the date to receive tax increment by one year. Amendment XI, adopted on October 2, 2006 pursuant to Ordinance No. 06-011, allowed the Agency to use eminent domain on non-residential property within the CBD Plan and West End Plan. Amendment XII was adopted on February 5, 2007, by Ordinance No. 07-04, extended the time to collect tax increment and extended the effective date of the West End Plan. Amendment XIII was adopted on June 18, 2007, by Ordinance No. 07-07, adopting an eminent domain program. Amendment XIV

18

was adopted on June 26, 2008, amending and restating the Merged Project Area, adding new territory to the Merged Project Area, adding eminent domain authority and increasing the tax increment limit.

On November 28, 1983 pursuant to Ordinance No. 2196, the City Council adopted the West End Plan. The first three amendments to the West End Plan merged the project area with the Central Business District Project, complied with the provisions of AB 1290, and added territory and change certain limitations of the Project Area. The fourth and fifth amendment, to the West End Plan eliminated the time limitations on establishing indebtedness and extended the effective date of the plan and the last date to receive tax increment by one year. The sixth amendment added eminent domain authority.

The CBD Plan and the West End Plan provide primarily to eliminate blighted conditions and to revitalize and encourage development as more fully described below. Since its inception, the Agency has entered into several Disposition and Development Agreements and Owner Participation Agreements governing the development of approximately 100,000 square-feet of office space, 685 units of residential housing, 335,000 square-feet of retail commercial space and 1.1 million square-feet of industrial facilities within the Project Area. The estimated assessed value upon completion added by these developments is approximately $135 million.

A portion of the Project Area is located within unincorporated County of Los Angeles (“County”) territory. Pursuant to Section 33213 of the Health and Safety Code, by Ordinance No. 2001-0006, adopted January 16, 2001, the Board of Supervisors of Los Angeles County authorized the City to redevelop the County area or any appropriate portion thereof, and to prepare this Redevelopment Plan for such redevelopment. Subsequently, by Ordinance No. 03-06, adopted October 6, 2003, the Agency approved this Redevelopment Plan.

Redevelopment Projects

The Agency has been actively promoting economic development activities within the Project Area. Bond proceeds will be used to acquire properties, improve infrastructure, and promote economic development through the elimination of blight. Some projects include:

• Downtown North. The Agency working toward creation of a strategic development plan and phased development program for this area, which is generally bounded by 9th Street on the north, the Foothill Blvd. corridor on the south, San Gabriel Ave. on the west, and Dalton Ave. to the east.

• Target Store. The Agency required one large and two smaller properties bounded by Azusa Avenue, 9th Street, San Gabriel Avenue, and the Metro Gold Line Light Rail right-of-way, and entered settlement agreements with all tenants. The site has been selected for use as a future Target Store. Target has provided a letter of intent detailing approved deal points for the proposed project. Negotiation of a Disposition and Development Agreement with Target is ongoing, and the CEQA process has been initiated.

• Costco East. The Agency has begun the planning phase to establish a 15-acre site occupied by six different businesses for commercial development. This area is located east of Costco on Foothill Boulevard in the West End Project Area.

• NEC Azusa and Arrow Highway. The Agency is negotiating with a developer to develop this severely blighted 3.56 acre site on Arrow Highway and Azusa with commercial/retail development.

• Housing Projects. The Agency is actively pursuing the acquisition of sub-standard housing throughout the Project Area for the purposes of rehabilitation of such housing or using the properties to have new low and moderate housing units constructed.

19

Assessed Valuation

The total fiscal year 2008-09 assessed value (secured and unsecured) for the Project Area is $941,305,522. Table 1 below shows the base year assessed valuation and tax increment valuation for each component of the Project Area, based on reports provided by the County.

TABLE 1 Redevelopment Agency of the City of Azusa

Amended and Restated Central Business District and West End Redevelopment Project

Base Year and Increment Values Tax Year 2008-09

Component Area

Base Value

% of Total

Increment Value

% of Total

Total Assessed Value

% of Total AV

CBD Original $9,682,822 4.91% $83,772,999 11.26% $93,455,821 9.93% CBD Amendment No. 1 199,400 0.10% 1,115,622 0.15% 1,315,022 0.14% CBD Amendment No. 2 4,737,590 2.40% 52,945,356 7.12% 57,682,946 6.13% CBD Amendment No. 3 638,717 0.32% 88,287,408 11.86% 88,926,125 9.45% CBD Amendment No. 5 2,676,231 1.36% 45,132,068 6.07% 47,808,299 5.08% CBD Amendment No. 8 46,193,900 23.43% 24,265,194 3.26% 70,459,094 7.49% West End Original 133,049,617 67.48% 448,608,628 60.29% 581,658,245 61.79% Total $197,178,277 100.00% $744,127,275 100.00% $941,305,552 100.00%

_____________________________ Source: Urban Futures, Inc.

The following are the assessed valuations and tax increment revenues for the Project Area from fiscal years 2004-05 through 2008-09, based on reports provided by the County.

TABLE 2 Redevelopment Agency of the City of Azusa

Amended and Restated Central Business District and West End Redevelopment Project

Assessed and Tax Increment Values Tax Years 2004-05 through 2008-09

2004-05 2005-06 2006-07 2007-08 2008-09 CBD $63,206,009 $67,345,520 $78,849,354 $86,199,053 $93,455,821 CBD Amendment No. 1 1,249,739 1,039,941 1,043,077 1,297,465 1,315,022 CBD Amendment No. 2 38,242,226 39,218,719 53,526,164 57,832,364 57,682,946 CBD Amendment No. 3 61,479,895 68,230,465 76,683,516 83,359,779 88,926,125 CBD Amendment No. 5 42,264,321 42,906,880 45,208,007 49,060,451 47,808,299 CBD Amendment No. 8 26,493,917 49,446,159 55,337,820 56,977,259 70,459,094 West End 495,771,266 515,874,112 548,781,966 558,893,631 581,658,245 Total Valuation $728,707,373 $784,061,796 $859,429,904 $893,620,002 $941,305,552Less: base year(2) 197,178,277 197,178,277 197,178,277 197,178,277 197,178,277 Increment Valuation $531,529,096 $586,883,519 $662,251,627 $696,441,725 $744,127,275% increase 10.82% 10.41% 12.84% 5.16% 6.85%

_______________________ (1) Values shown are aggregates of those for the Project Area. (2) Base year value as shown in County of Los Angeles Assessed Values Report, Equalized Tax Roll for 2008-09. Source: Urban Futures, Inc.

20

Land Use in the Project Area

The table below shows the assessed valuation for different categories of land uses:

TABLE 3 Redevelopment Agency of the City of Azusa

Amended and Restated Central Business District and West End Redevelopment Projects

Land Use Breakdown Fiscal Year 2008-09 Summary: All Sub-Areas

Land Use

No. of Parcels

2008-09 Secured Assessed Valuation

Percent of Secured A.V.(1)

Industrial 276 $420,893,078 50.06% Single Family Residential 838 203,131,995 24.16% Commercial 185 137,778,576 16.39% Multifamily Residential 87 49,883,267 5.93% Vacant 124 25,666,434 3.05% Institutional 22 3,064,474 0.36% Recreational 3 375,023 0.04% Miscellaneous 38 13,543 0.00% TOTALS 1,573 $840,806,390 100.00%

_____________________________ (1) Based on Fiscal Year 2008-09 local secured assessed valuation: $840,806,390. Source: Fiscal Consultant’s Report.

Major Taxpayers

The following table shows the ten largest taxpayers in the Project Area based on the assessment roll for the 2008-09 tax year:

TABLE 4 Redevelopment Agency of the City of Azusa

Amended and Restated Central Business District and West End Ten Largest Property Taxpayers

Tax Year 2008-09

Property Owner Combined Owner

Value Land Use % of Total

Value(1) % of Incremental

Value 1. Northrup Grumman Systems Inc. $113,612,200 Industrial 12.07% 15.27% 2. PPF Industrial 823 985 8th St. LP 29,848,059 Industrial 3.17% 4.01% 3. Criterion Catalyst Company LP 19,529,854 Industrial 2.07% 2.62% 4. S & S Foods LLC 19,010,626 Industrial 2.02% 2.55% 5. Walton CWCA Foothill 40, LLC 17,136,000 Commercial 1.82% 2.30% 6. Citrus Crossing Properties Fee, LLC 16,174,494 Commercial 1.72% 2.17% 7. Costco Wholesale Corp 15,529,520 Industrial 1.65% 2.09% 8. Reichold Inc. 12,748,088 Industrial 1.35% 1.71% 9. Vogel Ontario 11,112,658 Commercial 1.18% 1.49% 10. City View Citrus Crossing 102, LP 10,190,000 MF Residential 1.08% 1.37% Total Property Owner Total Value $264,891,499 Project Area Assessed Value $941,305,552 28.14% Incremental Value $744,127,275 35.60% _________________ (1) Based on Fiscal Year 2008-09 total assessed valuation: $941,305,552. Source: Fiscal Consultant’s Report.

21

Bonded Indebtedness and Certain Other Obligations

Upon issuance of the Bonds, the Agency will have $40,631,400 aggregate principal amount of non-housing bonds outstanding and payable from Tax Revenues, consisting of the Bonds, the 2007 Series B Tax Allocation Bonds (Second Subordinate Lien) (the “2007 Series B Bonds”), the 2007 Bonds, the 2003 Bonds and the 2005 Bonds. See “APPENDIX A – SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA – Direct and Overlapping Debt Report.”

The Project Area Plan consists of the original redevelopment plans of the CBD Project and the West End Project, together with any respective amendments thereto. In adopting and implementing its redevelopment plans and their respective amendments, the Agency entered into various reimbursement agreements with the County Taxing Entities.

In connection with the adoption and implementation of second, third and fifth amendments to the CBD Project Plan, the Agency entered into four reimbursement agreements. Under these reimbursement agreements, the Agency has agreed to share tax increment derived from the CBD Plan with affected County Taxing Entities. Two of the reimbursement agreements further provide that the Agency, together with respective County Taxing Entities, will satisfy the Housing Set-Aside Amount from their respective shares of the allocated increments. One reimbursement agreement expressly provides that all of the Housing Set-Aside Amount will be met solely from the Agency’s portion of the allocated tax increments. One reimbursement agreement does not address the method to allocate the tax increments and satisfy the Housing Set-Aside Amount. The Agency has annually contributed a sufficient amount of its portion of tax increments to satisfy the Housing Set-Aside Amount with respect to the silent reimbursement agreement.

The Agency also entered into a reimbursement agreement in connection with the adoption of its West End Plan. The Agency agreed to share the tax increments derived from the West End Plan with the affected County Taxing Entities, as set forth therein. The Agency and the County Taxing Entities have agreed to contribute a pro rata share of their respective share of the allocated tax increments to satisfy the Housing Set-Aside Amount. See “THE PROJECT AREA – Section 33607.5 Pass-Through Payments.”

Projected Taxable Valuation and Tax Revenues; Debt Service Coverage

Table 5 shows the projected growth of assessed valuation in the Project Area and the resulting net tax increment revenues for fiscal years 2008-09 through 2017-18, as estimated by the Agency.

Receipt of projected net tax increment revenues in the amounts and at the time projected by the Agency depends on the realization of certain assumptions relating to the net tax increment revenues. The projections shown on the following tables are based on a number of assumptions made by the Fiscal Consultant and are subject to various limiting conditions. Although the Agency believes that the assumptions upon which the projected net tax increment revenues are based are reasonable, the Agency provides no assurance that the projected net tax increment revenues will be realized. For example, the projections assume that the total assessed value will grow at the rate of two percent per year. There is no assurance that growth will occur at such rate. In the past, there have been periods during which this growth rate did not occur. To the extent that the assumptions made are not actually realized, the Agency’s ability to timely pay principal and interest on the Bonds may be adversely affected.

22

TA

BL

E 5

R

edev

elop

men

t Age

ncy

of th

e C

ity o

f Azu

sa

Mer

ged

Red

evel

opm

ent P

roje

ct A

rea

Red

evel

opm

ent P

roje

cts

Proj

ecte

d T

ax In

crem

ent R

even

ues (

in th

ousa

nds)

Fi

scal

Yea

rs 2

008-

09 th

roug

h 20

17-1

8

Tax

able

Val

ues (1

) 20

08-0

9 20

09-1

0 20

10-1

1 20

11-1

2 20

12-1

3 20

13-1

4 20

14-1

5 20

15-1

6 20

16-1

7 20

17-1

8 R

eal P

rope

rty (2

)

Pe

rson

al P

rope

rty (3

)

Ta

xabl

e Pr

ojec

ted

Val

ue

941,

306

1,07

4,60

3 1,

194,

464

1,25

7,75

4 1,

282,

909

1,

308,

567

1,33

4,73

8 1,

361,

433

1,38

8,66

2 1,

416,

435

Taxa

ble

Val

ue o

ver B

ase

$19

7,17

8 74

4,12

7 87

7,42

5 99

7,28

6 1,

060,

575

1,08

5,73

0

1,11

1,38

9 1,

137,

560

1,16

4,25

5 1,

191,

483

1,21

9,25

7

G

ross

Tax

Incr

emen

t Rev

enue

(4)

7,63

5 9,

002

10,2

32

10,8

82

11,1

40

11,4

03

11,6

71

11,9

45

12,2

25

12,5

10

Uni

tary

Tax

Rev

enue

83

83

83

83

83

83

83

83

83

83

G

ross

Rev

enue

s 7,

718

9,08

6 10

,315

10

,965

11

,223

11

,486

11

,754

12

,028

12

,308

12

,593

Les

s:

SB 2

557

Cou

nty

Adm

inis

trativ

e Fe

e (5

) 96

11

4 12

9 13

7 14

0

144

147

150

154

157

H

ousi

ng S

et A

side

Req

uire

men

t (6)

1,54

4 1,

817

2,06

3 2,

193

2,24

5

2,29

7 2,

351

2,40

6 2,

462

2,51

9

Pa

ss T

hrou

ghs

Seni

or P

ass T

hrou

gh A

gree

men

ts(7

) 2,

443

2,50

2 2,

561

2,70

6 2,

769

2,

834

2,90

0 2,

968

3,03

6 3,

107

Ta

x R

even

ues

$3,6

35

$4,6

53

$5,5

62

$5,9

29

$6,0

69

$6,2

11

$6,3

56

$6,5

05

$6,6

56

$6,8

10

____

____

____

____

____

____

____

(1

) Ta

xabl

e va

lues

as r

epor

ted

by L

os A

ngel

es C

ount

y.

(2)

Rea

l pro

perty

con

sist

s of l

and

and

impr

ovem

ents

. In

crea

sed

for i

nfla

tion

at 2

% a

nnua

lly a

nd fo

r tra

nsfe

rs o

f ow

ners

hip

(See

Tab

le 4

). V

alue

s for

200

8-09

in

the

Wes

t End

Pro

ject

are

redu

ced

for e

xpec

ted

loss

es d

ue to

pen

ding

ass

essm

ent a

ppea

ls.

(3)

Pers

onal

pro

perty

is h

eld

cons

tant

at 2

008-

09 le

vel.

(4)

Proj

ecte

d G

ross

Tax

Incr

emen

t is b

ased

upo

n in

crem

enta

l tax

able

val

ues f

acto

red

agai

nst a

n as

sum

ed P

roje

ct ta

x ra

te a

nd a

djus

ted

for i

ndeb

tedn

ess a

ppro

ved

by v

oter

s afte

r 198

9. S

ee fo

otno

tes o

n in

divi

dual

Pro

ject

Are

a pr

ojec

tions

for a

ssum

ed fu

ture

tax

rate

s. (5

) L.

A. C

ount

y A

dmin

istra

tion

fee

is a

ctua

l for

200

8-09

and

est

imat

ed a

t 1.2

5% o

f Gro

ss R

even

ue th

erea

fter.

(6)

Hou

sing

Set

Asi

de c

alcu

late

d at

20%

of G

ross

Rev

enue

. (7

) Se

e fo

otno

tes o

n in

divi

dual

Pro

ject

Are

a pr

ojec

tions

in F

isca

l Con

sulta

nt’s

Rep

ort.

Sour

ce:

Fisc

al C

onsu

ltant

’s R

epor

t.

23

Section 33607.5 Pass-Through Payments

As described above, prior to the adoption of AB 1290, the Redevelopment Law authorized a redevelopment agency to enter into “pass-through” or “tax-sharing” agreements with taxing entities affected by the adoption of a redevelopment plan. AB 1290 repealed the provisions of the Redevelopment Law which authorized pass-through agreements, and replaced it with a system of statutorily mandated pass-throughs (the “Section 33607.5 Payments”).

California Health and Safety Code Section 33607.5 and Section 33607.7 were added to the Redevelopment Law by AB 1290. Section 33607.7 has been further amended by SB 211, Chapter 741, Statutes 2001 (“SB 211”). Together, they require that taxing entities receive an additional portion of tax increment revenues otherwise payable to the redevelopment agency, if such taxing entities were affected by (i) the adoption after January 1, 1994, of a new redevelopment plan for a project area or an amendment to an existing redevelopment plan that added territory to a project area or (ii) the adoption after January 1, 1994 of an amendment (to a redevelopment plan that was adopted before January 1, 1994) which extends the time limit on incurring debt with respect to the project area, extends the time limit for the duration and effectiveness of the redevelopment plan, and/or increases the dollar cap on the amount of tax increment revenues allocable to the redevelopment agency for the project area (see “LIMITATIONS ON TAX REVENUES – Plan Limitations”).

Under Section 33607.5, with certain exceptions, with respect to a redevelopment plan or a territory-adding amendment adopted after January 1, 1994, commencing with the first fiscal year in which the agency receives tax increment revenues for the affected project area (or the affected added territory) and continuing through the last fiscal year in which the agency receives tax increment revenues, the agency must pay to the affected taxing entities an amount equal to 25 percent of the tax increment revenues received by the agency after the amount required to be deposited in the low and moderate income housing fund (the “Housing Set-Aside Fund”) has been deducted. See “SECURITY FOR THE BONDS – Allocation of Taxes” and “LIMITATIONS ON TAX REVENUES – Housing Set-Aside.” Commencing with the 11th fiscal year in which the agency receives tax increment revenues for the affected project area (or the affected added territory) and continuing through the last fiscal year in which the agency receives tax increment revenues, the agency shall pay to the affected taxing entities (other than the city that established such redevelopment agency), in addition to the amounts paid pursuant to the preceding sentence and after deducting the amount allocated to the Housing Set-Aside Fund, an amount equal to 21 percent of the portion of tax increment revenues received by the agency, which will be calculated by applying the tax rate against the amount of assessed value by which the current year assessed value exceeds the first adjusted base year assessed value. The first adjusted base year assessed value for the 21 percent additional pass-through is the assessed value of the project area (or the affected added territory) in the 10th fiscal year in which the agency receives tax increment revenues. Additional amounts are payable commencing with the 31st year.

For any post-1993 amendment to a redevelopment plan adopted before January 1, 1994 that extends the time limits for incurring debt, extends the duration of the redevelopment plan and/or increases the tax increment cap, the formulas for calculating Section 33607.5 Payments are similar to those described in the preceding paragraph, except that each instance of the “first fiscal year the agency receives tax increment revenues” shall be substituted with the first year following the “adjusted base year” as defined in Section 33607.7(c) (the “Adjusted Based Year”). The “Adjusted Base Year” is the fiscal year that the applicable limit would have taken effect without the amendment. Thus, the “25 percent of tax increment” described in the preceding paragraph would be payable commencing the first year following the Adjusted Base Year, which will be calculated by applying the tax rate against the amount of assessed value by which current year assessed value exceeds the Adjusted Base Year assessed value. Similarly, the “21 percent additional pass-through” described in the preceding paragraph would be payable commencing the 11th year following the first year after the Adjusted Base Year. The first adjusted base year assessed value for such 21 percent additional pass-through is the assessed value of the project area in the 10th fiscal year counting from the first year after the Adjusted Base Year.

Of the component territories of the Project Area, only the added territory in 2003 and 2008 was added after January 1, 1994. See “BONDOWNERS’ RISKS – Legislation Affecting Redevelopment Agencies – SB 211.” Therefore, under Section 33607.5 and Section 33607.7, the Agency is obligated to make Section 33607.5

24

Payments to affected taxing agencies with respect to the additional territory. The projections of tax increments set forth in Table 5 have assumed Section 33607.5 payment obligations of the Agency.

A redevelopment agency’s obligations to make Section 33607.5 Payments are not subordinate to the redevelopment agency’s obligations with respect to the agency’s loans or bonds unless the incurrence of such debt satisfies certain conditions and the affected taxing entity does not object to the subordination on grounds permitted by Section 33607.5.

Projected Tax Revenues and Debt Service Coverage

Receipt of projected Tax Revenues in the amounts and at the times projected by the Agency depends on the realization of certain assumptions relating to the tax increment revenues. The projections of tax increment revenues and the corresponding Tax Revenues from the component areas of the Redevelopment Projects shown on the following table were based on the assumptions shown below. The Agency believes the assumptions upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see “BONDHOLDERS’ RISKS”). To the extent that the assumptions are not actually realized, the Agency’s ability to timely pay principal of and interest on the Bonds may be adversely affected.

Following is a discussion of assumptions used in the projection of Tax Revenues.

(a) Taxable Values are as reported by Los Angeles County.

(b) The 2008-09 secured roll was assumed to increase 2 percent annually for inflation in all future years.

(c) The values of unsecured personal property and state assessed utility property and the amount of unitary revenues have been maintained throughout the projections at their 2008-09 levels.

(d) The applicable 2008-09 tax rate was applied to the taxable property values in the component areas of the Redevelopment Projects to determine tax increment revenues for the current fiscal year. The tax rate applied to projected assessed values was adjusted in subsequent years to eliminate override rates based on the amortization schedule for these override rates. After 2008-09 and for the balance of the projection of tax revenues the tax rate of $1.02 per $100 of taxable assessed value is applied to the taxable property values in the component areas of the Redevelopment Projects.

(e) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project Area tax rate and adjusted for indebtedness approved by voters after 1989.

(f) By the adoption of an amendment to the Redevelopment Plan under the terms of SB 211, the Agency has eliminated the Redevelopment Plan’s time limit for incurrence of new debt. See “BONDOWNERS’ RISKS – Legislation Affecting Redevelopment Agencies – SB 211.” By the elimination of this limit, the Agency will be required to make statutory tax-sharing payments as outlined in the Health and Safety Code beginning in the fiscal year following the date of the eliminated time limit (Jan. 1, 2004). Using the assessed values for 2004-05 as a base year and beginning in 2005-06, Taxing Entities that do not have existing tax-sharing agreements receive their shares of 25% of tax increment revenue net of housing set aside. In addition, beginning in the 11th year after the initiation of statutory tax-sharing payments, Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. According to Redevelopment Law, the statutory tax-sharing payments outlined above continue only until the termination date of plan effectiveness. Thus there are no statutory tax-sharing obligations during the final ten years that of the Project Areas is able to repay indebtedness.

(g) Projected Tax Revenues include a deduction for administrative costs charged by Los Angeles County which is estimated at 1.25% of the Gross Revenues.

(h) Housing Set-Aside calculated at 20% of Gross Revenue.

25

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572,

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26

BONDOWNERS’ RISKS

Investment in the Bonds involves elements of risk. The following section describes certain specific risk factors affecting the payment and security of the Bonds. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the Bonds and the order of discussion of such risks does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other risk factors not discussed under this caption will not become material in the future.

Limited Obligations of the Agency

The Bonds and the interest thereon are limited obligations of the Agency and do not constitute a general obligation of the Agency. See “SECURITY FOR THE BONDS.” No Owner of the Bonds may compel exercise of the taxing power of the State of California or any of its political subdivisions or agencies to pay the principal of, premium, if any, or interest due on the Bonds. The Bonds do not evidence a debt of the Agency or the City within the meaning of any constitutional debt limitation provision.

Reduction in Taxable Value

Tax Revenues allocated to the Agency are determined by the amount of incremental taxable value in the Project Area and the current rate or rates at which property in the Project Area is taxed. The reduction of taxable values of property in the Project Area caused by economic factors beyond the Agency’s control, such as a relocation out of the Project Area by one or more major property owners, successful appeals by property owners for a reduction in property’s assessed value, blanket reductions in assessed value due to general reductions in property values or the complete or partial destruction of such property caused by, among other eventualities, an earthquake or other natural disaster, could cause a reduction in Tax Revenues securing the Bonds. Such reduction of Tax Revenues could have an adverse impact on the Agency’s ability to make timely payments of principal of and interest on the Bonds. In addition, other limitations on the Agency’s receipt and use of tax increment revenues may also affect the availability of Tax Revenues. See “LIMITATIONS ON TAX REVENUES – Housing Set-Aside” and “-Plan Limitations.”

Article XIIIA Litigation

On April 18, 2003, the Orange County Superior Court entered a final judgment in the Bezaire v. County of Orange case (also known as the “Prop. 13” or “2% Case”) holding that the Orange County Assessor (the “Assessor”) had violated the 2% maximum annual inflation adjustment limit of Article XIIIA by establishing a 4% value increase in order to recapture two years of inflation adjustments. The State Board of Equalization had approved this methodology for increasing assessed values in similar circumstances, and in 2002, two other local courts (Los Angeles and San Diego) ruled differently than Orange County on the same issue, affirming the practice.

In June, 2003, the Orange County Assessor and the Tax Collector in conjunction with the County of Orange, filed an appeal to the Court of Appeal of the State of California, Fourth District, Division Three. On March 26, 2004, the Court of Appeal reversed the lower court, entering judgment in favor of Orange County, finding that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year’s assessment. The Court of Appeal ruled that the base on which the inflation factor is figured remains that of the original purchase price (or assessment at time of genuine new construction), not any reduced base resulting from a reassessment in the wake of declining property values. On May 6, 2004, the case was appealed to the California Supreme Court as Case No. S12-4682. On July 21, 2004, the California Supreme Court denied the petition for review.

27

Reduction in Inflationary Rate

As discussed above under “Bezaire vs. County of Orange” and as described in greater detail below under “LIMITATIONS ON TAX REVENUES,” Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a two percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. For Fiscal Year 2008-09, the County Assessor applied the maximum inflationary factor to properties in the Project Area as determined under Article XIIIA of two percent. As reflected in APPENDIX C, the Fiscal Consultant has assumed, for purposes of its report, that assessed values will increase by the full inflationary rate of two percent each year; however, there can be no assurance that this will be the case. The Agency is unable to predict if adjustments to the full cash value base of any property in the Project Area, whether an increase or a reduction, will be realized in the future.

Article XIIIA of the California Constitution, which significantly affected the rate of property taxation, was adopted pursuant to California’s constitutional initiative process. From time to time, other initiative measures could be adopted by California voters. The adoption of any such initiative might alter the calculation of tax increment revenues, reduce the property tax rate, or broaden property tax exemptions. Future legislative reallocation of the one percent basic levy among the affected taxing entities could increase the taxes retained by certain taxing entities with a corresponding reduction in Tax Revenues. See “LIMITATIONS ON TAX REVENUES – Property Tax Limitations – Article XIIIA.”

Legislation Affecting Redevelopment Agencies

AB 1290. The California Legislature enacted Assembly Bill 1290 effective January 1, 1994, as amended by Senate Bill 732, effective January 1, 1995 (as amended, “AB 1290,”) which contained several significant changes in the Redevelopment Law. Certain of the changes affect the times for incurrence and repayment of loans, advances and indebtedness of redevelopment agencies. As enacted, AB 1290 does not adversely impact the proceedings for the issuance of the Bonds or the payment of debt service on the Bonds. Further, the Legislature enacted Assembly Bill 1342 effective January 1, 1999 (“AB 1342”), which contains provisions that allowed the Agency to extend certain provisions of the Redevelopment Plans, such as the time limit on the collection of Tax Increment Revenues. The limitations currently contained in the Redevelopment Plans of the Redevelopment Project conform to the requirements of AB 1290. See LIMITATIONS ON TAX REVENUES — Plan Limitations” for a further discussion of AB 1290.

SB 1045. In enacting SB 1045 (see “ERAF; State Budget” below), the State Legislature amended Section 33333.6 of the Redevelopment Law. Section 33333.6(e) now provides that the City Council may adopt an ordinance to extend the limits required by AB 1290 by one additional year. The City Council has adopted such an ordinance.

SB 211. The California Legislature also enacted SB 211, Chapter 741, Statutes 2001, effective January 1, 2002 (“SB 211”). SB 211 provides, among other things, that, at anytime after its effective date, the limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994, may be deleted by ordinance of the legislative body. However, such deletion will trigger Statutory Tax Sharing under the Tax Sharing Statutes with those taxing entities that do not have tax sharing agreements. Tax sharing will be calculated based on the increase in assessed valuation after the year in which the limitation would otherwise have become effective. See “LIMITATIONS ON TAX REVENUES — Plan Limitations” describing the current limitation on the Agency’s incurring of indebtedness and “THE PROJECT AREA — Bonded Indebtedness and Certain Other Obligations,” describing the formulas for tax sharing. The Agency adopted this provision in December 2003. The projections of Tax Revenues herein assume such an ordinance is adopted, with resulting Tax Sharing Statute payments.

SB 211 also authorizes the amendment of a redevelopment plan adopted prior to January 1, 1994 to extend for not more than 10 years of the effectiveness of the redevelopment plan and the time to receive tax increment revenues and to pay indebtedness. Any such extension must meet certain specified requirements,

28

including the requirement that the redevelopment agency establish the existence of both physical and economic blight within a specified geographical area of the redevelopment project and that any additional tax increment revenues received by the redevelopment agency because of the extension be used solely within the designated blighted area. SB 211 authorizes any affected taxing entity, the Department of Finance, or the Department of Housing and Community Development to request the Attorney General to participate in the proceedings to effect such extensions. It also authorizes the Attorney General to bring a civil action to challenge the validity of the proposed extensions.

SB 211 also prescribes additional requirements that a redevelopment agency would have to meet upon extending the time limit on the effectiveness of a redevelopment plan, including requiring an increased percentage of new and substantially rehabilitated dwelling units to be available at affordable housing cost to persons and families of low or moderate income prior to the termination of the effectiveness of the plan. The Agency currently has no expectations of undertaking proceedings to extend the effectiveness of the redevelopment plan or to extend the time to receive tax increment revenues (other than under SB 1045, as described above) and to pay indebtedness.

The City Council adopted Ordinance No. 03-07 on December 1, 2003, pursuant to the authorization contained in SB 211 to eliminate the current November 28, 2003 and January 1, 2004 limit on the Agency’s authority to incur loans, advances and indebtedness and the Indentures expressly allow such amendment and the resulting Statutory Tax Sharing payments on a basis senior to the Bonds, the 2003 Bonds and the 2005 Bonds. See “THE PROJECT AREA — Bonded Indebtedness and Certain Other Obligations.”

The Agency cannot predict what effect subsequent State legislation, if any, will have on the Agency’s Tax Increment Revenues and, consequently, on its ability to timely pay principal and interest on the Bonds.

SB 1096. SB 1096 further amended Section 33333.6(e) to provide that the City Council may adopt an ordinance to extend the limits required by AB 1290 by an additional year for each year that a payment is made to ERAF by a redevelopment agency. However, SB 1096 includes criteria that must be met for redevelopment plans that have a remaining plan life between 10 and 20 years. The City Council adopted Ordinance 07-04 pursuant to the authorization contained in SB 1096 to extend the time limit for the effectiveness for the Central Business District Original Area and Amendment Area Nos. 1, 2, 3 and 4 and the West End Project Area and to extend the time to collect tax increment for the CBD Plan and the West End Plan.

Santa Ana Unified School District Case

The Fourth District of the California Court of Appeal rendered a decision in Santa Ana Unified School District vs. Orange County Development Agency (the “Santa Ana USD Case”). The Santa Ana USD Case involves the allocation of tax increment revenues pursuant to Section 33676(a) of the Redevelopment Law as it existed before the passage of AB 1290. Generally, before AB 1290, Section 33676(a) provided that, prior to the adoption of a redevelopment plan (or an amendment adding territory to a project area), under certain conditions, “any affected taxing agency may elect, and every school and community college district shall elect, to be allocated all or any portion of the tax revenues” derived based on an annual adjustment of the base year assessed value of real properties in the project area (or the added territory). The words “every school and community college district shall elect” were added pursuant to a 1984 amendment. The amount of property taxes that a taxing entity may receive under the former Section 33676(a) is derived by increasing the base year value of taxable real property in the project area (or the added territory) by an inflationary factor of not greater than two percent per year (the “2 Percent Allocation”). In effect, the 2 Percent Allocation reduces the tax increment revenues that a redevelopment agency receives from the project area (or, if applicable, an added area to the project area).

In the Santa Ana USD Case, the redevelopment plan at issue was adopted in 1986. In 1996, the Santa Ana Unified School District (“Santa Ana USD”) adopted a resolution electing to be paid its share of the 2 Percent Allocation. The Orange County Development Agency took the position that Santa Ana USD was not entitled to the 2 Percent Allocation because the election to receive such allocation should have been made before the adoption of the redevelopment plan for the project area. In turn, Santa Ana USD argued that the mandatory

29

nature of the words “shall elect” in the statute made the allocation mandatory with respect to a school district. The lower court ruled in favor of Santa Ana USD. In an opinion published June 29, 2001, the Court of Appeal affirmed. As a result, Santa Ana USD received the award it had requested, i.e., its share of the 2 Percent Allocation from 1996, the year Santa Ana USD made the Section 33676 election. The California Supreme Court denied review of the Santa Ana USD Case on September 19, 2001. This case effects Redevelopment Agencies which have amended or added territory between the years 1983 to 1994. The Agency has amended the Central Business District Plan and the West End Plan in these years, however, the Agency has determined that this case will not have any impact on the receipt of Tax Revenues by the Agency.

Development Risks

Generally, the Agency’s ability to pay debt service on the Bonds will depend on the economic strength of the Project Area. The general economy of the Project Area will be subject, in part, to the development risks generally associated with real estate development projects. Projected development within the Project Area may be subject to unexpected delays, disruptions and changes. For example, real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market, fluctuations in interest rates, unexpected increases in development costs and by other factors. Further, real estate development operations within the Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in the Project Area is delayed or halted, the economy of the Project Area could be adversely affected, causing a reduction of the Tax Revenues available to pay debt service on the Bonds of each series.

Levy and Collection

The Agency has no independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Revenues, and accordingly, could have an adverse impact on the ability of the Agency to make debt service payments on the Bonds of each series. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency’s ability to make timely debt service payments on the Bonds of each series. The Agency is not a participant in the County’s Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (commonly referred to as the “Teeter Plan”). The County currently allocates tax increment revenues to the Agency based upon the tax increment actually collected. See “LIMITATIONS ON TAX REVENUES – County Tax Allocation Procedures Applicable to the Agency.”

ERAF; State Budget Deficit

In connection with its approval of the budget for the 1992-93, 1993-94 and 1994-95 fiscal years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion or each agency’s tax increment, net of amounts due to other taxing agencies, to school districts for deposit in the Education Revenue Augmentation Fund (“ERAF”). The amount required to be paid by a redevelopment agency for each such fiscal year was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. Faced with a projected $23.6 billion budget gap for fiscal year 2002-03, the State Legislature adopted and sent to the Governor of the State AB 1768, as urgency legislation, requiring redevelopment agencies to pay into ERAF an aggregate amount of $75 million in fiscal year 2002-03. As a result, the Agency paid $127,937 into ERAF in fiscal year 2002-03 as its share of such $75 million.

As part of the overall legislation to enact the 2003-04 State budget, the State enacted, as urgency legislation, SB 1045, being Chapter 260 of the Statutes of 2003 (“Chapter 260”), as part of the 2003-04 State Budget requiring redevelopment agencies to pay into ERAF in fiscal year 2003-04 an aggregate amount of $135 million. Chapter 260 requires payments into ERAF in fiscal year 2003-04 only. Chapter 260 provides that one-half of an agency’s ERAF obligation is calculated based on the gross tax increment received by the agency and the other one-half of the agency’s ERAF obligation is calculated based on the net tax increment revenues (after any pass-through payments to other taxing entities). The Agency paid into ERAF in Fiscal year 2003-04 the amount of $232,244 as its share of such $135 million.

30

The 2004-05 State budget enacted by California Legislature identified $22.1 billion worth of debt inherited from the prior gubernatorial administration and indicated that, absent any changes in policies, State budget deficits would continue, estimated at $14 billion for fiscal year 2004-05. The 2004-05 State budget shifted $1.3 billion of revenues from local government to the State. The shift, as to redevelopment agencies, included the following:

(a) redevelopment agencies would contribute $250 million in each of the next two fiscal years to ERAF using the same formula as in current law,

(b) county, city, special district and redevelopment agency property tax, sales tax, and vehicle license fee revenue would be permanently protected from State ERAF reallocations in future years through a constitutional amendment to be placed on the November general election ballot by the legislature with the full support and leadership of the Governor, and

(c) the second year of local government budget cuts will be repealed if the constitutional amendment does not pass at the November 2004 election.

On March 2, 2004, voters in California approved Propositions 57 and 58 which were designed by the Governor to assist with the State budget shortfall. Proposition 57 authorized bond issues of up to $15,000,000,000 to fund budget deficits and Proposition 58 requires the enactment of a balanced State budget.

The Agency was be required to pay an amount equal to $472,091 for fiscal years 2004-05 and $470,964 for fiscal years 2005-06 as its share of such $250 million. Both of these amounts were paid to the County by the deadline.

In approving the budget for fiscal year 2008-09, the State Legislature established an aggregate ERAF transfer for the year of $350 million, of which the Agency is obligated to pay approximately $515,000, as its allocated share which the Agency will pay with available funds. Unlike prior years, there is no redevelopment plan time limit extension for agencies making the ERAF payment.

In connection with the reallocation of $2.6 billion of local agency revenues to school funding, the Legislature and the Governor agreed to place Proposition 1A, entitled “Protection of Local Government Revenues,” on the November 2, 2004 ballot (“Proposition 1A”), and it was approved by the voters. Proposition 1A amends the California Constitution to, among other things, prohibit the shift of property tax revenues from cities, counties and special districts, except to address a “severe state financial hardship” (and only then if (x) such amounts were to be repaid with interest within three years, (y) the State had repaid any other borrowed amounts, and (z) such borrowing could not occur more often than twice in ten years). However, Proposition 1A does not specifically protect against reallocation of redevelopment agency funds to other uses within a corresponding city or county.

In addition, in connection with the payment by redevelopment agencies (i) SB 1045 allowed the Agency to extend the effective date of the Original Plans, and the date to receive Incremental Tax Revenues, by one year, and (ii) SB 1096 allows the Agency to extend the effective date of the Merged Plan, and the date to receive Incremental Tax Revenues, by two years if the legislative body finds the Agency is in compliance with major housing requirements. The Agency has taken such action allowed by SB 1045 and SB 1096. See “Financial Limitation; SB 211” below.

Information about the State budget is regularly available at various State-maintained websites. The fiscal year 2008-09 State budget may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” Additionally, an impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the Agency, and the Agency takes no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

31

In addition to potential ERAF provisions, the Agency cannot predict whether the State Legislature will enact any other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools, whether through an arrangement similar to ERAF or by other arrangements, and, if so, the effect on future Tax Revenues. Given the level of the State of California’s budget deficit problems, tax increment available for payment of the Bonds may be substantially reduced in the future by actions of the State Legislature.

Property Tax Appeals

There are currently 7 appeals pending for properties in the Project Area, with a total current assessed valuation of $2,490,490. Based on the actual valuation reductions allowed by the Appeals Board for property in the Project Area over the last five years, it is estimated that the pending appeals could result in partial reductions in Project Area valuation in the amount of $10,552,690, which would then reduce project area gross tax increment by approximately $108,270.60. This estimated amount has not been deducted from the Fiscal Consultant’s projection of tax increment as the outcome of the pending appeals cannot be predicted with certainty.

The table below summarizes the historical assessment appeals from January 1, 1998 through June 30, 2008.

32

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34

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33

Any reduction of assessed valuations could result in a reduction of the Tax Revenues from those projected herein, which in turn could impair the ability of the Agency to make payments of principal of and/or interest on the Bonds when due.

Additional Financing

Following the issuance of the Bonds, the Agency may issue one or more additional series of bonds and/or notes in an aggregate principal amount which (when added to the Bonds, the 2007 Bonds, the 2005 and the 2003 Bonds) do not exceed the limitations set forth in the Redevelopment Plan. See “LIMITATIONS ON TAX REVENUES – Plan Limitations.” Subject to compliance with the limitations of the Indenture, such obligations may be issued on a parity with or subordinate to the Bonds. See “SECURITY FOR THE BONDS – Issuance of Parity Bonds” and “– Issuance of Subordinated Debt.”

Seismic Considerations

The City, like most California communities, may be subject to unpredictable seismic activity. There is no evidence that a ground surface rupture will occur in the event of an earthquake, but there is significant potential for destructive ground-shaking during the occurrence of a major seismic event. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such an event. The City is located in a high impact seismic zone. In the event of a severe earthquake, there may be significant damage to both property and infrastructure in the Project Area. As a result, the value of taxable land in the Project Area could be diminished in the aftermath of such an earthquake, through appeals, thereby reducing the amount of Tax Revenues.

Hazardous Substances

Another environmental condition that may result in the reduction in the assessed value of parcels would be the discovery of a hazardous substance that would limit the beneficial use of a property within the Project Area. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the Project Area be affected by a hazardous substance would be to reduce the marketability and value of the property by the costs of remedying the condition, causing a reduction of the Tax Revenues.

Enforceability of Remedies

The remedies available to the Trustee and the registered owners of the Bonds of each series upon an event of default under the related Indenture or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds of each series will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds of each series is subject to limitations imposed by bankruptcy, moratorium, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.

Investment of Funds

The Reserve Account established under each Indenture and all other funds held under each Indenture are required to be invested in Permitted Investments as provided under the related Indenture. See “APPENDIX E – SUMMARY OF LEGAL DOCUMENTS.” All investments, including Permitted Investments, authorized by law from time to time for investments by redevelopment agencies contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, decline in market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the related Indenture, or

34

the funds and accounts held by the Agency could have a material adverse effect on the security for the Bonds of such series and/or the financial condition of the Agency.

Loss of Tax Exemption

In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Series A Bonds, the Agency has covenanted in the respective indenture to comply with each applicable requirement of Section 148 and certain other sections of the Internal Revenue Code of 1986, as amended, relative to arbitrage and avoidance of characterization as private activity bonds, among other things. The interest on the Series A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of Series A Bonds as a result of acts or omissions of the Agency in violation of covenants in the respective indenture. Should such an event of taxability occur, the Series A Bonds are not subject to acceleration, redemption or any increase in interest rates and will remain Outstanding until maturity or until redeemed under one of the redemption provisions contained in the respective indenture. See “TAX MATTERS.”

Secondary Market

There can be no assurance that there will be a secondary market for the Bonds of each series, or if a secondary market exists, that either series of Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, pricing of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could substantially differ from the original purchase price.

LIMITATIONS ON TAX REVENUES

Property Tax Limitations - Article XIIIA

California voters, on June 6, 1978, approved an amendment (commonly referred to as “Proposition 13” or the “Jarvis-Gann Initiative”) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors.

Article XIIIA further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in August 1986 by initiative that exempts any bonded indebtedness approved by two-thirds of the votes cast by voters for the acquisition or improvement of real property from the one percent limitation. On December 22, 1978, the California Supreme Court upheld the amendment over challenges on several state and federal constitutional grounds (Amador Valley Joint Union School District v. State Board of Equalization).

In the general election held on November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms “purchased” and “change of ownership,” for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence’s

35

assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other minor or technical ways. See “BONDOWNERS’ RISKS – Reduction in Taxable Value; Plan Limitations.”

Challenges to Article XIIIA

California trial and appellate courts have upheld the constitutionality of Article XIIIA’s assessment rules in three significant cases. The United States Supreme Court in an appeal to one of these cases upheld the constitutionality of Article XIIIA’s tax assessment system. The Agency cannot predict whether there will be any future challenges to California’s present system of property tax assessment and cannot evaluate the ultimate effect on the Agency’s receipt of Tax Revenues should a future decision hold unconstitutional the method of assessing property.

Implementing Legislation

Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1978.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the “taxing area” based on their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

Beginning in the 1981-82 fiscal year, assessors in California no longer record property values on tax rolls at the assessed value of 25 percent of market value, which was expressed as $4.00 per $100 of assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1.00 per $100 of taxable value. Unless otherwise noted, all taxable property value included in this Official Statement is shown at 100 percent of market value and all tax rates reflect the $1 per $100 of taxable value.

Proposition 87

Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay voter approved general obligation bonds, any redevelopment project area which included property affected by the tax rate increase would realize a proportionate increase in tax increment.

Proposition 87, approved by the voters of the State on November 8, 1993, requires that all revenues produced by a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity which increases the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment when taxes on property in the project area are increased to repay voter approved general obligation debt.

Appropriations Limitations: Article XIIIB of the California Constitution

On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. Article XIIIB limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of

36

appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. The “base year” for establishing such appropriations limit is the 1978-79 fiscal year, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.

Effective November 1980, the California Legislature added Section 33678 to the Redevelopment Law. Section 33678 provides that the allocation of tax increment revenues to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by such agency of proceeds of taxes levied by or on behalf of the agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State of California, including Section 33678 of the Redevelopment Law. The constitutionality of Section 33678 has been upheld in two California appellate court decisions. On the basis of these court decisions, the Agency does not believe it is subject to Article XIIIB and has not adopted an appropriations limit.

Unitary Taxation of Utility Property

AB 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with fiscal year 1988-89, assessed value derived from State-assessed unitary property (consisting mostly of operational property owned by certain railroad and utility companies) is to be allocated county-wide as follows: (i) each tax rate area will receive the same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property is changed from March 1 to January 1.

AB 454 (Statutes of 1987, Chapter 921) further modifies Chapter 1457 regarding the distribution of tax revenues derived from property assessed by the State Board of Equalization. Chapter 921 provides for the consolidation of all State-assessed property, except for regulated railroad property, into a single tax rate area in each county. Chapter 921 further provides for a new method of establishing tax rates on State-assessed property and distribution of property tax revenues derived from State-assessed property to taxing jurisdictions within each county as follows: for revenues generated from the one percent tax rate, each jurisdiction, including redevelopment project areas, will receive a percentage up to 102 percent of its prior year State-assessed unitary revenues; and if county-wide revenues generated for unitary property are greater than 102 percent of the previous year’s unitary revenues, each jurisdiction will receive a percentage share of the excess unitary revenues generated from the application of the debt service tax rate to county wide unitary taxable value, further, each jurisdiction will receive a percentage share of revenues based on the jurisdiction’s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is sited.

The intent of Chapters 1457 and 921 is to provide redevelopment agencies with their appropriate share of revenues generated from the property assessed by the State Board of Equalization. The County Auditor-Controller remitted unitary revenues to the Agency for the Project Area in the amount of $77,492 for the 2005-06 fiscal year, $76,951 for the 2006-07 fiscal year and $83,123 for the 2007-08 fiscal year.

37

Housing Set-Aside

The Redevelopment Law requires each redevelopment agency to set-aside 20 percent of all tax increment revenue allocable to the agency (such amounts being referred to herein as the “Housing Set-Aside”) derived from redevelopment project areas in the Housing Set-Aside Fund. This low and moderate income housing requirement could be reduced or eliminated if a redevelopment agency finds that: (1) no need exists in the community to improve or increase the supply of low and moderate income housing; and (2) that some stated percentage less than 20 percent of the tax increment is sufficient to meet the housing need. No such findings have been made by the Agency.

Generally, Housing Set-Aside amounts are not available for payments of debt service on a redevelopment agency’s bonds or other indebtedness. However, to the extent that a portion of the sale proceeds of a bond issue is deposited in the Housing Set-Aside Fund, the agency may pay a proportionate amount of the debt service on such bonds from the Housing Set-Aside amount. The Agency has allocated 39.14% of the proceeds of the 2007 Series B Bonds to Housing Set-Aside and 27.66% of the proceeds of the 2003 Bonds to Housing Set-Aside.

The provisions of the Redevelopment Law regarding the funding of low and moderate income housing funds have been frequently amended since their original adoption. In addition, the interpretations of these laws by the California Attorney General and redevelopment agency counsels throughout the State have at times been subject to variation and change. The Agency cannot predict what impact any future amendment to the laws relating to low and moderate income housing funds may have on tax increment revenues to the Agency. Also see “APPENDIX C – FISCAL CONSULTANT’S REPORT.”

Property Tax Collection Procedures

Classifications. In California, property that is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured and unsecured property is entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax that becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against the taxes on unsecured property, but may become a lien on certain other property owned by the taxpayer.

Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recording in the county recorder’s office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of the personal property, improvements or possessory interests belonging or assessed to the assessee.

The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes that are delinquent.

Delinquencies. The valuation of property is determined as of January 1 each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1 and become delinquent on the succeeding August 31.

Penalties. A 10 percent penalty is added to delinquent taxes that have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of one and one half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State

38

and then is subject to sale by the county tax collector. A 10 percent penalty also applies to the delinquent taxes on property on the unsecured roll, and further, an additional penalty of one percent per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date.

Supplemental Revenue. A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date (March 1 was used as the lien date as of the enactment of Chapter 498; however, as discussed herein, the lien date was changed by legislation enacted in 1995) following the change and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues may increase. The receipt of supplemental tax increment revenues by taxing entities typically follow the change of ownership by a year or more. The Fiscal Consultant has not included such revenues resulting from such supplemental assessment in its projections.

County Tax Allocation Procedures Applicable to the Agency

Tax Increment Revenues and Receipts. According to the County’s current practice, the County disburses payments of tax increment collected for the Project Area to the Agency in installments between November and August each year. Generally, each year, the Agency receives 50 percent of the annual tax increment revenues by mid-January and 85 percent by mid-May.

County Collection Charge. As permitted by legislation enacted by the State Legislature (SB 2557 and AB 1924), the County retains a collection charge from tax increment revenues disbursed to the Agency in order to recover charges for property tax administration. For fiscal year 2007-08, the County retained $88,570 from the Agency as administrative and collection charges attributable to the Project Area.

Base Year Valuation Adjustments. The Redevelopment Law provides that the base assessment roll utilized for the allocation of tax increment revenues may be reduced by the taxable value, as shown on the base roll, of those properties acquired for public use of tax exempt public entities. The precedent for this action stems from the 1963 case of Redevelopment Agency of the City of Sacramento vs. Malaki, 216 Cal. App. 2d 480, and subsequent, related cases.

Certification of Agency Indebtedness

A significant provision of the Redevelopment Law, Section 33675, was added by the Legislature in 1976, providing for the filing not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief fiscal officer of the agency for each redevelopment project which receives tax increments. The statement of indebtedness is required to contain the date on which any bonds were delivered, the principal amount, term, purpose and interest rate of such bonds and the outstanding balance and amount due on such bonds. Similar information must be given for each loan, advance or indebtedness that the agency has incurred or entered into to be payable from tax increment.

Section 33675 also provides that the county auditor is limited in payment of tax increment to the agency to the amounts shown on the agency’s statement of indebtedness. Section 33675 further provides that the statement of indebtedness is prima facie evidence of the indebtedness of the agency, but that the county auditor may dispute the amount of indebtedness shown on the statement in certain cases. Provision is made for time limits under which the dispute can be made by the county auditor as well as provisions for determination by the Superior Court in a declaratory relief action of the proper disposition of the matter. The issue in any such action will involve only the amount of the indebtedness and not the validity of any contract or debt connection with payments by such public agency pursuant thereto. An exception is made for payments to a public agency in connection with payment by such agency pursuant to a bond issue that shall not be disputed in any action under

39

Section 33675. Therefore, the Bonds of each series should be entitled to the protection of that portion of the statute so that they cannot be disputed by the County auditor.

The Agency has met all previous requirements with respect to the filing of its statement of indebtedness pursuant to Section 33675. To date, the County Auditor has never disputed the amounts reported by the Agency in its Section 33675 statement of indebtedness filings.

Plan Limitations

The Redevelopment Law contains certain time limits for the duration and effectiveness of a redevelopment plan. The Redevelopment Law also imposes a limit on the aggregate amount of tax increment revenues which may be allocated to a redevelopment agency pursuant to its redevelopment plan (except for any plan or territory-adding amendment adopted on or after January 1, 1994) and a time limit on the incurrence of indebtedness to finance its redevelopment projects. In the past three decades, the provisions of the Redevelopment Law pertaining to these limits have undergone a number of amendments, including as the result of AB 1290 in 1994 and SB 211 in 2001.

Generally, under Section 33333.6 of the Redevelopment Law, a redevelopment plan (or an amendment that added territory to a project area) adopted before 1994, is subject to the following limits: (1) the duration and effectiveness of the existing redevelopment plan (or amendment) shall not exceed 40 years from the date of its adoption or January 1, 2009, whichever is later; and (2) a redevelopment agency shall not pay indebtedness with tax increment revenues from the project area (or added territory) beyond 10 years after its redevelopment plan (or amendment) expires, except to fund deferred housing set-aside requirements of the Redevelopment Law and to repay indebtedness incurred prior to January 1, 1994. (Before January 1 2002, Section 33333.6 also required that the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan (or amendment) or January 1, 2004, whichever is later. SB 211 eliminated this requirement.) Before SB 211, Section 33333.6 also permitted an up-to-10 year extension to each of these limits by an amendment to the redevelopment plan upon certain findings by the redevelopment agency. The Agency, in 2003, eliminated the date limitation on the incurrence of additional indebtedness.

Under Section 33333.2 of the Redevelopment Law, a redevelopment plan (or an amendment that added territory) adopted on or after January 1, 1994, such as the added territory to the Project Area, must contain the following limitations, except to the extent necessary to comply with certain provisions of the Redevelopment Law pertaining to the Housing Set-Aside: (1) the life of the redevelopment plan (or amendment) shall not exceed 30 years from the date of adoption; (2) the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan (or amendment), unless extended by amendment under certain limited conditions, and (3) a redevelopment agency shall not pay indebtedness with tax increment revenues from the project area (or added territory) beyond 45 years from the adoption of the redevelopment plan (or amendment).

The table below shows the Plan Limitations for the plan expiration dates, the time limits to incur debt and the time limits on payment of indebtedness with tax increment revenues for each component of the Project Area as set forth in the Redevelopment Plan:

40

TABLE 10 Redevelopment Agency of the City of Azusa

Amended and Restated Central Business District and West End Redevelopment Project

Redevelopment Plan Time Summary

Component of Project Area Plan Expiration

Last Date to Repay Debt with Tax Increment

Central Business District Original Area September 18, 2021 September 18, 2031 CBD Amendment No. 1 July 2, 2022 July 2, 2032 CBD Amendment No. 2 July 20, 2024 July 20, 2034 CBD Amendment No. 3 November 28, 2026 November 28, 2036 CBD Amendment No. 5 December 17, 2026 December 17, 2036 West End Original Area November 28, 2026 November 28, 2036 CBD Amendment No. 8 November 6, 2034 November 6, 2049 CBD Amendment No. 14 June 26, 2038 June 26, 2053

The bonded debt limit for the entire Project Area is $68 million. The tax increment limit for the Project Area is $300,000,000.

The tax increment limit for the Project Area is equivalent to the combined limit for all components of the Project Area. The tax increment revenues allocable to the Agency from the Project Area (exclusive of the Added Territory to the Project Area pursuant to CBD Amendment No. 14 which has no tax increment limit) has a combined tax increment limit of $300 million pursuant to the most recent plan amendment. The tax increment paid to affected taxing entities pursuant to Sections 33401, 33445, 33607.5 and 33607.7 of the Redevelopment Law and the amount set aside for low and moderate income housing are excluded from this limit. To date, the Agency has received $43,671,503 through August 2008, net of these deductions. The Agency does not anticipate reaching this limit during the life of the Bonds.

The Agency has covenanted under the Indenture to manage its fiscal affairs in a manner which enables it to comply with the Plan Limitations, and not to issue any bonds, notes on other obligations which would cause the Plan Limitations to be exceeded or violated.

TAX MATTERS

Best Best & Krieger LLP, Riverside, California, as Bond Counsel, will render an opinion which states that the Indentures are a valid and binding obligation of the Agency and enforceable in accordance with its terms. The legal opinion of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights and limitations on remedies against public entities such as the Agency, and to the exercise of judicial discretion in accordance with general principles of equity. See “APPENDIX D” for the proposed form of Bond Counsel’s opinion.

Bond Counsel further opines, based upon an analysis of existing statutes, regulations, rulings and court decisions, interest on the Series A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “1986 Code”). Bond Counsel is further of the opinion that interest on the Series A Bonds is not treated as an item of tax preference for purposes of the individual and corporate alternative minimum taxes. Interest on the Series A Bonds, however, is included in the “adjusted current earnings” of certain corporations, and the alternative minimum taxable income of such corporations must be increased by 75 percent of the excess of the “adjusted current earnings” of such corporations over the alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses) of such corporations.

The 1986 Code and other applicable tax law impose various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on or with respect to

41

obligations such as the Series A Bonds. The Agency has covenanted to comply with certain restrictions designed to ensure that interest with respect to the Series A Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series A Bonds becoming subject to federal income taxation retroactive to the date of issuance of the Series A Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of delivery of the Series A Bonds may affect the tax status of interest on the Series A Bonds.

The receipt of interest on the Series A Bonds may otherwise affect an Owner’s income tax liability. The nature and extent of these other tax consequences will depend upon the Owner’s particular tax status and the Owner’s other items of income and deduction. Bond Counsel expresses no opinion regarding such consequences. Purchasers of the Series A Bonds, particularly purchasers that are corporations (including S corporations, and United States branches of foreign corporations), property and casualty insurance companies, banks, thrifts or other financial institutions, recipients of Social Security or Railroad Retirement benefits, or taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors concerning their tax consequences of purchasing and holding the Series A Bonds.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Series A Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Series A Bonds (or by an audit of other similar bonds).

It is possible that subsequent to the issuance of the Series A Bonds there might be federal, state or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state or local tax treatment of the Series A Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Series A Bonds such changes or interpretations will not occur.

From time to time, there are legislative proposals in Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Series A Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to Series A Bonds issued prior to enactment. Each purchaser of the Series A Bonds should consult his or her tax advisor regarding any pending or proposed federal legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

Certain requirements and procedures contained or referred to in the Indenture and other relevant documents may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Series A Bond or interest with respect thereto if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than Bond Counsel.

In the opinion of Bond Counsel, under existing law, interest on the Series A Bonds is exempt from California personal income tax.

Although Bond Counsel will render an opinion that interest on the Series A Bonds is excluded from federal gross income and that interest on the Series A Bonds is exempt from California personal income tax, the accrual or receipt of interest on the Series A Bonds may otherwise affect an Owner’s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the Owner’s particular tax status and the Owner’s other items of income or deduction. Bond Counsel express no opinion regarding any such other tax consequences.

Defeasance of any Series A Bond may result in a reissuance thereof, in which event a holder will recognize taxable gain or loss equal to the difference between the amount realized from the sale, exchange or

42

retirement (less any accrued qualified stated interest which will be taxable as such) and the holder’s adjusted tax basis on the Series A Bond.

To ensure compliance with the requirements imposed by the Internal Revenue Service, purchasers and Owners of the Series A Bonds should be aware that any federal income tax advice contained in this Official Statement (including the Appendices) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code, promoting, marketing or recommending to another party any transaction or matter addressed herein. The advice was written to support the promotion or marketing of the Series A Bonds.

A complete copy of the proposed form of opinion of Bond Counsel with respect to the Series A Bonds is set forth in APPENDIX D hereto.

FINANCIAL ADVISOR

Urban Futures, Inc. has acted as financial advisor to the Agency concerning the Bonds. As financial advisor, Urban Futures, Inc. will receive compensation contingent upon the sale and delivery of the Bonds.

RATINGS ON THE SERIES A BONDS

Standard & Poor’s (“S&P”) has assigned a rating of “A-” to the Series A Bonds. Such rating reflects only the views of such organization and any desired explanation of the significance of such rating may be obtained from S&P. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series A Bonds.

UNDERWRITING

Chilton & Associates (the “Underwriter”) is offering the Bonds at the prices set forth on the inside cover page hereof. The Bonds are issued for sale to the Azusa Public Financing Authority which will concurrently sell the Bonds to the Underwriter. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has purchased the Series A Bonds at a price equal to $6,451,682.65 which amount represents the principal amount of the Series A Bonds, less an Underwriter’s discount of $100,725.00and less an original issue discount of $162,592.35.

NO LITIGATION

There is no litigation pending or, to the Agency’s knowledge, threatened to restrain or enjoin the issuance, execution or delivery of the Bonds, to contest the validity of the Bonds, the Indentures, or any proceedings of the Agency with respect thereto. In the opinion of the Agency and its counsel, except as otherwise described herein, there are no lawsuits or claims pending against the Agency which will materially affect the Agency’s finances as to impair the ability to pay principal of and interest on the Bonds when due.

LEGAL MATTERS

The legality of the issuance of the Bonds is subject to the approval of Best Best & Krieger LLP, Riverside, California, Bond Counsel. Bond Counsel’s opinions with respect to the Bonds of each series will be substantially in the forms set forth in APPENDIX D of this Official Statement. Fees payable to Bond Counsel are contingent upon successful sale and delivery of the Bonds.

43

CONTINUING DISCLOSURE

Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the “Rule”), the Agency has undertaken for the benefit of holders of the Bonds to provide certain financial information and operating data relating to the Agency by not later than nine months after the end of each Fiscal Year commencing with the report for the 2008-09 fiscal year (the “Annual Information”), and to provide notices of the occurrence of certain enumerated events, if deemed by the Agency to be material. The Annual Information will be filed by the Agency, with each Nationally Recognized Municipal Securities Information Repository (the “NRMSIRS”) and with the State Information Depository (the “State Depository”), if any. Notices of material events will be filed by or on behalf of the Agency with the NRMSIRS or the Municipal Securities Rulemaking Board (the “MSRB”) and with the State Depository, if any. The nature of the information to be provided in the Annual Information and the notices of material events is set forth under the caption “APPENDIX G – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” The Agency is obligated to prepare annual continuing disclosure reports with respect to the Bonds. The Agency has prepared such annual reports, but has not filed those reports with the NRMSIRS as required. The Agency has complied, however, with its most recent year’s annual report.

MISCELLANEOUS

All of the preceding summaries of the Indenture, the Redevelopment Law, other applicable legislation, the Redevelopment Plan for the Project Area, agreements and other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Agency for further information in connection therewith.

Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

The execution and delivery of this Official Statement by its Executive Director has been duly authorized by the Agency.

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA By: /s/ Francis M. Delach Francis M. Delach Executive Director

[THIS PAGE INTENTIONALLY LEFT BLANK]

A-1

APPENDIX A

SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA

General

The City is a municipal corporation existing under the laws of the State of California. The City owns and operates an electric public utility for its citizens, which provides electric service to virtually all of the electric customers within the City limits, encompassing approximately 9 square miles. The City also owns and operates a water system. Its service territory includes the City and adjoining portions of surrounding cities and unincorporated areas of Los Angeles County. The City is located in the greater metropolitan Los Angeles area, approximately 24 miles east of downtown Los Angeles. The economy represents a diverse blend of industrial, commercial, agricultural and residential development.

The City was incorporated as a general law city in 1898, and is administered by a Council-Administrator form of government. The four City Council members are elected at large for four-year terms. Elections are staggered at two-year intervals. The office of Mayor is elected at-large for a two-year term. The election coincides with those of the Council members.

Population

The following chart indicates the growth in the population of the City since 1993.

City of Azusa Population

Fiscal Year Population

1993 42,313 1994 42,294 1995 43,400 1996 43,950 1997 44,650 1998 44,550 1999 45,500 2000 46,250 2001 44,712 2002 46,100 2003 47,150 2004 48,183 2005 48,520 2006 48,302 2007 48,640

____________________ Source: U.S. Department of Census and State of California Department of Finance.

Employment

No annual information is regularly compiled on employment and unemployment for the City alone.

Employment in Los Angeles County was 4,421,600 in 2003 and 4,637,133 as of June 1, 2008, representing a 4.87% increase over approximately a five-year period. The County unemployment rate decreased from 6.9% in 2003 to 6.1% in June 2008. Statewide unemployment rates were 6.7% in 2003 and 6.4% in 2008.

A-2

Los Angeles County – Long Beach Metropolitan Statistic Area Employment Unemployment and Labor Force

(Averages for each of the Calendar Years 2003-2008)

2003 2004 2005 2006 2007 2008(1) Civilian Labor Force(2) 4,748,700 4,801,600 4,872,200 4,847,000 4,921,200 4,936,533Employment 4,421,600 4,509,000 4,606,100 4,627,100 4,675,300 4,637,133Unemployment 327,100 292,500 266,100 219,900 245,900 299,400Unemployment Rate 6.9% 6.1% 5.5% 4.5% 5.0% 6.1%State Unemployment 6.7% 5.9% 5.1% 4.8% 5.4% 6.4%_________________ (1) As of June 1, 2008. (2) As of December 1. Source: State of California, Employment Development Department.

Major Private Employers

Industry in the City is diversified. Some of the leading industries include education institutions, light manufacturing, retail services and aerospace industries.

The major employers within the City and the approximate number of employees of each as of June 30, 2007, are shown below.

City of Azusa Major Employers

(As of June 30, 2007)

Company

Number of Employees

Business Line

Azusa Unified School District 1,600 Education Northrop-Grumman 1,100 Manufacturer Azusa Pacific University 900 Education City of Azusa 522 Government Costco 311 General Consumer Goods Berger Bros. 300 Manufacturer Pacific Precision Metals 250 Manufacturer Tru Wood Products 160 Manufacturer Wynn Oil Company 150 Manufacturer Rain Bird 132 Manufacturer California Amforge 106 Manufacturer Vulcan 100 Manufacturer Naked Juice 75 Manufacturer Morris National Candy 70 Manufacturer Physician’s Formula 70 Manufacturer

_________________ Source: City of Azusa Comprehensive Annual Financial Report for Fiscal Year 2006/07.

A-3

Building Permit Activity

The following table shows the value of building permits issued in the City between fiscal year 2001/02 and fiscal year 2006/07.

City of Azusa Building Permit Valuation

(Fiscal Years 2001/02 through 2006/07) (000’s omitted)

2002 2003 2004 2005 2006 2007 Total Valuation $58,437 $93,986 $21,551 $15,692 $22,620 $59,000New Dwelling Units 166 183 46 46 35 171

_________________ Source: City of Azusa.

Taxable Sales

Taxable sales in the City increased approximately 30.98% from 2002 to 2006. Data for Calendar Year 2007 was only available through Quarter 3. The following table indicates taxable transactions in the City by type of business during this period.

City of Azusa Taxable Transactions by Type of Business

(Calendar Years 2002 through 2007) (in Thousands of Dollars)(2)

2001 2002 2003 2004 2005 2006 2007(1) Apparel Stores $2,175 $3,141 $4,000 $4,159 $4,384 $5,037 $3,244 General Merchandise 108,346 N/A N/A N/A N/A N/A N/A Food Stores 15,640 15,327 15,001 14,954 14,886 18,591 14,540 Eating & Drinking Places 29,428 30,521 31,623 35,095 36,705 37,021 27,610 Home Furnishings/Appliances 2,939 3,487 3,648 4,006 4,330 5,500 4,437 Bldg. Mat. & Farm Impl. 11,819 12,685 16,736 22,358 24,085 30,322 10,952 Auto Dealers and Supplies 20,932 21,183 18,744 17,454 19,738 11,364 8,854 Service Stations 22,619 20,266 32,241 47,970 54,554 53,917 50,162 Other Retail Stores 18,569 138,046 142,676 154,125 160,880 179,027 129,623 Retail Stores Total(2) $232,467 $244,656 $264,669 $297,121 $319,562 $340,779 $249,422 All Other Outlets $102,317 $94,503 $95,096 $102,317 $96,385 $103,458 $72,768 Total(2) $334,784 $339,159 $359,765 $399,438 $415,947 $444,237 $322,190

_________________ (1) For Calendar Year 2007, includes data from Quarter 1 through Quarter 3. (2) Totals may not add due to rounding. Source: California State Board of Equalization.

A-4

Personal Income

Per Capita personal income information for Los Angeles County Long Beach Metropolitan Statistical Area, the State of California and the United States is summarized in the following table.

Per Capita Personal Income Los Angeles County

State of California and United States Calendar Years 2003 through 2007

Year

Los Angeles County – Long Beach Metropolitan

Statistic Area State of California United States 2003 33,435 33,554 31,504 2004 35,170 35,440 33,123 2005 37,441 37,462 34,757 2006 39,880 39,626 36,714 2007 41,875 41,571 38,611

____________________ Source: Bureau of Economic Analysis, U.S. Department of Commerce.

History and Development of Community

Blessed with a spectacular natural setting beneath the San Gabriel Mountains, the City is a community with a strong sense of family and history. Founded over one hundred years ago in 1887 and incorporated December 29, 1898, its name traces to a native village that existed long before Spanish explorers arrived in 1769. Called the “El Susa Rancho” during California’s Mexican era, the City boomed in population after the coming of the railroad.

The area grew after 1854 when gold was discovered in the San Gabriel Canyon. By 1860 the town had over 2,000 inhabitants and the United States government bought much of the land from founder Henry Dalton for homesteading. After acquiring the highly prized orchard community of Azusa Rancho from Dalton in 1880, Jonathan D. Slauson, a Los Angeles banker laid out the City in 1887.

Oranges and lemons soon gave way to homes and industry affording new generations of families and entrepreneurs to pursue the American dream of owning a home, starting a business and creating a brighter future for their children. Today with a population of 48,300 residents, the City boasts a vibrant industrial base and diverse neighborhoods. With active citizens charting a new vision, the City is becoming a model of an older suburban community undergoing exciting renewal to continue to be the “Gateway to the American Dream.”

A-5

Direct and Overlapping Debt Report

Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by the California Municipal Statistics, Inc. The Debt Report is included for general information purposes only. The City makes no representations as to its completeness or accuracy.

City of Azusa Direct and Overlapping Bonded Debt

(as of October 10, 2008)

CITY OF AZUSA 2008-09 Assessed Valuation: $3,546,703,116 Redevelopment Incremental Valuation: 758,494,732 Adjusted Assessed Valuation: $2,788,208,384 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 10/15/08 Los Angeles County Flood Control District 0.307 304,575 Metropolitan Water District 0.058 189,785 Citrus Community College District 16.296 9,102,131 Mount San Antonio Community College District 0.029 54,739 Azusa Unified School District 71.905 18,507,458 Covina Valley Unified School District 0.276 289,528 Duarte Unified School District 1.086 402,045 City of Azusa Community Facilities District No. 2002-1 100. 8,840,000 City of Azusa Community Facilities District No. 2005-1 I.A. No. 1 100. 71,020,000 Los Angeles County Regional Park and Open Space Assessment District 0.293 723,344 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $109,433,605 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.293% $ 2,881,144 Los Angeles County Pension Obligations 0.293 1,032,108 Los Angeles County Superintendent of Schools Certificates of Participation 0.293 46,599 Los Angeles County Sanitation District No. 22 Authority 11.318 2,156,055 Mount San Antonio Community College District General Fund Obligations 0.029 3,142 Azusa Unified School District Certificates of Participation 71.905 48,665,304 Covina Valley Unified School District Certificates of Participation 0.276 44,091 City of Azusa General Fund Obligations 100. 3,695,000 (2) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $58,523,443 COMBINED TOTAL DEBT $167,957,048 (3) (1) Based on 2007-08 ratios. (2) Excludes pension obligation bonds to be sold. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital

lease obligations. Ratios to 2008-09 Assessed Valuation: Total Overlapping Tax and Assessment Debt .......................... 3.09% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($3,695,000) ..................................... 0.13% Combined Total Debt ............................................................... 6.02% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $0

_____________ Source: California Municipal Statistics, Inc.

A-6

Assessed Valuation and Tax Collections

Property taxes attach as an enforceable lien on property as of March 1, each year. Taxes are levied on July 1, and are payable in two installments no later than December 10, and April 10, respectively, of each year.

The County of Los Angeles bills and collects the property taxes and remits them to the City in installments during the year. City property tax revenues are recognized when received in cash except at year-end when they are accrued pursuant to the modified accrual basis of accounting.

The following table shows the assessed property valuations within the City for fiscal years ending June 30, 2004 through 2009. Assessed valuations include homeowners and business inventory exemption, the taxes on which have been paid by the State.

City of Azusa/Azusa Redevelopment Agency Assessed Property Valuations

(Fiscal Years ended June 30, 2004 through 2009)

City Redevelopment Agency

Fiscal Year Ended

June 30

Net Taxable Assessed

Value Secured Unsecured

Taxable Assessed

Value

Total Net Taxable

Assessed Value 2004 $1,508,275,748 $580,313,349 $77,240,204 $657,553,553 $2,165,829,301 2005 1,577,350,156 644,324,167 84,383,206 728,707,373 2,306,057,529 2006 1,794,912,484 692,496,875 91,564,921 784,061,796 2,578,974,280 2007 2,175,977,050 764,962,351 94,467,553 859,429,904 3,035,406,954 2008 2,395,249,991 794,368,806 99,251,196 893,620,002 3,288,869,993 2009* 2,605,397,564 840,806,390 100,499,162 941,305,552 3,546,703,116

_________________ Source: City of Azusa *Estimated Property Tax Collections

The following table shows the City’s property tax collections and adjustments for the fiscal years indicated.

City of Azusa Property Tax Collections

(Fiscal Years ended June 30, 2003 through 2008)

Fiscal Year Ended

June 30

Taxes Levied for the

Fiscal Year

Amount Collected within the

Fiscal Year of Levy

Percent of Levy

Collections in

Subsequent Years

Total Collections

to Date

Percent of Levy

to Date 2003 $2,013,405 $1,895,002 94.1% $13,400 $1,908,403 94.8% 2004 2,133,628 2,112,528 99.0% (17,965) 2,094,563 98.2% 2005 2,335,339 2,246,565 96.2% 37,397 2,283,962 97.8% 2006 2,729,217 2,531,014 92.7% 91,595 2,622,609 96.1% 2007 3,236,313 2,944,985 91.0% (7,502) 2,937,483 90.8% 2008 3,496,547 3,166,825 90.6% n/a n/a n/a

_________________ Source: City of Azusa Comprehensive Annual Financial report for Fiscal Year 2006/07; 2007/08 data provided by the City of Azusa.

A

-7

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____

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[THIS PAGE INTENTIONALLY LEFT BLANK]

B-1

APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR FISCAL YEAR ENDED JUNE 30, 2007

[THIS PAGE INTENTIONALLY LEFT BLANK]

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA, CALIFORNIA

FINANCIAL STATEMENTS

JUNE 30, 2007

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

JUNE 30, 2007

TABLE OF CONTENTS

INDEPENDENT AUDITORS' REPORT Financial Audit Compliance Audit

BASIC FINANCIAL STATEMENTS

Government-Wide Financial Statements: Statement of Net Assets

Statement of Activities

Fund Financial Statements: Balance Sheets - Governmental Funds

Reconciliation of the Balance Sheet of Government Funds to the Statement of Net Assets.

Statement of Revenues, Expenditures and Changes in Fund Balances

Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ... Budgetary Comparison Statement - Special Revenue Housing Fund

Notes to Financial Statements

COMBINING AND INDIVIDUAL FUND SCHEDULES

Combining Project Area Balance Sheet - All Governmental Funds

Combining Project Area Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Funds

Computation of Low and Moderate Income Housing Funds Excess/Surplus .

Page Number

1 3

6

.7

.8

10

12

14 15

17

. 36

38

. .. 40

=:;'I lance Soli & Lung hard

LLP

INDEPENDENT AUDITORS' REPORT

To the Honorable Chair and Members of the Governing Board Redevelopment Agency of the City of Azusa, California

Brandon W. Burrows Donald L Parker Michael K. Chu David E. Hale A Professional Corporation

Donald G. Slater Richard K. Kikuchi

Retired Roher1 C Lance

1914--1994

Richard C. Soli Fred J. Lungbard, Jr,

192&-1999

We have audited the accompanying financial statements of the governmental activities and each major fund of the Redevelopment Agency of the City of Azusa, a component unit of the City of Azusa, California, as of and for the year ended June 30, 2007, which collectively comprise the Agency's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Redevelopment Agency of the City of Azusa's management Our responsibility is to express opinions on these financial statements based on our audit

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation We believe that our audit provides a reasonable basis for our opinions

In accordance with Government Auditing Standards issued by the Comptroller General of the United States, we have also issued our report dated December 19, 2007, on our consideration of the Redevelopment Agency of the City of Azusa's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

The Agency has not presented a management's discussion and analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not required to be part of, the basic financial statements

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Redevelopment Agency of the City of Azusa as of June 30, 2007, and the respective changes in financial position thereof and the respective budgetary comparison for the Special Revenue Housing Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America.

75 YEARS '·!11!~-.. :!:i'

(;>~eo..__,A$. ·~

I9Z~'}foo4 Do Exiid!l!Eicee 203 N. Brca Blvd, Suite 203 • Brea, CA 92821-4056 • (714) 672-0022 • Fax (714) 672-0331 • W\\w.lslcpas.com

II <ei1 §~~:iard ~~LLP CEflfiFif.D f'U/Jt!C ,(CCOUNT.\NTS

To the Honorable Chair and Members of the Governing Board Redevelopment Agency of the City of Azusa, California

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Agency's basic financial statements The combining project area statements and computation of low and moderate income housing funds excess/surplus are presented for purposes of additional analysis and are not a required part of the basic financial statements Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole

December 1 9, 2007

2

t:::~il Lance Soli & Lung hard

LLP Certified Public Accountants

REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE

WITH GOVERNMENT AUDITING STANDARDS

To the Honorable Chair and Members of the Governing Board Redevelopment Agency of the City of Azusa, California

Brandon W. Burrows Donald L. Parker Michael K. Chu David E. Hale A Prof=ional CorporatWn

Donald G. Slater Richard K. Kikuchi

Retired Robert C. Lance

1914-1994

Richard C. Soli Fred J. Lunghard, Jr,

1928-1999

We have audited the financial statements of the governmental activities and each major fund of the Redevelopment Agency of the City of Azusa as of and for the year ended June 30, 2007, which collectively comprise the Redevelopment Agency of the City of Azusa's basic financial statements and have issued our report thereon dated December 19, 2007 We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the Redevelopment Agency of the City of Azusa's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Agency's internal control over financial reporting

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Agency's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Agency's financial statements that is more than inconsequential will not be prevented or detected by the Agency's internal control

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Agency's internal controL

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above

203 N Brea Blvd., Suite 203 o Brea, CA 92821~4056 o (?14) 672-0022 o Fax (714) 672-03.31 o www.lslcpas.com

To the Honorable Chair and Members of the Governing Board Redevelopment Agency of the City of Azusa, California

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the financial statements of the Agency are free of material misstatements, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions included those provisions of laws and regulations identified in the Guidelines for Compliance Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards issued by the Comptroller General of the United States and under the Guidelines for Compliance Audits of California Redevelopment Agencies, issued by the State Controller

This report is intended for the information of the Audit committee, management and the State Controller However, this report is a matter of public record and its distribution is not limited

December 19, 2007

4

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5

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

STATEMENT OF NET ASSETS JUNE 30, 2007

Assets: Cash and investments Receivables:

Tax increment Accounts Interest receivable Deferred Loans Notes

Total Receivables Due from other governments Land held for resale (net) Deferred charges Restricted assets:

Cash and investments with trustees Capital assets (Net of Depreciation):

Land and improvements Total Capital Assets

Total Assets

Liabilities: Accounts payable and accrued expenses Due to other governments Deposits from others Other current liabilities Long·term liabilities:

Due within one year Due in more than one year

Total Long-Term Liabilities

Total Liabilities

Net Assets: Invested in capital assets, net of related debt Restricted for:

Community development Debt service

Unrestricted

Total Net Assets

See Notes to Financial Statements 6

Governmental Activities

$ 251,142 184,719 185,610 841,090 984,854

1,500,482

733,662 59,028,290

$ 6,970,566

2,447,415 756,262

16,885,871 741,605

6,772,888

1,500,482

36,075,089

2,829,583 16,879,061

200,000 22,032

59,761,952

79,692,628

1,500,482

3,400,065 2,624,809

(51, 142,895)

$ (43,617,539)

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Functlons/Pr'Ograms Governmental Activities:

Expenses

Program Revenues Operating Capital

Charges for Contributions Contributions Services and Grants and Grants

General government Community development Interest on long-term debt

$ 1,863,356 $ $ $

Total Governmental Activities

General Revenues: Taxes (net of pass-through payments) Intergovernmental Use of money and property Other

Total General Revenues

Change in Net Assets

Net Assets at Beginning of Year

Net Assets at End of Year

See Notes to Financial Statements

8,465,996 3,216,117

$ 13,545,471 $

7

351,404

$ $ 351,404

Net (Expense) Revenues and

Changes in Net Assets

Governmental Activities

$ (1 ,863,358) (8, 114,592) (3,216,117)

(13,194,067)

2,866,209 1,368,059

934,340 103,552

5,272,160

(7,921 ,907)

(35,695,632)

$ (43,617,539)

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007

Special Capital Debt Revenue Projects Service

Combined Low and Moderate Merged Merged Housing Project Area Project Area Low and Moderate Tax Housing Project Increment

Assets: Cash and investments $ 3,346,756 $ 2,079,321 $ 988,470 Cash and investments with trustee 4,287,954 Receivables: Tax increment 251,058 Accounts 5,001 849 176,554 Interest receivable 46,550 65,641 21,902 Deferred Loans 351,368 489,722 Notes 984,854

Due from Debt Service funds 49,634 Due from City 756,262 Land held for resale 17,762,101 Allowance for decline in value (876,230)

Total Assets $ 3,799,309 $ 24,794,212 $ 2,194,246

Liabilities and Fund Balances: Liabilities: Accounts payable $ 10,152 $ 2,043,382 $ 1,740 Salaries and benefits payable Interest payable 318,986 Deposits from others 200,000 Due to Low and Moderate

Housing Funds 49,617 Due to City 37,724 15,152,826 1,080,298 Due to other governments 190,229 Deferred revenue 351,368 489,722 782,816

Total Liabilities 399,244 18,204,916 2,104,700

Fund Balances: Reserved:

Land held for resale 16,885,871 Long-term loans receivable 984,854

Unreserved: Designated:

Debt service 89,546 Continuing projects 3,400,065

Undesignated (11 ,281 ,429)

Total Fund Balances 3,400,065 6,589,296 89,546

Total Liabilities and Fund Balances $ 3,799,309 $ 24,794,212 $ 2,194,246

See Notes to Financial Statements 8

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007

Assets: Cash and investments Cash and investments with trustee Receivables: Tax increment Accounts Interest receivable Deferred Loans Notes

Due from Debt Service funds Due from City Land held for resale Allowance for decline in value

Total Assets

Liabilities and Fund Balances: Liabilities: Accounts payable Salaries and benefits payable Interest payable Deposits from others Due to Low and Moderate

Housing Funds Due to City Due to other governments Deferred revenue

Total Liabilities

Fund Balances: Reserved:

Land held for resale Long-term loans receivable

Unreserved: Designated:

Debt service Continuing projects

Undesignated

Total Fund Balances

Total Liabilities and Fund Balances

See Notes to Financial Statements 9

Other Total Governmental Governmental

Funds Funds

$ 556,019 $ 6,970,566 2.484,934 6.772,888

84 251,142 2,315 184,719

51,517 185,610 841,090 984,854 49,634

756,262 17,762,101

(876,230)

$ 3,094,869 $ 33,882,636

$ 15,697 $ 2,070,971 22,032 22,032 29,528 348,514

200,000

17 49,634 411,066 16,681,914

6,918 197,147 1,623,906 ------

485,258 21,194,118

16,885,871 984,854

2,535,263 2,624,809 74,348 3,474,413

(11 ,281,429)

2,609,611 12,688,518

$ 3,094,869 $ 33,882,636

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS JUNE 30, 2007

Fund balances of governmental funds

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds

Deferred revenue is present in governmental fund financial statements to indicate that receivables are not available currenlly; however, in the Statement of Net Assets these deferrals are eliminated

Bond issuance costs is an expenditure in the governmental funds, but it is deferred charges in the statement of net assets:

Unamortized debt issuance costs - amortized over life of new bonds

Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds:

Bonds payable

Developer loans Loans from City Other debt Unamortized net original issue discounts and (premiums)

Accrued interest payable for the current portion of interest due on Tax Allocation Bonds has not been reported in the governmental funds

Net assets of governmental activities

See Notes to Financial Statements 10

$ 12,688,518

1,500,482

1,623,906

741,605

(24,271 ,206)

(8,354,066) (27,304,783)

(53,656) 221,759

(410,098)

$ (43,617,539)

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11

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Special Capital Debt Revenue Projects Service

Combined Low and Moderate Merged Merged Housing Project Area Project Area Low and Moderate Tax Housing Project Increment

Revenues: Taxes and assessments $ $ $ 8,454,207 Use of money and property 137,977 639,080 27,888 Intergovernmental 351,404 Other revenue 57,010 78,375

Total Revenues 194,987 1,068,859 8,482,095

Expenditures: Current:

General government 50,120 821,427 103,476 Community development 8,370,500

Capital outlay 70,496 376,404 Debt service 150,150 318,985 1,619,928

Total Expenditures 270,766 9,887,316 1,723,404

Excess (Deficiency) of Revenues Over (Under) Expenditures (75,779) (8,818,457) 6,758,691

Other Financing Sources (Uses): Transfers in 1,508,994 685,488 315,906 Transfers out (583,695) (338,973) (4,098,705) Long-term debt issued 1,674,341 Pass-through agreement payments (4,593,382) Miscellaneous (55,905)

Total Other Financing Sources (Uses): 925,299 290,610 (6, 701 ,840)

Excess (Deficiency) of Revenues and Other Sources Over (Under) Expenditures and Other Uses 849,520 (8,527,847) 56,851

Fund Balances: Beginning of Year 2,550,545 15,117,143 32,695

End of Year $ 3,400,065 $ 6,589,296 $ 89,546

See Notes to Financial Statements 12

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Revenues: Taxes and assessments Use of money and property Intergovernmental Other revenue

Total Revenues

Expenditures: Current:

General government Community development

Capital outlay Debt service

Total Expenditures

Excess (Deficiency) of Revenues Over (Under) Expenditures

Other Financing Sources (Uses): Transfers in Transfers out Long-term debt issued Pass-through agreement payments Miscellaneous

Total Other Financing Sources (Uses):

Excess (Deficiency) of Revenues and Other Sources Over (Under) Expenditures and Other Uses

Fund Balances: Beginning of Year

End of Year

See Notes to Financial Statements 13

Other Total Governmental Governmental

Funds Funds

$ 149,350 $ 8,603,557 129,395 934,340

351,404 24,072 159,457

302,817 10,048,758

849,007 1,824,030 8,370,500

446,900 2,210,568 4,299,631

3,059,575 14,941,061

(2,756,758) (4,892,303)

2,541,251 5,051,639 (30,266) (5,051 ,639) 332,484 2,006,825 (85,377) (4,678,759)

(55,905)

2,758,092 (2,727,839)

1,334 (7,620, 142)

2,608,277 20,308,660

$ 2,609,611 $ 12,688,518

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Net change in fund balances - total governmental funds

Amounts reported for governmental activities in the statement of activities differ because:

Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets.

Bond issuance costs is an expenditure In the governmental funds, but it is deferred charges in the statement of net assets:

Amortization for current fiscal year

Unamortized prerrium or discounts on bonds issued are revenue or expenditures in the governmental funds, but these are spread to future periods over the life of the new bonds:

Amortization for current fiscal year

Collections on receivables and loan transactions offset by deferred revenue are reported as revenue and expenditures in governmental funds; however, they do not provide revenue or expenses in the statement of activities

Governmental funds report capital outlay as expenditures. However, in the statement of activities the cost of those assets in capitalized and allocated over their estimated useful lives through depreciation expense:

Capital outlay expenditures removed Depreciation

Proceeds of debt is revenue in the governmental funds, but these are additions to the statement of net assets

Expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds:

Current accrual of interest due on bonds Prior year accrual of interest due on bonds

Change in net assets of governmental activities

See Notes to Financial Statements 14

$ (7,620, 142)

I, 122,521

(36,564)

(9,770)

309,470

351,404

(25,980)

(2,020, 171)

(410,098)

417,423

$ (7,921,907)

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

BUDGETARY COMPARISON STATEMENT SPECIAL REVENUE HOUSING FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Budgetary Fund Balance, July 1

Resources (Inflows): Use of money and property Olher Transfers from other funds

Amounts Available for Appropriations

Charges to Appropriation (Outflow): General government Debt service:

Long-term debt repayments Interest expense

Transfers to other funds

Total Charges to Appropriations

Budgetary Fund Balance, June 30

See Notes to Financial Statements

$

$

15

Budget Amounts Original Final

2,550,545 $ 2,550,545

65,000 65.000 20,000 20.000

2,635,545 2,635,545

149,130 149,130

83,640 83,640 66,520 66,520

299,290 299,290

2,336,255 $ 2,336,255

Variance with Final Budget

Actual Positive Amounts (Negative)

$ 2.550,545 $

137,977 72,977 57.010 37,010

1,508,994 1,508,994

4,254,526 1,618,981

120,616 28.514

83,643 (3) 66,507 13

583,695 (583,695)

854,461 (555,171)

$ 3,400,065 $ 1,063,810

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16

Note 1:

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2007

I. SIGNIFICANT ACCOUNTING POLICIES

Organization and Summary of Significant Accounting Policies

a. Description of the Reporting Entity

The Redevelopment Agency of the City of Azusa is a component unit of a reporting entity that consists of the following primary and component units:

Reporting Entity:

Primary Government:

City of Azusa

Component Units:

Redevelopment Agency of the City of Azusa Azusa Public Financing Authority Azusa Industrial Development Authority

The attached basic financial statements contain information relative only to the Redevelopment Agency of the City of Azusa as one component unit that is an integral part of the total reporting entity They do not contain financial data relating to the other component units

The Agency was created by Ordinance No. 1055 of the Azusa City Council, adopted on May 7, 1973. The Agency was established pursuant to the Community Redevelopment Law of California as codified in Part I of Division 24 of the State of California Health and Safety Code.

The principal objectives of the Agency are to upgrade residential neighborhoods, improve the commercial environment, generate added employment opportunities and strengthen the City of Azusa's economic base. The principal project of the Agency is known as the Central Business District Redevelopment Project, which was approved by Ordinance No 2062 on September 18, 1978. This project has undergone five amendments which were approved by Ordinance No 2077 on July 2, 1979, by Ordinance No. 2113 on July 20, 1981, by Ordinance No. 2197 on November 28, 1983, by Ordinance No. 2249 on December 17, 1984 and by Ordinance No. 2250 on December 17, 1984

A second project of the Agency, known as the West End Redevelopment Project, was approved by Ordinance No 2196 on November 28, 1983 On November 7, 1988, Ordinance No. 2382 was passed whict1 approved the merger of the Central Business District Redevelopment Plan and West End Redevelopment Plan

On July 17, 1989, the Agency Board passed Ordinance No 2402, which approved the redevelopment plan for the Ranch Center Redevelopment Project. On October 6, 2003, Ordinance No. 03.06 was passed to add new territory and amend and restate various limits for the Central Business District and the West End Redevelopment Projects

17

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 1: Organization and Summary of Significant Accounting Policies (Continued)

b. Government-Wide and Fund Financial Statements

The government-wide financial statements (i e , the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues Direct expenses are those that are clearly identifiable with a specific function or segment Program revenues include: 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment Taxes and other items not properly included among program revenues are reported instead as general revenues

Separate financial statements are provided for governmental funds and fiduciary funds even though the latter are excluded from the government-wide financial statements Major individual governmental funds are reported as separate columns in the fund financial statements

c. Measurement Focus, Basis of Accounting and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting Revenues are recorded when earned and expenses are recorded when a liability is incurred regardless of the timing of related cash flows Property taxes are recognized as revenues in the year for which they are levied Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting .. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period Expenditures generally are recorded when a liability is incurred, as under accrual accounting However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due

Property taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period All other revenue items are considered to be measurable and available only when cash is received by the government

18

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 1: Organization and Summary of Significant Accounting Policies (Continued)

Tt1e Agency reports the following major governmental funds:

• Combined low and moderate housing special revenue fund • Merged Project Area:

- Project fund - Tax increment fund

Governmental Fund Types

Special Revenue Funds account for that portion of tax increment and other revenues that t1ave been legally restricted for increasing or improving housing for low and moderate income households From April 1, 1985, through December 31, 1988, the Agency established a finding declaring that a substantial effort was being made to meet low and moderate income housing needs of the community by means of other state, local and federal funding sources, including the Community Development Block Grant program of the City of Azusa Accordingly, all tax increment revenues were allocated to the debt service funds, as prescribed by Section 33334.2 of the Health and Safety Code. After December 31, 1988, the Agency allocated a minimum of 20% of the tax increment revenues received to the special revenue funds. From July 1, 1991, to June 30, 1993, the Agency has established a finding tt1at a substantial effort was being made to meet its existing and projected housing needs of the Ranch Center Project Area by means of funding by the Community Development Block Grant Program Tax increment revenues t1ave been appropriately allocated to the Ranch Center debt service fund

Debt Service Funds account for the accumulation of resources for the payment of interest and principal on general long-term debt

Capital Projects Funds account for financial resources segregated for the development and redevelopment of the project areas, including acquisition of major capital facilities, other costs of benefit to the project areas and administrative expenses incurred in sustaining the Agency

When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed

d. Assets, Liabilities and Net Assets or Equity

1. Cash and Investments

The Agency's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition

Investments for the Agency are reported at fair value The State Treasurer's Investment Pool operates in accordance with appropriate state laws and regulations The reported value of the pool is the same as the fair value of the pool shares

19

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 1: Organization and Summary of Significant Accounting Policies (Continued)

2 Receivables and Payables

Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (Le , the current portion of interfund loans) or "advances to/from other funds" (I e , the non-current portion of interfund loans) All other outstanding balances between funds are reported as "due to/from other funds" Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances "

Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources

All trade and property tax receivables are shown net of an allowance for uncollectibles

Property tax revenue is recognized in the fiscal year for which the taxes have been levied providing they become available Available means then due or past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter (not to exceed 60 days) to be used to pay liabilities of the current period The County of Los Angeles collects property taxes for the Agency. Tax liens attach annually as of 12:01 AM on the first day in January preceding the fiscal year for which the taxes are levied. The tax levy covers the fiscal period July 1 to June 30 All secured personal property taxes and one-half of the taxes on real property are due November 1: the second installment is due February 1 All taxes are delinquent, if unpaid, on December 10 and April 10, respectively Unsecured personal property taxes become due on the first of March each year and are delinquent on August 31

3 Inventories, Prepaid Items and Land Held for Resale

All inventories are valued at cost using the first-in/first-out (FIFO) method Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased

Certain payments to vendors refiect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements

Land purchased for resale is capitalized as inventory at acquisition costs or net realizable value if lower

4 Capital Assets

Capital assets, which include property, plant, equipment and infrastructure assets (e g , roads, bridges, sidewalks and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements Capital assets are defined by the government as assets with an initial individual cost of more than $2,500 (amount not rounded) and an estimated useful life in excess of one year Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation

20

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 1: Organization and Summary of Significant Accounting Policies (Continued)

In accordance with GASB Statement No 34, the Agency is required to report general infrastructure assets The Agency does not have any infrastructure assets

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized

Major outlays for capital assets and improvements are capitalized as projects are constructed Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed

Property, plant and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over the following estimated useful lives:

Structures and improvements Furniture and equipment

5 Long-Term Obligations

20-99 5-25

In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the governmental activities statement of net assets Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method Bonds payable are reported net of the applicable bond premium or discount Bond issuance costs are reported as deferred charges and amortized over the term of the related debt

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures

6 Fund Equity

In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change

21

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 2:

Note 3:

IL STEWARDSHIP

Stewardship, Compliance and Accountability

a. Budgetary Data

General Budget Policies

The Governing Board approves each year's budget submitted by the Executive Director prior to the beginning of the new fiscal year The Board conducts public meetings prior to its adoption The budget is prepared by fund, function and activity, and includes information on the past year, current year estimates and requested appropriations for the next fiscal year Supplemental appropriations when required during the period are also approved by the Board Intradepartmental budget changes are approved by the Executive Director In most cases, expenditures may not exceed appropriations at the departmental level At fiscal year-end all operating budget appropriations lapse During the year, several supplementary appropriations were necessary

Encumbrances

Encumbrances are estimations of costs related to unperformed contracts for goods and services These commitments are recorded for budgetary control purposes in the Special Revenue, Capital Projects and Debt Service funds Encumbrances outstanding at year-end are reported as a reservation of fund balance. They represent the estimated amount of the expenditure ultimately to result if unperformed contracts in process at year-end are completed They do not constitute expenditures or estimated liabilities As of June 30, 2007, there were no encumbrances reported

Budget Basis of Accounting

Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles (GAAP)

Ill. DETAILED NOTES ON ALL FUNDS

Cash and Investments

As of June 30, 2007, cash and investments were reported in the accompanying financial statements as follows:

Cash and investments Cash and investments with trustees

$ 6,970,566 6,772,888

$ 13,7 43,454

The Agency follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents under provisions of bond indentures Interest income earned on pooled cash and investments is allocated to the various funds based on cash and investment balances. Interest Income from cash and investments with fiscal agents is credited directly to the related fund

22

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 3: Cash and Investments (Continued)

Deposits

At June 30, 2007, the carrying amount of the Agency's deposits was $122,640, and was equal to the bank balance.

The California Government Code requires California banks and savings and loan associations to secure a government entity's deposits by pledging government securities with a value of 110% of its deposits California law also allows financial institutions to secure an Agency's deposits by pledging first trust deed mortgage notes having a value of 150% of a City's total deposits The City Treasurer may waive the collateral requirement for deposits that are fully insured up to $100,000 by the FDIC The collateral for deposits in federal and state chartered banks is held in safekeeping by an authorized Agent of Depository recognized by U1e State of California Department of Banking. The collateral for deposits with savings and loan associations is generally held in safekeeping by the Federal Home Loan Bank in San Francisco, California as an Agent of Depository These securities are physically held in an undivided pool for all California public agency depositors Under Government Code Section 53655, the placement of securities by a bank or savings and loan association with an "Agent of Depository" has the effect of perfecting the security interest in the name of tt1e local governmental agency Accordingly, all collateral held by California Agents of Depository are considered to be held for, and in the name of, the local governmental agency

Investments

Under provision of the Agency's investment policy, and in accordance with the California Government Code, the following investments are authorized:

• US. Treasury Obligations (bills, notes and bonds) • U.S Government Agency Securities and Instrumentalities of Government Sponsored

Corporations • Mutual Funds • Commercial Paper • Repurchase Agreements • Certificates of Deposit • Negotiable Certificates of Deposit • Passbook Savings Accounts • Medium Term Corporate Notes • Bank Money Market Accounts • Local Agency Investment Fund (State Pool)

Investments Authorized by Debt Agreements

Tt1e above investments do not address investment of debt proceeds t1eld by a bond trustee Investments of debt proceeds held by a bond trustee are governed by provisions of the debt agreements rather than the general provisions of the California Government Code or the Agency's investment policy

Investments in State Investment Pool

Ttle Agency is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of tt1e State of California. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute The

23

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 3: Cash and Investments (Continued)

State Treasurer's Office audits the fund annually The fair value of the position in the investment pool is the same as the value of the pool shares

GASB Statement No. 31

The Agency adopted GASB Statement No 31, Accounting and Financial Reporting for certain investments and for External Investment Pools, as of July 1, 1997 GASB Statement No. 31 establishes fair value standards for investments in participating interest earning investment contracts, external investment pools, equity securities, option contracts, stock warrants and stock rights that have readily determinable fair values Accordingly, the Agency reports its investments at fair value in the balance sheet All investment income, including changes in the fair value of investments, is recognized as revenue in the operating statement

Credit Risk

The Agency's investment policy limits investments in medium term notes (MTNs) to those rated A or higher by Standard and Poor's (S&P) or by Moody's. As of June 30, 2007, the Agency's investment in medium term notes consisted of various investments rated AIAAA by Moody's and by S&P. All securities were investment grade and were legal under State and Agency law Investments in U.S government securities are not considered to have credit risk; therefore, their credit quality is not disclosed As of June 30, 2007, the City's investments in external investment pools and money market mutual funds are unrated

Custodial Credit Risk

The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party

As of June 30, 2007, none of the Agency's deposits or investments were exposed to custodial credit risk

Concentration of Credit Risk

The Agency's investment policy imposes restrictions on the maximum percentage it can invest in a single type of investment These limitations are 30%, 20%, and 30% for commercial paper, medium term notes, and repurchase agreements respectively As of June 30, 2007, in accordance with GASB 40 requirements, the Agency is exposed to concentration of credit risk whenever they have invested more than 5% of their total investments in any one issuer As of June 30, 2007, the Agency had $1,968,700 ( 14)% of its investment in Federal Home Loan Bank and $2,422,545 (18%) of its investments in Investment Agreements Investments guaranteed by the U S .. government, investments in mutual funds and external investment pools are excluded from this requirement

Interest Rate Risk

The Agency's investment policy limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates The Agency's investment policy states that no investment may have a maturity of more than five years without receiving prior Agency Board approval The only exception to these maturity limits

24

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 3:

Note 4:

Cash and Investments (Continued)

shall be the investment of the gross proceeds of tax-exempt bonds, and reserve funds associated with bond issues. The Agency has elected to use the segmented time distribution method of disclosure for its interest rate risk

As of June 30, 2007, the Agency had the following investments and original maturities:

Investment Maturities (in Years) Less than 1 to 3 More than Fair 6 months years 5 years Value

Government Obligations $ $ 1,967,800 $ $ 1,967,800 California Local Agency

Investment Fund 4,880,126 4,880,126

Cash with Fiscal Agents Money Market Mutual Funds 2,594,264 2,594,264 Mutual Funds 1,756,079 1,756 079 Investment Agreements 467,642 1,954,903 2,422,545

$ 9,698,111 $ 1,967,800 $ 1,954,903 $ 13,620,814

Capital Assets

A summary of changes in capital assets follows:

Balance at Balance at July 1, 2006 Additions Deletions Transfers June 30, 2007

Capital Assets not being depreciated: Land $ 410,420 $ $ $ $ 410,420 Construction-in-progress 296,978 351,404 (648,382)

T alai Capital Assets not being depedated 707,398 351,404 (648,382) 410,420

Capital Assets being depreciated: Structures and Improvements 779,420 648,382 1,427,802

Total Capital Assets being depeciated 779,420 648,382 1,427,802

Less accumulated depreciation: Structures and Improvements 311,760 25,980 337,740

Total Accumulated Depreciation 311,760 25,980 337,740

Total capital Assets, net of accumulated depreciation $ 1,175,058 $ 325,424 $ $ $ 1,500,482

Depreciation expense was charged to functions/programs of the primary government as follows:

Governmental Activities; General government

25

$ 25,980

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5: Long-Term Debt

a A description of long-term debt outstanding (excluding defeased debt) of the Agency as of June 30, 2007 follows

Tax Allocation Bonds

Tax allocation bonds payable consisted of the following at June 30, 2007:

$11,580,000 2003 Series A Merged Project Area Tax Allocation Refunding Bonds, dated December 1, 2003 were issued to refund the 1994 Series A Merged Project Area Tax Allocation Bonds Principal payments ranging from $425,000 to $1 ,235,000 are due annually on August 1 beginning in the year 2004 through the year 2023 Interest rates ranging from 3 00% to 4.60% per annum are payable on February 1 and August 1 Both principal and interest payments are secured by tax increment revenues

$6,470,000 1997 Series A Merged Project Area Tax Allocation Refunding Bonds, dated September 1, 1997 were issued to refund the 1992 Series A Merged Project Area Tax Allocation Bonds; $2,950,000 Serial Bonds due in annual installments ranging from $170,000 to $265,000 through August 1, 2012; $3,520,000 Term Bonds due August 1, 2022; annual sinking fund installment payments ranging from $275,000 to $440,000 through August 1, 2022; secured by tax increment revenues Serial bonds have varying interest rates ranging from 3.80% to 5 10% The Term Bonds carry an interest rate of 5 25%

$9,022,800 Series A Merged Project Area Tax Allocation Bonds, dated February 17, 2005 were issued to finance redevelopment projects Current Interest Bonds are subject to annual sinking fund installment payments ranging from $715,000 to $1,170,000 beginning August 1, 2027 through August 1, 2034 .. Capital Appreciation Bonds are due beginning August 1, 2024 through August 1, 2027, with installment payments ranging from $195,000 to $1,170,000 Debt service payments on the bonds are secured by tax increment revenues

Total bonds payable

26

Balance Outstandil]l_

$ 10,145,000

4,935,000

9,191,206

$ 24,271,206

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5: Long-Term Debt (Continued)

Obligation Under Developer Agreement

On October 4, 1988, the Redevelopment Agency of the City of Azusa entered into a developer agreement with the Price Company Since fiscal year 1988-1989, the Price Company advanced to the Agency $4,158,240 for the purpose of redeveloping the Price Company site located in the West End project areas

Interest on the advance accrues at a rate of 9. 5% per annum Accrued unpaid interest is compounded annually. Sales tax revenues received from the site have been pledged as security for the repayment of principal and interest. Annual repayments to Price Company are due on the last business day of December, March, June and September, beginning December 31, 1989, based upon the following allocation of sales tax revenues:

First $493,000 to Agency Next $490,000 to Price Company Next $178,000 to Agency Next $178,000 to Price Company Then balance divided 50% to the Agency and 50% to Price Company

Payments will continue for a period of 25 years through October 31, 2015, or until all accrued interest and principal are paid in full, whichever occurs first In the event that the entire interest and principal has not been repaid as of October 31, 2015, the unpaid balance will be forgiven The outstanding principal balance at June 30, 2007 is $8,354,064

Loans from City

Loans from the City of Azusa bear interest at various rates and are due in varying installments At June 30, 2007, these obligations consisted of the following:

Merged Project Area- CBD

On October 3, 1994, the City of Azusa authorized an advance to the Agency of $2,000,000 for the purpose of carrying out the Redevelopment Plan The note is payable from pledged tax increment revenues Interest accrues at 5 25% per annum Principal payments beginning October 1, 2014, and interest are due annually in varying installments through October 1, 2033 The balance outstanding at June 30, 2007 is $4,028,199

On April 21, 1997, the City of Azusa authorized an advance to the Agency of $2,462,355 for the purpose of carrying out the Redevelopment Plan. As of June 30, 2002, the full amount had been advanced The note is payable from pledged tax increment revenues and land sales proceeds Interest accrues at 6% per annum The terms of the note, as amended by the Board on August 4, 1997, commence on the date that the loan proceeds were received by the Agency .. The first payment is due in 2014, and annually thereafter until2033 The balance outstanding at June 30,2007 is $1,774,706

On December 1, 2003, the City of Azusa authorized an advance to the Agency of $4,825,000 for the purpose of carrying out the Redevelopment Plan. The note is payable from pledged tax increment revenues Interest rates range from 2%- 4 4% per annum, payable on February 1 and August 1 Principal payments are due annually on August 1 beginning in 2004 through 2020 The balance outstanding at June 30, 2007 is $4,120,000

27

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5: Long-Term Debt (Continued)

On November 7, 2005, in conjunction with the Talley Building development, the City of Azusa authorized an advance to the Agency of $150,000 for the purpose of carrying out the Redevelopment Plan The note is payable from accumulated tax increment funds in excess of those pledged for payment of Agency bonded indebtedness, and/or may be paid from any other funds available to the Agency Interest accrues at 5% per annum Payments on the Note will be deferred for the first three years after receipt of proceeds, and then annually until paid in full, over a term of 20 years. The balance outstanding at June 30, 2007, is $162,528

On February 27, 2006, in conjunction with the purchase of real property by the Agency from the Azusa Valley Water Company, the City of Azusa authorized an advance to the Agency of $94,950 for the purpose of carrying out the Redevelopment Plan $57,450 was payable upon conveyance of property and the balance of $37,500 was evidenced by a Promissory Note Interest accrues at 5% per annum Principal and interest payments are due as follows: five (5) successive, annual installments of $8,662 each, beginning February 27, 2006. The fifth and final payment shall be increased or decreased, as necessary, to equal the entire then-outstanding principal balance, accrued interest and all other sums due and payable under this Note The balance outstanding at June 30, 2007, is $31,231

Merged Project Area - West End

On May 15, 1989, in conjunction with the Price Company Developer Agreement, the Agency entered into an agreement with the City of Azusa to transfer to the City sales tax revenues received by the Agency that otherwise would have been received by the City Payment under this agreement is to be made by July 1 for sales tax revenues received in the preceding fiscal year. Unpaid amounts will accumulate as debt to the Agency Interest will accrue at a rate of 7% per annum from the date payment is due to date of repayment by Agency lo the City The balance outstanding at June 30,2007, is $12,017,396

Ranch Center Project Area

On June 30, 1989, the City of Azusa advanced to the Agency $500,000 for the purpose of carrying out the Redevelopment Plan The balance in the accompanying financial statements includes interest accrued through the balance sheet date The note is payable from pledged tax increment revenues Interest accrues at 8% per annum and principal and interest is due annually in varying installments through June 30, 2014 The balance outstanding at June 30, 2007, is $1,447,956

On August 7, 1989, in conjunction with the Westland Reserves, Inc Developer Agreement, the Agency entered into an agreement with the City of Azusa to transfer to the City sales tax revenues received by the Agency that otherwise would have been received by the City Payment under this agreement is to be made by July 1 for sales tax revenues received in the preceding fiscal year Unpaid amounts will accumulate as debt to the Agency Interest will accrue at a rate of 7% per annum from the date payment is due to date of repayment by Agency to the City The balance outstanding at June 30,2007, is $173,088

28

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5: Long-Term Debt (Continued)

On July 1, 1991, the City of Azusa authorized an advance to the Agency of $227,030 for the purpose of carrying out the Redevelopment Plan Additional amounts were authorized for a total advance of $459,983. The balance in the accompanying financial statements includes accrued interest through the balance sheet date. The note is payable from pledged tax increment revenues Interest accrues at a rate of 8% per annum Principal and interest are due in one installment on June 30, 2039 The balance outstanding at June 30, 2007, is $1,504,867.

On July 18, 1994, the City of Azusa authorized an advance to the Agency of $485,000 for the purpose of carrying out the Redevelopment Plan The balance in the accompanying financial statements includes accrued interest through the balance sheet date The note is payable from pledged tax increment revenues. Interest accrues at a rate of 6% per annum Principal and interest are due in annual installments through June 30, 2024 The balance outstanding at June 30, 2007, is $1,025,968

Combined Low and Moderate Income Housing Fund

On July 1, 1991, the City of Azusa authorized an advance to the Agency, which was funded on July 10, 1991, of $2,300,000 for the purpose of carrying out the Redevelopment Plan. The note is payable from pledged tax increment revenues and 20% set-aside low-to-moderate income housing fund revenues. Originally, interest accrued at 9% per annum and principal and interest were due in annual installments through June 30, 2002 The terms of this advance were revised June 5, 1995, beginning with payment due June 30, 1995 Interest accrues at 6% per annum. Principal and interest are due in annual installments through June 30, 2016. The balance outstanding at June 30, 2007 is $1,018,844

Total Loans from City at June 30, 2007, amount to $27,304,783

Other Long-Term Debt Payable

Employee Leave Benefits

29

$ 53,656

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5: Long-Term Debt (Continued)

b The following is a summary of the changes in long-term debt of the Agency for the fiscal year ended June 30, 2007:

Balance Balance Due Within July 1, 2006 Additions Repayments June 30, 2007 One Year

Merged Project Area City Loans - Principal $ 20,093,398 $ 749,584 $ 413,878 $ 20,429,104 $ City Loans - Unpaid Interest 946,909 758,047 1,704,956 Developer Loans - Principal 4,558,300 4,558,300 Developer Loans - Unpaid Interest 3,629,054 166,710 3.795,764 Bonds- 1997 Tax Allocation Refunding 5,135,000 200,000 4,935,000 210,000 Bonds- 2003 Tax Allocation Refunding 10,570,000 425,000 10,145,000 435,000 Bonds - 2005 Tax Allocation, Series A 9,119,506 71,700 9,191,206

Total 54,052,167 1,746,041 1,038,878 54,759,330 645,000

Ranch Center City Loans - Principal 3,380,175 3,380,175 City Loans - Unpaid Interest 510,920 260,784 771,704

Total 3,891,095 260,784 4,151,879

Combined Low and Moderate Housing City Loans - Principal 1 '102,487 83,643 1,018,844 88,662 City Loans - Unpaid Interest

Total 1' 102,487 83,643 1,018,844 88,662

Unallocated Between Project Areas Employee Leave Benefits 40,310 13,346 53,656

Total 40,310 13,346 53,656

Total- All Project Areas City Loans - Principal 24,576,060 749,584 497,521 24,828,123 88,662 City Loans - Unpaid Interest 1,457,829 1,018,831 2,476,660 Developer Loans - Principal 4,558,300 4,558,300 Developer Loans - Unpaid Interest 3,629,054 166,710 3,795,764 Bonds Payable 24,824,506 71,700 625,000 24,271,206 645,000 Employee Leave Benefits 40,310 13,346 53,656

Total $ 59,086,059 $ 2,020,171 $ 1,122,521 59,983,709 $ 733,662

Adjustments: Unamortized net original issue (discount) or premium (221 ,757)

Net Long-term Debt $ 59,761,952

• Additions include $71,700 for accreted interest for the fiscal year ended June 30, 2007

30

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5:

2007.2008

2008. 2009 2009.2010

2010-2011 2011.2012 2012.2017

2017.2022 2022.2027 2027.2032

2032.2037

Totals

long-Term Debt (Continued)

c. The following schedule illustrates the debt service requirements to maturity for bonds outstanding as of June 30, 2007 Excluded are obligations for which the actual amounts of annual debt service depend on various factors that are not yet determinable

1997 Tax Allocation Refunding 2003 Tax Allocation Refunding 2005 Tax Allocation Refunding Bonds, Series A Bonds, Series A Bonds, Series A

Principal Interest Princieal Interest Principal Interest

$ 210,000 $ 250,235 $ 435,000 $ 387,354 $ $ 349,425

215,000 240,034 445,000 377,998 349,425

230,000 229,070 450,000 367,085 349,425

240,000 217,320 460,000 354,279 349,425

255,000 204,818 475,000 339,779 349.425

1,460,000 809,089 2,665,000 1,423,403 1,747,125 1,885,000 373,669 3,245.000 820,950 1,747,125

440,000 11,550 1,970,000 101,753 1,295,247 1,747,125

5,000,959 2,621,065 2,895,000 1,275,626

$ 4,935,000 $ 2,335,785 $ 10,145,000 $ 4,172,601 $ 9,191,206 $ 10,885,191

Total Principal Interest

2007- 2008 $ 645,000 $ 987,014 2008.2009 660,000 967,456 2009.2010 680,000 945,580 2010.2011 700,000 921,024 2011-2012 730,000 894,021 2012-2017 4,125,000 3,979,617 2017.2022 5,130,000 2,941,746 2022-2027 3,705,247 1,860,428 2027.2032 5,000,959 2,621.,065 2032. 2037 2,895,000 1,275,626

Totals $ 24,271,206 $ 17,393,577

31

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 5: Long-Term Debt (Continued)

d. As of June 30. 2007, the Agency has issued various residential mortgage revenue bonds The proceeds of these bonds were used to purchase mortgage loans made to homeowners for the purpose of financing residential property These bonds, secured by first trust deeds and private mortgage insurance, were issued from 1985 through 1992 Although the Agency has arranged this financing program, these bonds are not payable from any revenues or assets of the Agency Generally, the bondholders may look only to the mortgage loans and other assets held by trustees for security on the indebtedness Accordingly, since these bonds do not constitute an obligation of the Agency, they are not reflected in Long-Term Debt in the accompanying financial statements:

Original Year Amount Balance at

Issued Issued June 30, 2007 Due Date Taxable Collateralized

Refunding Bonds-Series 1992 1992 $ 9,903,000 $ 303,000 December 1, 2012

Single Family Mortgage Revenue Refunding Bonds 1992 10,000,000 6,670,000 October 1, 20 12

Note 6: Low and Moderate Housing Fund

Note 7:

Per Section 33334 2 of the Health and Safety Code, not less than 20% of all taxes allocated to the Agency pursuant to Section 33670 must be set-aside for purposes of increasing, improving and preserving the community's supply of low and moderate income housing Towards this end, the Agency has set-aside the following amounts:

Merged Project Area Ranch Center Project Area

Total

1'11ncludes Los Angeles County portion

Tax Increment

Receipts1'1

$ 7,395,618 149,350

$ 7,544,968

Percentage Amount

Set-Aside Set-Aside

20% $ 1 ,479,124 20% 29,870

$ 1,508,994

The amount of $1,508,994 is represented as transfers of tax increment from the Merged Project and Ranch Center debt service funds to the combined low and moderate income housing special revenue fund As of June 30, 2007, there were no amounts determined to be excess surplus as defined by the Health and Safety Code

IV. OTHER DISCLOSURES

Insurance

The Azusa Redevelopment Agency is covered under the City of Azusa's insurance policies Therefore, the limitation and self-insured retentions applicable to the City of Azusa also apply to its redevelopment agency Additional information as to coverage and self-insured retentions can be obtained by contacting the City

32

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 8: lnterfund Receivable, Payable and Transfers

The composition of interfund balances as of June 30, 2007, is as follows:

a. Due To/From Other Funds

Due from Other Funds (receivable): Special Revenue:

Combined !-busing Nonmajor Funds

Total

Due to Oher Funds (payable) Dab! Service -Merged Project

Area

$ 49,617

$ 49,617

$

$

Nonmajor Funds

17

17

Total

$ 49,634

$ 49,634

The amounts due to the Combined Housing Fund of $49,634 is tax increment receivable due from the Debt Service Funds

b. lnterfund Transfers

The total transfer of $1,508,994 to the Combined Housing Fund represents the 20% tax increment revenue from the Debt Service Funds

The transfer of $685,488 to the Capital Projects Fund was to fund capital projects

The total transfer of $315,906 to the Debt Service Tax Increment Fund was to cover debt service payments

Transfers Out Special Capital Debt

Revenue Project Service Merged

Project Area -Combined Merged Tax Nonmajor Housing Project Area Increment Funds Total

Transfers In: Special Revenue:

Combined Housing Fund $ $ $ 1,479,124 $ 29,870 $ 1,508,994 Capital Projects:

Merged Project - Project 685,488 685,488 Debt Service:

Merged Project-Tax Increment 315,906 315,906 Nonmajor Funds 583,695 23,067 1,934,093 396 2,541,251

Total $ 583,695 $ 338,973 $ 4,098,705 $ 30,266 $ 5,051,639

33

Redevelopment Agency of the City of Azusa Notes to Financial Statements (Continued)

Note 9: Pass-Through Agreement Payments

At June 30, 2007, the Agency had expenditures of $4,678.759 to other agencies and entities related to specific pass-through agreements

Project Areas Amended and Restated

Merged Project Area Central

Business District West End

Ranch Center Total

Pass-Through Payments Agencies and Entities: LA County Pass-Through Agnnts City of Azusa (statutory) Azusa Unified School District Citrus College Other Taxing Agencies County/state pool City of Azusa (Price Club General Fd Note) City of Azusa (Price Club Sales Tax)

Total Pass-Through Payments

Note 10: Subsequent Events

$

$

874,522 $ 28,061 48.487

3,658 11,157

965,885 $

1,377,105 30,834 34,583 3,940

12,679 104,338

1,301,931 762,087

3,627.497

$ 78,504

3,841 3,032

$ 85,377

$ 2,330,131 58,895 86,911 10,630 23,836

104,338 1,301,931

762,087

$ 4,678,759

The Azusa Redevelopment Agency issued $15,780,000 Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds 2007 Series A, dated July 18, 2007 primarily to finance redevelopment projects The bonds consist of Serial Bonds due in annual installments of $340,000 on August 1, 2008 and $365,000 on August 1, 2009; and Term Bonds ranging from $3,760,000 due August 1, 2017 to $7,935,000 due August 1, 2035. Serial bonds have interest rates of 5 268% and 5 298% The term bonds carry an interest rates ranging from of 5 765 to 6.150%

The Azusa Redevelopment Agency issued $4.790,000 Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds Series B, dated July 18, 2007 primarily to refund 1997 Tax Allocation Bonds The bonds consist of Serial Bonds due in annual installments ranging from $80,000 to $140,000 maturing on August 1, 2008 through August 1, 2021; and Term Bonds of $1,025,000 due August 1, 2027 and $2,255,000 due August 1, 2036 Serial bonds have interest rates ranging from 4 000% through 5 000% The term bonds carry interest rates of 5 250 and 5 3000%

On .July 2, 2007, the Azusa Redevelopment Agency purchased real property from the City of Azusa in the amount of $828,000

34

THIS PAGE INTENTIONALLY LEFT BLANK

35

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

COMBINING PROJECT AREA BALANCE SHEET

ALL GOVERNMENTAL FUNDS JUNE 30, 2007

Merged Project Area

Capital Special Debt Debt Capita!

Projects Revenue Service Service Projects

General Combined Tax

Agency Housing Tax Revenue

Fund Fund Increment Bonds Project ASSETS Cash and investments $ 447,830 $ 3,346.756 $ 966.470 $ $ 2.079,321 Cash and investments with trustee 2,464,934 4,267,954 Receivables: Tax increment 251.056 Accounts 2.315 5.001 176,554 649 Interest receivable 46,550 21.902 50.329 65,641 Deferred Loans 351,366 469.722 Noles 964.654

Due from Debt Service Funds 49,634 Due from City 756.262 Land held for resale 17,762,101 Allowance for decline in value (676,230)

Total Assets $ 450,145 $ 3,799,309 $ 2,194,246 $ 2,535,263 $ 24,794,212

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 15.647 $ 10.152 $ 1,740 $ $ 2.043.362 Salaries and benefits payable 22,032 Interest payable 318,986 Deposits from others 200,000 Due to Low and MOderate

Housing Funds 49.617 Due to City 411.066 37,724 1,080,298 15.152.626 Due to other governments 190.229 Deferred revenue 351,368 782,816 489,722

Total Liabilities 448,745 399,244 2,104,700 18,204,916

Fund Balances: Reserved:

Land held for resale 16,885,871 Long-term loans receivable 984,854

Unreserved: Designated:

Debt service 89,546 2,535,263 Continuing projects 1.400 3.400.065

Undesignated (11,281,429)

Total Fund Balances 1,400 3,400,065 69,546 2,535,263 6,589,296

Total Liabilities and Fund Balances $ 450,145 $ 3,799,309 $ 2,194,246 $ 2,535,263 $ 24,794,212

36

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

COMBINING PROJECT AREA BALANCE SHEET

ALL GOVERNMENTAL FUNDS JUNE 30, 2007

Ranch Center

Deb I Capital Service Projects TOTALS

Debt Capllal Special Tax Service Projects Revenue

Increment Project Funds Funds Funds ASSETS Cash and investments $ 36,160 $ 72,029 $ 1 024,630 $ 2,599,180 $ 3.346,756 Cash and investments with trustee 2.484,934 4,287,954 Receivables: Tax increment 84 251,142 Accounts 176.554 3,164 5.001 Interest receivable 219 969 72,450 66,610 46,550 Deferred Loans 489.722 351,368 Notes 984,854

Due from Debt Service Funds 49,634 Due from City 756,262 Land held for resale 17,762,101 Allowance for decline in value (876,230)

Total Assets s 36,463 $ 72,998 $ 4,765,972 s 25,317,355 $ 3,799,309

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ $ 50 $ 1.740 $ 2,059,079 $ 10,152 Salaries and benefits payable 22.032 Interest payable 29.528 29,528 318,986 Deposits from others 200,000 Due to Low and Moderate

Housing Funds 17 49,634 Due to City 1,080.298 15,563,892 37.724 Due to other governments 6.918 197,147 Deferred revenue 782,816 489,722 351,368

Total Liabilities 36,463 50 2,141,163 18,653,711 399,244

Fund Balances: Reserved:

Land held for resale 16,885,871 Long~term loans receivable 984,854

Unreserved: Designated:

Debt service 2,624,809 Continuing projects 72,948 74,348 3,400,065

Undesignated (11 ,281 ,429)

Total Fund Balances 72,948 2,624,809 6,663,644 3,400,065

Total Liabilities and Fund Balances $ 36,463 $ 72,998 $ 4,765,972 $ 25,317,355 $ 3,799,309

37

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

COMBINING PRO.JECT AREA STATEMENT OF REVENUES,

EXPENDITURES AND CHANGES IN FUND BALANCES

ALL GOVERNMENTAL FUNDS

FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Merged Project Area Capital Special Debt Debt capital

Projects Revenue Service Service Projects General Combined Tax

Agency Housing Tax Revenue

Fund Fund Increment Bonds Project Revenues:

Taxes and Assessments: Tax increment $ $ $ 7,395,618 $ $ Sales and use tax 1.058,589

Use of Money and Property: Interest income 372 137,977 27,888 124,783 597.789

Rental income 41,291

Intergovernmental: Other intergovernmental 351,404

Other revenue: loan repayments 46.568 73.000

Other revenue 10,442

Total Revenues 372 194,987 8,482,095 124,783 1,063,484

Expenditures: Current:

General Government Administrative costs 795,421 655 103.476 31.569

Professional services 48.961 49.465 789.858 Community Development:

Relocation costs 8,370,500

Capital Outlay: Project Improvement costs 70,496 25,000

Acquisition of fixed assets 351,404

Debt Service: Interest expense 218,304 66,507 1.206.050 1,076.952 318,985

LongMterm debt repayments 83,643 413,878 625,000

Total Expenditures 1,062,686 270,766 1,723,404 1,701,952 9,887,316

Excess of Revenues over (under) Expenditures $ (1,062,314) $ (75,779) $ 6,758,691 $ (1,577,169) $ (8,823,832)

Other Financing Sources (Uses) Transfers in $ I ,034.497 $ $ 315.906 $ 1.506.358 $ 685.488 Transfers out (583,695) (2,619,581) (338,973) Housing set~aside transfers in 1,508.994 Housing set-aside transfers out (1,479,124) Long-term debt issued I ,674,341 71,700 Pass through agreement payments (4,593,382) Miscellaneous 24,072 (50,530)

Total Other Financing Sources (Uses) 1,058,569 925,299 (6,701,840) 1,578,058 295,985

Excess of Revenues and Other Sources over (under) Expenditures and Other Uses (3,745) 849,520 56,851 889 (8,527,847)

Fund Balances Beginning of Year 5,145 2,550,545 32,695 2,534,374 15,117,143

End of Year $ 1,400 $ 3,400,065 $ 89,546 $ 2,535,263 $ 6,589,296

38

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

COMBINING PROJECT AREA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES ALL GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Ranch Center Debt Capital

Service Projects TOTALS Debt Capital Special

Tax Service Projects Revenue Increment Project Funds Funds Funds

Revenues: Taxes and Assessments:

Tax increment $ 149,350 $ $ 7,544,968 $ $ Sales and use tax 1,058,589

Use of Money and Property: Interest income 396 3,844 153,067 602,005 137.977 Rental income 41.291

Intergovernmental: Other intergovernmental 351.404

Other revenue: Loan repayments 73.000 46,568 Other revenue 10,442

Total Revenues 149,746 3,844 8,756,624 1,067,700 194,987

Expenditures: Current:

General Government: Administrative costs 4.575 108,051 826.990 655 Professional services 50 838,869 49.465

Community Development Relocation costs 8.370.500

Capital Outlay: Project improvement costs 25.000 70,496 Acquisition of fixed assets 351.404

Debt Service: Interest expense 290,312 2,573 314 537,289 66,507 Long~term debt repayments 1,038,878 83,643

Total Expenditures 294,887 50 3,720,243 10,950,052 270,766

Excess of Revenues over (under) Expenditures $ (145,141) $ 3,794 $ 5,036,381 $ (9,882,352) $ (75,779)

Other Financing Sources (Uses) Transfers in $ $ 396 $ 1.822,264 $ 1,720,381 $ Transfers out (396) (2,619,977) (338,973) (583,695) Housing set-aside transfers in 1.508,994 Housing set-aside transfers out (29.870) (1,508,994) Long-term debt issued 260,784 2,006,825 Pass through agreement payments (85,377) (4,678,759) Miscellaneous (26,458)

Total Other Financing Sources (Uses) 145,141 396 (4,978,641) 1,354,950 925,299

Excess of Revenues and Other Sources over (under) Expenditures and Other Uses 4,190 57,740 (8,527,402) 849,520

Fund Balances Beginning of Year 68,758 2,567,069 15,191,046 2,550,545

End of Year $ $ 72,948 $ 2,624,809 $ 6,663,644 $ 3,400,065

39

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

COMPUTATION OF LOW AND MODERATE

INCOME HOUSING FUNDS EXCESS/SURPLUS

Opening Fund Balance

Less Unavailable Amounts:

Available Low and Moderate Income Housing Funds

Limitation {greater of $1.000.000 or four years set~aside)

Set-Aside for last four years: 2006-2007 2005- 2006

2004- 2005 2003- 2004 2002-2003

Total

Base Limitation

Greater amount

Computed Excess/Surplus

Low and Moderate Housing Funds ~All Project Areas

July 1, 2006

$ 2.550545

2,550.545

$ 1,379,024

1,287,007 1,256,872 1,144,066

$ 5,066,969

s 1,000,000

5,066,969

None

40

Low and Moderate Housing Funds MAll Project Areas

July 1, 2007

$ 3,400,065

3,400,065

$ 1.508,994 I ,379,024

I ,287,007 I ,256,872

s 5,431,897

s 1,000,000

5,431,897

None

C-1

APPENDIX C

FISCAL CONSULTANT’S REPORT

(THIS PAGE INTENTIONALLY LEFT BLANK)

Page 1

Finance • Redevelopment • Implementation • Planning • Bond Administration September 24, 2008 Mr. Alan Kreimeier Finance Director CITY OF AZUSA 213 East Foothill Blvd Azusa, CA 91702 RE: FISCAL CONSULANT REPORT OF PROECTED TAX INCREMENT REVENUES

Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area

Dear Mr. Kreimeier: Urban Futures, Inc. (UFI) is pleased to present this report of projected tax increment revenues to the Redevelopment Agency of the City of Azusa (the "Agency") for the Amended and Restated Merged Central Business District and West End Redevelopment Project Area (the "Merged Project” or the ”Merged Project Area"). The following information is included as exhibits to this report:

Exhibit A: CHART OF TABLES TABLE 1: Redevelopment Plan Limitation Dates and Amounts TABLE 2: Tax Rate Area Numbers TABLE 3: Unitary Revenues TABLE 4: Project Area Tax Rates TABLES 5A – 12A: Tax Increment Projections TABLES 5B – 12B: Historical Assessed Values TABLES 5C – 12C: Top Ten Tax Payers TABLES 5D – 12D: Land Use Breakdown TABLE 13: Additional Value for Development Activity TABLE 14: Property Tax Collections TABLE 15: Historical Assessment Appeals

Projected taxable valuations and tax revenues contained in this report are based on assumptions derived from the following information:

1. Historical growth trends; 2. Trended growth in valuation as permitted by Article XIIIA of the California

Constitution (Proposition 13); 3. Financial reports and information supplied or prepared by the Agency; and 4. Assessed valuation information provided by the County of Los Angeles, from the

offices of the Auditor-Controller and Assessor. The purpose of the projections is to demonstrate the availability of tax increment expected to be generated from the Merged Project Area, to secure debt service requirements of the Agency for the (proposed) Tax Allocation Bonds, Amended and Restated Merged Central Business District and West End Redevelopment Project Area, Tax Allocation Bonds, Series 2008 (the “2008 Bonds”).

Page 2

Background The California Community Redevelopment Law (the “Law”) together with Article 16, Section 16 of the California Constitution, authorizes redevelopment agencies to receive that portion of property tax revenue generated by project area taxable values that are over and above the Base Year value. The Base Year value is defined as the amount of the taxable values within the project area boundaries on the last equalized tax roll prior to adoption of the project area. The amount of current year taxable value that is in excess of the Base Year value is referred to as incremental taxable value. The incremental taxable value of the Merged Project is as follows:

TABLE I: INCREMENTAL VALUES

SUB AREA BASE YEAR 2008-09 ASSESSED

VALUATION BASE YEAR VALUE INCREMENTAL

TAXABLE VALUE

Original CBD Area 1977-78 93,455,821 9,682,822 83,772,999

Amendment No. 1 Area 1978-79 1,315,022 199,400 1,115,622

Amendment No. 2 Area 1980-81 57,682,946 4,737,590 52,945,356

Amendment No. 3 Area 1983-84 88,926,125 638,717 88,287,408

Amendment No. 5 Area 1977-78 47,808,299 2,676,231 45,132,068

Original West End Area 1983-84 581,658,245 133,049,617 448,608,628

Amendment No. 8 2003-04 70,459,094 46,193,900 24,265,194

Amendment No. 14 2007-08 * * *

* The Los Angeles County Auditor-Controller has not yet determined the assessed values for the Amendment No. 14 Area. Tax increment revenues from Amendment No. 14 Area have not been included in the revenues projections for the purposes of this report.

The Law provides that the tax increment revenues may be pledged by the redevelopment agency to the repayment of agency indebtedness. Revenue projections have been conservatively estimated in order to reduce the risk of overstating future tax increment revenues. General Projection Assumptions

1. The revenue projections assume an assessed valuation growth rate of two percent (2%) annually in the entire Merged Project Area, representing the two percent (2%) annual inflation increase allowable under Proposition 13 (See: Exhibit A, TABLE 5A).

2. The entire Merged Project Area tax rate is assumed to be 1.026% in FY 2008-09 and thereafter.

3. Future additional value has been included in specific project areas for new development and construction (See: Exhibit A, TABLE 13).

The Project Area The City Council of the City of Azusa adopted the redevelopment plans for the Central Business District Redevelopment and the West End Redevelopment Project (“Redevelopment Projects”) on September 18, 1978 and November 28, 1983, respectively. The redevelopment plans for the Redevelopment Projects have been amended on numerous occasions for the purposes of: (a) to meet the requirements of the Community Redevelopment Law of the State of California, Health and Safety Code, Section 22000 (the “Redevelopment

3

Law”), (b) to extend the time and fiscal limitations in the redevelopment plans, (c) to add territory to the Central Business District Redevelopment and the West End Redevelopment Projects (the “Original Projects”) areas, (d) to merge the redevelopment plans for the Original Projects (the “Merged Project”), (e) to meet the requirements of the Redevelopment Law as amended through legislation, (f) to amend and restate the redevelopment plan and (g) to re-instate eminent domain authority on selected areas. The redevelopment plans, adoptive ordinances and adoption dates for for the various Project Areas are summarized as follows:

TABLE II: PLAN AMENDMENTS

REDEVELOPMENT PROJECT ORDINANCE NO.

DATE OF ADOPTION MAIN ACTIONS

Central Business District Project (“CBD Area”) 2062 09/18/78

Adoption of plan for new project: Central Business District Redevelopment Project

CBD, Amendment No. 1 2077 07/02/79 Added new territory to CBD Area

CBD, Amendment No. 2 2113 07/20/81 Added new territory to CBD Area

West End Redevelopment Project 2196 11/28/83

Adoption of plan for new project: West End Redevelopment Project

CBD, Amendment No. 3 2197 11/28/83 Added new territory

CBD, Amendment No. 4 2249 11/28/83 Deletion of territory

CBD, Amendment No. 5 2250 12/17/84 Added back territory to CBD Area

CBD, Amendment No. 6 and West End, Amendment No. 1 2382 11/07/88

Merged Central Business District and West End Project Areas

CBD, Amendment No. 7 94-018 12/19/94 Extended time limits as allowed under Assembly Bill 1290

West End, Amendment No. 2 94-020 12/19/94 Extended time limits as allowed under Assembly Bill 1290

CBD, Amendment No. 8 and West End, Amendment No. 3 03-O6 10/06/03

Replaced separate redevelopment plans with one amended and restated plan Added new territory to the Merged Project Area, Added eminent domain authority, Redefined tax increment limits, Combined indebtedness limits

CBD, Amendment No. 9 and West End, Amendment No. 4 03-O7 12/01/03

Eliminated time limits on establishment of indebtedness (Senate Bill 211)

CBD, Amendment No. 10 and West End, Amendment No. 5 04-09 10/04/04

Extended the effectiveness date of redevelopment plan by one year (Senate Bill 1045 ERAF)

CBD, Amendment No. 11 & West End Amendment No. 6 06-O11 10/02/06

Added eminent domain authority to Merged Project Area.

CBD, Amendment No. 12 and West End, Amendment No. 7 07-O4 02/05/07

Extended the effectiveness date of the redevelopment plan by two years (Senate Bill-1096 ERAF)

CBD, Amendment No. 13 and West End, Amendment No. 8 07-O7 06/18/07

Adopted eminent domain program and directed staff to record a revised Statement of Proceedings (Senate Bills 53 and 1809)

CBD, Amendment No. 14 and West End, Amendment No. 9 08-O9 06/26/08

Amended and restated the redevelopment plan, Added new territory to the Merged Project Area, Added eminent domain authority, Increased tax increment limit Re-instated eminent domain (2 parcels)

4

Plan Limitations Pursuant to the Redevelopment Law, redevelopment plans are required to include a monetary limit on the amount of tax increment revenue to be allocated to the redevelopment agency and on the amount of bonded indebtedness that can be outstanding at any given time. The California Redevelopment Law also limits the life of redevelopment plans and activities, the period during which a project area may receive tax increment and the period for establishment of indebtedness. These constraints can, and have been, extended by amending the redevelopment plans. The redevelopment plan limitations dates and amounts for the various Project Areas are summarized as follows:

TABLE III: REDEVELOPMENT PLAN LIMITATION DATES AND AMOUNTS

Time Limits Dollar Limits

SUB AREA Debt Incurrence Plan Effectiveness Debt

Repayment Cumulative Tax

Increment Outstanding Bond Debt

CBD Area (original) None 9/18/2021 9/18/2031

$300,000,000 Combined

$68,000,000 Combined

Amendment No. 1 Area None 7/2/2022 7/2/2032

Amendment No. 2 Area None 7/20/2024 7/20/2034

Amendment No. 3 Area None 11/28/2026 11/28/2036

Amendment No. 5 Area None 12/17/2026 12/17/2036

West End Area (original) None 11/28/2026 11/28/2036

Amendment No. 8 Area 11/6/2023 11/6/2033 11/6/2048 None

Amendment No. 14 Area 6/26/2028 6/26/2038 6/26/2053 None

Project Tax Rate Areas The tax rate area numbers used by the Los Angeles County Auditor-Controller’s Office to identify tax revenue apportionment for the Merged Project Area are summarized in the following table.

TABLE IV: PROJECT TAX RATE AREA ID NUMBERS

SUB AREA ID NUMBERS

CBD Area (original) 02069

Amendment No. 1 Area 08816

Amendment No. 2 Area 08814, 08819, 08820

Amendment No. 3 Area 02001, 02002, 02005, 02007, 02010, 02012, 02015, 02017, 02020, 02146, 02148, 02235, 08525, 12132, 12646, 13224

Amendment No. 5 Area 08718

West End Area (original) 02021, 02022, 02029, 03216, 08534, 08538, 08546

Amendment No. 8 Area 13542, 13544, 13545, 13546, 13547

Amendment No. 14 Area * *The State Board of Equalization and the Los Angeles County Auditor-Controller have not yet determined the tax rate area numbers for the Amendment No. 14 Area.

5

Low- and Moderate-Income Housing Set-Aside Pursuant to Section 33334.2 of California Redevelopment Law, the Agency must set aside 20 percent of annual tax increment allocated to the Agency, for use in projects benefiting low- and moderate- income housing (the "LMI Housing Set-Aside"). LMI Housing Set-Aside are included in the Pledged Tax Revenues (See Exhibit A). Pass Through Agreements The Agency has entered into tax sharing agreements with taxing entities in Amendment 2, Amendment 3, Amendment 5 and West End Project Areas only. The following tables summarize the provisions of the tax increment agreements with the affected taxing entities.

TABLE V: SUMMARY OF TAX SHARING AGREEMENTS:

SUB AREA TAXING ENTITY PROVISIONS

Amendment No. 2 Area

Los Angeles County and County Flood Control

40% of the annual general levy tax increment revenues

Amendment No. 3 Area

Los Angeles County and County Flood Control

55.1% of the annual general levy tax increment revenues

Amendment No. 5 Area

Los Angeles County and County Flood Control

52% of the annual general levy tax increment revenues (net of housing set-aside)

Amendment No. 5 Area Azusa Unified School District 5.11% of the annual general levy tax increment

revenues (net of housing set-aside)

West End Area Los Angeles County and County Flood Control

15% of the annual general levy tax increment revenues (net of housing set-aside) from area located within “Parcel A”

West End Area Los Angeles County and County Flood Control

52% of the annual general levy tax increment revenues (net of housing set-aside) from area located outside “Parcel A”

Statutory Tax Sharing Payments The Central Business District Amendment No. 8 and the Central Business District Amendment No. 14 redevelopment plans were adopted after December 31, 1994 and therefore, the Agency is obligated under Health & Safety Code Section 33607.5 (the "AB 1290 Pass Through Formula") to share tax increment revenues generated in the Amendment No. 8 Area and Amendment No. 14 Area with affected taxing entities. Once it begins to collect tax increment revenues from the Amendment No. 14 Area (FY 2009-10), the Agency will begin to share AB 1290 pass throughs from such area. As a result of eliminating the debt incurrence deadline in CBD, Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 5 and West End Project Areas, the Agency will also be obligated to share future tax increment revenues from these Project Areas, based on the AB 1290 Pass Through Formula with any taxing entity that does not currently have a tax sharing agreement. Tax sharing payments for these 6 Project Areas began in fiscal year 2004-05, and are calculated with 2003-04 assessed values as an adjusted base year value. Generally, the AB 1290 Pass Through Formula is as follows: Pass Through(1) Tier A (Years 1-10) 25% Tier B (Years 11-30) 21% + Tier A Tier C (Years 31-40) 14% + Tiers A & B _______________ (1) Percentage of entity’s share of tax increment reduced by pro-rata share of Agency’s low and moderate housing

set-aside. As required by the Law, the Statutory Tax Sharing payments will continue for each Project Area until the termination date for redevelopment activities of the individual project sub area. The Agency has sought

6

subordination from the tax sharing entities entitled to receive a share of Tax Increment Revenue. As such, all Statutory Tax Sharing pass through obligations are subordinate to the debt service requirements of the Agency for the 2008 Bonds. County Collection Fees As permitted by Chapter 466, the County of Los Angeles Auditor-Controller deducts administration charges from the tax increment distributed to the Agency for the Merged Project Area. For fiscal year 2007-08 the county administrative fees totaled $88,570. For the purposes of this report, we have estimated the administration charges to be 1.25% of gross tax increment. We have assumed that the administrative charges will continue to be collected by the Auditor Controller and will increase proportionally with the increases in revenues. County collection fees have been deducted from the projected Tax Increment Revenues (see: Exhibit A, TABLE 5-A). Educational Revenue Augmentation Fund (ERAF) Over the past several years, the state has experienced revenue shortfalls in its budget. To fully fund the state’s commitment to Proposition 98 (K-12 School Funding), legislation was approved that mandated redevelopment agencies statewide transfer $75 million of tax increment revenue to ERAF in 2002-03, $135 million in 2003-04, and $250 million in 2004-05 and 2005-06. The transfer of funds from redevelopment agencies to ERAF was established based on two criteria; 1) gross tax increment, and 2) available net revenues available after tax sharing payments. In 2006-07 and 2007-08 the state budget did not require a transfer of tax increment to ERAF. For 2008-09 the state budget has not been adopted as of the date of this report, and therefore, no transfer of tax increment to ERAF is required. However, once again the state is experiencing revenue shortfalls to meet its budget obligations. To address this shortfall of revenue the State Legislative Analyst Office is recommending a transfer of tax increment to ERAF equal to 5 percent of an agency’s tax increment revenue for a period of three years. At this point, the method of reaching the 5 percent figure has not been discussed and no action beyond the above recommendation has been made. Unitary Tax Revenues Unitary Tax Revenues are revenues derived from utility property assessed by the State Board of Equalization. The Auditor Controller allocated a total of $83,123 of unitary revenue to the Merged Project Area for 2007-08. The amount of unitary revenues allocated to each Project Area are summarized as follows:

TABLE VI

UNITARY REVENUES

SUB AREA 2007-08 REVENUES

Original CBD Area 54,819 Amendment No. 1 Area 25 Amendment No. 2 Area 707 Amendment No. 3 Area 1,760 Amendment No. 5 Area 913 Original West End Area 24,812

Amendment No. 8 87 Amendment No. 14 0

For the purposes of the tax increment projections in this report, we have assumed that unitary revenues will continue to be allocated to each Project Area and such amounts will remain constant for the life of the plans. Assessment Appeals In Los Angeles County, a property owner desiring to reduce the assessed value of such owner's property in

7

any one year must submit an application to the Los Angeles County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. The Appeals Board, within two years of each applicant's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment. There are currently 7 appeals pending for properties in the Project Area, with a total current assessed valuation of $22,490,490. Based on the actual valuation reductions allowed by the Appeals Board for property in the Project Area over the last five years, it is estimated that the pending appeals could result in partial reductions in Project Area valuation in the amount of $10,552,690, which would then reduce project area gross tax increment by approximately $108,270.60. This estimated amount has not been deducted from the projections of tax increment in Exhibit A, as the outcome of the pending appeals cannot be predicted with certainty. * * * * * While UFI has taken steps to assure the accuracy of the data used in the formulation of these projections, we cannot insure that projected valuations will, in fact, be realized because actual values will most likely be affected by future events and conditions that cannot be predicted with certainty. We believe that this report provides the Redevelopment Agency of the City of Azusa with a reasonable basis for demonstrating the available tax increment revenues of the Amended and Restated Merged Central Business District and West End Redevelopment Project Area. We are available to answer any questions that you may have regarding this information. Sincerely, URBAN FUTURES, INC.

EXHIBIT A

TABLE NUMBER TITLE

TABLE 1:TABLE 2:TABLE 3:TABLE 4:

TABLE 5A: TAX INCREMENT PROJECTIONS Summary: Merged Project AreaTABLE 5B: HISTORICAL ASSESSED VALUES Summary: All Sub AreasTABLE 5C: TOP TEN TAX PAYERS Summary: All Sub AreasTABLE 5D: LAND USE BREAKDOWN Summary: All Sub AreasTABLE 6A: TAX INCREMENT PROJECTIONS Component Sub-Area: CBDTABLE 6B: HISTORICAL ASSESSED VALUES Component Sub-Area: CBDTABLE 6C: TOP TEN TAX PAYERS Component Sub-Area: CBDTABLE 6D: LAND USE BREAKDOWN Component Sub-Area: CBDTABLE 7A: TAX INCREMENT PROJECTIONS Component Sub-Area: Amend. No. 1TABLE 7B: HISTORICAL ASSESSED VALUES Component Sub-Area: Amend. No. 1TABLE 7C: TOP TEN TAX PAYERS Component Sub-Area: Amend. No. 1TABLE 7D: LAND USE BREAKDOWN Component Sub-Area: Amend. No. 1TABLE 8A: TAX INCREMENT PROJECTIONS Component Sub-Area: Amend. No. 2TABLE 8B: HISTORICAL ASSESSED VALUES Component Sub-Area: Amend. No. 2TABLE 8C: TOP TEN TAX PAYERS Component Sub-Area: Amend. No. 2TABLE 8D: LAND USE BREAKDOWN Component Sub-Area: Amend. No. 2TABLE 9A: TAX INCREMENT PROJECTIONS Component Sub-Area: Amend. No. 3TABLE 9B: HISTORICAL ASSESSED VALUES Component Sub-Area: Amend. No. 3TABLE 9C: TOP TEN TAX PAYERS Component Sub-Area: Amend. No. 3TABLE 9D: LAND USE BREAKDOWN Component Sub-Area: Amend. No. 3TABLE 10A: TAX INCREMENT PROJECTIONS Component Sub-Area: Amend. No. 5TABLE 10B: HISTORICAL ASSESSED VALUES Component Sub-Area: Amend. No. 5TABLE 10C: TOP TEN TAX PAYERS Component Sub-Area: Amend. No. 5TABLE 10D: LAND USE BREAKDOWN Component Sub-Area: Amend. No. 5TABLE 11A: TAX INCREMENT PROJECTIONS Component Sub-Area: Amend. No. 8TABLE 11B: HISTORICAL ASSESSED VALUES Component Sub-Area: Amend. No. 8TABLE 11C: TOP TEN TAX PAYERS Component Sub-Area: Amend. No. 8TABLE 11D: LAND USE BREAKDOWN Component Sub-Area: Amend. No. 8TABLE 12A: TAX INCREMENT PROJECTIONS Component Sub-Area: West EndTABLE 12B: HISTORICAL ASSESSED VALUES Component Sub-Area: West EndTABLE 12C: TOP TEN TAX PAYERS Component Sub-Area: West EndTABLE 12D: LAND USE BREAKDOWN Component Sub-Area: West EndTABLE 13:TABLE 14:TABLE 15:

PROPERTY TAX COLLECTIONSHISTORICAL ASSESSMENT APPEALS

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA

CHART OF TABLESAMENDED AND RESTATED MERGED CENTRAL BUSINESS DISTRICT AND WEST END REDEVELOPMENT

REDEVELOPMENT PLAN LIMITATION DATES AND AMOUNTSTAX RATE AREA NUMBERS UNITARY REVENUES FOR 2007-08PROJECT AREA TAX RATES FOR 2007-08

ADDITIONAL VALUE FOR NEW DEVELOPMENT

8

SUB AREA Debt Incurrence Plan Effectiveness Debt Repayment Cumulative Tax Increment Outstanding Bond Debt

Original CBD Area None 9/18/2021 9/18/2031 $300,000,000 $68,000,000 Amendment No. 1 Area None 7/2/2022 7/2/2032 Combined CombinedAmendment No. 2 Area None 7/20/2024 7/20/2034Amendment No. 3 Area None 11/28/2026 11/28/2036Amendment No. 5 Area None 12/17/2026 12/17/2036Original West End Area None 11/28/2026 11/28/2036

Amendment No. 8 11/6/2023 11/6/2033 11/6/2048 NoneAmendment No. 14 6/26/2028 6/26/2038 6/26/2053 None

SUB AREA

Original CBD AreaAmend. No. 1 AreaAmend. No. 2 Area

Amend. No. 3 AreaAmend. No. 5 Area

West End AreaAmend. No. 8 AreaAmend. No. 14 Area

13542, 13544, 13545, 13546, 13547----

20698816

08814, 08819, 08820

02001, 02002, 02005, 02007, 02010, 02012, 02015, 02017, 02020, 02146, 02148, 02235, 08525, 12132, 12646, 13224

871802021, 02022, 02029, 03216, 08534, 08538, 08546

TABLE 1:

Time Limits Dollar Limits

TABLE 2:

ID NUMBERS

TAX RATE AREAS

REDEVELOPMENT PLAN LIMITATION DATES AND AMOUNTS

9

SUB AREA

Original CBD AreaAmend. No. 1 AreaAmend. No. 2 AreaAmend. No. 3 AreaAmend. No. 5 Area

West End AreaAmend. No. 8 AreaAmend. No. 14 Area

RATE I RATE II RATE III RATE IV

AFFECTED TRAs 14 13 6 1

San Gabriel Valley Muni. Water 0.020000 0.013100 0.020000

Azusa Unified School District 0.009763 0.009763 0.009763

Metropolitan Water District 0.004500 0.004500

RDA Tax Rate 1.029763 1.014263 1.027363 1.020000

Azusa Unified School Dist. 0.050653 0.050653 0.050653

Citrus Community College Dist. 0.016112 0.016112 0.016112 0.016112

Duarte Unified School District 0.060628

Total Tax Rate: 1.096528 1.081028 1.094128 1.096740

PROJECT AREA TAX RATES FOR 2007-08TABLE 4:

TABLE 3:2007-08 UNITARY REVENUES FOR 2007-08

REVENUES

54,81925707

1,760913

24,812870

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,278

(2,0

63,0

56)

(128

,941

)(2

,561

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)5,

562,

193

411

-12

1,25

7,75

3,67

21,

060,

575,

395

10,9

64,6

27(2

,192

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37,0

58)

(2,7

05,6

58)

5,92

8,98

55

12-1

31,

282,

908,

745

1,08

5,73

0,46

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(2,2

44,5

44)

(140

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)(2

,769

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068,

672

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6,92

01,

111,

388,

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43,5

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1,19

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61,5

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(153

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655,

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319

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341

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3,48

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5,33

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0,54

1,43

62,

057,

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1,62

0,39

3

TAB

LE 5

A:

RE

DE

VE

LOP

ME

NT

AG

EN

CY

OF

THE

CIT

Y O

F A

ZUS

AA

ME

ND

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Sum

mar

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t Are

a

11

Bas

e Ye

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ombi

ned

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

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Secu

red

(1)

Lan

d61

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191,

141,

441

219,

637,

146

247,

652,

781

284,

153,

853

326,

822,

713

373,

016,

347

398,

807,

233

Im

prov

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ts83

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296,

024,

832

293,

374,

185

329,

439,

597

367,

173,

418

406,

783,

740

406,

769,

138

424,

862,

752

Per

sona

l Pro

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57,0

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74,4

03,9

8875

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50,9

50,2

1441

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36,6

7732

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mpt

ion s

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94,9

62-7

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Tota

l Sec

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16

7,12

0,72

352

4,28

4,88

358

0,31

3,34

964

4,32

4,16

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2,49

6,87

576

4,96

2,35

179

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43,4

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600,

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TAB

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Com

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%8.

60%

2.43

%5.

35%

(1) S

ecur

ed v

alue

s in

clud

e st

ate

asse

ssed

pub

lic u

tility

pro

perty

RED

EVEL

OPM

ENT

AG

ENC

Y O

F TH

E C

ITY

OF

AZU

SAA

ME

ND

ED

AN

D R

ES

TATE

D M

ER

GE

D C

EN

TRA

L B

US

INE

SS

DIS

TRIC

T A

ND

WE

ST

EN

D R

ED

EV

ELO

PM

EN

T P

RO

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T A

RE

A

His

toric

al A

sses

sed

Valu

es

Com

pone

nt S

ub-A

rea:

Wes

t End

TAB

LE 1

2B:

40

2008

-09

Sec

ured

Per

cent

of

Taxp

ayer

Ass

esse

d V

alua

tion

Land

Use

Tota

l A.V

. (1)

1.N

orth

rop

Gru

mm

an S

yste

ms

Cor

pora

tion

$113

,612

,200

Indu

stria

l23

.06%

2.C

riter

ion

Cat

alys

t Com

pany

, LP

19,5

29,8

54In

dust

rial

3.96

%3.

Wal

ton

CW

CA

Foo

thill

40,

LLC

17,1

36,0

00In

dust

rial

3.48

%4.

Cos

tco

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lesa

le C

orp

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29,5

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omm

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al3.

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eich

hold

Inc

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95,8

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rial

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ical

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e, L

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mer

cial

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%7.

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iforn

ia A

mfo

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p9,

061,

713

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stria

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84%

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e N

orac

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Inc

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0,62

5In

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rial

1.67

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Pric

e S

elf S

tora

ge A

zusa

, LLC

7,71

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iv, L

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880

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stria

l1.

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All

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ers

272,

357,

566

$220

,173

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44.6

9%

(1)

Bas

ed o

n Fi

scal

Yea

r 200

8-09

loca

l sec

ured

ass

esse

d va

luat

ion:

$49

2,70

6,74

7#

492,

706,

747

Sou

rce:

Urb

an F

utur

es, I

nc.

RED

EVEL

OPM

ENT

AG

ENC

Y O

F TH

E C

ITY

OF

AZU

SA

Com

pone

nt S

ub-A

rea:

Wes

t End

Top

Ten

Tax

Paye

rs

AM

EN

DE

D A

ND

RE

STA

TE M

ER

GE

D C

EN

TRA

L B

US

INE

SS

DIS

TRIC

T A

ND

WE

ST

EN

D R

ED

EV

ELO

PM

EN

T P

RO

JEC

T A

RE

A

Fisc

al Y

ear 2

008-

09

TAB

LE 1

2C

41

TAB

LE12

D:

Num

ber o

f20

08-0

9 S

ecur

edP

erce

nt o

fLa

nd U

seP

arce

lsA

sses

sed

Val

uatio

nS

ecur

ed A

.V.(1

)

Indu

stria

l 26

4$3

74,6

05,4

2076

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Com

mer

cial

61

50,9

02,4

7610

.33%

Sin

gle

Fam

ily R

esid

entia

l11

347

,109

,293

9.56

%V

acan

t53

19,0

23,7

433.

86%

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itutio

nal

1192

9,37

40.

19%

Rec

reat

iona

l1

122,

833

0.02

%M

isce

llane

ous

2013

,608

0.00

%

Tota

l52

3$4

92,7

06,7

4710

0.00

%

413,

446,

433

(1)

Bas

ed o

n Fi

scal

Yea

r 200

8-09

loca

l sec

ured

ass

esse

d va

luat

ion:

$49

2,70

6,74

749

2,70

6,74

7S

ourc

e: U

rban

Fut

ures

, Inc

.

Com

pone

nt S

ub-A

rea:

Wes

t End

Am

ende

d an

d R

esta

ted

Mer

ged

Cen

tral B

usin

ess

Dis

trict

and

Wes

t End

Red

evel

opm

ent P

roje

ct A

rea

RED

EVEL

OPM

ENT

AG

ENC

Y O

F TH

E C

ITY

OF

AZU

SA

Land

Use

Bre

akdo

wn

Fisc

al Y

ear 2

008-

09

42

FISCAL YEAR Project Area DEVELOPMENT DESCRIPTION VALUATION AT COMPLETION

2009-10 CBD (Original Area) Residential 66 Units 47,400,000.00

2009-10 Amend. No. 8 Citrus Crossing 105 Units 67,071,429.00

2010-11 CBD (Original Area) Target 159,000 sq. ft. 51,369,231.00

2010-11 CBD (Original Area) Residential 65,000 sq. ft. 47,000,000.00

2011-12 CBD (Original Area) Commercial 45,000 sq. ft. 14,400,000.00

2011-12 West End Facility Material Recovery 25,000,000.00

TABLE 13ADDITIONAL VALUE FOR NEW DEVELOPMENT

43

Fisc

al Y

ear 2

006-

07C

BD

Am

end.

1A

men

d. 2

Am

end.

3A

men

d. 5

Wes

t End

Am

end.

8

Adj

uste

d Ta

x Le

vy74

3,25

6.50

8,78

7.46

511,

958.

0677

0,93

5.98

382,

111.

503,

804,

507.

5515

3,20

3.44

Tota

l Cur

rent

YR

App

ortio

nmen

t69

0,93

7.65

8,78

7.44

503,

333.

9374

8,52

9.33

382,

110.

743,

749,

943.

0712

1,41

0.98

Cur

rent

Yea

r Col

lect

ion

%92

.96%

100.

00%

98.3

2%97

.09%

100.

00%

98.5

7%79

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Prio

r YR

Col

lect

ion

54,2

13.9

62,

686.

9843

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46,5

83.3

811

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7139

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4,78

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180,

452.

93To

tal C

olle

ctio

n %

100.

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130.

58%

106.

86%

103.

14%

103.

08%

100.

27%

117.

79%

Fisc

al Y

ear 2

007-

08C

BD

Am

end.

1A

men

d. 2

Am

end.

3A

men

d. 5

Wes

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Am

end.

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Adj

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d Ta

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3,15

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urre

nt Y

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ppor

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ent

756,

358.

6510

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511,

789.

5779

2,67

4.65

401,

148.

713,

706,

973.

3113

8,41

3.69

Cur

rent

Yea

r Col

lect

ion

%94

.17%

99.9

9%96

.94%

95.0

1%99

.98%

98.2

4%81

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Prio

r YR

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lect

ion

39,4

48.9

55,

964.

1848

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5,72

6.90

3,48

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125,

726.

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tal A

ppor

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ent

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807.

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560,

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6779

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1.55

404,

629.

613,

833,

242.

4314

4,14

0.59

Tota

l Col

lect

ion

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.08%

154.

52%

106.

13%

95.7

0%10

0.85

%10

1.59

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Sou

rce:

Los

Ang

eles

Cou

nty

Aud

itor-

Con

trolle

r's O

ffice

, "R

even

ue a

nd N

et C

olle

ctio

ns L

edge

r"

TAB

LE 1

4PR

OPE

RTY

TA

X C

OLL

ECTI

ON

S

44

Cur

rent

A

sses

smen

t A

ppea

ls

Out

stan

ding

(Orig

inal

AV

)

Cur

rent

A

sses

smen

t A

ppea

ls

Out

stan

ding

(Opi

nion

AV

)P

oten

tial

Red

uctio

n in

AV

10 Y

ear H

isto

ry o

f A

ppea

ls

(Orig

inal

AV

)

10 Y

ear H

isto

ry o

f R

educ

tions

Allo

wed

(n

et re

duct

ion

amou

nt)

10 Y

ear

His

toric

al

Num

ber o

f A

ppea

ls

10 Y

ear

His

toric

al

Num

ber o

f S

ucce

ssfu

l A

ppea

ls

10 Y

ear

His

toric

al

Per

cent

age

of

App

eals

A

llow

ed

Cen

tral B

usin

ess

Dis

trict

$2,9

16,0

00

$1,5

14,0

55

$1,4

01,9

45$5

,295

,617

$4

,700

,000

34

38.

82%

Am

endm

ent N

o. 1

$0

$0

$0$0

$0

0

00.

00%

Am

endm

ent N

o. 2

$389

,000

$2

90,0

00

$99,

000

$8,0

97,0

00

$7,0

00,0

00

51

20.0

0%

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endm

ent N

o. 3

$0

$0

$0$0

$0

3

00.

00%

Am

endm

ent N

o. 5

$0

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$0$0

$0

9

00.

00%

Am

endm

ent N

o. 8

$0

$0

$0$0

$0

0

00

Wes

t End

$19,

185,

490

$10,

133,

745

$9,0

51,7

45$1

8,23

4,72

2 $1

4,79

9,00

9 14

56

4.14

%

TOTA

LS$2

2,49

0,49

0 $1

1,93

7,80

0 $1

0,55

2,69

0$3

1,62

7,33

9 $2

6,49

9,00

9 19

610

5.10

%

Sou

rce:

Urb

an F

utur

es In

c an

d th

e LA

Cou

nty

Cle

rk o

f the

Boa

rd o

f Sup

ervi

sors

TAB

LE 1

5R

EDEV

ELO

PMEN

T A

GEN

CY

OF

THE

CIT

Y O

F A

ZUSA

AM

EN

DE

D A

ND

RE

STA

TED

ME

RG

ED

CE

NTR

AL

BU

SIN

ES

S D

ISTR

ICT

AN

D W

ES

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ND

RE

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VE

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ME

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OJE

CT

AR

EA

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toric

al A

sses

smen

t App

eals

Janu

ary

1, 1

998

thro

ugh

June

30,

200

8

45

(THIS PAGE INTENTIONALLY LEFT BLANK)

D-1

APPENDIX D

FORM OF BOND COUNSEL OPINION

Closing Date

Redevelopment Agency of the City of Azusa 213 East Foothill Boulevard Azusa, California, 91702

Re: $6,715,000 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Second Subordinate Lien), 2008 Series A

Members of the Redevelopment Agency:

We have acted as bond counsel in connection with the issuance by the Redevelopment Agency of the City of Azusa (the “Agency”) of its $6,715,000 aggregate principal amount Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Projects Tax Allocation Bonds, 2008 Series A (the “Series A Bonds”). The Series A Bonds are issued pursuant to the provisions of (i) the Community Redevelopment Law, being Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code of the State of California (the “Law”), (ii) Resolution No. 08-R46 adopted by the Agency on November 3, 2008 (the “Resolution”) and (iii) a Trust Indenture dated as of July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association as amended and supplemented by that First Supplement to Trust Indenture, dated as of December 1, 2008 (together the “Indenture”). We have examined the Law, the Resolution, the Indenture and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Agency contained in the Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify such facts by independent investigation.

Based upon our examination, we are of the opinion, as of the date hereof, that:

1. The Agency is a duly organized and validly existing public body, corporate and politic.

2. The Series A Bonds constitute valid, legal and binding special obligations of the Agency enforceable in accordance with their terms.

3. The Indenture has been duly approved by the Agency and constitutes valid, legal and binding obligations of the Agency enforceable in accordance with its terms. The Indenture creates a valid lien on funds pledged by the Indenture for the security of the Bonds, comprised of Subordinate Tax Revenues (as defined in the Indenture) and certain amounts in the funds and accounts for the Bonds.

4. The Internal Revenue Code of 1986, as amended (the “Code”), sets forth certain investment, rebate and related requirements which must be met subsequent to the issuance and delivery of the Series A Bonds for the interest on the Series A Bonds to be and remain excluded from gross income for purposes of

D-2

federal income taxation. Noncompliance with such requirements could cause the interest on the Series A Bonds to be subject to federal income taxation retroactive to the date of issue of the Series A Bonds. Pursuant to the Subordinate Lien Indenture, the Agency has covenanted to comply with the requirements of the Code. We are of the opinion that, assuming compliance with the aforementioned covenant, the interest on the Series A Bonds is excluded from gross income for purposes of federal income taxation under existing statutes, regulations, rulings and court decisions. We are further of the opinion that interest on the Series A Bonds is not a specific preference item for purposes of the alternative minimum tax provisions of the Code. However, interest on the Series A Bonds received by corporations will be included in corporate adjusted current earnings, a portion of which may increase the alternative minimum taxable income of such corporations. Although the interest on the Series A Bonds is excluded from gross income for federal tax purposes, the accrual or receipt of interest on the Series A Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend on the recipient’s particular tax status or other items of income or deduction. We express no opinion regarding any such consequences.

5. Interest on the Series A Bonds is exempt from personal income taxation imposed by the State of California.

The opinions expressed herein may be affected by actions which may be taken (or not taken) or events which may occur (or not occur) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur or are not taken or do not occur.

The rights of the owners of the Series A Bonds and the enforceability of the Series A Bonds and the Indenture may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Respectfully submitted,

E-1

APPENDIX E

SUMMARY OF LEGAL DOCUMENTS

The following is a summary of certain provisions of the Indenture and does not purport to be complete. Reference is hereby made to the Indenture which is available from the Agency upon request. Any capitalized term not otherwise defined in this summary is as defined in the Subordinate Lien Indenture.

DEFINITIONS

“Agency” means the Redevelopment Agency of the City of Azusa, a public body, corporate and politic, established under the Law.

“Annual Debt Service” means, for each Fiscal Year, the sum of (a) the interest payable on the Outstanding Bonds in such Fiscal Year, assuming that the Outstanding Serial Bonds are retired as scheduled and that the Outstanding Term Bonds are redeemed from sinking fund payments as scheduled and (b) the principal amount of the Outstanding Serial Bonds payable by their terms in such Fiscal Year and the principal amount of the Outstanding Term Bonds scheduled to be paid or redeemed from sinking fund payments in such Fiscal Year, excluding the redemption premiums, if any, thereon. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Bonds, determined among the maturities of such Parity Bonds in such manner as may be determined by the Agency in the Supplemental Indenture under which such Parity Bonds are issued, to the extent the proceeds thereof are then deposited in an escrow fund from which amounts may not be released to the Agency except in accordance with the provisions of Section 3.03 of the Subordinate Lien Indenture relating to Parity Bonds.

“Bond Counsel” means any attorney or firm of attorneys nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities and selected by the Agency.

“Bond Fund” means the fund by that name established pursuant to Section 5.03 of the Subordinate Lien Indenture.

“Bond Year” means, with respect to the Series A Bonds, the twelve-month period extending from August 2 in any year to the following August 1, both dates inclusive; provided, however, that the first Bond Year shall begin on the Closing Date and end on August 1, 2009, and with respect to any Parity Bonds shall have the meaning ascribed in any Supplemental Indenture relating thereto.

“Book-Entry Depository” shall mean DTC or any successor as Book-Entry Depository for Series A Bonds, appointed pursuant to Section 2.12 of the Subordinate Lien Indenture.

“Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California, and the city in which the Corporate Trust Office is located, are authorized or obligated by law to be closed.

“Chair” means the chairperson of the Agency appointed pursuant to Section 33113 of the Health and Safety Code of the State of California, or other duly appointed officer of the Agency authorized by the Agency by resolution or by law to perform the functions of the chairperson in the event of the chairperson's absence or disqualification.

“City” means the City of Azusa, California.

“Closing Date” means any date upon which there is a physical delivery of any series of Series A Bonds in exchange for an amount representing the purchase price of Series A Bonds by the original purchaser.

E-2

“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a provision of the Code shall be deemed to include the applicable Tax Regulations promulgated with respect to such provision.

“Continuing Disclosure Agreement” means the agreement of that name between the Agency and the dissemination agent named therein, dated the Closing Date and any amendments or supplements thereto.

“Corporate Trust Office” means the corporate trust office of the Trustee at 707 Wilshire Boulevard, Los Angeles, California 90017, Attn: Corporate Trust Services or such other address as it shall designate in writing to the Agency and the Owners.

“2008 Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the Agency relating to the authorization, issuance, sale and delivery of the 2008 Bonds, including but not limited to printing expenses, costs of cash flow verifications, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Trustee and its counsel (including the Trustee's first annual administrative fee), fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the 2008 Bonds and any other cost, charge or fee in connection with the original issuance of the 2008 Bonds.

“County” means Los Angeles County, California.

“County Assessor” means the person who holds the office in the County in which the Agency is located designated as the County Assessor, or one of his duly appointed deputies, or any person or persons performing substantially the same duties in the event said office is ever abolished or changed.

“County Auditor-Controller” means the person who holds the office in the County in which the Agency is located designated as the County Auditor-Controller, or one of his duly appointed deputies, or any person or persons performing substantially the same duties in the event said office is ever abolished or changed.

“Defeasance Obligations” mean any of the following:

1. Cash.

2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series B “SLGS”).

3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities

4. Resolution Funding Corp. (REFCORP), only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable.

5. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.:

a. Farmers Home Administration (FmHA).

Certificates of beneficial ownership

b. General Services Administration

Participation certificates

c. U.S. Maritime Administration

Guaranteed Title XI financing

E-3

“DTC” shall mean The Depository Trust Company, New York, New York, and its successors and assigns.

“Executive Director” means the executive director of the Agency appointed pursuant to the Law, or other duly appointed officer of the Agency authorized by the Agency by resolution or by law to perform the functions of the executive director including, without limitation, any deputy executive director of the Agency.

“Event of Default” means any of the events described in Section 9.01 of the Subordinate Lien Indenture.

“Fiscal Year” means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both inclusive, or any other twelve-month period hereafter selected and designated by the Agency as its official fiscal year period.

“Independent Certified Public Accountant” means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State of California, appointed by the Agency, and who, or each of whom:

1. is in fact independent and not under domination of the Agency;

2. does not have any substantial interest, direct or indirect, with the Agency; and

3. is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

“Independent Financial Consultant” means any financial consultant or firm of such consultants appointed by the Agency, and who, or each of whom:

(1) is in fact independent and not under domination of the Agency;

(2) does not have any substantial interest, direct or indirect, with the Agency; and

(3) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

“Information Services” means Financial Information, Incorporated's “Daily Called Bond Service,” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor, Mergent/MIS,” 5250 77 Center Drive, Suite 150, Charlotte, NC 28217, Attention: Called Bonds Department; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; or in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds, or no such services, as the Agency may indicate in a certificate of the Agency delivered to the Trustee.

“Insurer” means Ambac Assurance Corporation, as insurer of the 2007 Bonds.

“Interest Account” means the Account by that name established pursuant to Section 5.03 of the Subordinate Lien Indenture.

“Interest Payment Date” means February 1 and August 1 in any year in which Bonds are Outstanding, commencing February 1, 2009.

“Law” means the Community Redevelopment Law of the State of California, constituting Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code of the State of California, and the acts amendatory thereof and supplemental thereto.

“Maximum Annual Debt Service” means, as of the date of any calculation, the largest Annual Debt Service with respect to Series A Bonds during the current or any future Fiscal Year.

E-4

“Moody's” means Moody's Investors Service, its successors and assigns.

“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 8.04 of the Subordinate Lien Indenture) all Bonds except

(1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;

(2) Bonds paid or deemed to have been paid within the meaning of Section 10.03 of the Subordinate Lien Indenture (regardless of whether all Bonds shall have been so paid or so deemed to have been paid); and

(3) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant to the Subordinate Lien Indenture or any Supplemental Indenture.

“Owner” or “Bondowner” means the person or persons whose name appears on the registration books maintained by the Trustee as the registered owner of a Series A Bond or Series A Bonds.

“Parity Bonds” means any bonds, notes, loans, advances, or indebtedness issued or incurred by the Agency on parity with the Series A Bonds in accordance with the provisions of Sections 3.03 and 3.04 of the Subordinate Lien Indenture.

“Participant” means those broker-dealers, banks and other financial institutions from time to time for which DTC holds Series A Bonds as securities depository.

“Permitted Investments” means:

(i) Certificates or interest-bearing notes or obligations of the United States, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest;

(ii) Investments in any of the following obligations provided such obligations are backed by the full faith and credit of the United States (a) direct obligations or fully guaranteed certificates of beneficial interest of the Export-Import Bank of the United States, (b) debentures of the Federal Housing Administration, (c) guaranteed mortgage backed bonds of the Government National Mortgage Association, (d) certificates of beneficial interest of the Farmers Home Administration, (e) obligations of the Federal Financing Bank or (f) project notes and local authority bonds of the Department of Housing and Urban Development;

(iii) Investments in (a) senior obligations of the Federal Home Loan Bank System, (b) participation certificates or senior debt obligations of the Federal Home Loan Mortgage Corporation, (c) mortgage-backed securities and senior debt obligations (excluding stripped mortgage securities that are valued greater than par on the portion of unpaid principal) of the Federal National Mortgage Association or (d) senior debt obligations of the Student Loan Marketing Association;

(iv) Repurchase agreements with primary dealers and/or banks rated, at all times, AA and AA2 or better by S&P and Moody's, respectively, collateralized with the obligations described in (i) or (ii) above, held by a third party custodian, at the levels set forth below;

(v) S.E.C. registered money market mutual funds conforming to Rule 2a-7 of the Investment Company Act of 1940 that invest primarily in direct obligations issued by the U.S. Treasury and repurchase agreements backed by those obligations, including funds for which the Trustee or an affiliate of the Trustee acts as an advisor, and rated in the highest category by S&P and Moody's;

(vi) Certificates of deposit of any bank (including the Trustee), trust company or savings and loan association whose short term obligations are rated, at all times, A-1 or better by S&P and P-1 by Moody's provided that such certificates of deposit are fully secured by the obligations described in

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(i) or (ii) above, at the levels set forth below, the Trustee has a perfected first security interest in the obligations securing the certificates and the Trustee holds (or shall have the option to appoint a bank, trust company or savings and loan association as its agent to hold) the obligations securing the certificates;

(vii) Certificates of deposit of any bank (including the Trustee), trust company or savings and loan association which certificates are fully insured by the Federal Deposit Insurance Corporation including certificates of deposit placed through the CDARS program;

(viii) Commercial paper rated, at all times, P-1 or better by Moody's and A-1+ by S&P;

(ix) Obligations of, or obligations fully guaranteed by, any state of the United States of America or any political subdivision thereof which obligations, at all times, are rated by S&P and Moody's in the highest rating categories (without regard to any refinement or graduation of rating category by numerical modifier or otherwise) and without regard to credit enhancement assigned by such rating agencies to obligations of that nature.

(x) The Local Agency Investment Fund in the State Treasury of the State of California as permitted by the State Treasurer pursuant to Section 16429.1 of the California Government Code or any similar pooled investment fund administered by the State, to the extent such investment is held in the name and to the credit of the Trustee.

Collateral Levels for United States Government Securities:

Remaining Maturity 1 Year

or less 5 Years or less

10 Years or less

15 Years or less

30 Years or less

Frequency of Valuation

Daily

102 105 106

107 113 Weekly

103 110 111

113 118

Monthly

106 116 119

123 130 Quarterly

106 118 128

130 135

Further Requirements: (1) On each valuation date the market value of the collateral will be an amount equal to the requisite collateral percentage of the obligation (including unpaid accrued interest) that is being secured. (2) In the event the collateral level is below its collateral percentage on a valuation date, such percentage shall be restored within the following restoration periods: One business day for daily valuations, two business days for weekly valuations, and one month for monthly and quarterly valuations. The use of different restoration periods affect the requisite collateral percentage. (3) The Trustee shall terminate the repurchase agreement upon a failure to maintain the requisite collateral percentage after the restoration period and, if not paid by the counterparty in federal funds against transfer of the repo securities, liquidate the collateral.

“Principal Account” means the Account by that name established pursuant to Section 5.03 of the Subordinate Lien Indenture.

“Principal Payment Date” means August 1 in each year in which any of the Series A Bonds mature or are subject to mandatory sinking fund redemption by their respective terms; and with respect to any Parity Bond means the stated maturity date of such Parity Bond.

“Purchase Price”, for the purpose of computation of the Yield of Series A Bonds, has the same meaning as the term “issue price” in Section 1273(b) and 1274 of the Code, and, in general, means the initial offering price to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of Series A Bonds are sold or, if Series A Bonds are privately placed, the price paid by the original purchaser thereof or the acquisition cost of such original purchaser. The term “Purchase Price,” for the purpose of computation of the Yield of Permitted

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Investments, means the fair market value of the Permitted Investments on the date of use of Bond proceeds for acquisition thereof, or if later, on the date that any Permitted Investment becomes a Nonpurpose Investment, as defined in the Code, of Series A Bonds.

“Rebate Account” means the Account by that name established and held by the Trustee pursuant to Section 7.10 of the Subordinate Lien Indenture.

“Record Date” means, with respect to any Interest Payment Date, the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day.

“Redemption Fund” means the fund by that name established by Section 5.04 of the Subordinate Lien Indenture.

“Redevelopment Consultant” means any consultant or firm of consultants appointed by the Agency and judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to financing in redevelopment project areas, and who, or each of whom:

(1) is in fact independent and not under domination of the Agency;

(2) does not have any substantial interest, direct or indirect, with the Agency; and

(3) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

“Redevelopment Fund” means the fund by that name held by the Agency.

“Redevelopment Plan” or “Plan” means the Redevelopment Plan for the Amended and Restated Merged Central Business District and West End Redevelopment Project Area approved and adopted by Ordinance No. 03-06, adopted by the City Council of the City of Azusa on October 6, 2003 thereafter and hereafter amended.

“Redevelopment Project” or “Project” means the undertaking of the Agency pursuant to the Redevelopment Plan, as amended, and the Law for the redevelopment of the Redevelopment Project Area.

“Redevelopment Project Area” or “Project Area” means the Redevelopment Project Area described in the Redevelopment Plan.

“Registration Books” means the records maintained by the Trustee pursuant to Section 2.07 of the Subordinate Lien Indenture for the registration and transfer of ownership of Series A Bonds.

“Report” means a Report in writing signed by an Independent Certified Public Accountant, Independent Financial Consultant or Redevelopment Consultant and including:

(1) a statement that the person or firm making or giving such Report has read the pertinent provisions of the Subordinate Lien Indenture to which such Report relates;

(2) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and

(3) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

“Representation Letter” shall mean the letter of representations from the Agency to, or other instrument or agreement of the Agency with, a Book-Entry Depository in which the Agency, among other things, makes certain representations to such Book-Entry Depository with respect to Series A Bonds, the payment thereof and delivery of notices with respect thereto.

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“Reserve Account” means the account by that name established pursuant to Section 5.03 of the Subordinate Lien Indenture, within which Reserve Account there may be created separate subaccounts with respect to each series of Series A Bonds.

“Reserve Requirement” means, with respect to Parity Bonds, as of the date of calculation an amount equal to the lesser of (i) 10% of the original proceeds of the 2008 Series A Bonds; (ii) Maximum Annual Debt Service on the Parity Bonds; or (iii) 125% of average Annual Debt Service on the Parity Bonds.

“S&P” shall mean Standard & Poor's Rating Service, a division of McGraw-Hill Companies, Inc., its successors and assigns.

“Securities Depositories” means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax (516) 227 4039 or 4190; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Agency may designate in a Written Request of the Agency delivered to the Trustee.

“Owner” or “Bondowner” means the person or persons whose name appears on the registration books maintained by the Trustee as the registered owner of a Series A Bond or Series A Bonds.

“Senior Lien Bonds” means the “Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Projects, Tax Allocation Refunding Bonds, 2003 Series A,” and the “Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds, 2005 Series A.”

“Serial Bonds” means with respect to the Series A Bonds, all of the Series A Bonds other than the Series A Bonds which are Term Bonds, and with respect to Parity Bonds, means all of Series A Bonds of such series of Parity Bonds of such series which are not Term Bonds.

“Special Fund” means the fund by that name established by Section 5.02 of the Subordinate Lien Indenture.

“State” means the State of California.

“Subordinate Tax Revenues” means Tax Revenues less the amounts necessary to pay debt service on the Senior Lien Bonds.

“Supplemental Indenture” means an agreement, resolution or other instrument then in full force and effect which has been duly adopted by the Agency, amendatory of or supplemental to the Subordinate Lien Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Subordinate Lien Indenture.

“Tax Regulations” means temporary and permanent regulations promulgated under Section 103 and related provisions of the Code.

“Tax Revenue Certificate” means a written certificate of an Independent Financial Consultant identifying the amount of Subordinate Tax Revenues shown on the records of the County Assessor to be received by the Agency in either the current Bond Year or any future Bond Year.

“Tax Revenues” means moneys paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth in the Subordinate Lien Indenture, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an

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exemption of such from such taxes. Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section 33401 of the Law prior to the date of the Subordinate Lien Indenture, except agreements which are subordinate in payment by their respective terms, (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section 33607.5 of the law, and (iii) that portion of Tax Revenues required by Section 33334.2 of the Law to be used by the Agency for increasing and improving the supply of low and moderate income housing.

“Term Bonds” means, with respect to the Series A Bonds, the Series A Bonds originally issued the Subordinate Lien Indenture maturing on August 1, 2023, August 1, 2028; and August 1, 2034; and with respect to any Parity Bonds, means such Parity Bonds which are payable on or before their specified Principal Payment Dates from sinking account payments established for that purpose and calculated to retire such Parity Bonds on or before their respective Principal Payment Dates.

“Treasurer” means the treasurer of the Agency appointed pursuant to the Law, or other duly appointed officer of the Agency authorized by the Agency by resolution delivered to the Trustee or by law to perform the functions of the treasurer including, without limitation, the Deputy Treasurer of the Agency.

“Trustee” means the Trustee appointed by the Agency and acting as an independent trustee with the duties and powers in the Subordinate Lien Indenture provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in Section 7.01 of the Subordinate Lien Indenture. The initial Trustee under the Subordinate Lien Indenture is Wells Fargo Bank, National Association.

“Written Request of the Agency” means an instrument in writing signed by any of the Chairman, the Executive Director, the Assistant Executive Director, the Chief Financial Officer, Treasurer or by any other officer of the Agency duly authorized by the Agency for that purpose.

“Yield” means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Permitted Investments which require payments in a form not characterized as principal and interest) on a Permitted Investment or on any series of Parity Bonds produces an amount equal to the Purchase Price of such Permitted Investment or any series of Parity Bonds, as the case may be, all computed as prescribed in the applicable Tax Regulations.

Tax Revenues; Funds and Accounts; Surplus

Costs of Issuance Fund. The Subordinate Lien Indenture establishes a separate fund to be known as the “Costs of Issuance Fund,” which shall be held by the Trustee in trust. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Agency stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. On the date six months following the Closing Date, or upon the earlier Written Request of the Agency stating that all known Costs of Issuance have been paid, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Agency to be applied for lawful redevelopment purposes.

Pledge of Tax Revenues. The Series A Bonds shall be secured by a pledge (which pledge shall be effected in the manner and to the extent hereinafter provided) of and first lien on all of the Subordinate Tax Revenues (except as otherwise provided in Section 5.02 of the Subordinate Lien Indenture), and, by a pledge of all of the moneys in the Special Fund, the Bond Fund, the Interest Account, the Principal Account, the Reserve Account and the Redemption Fund and investment earnings thereon except as provided in Section 7.10 of the Subordinate Lien Indenture. The Subordinate Tax Revenues shall be allocated solely to the payment of the principal and interest, and redemption premium, if any, of Series A Bonds and to the Reserve Account for the purposes set forth in Section 5.03 of the Subordinate Lien Indenture; except that the Subordinate Tax Revenues may be apportioned in such amounts for such other purposes as are expressly permitted by Section 5.02 of the Subordinate Lien Indenture. The pledge and allocation of Subordinate Tax Revenues is for the exclusive benefit

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of the Series A Bonds and shall be irrevocable until all of the Series A Bonds have been paid and retired or until moneys have been set aside irrevocably for that purpose.

In consideration of the acceptance of the Series A Bonds by those who shall own them from time to time, the Subordinate Lien Indenture shall be deemed to be and shall constitute a contract between the Agency and the Owners from time to time of the Series A Bonds and the covenants and agreements in the Subordinate Lien Indenture set forth to be performed on behalf of the Agency shall be for the equal and proportionate security and protection of all Owners of the Series A Bonds without preference, priority or distinction as to security or otherwise of any of the Series A Bonds over any of the others by reason of the number or date thereof, of the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein.

Special Fund; Deposit of Subordinate Tax Revenues. The Agency shall establish and hold a special fund to be known as the “Redevelopment Project Tax Allocation Bonds (Subordinate Lien) Special Fund” (the “Special Fund”). The Agency shall deposit all of the Subordinate Tax Revenues received in any Bond Year in the Special Fund promptly upon receipt thereof; provided, that the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Subordinate Tax Revenues which, together with other available amounts in the Special Fund exceeds the amounts required to be transferred to the Trustee for deposit in the Interest Account, Principal Account and the Reserve Account in such Bond Year pursuant to Section 5.03 of the Subordinate Lien Indenture. On or before the fifth day immediately preceding each Interest Payment Date, the Agency shall transfer from the Special Fund to the Trustee for deposit to the Bond Fund an amount equal to the principal and interest owing on the Series A Bonds on such Interest Payment Date and an amount, if any, necessary to increase the amount in the Reserve Account to the Reserve Requirement. Any Subordinate Tax Revenues received by the Agency during any Bond Year in excess of the amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account and the Reserve Account in such Bond Year pursuant to Section 5.03 of the Subordinate Lien Indenture, shall be released from the pledge and lien under the Subordinate Lien Indenture and may be used for any lawful purposes of the Agency.

All Subordinate Tax Revenues and any other amounts at any time paid by the Agency and designated in writing for deposit in the Special Fund shall be held by the Agency solely for the uses and purposes set forth in Article V of the Subordinate Lien Indenture. So long as any of the Series A Bonds are Outstanding, the Agency shall not have any beneficial right or interest in the Subordinate Tax Revenues, except only as provided in the Subordinate Lien Indenture, and such moneys shall be used and applied as in the Subordinate Lien Indenture set forth.

Bond Fund; Establishment and Maintenance of Accounts. The Subordinate Lien Indenture establishes a special fund to be known as the “Redevelopment Project Tax Allocation Bonds (Subordinate Lien) Bond Fund” (the “Bond Fund”) which shall be held by the Trustee. The Trustee shall receive and deposit to the Bond Fund the amount specified pursuant to the Subordinate Lien Indenture. Within the Bond Fund the Trustee shall establish an Interest Account, a Principal Account and a Reserve Account. All moneys in the Bond Fund shall be transferred and set aside by the Trustee in the following respective special accounts of the Bond Fund (each of which is by the Subordinate Lien Indenture created to be held in trust by the Trustee) in the following order of priority:

(a) Interest Account. At least one Business Day prior to each Interest Payment Date, the Trustee shall transfer from the Bond Fund and set aside in the Interest Account an amount which, when added to the amount contained in the Interest Account will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Series A Bonds issued pursuant to the Subordinate Lien Indenture and then Outstanding. The Trustee shall also deposit in the Interest Account any other moneys received by it from the Agency and designated in writing by the Agency for deposit in the Interest Account. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Series A Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Subordinate Lien Indenture).

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(b) Principal Account. At least one Business Day prior to each Principal Payment Date, the Trustee shall transfer from the Bond Fund and set aside in the Principal Account an amount which, when added to the amount contained in the Principal Account will be equal to the principal becoming due and payable on the Series A Bonds on such Principal Payment Date, whether by reason of scheduled maturity or mandatory sinking fund redemption pursuant to Section 4.01(b) of the Subordinate Lien Indenture. No deposit need be made into the Principal Account if the amount contained therein is at least equal to the principal to become due on such Principal Payment Date, whether by reason of scheduled maturity or mandatory sinking fund redemption. The Trustee shall also deposit in the Principal Account any other moneys received by it from the Agency and designated in writing by the Agency for deposit in the Principal Account. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal on the Series A Bonds as it shall become due and payable, whether by reason of scheduled maturity or mandatory sinking fund redemption.

(c) Reserve Account. At least one Business Day before each Interest Payment Date and after the deposits required pursuant to the preceding subparagraphs have been made, the Trustee shall withdraw from the Bond Fund and deposit in the Reserve Account and any subaccounts therein an amount of money, if any, required to maintain the Reserve Account and in the full amount of the Reserve Requirement. No deposit need be made in the Reserve Account and the separate subaccounts therein so long as there shall be on deposit therein a sum equal to at least the amount required by this paragraph to be on deposit therein. There is hereby established the Series A Bonds Reserve Subaccount in the Reserve Account, into which there shall be deposited from the proceeds of the Series A Bonds the amount set forth in Section 3.01 of the Subordinate Lien Indenture, being the Reserve Requirement and which shall be held for the benefit of the Agency and the Owners of the Series A Bonds. There may be established in the Reserve Account in connection with issuance of any series of Parity Bonds a separate subaccount into which there shall be deposited the amount required by Section 3.03(e) of the Subordinate Lien Indenture and in the Supplemental Indenture relating to such series of Parity Bonds. All money in the Reserve Account, and any subaccount therein shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account and the Principal Account, in such order, in the event of any deficiency at any time in any of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Series A Bonds in the event that no other money of the Agency is lawfully available therefor, or for the retirement of the Series A Bonds then Outstanding, except that so long as the Agency is not in default under the Subordinate Lien Indenture, any amount in the Reserve Account and each subaccount therein in excess of the amount required by this paragraph to be on deposit therein except as otherwise provided in the Subordinate Lien Indenture, shall be transferred to the Bond Fund.

The Reserve Requirement for a series of Bonds may be satisfied by crediting to the Reserve Account moneys, a letter of credit, a bond insurance policy, any other comparable credit facility or any combination thereof, which has been approved in writing by the rating agency then rating the Series A Bonds and which in the aggregate make funds available in the Reserve Account in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such letter of credit, bond insurance policy or other comparable credit facility, the Trustee shall transfer a portion of the moneys then on hand in the Reserve Account to the Redevelopment Fund to be applied for lawful redevelopment purposes for which proceeds of the applicable series of bonds can be used.

(d) Surplus. Except as may be otherwise provided in any Supplemental Indenture, the Agency shall not be obligated to transfer to the Trustee for deposit in the Bond Fund in any Bond Year an amount of Subordinate Tax Revenues which, together with other available amounts in the Bond Fund, exceeds the amounts required in such Bond Year pursuant to Section 5.03 of the Subordinate Lien Indenture. In the event that for any reason whatsoever any amounts shall remain on deposit in the Bond Fund on any August 2 after making all of the transfers theretofore required to be made pursuant to the preceding clauses (a), (b) and (c) and pursuant to any Supplemental Indenture, the Trustee shall withdraw such amounts from the Bond Fund and transfer such amounts to the Agency, to be used for any lawful purposes of the Agency permitted by the Law.

Right Reserved to Add to Tax Revenue Pledge. The Agency shall have the right, pursuant to a Supplemental Indenture adopted without the need for Bondholder consent, to amend and revise the definition of Subordinate Tax Revenues pledged to repayment of the Series A Bonds, but only if, in the opinion of Bond

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Counsel, said amendment and revision of the definition of Subordinate Tax Revenues adds additional security to said definition.

Covenants of the Agency

Punctual Payment. The Agency will punctually pay or cause to be paid the principal and interest to become due in respect of all the Series A Bonds in strict conformity with the terms of the Series A Bonds and of the Subordinate Lien Indenture, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Subordinate Lien Indenture and all Supplemental Indentures and of the Series A Bonds. Nothing in the Subordinate Lien Indenture contained shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes permitted by law.

Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the Agency will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Series A Bonds and will not, directly or indirectly, approve any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded whether or not with the consent of the Agency, such claim for interest so extended or funded shall not be entitled, in case of default under the Subordinate Lien Indenture, except subject to the prior payment in full of the principal of all of the Series A Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded.

Against Encumbrances. Except for Parity Bonds issued in accordance with Sections 3.03 and 3.04 of the Subordinate Lien Indenture, the Agency covenants and agrees that it will not issue any other obligations payable, as to either principal or interest, from the Subordinate Tax Revenues which have, or purport to have, any lien upon the Subordinate Tax Revenues superior to or on a parity with the lien of the Series A Bonds including bonds on a parity with the Senior Lien Bonds; provided, however, that nothing in the Subordinate Lien Indenture shall prevent the Agency from issuing and selling pursuant to law refunding bonds or other refunding obligations payable from and having a first lien on a parity basis with all Outstanding Parity Bonds upon the Subordinate Tax Revenues if such refunding bonds or other refunding obligations are issued and are sufficient for the purpose of refunding all or a portion of the Series A Bonds then Outstanding.

Protection of Security and Rights of Bondowners. The Agency will preserve and protect the security of the Series A Bonds and the rights of the Bondowners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any of the Series A Bonds by the Agency the Series A Bonds shall be incontestable by the Agency.

Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, or upon the revenues therefrom, when the same shall become due. Nothing in the Subordinate Lien Indenture contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Project or any part thereof.

Compliance with Law, Completion of Project. The Agency will comply with all applicable provisions of the Law in completing the Project including, without limitation, duly noticing and holding any public hearing required by either Section 33445 or 33679 of the Law prior to application of proceeds of the Series A Bonds to any portion of the Project subject to either Section 33445 or 33679. In addition, the Agency will comply timely with the public hearing and further requirements of Section 33334.6. The Agency will commence, and will continue to completion, with all practicable dispatch, the Project and the Project will be accomplished and completed in a sound and economical manner and in conformity with the Redevelopment Plan and the Law. Notwithstanding the foregoing, the Agency may, in accordance with applicable provisions of the Law, amend the limits of the Redevelopment Plan from time to time in order to extend the term or amount of any of such limits, so long as any such amendment will not reduce the amount of Subordinate Tax Revenues to be received by the Agency, as certified in a certificate of a Redevelopment Consultant.

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Taxation of Leased Property. Whenever any property in the Redevelopment Project has been redeveloped and thereafter is leased by the Agency to any person or persons (other than a public agency) or whenever the Agency leases real property in the Redevelopment Project to any person or persons (other than a public agency) for redevelopment, the property shall be assessed and taxed in the same manner as privately owned property, as required by Section 33673 of the Law.

Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the Subordinate Lien Indenture) if the effect of such disposition would be to cause the amount of Subordinate Tax Revenues for the then current or any future Fiscal Year based on assessed valuation of property in the Project Area as evidenced in a written document from the County, to fall below 125% of Annual Debt Service on the Senior Lien Bonds, the Series A Bonds and any Parity Bonds then outstanding.

Tax Revenues. The Agency shall comply with all requirements of the Law to insure the allocation and payment to it of the Subordinate Tax Revenues including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County. Such statement of indebtedness shall be provided to the Insurer for the 2007 Bonds. The Agency shall not amend the Redevelopment Plan in any manner which reduces Subordinate Tax Revenues as certified by an Independent Financial Consultant unless consented to by the Insurer for the 2007 Bonds.

Use of Proceeds. The Agency covenants and agrees that the proceeds of the sale of the Series A Bonds will be deposited and used as provided in the Subordinate Lien Indenture and the Law.

Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Subordinate Lien Indenture and for the better assuring and confirming unto the Owners of the Series A Bonds of the rights and benefits provided in the Subordinate Lien Indenture.

Private Activity Bond Limitation. The Agency shall assure that the proceeds of the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture, are not so used as to cause the Series A Bonds, issued as tax-exempt bonds the Subordinate Lien Indenture, to satisfy the private business tests of Section 141(b) of the Code or the private loan financing test of Section 141(c) of the Code.

Federal Guarantee Prohibition. The Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture, to be “federally guaranteed” within the meaning of Section 149(b) of the Code.

Rebate Requirement. The Agency shall take any and all actions necessary to assure compliance with Section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture.

No Arbitrage. The Agency shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture, which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture, would have caused the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture, to be “arbitrage bonds” within the meaning of Section 148 of the Code.

Maintenance of Tax-Exemption. The Agency shall take all actions necessary to assure the exclusion of interest on the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture, from the gross income of the Owners of the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture,

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to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Series A Bonds, issued as tax-exempt bonds under the Subordinate Lien Indenture.

Limit on Indebtedness. The Agency covenants with the Owners of all of the Series A Bonds at any time Outstanding that it will not enter into any obligation or make any expenditure payable from taxes allocated to the Agency under the Law the payments of which, together with payments theretofore made or to be made with respect to other obligations (including, but not limited to, the Series A Bonds) previously entered into by the Agency, would exceed the then-effective limit on the amount of taxes which can be allocated to the Agency pursuant to Section 33333.2(1) of the Law and the Redevelopment Plan.

Annual Accounting of Tax Increment Revenues. The Agency will cause to be prepared and filed with the Trustee and Insurer for the 2007 Bonds annually, within 180 days after the close of each Fiscal Year so long as any of the Series A Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues and Subordinate Tax Revenues, all disbursements from the Special Fund and the financial condition of the Redevelopment Project, including the balances in all funds and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year, and will prepare or cause to be prepared and filed with the Trustee and Insurer for the 2007 Bonds a pro forma statement demonstrating the future availability of sufficient tax increment revenues to pay timely within the existing limitation on the amount of Tax Revenues allocable and payable to the Agency under the Redevelopment Plan (the “Tax Increment Limitation”) (i) the Senior Lien Bonds, the Series A Bonds, all Parity Bonds and subordinate debt, and (ii) the amount payable in the then current Fiscal Year included within the Tax Increment Limitation which are required by section 33334.2 of the Redevelopment Law to be deposited in the Agency's Low and Moderate Income Housing Fund (the “Set-Aside Requirement”) which statements and pro forma statement shall be accompanied by a written certificate of the Agency stating that the Agency is in compliance with its obligations under the Subordinate Lien Indenture. The Trustee shall have no duty or responsibility to review such financial statements.

The pro forma statement shall be prepared on or before August 1 of each year or as soon thereafter as practicable, commencing August 1, 2008, and shall set forth:

(1) The difference between the Tax Increment Limitation less the total amount of tax increment revenues theretofore allocated to the Agency from and after the Fiscal Year in which a limitation on the allocation of tax increment revenues was established (the “Remaining Limitation Amount”); and

(2) The principal and interest remaining to be paid on the Senior Lien Bonds, the Series A Bonds, the Parity Bonds and on the subordinate debt, plus the Set-Aside requirement (collectively, the “Total Debt Service”).

To the extent the Remaining Limitation Amount is equal to 110% or less than the Total Debt Service, the pro forma statement shall set forth the principal amount of the Senior Lien Bonds, the Series A Bonds, the Parity Bonds or subordinate debt (to the nearest integral multiple of $5,000), as applicable that must be retired in order for the Remaining Limitation Amount to be at least equal to 110% of the Total Debt Service (the “Prepayment Amount”). In making this calculation, the Agency shall assume that it will prepay debt in the following order or priority (the “Prepayment Order”): (a) it shall prepay the Senior Lien Bonds, the Series A Bonds and all Outstanding Parity Bonds by allocating payment among the principal of the Senior Lien Bonds, the Series A Bonds and applicable principal payments with respect to Parity Bonds as the Agency shall designate and (b) to the extent there are no longer any Series A Bonds or Parity Bonds outstanding, prepay the subordinate debt pro rata by maturity and by lot within a maturity, in a manner which results in the Senior Lien Bonds, Parity Bonds and subordinate debt to be paid from Tax Revenues and Subordinate Tax Revenues in a timely manner. The Agency shall notify the trustee for the Senior Lien Bonds of the Prepayment Amount, if any, applicable to the Senior Lien Bonds, the Series A Bonds and all Parity Bonds as soon as possible after completion of the pro forma statement and shall pay any Prepayment Amount from Tax Revenues and Subordinate Tax Revenues after (i) having on deposit in the Special Fund an amount equal to the principal and interest due and payable in the next succeeding Bond Year on the Senior Lien Bonds, the Series A Bonds and all Parity Bonds, and (ii) having on deposit an amount sufficient to pay principal and interest in the next succeeding

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Bond Year on the subordinate debt. At the time the Remaining Limitation Amount is determined to be 110% or less than the Total Debt Service, the Agency shall transfer any Prepayment Amount to the Trustee for deposit in the Redemption Account for the Series A Bonds, the Senior Lien Bonds, or the Redemption Account or any other payment with respect to Parity Bonds, as applicable, and use such moneys to redeem as applicable Senior Lien Bonds, Bonds and redeem or otherwise prepay Parity Bonds, as applicable, on the first applicable optional redemption date in the Prepayment Order and at the applicable redemption price, all as further provided in the Subordinate Lien Indenture. Notwithstanding the above, if prior to any such optional redemption, a subsequent annual pro forma statement indicates that further Tax Revenues and Subordinate Tax Revenues will be 110% or more of the Total Debt Service in each year such debt service is payable, the Agency may authorize the Trustee to release such Tax Revenues and Subordinate Tax Revenues from the Redemption Account for delivery to the Agency. Amounts deposited in the Redemption Account for such purposes shall be invested solely in Defeasance Obligations. The Agency shall furnish a copy of the above-referenced written certificates, statements and pro forma statement to any Owner upon reasonable request at the expense of such Owner.

Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Subordinate Lien Indenture, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee shall, at the written request of any participating underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, but only to the extent the Trustee has been indemnified from and against any loss, cost, expense, claim or liability, including, without limitation, fees and expenses of attorneys and additional fees and expenses of the Trustee or any Bondowner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Agency to comply with its obligations under the Subordinate Lien Indenture.

Parity Bonds

Issuance of Parity Bonds. The Series A Bonds are issued on a subordinate basis to the Senior Lien Bonds. The Agency may not issue additional obligations, including bonds on parity with the Senior Lien Bonds, which are senior to the Series A Bonds. In addition to the Series A Bonds, the Agency may, by a Supplemental Indenture, issue Parity Bonds payable from Tax Revenues as and to the extent provided in the Subordinate Lien Indenture and secured by the pledge made under the Subordinate Lien Indenture equally and ratably with the Series A Bonds previously issued. The Agency may issue, and the Trustee may authenticate and deliver to the purchasers thereof, Parity Bonds, in such principal amount as shall be determined by the Agency, but only upon compliance by the Agency with the provisions of the Subordinate Lien Indenture and any additional requirements set forth in said Supplemental Indenture and subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such Parity Bonds:

(a) No Event of Default shall have occurred and then be continuing;

(b) A Tax Revenue Certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, together with an allowance for estimated additional annual Tax Revenues to be received by the Agency within the Fiscal Year following the date such computation was made due to increase in taxable valuation of property in the Project Area resulting from the transfer of ownership or any other interest in real property but not yet entered on the tax roll, shall be at least equal to 125% of the sum of Annual Debt Service on the Senior Lien Bonds and the Series A Bonds (including such Parity Debt) for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series A Bonds and any Parity Debt. The Tax Revenue Certificate shall also show that the amount of Subordinate Tax Revenues, including debt service on the Senior Lien Bonds, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, and excluding the taxpayer with the highest assessed value in the Project Area, shall be at least equal to 100% of the sum of Annual Debt Service on the Senior Lien Bonds and the Series A Bonds (including such Parity Debt). For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the “Teeter Plan” is currently in effect and the County has made no

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announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Subordinate Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place;

(c) The Agency shall certify to the Trustee that the aggregate amount of the principal of and interest on all Outstanding Bonds (including the Senior Lien Bonds) coming due and payable following the issuance of such Parity Bonds shall not exceed the maximum amount of Tax Revenues permitted under the Redevelopment Plan to be allocated and paid to the Agency following the issuance of such Parity Bonds, and shall not exceed any limitation on the time during which such tax increment revenues may be received;

(d) The Supplemental Indenture authorizing the issuance of Parity Bonds shall provide that (i) interest on such Parity Bonds shall be calculated at a fixed interest rate if the Agency determines in such Supplemental Indenture that it is to be paid on a current basis, shall be payable on February 1 and August 1 in each year of the term of such Parity Bonds except the first twelve-month period during which interest may be payable on any February 1 or August 1, and (ii) the principal of such Parity Bonds shall be payable on August 1 in any year, as determined by the Agency, in which principal is payable;

(e) Money shall be deposited in the Reserve Account or in a subaccount therein (or a reserve fund letter of credit, bank insurance policy or other comparable credit facility provided) in an amount equal to the Reserve Requirement for all outstanding Bonds, including such Parity Bonds; and

(f) The Agency shall deliver to the Trustee a certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Bonds set forth in the Subordinate Lien Indenture have been satisfied and that the deposit into the Reserve Account as set forth above has been made.

For the purposes of the calculation of the coverage requirements set forth in the Subordinate Lien Indenture with respect to the issuance of Parity Bonds, Outstanding Bonds and Parity Bonds shall not include a principal amount of such Parity Bonds, determined on such basis among maturities as the Agency may determine, equal to the proceeds of such Parity Bonds to be deposited in an escrow fund established for such Parity Bonds (the “Escrowed Bonds”), provided that the Supplemental Indenture authorizing the issuance of such Parity Bonds shall provide that:

(1) Such proceeds shall be invested in Permitted Investments, and an amount equal to the difference between the projected interest earnings on such proceeds and the interest due on the Escrowed Bonds shall be deposited in the Interest Account so as to pay interest on the Escrowed Bonds as it becomes due and payable;

(2) Moneys may be transferred from the escrow fund established for the Escrowed Bonds only if a Tax Revenue Certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, which for the purpose of this calculation shall include debt service on the Senior Lien Bonds, based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 125% of the sum of Annual Debt Service on the Series A Bonds (including such Parity Debt) and annual debt service on the Senior Lien Bonds for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series A Bonds and any Parity Debt, and 100% of annual debt service on the Senior Lien Bonds and the Series A Bonds excluding the taxpayer in the Project Area with the highest assessed valuation. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the “Teeter Plan” is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax

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levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place;

(3) Such Parity Bonds shall be redeemed from moneys remaining on deposit in the escrow fund established for the Escrowed Bonds at the expiration of a specified escrow period in such manner as may be determined by the Agency in the Supplemental Indenture; and

(4) The Insurer for the 2007 Bonds shall be provided with notice of the issuance of such Escrow Bonds and a copy of the related Supplemental Indenture.

The Agency shall not issue any indebtedness bearing interest at variable rates.

Any computations establishing that debt service coverage is sufficient to authorize to support the issuance of Parity Debt or that requisite debt service savings are available to support the issuance of refunding bonds shall, in all cases, be evidenced by a certificate of an Independent Certified Public Accountant or an Independent Financial Consultant.

Proceedings for Issuance of Parity Bonds. Whenever the Agency shall determine to issue Parity Bonds pursuant to the Subordinate Lien Indenture, the Agency shall authorize the execution of a Supplemental Indenture specifying the principal amount and prescribing the forms of such Parity Bonds and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates (or the manner of determining same), redemption provisions and place or places of payment of principal or of premium (if any) and interest on such Parity Bonds, and any other provisions respecting the Parity Bonds not inconsistent with the terms of the Subordinate Lien Indenture.

Before such Parity Bonds shall be issued and delivered, the Agency shall file the following documents with the Trustee:

(a) An executed copy of the Supplemental Indenture authorizing such Bonds.

(b) A Written Certificate of the Agency stating that, to the knowledge of the Agency, no Event of Default has occurred and is then continuing.

(c) An opinion of Bond Counsel that the execution of the Supplemental Indenture has been duly authorized by the Agency in accordance with the Subordinate Lien Indenture; that the Parity Bonds, when duly executed by the Agency and authenticated and delivered by the Trustee, will be legally valid and binding limited obligations of the Agency; and that the issuance of such Parity Bonds will not in and of itself impair the exclusion for federal income tax purposes of interest on any Outstanding Bonds.

(d) A written certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Bonds set forth in the Subordinate Lien Indenture have been satisfied.

Subordinate Debt. Nothing in the Subordinate Lien Indenture shall be intended or construed in any way to prohibit or impose any limitations on the issuance by the Agency of bonds, notes, or other obligations or evidences of indebtedness payable from Subordinate Tax Revenues on a subordinate basis to the pledge of Subordinate Tax Revenues to the repayment of the Series A Bonds and any Parity Bonds (“Subordinate Debt”), provided that following an Event of Default under the Subordinate Lien Indenture, no Subordinate Debt shall be paid prior to the Series A Bonds or any other Parity Debt in any fiscal year of the Agency.

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Duties and Liabilities of Trustee Duties, Immunities and Liabilities of Trustee.

(a) The Trustee shall, prior to the occurrence of an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Subordinate Lien Indenture. The Trustee shall only be obligated to perform such duties as are expressly set forth in the Subordinate Lien Indenture, and no duties or obligations not expressly set forth in the Subordinate Lien Indenture shall be implied. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Subordinate Lien Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.

(b) The Agency may remove the Trustee, at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee (i) if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Series A Bonds then Outstanding (or their attorneys duly authorized in writing), (ii) if at any time requested to do so by the Insurer, or (iii) if at any time the Trustee shall cease to be eligible in accordance with the Subordinate Lien Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. In each case such removal shall be accomplished by the giving of written notice of such removal by the Agency to the Trustee and the Insurer, whereupon in the case of the Trustee, the Agency shall appoint a successor Trustee by an instrument in writing.

(c) The Trustee may at any time resign by giving written notice of such resignation to the Agency and the Insurer and by giving the Bondowners notice of such resignation by mail at their respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Agency shall promptly appoint a successor Trustee by an instrument in writing. The Trustee shall not be relieved of its duties until such successor Trustee has accepted such appointment.

(d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee and approval by the Insurer. If no successor Trustee shall have been appointed and have accepted appointment within thirty (30) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondowner (on behalf of himself and all other Bondowners), at the expense of the Agency, may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Subordinate Lien Indenture shall signify its acceptance of such appointment by executing and delivering to the Agency and to its predecessor Trustee a written acceptance thereof, and thereupon and upon receipt by the predecessor Trustee of all fees and expenses due and payable to it, such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Subordinate Lien Indenture; but, nevertheless at the Written Request of the Agency or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Subordinate Lien Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Subordinate Lien Indenture. Upon request of the successor Trustee, the Agency shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection (d), the Agency shall mail a notice of the succession of such Trustee to the trusts under the Subordinate Lien Indenture to each rating agency which then has a current rating on the Series A Bonds, if any, and to the Bondowners at their respective addresses shown on the Registration

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Books. If the Agency fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Agency.

(e) Any Trustee appointed under the provisions of the Subordinate Lien Indenture in succession to the Trustee shall be a corporation or other entity organized and doing business under the laws of any state, the District of Columbia or the United States of America, authorized under such laws to exercise corporate trust powers, which shall have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least seventy-five million dollars ($75,000,000), and subject to supervision or examination by federal or state authority. If such corporation or other entity publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection (e) the combined capital and surplus of such corporation or other entity shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in Subsection (d) above.

(f) The Trustee shall not take the Policy into account in determining whether the rights of Bondowners are adversely affected by actions taken pursuant to the terms and provisions of the Subordinate Lien Indenture, and the Insurer shall be included as a party in interest and as a party entitled to (i) notify the Trustee of the occurrence of an Event of Default and (ii) request the Trustee to intervene in judicial proceedings that affect the Series A Bonds or the security therefor. The Trustee shall be required to accept notice of default from the Insurer.

Merger or Consolidation. Any bank or company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or company shall be eligible under subsection (e) of Section 7.01 of the Subordinate Lien Indenture, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Subordinate Lien Indenture to the contrary notwithstanding.

Liability of Trustee.

(a) The recitals of facts in the Subordinate Lien Indenture and in the Series A Bonds contained shall be taken as statements of the Agency, and the Trustee shall not assume responsibility for the correctness of the same, nor make any representations as to the validity or sufficiency of the Subordinate Lien Indenture or of the Series A Bonds nor shall incur any responsibility in respect thereof, other than as expressly stated in the Subordinate Lien Indenture. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Series A Bonds. The Trustee shall not be liable in connection with the performance of its duties the Subordinate Lien Indenture, except for its own negligence or willful misconduct. The Trustee may act through agents, attorneys and receivers and shall not be liable for the acts or omissions of any agents, attorneys or receivers selected by it with due care. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondowners, whether or not such committee shall represent the Owners of a majority in principal amount of the Series A Bonds then Outstanding.

(b) The Trustee shall not be liable for any error of judgment made in good faith by its officers, agents, directors or employees, unless it shall be proved that it was negligent in ascertaining the pertinent facts.

(c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of (i) the Owners of not less than a majority in aggregate principal amount (or other percentage provided for in the Subordinate Lien Indenture) of the Series A Bonds at the time Outstanding, or (ii) the Insurer, relating to the time, method and place of conducting any proceeding for any

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remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Subordinate Lien Indenture.

(d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Subordinate Lien Indenture.

(e) The Trustee shall not be deemed to have knowledge of any Event of Default the Subordinate Lien Indenture unless and until it shall have actual knowledge thereof, or shall have received written notice thereof, at its Corporate Trust Office. Except as otherwise expressly provided in the Subordinate Lien Indenture, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements in the Subordinate Lien Indenture or of any of the documents executed in connection with the Series A Bonds, or as to the existence of an Event of Default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be responsible for reviewing the contents of any financial statements furnished to the Trustee pursuant to the Subordinate Lien Indenture and may rely conclusively on the certificates accompanying such financial statements to establish the Agency's compliance with its financial covenants the Subordinate Lien Indenture, including, without limitation, its covenants regarding the deposit of Subordinate Tax Revenues into the Bond Fund and the investment and application of moneys on deposit in the Bond Fund (other than its covenants to transfer such moneys to the Trustee when due the Subordinate Lien Indenture).

(f) The Trustee shall not be considered in breach of or in default in its obligations the Subordinate Lien Indenture or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays or suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.

(g) The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to the Subordinate Lien Indenture provided, however, that: (i) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (ii) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (iii) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person.

Deposit and Investment of Moneys in Funds. Moneys in the Bond Fund, the Interest Account, the Principal Account, the Reserve Account, the Redemption Fund, and the Costs of Issuance Fund shall be invested by the Trustee in Permitted Investments as specified by the Treasurer of the Agency and shall be promptly confirmed in writing by the Agency with the Trustee within at least one (1) Business Day. In the absence of any such direction provided by the Treasurer of the Agency, the Trustee shall invest any such moneys in Permitted Investments described in clause (v) of the definition thereof which by their terms mature prior to the date on which such moneys are required to be paid out the Subordinate Lien Indenture. Investments in such accounts shall be valued at market at least semi-annually. No forward delivery agreements, hedge, purchase and resale agreements or par-put agreements may be used with respect to the investment of any fund or account with respect to the trust estate pledged to the Series A Bonds without the prior written consent of the Insurer.

Moneys in the Series A Bonds Reserve Account shall only be invested in the investments described in items (i), (ii), (v), and (vii) of the definition of Permitted Investments with maturities of no longer than 5 years and such other investments described in the definition of Permitted Investments, with respect to which the Insurer has granted it prior written consent.

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Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. Whenever in the Subordinate Lien Indenture any moneys are required to be transferred by the Agency to the Trustee, such transfer may be accomplished by transferring a like amount of Permitted Investments which by their terms mature prior to the date on which such moneys are required to be paid out the Subordinate Lien Indenture. All interest or gain derived from the investment of amounts in any of the funds or accounts established the Subordinate Lien Indenture (other than with respect to funds held by the Agency) shall be retained in the respective funds and accounts to be used for the purposes thereof; provided, however, that all interest or gain from the investment of amounts in the respective subaccounts of the Reserve Account shall be deposited by the Trustee in the Interest Account, but only to the extent that the amount remaining in the respective subaccounts of the Reserve Account following such deposit is equal to the Reserve Requirement for the applicable series of Bonds.

The Agency acknowledges that to the extent regulations of the Controller of the Currency or other applicable regulatory entity grant the Agency the right to receive brokerage confirmations of security transactions as they occur, the Agency specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Agency periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Subordinate Lien Indenture.

Moneys credited to any fund or account under the Subordinate Lien Indenture which are uninvested pending disbursement or receipt of proper investment directions or as directed by the Agency as provided in the Subordinate Lien Indenture, may be deposited to and held in a non-interest bearing demand deposit account established with the commercial banking department of the Trustee or any bank affiliated with the Trustee.

The Trustee may make any investments under the Subordinate Lien Indenture through its own bond or investment department or trust investment department, or those of its parent or any affiliate.

The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Subordinate Lien Indenture.

For purposes of acquiring any investments under the Subordinate Lien Indenture, the Trustee may in its discretion commingle funds held by it under the Subordinate Lien Indenture. The Trustee (or any of its affiliates) may act as principal or agent in the acquisition of any investment. The Trustee shall incur no liability for losses arising from any investments made pursuant to the Subordinate Lien Indenture. For purposes of determining the amount on deposit in any fund or account held under the Subordinate Lien Indenture, all Permitted Investments credited to such fund or account shall be valued by the Trustee, at least monthly, at the market value (excluding accrued interest, other than in the case of the Reserve Account (where accrued interest shall be included) and excluding brokerage commissions, if any). In making any such valuations, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system.

Modification or Amendments

Amendments Permitted. The Subordinate Lien Indenture and the rights and obligations of the Agency and of the Owners of the Series A Bonds may be modified or amended at any time by a Supplemental Indenture with written consent of the Insurer and pursuant to the affirmative vote at a meeting of Bondowners or with the written consent without a meeting of the Owners of a majority in aggregate principal amount of the Series A Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Subordinate Lien Indenture. No such modification or amendment shall (1) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the Agency to pay the principal thereof, or interest thereon, or any premium payable on the redemption thereof, at the time and place and at the rate and in the currency provided therein without the express consent of the Owner of such Bond, or (2) permit the creation by the Agency of any mortgage pledge or lien upon the Subordinate Tax Revenues superior to or on a parity with the pledge and lien created for the benefit of the Series A Bonds (except as otherwise provided in the Subordinate Lien Indenture) or reduce the percentage of Bonds required for the affirmative vote or written consent to an amendment or modification or (3) modify any of the rights or obligations of the Trustee without its written assent thereto.

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The Subordinate Lien Indenture and the rights and obligations of the Agency and of the Owners of the Series A Bonds may also be modified or amended at any time by a Supplemental Indenture with written consent of the Insurer, but without the consent of any Bondowners, but only to the extent permitted by law and only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Agency in the Subordinate Lien Indenture contained, other covenants and agreements thereafter to be observed or to limit or surrender any right or power in the Subordinate Lien Indenture reserved to or conferred upon the Agency; or

(b) to make modifications not adversely affecting any Outstanding series of Bonds of the Agency in any material respect, including an amendment pursuant to the Subordinate Lien Indenture; or

(c) with the written consent of the Trustee to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Subordinate Lien Indenture, or in regard to questions arising under the Subordinate Lien Indenture, as the Agency and the Trustee may deem necessary or desirable and not inconsistent with the Subordinate Lien Indenture, and which shall not materially adversely affect the rights of the Owners of the Series A Bonds; or

(d) to provide for the issuance of any Parity Bonds, and to provide the terms and conditions under which such Parity Bonds may be issued, subject to and in accordance with the provisions of the Subordinate Lien Indenture.

Bondowners' Meetings. The Agency may at any time call a meeting of the Bondowners. In such event the Agency is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof and to fix and adopt rules and regulations for the conduct of said meeting.

Procedure for Amendment with Written Consent of Bondowners. The Agency may at any time adopt a Supplemental Indenture amending the provisions of the Series A Bonds or of the Subordinate Lien Indenture or any Supplemental Indenture, to the extent that such amendment is permitted by Section 8.01 of the Subordinate Lien Indenture, to take effect when and as provided in this section. A copy of such Supplemental Indenture, together with a request to Bondowners for their consent thereto, shall be mailed by the Agency to each registered Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Indenture and request shall not affect the validity of the supplemental Indenture when assented to as in this section provided.

Such Supplemental Indenture shall not become effective unless there shall be filed with the Trustee the written consents of the Owners of a majority in aggregate principal amount of the Series A Bonds then Outstanding (exclusive of Bonds disqualified as provided in the Subordinate Lien Indenture) and a notice shall have been mailed as hereinafter in this section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Series A Bonds for which such consent is given which proof shall be such as is permitted by the Subordinate Lien Indenture. Any such consent shall be binding upon the Owner of the Series A Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice as provided for in the Subordinate Lien Indenture has been mailed. Any revocation received by the Trustee after such notice has been mailed shall be of no force or effect.

After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Indenture, the Agency shall mail a notice to the Bondowners in the manner hereinbefore provided in this section for the mailing of the Supplemental Indenture, stating in substance that the Supplemental Indenture has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Indenture or consents thereto). Proof of the mailing of such notice shall be filed with the Trustee. A record consisting of the papers required by this section to be filed with the Trustee shall be proof of the matters therein stated until the contrary is proved. The Supplemental Indenture shall become effective upon the filing with the Trustee of the proof of mailing of such notice, and the Supplemental Indenture shall be deemed conclusively

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binding (except as otherwise hereinabove specifically provided in the Subordinate Lien Indenture) upon the Agency and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period.

Consent of Insurer, Notice to Rating Agency. For all purposes of the Subordinate Lien Indenture, (i) any amendment or supplement to the Subordinate Lien Indenture shall be subject to the prior written consent of the Insurer, (ii) the initiation or approval of any action which requires the consent of the Bondowners shall be subject to the prior written consent of the Insurer, (iii) any rating agency rating the Series A Bonds must receive notice from the Agency of each amendment and a copy thereof at least 15 days in advance of its execution or adoption, and (iv) the Insurer shall be provided by the Agency with a full transcript of all proceedings relating to the execution of any Supplemental Indenture. The Insurer may charge the Agency a fee for any consent or amendment to the Indenture while the Policy is in place.

Any provision of the Subordinate Lien Indenture expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer under the Subordinate Lien Indenture without the prior written consent of the Insurer. The Insurer reserves the right to charge the Agency a fee for any consent or amendment to the Indenture while the Policy is outstanding.

Events of Default and Remedies of Bondowners

Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under the Subordinate Lien Indenture:

(a) if default shall be made in the due and punctual payment of the principal of or interest or redemption premium (if any) on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise;

(b) if default shall be made by the Agency in the observance of any of the covenants, agreements or conditions on its part in the Subordinate Lien Indenture or in the Series A Bonds contained, other than a default described in the preceding clause a), and such default shall have continued for a period of thirty (30) days following the receipt by the Agency of written notice from the Trustee or any Bondowner of the occurrence of such default; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30)-day period and if corrective action is instituted by the Agency within such thirty (30)-day period the Agency, with the prior written consent of the Insurer may diligently pursue such corrective action until such failure is corrected, but in no event more than 90 days following the receipt by the Agency of such notice; or

(c) if the Agency shall file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property.

If an Event of Default has occurred under the Subordinate Lien Indenture and is continuing, the Trustee shall give written notice thereof to the Insurer.

If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, with the consent of the Insurer, and if requested in writing by the Owners of a majority in aggregate principal amount of the Series A Bonds then Outstanding or if directed by the Insurer, the Trustee shall (a) declare the principal of the Series A Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the Subordinate Lien Indenture or in the Series A Bonds to the contrary notwithstanding,

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and (d) subject to the provisions of Section 9.06 of the Subordinate Lien Indenture, exercise any other remedies available to the Trustee and the Bondowners in law or at equity.

Immediately upon obtaining actual knowledge of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Insurer and the Agency by telephone confirmed in writing. Such notice shall also state whether the principal of the Series A Bonds shall have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clause (a) or (c) above the Trustee shall, and with respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Owners of the Series A Bonds in the same manner as provided in the Subordinate Lien Indenture for notices of redemption of the Series A Bonds.

Upon declaration of an Event of Default, the Agency shall transfer the Special Fund and all moneys therein to the Trustee who shall hold such Special Fund for the benefit of the Bondholders until such Event of Default shall have been cured.

For any default under subsection (c) hereof, any reorganization or liquidation plan with respect to the Agency must be acceptable to the Insurer. In the event of any reorganization or liquidation, the Insurer shall have the right to vote on behalf of all Owners who hold the Series A Bonds absent a default by the Insurer under the applicable Policy insuring the Series A Bonds.

This provision, however, is subject to the condition that if, at any time after the principal of the Series A Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all principal on the Series A Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Series A Bonds, with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Series A Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Series A Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all of the Series A Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Subject to the provisions of the Subordinate Lien Indenture, the Trustee agrees to enforce by mandamus, suit or other proceeding at law or in equity the covenants and agreements of the Agency.

Application of Funds Upon Acceleration. All of the Subordinate Tax Revenues and all sums in the funds and accounts established and held by the Trustee under the Subordinate Lien Indenture upon the date of the declaration of acceleration (other than the Rebate Account, if any) as provided in the Subordinate Lien Indenture, and all sums thereafter received by the Trustee under the Subordinate Lien Indenture, shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid:

First, to the payment of the fees, costs and expenses of the Trustee and thereafter of the Bondowners in declaring such Event of Default, including reasonable compensation to its or their agents, attorneys and counsel; and

Second, to the payment of the whole amount then owing and unpaid upon the Series A Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the Outstanding Bonds (to the extent that such interest on overdue installments of principal and interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Series A Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, or any Bond over any other Bond, ratably to the aggregate of such principal and interest.

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The information in this Appendix concerning DTC and DTC’s book-entry system has been obtained from sources that the Agency believes to be reliable, but the Agency takes no responsibility for the accuracy thereof. The Agency gives no assurances that (i) DTC, the Direct and Indirect Participants or others will distribute payments of principal, premium (if any) or interest with respect to the Bonds paid to DTC or its nominee as, the registered owner, to the Beneficial Owners, (ii) such entities will distribute redemption notices or other notices, to the Beneficial Owners, or (iii) an error or delay relating thereto will not occur.

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC’s records reflect only the identity of the Direct Participants to

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whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium (if any) and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Agency or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Agency or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any) and interest payments with respect to the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

The Agency may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered in accordance with the provisions of the Indenture.

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APPENDIX G

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the REDEVELOPMENT AGENCY OF THE CITY OF AZUSA (the “Agency”) in connection with the issuance of the $6,715,000 Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Subordinate Lien), 2008 Series A (the “Bonds”). The Bonds are being issued pursuant to an Indenture, dated as of July 1, 2007, as amended by a First Supplemental Indenture dated as of December 1, 2008 and Wells Fargo Bank, National Association, as successor trustee (the “Trustee”).

The Agency hereby covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Agency for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Dissemination Agent” shall mean the Wells Fargo Bank, National Association, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency and the Trustee a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

“National Repository” shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Currently, the following are National Repositories:

Bloomberg Municipal Repositories P.O. Box 840 Princeton, New Jersey 08542-0840 Phone: (609) 279-3200 Fax: (609) 279-5962 E-mail: Munis@Bloomberg.com

DPC Data Inc. One Executive Drive Fort Lee, New Jersey 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 E-mail: nrmsir@dpcdata.com

Kenny Information Systems, Inc. Attention: Kenny Repository Service 65 Broadway, 16th Floor New York, New York 10006 Phone: (212) 770-4595 Fax: (212) 797-7994

Thomson NRMSIR Attention: Municipal Disclosure 395 Hudson Street, 3rd Floor New York, New York 10004 Phone: (212) 807-5001 or (800) 689-8466 Fax: (212) 989-2078 E-mail: Disclosure@Muller.com

“Official Statement” shall mean the final Official Statement, dated July 18, 2007, relating to the Bonds.

“Participating Underwriter” shall mean the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

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“Repository” shall mean each National Repository and each State Repository.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“State Repository” shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule. As of the date of this Certificate, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The Agency shall, or shall cause, the Dissemination Agent to, not later than one hundred and eighty (180) days after the end of the Agency’s fiscal year, commencing with the report for the 2008-09 fiscal year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate, with a copy to the Trustee. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. The Official Statement dated December 9, 2008, shall act as the first annual report for the 2008-09 fiscal year, together with the Agency’s audited financial statement for the 2008-08 fiscal year when available. If the Agency’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c) hereof.

(b) If the Agency is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Agency shall send a notice to that effect to the Municipal Securities Rulemaking Board in substantially the form attached hereto as Exhibit A.

(c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any, and

(ii) file a report with the Agency (if the Dissemination Agent is other than the Agency) certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

(d) Notwithstanding any statement to the contrary, any filing under this agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the “MAC”), the MSRB Electronic Municipal Market Access (EMMA), or any other central post office approved by the Securities and Exchange Commission, as provided at http://www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004.

Section 4. Content of Annual Reports. The Agency’s Annual Report shall contain or incorporate by reference the following:

(a) Audited Financial Statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Agency’s audited financial statements are not available at the time the Annual Report is required to be filed pursuant to Section 3(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial

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statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available;

(b) The following financial information and operating data set forth in the final Official Statement:

(i) Ten largest property tax payers in the Project Area, including name, use code, secured value, unsecured value, total value and percent of total value;

(ii) Annual assessed valuations, tax increment values, Tax Revenues (as defined in the Indenture) and coverage ratio of Tax Revenues to debt service on Bonds and all parity debt; and

(iii) Discussion of any property tax appeals, which, either alone or in the aggregate could have material adverse effect on Tax Revenues.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the Bonds, (7) Modifications to rights of Bondholders. (8) Optional, contingent or unscheduled Bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the Bonds. (11) Rating changes.

(b) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall as soon as possible determine if such event would be material under applicable Federal Securities law.

(c) If the Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Agency shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each Repository, with a copy to the Trustee. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Indenture.

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Section 6. Termination of Reporting Obligation. The Agency’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Agency shall give notice of such termination on the same manner as for a Listed Event under Section 5(c) hereof.

Section 7. Dissemination Agent. The Agency may, from time to time, appoint or engage a Disseminating Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Agency.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Agency may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) the amendment or waiver, if it relates to annual or event information to be provided, is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Agency or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances;

(c) the proposed amendment or waiver (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of Bondholders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interest of Bondholders; and

(d) no amendment increasing or affecting the obligations or duties of the Dissemination Agent or the Trustee shall be made without the consent of either party.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the annual financial information containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories.

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

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Section 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Certificate, the Trustee at the written request of any Participating Underwriter or holders of at least 25 percent in aggregate amount of Outstanding Bonds, shall, but only to the extent indemnified to its satisfaction from and against any loss, cost, expense or liability of any kind whatsoever, including, without limitation, fees and expenses of its attorneys and additional fees and expenses of the Trustee, or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the Agency to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Agency agrees to indemnify and save the Dissemination Agent (if other than the Agent), its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct.

Section 12. Beneficiaries. The Disclosure Certificate shall inure solely to the benefit of the Agency, the Dissemination Agent, the Trustee, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

IN WITNESS WHEREOF, the Agency has caused its duly authorized officer to execute and deliver this Certificate on the date first written above.

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA By: Name: Title:

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EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of Agency: Redevelopment Agency of the City of Azusa

Names of Bond Issues: Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area $6,715,000 Tax Allocation Bonds (Subordinate Lien) 2008 Series A

Date of Issuance: December 18, 2008

NOTICE IS HEREBY GIVEN that the Redevelopment Agency of the City of Azusa (the “Agency”) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate dated ___________, 2008, executed by the Agency for the benefit for the holders and beneficial owners of the above-referenced bonds. The Agency anticipates that the Annual Report will be filed by _______________________________.

Dated: ___________________

REDEVELOPMENT AGENCY OF THE CITY OF AZUSA By: Name: Title: