$74,310,000 $14,365,000 SUCCESSOR AGENCY TO THE MORGAN ...cdiacdocs.sto.ca.gov/2013-1908.pdf · Marilyn Librers, Councilmember . SUCCESSOR AGENCY STAFF . Steve Rymer, City Manager

NEW ISSUE—BOOK-ENTRY RATINGS S&P: “AA-” Fitch: “AA-”

(See “Ratings” Herein)

In the opinion of Bond Counsel, under existing law interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the 2013A Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum income tax imposed on corporations and individuals. The Successor Agency has taken no action to cause, and does not intend, interest on the 2013B Bonds to be excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes. See “TAX MATTERS” herein.

$74,310,000 SUCCESSOR AGENCY TO THE

MORGAN HILL REDEVELOPMENT AGENCY Refunding Revenue Bonds, Series 2013A


MORGAN HILL REDEVELOPMENT AGENCY Refunding Revenue Bonds, Series 2013B

(Taxable)

Dated: Delivery Date Due: As shown on the inside front cover

The above-captioned bonds (the “2013A Bonds,” the “2013B Bonds,” and collectively, the “Bonds”) are being issued by the Successor Agency to the Morgan Hill Redevelopment Agency (the “Successor Agency”). The Bonds are being issued to refund and defease the Morgan Hill Redevelopment Agency (the “Predecessor Agency”) previously issued (i) $96,200,000 Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area) Series 2008A currently outstanding in the aggregate principal amount of $82,615,000 and (ii) $13,800,000 Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area) Series 2008B (Taxable) currently outstanding in the aggregate principal amount of $11,845,000.

The Bonds will be delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to ultimate purchasers (“Beneficial Owners”) in the denomination of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC. Beneficial Owners will not be entitled to receive delivery of bonds representing their ownership interest in the Bonds. Semiannual or annual principal of, premium if any, and semiannual interest on the Bonds due March 1 and September 1 of each year, commencing March 1, 2014, as shown on the inside cover page, will be payable by The Bank of New York Mellon Trust Company, N.A., as Trustee, to DTC for subsequent disbursement to DTC participants, so long as DTC or its nominee remains the registered owner of the Bonds (see “THE BONDS—Book-Entry System” herein).

The Bonds are subject to optional redemption prior to maturity as described herein. See “SECURITY FOR THE BONDS” herein.

The Bonds are payable from and secured by the Pledged Tax Revenues as defined herein to be derived from the Ojo de Agua Redevelopment Project Area (the “Project Area”) as further described herein.

This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of the Bonds. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Attention is hereby directed to certain Risk Factors more fully described herein.

The Bonds are special obligations of the Successor Agency and are secured by an irrevocable pledge of, and are payable as to principal, interest and premium, if any, from Pledged Tax Revenues and other funds. The Bonds, interest and premium, if any, thereon are not a debt of the City of Morgan Hill (the “City”), the County of Santa Clara (the “County”), the State of California (the “State”) or any of its political subdivisions (except the Successor Agency), and none of the City, the County, the State nor any of its political subdivisions (except the Successor Agency) is liable thereon. The Bonds, interest thereon and premium, if any, are not payable out of any funds or properties other than those set forth in the Indenture. None of the members of the Successor Agency Board, the Oversight Board, the County Board of Supervisors or the County Auditor-Controller, or any employee or officer of the County, or any persons executing the Bonds is liable personally on the Bonds by reason of their issuance.

The Bonds are offered, when, as and if issued, subject to the approval of Fulbright & Jaworski LLP, a member of Norton Rose Fulbright, Los Angeles, California, Bond Counsel to the Successor Agency. Certain legal matters will be passed on for the Successor Agency by Jones Hall, A Professional Law Corporation, San Francisco, California, Disclosure Counsel. Certain legal matters will be passed on for the Successor Agency by the Morgan Hill City Attorney and for the Underwriters by Stradling Yocca Carlson and Rauth, A Professional Corporation, Newport Beach, California, Underwriters’ Counsel. It is anticipated that the Bonds will be available for delivery through the facilities of DTC in New York, New York, on or about December 4, 2013.

The date of this Official Statement is November 19, 2013.

toneil

Typewritten Text

2013-1907

toneil

Typewritten Text

2013-1908

MATURITY SCHEDULES



Maturity

Date Principal Amount

Interest Rate

Yield

Price

CUSIP† (Base 86459D)

9/1/2018 $2,215,000 4.000% 1.370% 112.032 AF3 3/1/2019 25,000 3.000 1.720 106.387 AX4 3/1/2019 945,000 5.000 1.720 116.370 BD7 9/1/2019 2,385,000 5.000 1.800 117.378 AG1 3/1/2020 1,055,000 5.000 2.180 116.369 AY2 9/1/2020 2,470,000 5.000 2.230 117.246 AH9 3/1/2021 1,140,000 5.000 2.650 115.388 AZ9 9/1/2021 2,560,000 5.000 2.700 115.967 AJ5 3/1/2022 1,235,000 5.000 2.970 114.739 BA3 9/1/2022 2,655,000 5.000 3.020 115.108 AK2 3/1/2023 1,330,000 5.000 3.260 113.783 BB1 9/1/2023 2,755,000 5.000 3.260 114.417 AL0 9/1/2024 4,255,000 5.000 3.470 112.550 C AM8 9/1/2025 4,470,000 5.000 3.660 110.891 C AN6 9/1/2026 4,695,000 5.000 3.820 109.517 C AP1 9/1/2027 4,930,000 5.000 3.960 108.332 C AQ9 9/1/2028 100,000 4.125 4.230 98.851 AR7 9/1/2028 5,075,000 5.000 4.110 107.079 C BC9 9/1/2029 5,430,000 5.000 4.230 106.089 C AS5 9/1/2030 5,705,000 5.000 4.340 105.191 C AT3 9/1/2031 5,990,000 5.000 4.420 104.544 C AU0 9/1/2032 6,290,000 5.000 4.500 103.901 C AV8 9/1/2033 6,600,000 5.000 4.560 103.422 C AW6

$14,365,000

SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY

Refunding Revenue Bonds, Series 2013B (Taxable)

Maturity

Date Principal Amount

Interest Rate

Yield

Price

CUSIP† (Base 86459D)

9/1/2014 $4,050,000 0.500% 0.500% 100.000 AA4 9/1/2015 3,065,000 1.120 1.120 100.000 AB2 9/1/2016 3,100,000 1.552 1.552 100.000 AC0 9/1/2017 3,150,000 2.195 2.195 100.000 AD8 9/1/2018 1,000,000 2.595 2.595 100.000 AE6

C: Priced to optional redemption date on September 1, 2023 at par. † CUSIP numbers have been assigned to these issues by CUSIP Global Services, managed by Standard & Poor’s Services LLC on behalf of The American Bankers Association, and are included solely for the convenience of the owners of the Bonds. Neither the Successor Agency nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions, including but not limited to, a refunding in whole or in part of such maturity, or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of the Bonds.


MORGAN HILL, CALIFORNIA

BOARD OF DIRECTORS

Steve Tate, Mayor Gordon Siebert, Mayor Pro Tem

Larry Carr, Councilmember Rich Constantine, Councilmember Marilyn Librers, Councilmember

SUCCESSOR AGENCY STAFF

Steve Rymer, City Manager Renee Gurza, City Attorney

Kevin Riper, Finance Director Irma Torrez CMC, City Clerk Mike Roorda, City Treasurer

SPECIAL SERVICES

Financial Advisor Steven Gortler

San Francisco, California

Bond Counsel Fulbright & Jaworski LLP

(a member of Norton Rose Fulbright) Los Angeles, California

Disclosure Counsel

Jones Hall, A Professional Law Corporation San Francisco, California

Fiscal Consultant

Fraser & Associates Roseville, California

Trustee

The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

-i-

TABLE OF CONTENTS Page

INTRODUCTORY STATEMENT ................ 1 Authority and Purpose ............................. 1 The City and the Successor Agency ....... 2 The Redevelopment Plan ........................ 2 Tax Allocation Financing ......................... 3 Security for the Bonds ............................. 3 Special Obligations .................................. 4 Reserve Fund .......................................... 4 The County and the County Auditor

Controller ............................................. 4 Professionals Involved in the Offering ..... 5 Further Information .................................. 6

PLAN OF REFUNDING .............................. 7 SOURCES AND USES OF FUNDS ........... 7 DEBT SERVICE SCHEDULE ..................... 8 THE BONDS ............................................... 9

Authority for Issuance .............................. 9 Description of the Bonds ......................... 9 Redemption and Purchase of Bonds ...... 9

THE DISSOLUTION ACT ......................... 11 SECURITY FOR THE BONDS ................. 13

Pledged Tax Revenues ......................... 13 Additional Bonds ................................... 14 Judicial Validation Proceedings ............ 14 Recognized Obligation Payment

Schedules or “ROPS” ........................ 15 Final and Conclusive Enforceable

Obligation Determination ................... 16 Pledge of Former Housing Set-Aside .... 17 Tax Sharing Agreements ....................... 17 Statutory Pass-Through Payments ....... 17 Tax Increment Cap ................................ 18

SANTA CLARA COUNTY AUDITOR-CONTROLLER ...................................... 19 Santa Clara County’s Role in the

Transaction ........................................ 20 FLOW OF FUNDS SUMMARY ................. 20 FUNDS AND RELATED COVENANTS AND

PROVISIONS ........................................ 23 Revenue Fund and Reserve Fund ........ 23 Covenants of the Successor Agency .... 25 Independent Redevelopment Consultant27 Certain Covenants of the County .......... 28 Indemnification of the County ................ 29

THE SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT

AGENCY ............................................... 30 Members and Officers ........................... 30 Successor Agency Powers .................... 30

Successor Agency Fiduciary Fund ........ 31 THE PROJECT AREA .............................. 31

General Description ............................... 31 Redevelopment Plan; Plan Limits ......... 31 Project Area Activity .............................. 32 Historical Assessed Valuation ............... 33 Land Use ............................................... 36 Top Property Owners ............................ 37

PLEDGED TAX REVENUES AND DEBT SERVICE ............................................... 38 Projected Taxable Valuation and Pledged

Tax Revenues ................................... 38 Appeals ................................................. 43

RISK FACTORS ....................................... 45 Recognized Obligation Payment Schedule

........................................................... 45 Challenges to Dissolution Act ................ 46 Reduction in Taxable Value .................. 47 Risks to Real Estate Market .................. 48 Reduction in Inflationary Rate ............... 48 Development Risks ............................... 48 Levy and Collection of Taxes ................ 49 State Budget Issues .............................. 49 Bankruptcy and Foreclosure ................. 50 Estimated Revenues ............................. 50 Hazardous Substances ......................... 50 Natural Disasters ................................... 51 Changes in the Law ............................... 52 Investment Risk ..................................... 52 Secondary Market ................................. 52

PROPERTY TAXATION IN CALIFORNIA 53 Property Tax Collection Procedures ...... 53 Teeter Plan ............................................ 54 Unitary Property .................................... 55 Article XIIIA of the State Constitution .... 55 Appropriations Limitation - Article XIIIB . 56 Articles XIIIC and XIIID of the State

Constitution ........................................ 57 Proposition 87 ....................................... 57 Appeals of Assessed Values ................. 57 Proposition 8 ......................................... 58 Propositions 218 and 26 ........................ 58 Future Initiatives .................................... 58

TAX MATTERS ......................................... 59 2013A Bonds ......................................... 59 2013B Bonds ......................................... 61

CONCLUDING INFORMATION ................ 65 Underwriting .......................................... 65 Legal Opinion ........................................ 66

-ii-

Litigation ................................................ 66 Ratings .................................................. 66 Continuing Disclosure ........................... 67

Miscellaneous ........................................ 68

APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE .......................................... A-1 APPENDIX B – FORM OF BOND COUNSEL OPINION ................................................................................ B-1 APPENDIX C – BOOK-ENTRY ONLY SYSTEM ............................................................................................ C-1 APPENDIX D – FORM CONTINUING DISCLOSURE AGREEMENT ............................................................ D-1 APPENDIX E – STATE DEPARTMENT OF FINANCE APPROVAL LETTER ............................................... E-1 APPENDIX F – VALIDATION JUDGMENT .................................................................................................... F-1 APPENDIX G – SUCCESSOR AGENCY FIDUCIARY FUND ........................................................................ G-1 APPENDIX H – SUPPLEMENTAL INFORMATION-CITY OF MORGAN HILL .............................................. H-1

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. 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. This Official Statement is not a contract between any bond owner and the Successor Agency.

No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the Successor Agency or the Underwriters to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the Successor Agency.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Information in Official Statement. The information set forth in this Official Statement has been furnished by the Successor Agency and other sources which are believed to be reliable.

The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement, in accordance with, and as part of, their 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.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Successor Agency in any press release and in any oral statement made with the approval of an authorized officer of the Successor Agency or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. 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, give rise to any implication that there has been no change in the affairs of the Successor Agency or any other entity described or referenced herein since the date hereof.

Document Summaries. All summaries of the Indenture or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents and the law, and do not purport to be complete statements of any or all of such provisions.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the Successor Agency, the County, the California Department of Finance or the other entities described in this Official Statement, or the condition of the property within the Project Area since the date of this Official Statement.

Website. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with Municipal Securities Rule Making Board through the Electronic Municipal Market Access (“EMMA”) website. The City of Morgan Hill maintains a website. However, the information maintained on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

San Jose

San Francisco Oakland

Morgan Hill

Santa Clara

Palo Alto Menlo Park

Berkeley

Cupertino

Milpitas

Fremont

Pleasanton

Mountain View

Stanford University

SFO

OAK

Not to Scale, for Planning Purposes Only Map tiles by Stamen Design, under CC BY 3.0. Data by OpenStreetMap, under CC BY SA

Sunnyvale

SJC

I0 10.5Miles

Morgan Hill Land Uses

LegendRedevelopment AreaCity Boundary

Land Use TypesCommercialCampus IndustrialGeneral CommercialIndustrialMulti-Family HighMulti-Family LowMulti-Family MediumMixed UseNon-Retail CommercialOffice IndustrialOpen SpacePublic FacilitiesRural CountyResidential EstateSingle Family HighSingle Family LowSingle Family Medium

-1-

OFFICIAL STATEMENT



and

$14,365,000


Refunding Revenue Bonds, Series 2013B (Taxable)

INTRODUCTORY STATEMENT

This Official Statement, including the cover page, is provided to furnish information in

connection with the sale by the Successor Agency to the Morgan Hill Redevelopment Agency (the “Successor Agency”) of its

• $74,310,000 Refunding Revenue Bonds, Series 2013A (the “2013A Bonds”), and

• $14,365,000 Refunding Revenue Bonds, Series 2013B (Taxable) (the “2013B

Bonds” and, together with the 2013A Bonds, the “Bonds”).

Authority and Purpose The Bonds are being issued pursuant to the Constitution and laws of the State of California

(the “State”), including the Community Redevelopment Law, Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State of California (the “Redevelopment Law”) and Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the “Bond Law”) and an Indenture of Trust dated as of December 1, 2013 (the “Indenture”) by and among the Successor Agency, the County of Santa Clara (the “County”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). See “THE BONDS – Authority for Issuance.”

The Bonds are being issued to refund and defease the previously issued (i) $96,200,000

Morgan Hill Redevelopment Agency Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area), Series 2008A (the “2008 A Bonds”), currently outstanding in the aggregate principal amount of $82,615,000 and the (ii) $13,800,000 Morgan Hill Redevelopment Agency Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area), Series 2008B (Taxable) (the “2008B Bonds”, and, together with the 2008A Bonds, the “Prior Bonds”) currently outstanding in the aggregate principal amount of $11,845,000.

-2-

The City and the Successor Agency The City of Morgan Hill, California (the “City”) is located in Santa Clara County, 20 miles

southeast of the City of San Jose along US Highway 101, in the southern part of the Silicon Valley. The City encompasses an area of approximately 12.9 square miles and, as of January 1, 2013, had an estimated population of approximately 40,000 residents. The City was incorporated in November 1906 as a general law city and operates under a Council-Manager form of government. The five members of the City Council, including the Mayor, are elected at large. See “APPENDIX H – Supplemental Information – The City of Morgan Hill.”

The Morgan Hill Redevelopment Agency (the “Predecessor Agency”) was activated on

November 5, 1980, by the City Council of the City with the adoption of Ordinance No. 534, pursuant to the Redevelopment Law.

On June 29, 2011, Assembly Bill No. 26 (“AB X1 26”) was enacted together with a

companion bill, Assembly Bill No. 27 (“AB X1 27”). The provisions of AB X1 26 provided for the dissolution of all redevelopment agencies. The provisions of AB X1 27 permitted redevelopment agencies to avoid such dissolution by the payment of certain amounts. A lawsuit was brought in the California Supreme Court, California Redevelopment Association, et al., v. Matosantos, et al., 53 Cal. 4th 231 (Cal. Dec. 29, 2011), challenging the constitutionality of AB X1 26 and AB X1 27. The California Supreme Court largely upheld AB X1 26, invalidated AB X1 27, and held that AB X1 26 may be severed from AB X1 27 and enforced independently. As a result of AB X1 26 and the decision of the California Supreme Court in the California Redevelopment Association case, as of February 1, 2012, all redevelopment agencies in the State were dissolved, including the Predecessor Agency, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.

The primary provisions enacted by AB X1 26 relating to the dissolution and wind down of

former redevelopment agency affairs are Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012 (as amended from time to time, collectively, the “Dissolution Act”).

Pursuant to Section 34173 of the Dissolution Act, the City is the successor agency (the “Successor Agency”) to the Predecessor Agency. Subdivision (g) of Section 34173 of the Dissolution Act, added by AB 1484, expressly affirms that the Successor Agency is a separate public entity and legal entity from the City, that the two entities shall not merge, and that the liabilities of the Predecessor Agency will not be transferred to the City nor will the assets of the Predecessor Agency become assets of the City.

The Redevelopment Plan

The Redevelopment Plan (the “Plan”) for the Ojo De Aqua Project Area was initially

approved by Ordinance No. 552 adopted by the City Council on June 9, 1981. The Plan was subsequently amended four times pursuant to the following: (i) Ordinance No. 1204, adopted on December 7, 1994, (ii) Ordinance No. 1426, adopted on April 21, 1999, (iii) Ordinance No. 1429, adopted on April 21, 1999, and (iv) Ordinance No. 1807, adopted on November 8, 2006, approving an Amendment No. 4 amending and restating the Community Development Plan of the Ojo De Agua Community Development Project.

-3-

Tax Allocation Financing Prior to the enactment of AB X1 26 on June 29, 2011, the Redevelopment Law authorized

the financing of redevelopment projects through the use of tax increment revenues. This method provided that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming the taxable valuation never drops below the base year level, the taxing agencies receiving property taxes thereafter received only that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency was allocated the remaining portion of property taxes produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency were authorized to be pledged to the payment of redevelopment agency obligations.

Section 34177.5 of the Dissolution Act authorizes the issuance of refunding bonds, including

the Bonds, to be secured by a pledge of, and lien on, Pledged Tax Revenues created by the Indenture. Pursuant to Section 341775(g) of the Dissolution Act, the Bonds are further secured by a pledge of and lien on monies deposited from time to time in the Redevelopment Property Tax Trust Fund (the “Redevelopment Property Tax Trust Fund”) administered by the Auditor-Controller of the County (the “County Auditor-Controller”). Provided that the Successor Agency has complied with certain of its covenants relating to the timely submission of a recognized obligation payment schedule approved by the State Department of Finance (the “Recognized Obligation Payment Schedules” or “ROPS”), the County Auditor-Controller has covenanted in the Indenture to remit from Pledged Tax Revenues directly to the Trustee on each January 2, an amount equal to the annual debt service on the Bonds, plus an amount equal to any deficiency in the Reserve Fund. If, on January 2 of any year, the amount of Pledged Tax Revenues available to be remitted by the County Auditor-Controller to the Trustee is less than the amounts described in the preceding sentence, then the County-Auditor-Controller has covenanted in the Indenture to remit pursuant to a Recognized Obligation Payment Schedule approved by the State Department of Finance on the following June 1 the balance due from Pledged Tax Revenues. See “THE INDENTURE-Certain Covenants of the Successor Agency-Covenant 2 and Certain Covenants of the County-Covenant 2” herein for additional information. See also “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”.

Successor agencies have no power to levy property taxes and must rely on the allocation of

taxes as described above. See “RISK FACTORS.”

Security for the Bonds Pursuant to California Health and Safety Code section 34177.5(a)(1), a successor agency

may pledge to its refunding bonds the revenues pledged to the bonds being refunded, and that pledge, when made in connection with the issuance of such refunding bonds, shall have the same lien priority as the pledge of the bonds to be refunded, and shall be valid, binding, and enforceable in accordance with its terms. Pursuant to the Indenture authorizing the Prior Bonds, dated February 1, 2008, between the Predecessor Agency and The Bank of New York Trust Company, N.A. (the “Prior Indenture”), the Prior Bonds were secured by a first pledge of and charge and lien upon Tax Revenues (as defined therein). Therefore, pursuant to California Health and Safety Code section 34177.5(a)(1), upon the issuance of the Bonds, the Bonds will be secured by a first pledge of and charge and lien upon Pledged Tax Revenues. For a definition of “Pledged Tax Revenues, see “SECURITY FOR THE BONDS-Pledged Tax Revenues”.

-4-

The Dissolution Act requires the County Auditor-Controller to determine the amount of property taxes (formerly tax increment) that would have been allocated to the Predecessor Agency had the Predecessor Agency not been dissolved pursuant to AB X1 26, using current assessed values on the last equalized roll on August 20, and to deposit that amount in the Redevelopment Property Tax Trust Fund for the Successor Agency established and administered by the County Auditor-Controller pursuant to the Dissolution Act. The Dissolution Act provides that any bonds authorized thereunder to be issued by the Successor Agency will be considered indebtedness incurred by the dissolved Predecessor Agency, with the same lien priority and legal effect as if the bonds had been issued prior to the effective date of AB X1 26, in full conformity with the applicable provisions of the Redevelopment Law that existed prior to that date, and will be included in the Successor Agency’s Recognized Obligation Payment Schedule (see “APPENDIX A – Definitions” and “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”).

The Dissolution Act further provides that bonds authorized thereunder to be issued by the

Successor Agency will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund, and that property tax revenues pledged to any bonds authorized under the Dissolution Act, such as the Bonds, are taxes allocated to the Successor Agency pursuant to the provisions of the Redevelopment Law and the State Constitution which provided for the allocation of tax increment revenues under the Redevelopment Law, as described in the foregoing paragraph.

Special Obligations

The Bonds are special obligations of the Successor Agency and are secured by an

irrevocable pledge of, and are payable as to principal, interest and premium, if any, solely from Pledged Tax Revenues. The Bonds, interest and premium, if any, thereon are not a debt of the City, the County, the State or any of its political subdivisions (except the Successor Agency), and none of the City, the County, the State nor any of its political subdivisions (except the Successor Agency) is liable thereon. The Bonds, interest thereon and premium, if any, are not payable out of any funds or properties other than those set forth in the Indenture. None of the members of the Successor Agency Board, the Oversight Board, the Board of Supervisors of the County, or any employee or officer of the County, or any persons executing the Bonds is liable personally on the Bonds by reason of their issuance.

Reserve Fund

In order to further secure the payment of the principal of and interest on the Bonds, a

Reserve Fund is established by the Indenture, to be funded from proceeds of the Bonds in an amount equal to the Reserve Requirement. “Reserve Requirement” means, as of each calculation date, Maximum Annual Debt Service on all Outstanding Bonds. The initial Reserve Requirement for the Bonds is the amount of $6,937,067.50. See “FUNDS AND RELATED COVENANTS AND PROVISIONS-Revenue Fund and Reserve Fund”.

The County and the County Auditor Controller Pursuant to the Dissolution Act, the County Auditor-Controller is required to establish,

maintain and administer the Morgan Hill Redevelopment Property Tax Trust Fund on behalf of the Successor Agency and on behalf of holders of Successor Agency Enforceable Obligations (e.g. bondholders). In its capacity as administrator of the Redevelopment Property Tax Trust Fund, the County Auditor-Controller is required to deposit into the Redevelopment Property Tax Trust Fund all of the property taxes (formerly tax increment) that comprise Pledged Tax Revenues, and to disburse from the Redevelopment Property Tax Trust Fund all amounts authorized pursuant to a Recognized

-5-

Obligation Payment Schedule approved by the State Department of Finance (e.g. debt service on the Bonds). As such, the County Auditor-Controller plays an important role in ensuring the full and timely payment of debt service on the Bonds.

In addition to its statutory obligations under the Dissolution Act, the County has agreed to be

a party to the Indenture, and to enter into certain covenants therein for the benefit of Owners of the Bonds. As such, the Successor Agency is utilizing a tri-party Indenture with respect to the Bonds among the Successor Agency, the County and the Trustee. Pursuant to the Indenture, the County has covenanted, subject to its receipt of a Recognized Obligation Payment Schedule approved by the State Department of Finance to remit from Pledged Tax Revenues directly to the Trustee on each January 2 an amount equal to annual debt service on the Bonds, plus an amount equal to any deficiency in the Reserve Fund. If, on January 2 of any year, the amount of Pledged Tax Revenues available to be remitted by the County Auditor-Controller to the Trustee is less than the amounts described in the preceding sentence, then the County-Auditor-Controller has covenanted in the Indenture to remit pursuant to a Recognized Obligation Payment Schedule approved by the State Department of Finance the balance due from Pledged Tax Revenues on the following June 1. The County Auditor-Controller will execute the Indenture on behalf of the County.

Notwithstanding anything contained in the Indenture, the County shall not be required to risk,

expend or advance any of its own funds or otherwise incur any financial liability under the Indenture or with respect to the Bonds. Any action against the County under the Indenture shall be limited to a writ of mandamus for specific performance of the covenants of the County Auditor-Controller thereunder or for a writ of attachment for the Pledged Tax Revenues. The County or the County Auditor-Controller in no event shall be liable for any direct, consequential, indirect or punitive damages for its actions under the Indenture. Absent gross negligence or willful misconduct, the County and the County Auditor-Controller shall not be liable or responsible for any error, omission, interruption or delay in transmission, dispatch, action or inaction taken by it in good faith. The Bonds are limited obligations of the Successor Agency and are payable, as to interest thereon, principal thereof and any premium payable upon the redemption thereof, solely from the Pledged Tax Revenues as provided in the Indenture.

Judicial Validation Proceedings

Pursuant to Section 34177.5(d) of the Dissolution Act and Resolution No. SA-004, adopted by the Successor Agency on April 17, 2013, the Successor Agency on May 21, 2013 filed a Complaint in the Superior Court County of Sacramento initiating proceedings to confirm the validity of the Bonds, the Indenture and other matters relating thereto and the proceedings for the issuance of the Bonds. On October 9, 2013, the Superior Court, County of Sacramento, entered a default Judgment (the “Validation Judgment”), in Successor Agency to the Morgan Hill Redevelopment Agency vs. Kamala Harris, etc., Sacramento County (Case No. 34-2013-00145235-CU-MC-GDS). The appeal period for the Validation Judgment concluded on November 8, 2013. See ”JUDICIAL VALIDATION PROCEEDINGS “ herein.

Professionals Involved in the Offering

Steven Gortler, San Francisco, California, has served as financial advisor to the Successor

Agency and has advised the Successor Agency with respect to the bond structure and other aspects of the transaction. Payment of the fees and expenses of the financial advisor is contingent upon the sale and delivery of the Bonds.

-6-

Fraser & Associates, Roseville, California, has acted as fiscal consultant to the Successor Agency (the “Fiscal Consultant”) and has advised the Successor Agency with respect to the Pledged Tax Revenues projected to be available to pay debt service on the Bonds as referenced in this Official Statement.

The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as

trustee with respect to the Bonds. All proceedings in connection with the issuance of the Bonds are subject to the approval of

Fulbright & Jaworski LLP, a member of Norton Rose Fulbright, Los Angeles, California, Bond Counsel to the Successor Agency. Jones Hall, A Professional Law Corporation, San Francisco, California is acting as Disclosure Counsel. Certain legal matters will be passed on for the Underwriters by Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California. Payment of the fees and expenses of Disclosure Counsel and Underwriters’ Counsel is contingent upon the sale and delivery of the Bonds.

Further Information

Brief descriptions of the Redevelopment Law, the Bond Law, the Dissolution Act, the Bonds,

the Indenture, the Successor Agency, the Predecessor Agency, the County and the City are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Redevelopment Law, the Bond Law, the Dissolution Act, the Bonds, the Indenture, the Constitution and the laws of the State as well as the proceedings of the Predecessor Agency, the Successor Agency, the County and the City are qualified in their entirety by reference to such documents and laws. References herein to the Bonds are qualified in their entirety by the form thereof included in the Indenture and the information with respect thereto included herein.

-7-

PLAN OF REFUNDING

A portion of the proceeds of the Bonds will be applied toward the refunding of the Prior

Bonds. On February 21, 2008, the Morgan Hill Redevelopment Agency (the “Predecessor Agency”)

issued its Variable-Rate Tax Allocation Bonds, Series 2008A in the aggregate principal amount of $96,200,000 and Series 2008B (Taxable) in the aggregate principal amount of $13,800,000. As of the Delivery Date, the Series 2008A Bonds are outstanding in the aggregate principal amount of $82,615,000 and the Series 2008B Bonds are outstanding in the aggregate principal amount of $11,845,000.

On the Delivery Date, $75,999,760.00 of the proceeds of the Series 2013A Bonds will be

deposited into the Series 2008A Redemption Fund pursuant to the Prior Indenture; which, together with certain other available monies therein, will be sufficient to pay all accrued but unpaid interest and to redeem and defease all outstanding Series 2008A Bonds on the Delivery Date.

On the Delivery Date, $10,864,497.00 of the proceeds of the Series 2013B Bonds will be

deposited into the Series 2008B Redemption Fund pursuant to the Prior Indenture; which, together with certain other available monies therein, will be sufficient to pay all accrued but unpaid interest and to redeem and defease all outstanding Series 2008B Bonds on the Delivery Date.

SOURCES AND USES OF FUNDS The estimated sources and uses of funds is summarized as follows.

2013A BONDS 2013B BONDS TOTAL Sources: Principal Amount of Bonds $74,310,000.00 $14,365,000.00 $88,675,000.00 Plus: Prior Bonds Available Funds 6,615,250.00 980,513.00 7,595,763.00 Less: Underwriters’ Discount (414,986.25) (59,098.06) (474,084.31) Plus: Net Original Issue Premium 6,790,482.15 -- 6,790,482.15 Total Sources $87,300,745.90 $15,286,414.94 $102,587,160.84 Uses: Deposit to 2008 Redemption Fund $82,615,010.00 $11,845,010.00 $94,460,020.00 Deposit to Reserve Fund (1) 3,691,975.00 3,245,092.50 6,937,067.50 Deposit to Costs of Issuance Fund (2) 993,760.90 196,312.44 1,190,073.34 Total Uses $87,300,745.90 $15,286,414.94 $102,587,160.84 (1) Total amount deposited in the Reserve Fund equals the Reserve Requirement. (2) Costs of Issuance include fees and expenses for Bond Counsel, Disclosure Counsel, Financial Advisor, Fiscal

Consultant, Trustee, printing expenses, rating fees and other costs related to the issuance of the Bonds.

-8-

DEBT SERVICE SCHEDULE

The following table shows the semi-annual and annual debt service schedule for the Bonds, assuming no early redemptions.

Series 2013A (Tax Exempt) Series 2013B (Taxable) Semi-Annual Total Annual Total Principal Interest Total Principal Interest Total Principal Interest Total Principal Interest Total

3/1/2014 -- $ 892,227.29 $ 892,227.29 -- $ 47,797.44 $ 47,797.44 -- $ 940,024.73 $ 940,024.73 9/1/2014 -- 1,845,987.50 1,845,987.50 $4,050,000.00 98,891.25 4,148,891.25 $4,050,000.00 1,944,878.75 5,994,878.75 $4,050,000.00 $2,884,903.48 $6,934,903.48 3/1/2015 -- 1,845,987.50 1,845,987.50 -- 88,766.25 88,766.25 -- 1,934,753.75 1,934,753.75 9/1/2015 -- 1,845,987.50 1,845,987.50 3,065,000.00 88,766.25 3,153,766.25 3,065,000.00 1,934,753.75 4,999,753.75 3,065,000.00 3,869,507.50 6,934,507.50 3/1/2016 -- 1,845,987.50 1,845,987.50 -- 71,602.25 71,602.25 -- 1,917,589.75 1,917,589.75 9/1/2016 -- 1,845,987.50 1,845,987.50 3,100,000.00 71,602.25 3,171,602.25 3,100,000.00 1,917,589.75 5,017,589.75 3,100,000.00 3,835,179.50 6,935,179.50 3/1/2017 -- 1,845,987.50 1,845,987.50 -- 47,546.25 47,546.25 -- 1,893,533.75 1,893,533.75 9/1/2017 -- 1,845,987.50 1,845,987.50 3,150,000.00 47,546.25 3,197,546.25 3,150,000.00 1,893,533.75 5,043,533.75 3,150,000.00 3,787,067.50 6,937,067.50 3/1/2018 -- 1,845,987.50 1,845,987.50 -- 12,975.00 12,975.00 -- 1,858,962.50 1,858,962.50 9/1/2018 $2,215,000.00 1,845,987.50 4,060,987.50 1,000,000.00 12,975.00 1,012,975.00 3,215,000.00 1,858,962.50 5,073,962.50 3,215,000.00 3,717,925.00 6,932,925.00 3/1/2019 970,000.00 1,801,687.50 2,771,687.50 -- -- -- 970,000.00 1,801,687.50 2,771,687.50 9/1/2019 2,385,000.00 1,777,687.50 4,162,687.50 -- -- -- 2,385,000.00 1,777,687.50 4,162,687.50 3,355,000.00 3,579,375.00 6,934,375.00 3/1/2020 1,055,000.00 1,718,062.50 2,773,062.50 -- -- -- 1,055,000.00 1,718,062.50 2,773,062.50 9/1/2020 2,470,000.00 1,691,687.50 4,161,687.50 -- -- -- 2,470,000.00 1,691,687.50 4,161,687.50 3,525,000.00 3,409,750.00 6,934,750.00 3/1/2021 1,140,000.00 1,629,937.50 2,769,937.50 -- -- -- 1,140,000.00 1,629,937.50 2,769,937.50 9/1/2021 2,560,000.00 1,601,437.50 4,161,437.50 -- -- -- 2,560,000.00 1,601,437.50 4,161,437.50 3,700,000.00 3,231,375.00 6,931,375.00 3/1/2022 1,235,000.00 1,537,437.50 2,772,437.50 -- -- -- 1,235,000.00 1,537,437.50 2,772,437.50 9/1/2022 2,655,000.00 1,506,562.50 4,161,562.50 -- -- -- 2,655,000.00 1,506,562.50 4,161,562.50 3,890,000.00 3,044,000.00 6,934,000.00 3/1/2023 1,330,000.00 1,440,187.50 2,770,187.50 -- -- -- 1,330,000.00 1,440,187.50 2,770,187.50 9/1/2023 2,755,000.00 1,406,937.50 4,161,937.50 -- -- -- 2,755,000.00 1,406,937.50 4,161,937.50 4,085,000.00 2,847,125.00 6,932,125.00 3/1/2024 -- 1,338,062.50 1,338,062.50 -- -- -- -- 1,338,062.50 1,338,062.50 9/1/2024 4,255,000.00 1,338,062.50 5,593,062.50 -- -- -- 4,255,000.00 1,338,062.50 5,593,062.50 4,255,000.00 2,676,125.00 6,931,125.00 3/1/2025 -- 1,231,687.50 1,231,687.50 -- -- -- -- 1,231,687.50 1,231,687.50 9/1/2025 4,470,000.00 1,231,687.50 5,701,687.50 -- -- -- 4,470,000.00 1,231,687.50 5,701,687.50 4,470,000.00 2,463,375.00 6,933,375.00 3/1/2026 -- 1,119,937.50 1,119,937.50 -- -- -- -- 1,119,937.50 1,119,937.50 9/1/2026 4,695,000.00 1,119,937.50 5,814,937.50 -- -- -- 4,695,000.00 1,119,937.50 5,814,937.50 4,695,000.00 2,239,875.00 6,934,875.00 3/1/2027 -- 1,002,562.50 1,002,562.50 -- -- -- -- 1,002,562.50 1,002,562.50 9/1/2027 4,930,000.00 1,002,562.50 5,932,562.50 -- -- -- 4,930,000.00 1,002,562.50 5,932,562.50 4,930,000.00 2,005,125.00 6,935,125.00 3/1/2028 -- 879,312.50 879,312.50 -- -- -- -- 879,312.50 879,312.50 9/1/2028 5,175,000.00 879,312.50 6,054,312.50 -- -- -- 5,175,000.00 879,312.50 6,054,312.50 5,175,000.00 1,758,625.00 6,933,625.00 3/1/2029 -- 750,375.00 750,375.00 -- -- -- -- 750,375.00 750,375.00 9/1/2029 5,430,000.00 750,375.00 6,180,375.00 -- -- -- 5,430,000.00 750,375.00 6,180,375.00 5,430,000.00 1,500,750.00 6,930,750.00 3/1/2030 -- 614,625.00 614,625.00 -- -- -- -- 614,625.00 614,625.00 9/1/2030 5,705,000.00 614,625.00 6,319,625.00 -- -- -- 5,705,000.00 614,625.00 6,319,625.00 5,705,000.00 1,229,250.00 6,934,250.00 3/1/2031 -- 472,000.00 472,000.00 -- -- -- -- 472,000.00 472,000.00 9/1/2031 5,990,000.00 472,000.00 6,462,000.00 -- -- -- 5,990,000.00 472,000.00 6,462,000.00 5,990,000.00 944,000.00 6,934,000.00 3/1/2032 -- 322,250.00 322,250.00 -- -- -- -- 322,250.00 322,250.00 9/1/2032 6,290,000.00 322,250.00 6,612,250.00 -- -- -- 6,290,000.00 322,250.00 6,612,250.00 6,290,000.00 644,500.00 6,934,500.00 3/1/2033 -- 165,000.00 165,000.00 -- -- -- -- 165,000.00 165,000.00 9/1/2033 6,600,000.00 165,000.00 6,765,000.00 -- -- -- 6,600,000.00 165,000.00 6,765,000.00 6,600,000.00 330,000.00 6,930,000.00

Total $74,310,000.00 $49,409,364.79 $123,719,364.79 $14,365,000.00 $588,468.19 $14,953,468.19 $88,675,000.00 $49,997,832.98 $138,672,832.98 $88,675,000.00 $49,997,832.98 $138,672,832.98

-9-

THE BONDS Authority for Issuance

The Bonds were authorized for issuance pursuant to the Indenture, the Redevelopment Law,

the Bond Law, and the Dissolution Act. The issuance of the Bonds and the execution and delivery of the Indenture were authorized by the Successor Agency pursuant to Resolution No.SA-004, adopted on April 17, 2013 (the “Resolution”), and by the Santa Clara County Board of Supervisors pursuant to Resolution No.BOS-2013-61 (ID# 67037) adopted on April 23, 2013 (the “County Resolution”) and approved by the Oversight Board for the Successor Agency (the “Oversight Board”) pursuant to Resolution No. OB-020, adopted on April 17, 2013 (the “Oversight Board Resolution”).

On June 20, 2013, the State Department of Finance (“DOF”) provided a letter to the

Successor Agency stating that based on the DOF’s review and application of the law, the Oversight Board Resolution approving the Bonds is approved by the DOF. See “APPENDIX E – State Department of Finance Approval Letter.”

Description of the Bonds

The Bonds will be issued and delivered as one fully-registered Bond in the denomination of

$5,000 or any integral multiple thereof (an “Authorized Denomination”) for each maturity, initially in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York, as registered owner of all Bonds (the “Owners”). The initially executed and delivered Bonds will be dated the date of delivery (the “Delivery Date”) and mature on March 1 and September 1 in the years and in the amounts shown on the inside cover page of this Official Statement. Interest on the Bonds will be calculated at the rates shown on the inside cover page of this Official Statement, payable semiannually on March 1 and September 1 in each year, commencing on March 1, 2014, by check mailed to the registered owners thereof or upon the request of the Owners of $1,000,000 or more in principal amount of Bonds, by wire transfer to an account in the United States which shall be designated in written instructions by such Owner to the Trustee on or before the Record Date preceding the Interest Payment Date.

One fully-registered certificate will be issued for each maturity of the Bonds, each in the

aggregate principal amount of such maturity, and will be deposited with DTC. See “APPENDIX C – Book-Entry Only System.”

Redemption and Purchase of Bonds

Optional Redemption of 2013A Bonds. The 2013A Bonds maturing on or before

September 1, 2023 are not subject to redemption prior to maturity. The 2013A Bonds maturing after September 1, 2024 are subject to redemption prior to maturity in whole, or in part in the manner determined by the Successor Agency on any date on or after September 1, 2023, from any available source of funds, at 100% of the principal amount of the 2013A Bonds to be redeemed, together with accrued interest thereon to the redemption date, without premium.

Optional Redemption of 2013B Bonds. The 2013B Bonds, or portions thereof in

Authorized Denominations, will be subject to optional redemption prior to their respective maturities, at the option of the Successor Agency from funds available to it, in whole or in part at any time, at

-10-

the “Make-Whole Redemption Price,” which will be equal to: (a) the greater of (i) 100% of the principal amount of the 2013B Bonds to be redeemed or (ii) the sum of the present value of the remaining scheduled payment of principal and interest to the maturity date of the 2013B Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the 2013B Bonds are to be redeemed, discounted to the date on which the 2013B Bonds are to be redeemed on a semiannual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (defined below) plus 15 basis points, plus (b) accrued and unpaid interest to the redemption date on the 2013B Bonds to be redeemed.

“Treasury Rate” means, for purposes of calculating the “Make-Whole Redemption Price”, as

of the redemption date, the yield to maturity as of such redemption date of the United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (excluding inflation-indexed securities) or, if such statistical release is no longer published, any publicly available source of similar market data) most nearly equal to the period from the redemption date to the maturity date of the 2013B Bonds to be redeemed; provided, however, that if the period from the redemption date to the maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. The redemption price will be determined by an independent accounting firm, investment banking firm or financial advisor retained by the Successor Agency at the Successor Agency’s expense and such redemption price shall be conclusive and binding on the owners of the 2013B Bonds.

Partial Redemption of Bonds. If only a portion of any Bond is called for redemption, then

upon surrender of such Bond the Successor Agency shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Successor Agency, a new Bond or Bonds of the same interest rate and maturity, of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the Bond to be redeemed.

Effect of Redemption. From and after the date fixed for redemption, if funds available for

the payment of the redemption price of and interest on the Bonds so called for redemption shall have been duly deposited with the Trustee, such Bonds so called such cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price and accrued interest to the redemption date, and no interest shall accrue thereon from and after the redemption date specified in such notice.

Notice of Redemption. The Successor Agency is required to give the Trustee written

notice of its intention to redeem Bonds at least 30 days prior to the date fixed for such redemption, provided, the Trustee may waive such requirements in its sole discretion upon written request of the Successor Agency.

The Trustee on behalf of and at the expense of the Successor Agency will mail (by first class

mail, postage prepaid) notice of any redemption at least twenty (20) but not more than sixty (60) days prior to the redemption date, to (i) the Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and (ii) to the Securities Depositories and to the Information Services designated in a Written Request of the Successor Agency filed with the Trustee at the time the Successor Agency notifies the Trustee of its intention to redeem Bonds; but such mailing will not be a condition precedent to such redemption and neither failure to receive any such notice nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice will state the redemption date and the redemption price, will designate the CUSIP number of the Bonds to be redeemed, state the individual number of each Bond to be redeemed or state that all Bonds between two stated

-11-

numbers (both inclusive) or all of the Bonds Outstanding (or all Bonds of a maturity) are to be redeemed, and will require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. If, at the time that the notice of redemption is sent to the Owners the Successor Agency has not deposited with the Trustee sufficient funds to pay the redemption price and accrued interest in full with respect to the Bonds being redeemed, then the notice shall expressly state that the redemption is conditioned upon the receipt of sufficient funds by the Trustee on or before the redemption date. Neither the Successor Agency nor the Trustee shall have any responsibility for any defect in the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Successor Agency nor the Trustee shall be liable for any inaccuracy in such numbers.

Rescission. Any notice of optional redemption given pursuant to the Indenture may be

rescinded by written notice given to the Trustee by the Successor Agency and the Trustee shall provide notice of such rescission as soon thereafter as practicable in the same manner, and to the same recipients, as notice of such redemption was given pursuant to the Indenture, but in no event later than the date set for redemption.

THE DISSOLUTION ACT The Dissolution Act requires the County Auditor-Controller to determine the amount of

property taxes (formerly tax increment) that would have been allocated to the Predecessor Agency (pursuant to subdivision (b) of Section 16 of Article XVI of the State Constitution) had the Predecessor Agency not been dissolved pursuant to the operation of AB X1 26, using current assessed values on the last equalized roll on August 20, and to deposit that amount in the Redevelopment Property Tax Trust Fund established and administered by the County Auditor-Controller on behalf of the Successor Agency for the benefit of the holders of enforceable obligations. The Dissolution Act provides that any bonds authorized thereunder to be issued by the Successor Agency will be considered indebtedness incurred by the Predecessor Agency, with the same lien priority and legal effect as if the bonds had been issued prior to the effective date of AB X1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date.

The Dissolution Act further provides that bonds authorized thereunder to be issued by the

Successor Agency will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund, and that property tax revenues pledged to any bonds authorized to be issued by the Successor Agency under the Dissolution Act, including the Bonds, are taxes allocated to the Successor Agency pursuant to subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of Article XVI of the State Constitution.

Pursuant to subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of

Article XVI of the State Constitution and as provided in the Redevelopment Plan, taxes levied upon taxable property in the Project Area each year by or for the benefit of the State, any city, county, city and county, district, or other public corporation (herein sometimes collectively called “taxing agencies”) after the effective date of the ordinance approving the Redevelopment Plan, or the respective effective dates of ordinances approving amendments to the Redevelopment Plan that added territory to the Project Area, as applicable, are to be divided as follows:

-12-

(a) To Taxing Agencies: That portion of the taxes which would be

produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan, or the respective effective dates of ordinances approving amendments to the Redevelopment Plan that added territory to the Project Area, as applicable (each, a “base year valuation”), will be allocated to, and when collected will be paid into, the funds of the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid; and

(b) To the Predecessor Agency/Successor Agency: Except for that

portion of the taxes in excess of the amount identified in (a) above which are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989 for the acquisition or improvement of real property, which portion shall be allocated to, and when collected shall be paid into, the fund of that taxing agency, that portion of the levied taxes each year in excess of such amount, annually allocated within the Plan Limit following the Delivery Date, when collected will be paid into a special fund of the Successor Agency. Section 34172 of the Dissolution Act provides that, for purposes of Section 16 of Article XVI of the State Constitution, the Redevelopment Property Tax Trust Fund shall be deemed to be a special fund of the Successor Agency to pay the debt service on indebtedness incurred by the Predecessor Agency or the Successor Agency to finance or refinance the redevelopment projects of the Predecessor Agency. That portion of the levied taxes described in paragraph (b) above, less amounts deducted

pursuant to Section 34183(a) of the Dissolution Act for permitted administrative costs of the County Auditor-Controller, constitute the amounts required under the Dissolution Act to be deposited by the County Auditor-Controller into the Redevelopment Property Tax Trust Fund. In addition, Section 34183 of the Dissolution Act effectively eliminates the January 1, 1989 date from paragraph (b) above.

-13-

SECURITY FOR THE BONDS

Pledged Tax Revenues Pursuant to California Health and Safety Code section 34177.5(a)(1), the Successor Agency

may pledge to its refunding bonds the revenues pledged to the bonds being refunded, and that pledge, when made in connection with the issuance of such refunding bonds, shall have the same lien priority as the pledge of the bonds to be refunded, and shall be valid, binding, and enforceable in accordance with its terms. Therefore, in accordance with the pledge contained in the indenture providing for the issuance of the Prior Bonds, the Bonds are payable from and secured by (i) a first lien on and a security interest in, and pledge of the Pledged Tax Revenues whether held by the Successor Agency, the County Auditor-Controller or the Trustee and (ii) a first pledge and lien on all of the monies in the Revenue Fund (and all Accounts therein) and in the Reserve Fund established and held by the Trustee in trust for the Owners under the Indenture. In addition, pursuant to the Indenture, the Successor Agency has assigned to the Trustee all amounts held in the Redevelopment Property Tax Trust Fund and allocated by the County Auditor-Controller for the payment of debt service on the Bonds.

“Pledged Tax Revenues” means the tax revenues (including all payments, reimbursements

and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) that were eligible for allocation to the Predecessor Agency pursuant to the Health and Safety Code, as it existed when the Prior Bonds were issued, in connection with the Redevelopment Project Area; provided, however, that “Pledged Tax Revenues” shall not include (a) amounts, if any, received by the Successor Agency pursuant to Section 16111 of the Government Code; (b) amounts paid to the County as an administrative fee pursuant to SB 2557, Section 34182 of the Health and Safety Code and Section 95.3 of the Revenue and Taxation Code of the State of California in effect on the Delivery Date; (c) amounts, if any, required by law to be paid to affected taxing agencies, except to the extent that such payments are subordinated to payments on the Bonds pursuant to the Health and Safety Code; (d) amounts, if any, required by law on the Delivery Date to be deposited by the Successor Agency in a housing fund; and (e) Compliance Costs. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include all tax revenues allocated to the payment of indebtedness pursuant to Health and Safety Code Section 33670 or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution.

With respect to certain of the Section and statutory references in the definition of “Pledged

Tax Revenues”: Section 16111 of the California Government Code refers to certain business

inventory subventions; Section SB 2557 and Section 95.3 California Revenue and Taxation Code refer to

the County charge for the costs of assessing, collecting and allocating property taxes; and Section 34182 of the California Health and Safety Code refers to the County charge

for the costs of administering the Dissolution Act. For an estimate of the County charges described above, see Table 6 and Table 7 and,

particularly, footnote (6) to each of these Tables.

-14-

In accordance with the Validation Judgment, and pursuant to the pledge of Pledged Tax

Revenues made in the Indenture, as authorized by Section 34177.5(a)(1) of the Health and Safety Code of the State of California, the principal of and interest or redemption premium (if any) on the Bonds shall be payable from, and secured by a first charge and lien on Pledged Tax Revenues without any deduction or offset by the County or any other taxing entity. In addition, in accordance with the Health and Safety Code, the Bonds and any refunding bonds payable from Pledged Tax Revenues on a parity with Outstanding Bonds, shall be payable from and secured by, and Pledged Tax Revenues shall include, moneys deposited, from time to time, in the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Health and Safety Code Section 34172, as provided in paragraph (2) of subdivision (a) of Health and Safety Code Section 34183.

The Successor Agency has no power to levy and collect taxes, and various factors beyond

its control could affect the amount of Pledged Tax Revenues available to pay debt service on the Bonds (see “SECURITY FOR THE BONDS” and “RISK FACTORS”).

Additional Bonds

The Successor Agency covenants that it will not issue any bonds, notes, interim certificates,

debentures or other obligations that are secured by a lien on Pledged Tax Revenues that is superior to or on a parity with the lien on Pledged Tax Revenues securing payment of the Bonds. However, the Successor Agency may (i) issue and sell refunding bonds payable from Pledged Tax Revenues on a parity with Outstanding Bonds, if (a) annual debt service on such refunding bonds is lower than annual debt service on the Bonds being refunded during every year the refunding bonds will be outstanding and (b) the debt service payment dates with respect to such refunding bonds are the same as for the Bonds; (ii) issue and sell Obligations which have a lien on Pledged Tax Revenues junior to the Bonds or (iii) issue and sell Obligations that are payable in whole or in part from sources other than Pledged Tax Revenues; provided, that none of the foregoing issuances shall cause the Successor Agency to violate applicable law.

Judicial Validation Proceedings

Pursuant to the authorization contained in Section 34177.5(d) of the Dissolution Act and

Resolution No. SA-004, adopted by the Successor Agency on April 17, 2013, the Successor Agency on May 21, 2013 filed a Complaint in the Superior Court County of Sacramento initiating proceedings to confirm the validity of the Bonds and other matters relating to the proceedings for the issuance of the Bonds.

On October 9, 2013, the Superior Court, County of Sacramento, entered a default Judgment

in Successor Agency to the Morgan Hill Redevelopment Agency vs. Kamala Harris, etc., Sacramento County (Case No. 34-2013-00145235-CU-MC-GDS) with respect to the Bonds. The appeal period for the Validation Judgment concluded on November 8, 2013. For the complete Validation Judgment, see “APPENDIX F - VALIDATION JUDGMENT.”

In the Validation Judgment the Superior Court made several determinations with respect to

the Bonds and the Pledged Tax Revenues, including the following: 1. The Bonds, the Resolutions, and the Indenture identified in the Complaint, including

all proceedings leading thereto, were and are valid, legal, and binding obligations in accordance with their terms.

-15-

2. Pursuant to California Health and Safety Code section 34177.5(a)(1), the successor agency may pledge to the refunding bonds or other indebtedness the revenues pledged to the bonds or other indebtedness being refunded, and that pledge, when made in connection with the issuance of such refunding bonds or other indebtedness, shall have the same lien priority as the pledge of the bonds or other obligations to be refunded, and shall be valid, binding, and enforceable in accordance with its terms. Pursuant to the Prior Indenture, the Prior Bonds were secured by a first pledge of and charge and lien upon Tax Revenues (as defined therein). Therefore, pursuant to California Health and Safety Code section 34177.5(a)(1), upon the issuance of the Bonds, the Bonds shall be secured by a first pledge of and charge and lien upon Pledged Tax Revenues.

3. Pursuant to California Health and Safety Code section 34177.5(a)(1), the pledge of

the Bonds has the same lien priority as the pledge of the Prior Bonds and is valid, binding and enforceable in accordance with its terms, and the pledge with respect to the Prior Bonds, and the pledge with respect to the Bonds also shall not be subject to any deduction or offset by the County or any other taxing entity.

4. No payments or allocations may or shall be made for any other obligation listed on

the relevant ROPS from Pledged Tax Revenues until all obligations arising under the terms of the Indenture as set forth on an approved ROPS have been satisfied for the relevant time period.

For the complete Validation Judgment, see “APPENDIX F - VALIDATION JUDGMENT.”

Recognized Obligation Payment Schedules or “ROPS”

The Dissolution Act provides that only “enforceable obligations” listed on a Recognized

Obligation Payment Schedule approved by the State Department of Finance may be paid by a successor agency. The Dissolution Act defines “enforceable obligation” as bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of the outstanding bonds of the former redevelopment agency, as well as other obligations such as loans, judgments or settlements against the former redevelopment agency, any legally binding and enforceable agreement that is not otherwise void as violating the debt limit or public policy, contracts necessary for the administration or operation of the successor agency, and amounts borrowed from the Low and Moderate Income Housing Fund.

The Dissolution Act defines “Recognized Obligation Payment Schedule” as the document

setting forth the minimum payment amounts and due dates of payments required by enforceable obligations for each six-month fiscal period as provided in subdivision (m) of Section 34177.

In order to ensure the full and timely payment of all enforceable obligations, including the

payment of all amounts required under the Indenture, the Dissolution Act requires each successor agency to submit a Recognized Obligation Payment Schedule to the successor agency’s oversight board and the State Department of Finance not less than 90 days prior to each January 2 and June 1 pursuant to which all enforceable obligations of the successor agency are listed, together with the source of funds to be used to pay such obligations.

The Successor Agency covenants in the Indenture that it will duly and punctually pay or

cause to be paid the principal of and interest on the Bonds on the date, at the place and in the manner provided in the Bonds. Accordingly, the Successor Agency covenants in the Indenture that not less than 90-days prior to each January 2, the Successor Agency shall submit to the Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule that includes all scheduled interest and principal payments on the Bonds that are due and payable on

-16-

March 1 and September 1 of the Bond Year ending on September 1 of the next ensuing calendar year, together with any amount required to replenish the Reserve Fund. If, on January 2 of any year, the amount of Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee is less than the amounts described in the preceding sentence, then the Successor Agency has covenanted in the Indenture that not less than 90-days prior to the following June 1, the Successor Agency shall submit to the Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule that includes the balance due.

The Successor Agency has policies and procedures in place to ensure full and timely

compliance with the above-described covenant. Under the direction of the City Manager, the Morgan Hill ROPS Team is comprised of five Department Heads – Legal, Economic Development, Public Works, Administrative Services and Finance – and their respective staffs. The Successor Agency has a proven track record of submitting every Recognized Obligation Payment Schedule on time, as follows.

Funding Period

ROPS Approved by Oversight

Board

Approved ROPS Submitted to

DOF

Deadline to Submit

ROPS to DOF

ROPS Submitted On Time

ROPS I Jan-Jun 2012 Apr 16, 2012 Apr 17, 2012 Apr 15, 2012 minor delay ROPS II Jul-Dec 2012 May 16, 2012 May 17, 2012 Jun 1, 2012 yes ROPS III Jan-Jun 2013 Aug 15, 2012 Aug 15, 2012 Sep 1, 2012 yes ROPS 2013-14A Jul-Dec 2013 Feb 22, 2013 Feb 25, 2013 Mar 1, 2013 yes ROPS 2013-14B Jan-Jun 2014 Sep 17, 2013 Sep 17, 2013 Oct 1, 2013 yes

Further, there are strong incentives for the Successor Agency to submit Recognized

Obligation Payment Schedules on time. If the Successor Agency does not submit a Recognized Obligation Payment Schedule to the Oversight Board and the State Department of Finance at least 90-days prior to each January 2 and June 1, then the City of Morgan Hill will be subject to a $10,000 per day civil penalty for every day the schedule is late. Additionally, if the Successor Agency does not submit a Recognized Obligation Payment Schedule to the Oversight Board and the State Department of Finance at least 80-days prior to each January 2 and June 1, then the Successor Agency’s administrative cost allowance may be reduced by up to 25%. For additional information regarding procedures under the Dissolution Act relating to late Recognized Obligation Payment Schedules and implications thereof on the Bonds, see “RISK FACTORS – Recognized Obligation Payment Schedule.”

Final and Conclusive Enforceable Obligation Determination

In addition to the legal protections accorded Owners pursuant to the Validation Judgment,

Health and Safety Code Section 34177.5(i) provides that, if an enforceable obligation such as the Bonds provides for an irrevocable commitment of property taxes, and if the allocation of such taxes is expected to occur over time, the Successor Agency may request written confirmation from the State Department of Finance that the Bonds, and the scheduled payment of debt service thereon, constitute an enforceable obligation and that such determination is final and conclusive (an “Enforceable Obligation Determination”). The Enforceable Obligation Determination will further state that the authority of the State Department of Finance to review and approve or disapprove future debt service payments on the Bonds, as reflected on all future Recognized Obligation Payment Schedules, shall be limited to confirming that such debt service payments are required by the Bonds.

Once the Enforceable Obligation Determination is issued by the State Department of

Finance, the Successor Agency and the Owners are assured that the State Department of Finance

-17-

cannot disapprove the payment of debt service on the Bonds, as long as any such payments are accurately reflected on a Recognized Obligation Payment Schedule.

An Enforceable Obligation Determination may be obtained from State Department of

Finance only after an enforceable obligation (e.g. debt service on the Bonds) appears on a Recognized Obligation Payment Schedule approved by the State Department of Finance. Therefore, the Successor Agency may not obtain an Enforceable Obligation Determination until after the Bonds are issued. The Successor Agency covenants in the Indenture to use its best efforts to obtain such an Enforceable Obligation Determination as soon as practicable after the Bonds are issued. There is no guarantee that the State Department of Finance will issue an Enforceable Obligation Determination with respect to the Bonds.

Pledge of Former Housing Set-Aside

The Dissolution Act eliminated the requirement that twenty percent of tax increment revenue

be set aside and used exclusively for purposes of providing low and moderate income housing. Accordingly, Pledged Tax Revenues are not subject to such set aside requirement, as confirmed by the Validation Judgment, and amounts formerly required to be set aside for such purpose are included in Pledged Tax Revenues pledged to the payment of debt service on the Bonds.

Tax Sharing Agreements

The Redevelopment Law authorized the Predecessor Agency to enter into agreements (a

“Tax-Sharing Agreement”) with taxing agencies whose territory was located within the Project Area, whereby the Predecessor Agency would pay tax increment revenues to such taxing agencies to alleviate the financial burden or detriment caused by the Redevelopment Project. The Predecessor Agency did not enter into any Tax-Sharing Agreements.

Statutory Pass-Through Payments

Sections 33607.5 and 33607.7 of the Redevelopment Law require the Successor Agency to

make Statutory Pass-Through Payments to taxing agencies whose territory is located within the Project Area, to alleviate the financial burden or detriment caused by the Redevelopment Project. The Dissolution Act establishes procedures whereby the Successor Agency may make such Statutory Pass-Through Payments subordinate to the payment of debt service on the Bonds. The Successor Agency has satisfied the requirements of the Dissolution Act such that all Statutory Pass-Through Payments are subordinate to the payment of debt service on the Bonds.

-18-

Tax Increment Cap

California Health and Safety Code Section 33333.4(g) reads in part, as follows: “A redevelopment plan adopted on or after October 1, 1976 [the Morgan Hill Redevelopment Plan] … shall contain … a limitation on the number of dollars of taxes that may be divided and allocated to the agency pursuant to the plan.” This provision is commonly referred to as the “Tax Increment Cap.” The ostensible purpose of the Tax Increment Cap is to limit the financial burden or detriment borne by local taxing agencies (cities, counties, special districts and school and community college districts) whose territory is located within a redevelopment project area. Pursuant to Section 33333.4(g), the Morgan Hill Redevelopment Agency included the following Tax Increment Cap provision in Section 602(B)(3) of its Amended and Restated Community Development Plan (its Redevelopment Plan): “No more than $580,000,000, net of required payments to affected taxing entities pursuant to CCRL Section 33607.7 may be divided and allocated to the Agency.”

Pre-Dissolution: prior to Dissolution, once a redevelopment project area was designated

and a redevelopment plan was adopted, a ‘base year’ was thereby established. From that point-in-time forward, the amount of annual property tax revenue received by each local taxing agency whose territory was located within the project area was frozen at the base year level. Thereafter, any increase in property tax revenue above the base year level would inure to the exclusive financial benefit of the redevelopment agency, until such time as the redevelopment project ended. As such, local taxing agencies (cities, counties, special districts and school and community college districts) suffered a financial burden or detriment once a redevelopment project area was designated and a redevelopment plan was adopted. The Tax Increment Cap is a means to limit the financial burden or detriment of redevelopment.

Post-Dissolution: the Legislature’s intent in dissolving redevelopment agencies was to

remove the financial burden or detriment borne by local taxing agencies whose territory is located within a redevelopment project area. To wit, the Dissolution Act reads as follows: “any property taxes that would have been allocated to redevelopment agencies will no longer be deemed tax increment. Instead, those taxes will be deemed property tax revenues and will be allocated first to successor agencies to make payments on the indebtedness incurred by the dissolved redevelopment agencies, with remaining balances allocated … for cities, counties, special districts, and school and community college districts.”

Pursuant to the Dissolution Act, during Fiscal Year 2012-13, $12,725,215 of property taxes

(formerly tax increment) that would have been allocated to the Predecessor Agency prior to dissolution, was instead allocated as residual revenue pursuant to ABX1 26 to cities, counties, special districts, and school and community college districts whose territory is located within the Project Area.

Based on the foregoing and pursuant to applicable law, the Successor Agency believes that,

post-dissolution, property taxes (formerly tax increment) allocated to the Agency for the purpose of paying Enforceable Obligations pursuant to a Recognized Obligation Payment Schedule approved by the State Department of Finance, plus the Agency’s Administrative Cost Allowance pursuant to Health and Safety Code Section 34171(b), shall count against the Agency’s $580,000,000 Tax Increment Cap. However, the Successor Agency believes that property taxes (formerly tax increment) allocated pursuant to Health and Safety Code Section 36607.7 and ABX1 26 to cities, counties, special districts, and school and community college districts whose territory is located in the Project Area, and property taxes (formerly tax increment) allocated to the County or to the State

-19-

of California pursuant to SB 2557, do not count against the Successor Agency’s $580,000,000 Tax Increment Cap.

Tax Increment Cap Analysis: as of October 1, 2013, the Successor Agency has received

approximately $342,000,000 of cumulative property taxes (formerly tax increment) subject to its $580,000,000 Tax Increment Cap. As such, in the future the Successor Agency may receive an additional $238,000,000 before reaching its $580,000,000 Tax Increment Cap. The expected amount of total debt service payable on the Bonds is approximately $140,000,000. Excluding the Prior Bonds (which will be refunded with the proceeds of the Bonds), as of October 1, 2013, the aggregate amount of existing Enforceable Obligations of the Successor Agency (outstanding loans, obligations and indebtedness) including any interest that is payable thereon is the amount of $7,400,000 and the estimated Administrative Cost Allowances payable to the Successor Agency prior to final maturity of the Bonds is the amount of $4,400,000. Deducting the aggregate amount of existing Enforceable Obligations and the estimated Administrative Cost Allowances from the remaining amount of property taxes that may be allocated to the Agency under the Tax Increment Cap leaves $226,200,000 available to pay debt service on the Bonds before the Agency reaches its Tax Increment Cap, which significantly exceeds the expected amount of total debt service payable on the Bonds. Based on the foregoing, the Successor Agency believes that the Bonds will mature and be fully repaid before the Successor Agency reaches its Tax Increment Cap.

Change in State Law: if there should be a change in State law or a judicial decision such

that property taxes (formerly tax increment) allocated pursuant to 33607.7 and/or pursuant to the Dissolution Act, to cities, counties, special districts, and school and community college districts whose territory is located within the Project Area, count against the Successor Agency’s $580,000,000 Tax Increment Cap, then the Successor Agency shall, nevertheless, take all actions necessary or desirable to ensure the sufficiency of Pledged Tax Revenues for the timely payment of debt service on the Bonds, including but not limited to establishing and funding an escrow account with Pledged Tax Revenues to the extent permitted by law, as provided in the Indenture. However, the Successor Agency cannot guarantee that, in such event, Pledged Tax Revenues in an amount sufficient to pay debt service will be available.

SANTA CLARA COUNTY AUDITOR-CONTROLLER

The County Auditor-Controller is appointed by the Santa Clara County Board of Supervisors.

The County Auditor–Controller administers the Controller-Treasurer Department, one of four departments of the Santa Clara County Finance Agency. The Controller-Treasurer Department performs the functions of Chief Accounting Officer, Internal Auditor and Treasurer of Santa Clara County.

Pursuant to the Dissolution Act, the County Auditor-Controller is required to deposit property

taxes (formerly tax increment) that would have been allocated to the Predecessor Agency had the Predecessor Agency not been dissolved into the Redevelopment Property Tax Trust Fund, which is established, maintained and administered for the Successor Agency by the County Auditor-Controller. Pursuant to the Dissolution Act, the County Auditor-Controller disburses funds from the Redevelopment Property Tax Trust Fund twice annually, on January 2 and June 1 pursuant to a Recognized Obligation Payment Schedule approved by the State Department of Finance. Amounts so disbursed include all payments required by the Indenture, the payment of all other enforceable obligations, payments to affected taxing entities, and various administrative fees and allowances. Remaining balances are distributed to affected taxing entities under a prescribed method that accounts for pass-through payments. The County Auditor-Controller is also responsible for

-20-

distributing other moneys received from the Successor Agency (the proceeds of assets sales to the affected taxing entities).

Santa Clara County’s Role in the Transaction

In addition to its statutory obligations under the Dissolution Act, the County has agreed to be

a party to the Indenture, and to enter into certain covenants therein for the benefit of Owners. Pursuant to the Indenture, the County Auditor-Controller is required, subject to its receipt of a Recognized Obligation Payment Schedule approved by the State Department of Finance, to remit from Pledged Tax Revenues directly to the Trustee on each January 2 an amount equal to the annual debt service on the Bonds, plus an amount equal to any deficiency in the Reserve Fund. If, on January 2 of any year, the amount of Pledged Tax Revenues available to be remitted by the County Auditor-Controller to the Trustee is less than the amounts described in the preceding sentence, then the County Auditor-Controller has covenanted in the Indenture to remit, pursuant to a Recognized Obligation Payment Schedule approved by the State Department of Finance, the balance due from Pledged Tax Revenues on the following June 1. See “FUNDS AND RELATED COVENANTS AND PROVISIONS-Certain Covenants of the County”.

On April 23, 2013, the Santa Clara County Board of Supervisors approved the form of the

Indenture by Resolution No. BOS-2013-61 (ID# 67037) and authorized the County Auditor-Controller to execute the Indenture.

Notwithstanding anything contained in the Indenture, the County shall not be required to risk,

expend or advance any of its own funds or otherwise incur any financial liability under the Indenture or with respect to the Bonds. Any action against the County under the Indenture shall be limited to a writ of mandamus for specific performance of the covenants of the County Auditor-Controller thereunder or for a writ of attachment for the Pledged Tax Revenues. The County or the County Auditor-Controller in no event shall be liable for any direct, consequential, indirect or punitive damages for its actions under the Indenture. Absent gross negligence or willful misconduct, the County and the County Auditor-Controller shall not be liable or responsible for any error, omission, interruption or delay in transmission, dispatch, action or inaction taken by it in good faith. The Bonds are limited obligations of the Successor Agency and are payable, as to interest thereon, principal thereof and any premiums upon the redemption of any thereof, solely from the Pledged Tax Revenues as provided in the Indenture.

FLOW OF FUNDS SUMMARY Pursuant to applicable law, the Indenture and the Validation Judgment, the flow of funds is

as follows: 1. Pursuant to Section 2052 of the Revenue and Taxation Code, using assessed values

on the August 20 equalized roll, the County Auditor-Controller shall determine the amount of property taxes (formerly tax increment) that would have been allocated to the Predecessor Agency had the Predecessor Agency not been dissolved and shall deposit all such amounts into the Redevelopment Property Tax Trust Fund established, maintained and administered by the County Auditor-Controller on behalf of the Successor Agency for the benefit of holders of enforceable obligations.

2. Pursuant to Covenant 2 of the Successor Agency contained in Section 5.1 of the

Indenture, not less than 90-days prior to each January 2, the Successor Agency shall submit to the

-21-

Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule which shall include all scheduled interest and principal payments on the Bonds that are due and payable on March 1 and September 1 of the Bond Year ending on September 1 of the next ensuing calendar year, together with any amount required to replenish the Reserve Fund.

3a. Pursuant to Covenant 2 of the County contained in Section 5.3 of the Indenture,

provided the Successor Agency has complied with certain covenants relating to the timely submission of a Recognized Obligation Payment Schedule approved by the State Department of Finance, on January 2 of each year the County Auditor-Controller shall remit from Pledged Tax Revenues directly to the Trustee by wire or bank transfer in immediately available funds, an amount equal to all scheduled interest and principal payments on the Bonds that are due and payable on March 1 and on September 1 of the then-current Bond Year, plus an amount equal to any deficiency in the Reserve Fund.

3b. If, on January 2 of any year, insufficient Pledged Tax Revenues are available to be

remitted by the County Auditor-Controller to the Trustee pursuant to paragraph ‘3a’ above, then not less than 90-days prior to June 1 of such year, the Successor Agency shall submit to the Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule which includes the balance due; and, on June 1 of such year, the County Auditor-Controller shall remit from Pledged Tax Revenues directly to the Trustee by wire or bank transfer in immediately available funds, the balance due.

4. Pursuant to Section 4.3 of the Indenture, upon the receipt of Pledged Tax Revenues,

the Trustee shall deposit all such amounts into the Revenue Fund; and, pursuant to Covenant 3 of the Successor Agency contained in Section 5.1 of the Indenture, the Successor Agency shall credit all such amounts to the Redevelopment Obligation Retirement Fund established pursuant to Section 34170.5 of the Health and Safety Code.

5. On or before each Interest Payment Date, the Trustee shall transfer from the

Revenue Fund to the Interest Account an amount which, together with any amount contained therein, is equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date.

6. On or before each Principal Payment Date, the Trustee shall transfer from the

Revenue Fund to the Principal Account an amount which, together with any money contained therein, is equal to the aggregate amount of principal becoming due and payable on the Outstanding Bonds on such Principal Payment Date.

7. Pursuant to Section 4.3 of the Indenture, on September 1 of each year the Trustee

shall value the balance in the Reserve Fund; and, on September 2 of each year or as soon as practicable thereafter, any amounts remaining in the Revenue Fund shall be released from the lien of the Indenture and shall be remitted to the County Auditor-Controller; provided however, that any such monies shall first be applied to make up any deficiency in the Reserve Fund.

Property Taxes (Payable without penalty by Dec. 10 and Apr. 10)

County Tax Collector

The County Auditor-Controller deposits all Pledged Tax Revenue into the

Morgan Hill Successor Agency Redevelopment Property Tax Trust Fund

Each year on January 2nd the County Auditor-Controller is required to remit from Pledged Tax Revenues directly to the Bond Trustee, an amount equal to the sum of the following:

• Bond Interest Payments due March 1 and September 1 • Bond Principal Payments due March 1 and September 1 • Amount (if any) necessary to replenish the Reserve Fund

All Other Successor Agency Enforceable Obligations

(including subordinate pass-through payments)

Residual Payments to Local Taxing Agencies

(i.e. cities, counties, special districts and school and community college districts)

Pledged

Tax Revenue

The County Auditor-Controller transfers Pledged Tax Revenues

directly to the Bond Trustee, bypassing the Successor Agency

Successor Agency Administrative Cost Allowance

The Successor Agency expects the January 2nd transfer of Pledged Tax Revenues will

fully cover annual debt service

If Pledged Tax Revenues are ever insufficient to remit the

required amount on any January 2nd, then on June 1st the County Auditor-Controller

will remit from available Pledged Tax Revenues, the

remaining balance due

-22-

-23-

FUNDS AND RELATED COVENANTS AND PROVISIONS Revenue Fund and Reserve Fund

There are established under the Indenture special trust funds known as the “Revenue Fund”

and the “Reserve Fund” to be held by the Trustee in trust for Owners. The Reserve Fund shall be funded at the Reserve Requirement as provided in the Indenture. Pursuant to Section 34170.5(b) of the Health and Safety Code, the County Auditor-Controller shall create within the County treasury a Successor Agency Redevelopment Property Tax Trust Fund, into which the County Auditor-Controller shall deposit Pledged Tax Revenues for the benefit of the Owners pursuant to the Indenture. The County Auditor-Controller shall remit Pledged Tax Revenues directly to the Trustee, for the payment of debt service on the Bonds and to replenish the Reserve Fund, as necessary.

Upon receiving Pledged Tax Revenues from the County Auditor-Controller, the Trustee shall

deposit all amounts received into the Revenue Fund. On or before each Interest Payment Date, the Trustee shall transfer moneys in the Revenue Fund to the Interest Account, the Principal Account and the Redemption Account of the Revenue Fund, as described below. On September 2 of each year or as soon as practicable thereafter, any amounts remaining in the Revenue Fund shall be released from the lien of the Indenture and transferred to the County Auditor-Controller; provided however, that any such monies shall first be applied to make up any deficiency in the Reserve Fund.

(a) Interest Account. On or before each Interest Payment Date, the

Trustee shall transfer from the Revenue Fund to the Interest Account an amount of money which, together with any money contained therein, is equal to the aggregate amount of interest due and payable on the Outstanding Bonds on such Interest Payment Date. Subject to the Indenture, all moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds redeemed prior to maturity pursuant to the Indenture). On September 2 of each year or as soon as practicable thereafter, any moneys in the Interest Account shall be released from the lien of the Indenture and transferred to the County Auditor-Controller; provided however, any such moneys shall first be applied to make up any deficiency in the Reserve Fund.

(b) Principal Account. On or before each Principal Payment Date, the Trustee shall transfer from the Revenue Fund to the Principal Account an amount of money which, together with any money contained therein, is equal to the aggregate amount of the principal due and payable on the Outstanding Bonds on such Principal Payment Date. Subject to the Indenture, all moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal payments on the Outstanding Bonds as they become due and payable. On September 2 of each year or as soon as practicable thereafter, any moneys in the Principal Account shall be released from the lien of the Indenture and transferred to the County Auditor-Controller; provided however, that any such moneys shall first be applied to make up any deficiency in the Reserve Fund.

If there shall be insufficient money in the Revenue Fund to make in full all such principal payments required to be made in such Bond Year, then the money available in the Revenue Fund shall be applied pro rata with respect to such principal payments in the proportion that all such principal payments to each other.

(c) Reserve Fund. Subject to the Indenture, all money in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of (i) making transfers

-24-

to the Interest Account, the Principal Account (and subaccount therein, as the case may be), in such order of priority, in the event of any deficiency at any time in any of such Accounts or (ii) for the retirement of all the Bonds then Outstanding. Any draw from the Reserve Fund shall be allocated by the Trustee ratably among the invested proceeds of the 2013A Bonds and the 2013B Bonds in accordance with amount of the draw to be applied to the respective 2013A Bonds or 2013B Bonds, as applicable. The Trustee shall keep accurate records of all such draws.

All amounts in the Reserve Fund five (5) Business Days before the final Interest Payment Date shall be withdrawn therefrom by the Trustee and transferred either (i) to the Interest Account and then the Principal Account, to the extent required to make the deposits then required to be made hereunder, or (ii) if sufficient deposits have been made hereunder, then such amounts shall be released to the County Auditor-Controller.

On September 1 of each year the Trustee shall value the balance in the Reserve Fund and, if the value of such balance is less than the Reserve Requirement, then the Trustee shall notify the Successor Agency of any such deficiency within three (3) Business Days. If the value of the balance in the Reserve Fund is in excess of the Reserve Requirement, the excess shall be withdrawn from the Reserve Fund and deposited in the Revenue Fund to be applied to the purposes thereof as provided in the Indenture.

“Reserve Requirement” means, as of each calculation date, Maximum Annual Debt Service on all Outstanding Bonds. The initial Reserve Requirement for the Bonds is $6,937,067.50.

“Maximum Annual Debt Service” means the largest of the sums obtained for any Bond Year after the computation is made, by totaling the following for each such Bond Year:

(1) The principal amount of all Outstanding Bonds payable in such Bond Year; and

(2) The interest which would be due during such Bond Year on the aggregate principal amount of Outstanding Bonds which would be outstanding in such Bond Year if the Bonds Outstanding on the date of such computation were to mature or be redeemed in accordance with the maturity schedules for the Bonds.

(d) Redemption Account. On or before the 5th Business Day preceding

any date on which Bonds are to be redeemed, the Successor Agency will deliver or cause to be delivered to the Trustee for deposit in the Redemption Account an amount required to pay the principal of, interest and premium, if any, on the Bonds to be redeemed on such date. Subject to the Indenture, all moneys in the Redemption Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of, interest and premium, if any, on the Bonds to be redeemed on the date set for such redemption.

-25-

Covenants of the Successor Agency As long as the Bonds are outstanding, the Successor Agency will (through its proper

members, officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued thereunder, including the following covenants and agreements for the benefit of the Owners which are necessary, convenient and desirable to secure the Bonds:

Covenant 1. Compliance with Health and Safety Code. The Successor Agency covenants

that it will comply with all applicable requirements of the Health and Safety Code. Covenant 2. Prepare and Submit Recognized Obligation Payment Schedule(s). Pursuant to

Section 34177 of the Health and Safety Code, not less than 90-days prior to each January 2, the Successor Agency shall submit to the Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule that includes all scheduled interest and principal payments on the Bonds that are due and payable on March 1 and September 1 of the Bond Year ending on September 1 of the next ensuing calendar year, together with any amount required to replenish the Reserve Fund.

If, on January 2 of any year, the amount of Pledged Tax Revenues remitted by the County

Auditor-Controller to the Trustee is less than the amounts described in the preceding paragraph, then not less than 90-days prior to June 1 of such year, the Successor Agency shall prepare and submit to the Successor Agency Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule that includes the balance due.

Covenant 3. Credit to Redevelopment Obligation Retirement Fund. The Successor Agency

covenants to credit to the Redevelopment Obligation Retirement Fund established pursuant to Section 34170.5 of the Health and Safety Code all Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee for the payment of debt service on the Bonds or to replenish the Reserve Fund.

Covenant 4. Punctual Payment. The Successor Agency covenants that it will duly and

punctually pay or cause to be paid the principal of and interest on the Bonds on the date, at the place and in the manner provided in the Bonds, and that it will take all actions required under the Health and Safety Code to include debt service on the Bonds and shall take all actions necessary or desirable, including but not limited to establishing and funding an escrow account with Pledged Tax Revenues to the extent permitted by law, to ensure the sufficiency of Pledged Tax Revenues for the timely payment of debt service on the Bonds and for all other authorized purposes under the Indenture.

Covenant 5. Indenture Compliance Costs. Indenture Compliance Costs not to exceed

$20,000 in any Fiscal Year shall be payable to the County Auditor-Controller from moneys in the Redevelopment Property Tax Trust Fund on a basis senior to the payment of debt service on the Bonds. “Compliance Costs” are defined in the Indenture as those specific costs incurred by the County Auditor-Controller in connection with its compliance with the Indenture that are chargeable against the Redevelopment Property Tax Trust Fund; provided that such costs shall not exceed $20,000 in any Fiscal Year. The annual cap on Compliance Costs does not apply to other administrative costs chargeable to the Redevelopment Property Tax Trust Fund by the County Auditor-Controller pursuant to the requirements of the Health and Safety Code.

-26-

Covenant 6. Use of Proceeds: Management and Operation of Properties. The Successor Agency covenants that the proceeds of the sale of the Bonds will be deposited and used as provided in the Indenture and that it will manage and operate all properties owned by it comprising any part of the Redevelopment Project Area in a sound and businesslike manner and in accordance with applicable law.

Covenant 7. Payment of Taxes and Other Charges. The Successor Agency covenants that

it will from time to time pay and discharge, or cause to be paid and discharged, all payments in lieu of taxes, service charges, assessments or other governmental charges which may lawfully be imposed upon the Successor Agency or any of the properties then owned by it in the Redevelopment Project Area, or upon the revenues and income therefrom, and will pay all lawful claims for labor, materials and supplies which if unpaid might become a lien or charge upon any of the properties, revenues or income or which might impair the security of the Bonds or the use of Pledged Tax Revenues or other legally available funds to pay the principal of and interest and redemption premium (if any) on the Bonds, all to the end that the priority and security of the Bonds shall be preserved; provided, however, that nothing in this covenant shall require the Successor Agency to make any such payment so long as the Successor Agency in good faith shall contest the validity of the payment.

Covenant 8. Books and Accounts; Financial Transactions and Records. The Successor

Agency covenants that it will at all times keep, or cause to be kept, proper and current books and accounts in which complete and accurate entries are made of the financial transactions and records of the Successor Agency. Within one hundred eighty (180) days after the close of each Fiscal Year an Independent Certified Public Accountant shall prepare an audit of the financial transactions and records of the Successor Agency for such Fiscal Year. To the extent permitted by law, such audit may be included within the annual audited financial statements of the City. Upon written request, the Successor Agency shall, as soon practicable, furnish a copy of each audit to any Owner. The Trustee shall have no duty to review such audits.

Covenant 9. Protection of Security and Rights of Owners. The Successor Agency covenants

to preserve and protect the security of the Bonds and the rights of the Owners and to contest by court action or otherwise (a) the assertion by any officer of any government unit or any other person whatsoever against the Successor Agency that the Pledged Tax Revenues pledged under the Indenture cannot be used to pay the debt service on the Bonds or (b) any other action affecting the validity of the Bonds or diluting the security therefor, including, with respect to the Pledged Tax Revenues, the senior lien position of the Bonds to the Statutory Pass-Through Amounts that have been subordinated to the payment of debt service on the Bonds.

Covenant 10. Continuing Disclosure. The Successor Agency covenants that it will comply

with and carry out all of the provisions of its Continuing Disclosure Agreement. Notwithstanding any other provision of the Indenture, failure by the Successor Agency to comply with its Continuing Disclosure Agreement shall not be considered an Event of Default; however, any participating underwriter, Owner or beneficial owner of any Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Covenant 11. Adverse Change in State Law. If, due to an Adverse Change in State Law,

the Successor Agency determines that it cannot comply with Covenant 2 above, then the Successor Agency shall immediately notify the County Auditor-Controller and the Trustee in writing of such determination. The Successor Agency shall immediately seek a declaratory judgment or take other appropriate action in a Court of competent jurisdiction to determine the duties of all parties to the

-27-

Indenture, including the County Auditor-Controller and the Successor Agency, with regard to the performance of Covenant 2 by the Successor Agency. The Trustee may, but shall not be obligated to, participate in the process of seeking any such declaratory judgment. “Adverse Change in State Law” is defined in the Indenture to mean a change in State law, including any judicial decision that adversely affects the ability of the Successor Agency to comply with or perform Covenant 2 described above. See “RISK FACTORS-Challenges to Dissolution Act.”

Covenant 12. Final and Conclusive Enforceable Obligation Determination from the State

Department of Finance. The Successor Agency covenants that it will use its best efforts to obtain at the earliest possible date following issuance of the Bonds a final and conclusive Enforceable Obligation Determination from the State Department of Finance pursuant to Section 34177.5(i) of the Health and Safety Code, stating that the Bonds, and the scheduled payment of debt service thereon, constitute an enforceable obligation and that such determination is final and conclusive. The letter will further state that the State Department of Finance’s authority to review and approve or disapprove future debt service payments on the Bonds, as reflected on all future Recognized Obligation Payment Schedules, shall be limited to confirming that such debt service payments are required by the Bonds. See “SECURITY FOR THE BONDS-Enforceable Obligation Determination.”

Covenant 13. Further Assurances. The Successor Agency covenants to 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 Indenture, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Indenture.

Independent Redevelopment Consultant

The Successor Agency covenants in the Indenture to retain an Independent Redevelopment

Consultant and, as long as any Bonds are Outstanding, cause the Independent Redevelopment Consultant to prepare an Annual Report by not later than November 1 of each year (commencing November 1, 2014), that includes the following:

a) Project Area taxable assessed valuation for the Fiscal Year ending June 30 of

the next ensuing calendar year;

b) Project Area base year assessed valuation;

c) Taxable assessed valuation for each of the ten largest taxpayers in the Project Area for the Fiscal Year ending June 30 of the next ensuing calendar year;

d) Total Pledged Tax Revenues deposited into the Redevelopment Property Tax Trust Fund by the County Auditor-Controller since the previous November 1;

e) Total Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee on each of January 2 and June 1 of the then-current calendar year;

f) The balance in the Reserve Fund as of the immediately preceding September 1; and

g) Annual Debt Service Coverage for the Bond Year ending on the immediately preceding September 1.

-28-

“Independent Redevelopment Consultant” is defined in the Indenture to mean any individual or firm engaged in the profession, appointed by the Successor Agency, and who, or each of whom, has a favorable reputation in the field in which his/her opinion or certificate will be given, and:

(1) is in fact independent and not under domination of the Successor Agency; (2) does not have any substantial interest, direct or indirect, with the Successor

Agency, other than as original purchaser of the Bonds or as financial advisor for fiscal consultant with respect to the Bonds; and

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

As long as the Bonds are Outstanding and unpaid, the County shall (through its proper

members, officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture, including the following covenants and agreements for the benefit of the Owners which are necessary, convenient and desirable to secure the Bonds. The Owners shall have no right to bring any legal action with respect to the Bonds or the Indenture against the County or the County Auditor-Controller, or any of their officers, agents or employees, except for an action against the County Auditor-Controller for the breach of any of the following covenants set forth in the Section 5.3 of the Indenture:

Covenant 1. Deposit of Property Tax Revenues into Redevelopment Property Tax Trust Fund. Pursuant to Section 34170.5(b) of the Health and Safety Code, and for the benefit of the Owners, the County acting through the County Auditor-Controller covenants to deposit all property tax revenues into the Redevelopment Property Tax Trust Fund in accordance with the requirements of the Health and Safety Code.

Covenant 2 Remittance of Pledged Tax Revenues. Provided that the Successor Agency has complied with its Covenant 2 described above, the County, acting through the County Auditor-Controller (or his or her designee) covenants to remit, pursuant to a Recognized Obligation Payment Schedule approved by the State Department of Finance, by wire or bank transfer in immediately available funds to the Trustee on each Remittance Date, the following:

(i) on January 2 of each year, from Pledged Tax Revenues an amount equal to

the sum of (a) all scheduled principal payments due and payable on the Bonds during the then-current Bond Year, (b) all scheduled interest payments due and payable on the Bonds during the then-current Bond Year, and (c) the amount of any deficiency in the Reserve Fund; and

(ii) on June 1 of each year, from Pledged Tax Revenues the amount determined

in accordance with (i) above, less any amount remitted on the immediately preceding January 2 of such year. Notwithstanding anything in the Indenture to the contrary, the County Auditor-Controller is

not required to remit any funds to the Trustee other than from Pledged Tax Revenues and unless such amounts have been included on a Recognized Obligation Payment Schedule approved by the State Department of Finance.

-29-

Covenant 3. Submission of Deposit Report. The County acting through the County Auditor-Controller (including his or her designee) covenants that it will, commencing January 2, 2014, not later than five (5)) Business Days after each Remittance Date, provide the Successor Agency with a written report that contains, as of such Remittance Date, the total amount of Pledged Tax Revenues deposited into the Redevelopment Property Tax Trust Fund since the preceding Remittance Date. Notwithstanding any other provision of the Indenture, failure by the County Auditor-Controller to comply with this Covenant 3 shall not be an Event of Default; however, any participating underwriter, Owner or beneficial owner of any Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Covenant 4. No Deduction or Offset from Pledged Tax Revenues. With respect to the debt

service payments on the Bonds and other payments pursuant to Article IV of the Indenture, the County and the County Auditor-Controller each covenants not to deduct or offset from Pledged Tax Revenues, any “unpaid amount” pursuant to Section 34179.6 (h)(2) of the Health and Safety Code or any other provision of law.

Indemnification of the County

The Successor Agency has covenanted in the Indenture to indemnify, defend and hold

harmless the County and its officers, directors, agents and employees, including but not limited to the County Auditor-Controller, from and against any and all Indemnifiable Losses as defined and provided in the Indenture. The payment of any Indemnifiable Losses by the Successor Agency is subordinate to the payment of debt service on the Bonds and to the replenishment of the Reserve Fund.

-30-

THE SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY

The Predecessor Agency was activated on November 5, 1980 by the City Council of the City

with the adoption of Ordinance No. 534, pursuant to the Redevelopment Law. On June 29, 2011, AB X1 26 was enacted as Chapter 5, Statutes of 2011, together with a companion bill, AB X1 27. The provisions of AB X1 26 provided for the dissolution of all redevelopment agencies. The provisions of AB X1 27 permitted redevelopment agencies to avoid such dissolution by the payment of certain amounts. A lawsuit was brought in the California Supreme Court, California Redevelopment Association, et al., v. Matosantos, et al., 53 Cal. 4th 231 (Cal. 2011), challenging the constitutionality of AB X1 26 and AB X1 27. In its December 29, 2011 decision, the California Supreme Court largely upheld AB X1 26, invalidated AB X1 27, and held that AB X1 26 may be severed from AB X1 27 and enforced independently. As a result of AB X1 26 and the decision of the California Supreme Court in the California Redevelopment Association case, as of February 1, 2012, all redevelopment agencies in the State were dissolved, including the Predecessor Agency, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.

Pursuant to Section 34173 of the Dissolution Act, the City Council of the City became the

Successor Agency to the Predecessor Agency. Subdivision (g) of Section 34173 of the Dissolution Act, added by AB 1484, expressly affirms that the Successor Agency is a separate public entity from the City, that the two entities shall not merge, and that the liabilities of the Predecessor Agency will not be transferred to the City nor will the assets of the Predecessor Agency become assets of the City.

The Successor Agency is governed by a five member Board of Directors (the “Board”) which

consists of the members of the City Council of the City of Morgan Hill. The Mayor acts as the Chair of the Board, the City Manager as the head administrative officer of the Successor Agency, the City Clerk as its Secretary and the City Finance Director as the Treasurer of the Successor Agency.

Members and Officers

The members and officers of the Successor Agency and the expiration dates of their terms

are as follows:

Name and Office Expiration of Term Steve Tate, Mayor November 2014 Gordon Siebert, Mayor Pro Tem November 2014 Rich Constantine, Council Member November 2014 Larry Carr, Council Member November 2016 Marilyn Librers, Council Member November 2016

Successor Agency Powers

All powers of the Successor Agency are vested in its five-members who are elected

members of the City Council. Pursuant to the Dissolution Act, the Successor Agency is a separate public body from the City and succeeds to the organizational status of the Predecessor Agency but without any legal authority to participate in redevelopment activities, except to complete any work related to an approved enforceable obligation. The Successor Agency is tasked with expeditiously winding down the affairs of the Predecessor Agency, pursuant to the procedures and provisions of the Dissolution Act. Under the Dissolution Act, many Successor Agency actions are subject to

-31-

approval by the Oversight Board, as well as review by the State Department of Finance and, in some cases, by the State Controller. California has strict laws regarding public meetings (known as the Ralph M. Brown Act) which generally make all Successor Agency and Oversight Board meetings open to the public in similar manner as City Council meetings.

Successor Agency Fiduciary Fund

Set forth in APPENDIX G is the Fiscal Year 2011-12 financial statement with respect to the

Successor Agency Fiduciary Fund which is excerpted from the audited City of Morgan Hill, California, Year End June 30, 2012 Comprehensive Annual Financial Report. Also set forth in APPENDIX G is the financial statement with respect to Fiscal Year 2012-13 which is excerpted from the internal records of the City and is unaudited.

THE PROJECT AREA General Description

The sole redevelopment project of the Predecessor Agency is the Ojo de Aqua

Redevelopment Project Area (the “Project Area”). The Project Area consists of approximately 2,265 acres, encompassing most of the City center along both sides of Monterey Highway. Fiscal Year 2013-14 total taxable assessed value within the Project Area equals $2,067,522,370, an increase of 4.62% from the prior Fiscal Year. Single and multi-family residential properties account for approximately 61% of the total assessed value, commercial properties account for approximately 16.5% and industrial properties account for approximately 12.1%.

Redevelopment Plan; Plan Limits

On June 9, 1982, the City Council adopted Ordinance No. 552 approving the original

Redevelopment Plan. The original Redevelopment Plan has since been amended pursuant to four ordinances: (i) Ordinance No. 1204, adopted on December 7, 1994, (ii) Ordinance No. 1426, adopted on April 21, 1999, (iii) Ordinance No. 1429, adopted on April 21, 1999, and (iv) Ordinance No. 1807, adopted on November 8, 2006, approving an Amendment No. 4 amending and restating the Redevelopment Plan.

The 2006 Plan Amendment contains several changes to the Redevelopment Plan, including: (i) Elimination of the time limit to incur debt payable from tax increment, (ii) Extension of the time period to June 3, 2024, during which the Redevelopment Plan will

remain effective, (iii) Extension of the time period to June 3, 2034, during which the Predecessor Agency may

receive tax increment, (iv) Re-establishing and increasing the bonded debt limit to $150,000,000, (v) Increasing to $580,000,000 the number of dollars of taxes that may be allocated to the

Agency with respect to the Project Area, and (vi) Removing the Detachment Area (approximately 576 acres) from the Project Area.

-32-

At the time of the dissolution of the Predecessor Agency, the Redevelopment Plan, as amended, contained the plan limits described above, including a limitation on the number of dollars of taxes that could be divided and allocated to the Predecessor Agency with respect to the Project Area pursuant to the Redevelopment Plan (the “Tax Increment Cap”). For a discussion of the Tax Increment Cap, see “SECURITY FOR THE BONDS-Tax Increment Cap”.

Other of the described plan limits may or may not apply to the Successor Agency, but, in

any event, such plan limits have no potential adverse effect on the Successor Agency or the Bonds.

Project Area Activity Projects completed by the Predecessor Agency over a 30-year period prior to dissolution

included major infrastructure projects (streets, utility undergrounding, drainage and water projects), multiple community facilities and downtown revitalization projects.

Currently, substantial and increasing housing activity is occurring in the Project Area. A total

of 95 residential units were recently constructed, 379 units are currently under construction and 608 units are in the development process. A majority of the units are single family units, but the list below includes significant Senior Living and Townhouse projects.

Three commercial projects have been approved that contain approximately 75,000 square

feet of development.

SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY Ojo de Agua Redevelopment Project Area

Summary of Recent Residential Development Projects (as of November 1, 2013) Development Size and Type Status San Savigno 6 Single Family Units Complete Bella Terra 40 Senior Multi-Family Units Complete Lone Hill 5 Single Family Units Complete E. Dunne 44 Townhomes/4 Single Family Units Complete McLaughlin-Malech 4 Duet Units Complete Butterfield Station 40 Single Family Townhouse Under Construction Jasper Park 42 Single Family Under Construction Rose Garden 51 Single Family Under Construction Amador 17 Single Family Under Construction Ironhorse 32 Single Family Under Construction E Dunne-City Ventures 8 Single Family + 35 Townhomes Under Construction Morgan Hill Retirement 137 Senior Living/Commercial Under Construction Madrone Plaza 17 Single Family Units Under Construction Madrone Plaza 97 Townhomes Pulling Permits Campoli 21 Single Family Pending Cerro Verde 32 Single Family Pending Red Jasper 30 Single Family Pending Hale-Meritage 108 Single Family Pending Tennant-Gera 45 Single Family Pending Laurel Oaks 13 Single Family Pending Rose Island 24 Single Family Pending Huntington Square 110 Market Rate Townhouse Pending Diamond Creek 128 Multi-Family Units Expect to obtain Permits in 2013 Source: City of Morgan Hill

-33-

Historical Assessed Valuation

The following table includes historical taxable assessed values within the Project Area since

Fiscal Year 2003-04. On November 8, 2006, the City Council approved Ordinance No. 1807 which, among other

things, removed 576 acres from the Project Area. These 576 acres are referred to as the Detachment Area. Removal of the Detachment Area from the Project Area reduced total Project Area secured taxable assessed value by $665.6 million in Fiscal Year 2008-09. Removal of the Detachment Area from the Project Area reduced total Project Area unsecured taxable assessed value by $141.2 million the following year, in Fiscal Year 2009-10. See Table 1 below.

A number of counties in California, including the County, have processed temporary

assessed value reductions for certain properties (Proposition 8 reductions) where the assessed values exceeded the current market value of properties as of January 1, 2012 without prompting from individual taxpayers. Typically, the properties to be reviewed by the various counties for these “automatic” reductions are single family homes and condominiums which transferred ownership between 2003 and December 31, 2011. These Proposition 8 reductions were triggered because residential property values had decreased in many areas of the state, including Santa Clara County.

Proposition 8 reductions were the primary reason for the decline in values shown on Table 1.

Secured values between Fiscal Year 2008-09 and Fiscal Year 2012-13 had declined by $130 million. During this same time period, residential properties had been reduced by approximately $227.95 million due to Proposition 8. A total of 37% of residential properties in the Project Area are under a Proposition 8 value, with average value reductions of 27%. Proposition 8 reductions were partially offset by the annual inflation adjustment of up to 2%per year and other changes of ownership and new investment.

In Fiscal Year 2013-14 taxable values increased by 4.62%, or a total of $91.2 million from

the Fiscal Year 2012-13 levels. As of Fiscal Year 2013-14 the market value of 397 of these properties has risen to the level that the value lost during the recession has been partially or fully restored. This has resulted in an increase to the Fiscal Year 2013-14 tax roll of $72 million.

-34-

Table 1 SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY

Ojo de Agua Redevelopment Project Area Historical Taxable Value

Fiscal Years 2003-04 through 2013-14

Fiscal Year Ending

June 30,

Secured Value 1

Unsecured

Value1

State Assessed

Value

Total Taxable

Value

Base Year

Value

Total Incremental

Value 2004 $1,870,094,356 $226,201,312 $1,776,961 $2,098,072,629 $(130,715,108) $1,967,357,521 2005 1,982,484,860 215,631,243 514,306 2,198,630,409 (130,715,108) 2,067,915,301 2006 2,160,725,345 230,682,294 506,086 2,391,913,725 (130,715,108) 2,261,198,617 2007 2,360,871,070 233,524,537 485,808 2,594,881,415 (130,715,108) 2,464,166,307 2008 2,597,679,104 253,729,719 392,052 2,851,800,875 (130,611,108) 2,721,189,767 2009 1 1,991,949,299 258,696,756 433,010 2,251,079,065 (128,220,067) 2,122,858,998 2010 1 1,906,492,788 138,804,051 433,010 2,045,729,849 (128,220,067) 1,917,509,782 2011 1,814,682,517 129,606,855 433,010 1,944,722,382 (128,220,067) 1,816,502,315 2012 1,832,241,513 127,670,670 384,475 1,960,296,658 (128,220,067) 1,832,076,591 2013 1,862,421,435 113,427,531 385,475 1,976,234,441 (128,220,067) 1,848,014,374 2014 1,957,148,771 109,988,124 385,475 2,067,522,370 (128,220,067) 1,939,302,303

1 576 acres were removed from the Project Area pursuant to City Council Ordinance No. 1807 approved on Nov. 8, 2006.

Removal of these 576 acres reduced total secured value by approximately $665.6 million in Fiscal Year 2008-09. Removal of these 576 acres reduced total unsecured value by approximately $141.2 million in Fiscal Year 2009-10.

Source: Santa Clara County; Fraser & Associates

-35-

Table 2


Historical Tax Increment Revenues Fiscal Years 2004 through 2013

Fiscal Year

Ending June 30,

Total Incremental

Value Tax

Rate1

Tax Increment Revenue2

Other Revenue3

Total Tax

Increment

Property Tax

Admin. Fees4

Net

Revenues5 Housing

Set-Aside6

Statutory Pass-

Through Payments7

2004 $1,967,357,521 1.0479% $20,616,981 $1,433,806 $22,050,787 $197,012 $21,853,775 $4,410,157 $2,978,389 2005 2,067,915,301 1.0479 21,693,039 1,932,245 23,625,284 294,487 23,330,797 4,725,057 2,314,091 2006 2,261,198,617 1.0413 23,687,116 1,587,223 25,274,339 260,669 25,013,670 5,054,868 2,846,206 2007 2,464,166,307 1.0411 25,816,813 1,775,073 27,591,886 284,667 27,307,219 5,518,377 3,061,881

2008 8 2,721,189,767 1.0413 22,697,118 1,039,119 23,736,237 250,677 23,485,560 4,585,355 3,430,002 2009 2,122,858,998 1.0470 22,225,575 1,032,570 23,258,145 217,672 23,040,473 4,509,018 2,307,008 2010 9 1,917,509,782 1.0484 20,103,370 648,238 20,751,608 205,928 20,545,680 4,079,716 2,257,017 2011 1,816,502,315 1.0484 19,044,330 399,981 19,444,311 210,039 19,234,272 3,888,862 1,873,438 2012 1,832,076,591 1.0298 18,866,765 401,534 19,268,299 358,458 18,909,841 0 1,909,446

2013 1,848,014,374 1.0000 18,354,598 0 18,354,598 794,623 17,559,975 0 1,776,303 1 Tax Rate includes a portion that only applied to land and improvements, so total rate in relation to incremental value may

be overstated in certain years. Starting in the second half of Fiscal Year 2011-12, the Successor Agency only received tax increment from the 1% rate.

2 Tax increment from the 1% tax rate and debt service tax rates through 2011-12. Beginning in 2012-13, includes only tax

increment from the 1% tax rate. Actual amount shown for 2012-13 is less than 1% of the incremental value due to refunds.

3 Includes unitary and supplemental revenue. County reports for 2012-13 do not include a breakdown of other revenue. 4 Property tax administration fees per SB 2557. Starting with the second half of Fiscal Year 2011-12, the fees also include

County costs for AB 26 implementation. 5 Shown for informational purposes only. 6 Housing set-aside no longer required under AB 26 starting in Fiscal Year 2011-12. 7 AB 1290 statutory pass-through payments were triggered in Fiscal Year 2000-01. 8 Tax increment reduced because Agency reached its pre-2006 Plan Amendment tax increment cap. 9 576 acres were removed from the Project Area pursuant to City Council Ordinance No. 1807 approved on Nov. 8, 2006.

Removal of these 576 acres reduced total secured value by approximately $665.6 million in Fiscal Year 2008-09. Removal of these 576 acres reduced total unsecured value by approximately $141.2 million in Fiscal Year 2009-10.

Source: City of Morgan Hill; Fraser & Associates

-36-

Land Use The following table shows a breakdown of the number and taxable value of parcels in each

land use category in Fiscal Year 2013-14.


Ojo de Agua Redevelopment Project Area Land Use

Fiscal Year 2013-14

Source: Santa Clara County; Fraser & Associates

Taxable % of

Parcels Value Total

Residential 3,537 $1,261,085,502 61.00% Commercial 267 342,332,680 16.56 Industrial 164 249,853,088 12.08 Vacant Land 175 64,324,199 3.11 Other 286 39,553,302 1.91 Total Secured 4,429 1,957,148,771 94.66% Unsecured / State Assessed

110,373,599 5.34%

Grand Total

2,067,522,370 100.00%

-37-

Top Property Owners The top ten assessees in the Project Area are summarized in Table 4. Taxable value for the

top ten assessees represents 9.28% of the overall value of the Project Area and 9.89% of the incremental value. Three of the top 10 have outstanding assessment appeals, as described in “Appeals” below.

Table 4


Top Ten Property Owners Fiscal Year 2013-14

1 Based on Fiscal Year 2013-14 incremental value of $1,939,302,303. 2 This owner has outstanding appeals from Fiscal Year 2012-13. Source: Santa Clara County; Fraser & Associates

Assessee

No. of Parcels

Type of Use

Secured

Unsecured

Total Value

% of Total Value

% of Incre-mental Value 1

1) 16945 Del Monte Avenue LLC 2 Residential $28,906,070 $0 $28,906,070 1.40% 1.49%

2) Morris Maclyn E Trustee & Et Al 2 5 Shopping Center 27,373,495 0 27,373,495 1.32 1.41

3) Kent Family Partnership, II, LP 9 Multi-Fam./Comm’l 26,628,334 0 26,628,334 1.29 1.37

4) Safeway Inc 2 Supermarket 22,715,465 744,500 23,459,965 1.13 1.21

5) Specialized Bicycle Components Inc 4 Unsecured 0 18,141,444 18,141,444 0.88 0.94

6) Facchino/Labarbera Tennant Station 3 Shopping Center 16,580,505 0 16,580,505 0.80 0.85

7) Wal-Mart Stores Inc 1 Retail 16,459,530 0 16,459,530 0.80 0.85

8) Michael Sinyard Trustee 4 Industrial 12,856,038 0 12,856,038 0.62 0.66

9) Tri Pointe Homes LLC 47 Vacant 10,878,998 0 10,878,998 0.53 0.56

10) Madrone Estates LLC 1 Residential 10,466,315 0 10,466,315 0.51 0.54

Total Valuation from Top Ten 172,864,750 18,885,944 191,750,694 9.28% 9.89%

Total Project Area Valuation $1,957,534,246 $109,988,124 $2,067,522,370

-38-

PLEDGED TAX REVENUES AND DEBT SERVICE The following section presents a summary of the historical and projected assessed valuation

and tax increment revenues with respect to the Project Area, based on information provided by the Fiscal Consultant. The Successor Agency believes the assumptions upon which the Fiscal Consultant’s projections are based on reasonable, however, some assumptions may not materialize and unanticipated events and circumstances may occur. See “RISK FACTORS.” The Pledged Tax Revenues received during the forecast period may vary from the projections and the variations may be material.

Projected Taxable Valuation and Pledged Tax Revenues

Estimated Fiscal Year 2013-14 Pledged Tax Revenues are shown on Table 5, based on

actual taxable values provided by Santa Clara County. Tax increment generated from the application of the 1% tax rate for Fiscal Year 2013-14 is estimated at approximately $19.6 million. Unitary revenues are estimated to equal $255,000 for the Project Area for the 2013-14 Fiscal Year based on the actual unitary revenues received in Fiscal Year 2012-13.

-39-


Ojo de Agua Redevelopment Project Area Estimate of Pledged Tax Revenues 1

Fiscal Year 2013-14

Local Secured Land $ 889,124,590

Improvements 1,226,965,010 Personal Property 17,283,580 Gross Local Secured 2,133,373,180 Exempt (176,224,409)

Net Local Secured 1,957,148,771 State Assessed 385,475 Unsecured

Land 526,509 Improvements 46,002,337 Personal Property 64,909,679 Total Unsecured 111,438,525 Exempt (1,450,401)

Net Unsecured 109,988,124 Total Value 2,067,522,370 Less: Base Year Taxable Value (128,220,067) Incremental Taxable Value 1,939,302,303 Tax Increment 19,393,023 Unitary Tax Increment 2 255,000 Total Tax Increment Revenue 19,648,023

Adjustments to Tax Increment Revenue: Property Tax Refunds 3 (1,102,203)

SB 2557 Property Tax Administration Fees 4 (238,457) AB 26 Implementation Costs 5 (455,661) Compliance Costs 6 (20,000)

Pledged Tax Revenue $18,231,703 1 Based on taxable values per Santa Clara County Controller-Treasurer. 2 Estimated based on Fiscal Year 2012-13 actual amount. 3 Based on refunds reported by the County Controller-Treasurer. 4 Equals 1.21% of tax increment, which is the County’s estimate for January, 2014. 5 Equals 0.28% of tax increment, which is the County’s estimate for January, 2014. 6 Not-to-exceed amount payable to the County per the Indenture. Source: Santa Clara County; Fraser & Associates

-40-

Tables 6 and 7 provide a projection of Pledged Tax Revenues. Real property shown on the tables consists of locally reported secured and unsecured land and improvement values. The other property category includes personal property and state assessed values.

The future level of real and other property values has been estimated on Table 6 and 7. For

purposes of the projections on Table 6, the Fiscal Consultant held all values constant. For Fiscal Year 2013-14 and future fiscal years, the Fiscal Consultant used a 2% inflation factor to increase real property values for the Project Area on Table 7. Real property values have not been reduced for resolved appeals, as shown on Table 8. The other property category of value has been held constant in the projections.

There are two reductions to the tax increment revenues shown on Tables 6 and 7. One is

for property tax refunds that have or may reduce tax increment revenues to the Project Area, as reported by the County, or as estimated by the Fiscal Consultant. These reflect prior year corrections to the tax roll. The second is for property tax administrative fees collected per SB 2557 and other costs incurred by the County for the dissolution of redevelopment agencies. State law allows counties to charge taxing entities, including redevelopment agencies, for the cost of administering the property tax collection system. The property tax administrative fees per SB 2557 have been estimated based on 1.21% of future tax increment revenue, which is the percent that such fees are estimated to represent by the County from the first distribution of property taxes in January 2014. In addition, AB 26 allows the County to recoup their costs for administering the dissolution of redevelopment agencies. In January 2013, the County retained $342,228 in such costs, which included a one-time amount of $137,000 for outside auditing services. The Fiscal Consultant has estimated annual obligations for the AB 26 costs at 0.28% of tax increment based on estimates provided by the County for the January 2014 property tax distribution.

-41-


Ojo de Agua Redevelopment Project Area Projected Pledged Tax Revenues and Debt Service Coverage

Assuming No Growth in Assessed Valuation Dollars in Thousands

Year

Ending Sept. 1,

Real Property1

Other Property2

Total Value

Value Over

Base Of $128,220

Tax Increment3

Unitary Revenue4

Total Tax

Increment

Property

Tax Refunds5

Property

Tax Admin Fees6

Pledged

Tax Revenues

Bond Debt

Service

Debt

Service Coverage7

2014 $1,986,394 $81,128 $2,067,522 $1,939,302 $19,393 $255 $19,648 $(1,102) $(314) $18,232 6,935 2.63 x 2015 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,935 2.79 2016 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,935 2.79 2017 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,937 2.79 2018 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,933 2.79 2019 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,934 2.79 2020 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,935 2.79 2021 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,931 2.79 2022 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,934 2.79 2023 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,932 2.79 2024 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,931 2.79 2025 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,933 2.79 2026 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,935 2.79 2027 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,935 2.79 2028 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,934 2.79 2029 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,931 2.79 2030 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,934 2.79 2031 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,934 2.79 2032 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,935 2.79 2033 1,986,394 81,128 2,067,522 1,939,302 19,393 255 19,648 0 (314) 19,334 6,930 2.79

Cumulative Total 392,960 (1,102) (6,282 ) 385,576 138,673 1 Fiscal Year 2013-14 Real Property value held constant. No value reductions have been made for outstanding appeals or for new residential development. 2 Includes secured and unsecured personal property, and state-assessed railroad and non-unitary property. 3 Based on the application of 1% tax rate to incremental taxable value. 4 Based on actual for Fiscal Year 2012-13. 5 As reported by the Santa Clara County Treasurer-Controller. 6 SB 2557 property tax admin. fee estimated at 1.21% of tax increment; AB 26 admin. fee estimated at 0.28% of tax increment; also includes annual Indenture

compliance costs. 7 Debt service coverage increases after Fiscal Year 2013-14 since the actual refunds and roll correction from prior years will be deducted from the 2013-14 tax

increment revenue per the County. Actual coverage in the future may be affected by, among other items, refunds and assessed value reductions due to outstanding assessment appeals as described in this Official Statement.

Source: Fraser & Associates; Underwriter for Bond debt service.

-42-


Ojo de Agua Redevelopment Project Area Projected Pledged Tax Revenues and Debt Service Coverage

Assuming 2% Growth in Assessed Value of Real Property Dollars in Thousands

Year Ending Sept. 1,

Real

Property1

Other

Property2

Total Value

Value Over Base Of

$128,220

Tax

Increment3

Unitary

Revenue4

Total Tax

Increment

Property Tax

Refunds5

Property Tax

Admin Fees6

Pledged Tax

Revenues

Bond Debt

Service

Debt Service

Coverage 7 2014 $1,986,394 $81,128 $2,067,522 $1,939,302 $19,393 $255 $19,648 $(1,102) $(314) $18,232 6,935 2.63 2015 2,026,122 81,128 2,107,250 1,979,030 19,790 255 20,045 0 (320) 19,725 6,935 2.84 2016 2,066,644 81,128 2,147,773 2,019,553 20,196 255 20,451 0 (326) 20,124 6,935 2.90 2017 2,107,977 81,128 2,189,106 2,060,886 20,609 255 20,864 0 (332) 20,532 6,937 2.96 2018 2,150,137 81,128 2,231,265 2,103,045 21,030 255 21,285 0 (339) 20,947 6,933 3.02 2019 2,193,140 81,128 2,274,268 2,146,048 21,460 255 21,715 0 (345) 21,370 6,934 3.08 2020 2,237,002 81,128 2,318,131 2,189,911 21,899 255 22,154 0 (352) 21,802 6,935 3.14 2021 2,281,742 81,128 2,362,871 2,234,651 22,347 255 22,602 0 (358) 22,243 6,931 3.21 2022 2,327,377 81,128 2,408,506 2,280,285 22,803 255 23,058 0 (365) 22,693 6,934 3.27 2023 2,373,925 81,128 2,455,053 2,326,833 23,268 255 23,523 0 (372) 23,151 6,932 3.34 2024 2,421,403 81,128 2,502,532 2,374,312 23,743 255 23,998 0 (379) 23,619 6,931 3.41 2025 2,469,831 81,128 2,550,960 2,422,740 24,227 255 24,482 0 (386) 24,096 6,933 3.48 2026 2,519,228 81,128 2,600,356 2,472,136 24,721 255 24,976 0 (394) 24,582 6,935 3.54 2027 2,569,612 81,128 2,650,741 2,522,521 25,225 255 25,480 0 (401) 25,079 6,935 3.62 2028 2,621,005 81,128 2,702,133 2,573,913 25,739 255 25,994 0 (409) 25,585 6,934 3.69 2029 2,673,425 81,128 2,754,553 2,626,333 26,263 255 26,518 0 (417) 26,101 6,931 3.77 2030 2,726,893 81,128 2,808,022 2,679,802 26,798 255 27,053 0 (425) 26,628 6,934 3.84 2031 2,781,431 81,128 2,862,560 2,734,339 27,343 255 27,598 0 (433) 27,165 6,934 3.92 2032 2,837,060 81,128 2,918,188 2,789,968 27,900 255 28,155 0 (441) 27,713 6,935 4.00 2033 2,893,801 81,128 2,974,929 2,846,709 28,467 255 28,722 0 (450) 28,272 6,930 4.08

Cumulative Total

478,323 (1,102) 7,560 469,661 138,673

1 Assumes 2% annual growth in Real Property value. No value reductions have been made for outstanding appeals or for new residential development. 2 Includes secured and unsecured personal property, and state-assessed railroad and non-unitary property. 3 Based on the application of 1% tax rate to incremental taxable value. 4 Based on actual for Fiscal Year 2012-13. 5 As reported by the Santa Clara County Treasurer-Controller. 6 SB 2557 property tax admin. fee estimated at 1.21% of tax increment; AB 26 admin. fee estimated at 0.28% of tax increment; also includes annual Indenture

compliance costs. 7 Debt service coverage increases after Fiscal Year 2013-14 since the actual refunds and roll correction from prior years will be deducted from the 2013-14 tax

increment revenue per the County. Actual coverage in the future may be affected by, among other items, refunds and assessed value reductions due to outstanding assessment appeals as described in this Official Statement.

Source: Fraser & Associates; Underwriter for Bond debt service.

-43-

Appeals

Taxpayers may appeal their property tax assessments. The value of locally assessed property is appealed to the local county assessor, while the value of state assessed property is appealed to the State Board of Equalization. Both real and personal property assessments can be appealed. Personal property appeals are filed based on disputes over the full cash value of the property.

Under California law, there are two types of appeals for the value of real property. A base

year appeal involves the Proposition 13 value of property. If an assesse is successful with a base year appeal, the value of the property is permanently reduced. In the future, the value can only be increased by an inflation factor of up to 2% annually. Appeals can also be filed pursuant to Section 51 (b) of the Revenue and Taxation Code. Under this section of the code, also referred to as Proposition 8 appeals, the value of property can be reduced due to damage, destruction, removal of property or other factors that cause a decline in value. When the circumstance that caused the decline is reversed the value of the property can be increased up to the factored base year value of the property. Values can be reduced under Proposition 8 either based on a formal appeal or they can be set by the county assessor.

The Fiscal Consultant has advised that there were 1,323 residential properties whose

assessed values were reduced under Proposition 8 in the Project Area as of Fiscal Year 2012-13. The total value for the Proposition 8 reductions was $227.5 million. A total of 37% of all residential properties were under a reduced Proposition 8 status, with an average reduction of 27%. As of Fiscal Year 2013-14, the market value of 397 of those properties has risen to the level that the value lost during the recession has been partially or fully restored. This has resulted in an increase in the Fiscal Year 2013-14 tax roll of $72 million. A total of 925 properties continue to be under a Proposition 8 status, with a total reduction of $155.5 million.

The upper portion of Table 8 below provides a history of appeals in the Project Area since

fiscal year 2008-09. Based on the records of Santa Clara County, between 2008-09 and 2011-12, 240 appeals were filed, with 149 resolved with a reduction to assessed value. On average, 62% of filed appeals have resulted in reductions to assessed values. On average, assessed value has been reduced by 35%for the successful appeals. The overall success factor ratio, which is a combination of the average percentage of appeals that resulted in a reduction to assessed and the average values reduction, was 22%.

The lower portion of Table 8 shows a list of outstanding appeals in the Project Area. The

applicant’s opinion of value for the outstanding appeals is $73.4 million below the value on the tax roll for 2013-14. The Fiscal Consultant has estimated the potential impact of the appeals in two different ways. First, a number of open appeals were filed in prior fiscal years that have been resolved, but the appeals that were filed for Fiscal Year 2012-13 remain open. For those appeals, the Fiscal Consultant has used the resolved value of the appeal from the prior fiscal year, and provided an estimate of assessed value reductions and refunds for the 2013-14 Fiscal Year if each of the appeals are resolved in the same amount as were the prior year appeals. Second, there are 65 open appeals, and for those the Fiscal Consultant applied the overall success factor ratio of 22% to determine the potential impact of those appeals.

-44-


Ojo de Agua Redevelopment Project Area Pending and Resolved Appeals – Analysis of Impacts

Fiscal Years 2009-2014

FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 Total Prior Resolved Appeals: Total Number of Filed Appeals 24 67 48 101 240 Number of Appeals Outstanding 1 2 7 3 13 No. of Resolved Appeals with Reductions 21 62 40 26 149

% of Appeals Resulting in Reductions to AV 91% 95% 98% 27% 62% AV Reductions from Resolved Appeals $7,807,055 $46,019,505 $46,898,719 $3,570,389 $104,295,668

Average % Reduction to AV 17% 32% 42% 21% 35% Overall Success Factor Ratio 15% 30% 40% 5% 22%

FY 13-14 Roll Value

Applicant Value

Opinion

Potential

Reduction

Estimated Resolved Value (1)

Implied

Reduction

Implied Refunds

Pending Appeals: Estimated Impact for 69 Open Appeals 1 $157,053,248 $83,570,358 $(73,482,890) $113,873,193 $(43,180,055) $(431,801)

1 Four of these appeals have been resolved but are shown on the tax roll at a value above the resolved value. For these, the impact has

been estimated based on the prior value reduction. The other 65 appeals have been based on the overall success factor ratio of 22% shown above.

Source: Santa Clara County; and Fraser & Associates.

-45-

RISK FACTORS The following information should be considered by prospective investors in evaluating the

Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks.

The various legal opinions to be delivered concurrently with the issuance of the Bonds will be

qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors’ rights, including equitable principles.

Recognized Obligation Payment Schedule

The Dissolution Act provides that only those payments listed in a Recognized Obligation

Payment Schedule may be made by the Successor Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires the Successor Agency to prepare and submit to the Successor Agency’s Oversight Board and the State Department of Finance for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the Successor Agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be withdrawn from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller and remitted to the Trustee without a Recognized Obligation Payment Schedule approved by the State Department of Finance. See “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule” and “PROPERTY TAXATION IN CALIFORNIA – Property Tax Collection Procedures – Recognized Obligation Payment Schedule.” If the Successor Agency were to fail to complete an approved a Recognized Obligation Payment Schedule with respect to a six-month period, the availability of Pledged Tax Revenues to the Successor Agency could be adversely affected for such period.

If a successor agency fails to submit to the State Department of Finance an oversight board-

approved Recognized Obligation Payment Schedule complying with the provisions of the Dissolution Act within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations, the State Department of Finance may determine if any amount should be withheld by the applicable county auditor-controller for payments for enforceable obligations from distribution to taxing entities pursuant to clause (iv) in the following paragraph, pending approval of a Recognized Obligation Payment Schedule. Upon notice provided by the State Department of Finance to the county auditor-controller of an amount to be withheld from allocations to taxing entities, the county auditor-controller must distribute to taxing entities any monies in the Redevelopment Property Tax Trust Fund in excess of the withholding amount set forth in the notice, and the county auditor-controller must distribute withheld funds to the successor agency only in accordance with a Recognized Obligation Payment Schedule when and as approved by the State Department of Finance.

Typically, under the Redevelopment Property Tax Trust Fund distribution provisions of the

Dissolution Act, the county auditor-controller is to distribute funds for each six-month period in the following order specified in Section 34183 of the Dissolution Act: (i) first, subject to certain adjustments for subordinations to the extent permitted under the Dissolution Act (as described above under “SECURITY FOR THE BONDS-Statutory Pass-Through Amounts”) and no later than each January 2 and June 1, to each local agency and school entity, to the extent applicable,

-46-

amounts required for pass-through payments such entity would have received under provisions of the Redevelopment Law, as those provisions read on January 1, 2011; (ii) second, on each January 2 and June 1, to a successor agency for payments listed in its Recognized Obligation Payment Schedule, with debt service payments scheduled to be made for tax allocation bonds having the highest priority over payments scheduled for other debts and obligations listed on the Recognized Obligation Payment Schedule; (iii) third, on each January 2 and June 1, to a successor agency for the administrative cost allowance, as defined in the Dissolution Act; and (iv) fourth, on each January 2 and June 1, to taxing entities any moneys remaining in its Redevelopment Property Tax Trust Fund after the payments and transfers authorized by clauses (i) through (iii), in an amount proportionate to such taxing entity’s share of property tax revenues in the tax rate area in that fiscal year (without giving effect to any pass-through obligations that were established under the Redevelopment Law).

If the Successor Agency does not submit an Oversight-Board approved Recognized

Obligation Payment Schedule within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations and the State Department of Finance does not provide a notice to the County Auditor-Controller to withhold funds from distribution to taxing entities, amounts in the Redevelopment Property Tax Trust Fund for such six-month period would be distributed to taxing entities pursuant to clause (iv) above. However, the Successor Agency has covenanted in the Indenture to take all actions required under the Dissolution Act to include scheduled debt service on the Bonds as well as any amount required under the Indenture to replenish the Reserve Fund, in Recognized Obligation Payment Schedules for each six-month period to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Successor Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Successor Agency to pay principal of, and interest on, the Bonds coming due in the respective six-month period, including listing a reserve on the Recognized Obligation Payment Schedule to the extent required by the Indenture or when the next property tax allocation is projected to be insufficient to pay all obligations due under the provisions of the Bonds for the next payment due in the following six-month period (see “THE INDENTURE – Covenants of the Successor Agency”).

AB 1484 also added new provisions to the Dissolution Act implementing certain penalties in

the event the Successor Agency does not timely submit a Recognized Obligation Payment Schedule for a six-month period. Specifically, a Recognized Obligation Payment Schedule must be submitted by the Successor Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the State Department of Finance, and the State Controller no later than by 90 days before the date of the next January 2 or June 1 property tax distribution with respect to each subsequent six-month period. If the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by such deadlines, the City will be subject to a civil penalty equal to $10,000 per day for every day the schedule is not submitted to the State Department of Finance. Additionally, the Successor Agency’s administrative cost allowance is reduced by 25% if the Successor Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by the 80th day before the date of the next January 2 or June 1 property tax distribution, as applicable, with respect to the Recognized Obligation Payment Schedule for subsequent six-month periods.

Challenges to Dissolution Act

Several successor agencies, cities and other entities have filed judicial actions challenging

the legality of various provisions of the Dissolution Act. One such challenge is an action filed on August 1, 2012, by Syncora Guarantee Inc. and Syncora Capital Assurance Inc. (collectively,

-47-

“Syncora”) against the State, the State Controller, the State Director of Finance, and the Auditor-Controller of San Bernardino County on his own behalf and as the representative of all other County Auditors in the State (Superior Court of the State of California, County of Sacramento, Case No. 34-2012-80001215). Syncora are monoline financial guaranty insurers domiciled in the State of New York, and as such, provide credit enhancement on bonds issued by state and local governments and do not sell other kinds of insurance such as life, health, or property insurance. Syncora provided bond insurance and other related insurance policies for bonds issued by former California redevelopment agencies.

The complaint alleged that the Dissolution Act, and specifically the “Redistribution

Provisions” thereof (i.e., California Health and Safety Code Sections 34172(d), 34174, 34177(d), 34183(a)(4), and 34188) violate the “contract clauses” of the United States and California Constitutions (U.S. Const. art. 1, § 10, cl.1; Cal. Const. art. 1, § 9) because they unconstitutionally impair the contracts among the former redevelopment agencies, bondholders and Syncora. The complaint also alleged that the Redistribution Provisions violate the “Takings Clauses” of the United States and California Constitutions (U.S. Const. amend. V; Cal Const. art. 1 § 19) because they unconstitutionally take and appropriate bondholders’ and Syncora’s contractual right to critical security mechanisms without just compensation.

After hearing by the Sacramento County Superior Court on May 3, 2013, the Superior Court

ruled that Syncora’s constitutional claims based on contractual impairment were premature. The Superior Court also held that Syncora’s takings claims, to the extent based on the same arguments, were also premature. Pursuant to a Judgment stipulated to by the parties, the Superior Court on October 3, 2013, entered its order dismissing the action. The Judgment, however, provides that Syncora preserves its rights to reassert its challenges to the Dissolution Act in the future. The Successor Agency does not guarantee that any reassertion of challenges by Syncora or that the final results of any of the judicial actions brought by others challenging the Dissolution Act will not result in an outcome that may have a material adverse effect on the Successor Agency’s ability to timely pay debt service on the Bonds.

Reduction in Taxable Value

Pledged Tax Revenues available to pay principal and interest on the Bonds 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 Successor Agency’s control, such as relocation out of the Project Area by one or more major property owners, sale of property to a non-profit corporation exempt from property taxation, or the complete or partial destruction of such property caused by, among other eventualities, earthquake or other natural disaster, could cause a reduction in the Pledged Tax Revenues that provide for the repayment of and secure the Bonds. Such reduction of Pledged Tax Revenues could have an adverse effect on the Successor Agency’s ability to make timely payments of principal of and interest on the Bonds.

As described in greater detail under the heading “PROPERTY TAXATION IN CALIFORNIA –

Article XIIIA of the State Constitution,” Article XIIIA 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 inflation 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, comparable local data or any reduction in the event of declining property value caused by damage, destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base

-48-

over the term of the Bonds could reduce Pledged Tax Revenues available to pay principal and interest on the Bonds.

In addition to the other limitations on, and required application under the Dissolution Act of

Pledged Tax Revenues on deposit in the Redevelopment Property Tax Trust Fund, described herein under the heading “RISK FACTORS,” the State electorate or Legislature could adopt a constitutional or legislative property tax reduction with the effect of reducing Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund and available to the Successor Agency. Although the federal and State Constitutions include clauses generally prohibiting the Legislature’s impairment of contracts, there are also recognized exceptions to these prohibitions. There is no assurance that the State electorate or Legislature will not at some future time approve additional limitations that could reduce the Pledge Tax Revenues and adversely affect the source of repayment and security of the Bonds.

Risks to Real Estate Market

The Successor Agency’s ability to make payments on the Bonds will be dependent upon the

economic strength of the Project Area. The general economy of the Project Area will be subject to all of the risks generally associated with urban real estate markets. Real estate prices and development may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development within the Project Area could be adversely affected by limitations of infrastructure or future governmental policies, including governmental policies to restrict or control development. In addition, if there is a decline in the general economy of the Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes or may petition for reduced assessed valuation causing a delay or interruption in the receipt of Pledged Tax Revenues by the Successor Agency from the Project Area.

Reduction in Inflationary Rate

As described in greater detail below, Article XIIIA of the State Constitution provides that the

full cash value of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2%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. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than two percent. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the two percent limitation several times but in Fiscal Year 2010-11 the inflationary value adjustment was negative for the first time at -0.237%. In Fiscal Year 2011-12, the inflationary value adjustment was 0.753%, which also is below the 2% limitation. For Fiscal Year 2012-13 and 2013-14, the inflationary value adjustment is 2%, which is the maximum permissible increase under Article XIIIA. The Successor Agency is unable to predict if any adjustments to the full cash value of real property within the Project Area, whether an increase or a reduction, will be realized in the future.

Development Risks

The general economy of the Project Area will be subject to all the risks generally associated

with real estate development. Projected development within the Project Area may be subject to unexpected delays, disruptions and changes. Real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market

-49-

and interest rates, unexpected increases in development costs and by other similar 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 affected. If such events lead to a decline in assessed values they could cause a reduction in Pledged Tax Revenues. In addition, if there is a decline in the general economy of the Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes causing a delay or stoppage of the Pledged Tax Revenues received by the Successor Agency from the Project Area. In addition, the insolvency or bankruptcy of one or more large owners of property within the Project Area could delay or impair the receipt of Pledged Tax Revenues by the Successor Agency.

Levy and Collection of Taxes

The Successor Agency has no independent power to levy or collect property taxes. Any

reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues, and accordingly, could have an adverse impact on the security for and the ability of the Successor Agency to repay the Bonds.

Likewise, delinquencies in the payment of property taxes by the owners of land in the Project

Area, and the impact of bankruptcy proceedings on the ability of taxing agencies to collect property taxes, could have an adverse effect on the Successor Agency’s ability to make timely payments on the Bonds. Any reduction in Pledged Tax Revenues, whether for any of these reasons or any other reasons, could have an adverse effect on the Successor Agency’s ability to pay the principal of and interest on the Bonds.

State Budget Issues

AB X1 26 and AB 1484 were enacted by the State Legislature and Governor as trailer bills

necessary to implement provisions of the State’s budget acts for its Fiscal Years 2011-12 and 2012-13, respectively. The 2011-12 State budget included projected State savings estimated to aggregate $1.7 billion in 2011-12 associated with AB X1 27, which would have allowed redevelopment agencies to continue in operation provided their establishing cities or counties agreed to make an aggregate $1.7 billion in payments to K-12 schools. However, AB X1 27 was found in December 2011 by the California Supreme Court to violate the State Constitution, which altered this budgetary plan of the State. According to the State’s Summary of the 2012-13 State budget, AB 1484 implements a framework to transfer cash assets previously held by redevelopment agencies to cities, counties, and special districts to fund core public services, with assets transferred to schools offsetting State general fund costs (projected savings of $1.5 billion). There can be no assurance that additional legislation will not be enacted in the future to additionally implement provisions relating to the State budget or otherwise that may affect successor agencies or Pledged Tax Revenues.

The full text of each State Assembly bill cited above may be obtained from the “Official

California Legislative Information” website maintained by the Legislative Counsel of the State of California pursuant to State law, at the following web link: http://www.leginfo.ca.gov/bilinfo.html.

Information about the State budget and State spending is available at various State maintained websites. Text of the 2013-14 Budget Summary, the current State budget, and other documents related to the State budget may be found at the website of the State Department of Finance, www.dof.ca.gov. A nonpartisan analysis of the budget is posted by the Legislative

-50-

Analyst’s Office at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets may be found at the website of the State Treasurer.

None of the websites or webpages referenced above is in any way incorporated into this

Official Statement. They are cited for informational purposes only. The Successor Agency makes no representation whatsoever as to the accuracy or completeness of any of the information on such websites.

Bankruptcy and Foreclosure

The payment of the property taxes from which Pledged Tax Revenues are derived and the

ability of the County to foreclose the lien of a delinquent unpaid tax may be limited by bankruptcy, insolvency, or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.

Although bankruptcy proceedings would not cause the liens to become extinguished,

bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings. Such delay would increase the possibility of delinquent tax installments not being paid in full and thereby increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds.

Estimated Revenues

In estimating that Pledged Tax Revenues will be sufficient to pay debt service on the Bonds,

the Successor Agency has made certain assumptions with regard to present and future assessed valuation in the Project Area, future tax rates and percentage of taxes collected. The Successor Agency believes these assumptions to be reasonable, but there is no assurance these assumptions will be realized and to the extent that the assessed valuation and the tax rates are less than expected, the Pledged Tax Revenues available to pay debt service on the Bonds will be less than those projected and such reduced Pledged Tax Revenues may be insufficient to provide for the payment of principal of, premium (if any) and interest on the Bonds.

Hazardous Substances

An additional environmental condition that may result in the reduction in the assessed value

of property would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the Project Area. In general, the owners and operators of property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator 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, could be to reduce the marketability and value of the property by the costs of remedying the condition.

-51-

Natural Disasters The value of the property in the Project Area in the future can be adversely affected by a

variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides and floods and climatic conditions such as droughts. In the event that one or more of such conditions occur, such occurrence could cause damages of varying seriousness to the land and improvements and the value of property in the Project Area could be diminished in the aftermath of such events. A substantial reduction of the value of such properties and could affect the ability or willingness of the property owners to pay the property taxes.

The City, like most communities in California, is an area of unpredictable seismic activity,

and therefore, is subject to potentially destructive earthquakes. There are a number of active and potentially active faults that are located within the vicinity of the City. These include the Calaveras Fault, which is a major branch of the San Andreas Fault located about three miles east of the City. There are also smaller faults, which appear to be connected to the Calaveras Fault, including the Silver Creek Fault, the Coyote Creek Thrust Fault and the Range Front Fault, which are all located from one half mile to one mile east of the City.

Approximately 26 percent of the Project Area has been designated by Federal Emergency

Management Agency (“FEMA”) as a Special Flood Hazard Area. According to FEMA, a home in such a floodplain has a 26 percent chance of suffering damage during a 30-year period. Any new residential construction in this area must have the lowest floor flood-proofed or raised at least one foot above the base flood elevation. Any substantial improvement to an existing structure in this area must be constructed to the same standard as new construction.

A major wildfire occurred in September 2007 in Henry W. Coe State Park, several miles

outside of the City. It began on September 3 and was fully contained by September 11. The burnt areas were entirely outside of the City limits, mostly in uninhabited territory.

Anderson Dam and Reservoir is a major water supply facility located approximately one mile

east of Morgan Hill and is owned and operated by the Santa Clara Valley Water District (the “District’). On July 6, 2011, the District issued a press release announcing the results of a seismic study of the Anderson Dam, which concluded that the dam could be affected if a major earthquake with a magnitude of 7.25 were to occur on the Calaveras Fault within two kilometers. Anderson Dam, which also sits atop the Coyote Creek-Range Front Fault Zone, is an earth and rockfill structure constructed in 1950 creating the Anderson Reservoir, the largest reservoir in Santa Clara County. The study further stated that the analysis found loosely compacted layers of liquefiable materials in the foundation of the dam. These materials are susceptible to a reduction in strength when subjected to severe earthquake shaking. If the foundation were damaged, part of the dam could experience 15 to 25 feet of vertical deformation, with an additional 15 feet of potential cracking. The study stated that if the reservoir were full at the time, there could be an uncontrolled release of water. Anderson Dam Inundation Maps of the Santa Clara Valley Water District show Probable Maximum Flood depths of 25 to 35 feet on either side of Monterey Highway, around which the Project Area is centered. The District’s dam operators have established a policy to keep the water at no higher than 45 feet below the dam crest. No assurance can be provided that such policy will be maintained or that the water level will remain 45 feet below the dam crest.

In response to the study, the District engaged HDR Engineering, Inc., Folsom, California, to

-52-

prepare a Planning Study Report for the Anderson Dam Seismic Retrofit Project. The Retrofit Project will make improvements necessary to stabilize the dam embankment for the maximum credible earthquake on the Calaveras and Coyote Creek Faults, repair or replace the outlet works to protect against potential fault rupture risk from these Faults and incorporate other measures to address safety deficiencies. The Report, dated July 9, 2013, concludes that the construction cost estimate of the Retrofit Project at the planning level is approximately $122 million (in 2013 dollars), not including design, real estate acquisition and other preliminary costs and that the three year construction period will commence in 2016 and be completed by the end of 2018.

Anderson Dam is regulated by the State of California Division of Safety of Dams, which

performs yearly reviews and requires maintenance and safety standards to be enforced by the dam owners and operators. Additionally, the Federal Energy Regulatory Commission also has dam safety jurisdiction at Anderson Dam. The Successor Agency can not predict the success of the Retrofit Project. A failure of Anderson Dam could cause a substantial reduction of the value of some properties in the Project Area and could affect the ability or willingness of the property owners to pay the property taxes.

Changes in the Law

There can be no assurance that the California electorate will not at some future time adopt

initiatives or that the Legislature will not enact legislation that will amend the Dissolution Act, the Redevelopment Law or other laws or the Constitution of the State resulting in a reduction of Pledged Tax Revenues, which could have an adverse effect on the Successor Agency’s ability to pay debt service on the Bonds.

Investment Risk

Funds held under the Indenture are required to be invested in Permitted Investments as

provided under the Indenture. See APPENDIX A attached hereto for a summary of the definition of Permitted Investments. The funds and accounts of the Successor Agency, into which a portion of the proceeds of the Bonds will be deposited and into which Pledged Tax Revenues are deposited, may be invested by the Successor Agency in any investment authorized by law. All investments, including the Permitted Investments and those authorized by law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal.

Further, the Successor Agency cannot predict the effects on the receipt of Pledged Tax

Revenues if the County were to suffer significant losses in its portfolio of investments or if the County or the City were to become insolvent or declare bankruptcy. See “RISK FACTORS – Bankruptcy and Foreclosure.”

Secondary Market

There can be no guarantee that there will be a secondary market for the Bonds, or, if a

secondary market exists, that the 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, prices of issues for which a market is being made will depend upon the then prevailing circumstances.

-53-

PROPERTY TAXATION IN CALIFORNIA

Property Tax Collection Procedures Classification. In the State, property which is subject to ad valorem taxes is classified as

“secured” or “unsecured.” Secured and unsecured property are 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 a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens on the secured property arising pursuant to State law, regardless of the time of the creation of other liens.

Generally, ad valorem taxes are collected by a county (the “Taxing Authority”) for the

benefit of the various entities (cities, schools and special districts) that share in the ad valorem tax (each a taxing entity) and successor agencies eligible to receive distributions from the respective Redevelopment Property Tax Trust Fund.

Collections. Secured and unsecured property are entered separately on the assessment

roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured personal property taxes: (i) initiating a civil action against the taxpayer, (ii) 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, (iii) filing a certificate of delinquency for record in the county recorder’s office to obtain a lien on certain property of the taxpayer, and (iv) seizing and selling 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 the property securing the taxes to the State for the amount of taxes which are delinquent.

Penalty. A 10% penalty is added to delinquent taxes which 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 by operation of law and declaration of the tax collector on or about June 30 of each fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% 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 and then is subject to sale by the county tax collector. A 10% penalty also applies to delinquent taxes with respect to property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on varying dates related to the tax bill mailing date.

Delinquencies. The valuation of property is determined as of the January 1 lien date as

equalized in August of 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 August 31.

Supplemental Assessments. California Revenue and Taxation Code Section 75.70

provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Prior to the enactment of this law, the assessment of such changes was permitted only as of the next tax lien date following the change, and this delayed the realization of increased property taxes from the new assessments for up to 14 months. This statute provides increased revenue to the Redevelopment Property Tax Trust Fund to the

-54-

extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January 1 lien date. To the extent such supplemental assessments occur within the Project Area, Pledged Tax Revenues may increase.

Property Tax Administrative Costs. In 1990, the Legislature enacted SB 2557 (Chapter

466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions in proportion to the tax-derived revenues allocated to each. SB 1559 (Chapter 697, Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. In addition, Sections 34182(e) and 34183(a) of the Dissolution Act allow administrative costs of the County Auditor-Controller for the cost of administering the provisions of the Dissolution Act, as well as the foregoing SB 1559 amounts, to be deducted from property tax revenues before monies are deposited into the Redevelopment Property Tax Trust Fund. For Fiscal Year 2012-13, the County’s administrative charge to the Predecessor Agency and Successor Agency, together with certain charges relating to the dissolution of the Predecessor Agency, was $794,623, and for Fiscal Year 2013-14, the County’s administrative charge to the Successor Agency together with the charges relating to the dissolution of the Predecessor Agency, is estimated to be $703,695.

Statutory Pass-Through Amounts. The payment of Statutory Pass-Through Amounts

(defined in APPENDIX A) results from (i) plan amendments which add territory in existing project areas on or after January 1, 1994 and (ii) from plan amendments which eliminates one or more limitations within a redevelopment plan (such as the removal of the time limit on the establishment of loans, advances and indebtedness). The calculation of the amount due affected taxing entities is described in Sections 33607.5 and 33607.7 of the Redevelopment Law. See “SECURITY FOR THE BONDS – Statutory Pass-Through Amounts” for further information regarding the applicability of the statutory pass-through provisions of the Redevelopment Law and the Dissolution Act to the Project Area.

Recognized Obligation Payment Schedule. The Dissolution Act provides that,

commencing on the date the first Recognized Obligation Payment Schedule is valid thereunder, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Successor Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires successor agencies to prepare and approve, and submit to the Successor Agency’s oversight board and the State Department of Finance for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the Successor Agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Successor Agency’s Redevelopment Obligation Retirement Fund without a Recognized Obligation Payment Schedule approved by the State Department of Finance obtained in sufficient time prior to the January 2 or June 1 distribution dates, as applicable. See “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule” and “RISK FACTORS – Recognized Obligation Payment Schedule.”

Teeter Plan

The County of Santa Clara (the "County") has adopted the Alternative Method of Distribution

of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et. seq. of the State Revenue and Taxation Code. Under the Teeter Plan, each participating local agency, including successor agencies, allocated property taxes in its county receives the amount of uncollected taxes credited to its fund in the same manner as if the amount

-55-

credited had been collected. In return, the County receives and retains delinquent payments, penalties and interest as collected, that would have been due to the local agency. However, although a local agency receives the total levy for its property taxes without regard to actual collections, funded from a reserve established and held by the County for this purpose, the basic legal liability for property tax deficiencies at all times remains with the local agency.

The Teeter Plan is to remain in effect unless the County Board of Supervisors orders its

discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by two-thirds of the participating revenue districts in the county, in which event, the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. The Board of Supervisors may, by resolution adopted not later than July 15 of the fiscal year for which it is to apply, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax-levying agency in the County.

Unitary Property

Assembly Bill (“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 utility companies) is to be allocated county-wide as follows: (i) each tax rate area will receive that 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 revenue derived from State-assessed property to taxing jurisdictions within each county in accordance with a new formula. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is sited.

Article XIIIA of the State Constitution

Article XIIIA limits the amount of ad valorem taxes on real property to 1% of “full cash value”

of such property, as determined by the county assessor. Article XIIIA defines “full cash value” 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.” Furthermore, the “full cash value” of all real property may be increased to reflect the rate of inflation, as shown by the consumer price index, not to exceed 2% per year, or may be reduced.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value”

base in the event of declining property values caused by substantial damage, destruction or other factors, and 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 other special circumstances.

-56-

Article XIIIA (i) exempts from the 1% tax limitation taxes to pay debt service on (a)

indebtedness approved by the voters prior to July 1, 1978 or (b) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition; (ii) requires a vote of two-thirds of the qualified electorate to impose special taxes, or certain additional ad valorem taxes; and (iii) requires the approval of two-thirds of all members of the State Legislature to change any State tax laws resulting in increased tax revenues.

The validity of Article XIIIA has been upheld by both the California Supreme Court and the

United States Supreme Court. In the general election held November 4, 1986, voters of the State approved two measures,

Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms “purchase” and “change of ownership,” for the 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. This amendment to Article XIIIA may reduce the rate of growth of local property tax revenues.

Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over the age

of 55 who sell their residence and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence assessed value to the new residence. As a result of the Legislature’s action, the growth of property tax revenues may decline.

Legislation enacted by the Legislature to implement Article XIIIA provides that all taxable

property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value (except as noted). Tax rates for voter-approved bonded indebtedness and pension liabilities are also applied to 100% of assessed value.

Appropriations Limitation - Article XIIIB

Article XIIIB limits the annual appropriations of the State and its political subdivisions to the

level of 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.

Section 33678 of the Redevelopment Law provides that the allocation of taxes to a

redevelopment Successor Agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by an Successor Agency of proceeds of taxes levied by or on behalf of an Successor Agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds 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, 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 decisions, the Successor Agency has not adopted an appropriations limit.

-57-

Articles XIIIC and XIIID of the State Constitution At the election held on November 5, 1996, Proposition 218 was passed by the voters of

California. The initiative added Articles XIIIC and XIIID to the State Constitution. Provisions in the two articles affect the ability of local government to raise revenues. The Bonds are secured by sources of revenues that are not subject to limitation by Proposition 218. See also “– Propositions 218 and 26” below.

Proposition 87

On November 8, 1988, the voters of the State approved Proposition 87, which amended

Article XVI, Section 16 of the State Constitution to provide that property tax revenue attributable to the imposition of taxes on property within a redevelopment project area for the purpose of paying debt service on certain bonded indebtedness issued by a taxing entity (not the Predecessor Agency or the Successor Agency) and approved by the voters of the taxing entity after January 1, 1989 will be allocated solely to the payment of such indebtedness and not to redevelopment agencies.

Appeals of Assessed Values

Pursuant to California law, a property owner may apply for a reduction of the property tax

assessment for such owner’s property by filing a written application, in a form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board.

In the County, a property owner desiring to reduce the assessed value of such owner’s

property in any one year must submit an application to the County Assessment Appeals Board (the “Appeals Board”). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of each application by the staff of the County Assessor’s Office, the staff makes a recommendation to the Appeals Board on each application which has not been rejected for incompleteness or untimeliness or withdrawn. The Appeals Board holds a hearing and either reduces the assessment or confirms the assessment. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of comparable values that the property continues to be overvalued (known as “ongoing hardship”), the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year as well. Appeals for reduction in the “base year” value of an assessment, which generally must be made within three years of the date of change in ownership or completion of new construction that determined the base year, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. Moreover, in the case of any reduction in any one year of assessed value granted for “ongoing hardship” in the then current year, and also in any cases involving stipulated appeals for prior years relating to base year and personal property assessments, the property tax revenues from which Pledged Tax Revenues are derived attributable to such properties will be reduced in the then current year. In practice, such a reduced assessment may remain in effect beyond the year in which it is granted. See “THE PROJECT AREA – Top Property Owners” for information regarding the assessed valuations of the top ten property owners within the Project Area.

-58-

Proposition 8 Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)),

provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions under this code section may be initiated by the County Assessor or requested by the property owner.

After a roll reduction is granted under this code section, the property is reviewed on an

annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.

Largely due to the impact of Proposition 8, the assessed valuation of property in the Project

Area decreased each year between Fiscal Years 2008-09 through 2010-11. Assessed values did increase in Fiscal Years 2011-12, 2012-3 and 2013-14. See “PLEDGED TAX REVENUES – Historical Taxable Value.” However, the Successor Agency cannot guarantee that reductions undertaken by the County Assessor or requested by a property owner pursuant to Proposition 8 will not in the future reduce the assessed valuation of property in the Project Area and, therefore, Pledged Tax Revenues that secure the Bonds.

Propositions 218 and 26

On November 5, 1996, California voters approved Proposition 218—Voter Approval for Local

Government Taxes—Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. On November 2, 2010, California voters approved Proposition 26, the “Supermajority Vote to Pass New Taxes and Fees Act.” Proposition 26 amended Article XIIIC of the California Constitution by adding an expansive definition for the term “tax,” which previously was not defined under the California Constitution. Pledged Tax Revenues securing the Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which are limited by Proposition 218 and outside of the scope of taxes which are limited by Proposition 26.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID and certain other propositions

affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California’s initiative process. From time to time other initiative measures could be adopted, further affecting Successor Agency revenues or the Successor Agency’s ability to expend revenues.

-59-

TAX MATTERS

2013A Bonds

Tax Exemption. The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements that must be met subsequent to the issuance and delivery of the 2013A Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the 2013A Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the 2013A Bonds. The Successor Agency has covenanted in the Indenture, not to take any action or omit to take any action that, if taken or omitted, respectively, would adversely affect the exclusion of the interest on the 2013A Bonds from the gross income of the owners thereof for federal income tax purposes.

In the opinion of Fulbright & Jaworski LLP, Los Angeles, California, Bond Counsel, under existing statutes, regulations, rulings and court decisions, interest on the 2013A Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants mentioned herein, interest on the 2013A Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. In the further opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, the 2013A Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, interest on the 2013A Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of interest on 2013A Bonds owned by a corporation may affect the computation of the alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.

Pursuant to the Indenture and in the Certificate Pertaining to Arbitrage and Certain Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986 (the “Tax Certificate”), to be delivered by the Successor Agency in connection with the issuance of the 2013A Bonds, the Successor Agency will make representations relevant to the determination of, and will make certain covenants regarding or affecting, the exclusion of interest on the 2013A Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching its opinion described in the immediately preceding paragraph, Bond Counsel will assume the accuracy of such representations and the present and future compliance by the Successor Agency with its covenants.

Except as stated in this section above, Bond Counsel will express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the 2013A Bonds. Furthermore, Bond Counsel will express no opinion as to any federal, state or local tax law consequence with respect to the 2013A Bonds, or the interest thereon, if any action is taken with respect to the 2013A Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel. Bond Counsel has not undertaken to advise in the future whether any event after the date of issuance of the 2013A Bonds may affect the tax status of interest on the 2013A Bonds or the tax consequences of the ownership of the 2013A Bonds.

The opinion of Bond Counsel is not guarantees of a result, but represent its legal judgment based upon their review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Successor Agency described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the 2013A Bonds is commenced, under current procedures the Service is

-60-

likely to treat the Successor Agency as the “taxpayer”, and the bond owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the 2013A Bonds, the Successor Agency may have different or conflicting interest from the bond owners. Public awareness of any future audit of the 2013A Bonds could adversely affect the value and liquidity of the 2013A Bonds during the pendency of the audit, regardless of its ultimate outcome.

Existing law may change to reduce or eliminate the benefit to bondholders of the exemption of interest on the 2013A Bonds from personal income taxation by the State of California or of the exclusion of the interest on the 2013A Bonds from the gross income of the owners thereof for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the 2013A Bonds. Prospective purchasers of the 2013A Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law.

A copy of the form of opinion of Bond Counsel relating to the 2013A Bonds is included in Appendix B.

Tax Accounting Treatment of Bond Premium and Original Issue Discount on 2013A Bonds. To the extent that a purchaser of a 2013A Bond acquires that 2013A Bond at a price in excess of its “stated redemption price at maturity” (within the meaning of section 1273(a)(2) of the Code), such excess will constitute “bond premium” under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized over the remaining term of the obligation (or a shorter period in the case of certain callable obligations); the amount of premium so amortized will reduce the owner’s basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of the obligation. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser's yield to maturity. The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when its 2013A Bond is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the 2013A Bond to the owner.

The excess, if any, of the stated redemption price at maturity of 2013A Bonds of a maturity over the initial offering price to the public of the 2013A Bonds of that maturity is “original issue discount.” Original issue discount accruing on a 2013A Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and is exempt from California personal income tax to the same extent as would be stated interest on that 2013A Bond. Original issue discount on any 2013A Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the 2013A Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a 2013A Bond accruing during each period is added to the adjusted basis of such 2013A Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such 2013A Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of 2013A Bonds who purchase such 2013A Bonds other than at the initial offering price and pursuant to the initial offering.

Persons considering the purchase of 2013A Bonds with original issue discount or initial bond premium should consult with their own tax advisors with respect to the determination of original issue discount or amortizable bond premium on such 2013A Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of such 2013A Bonds.

-61-

Other Tax Consequences. Although interest on the 2013A Bonds may be exempt from California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner’s federal, state or local tax liability may be otherwise affected by the ownership or disposition of the 2013A Bonds. The nature and extent of these other tax consequences will depend upon the owner’s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the 2013A Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the 2013A Bonds and the Code contains additional limitations on interest deductions applicable to financial institutions that own tax-exempt obligations (such as the 2013A Bonds), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the 2013A Bonds, (iii) interest on the 2013A Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the 2013A Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the 2013A Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the 2013A Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel will express no opinion regarding any such other tax consequences.

2013B Bonds

State Tax Exemption. In the opinion of Bond Counsel, under existing law interest on the 2013B Bonds is exempt from personal income taxes of the State of California. Except as stated in the immediately preceding sentence, Bond Counsel will express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the 2013B Bonds. A copy of the form of opinion of Bond Counsel relating to the 2013B Bonds is included in Appendix B.

Federal Income Tax Considerations. The following is a general summary of certain United States federal income tax consequences of the purchase and ownership of the 2013B Bonds. The discussion is based upon the Code, United States Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein.

The discussion below does not purport to deal with United States federal income tax consequences applicable to all categories of investors and generally does not address consequences relating to the disposition of a 2013B Bond by the owner thereof for federal income tax purposes. Further, the discussion below does not discuss all aspects of federal income taxation that may be relevant to a particular investor in the 2013B Bonds in light of the investor’s particular circumstances or to certain types of investors subject to special treatment under the federal income tax laws (including insurance companies, tax exempt organizations and other entities, financial institutions, broker-dealers, persons who have hedged the risk of owning the 2013B Bonds, traders in securities that elect to use a mark to market method of accounting, thrifts, regulated investment companies, pension and other employee benefit plans, partnerships and other pass through entities, certain hybrid entities and owners of interests therein, persons who acquire 2013B Bonds in connection with the performance of services, or persons deemed to sell 2013B Bonds under the constructive sale provisions of the Code). The discussion below also does not discuss any aspect

-62-

of state, local, or foreign law or United States federal tax laws other than United States federal income tax law. The discussion below is limited to certain issues relating to initial investors who will hold the 2013B Bonds as “capital assets” within the meaning of section 1221 of the Code, and acquire such 2013B Bonds for investment and not as a dealer or for resale. The discussion below addresses certain federal income tax consequences applicable to owners of the 2013B Bonds who are United States persons within the meaning of section 7701(a)(30) of the Code (“United States persons”) and, except as discussed below, does not address any consequences to persons other than United States persons. Prospective investors should note that no rulings have been or will be sought from the Service with respect to any of the United States federal income tax consequences discussed below, and no assurance can be given that the Service will not take contrary positions.

ALL PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE 2013B BONDS.

Internal Revenue Service Circular 230 Notice

Prospective investors should be aware that:

(a) the discussion in this Official Statement with respect to certain United States federal income tax consequences of purchasing and owning the 2013B Bonds is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Code;

(b) such discussion was written to support the promotion or marketing (within the meaning of Circular 230 of the Service) of the transactions or matters addressed by such discussion; and

(c) each taxpayer should seek advice based on its particular circumstances from an independent tax advisor.

This notice is given to ensure compliance with Circular 230 of the Service.

Interest on the 2013B Bonds. Bond Counsel has rendered no opinion regarding the exclusion pursuant to section 103(a) of the Code of interest on the 2013B Bonds from gross income for federal income tax purposes. The Successor Agency has taken no action to cause, and does not intend, interest on the 2013B Bonds to be excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. The Successor Agency intends to treat the 2013B Bonds as debt instruments for all federal income tax purposes, including any applicable reporting requirements under the Code. THE AUTHORITY EXPECTS THAT THE INTEREST PAID ON A 2013B BOND GENERALLY WILL BE INCLUDED IN THE GROSS INCOME OF THE OWNER THEREOF FOR FEDERAL INCOME TAX PURPOSES WHEN RECEIVED OR ACCRUED, DEPENDING UPON THE TAX ACCOUNTING METHOD OF THAT OWNER.

Disposition of 2013B Bonds, Inclusion of Acquisition Discount and Treatment of Market Discount. An owner of 2013B Bonds will generally recognize gain or loss on the sale or exchange of the 2013B Bonds equal to the difference between the sales price (exclusive of the amount paid for accrued interest) and the owner’s adjusted tax basis in the 2013B Bonds. Generally, the owner’s adjusted tax basis in the 2013B Bonds will be the owner’s initial cost, increased by original issue discount (if any) previously included in the owner’s income to the date of disposition. Any gain or loss generally will be capital gain or loss and will be long-term or short-term, depending on the owner’s holding period for the 2013B Bonds.

Under current law, a purchaser of a 2013B Bond who did not purchase that 2013B Bond in the initial public offering (a “subsequent purchaser”) generally will be required, on the disposition (or

-63-

earlier partial principal payment) of such 2013 Series B Subordinate Bond, to recognize as ordinary income a portion of the gain (or partial principal payment), if any, to the extent of the accrued “market discount.” In general, market discount is the amount by which the price paid for such 2013B Bond by such a subsequent purchaser is less than the stated redemption price at maturity of that 2013B Bond (or, in the case of a 2013B Bond bearing original issue discount, is less than the “revised issue price” of that 2013B Bond (as defined below) upon such purchase), except that market discount is considered to be zero if it is less than one quarter of one percent of the principal amount times the number of complete remaining years to maturity. The Code also limits the deductibility of interest incurred by a subsequent purchaser on funds borrowed to acquire 2013B Bonds with market discount. As an alternative to the inclusion of market discount in income upon disposition, a subsequent purchaser may elect to include market discount in income currently as it accrues on all market discount instruments acquired by the subsequent purchaser in that taxable year or thereafter, in which case the interest deferral rule will not apply. The recharacterization of gain as ordinary income on a subsequent disposition of such 2013B Bonds could have a material effect on the market value of such 2013B Bonds.

Stated Interest and Reporting of Interest Payments. The stated interest on the 2013B Bonds will be included in the gross income, as defined in section 61 of the Code, of the owners thereof as ordinary income for federal income tax purposes at the time it is paid or accrued, depending on the tax accounting method applicable to the owners thereof. Subject to certain exceptions, the stated interest on the 2013B Bonds will be reported to the Service. Such information will be filed each year with the Service on Form 1099-INT (or other appropriate reporting form) which will reflect the name, address, and taxpayer identification number of the owner. A copy of such Form 1099-INT will be sent to each owner of a 2013 Series B Subordinate Bond for federal income tax purposes.

Original Issue Discount. If the first price at which a substantial amount of the 2013B Bonds of any stated maturity is sold (the “Issue Price”) is less than the face amount of those 2013B Bonds, the excess of the face amount of each 2013B Bond of that maturity over the Issue Price of that maturity is “original issue discount”. If the original issue discount on a 2013 Series B Subordinate Bond is less than the product of one quarter of one percent of its face amount times the number of complete years to its maturity, the original issue discount on that 2013B Bond will be treated as zero. Original issue discount on a 2013B Bond will be amortized over the life of the 2013B Bond using the “constant yield method” provided in the Treasury Regulations. As the original issue discount on a 2013 Series B Subordinate Bond accrues under the constant yield method, the owner of that 2013B Bond, regardless of its regular method of accounting, will be required to include such accrued amount in its gross income as interest. This can result in taxable income to the owners of the 2013B Bonds that exceeds actual cash distributions to the owners in a taxable year. To the extent that a 2013 Series B Subordinate Bond is purchased at a price that exceeds the sum of the Issue Price of that 2013B Bond and all original issue discount previously includible by any holder in gross income (the “revised issue price” of that 2013B Bond), the subsequent accrual of original issue discount to that purchaser must be reduced to reflect that premium.

The amount of the original issue discount that accrues on the 2013B Bonds each taxable year will be reported annually to the Service and to the owners. The portion of the original issue discount included in each owner’s gross income while the owner holds the 2013B Bonds will increase the adjusted tax basis of the 2013B Bonds in the hands of such owner.

Amortizable Bond Premium. An owner that purchases a 2013B Bond for an amount that is greater than its stated redemption price at maturity will be considered to have purchased the 2013B Bond with ‘‘amortizable bond premium’’ equal in amount to such excess. The owner may elect to amortize such premium using a constant yield method over the remaining term of the 2013B Bond and may offset interest otherwise required to be included in respect of the 2013B Bond during any

-64-

taxable year by the amortized amount of such excess for the taxable year. Bond premium on a 2013B Bond held by an owner that does not make such an election will decrease the amount of gain or increase the amount of loss otherwise recognized on the sale, exchange, redemption or retirement of a 2013B Bond. However, if the 2013B Bond may be optionally redeemed after the beneficial owner acquires it at a price in excess of its stated redemption price at maturity, special rules would apply under the Treasury Regulations which could result in a deferral of the amortization of some bond premium until later in the term of the 2013B Bond. Any election to amortize bond premium applies to all taxable debt instruments held by the beneficial owner on or after the first day of the first taxable year to which such election applies and may be revoked only with the consent of the IRS.

Medicare Contribution Tax. Pursuant to Section 1411 of the Code, as enacted by the Health Care and Education Reconciliation Act of 2010, an additional tax is imposed on individuals beginning January 1, 2013. The additional tax is 3.8% of the lesser of (i) net investment income (defined as gross income from interest, dividends, net gain from disposition of property not used in a trade or business, and certain other listed items of gross income), or (ii) the excess of “modified adjusted gross income” of the individual over $200,000 for unmarried individuals ($250,000 for married couples filing a joint return and a surviving spouse). Owners of the 2013B Bonds should consult with their own tax advisor concerning this additional tax, as it may apply to interest earned on the 2013B Bonds as well as gain on the sale of a 2013B Bond.

Defeasance. Persons considering the purchase of a 2013B Bond should be aware that the bond documents permit the Successor Agency under certain circumstances to deposit monies or securities with the Trustee, resulting in the release of the lien of the Indenture (a “defeasance”). A defeasance could result in the realization of gain or loss by the owner of a 2013B Bond for federal income tax purposes, without any corresponding receipt of monies by the owner. Such gain or loss generally would be subject to recognition for the tax year in which such realization occurs, as in the case of a sale or exchange. Owners of 2013B Bonds are advised to consult their own tax advisers with respect to the tax consequences resulting from such events.

Backup Withholding. Under section 3406 of the Code, an owner of the 2013B Bonds who is a United States person may, under certain circumstances, be subject to “backup withholding” of current or accrued interest on the 2013B Bonds or with respect to proceeds received from a disposition of the 2013B Bonds. This withholding applies if such owner of 2013B Bonds: (i) fails to furnish to the payor such owner’s social security number or other taxpayer identification number (“TIN”); (ii) furnishes the payor an incorrect TIN; (iii) fails to properly report interest, dividends, or other “reportable payments” as defined in the Code; or (iv) under certain circumstances, fails to provide the payor with a certified statement, signed under penalty of perjury, that the TIN provided to the payor is correct and that such owner is not subject to backup withholding.

Backup withholding will not apply, however, with respect to payments made to certain owners of the 2013B Bonds. Owners of the 2013B Bonds should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedures for obtaining such exemption.

Withholding on Payments to Nonresident Alien Individuals and Foreign Corporations. Under sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the current rate of 30% (subject to change) on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest income of such an owner of the 2013B Bonds is not treated as effectively connected income within the meaning of section 864 of the Code, such interest will be subject to 30% withholding, or any lower rate specified in an income tax treaty, unless such income is treated as portfolio interest. Interest will be treated as portfolio interest if: (i) the owner provides a statement to the payor certifying,

-65-

under penalties of perjury, that such owner is not a United States person and providing the name and address of such owner; (ii) such interest is treated as not effectively connected with the owner’s United States trade or business; (iii) interest payments are not made to a person within a foreign country that the Service has included on a list of countries having provisions inadequate to prevent United States tax evasion; (iv) interest payable with respect to the 2013B Bonds is not deemed contingent interest within the meaning of the portfolio debt provision; (v) such owner is not a controlled foreign corporation, within the meaning of section 957 of the Code; and (vi) such owner is not a bank receiving interest on the 2013B Bonds pursuant to a loan agreement entered into in the ordinary course of the bank’s trade or business.

Assuming payments on the 2013B Bonds are treated as portfolio interest within the meaning of sections 871 and 881 of the Code, then no withholding under section 1441 and 1442 of the Code and no backup withholding under section 3406 of the Code is required with respect to owners or intermediaries who have furnished Form W-8 BEN, Form W-8 EXP or Form W-8 IMY, as applicable, provided the payor does not have actual knowledge or reason to know that such person is a United States person.

The preceding discussion of certain United States federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to particular tax consequences to it of purchasing, owning, and disposing of the 2013B Bonds, including the applicability and effect of any state, local, or foreign tax laws, and of any proposed changes in applicable laws.

CONCLUDING INFORMATION

Underwriting

2013A Bonds. The 2013A Bonds are being purchased by Morgan Stanley & Co. LLC

(representing the “Underwriters”). The Underwriters have agreed to purchase the 2013A Bonds at a price of $80,685,495.90 (being the principal amount of the 2013A Bonds plus an original issue premium of $6,790,482.15 and less an underwriters’ discount of $414,986.25). The Underwriters will purchase all of the 2013A Bonds if any are purchased.

2013B Bonds. The 2013B Bonds are being purchased the Underwriters, at a purchase

price of $14,305,901.94 (being the principal amount of the 2013B Bonds less an underwriters’ discount of $59,098.06). The Underwriters will purchase all of the 2013B Bonds if any are purchased.

The Underwriters may offer and sell Bonds to certain dealers and others at a price lower

than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Underwriters.

Morgan Stanley, parent company of Morgan Stanley & Co. LLC, an Underwriter of the

Bonds, has entered into are retail distribution arrangement with Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds.

De La Rosa & Co., also an Underwriter of the Bonds, has entered into separate agreements

with Credit Suisse Securities USA LLC and City National Securities, Inc. for retail distribution of certain municipal securities offerings, at the original issue prices. Pursuant to said agreement, if

-66-

applicable to the Bonds, De La Rosa & Co. will share a portion of its underwriting compensation with respect to the Bonds, with Credit Suisse Securities USA LLC or City National Securities, Inc.

Legal Opinion

The opinion of Fulbright & Jaworski LLP, a member of Norton Rose Fulbright, Los Angeles,

California, Bond Counsel to the Successor Agency, approving the validity of the Bonds. A copy of the proposed form of Bond Counsel’s final approving opinion with respect to the Bonds is attached hereto as APPENDIX B.

The legal opinion is only as to legality and is not intended to be nor is it to be interpreted or

relied upon as a disclosure document or an express or implied recommendation as to the investment quality of the Bonds.

In addition, certain legal matters will be passed on by Jones Hall, A Professional

Corporation, Los Angeles, California, as Disclosure Counsel, and Stradling Yocca Carlson and Rauth, A Professional Corporation, Newport Beach, California, as Underwriters’ Counsel. Compensation for services provided by Disclosure Counsel and by Underwriters’ Counsel is contingent upon the sale and delivery of the Bonds. Certain legal matters will be passed on for the Successor Agency by Renee Gurza, Esq, City Attorney, as General Counsel for the Successor Agency.

Litigation

There is no action, suit or proceeding known to the Successor Agency to be pending and

notice of which has been served upon and received by the Successor Agency, or threatened, restraining or enjoining the execution or delivery of the Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing or any proceedings of the Successor Agency taken with respect to any of the foregoing.

Ratings

Standard & Poor’s Ratings Services, A Standard & Poor’s Financial Services, LLC Company

(“S&P”) has assigned a rating of “AA-” to the Bonds. The rating reflects only the view of S&P as to the credit quality of the Bonds, and explanation of the significance of the rating may be obtained from S&P. There is no assurance that the rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by S&P, if in the judgment of S&P, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds.

Fitch Ratings (“Fitch”) has assigned a rating of “AA-” to the Bonds. The rating reflects only

the view of Fitch as to the credit quality of the Bonds, and explanation of the significance of the rating may be obtained from Fitch. There is no assurance that the rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Fitch, if in the judgment of Fitch, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds.

At the request of the Successor Agency, Moody’s Investor Services (“Moody’s”) provided

the Successor Agency with an indicative rating on April 29, 2013, based on information available at that time. An indicative rating is a confidential, unpublished, unmonitored, point-in-time opinion of the potential credit rating of a proposed debt issuance. The Successor Agency did not request a

-67-

traditional credit rating from Moody’s; however, based on the indicative rating, the Successor Agency concluded that Moody’s would, if asked to rate the Bonds, assign a lower credit rating to the Bonds than the actual credit ratings assigned by S&P and Fitch.

Continuing Disclosure

Continuing Disclosure Agreement. The Successor Agency covenants in the Indenture to

file an Annual Report with the Electronic Municipal Market Access system of the Municipal Securities Rule Making Board (“EMMA”) by November 1, of each year, commencing November 1, 2014, and to provide timely notices of the occurrence of certain enumerated events. The specific information to be contained in the Annual Report or the notices of enumerated events is set forth in “APPENDIX D - FORM OF CONTINUING DISCLOSURE AGREEMENT” (the “Continuing Disclosure Agreement”) attached to this Official Statement. These covenants have been made in order to assist the Underwriters (as defined below) in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).

In order to assist the Successor Agency in fulfilling its obligations under the Continuing

Disclosure Agreement, the Successor Agency covenants in the Indenture to engage an Independent Redevelopment Consultant to prepare its Annual Report. The Successor Agency will serve as the initial dissemination agent with respect to the undertaking of the Successor Agency. See “APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT.”

Summary of Certain Continuing Disclosure Responsibilities. By November 1 of each

year, commencing November 1, 2014, the Independent Redevelopment Consultant engaged by the Successor Agency shall prepare, and by November 1 of each year, commencing November 1, 2014, the dissemination agent shall file with EMMA, an Annual Report that includes all of the following information: (a) Project Area taxable assessed valuation for the Fiscal Year ending June 30 of the next ensuing calendar year; (b) Project Area base year assessed valuation; (c) taxable assessed valuation for each of the ten largest taxpayers in the Project Area for the Fiscal Year ending June 30 of the next ensuing calendar year; (d) total Pledged Tax Revenues deposited into the Redevelopment Property Tax Trust Fund by the County Auditor-Controller since the previous November 1; (e) total Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee on each of January 2 and June 1 of the then-current calendar year; (f) the balance in the Reserve Fund as of the immediately preceding September 1; and (g) the Annual Debt Service Coverage for the Bond Year ending on the immediately preceding September 1. The Continuing Disclosure Agreement requires that an annual audit of the financial transactions and records of the Successor Agency be filed with EMMA by December 31 following the end of each Fiscal Year, commencing with the Fiscal Year ended June 30, 2013. The Continuing Disclosure Agreement further provides that, to the extent permitted by law, such audit may be included within the annual audited financial statements of the City, and that, if an audit is not available by the time required pursuant to the Continuing Disclosure Agreement, an unaudited statement of financial transactions and records of the Successor Agency shall be provided to the Dissemination Agent, and the audit shall be filed in the same manner as the Annual Report when they have become available. For further information concerning continuing disclosure responsibilities see “APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT.”

-68-

Miscellaneous All of the preceding summaries of the Indenture, the Redevelopment Law, the Bond Law, the

Dissolution Act, 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 Successor Agency for further information in connection therewith.

This Official Statement does not constitute a contract with the purchasers of the Bonds. Any

statements made in this Official Statement involving matters of opinion or 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 the Morgan Hill City Manager has

been duly authorized by the Successor Agency.

SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY By: /s/ Steve Rymer

City Manager of the City of Morgan Hill, on behalf of the Successor Agency

A-1

APPENDIX A

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

The following is a summary of certain provisions of the Indenture, and is supplemental to the summary of other provisions of the Indenture described elsewhere in this Official Statement. This summary does not purport to be comprehensive or definitive, and reference should be made to the Indenture for a full and complete statement of its provisions. All capitalized terms used herein but not otherwise defined in this Appendix A shall have the meanings ascribed to such terms in the Indenture.

DEFINITIONS

“Act” means Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code.

“Adverse Change in State Law” means a change in State law, including any judicial decision that adversely affects the ability of the Successor Agency to comply with or perform its Covenant 2 in the Indenture.

“Annual Debt Service Coverage” means, for each Bond Year, Pledged Tax Revenues divided by the principal of and interest payable on the Outstanding Bonds in such Bond Year.

“Authorized Denomination” means $5,000 and any integral multiple thereof.

“Bond” or “Bonds” means the 2013A Bonds and the 2013B Bonds and any refunding bonds payable from Pledged Tax Revenues on a parity with Outstanding Bonds as provided in a Supplemental Indenture.

“Bond Counsel” means Fulbright & Jaworski LLP, or a successor thereto or a firm of attorneys acceptable to the Successor Agency of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions.

“Bond Year” means the twelve (12) month period commencing on September 2 of each year, provided that the first Bond Year shall extend from the Delivery Date through September 1, 2014.

“Business Day” means any day other than (i) a Saturday or Sunday or legal holiday or a day on which banking institutions in the city in which the Corporate Trust Office of the Trustee is located are authorized to close, or (ii) a day on which the New York Stock Exchange is closed.

“Certificate” or “Certificate of the Successor Agency” means a Written Certificate of the Successor Agency.

“Chairperson” means the Chairperson of the Successor Agency or other duly appointed officer of the Successor Agency authorized by the Successor Agency by resolution or bylaw to perform the functions of the Chairperson in the event of the Chairperson’s absence or disqualification.

“City” means the City of Morgan Hill, California.

“City Manager” means the City Manager of the City, acting as the head administrative officer for the Successor Agency.

A-2

“Code” means the Internal Revenue Code of 1986.

“Compliance Costs” means those specific costs incurred by the County Auditor-Controller in connection with its compliance with the Indenture that are chargeable against the Redevelopment Property Tax Trust Fund provided that such costs shall not exceed $20,000 in any Fiscal Year. The $20,000 annual cap on Compliance Costs does not apply to other administrative costs chargeable to the Redevelopment Property Tax Trust Fund by the County Auditor-Controller pursuant to the requirements of the Health and Safety Code, including Health and Safety Code Sections 34182(a)(3) and 34182(e).

“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement, dated the Delivery Date, by and between the Successor Agency and the Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Corporate Trust Office” means the corporate trust office of the Trustee, or such other or additional offices as may be specified to the Successor Agency and the County Auditor-Controller by the Trustee in writing.

“Costs of Issuance” means the costs and expenses incurred in connection with the issuance and sale of the Bonds including the initial fees and expenses of the Trustee, Rating Agency fees, fees and expenses of Bond Counsel and Disclosure Counsel, other legal fees and expenses relating to the approval of the Bonds and the validation of the Bonds, the Indenture and matters related thereto, costs of preparing the Bonds and printing the Official Statement, fees of financial consultants, bond insurance premium, if any, and other fees and expenses set forth in a Written Certificate of the Successor Agency.

“Costs of Issuance Funds” means the respective trust funds established in the Indenture.

“County” means the County of Santa Clara, California.

“County Auditor-Controller” means the Auditor-Controller of the County of Santa Clara including any acting Auditor-Controller.

“Defeasance Securities” means:

1. Cash

2. Obligations of, or obligations guaranteed as to principal and interest by, the United States of America or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America including:

U.S. treasury obligations

All direct or fully guaranteed obligations

Farmers Home Administration

General Services Administration

Guaranteed Title XI financing

Government National Mortgage Association

A-3

State and Local Government Series

Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).

“Delivery Date” means the date on which the Bonds are delivered to the initial purchaser or purchasers thereof.

“Department of Finance” means the State of California Department of Finance.

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

“EMMA” means the Electronic Municipal Market Access System, a facility of the Municipal Securities Rulemaking Board, at www.emma.msrb.org.

“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term “fair market value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit the value of which is determined in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) the value of which is determined in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security-State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State, but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States of America.

“Fitch” means Fitch Ratings, Inc. and its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Successor Agency.

“Fiscal Year” means any twelve (12) month period beginning on July 1st and ending on the next following June 30th.

“Fund or Account” means any of the funds or accounts referred to in the Indenture.

“Health and Safety Code” means Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State of California.

A-4

“Indenture” means the Indenture, dated as of December 1, 2013, by and among the Successor Agency, the Trustee and the County, approved by Resolution No. 004, adopted by the Successor Agency on April 17, 2013, Resolution No. OB-020, adopted by the Oversight Board on April 17, 2013, and Resolution No. BOS-2013-61 (ID# 67037), adopted by the Board of Supervisors of the County on April 23, 2013.

“Independent Financial Consultant,” “Independent Certified Public Accountant” or “Independent Redevelopment Consultant” means any individual or firm engaged in the profession involved, appointed by the Successor Agency, and who, or each of whom, has a favorable reputation in the field in which his/her opinion or certificate will be given, and:

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

(2) does not have any substantial interest, direct or indirect, with the Successor Agency, other than as original purchaser of the Bonds or as financial advisor or fiscal consultant with respect to the Bonds; and

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

“Interest Account” means the account by that name established in the Indenture.

“Interest Payment Date” means March 1 and September 1, commencing March 1, 2014 so long as any of the Bonds remain Outstanding under the Indenture.

“Maximum Annual Debt Service” means the largest of the sums obtained for any Bond Year after the computation is made, by totaling the following for that Bond Year:

(1) the principal amount of all Outstanding Bonds scheduled to mature or become payable in that Bond Year; and

(2) the interest that would be due during that Bond Year on the aggregate principal amount of Outstanding Bonds that would be outstanding in that Bond Year were the Bonds Outstanding on the date of such computation to mature or be redeemed in accordance with the maturity and redemption schedules for the Bonds.

“Moody’s” means Moody’s Investors Service and its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Successor Agency.

“Obligations” means obligations of the Successor Agency and includes, without limitation, bonds, notes, interim certificates, debentures or other obligations.

“Opinion of Counsel” means a written opinion of an attorney or firm of attorneys of favorable reputation in the field of municipal bond law. Any opinion of such counsel may be based upon, insofar as it is related to factual matters, information which is in the possession of the Successor Agency as shown by a certificate or opinion of, or representation by, an officer or officers of the Successor Agency, unless such counsel knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which his or her opinion may be based is erroneous.

A-5

“Outstanding” means, when used as of any particular time with reference to Bonds, subject to the provisions of the Indenture, all Bonds theretofore issued and authenticated under the Indenture except:

(a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation;

(b) Bonds paid or deemed to have been paid; and

(c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and authenticated pursuant to the Indenture.

“Oversight Board” means the Morgan Hill Successor Agency Oversight Board duly constituted from time to time pursuant to Section 34179 of the Health and Safety Code.

“Owner” shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in such depository system.

“Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Trustee is entitled to conclusively rely on a Written Request of the Successor Agency directing investment in such Permitted Investment as a certification by the Successor Agency to the Trustee that such Permitted Investment is a legal investment under the laws of the State), but only to the extent that the same are acquired at Fair Market Value:

(a) Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, including instruments evidencing a direct ownership interest in securities described in this clause such as Stripped Treasury Coupons rated the same rating as direct obligations of the United States of America by S&P and Moody’s and held by a custodian for safekeeping on behalf of holders of such securities.

(b) Bonds or notes which are exempt from federal income taxes and for the payment of which cash or obligations described in clause (a) of this definition in an amount sufficient to pay the principal of, premium, if any, and interest on when due have been irrevocably deposited with a trustee or other fiscal depositary and which are rated the same rating as direct obligations of the United States of America by S&P and Moody’s.

(c) Obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following: Federal Home Loan Bank System, Government National Mortgage Association, Farmer’s Home Administration, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association or Federal Housing Administration.

(d) Deposit accounts, certificates of deposit or savings accounts (i) fully insured by the Federal Deposit Insurance Corporation or (ii) with banks whose short term obligations are rated no lower than A-1 by S&P and P-1 by Moody’s including those of the Trustee and its affiliates.

(e) Federal funds or banker’s acceptances with a maximum term of one year of any bank that has an unsecured, uninsured and unguaranteed obligation rating of “Prime-1” or “A3” by Moody’s and “A-l” or “A” or better by S&P (including the Trustee and its affiliates).

A-6

(f) Repurchase obligations with a term not exceeding 30 days pursuant to a written agreement between the Trustee and either a primary dealer on the Federal Reserve reporting dealer list which falls under the jurisdiction of the Securities Investor Protection Corporation (“SIPC”) or a federally chartered commercial bank whose long-term debt obligations are rated “A” or better by S&P and Moody’s, with respect to any security available for transfer, i.e. Defeasance Securities; provided, that the securities which are the subject of such repurchase obligation (i) are free and clear of all liens, (ii) in the case of an SIPC dealer, were not acquired pursuant to a repurchase or reverse repurchase agreement, and (iii) are deposited with the Trustee and maintained through weekly market valuations in an amount equal to 104% of the invested funds plus accrued interest. The Trustee must have a valid first perfected security interest in such securities.

(g) Taxable government money market portfolios that have a rating by S&P of Am-G or Am or better and rated in one of the three highest rating categories of Moody’s, subject to a maximum permissible limit equal to six months of principal and interest on the Bonds including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or sub-custodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee.

(h) Tax-exempt government money market portfolios that have a rating by S&P of Am-G or Am or better and rated in one of the three highest rating categories of Moody’s consisting of securities which are rated in the highest Rating Categories of S&P and Moody’s subject to a maximum permissible limit equal to six months of principal and interest on the Bonds.

(i) Money market funds registered under the Investment Company Act of 1940, the shares in which are registered under the Securities Act of 1933 and that have a rating by S&P of AAAm-G or AAAm and rated in one of the two highest Rating Categories of Moody’s, including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or sub-custodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee.

(j) The Local Agency Investment Fund of the State, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name.

(k) Investment agreements, including guaranteed investment contracts, provided by a bank, insurance company or other financial institution whose long-term obligations are rated “AA” or higher by Fitch and S&P or with a bank, insurance company or other financial institution guaranteed by an entity whose long-term obligations are rated “AA” or higher by Fitch and S&P. The following additional requirements shall apply to any investment agreement:

(i) the agreement shall be collateralized by United States of America guaranteed and direct obligation securities and such collateral shall be held by a third party institution and

A-7

marked to market on a weekly basis to a minimum of the value of the outstanding balance of the agreement;

(ii) term must be limited to the final maturity of the applicable Series of Bonds;

(iii) moneys invested thereunder may be withdrawn without any penalty, premium, or charge on not more than two (2) Business Days’ notice; provided, that such notice may be amended or cancelled at any time prior to the withdrawal date;

(iv) the agreement is not subordinated to any other obligations of the provider;

(v) the agreement provides that the Successor Agency in its sole discretion shall have the right to terminate such agreement if the provider’s ratings are downgraded below the requirements set forth in this paragraph (k); and

(vi) the Successor Agency receives an opinion of counsel that such agreement is an enforceable obligation of the provider.

“Pledged Tax Revenues” means the tax revenues (including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) that were eligible for allocation to the Predecessor Agency pursuant to the Health and Safety Code, as it existed when the Prior Bonds were issued, in connection with the Redevelopment Project Area; provided, however, that “Pledged Tax Revenues” shall not include (a) amounts, if any, received by the Successor Agency pursuant to Section 16111 of the Government Code; (b) amounts paid to the County as an administrative fee pursuant to SB 2557, Section 34182 of the Health and Safety Code and Section 95.3 of the Revenue and Taxation Code of the State of California in effect on the Delivery Date; (c) amounts, if any, required by law to be paid to affected taxing agencies, except to the extent that such payments are subordinated to payments on the Bonds pursuant to the Health and Safety Code; (d) amounts, if any, required by law on the Delivery Date to be deposited by the Successor Agency in a housing fund; and (e) Compliance Costs. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include all tax revenues allocated to the payment of indebtedness pursuant to Health and Safety Code Section 33670 or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution.

“Predecessor Agency” means the Morgan Hill Redevelopment Agency.

“Principal Account” means the account by that name established in the Indenture.

“Principal Payment Date” means the principal payment dates for the respective Series of Bonds set forth in the body of the Official Statement.

“Prior Bonds” means the Morgan Hill Redevelopment Agency Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area) Series 2008A and the Morgan Hill Redevelopment Agency Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area) Series 2008B (Taxable).

“Prior Indenture” means the Indenture of Trust, dated as of February 1, 2008, by and between the Predecessor Agency and The Bank of New York Mellon Trust Company, N.A., formerly known as The Bank of New York Trust Company, N.A (the “Prior Trustee”).

A-8

“Rating Agency” means Fitch, Moody’s or S&P.

“Recognized Obligation Payment Schedule” means a Recognized Obligation Payment Schedule, prepared and approved from time to time pursuant to subdivision (1) of Section 34177 of the Health and Safety Code.

“Redemption Account” means the account by that name established in the Indenture.

“Redevelopment Obligation Retirement Fund” means the fund created within the treasury of the Successor Agency pursuant to Section 34170.5 of the Health and Safety Code.

“Redevelopment Plan” means Amendment No. 4 Amending and Restating the Community Development Plan of the Ojo De Agua Community Development Project, approved pursuant to Ordinance 1807, adopted on November 8, 2006.

“Redevelopment Project Area” means the Ojo de Agua Redevelopment Project Area.

“Redevelopment Property Tax Trust Fund” means the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Section 34172 of the Health and Safety Code and administered by the County Auditor-Controller.

“Registration Books” means the books maintained by the Trustee for the registration and transfer of ownership of the Bonds.

“Regular Record Date” means the fifteenth day of the month preceding any Interest Payment Date whether or not such day is a Business Day.

“Remittance Date” means January 2 and June 1 of each year pursuant to Section 34183(a)(2) of the Health and Safety Code.

“Remittance Request” means a written request from the Trustee to the County Auditor-Controller setting forth the amount owed which shall be paid out of Pledged Tax Revenues required to be remitted to the Trustee by the County Auditor-Controller on the Remittance Date.

“Reserve Fund” means the trust fund by that name established in the Indenture.

“Reserve Requirement” means, as of each calculation date, the Maximum Annual Debt Service on all Outstanding Bonds.

“Revenue Fund” means that trust fund by that name established in the Indenture.

“Series” means all of the 2013A Bonds or all of the 2013B Bonds, as the context requires, that are being authenticated and delivered pursuant to the Indenture.

“Standard & Poor’s” or “S&P” means Standard & Poor’s Financial Services LLC and its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Successor Agency.

“State” means the State of California, United States of America.

A-9

“Statutory Pass-Through Amounts” means amounts payable to affected taxing agencies pursuant to Sections 33607.5 and/or 33607.7 of the Health and Safety Code and Section 34183 of the Health and Safety Code.

“Supplemental Indenture” means any indenture then in full force and effect which has been duly adopted by the Successor Agency under the Health and Safety Code, or any act supplementary thereto or amendatory thereof, at a meeting of the Successor Agency duly convened and held, of which a quorum was present and acted thereon, amendatory of or supplemental to the Indenture; but only if and to the extent that such supplemental indenture is specifically authorized under the Indenture.

“Tax Certificate” means that certain tax certificate executed by the Successor Agency with respect to the 2013A Bonds.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association, its successors and assigns, and any other banking corporation or association which may at any time be substituted in its place, as provided in the Indenture.

“Validation Judgment” means that certain default judgment dated October 9, 2013 of the Superior Court, County of Sacramento to the effect, among other things, that the Indenture is a valid, legal and binding obligation of the Successor Agency and the County and is in conformity with applicable provisions of all laws (Successor Agency to the Morgan Hill Redevelopment Agency vs. Harris, Sacramento County Case No. 34-2013-00145235-CU-MC-GDS).

“Written Request of the Successor Agency” or “Written Certificate of the Successor Agency” means a request or certificate, in writing signed by the City Manager, Secretary or Finance Officer of the Successor Agency or by any other officer of the Successor Agency duly authorized by the Successor Agency for that purpose.

CERTAIN BOND TERMS

Transfer of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Corporate Trust Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Bond or Bonds shall be surrendered for registration of transfer, the Successor Agency shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds, of like series, interest rate, maturity and principal amount of authorized denominations. The Trustee may refuse to transfer, under the provisions of the Indenture, either (a) any Bonds during the period established by the Trustee for the selection of Bonds for redemption, or (b) any Bonds selected by the Trustee for redemption pursuant to the provisions of the Indenture.

Exchange of Bonds. Bonds may be exchanged at the Corporate Trust Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations of the same Series, interest rate and maturity. The Trustee shall collect any tax or other governmental charge on the exchange of any Bonds pursuant to the Indenture. The cost of printing any Bonds and any services rendered or any expenses incurred by the Trustee in connection with any exchange or transfer shall be paid by the Successor Agency. The Trustee may refuse to exchange, under the provisions of the Indenture, either (a) any Bonds during the period established by the Trustee for the selection of Bonds for redemption or (b) any Bonds selected by the Trustee for redemption pursuant to the provisions of the Indenture.

A-10

Registration Books. The Trustee will keep or cause to be kept, at its Corporate Trust Office, sufficient records for the registration and registration of transfer of the Bonds, which shall at all times during normal business hours be open to inspection by the Successor Agency with reasonable prior notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on the Registration Books, Bonds as hereinbefore provided.

Temporary Bonds. The Bonds may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed or typewritten, shall be of such denominations as may be determined by the Successor Agency, and may contain such reference to any of the provisions of the Indenture as may be appropriate. Every temporary Bond shall be executed by the Successor Agency upon the same conditions and in substantially the same manner as the definitive Bonds. If the Successor Agency issues temporary Bonds it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds shall be surrendered, for cancellation, in exchange therefor at the Corporate Trust Office of the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits pursuant to the Indenture as definitive Bonds authenticated and delivered under the Indenture.

Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Successor Agency, at the expense of the Owner of such Bond, shall execute, and the Trustee shall thereupon deliver, a new Bond of like amount and maturity in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Successor Agency and the Trustee and, if such evidence is satisfactory to both and indemnity satisfactory to them shall be given, the Successor Agency, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like amount and maturity in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Successor Agency may require payment of a sum not exceeding the actual cost of preparing each new Bond issued under the Indenture and of the expenses which may be incurred by the Successor Agency and the Trustee in the premises. Any Bond issued in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Successor Agency whether or not the Bond so alleged to be lost, destroyed or stolen shall be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds issued pursuant to the Indenture.

Book-Entry Only System. It is intended that the Bonds, be registered so as to participate in a securities depository system with DTC (the “DTC System”), as set forth in the Indenture. The Bonds shall be initially issued in the form of a separate single fully registered Bond for each of the maturities of the Bonds and registered in the name of Cede & Co., as nominee of DTC. The Successor Agency and the Trustee are authorized to execute and deliver such letters to or agreements with DTC as shall be necessary to effectuate the DTC System, including a representation letter in the form required by DTC (the “Representation Letter”). In the event of any conflict between the terms of any such letter or agreement, including the Representation Letter, and the terms of the Indenture, the terms of the Indenture shall control. DTC may exercise the rights of an Owner only in accordance with the terms of the Indenture applicable to the exercise of such rights.

With respect to the Bonds registered in the books of the Trustee in the name of Cede & Co., as nominee of DTC, the Successor Agency and the Trustee, shall have no responsibility or obligation to any broker-dealer, bank or other financial institution for which DTC holds Bonds from time to time as securities depository (each such broker-dealer, bank or other financial institution being referred to in the

A-11

Indenture as a “DTC Participant”) or to any person on behalf of whom such a DTC Participant directly or indirectly holds an interest in the Bonds (each such person being herein referred to as an “Indirect Participant”). Without limiting the immediately preceding sentence, Successor Agency and the Trustee shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (b) the delivery to any DTC Participant or any Indirect Participant or any other person, other than an Owner, as shown in the Registration Books, of any notice with respect to the Bonds, including any notice of redemption, (c) the payment to any DTC Participant or Indirect Participant or any other Person, other than an Owner, as shown in the Registration Books, of any amount with respect to principal of, premium, if any, or interest on, the Bonds or (d) any consent given by DTC as registered owner. So long as certificates for the Bonds are not issued and the Bonds are registered to DTC, the Successor Agency, and the Trustee shall treat DTC or any successor securities depository as, and deem DTC or any successor securities depository to be, the absolute owner of the Bonds for all purposes whatsoever, including without limitation (i) the payment of principal and interest on the Bonds, (ii) giving notice of redemption and other matters with respect to the Bonds, (iii) registering transfers with respect to the Bonds and (iv) the selection of Bonds for redemption. While in the DTC System, no person other than Cede & Co., or any successor thereto, as nominee for DTC, shall receive a Bond certificate with respect to any Bond. Notwithstanding any other provision of the Indenture to the contrary, so long as any of the Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the Representation Letter.

Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in the Indenture with respect to interest checks being mailed to the registered owner at the close of business on the Record Date applicable to any Interest Payment Date, the name “Cede & Co.” in the Indenture shall refer to such new nominee of DTC.

Successor Securities Depository; Transfers Outside Book-Entry Only System. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice to the Successor Agency and the Trustee and discharging its responsibilities with respect thereto under applicable law. The Successor Agency, without the consent of any other person, but following written notice to the Successor Agency and the Trustee, may terminate the services of DTC with respect to the Bonds. Upon the discontinuance or termination of the services of DTC with respect to the Bonds pursuant to the foregoing provisions, unless a substitute securities depository is appointed to undertake the functions of DTC under the Indenture, the Successor Agency, at the expense of the Successor Agency, is obligated to deliver Bond certificates to the beneficial owners of the Bonds, as described in the Indenture, and the Bonds shall no longer be restricted to being registered in the books of the Trustee in the name of Cede & Co. as nominee of DTC, but may be registered in whatever name or name Owner transferring or exchanging Bonds shall designate to the Trustee in writing, in accordance with the provisions of the Indenture. The Successor Agency may determine that the Bonds shall be registered in the name of and deposited with a successor depository operating a securities depository system, qualified to act as such under Section 17(a) of the Securities Exchange Act of 1934, as amended, as may be acceptable to the Successor Agency, or such depository’s agent or designee.

Additional Bonds. The Successor Agency covenants that it will not issue any Obligations payable, either as to principal or interest, from the Pledged Tax Revenues which have any lien upon the Pledged Tax Revenues on a parity with or superior to the lien under the Indenture for the Bonds; provided, that the Successor Agency may (i) issue and sell refunding bonds payable from Pledged Tax Revenues on a parity with Outstanding Bonds, if (a) annual debt service on such refunding bonds is lower than annual debt service on the Bonds being refunded during every year the Bonds will be outstanding

A-12

and (b) the debt service payment dates with respect to such refunding bonds are the same as for the Bonds; (ii) issue and sell Obligations which have a lien on Pledged Tax Revenues junior to the Bonds or (iii) issue and sell Obligations that are payable in whole or in part from sources other than Pledged Tax Revenues; provided, that none of the foregoing issuances shall cause the Successor Agency to violate applicable law.

SECURITY OF BONDS; FLOW OF FUNDS; FUNDS AND ACCOUNTS

Security of Bonds; Equal Security. The County Auditor-Controller shall deposit property tax revenues into the Redevelopment Property Tax Trust Fund pursuant to the requirements of the Health and Safety Code, including inter alia Health and Safety Code sections 34183 and 34170.5(b). On the terms and conditions set forth in the Indenture, to secure the payment of all the Outstanding Bonds and the interest payments becoming due thereon and to secure the performance and observance of all of the covenants, agreements and conditions contained in the Bonds and the Indenture, the Successor Agency hereby irrevocably grants a first charge and lien on and a security interest in and hereby pledges and assigns the Pledged Tax Revenues, whether held by the Successor Agency, the County Auditor-Controller or the Trustee, and all amounts in the Revenue Fund (including the Interest Account, the Principal Account, and the Redemption Account and all subaccounts in the foregoing) and in the Reserve Fund to the Trustee for the benefit of the Owners of the Outstanding Bonds. In addition, the Successor Agency hereby assigns all amounts allocated by the County Auditor-Controller for debt service on the Bonds pursuant to the Trustee.

The principal of and interest or redemption premium (if any) on the Bonds shall be payable solely from Pledged Tax Revenues. In accordance with the Validation Judgment, and pursuant to the pledge of Pledged Tax Revenues made in the Indenture, as authorized by Section 34177.5(a)(1) of the Health and Safety Code, the principal of and interest or redemption premium (if any) on the Bonds shall be payable from, and secured by a first charge and lien on Pledged Tax Revenues without any deduction or offset pursuant to Section 34179.6(h)(2) of the Health and Safety Code or any other provision of law. In addition, in accordance with the Health and Safety Code the Bonds, and any refunding bonds payable from Pledged Tax Revenues on a parity with Outstanding Bonds, shall be payable from and secured by, and Pledged Tax Revenues shall include, moneys deposited, from time to time, in the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Health and Safety Code Section 34172, as provided in paragraph (2) of subdivision (a) of Health and Safety Code Section 34183.

Except for the Pledged Tax Revenues and moneys in the Revenue Fund (including the Interest Account, the Principal Account, and the Redemption Account and all subaccounts in the foregoing) and the Reserve Fund, no funds or properties of the Successor Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium (if any) on the Bonds. Notwithstanding anything in the Indenture to the contrary, however, if Pledged Tax Revenues are insufficient for the deposits required under the Indenture or the payment of the principal of and interest or redemption premium (if any) on the Bonds, the Successor Agency may, but shall not be obligated to, make such deposits or pay such principal of and interest or redemption premium (if any) on the Bonds from other legally available funds.

The Indenture shall constitute a contract between the Successor Agency, the County and the Trustee for the benefit of the Owners, and the covenants and agreements in the Indenture set forth to be performed on behalf of the Successor Agency, the County and the Trustee shall be for the equal and proportionate benefit, security and protection of all Owners without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the others 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 or in the Indenture.

A-13

Creation of Revenue Fund and Reserve Fund; Deposit of Amounts. There are hereby established special trust funds known as the “Revenue Fund” and the “Reserve Fund,” which Funds shall be held by the Trustee in trust for Owners. The Reserve Fund shall be funded at the Reserve Requirement. Pursuant to Section 34170.5(b) of the Health and Safety Code, the County Auditor-Controller has established within the County treasury the Redevelopment Property Tax Trust Fund, into which the County Auditor-Controller shall deposit Pledged Tax Revenues for the benefit of the Owners pursuant to the provisions of the Indenture. The Successor Agency shall submit to the Oversight Board and Department of Finance, a Recognized Obligation Payment Schedule. The County Auditor-Controller shall remit Pledged Tax Revenues directly to the Trustee, for the payment of debt service on the Bonds and to replenish the Reserve Fund, as necessary. Upon receipt by the Trustee, all Pledged Tax Revenues shall be deposited into the Revenue Fund.

Creation of Accounts; Transfer of Amounts. There is hereby created separate Accounts within the Revenue Fund as set forth below, to be known respectively as the Interest Account, the Principal Account, and the Redemption Account. Upon receiving Pledged Tax Revenues from the County Auditor-Controller, the Trustee shall deposit all such amounts into the Revenue Fund, and within one (1) Business Day, notify the Successor Agency of the amount received, the balance in the Revenue Fund and the balance in the Reserve Fund. On or before each Interest Payment Date, the Trustee shall transfer monies from the Revenue Fund to the Interest Account, Principal Account, and Redemption Account, as described below. On September 2 of each year or as soon as practicable thereafter, any amounts remaining in the Revenue Fund shall be released from the lien of the Indenture and transferred to the County Auditor-Controller; provided however, that any such monies shall first be applied to make up any deficiency in the Reserve Fund.

First Interest Account. On or before each Interest Payment Date, the Trustee shall transfer from the Revenue Fund to the Interest Account an amount of money which, together with any money contained therein, is equal to the aggregate amount of interest due and payable on the Outstanding Bonds on such Interest Payment Date. Subject to the Indenture, all moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds redeemed prior to maturity pursuant to the Indenture). On September 2 of each year or as soon as practicable thereafter, any monies in the Interest Account shall be released from the lien of the Indenture and transferred to the County Auditor-Controller; provided however, that any such monies shall first be applied to make up any deficiency in the Reserve Fund.

Second Principal Account. On or before each Principal Payment Date, the Trustee shall transfer from the Revenue Fund to the Principal Account an amount of money which, together with any money contained therein, is equal to the aggregate amount of principal due and payable on the Outstanding Bonds on such Principal Payment Date. Subject to the Indenture, all moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal on the Outstanding Bonds as they become due and payable. On September 2 of each year or as soon as practicable thereafter, any monies in the Principal Account shall be released from the lien of the Indenture and transferred to the County Auditor-Controller; provided however, that any such monies shall first be applied to make up any deficiency in the Reserve Fund.

If there shall be insufficient money in the Revenue Fund to make in full all such principal payments required to be made in such Bond Year, then the money available in the Revenue Fund shall be applied pro rata with respect to such principal payments in the proportion that all such principal payments bear to each other.

A-14

Third Reserve Fund. Subject to the Indenture, all money in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of (i) making transfers to the Interest Account, the Principal Account (and subaccount therein, as the case may be), in such order of priority, in the event of any deficiency at any time in any of such Accounts or (ii) for the retirement of Outstanding Bonds. For so long as any 2013B Bond remains unpaid, any draw from the Reserve Fund shall be allocated by the Trustee ratably among the proceeds of the 2013A Bonds and of the 2013B Bonds to be applied to the 2013A Bonds and to the 2013B Bonds, respectively. The Trustee shall keep accurate records of all such draws.

All amounts in the Reserve Fund five (5) Business Days before the final Interest Payment Date shall be withdrawn therefrom by the Trustee and transferred either (i) to the Interest Account and then Principal Account, to the extent required to make the deposits then required to be made under the Indenture, or (ii) if sufficient deposits have been made under the Indenture, then, such amounts shall be released to the County Auditor-Controller.

On September 1 of each year, the Trustee shall value the balance in the Reserve Fund, and if the value of any such balance is less than the Reserve Requirement, then the Trustee shall notify the Successor Agency of any such deficiency within three (3) Business Days. If the value of the balance is in excess of Reserve Requirement, the excess shall be withdrawn from the Reserve Fund and deposited into the Revenue Fund to be applied to the purposes thereof in accordance with the provisions of the Indenture.

Fourth Redemption Account. On or before any date on which Bonds are to be redeemed, the Successor Agency will deliver or cause to be delivered funds to the Trustee for deposit in the Redemption Account an amount required to pay the principal of, interest and premium, if any, on the Bonds to be redeemed on such date. Subject to the Indenture, all moneys in the Redemption Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of and interest or redemption premium (if any) on the Bonds to be redeemed on the date set for such redemption.

Costs of Issuance Funds. There are hereby established separate funds to be known as the “2013A Costs of Issuance Fund” and “2013B Costs of Issuance Fund,” each of which shall be held in trust by the Trustee. Moneys in the Costs of Issuance Funds 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 Successor 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 the applicable Fund. Each such Written Request of the Successor Agency shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Six (6) months following the Delivery Date, or upon the earlier Written Request of the Successor Agency, all amounts (if any) remaining in either Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Revenue Fund.

A-15

COVENANTS OF THE SUCCESSOR AGENCY AND THE COUNTY; INDEMNIFICATION OF THE COUNTY BY SUCCESSOR AGENCY

Covenants of the Successor Agency. As long as the Bonds are Outstanding, the Successor Agency shall (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued under the Indenture, including the following covenants and agreements for the benefit of the Owners which are necessary, convenient and desirable to secure the Bonds:

Covenant 1. Compliance with Health and Safety Code. The Successor Agency covenants that it will comply with all applicable requirements of the Health and Safety Code.

Covenant 2. Prepare and Submit Recognized Obligation Payment Schedule(s). Pursuant to Section 34177 of the Health and Safety Code, not less than 90-days prior to each January 2, the Successor Agency shall submit to the Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule. Such Recognized Obligation Payment Schedule shall include all scheduled interest and principal payments on the Bonds that are due and payable on March 1 and September 1 of the Bond Year ending on September 1 of the next ensuing calendar year, together with any amount required to replenish the Reserve Fund.

If, on January 2 of any year, the amount of Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee is less than the amount required pursuant to the preceding paragraph, then not less than 90-days prior to June 1 of such year, the Successor Agency shall prepare, and submit to the Oversight Board and the State Department of Finance, a Recognized Obligation Payment Schedule that includes the balance due.

Covenant 3. Credit to Redevelopment Obligation Retirement Fund. The Successor Agency covenants to credit to the Redevelopment Obligation Retirement Fund established pursuant to Section 34170.5 of the Health and Safety Code, all Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee for the payment of debt service on the Bonds or to replenish the Reserve Fund.

Covenant 4. Punctual Payment. The Successor Agency covenants that it will duly and punctually pay or cause to be paid the principal of and interest on the Bonds on the dates, at the place and in the manner provided in the Bonds and shall take all actions necessary or desirable, including but not limited to establishing and funding an escrow account with Pledged Tax Revenues to the extent permitted by law, to ensure the sufficiency of Pledged Tax Revenues for the timely payment of debt service on the Bonds and for all other authorized purposes under the Indenture.

Covenant 5. Indenture Compliance Costs. Indenture Compliance Costs, not to exceed $20,000 per year, shall be payable to the County Auditor-Controller from monies in the Redevelopment Property Tax Trust Fund on a basis senior to the payment of debt service on the Bonds.

Covenant 6. Use of Proceeds: Management and Operation of Properties. The Successor Agency covenants that the proceeds of the sale of the Bonds will be deposited and used as provided in the Indenture and that it will manage and operate all properties owned by it comprising any part of the Redevelopment Project Area in a sound and businesslike manner and in accordance with applicable law.

Covenant 7. Payment of Taxes and Other Charges. The Successor Agency covenants that it will from time to time pay and discharge, or cause to be paid and discharged, all payments in lieu of taxes, service charges, assessments or other governmental charges which may lawfully be imposed upon the Successor Agency or any of the properties then owned by it in the Redevelopment Project Area, or

A-16

upon the revenues and income therefrom, and will pay all lawful claims for labor, materials and supplies which if unpaid might become a lien or charge upon any of the properties, revenues or income or which might impair the security of the Bonds or the use of Pledged Tax Revenues or other legally available funds to pay the principal of and interest and redemption premium (if any) on the Bonds, all to the end that the priority and security of the Bonds shall be preserved; provided, however, that nothing in this covenant shall require the Successor Agency to make any such payment so long as the Successor Agency in good faith shall contest the validity of the payment.

Covenant 8. Books and Accounts: Financial Transactions and Records. The Successor Agency covenants that it will at all times keep, or cause to be kept, proper and current books and accounts in which complete and accurate entries are made of the financial transactions and records of the Successor Agency. Within one hundred eighty (180) days after the close of each Fiscal Year an Independent Certified Public Accountant shall prepare an audit of the financial transactions and records of the Successor Agency for such Fiscal Year. To the extent permitted by law, such audit may be included within the annual audited financial statements of the City. Upon written request, the Successor Agency shall, as soon practicable, furnish a copy of each audit to any Owner. The Trustee shall have no duty to review such audits.

Covenant 9. Protection of Security and Rights of Owners. The Successor Agency covenants to preserve and protect the security of the Bonds and the rights of the Owners and to contest by court action or otherwise (a) the assertion by any officer of any government unit or any other person whatsoever against the Successor Agency that the Pledged Tax Revenues pledged under the Indenture cannot be used to pay debt service on the Bonds or (b) any other action affecting the validity of the Bonds or diluting the security therefor, including, with respect to the Pledged Tax Revenues, the senior lien position of the Bonds to the Statutory Pass-Through Amounts that have been subordinated to the payment of debt service on the Bonds.

Covenant 10. Continuing Disclosure. The Successor Agency covenants that it will comply with and carry out all of the provisions of its Continuing Disclosure Agreement. Notwithstanding any other provision of the Indenture, failure by the Successor Agency to comply with its Continuing Disclosure Agreement shall not be considered an Event of Default; however, any participating underwriter, Owner or beneficial owner of any Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Covenant 11. Adverse Change in State Law. If, due to an Adverse Change in State Law, the Successor Agency determines that it cannot comply with its Covenant 2, then the Successor Agency shall immediately notify the County Auditor-Controller and the Trustee in writing of such determination. The Successor Agency shall immediately seek a declaratory judgment or take other appropriate action in a Court of competent jurisdiction to determine the duties of all parties to the Indenture, including the County Auditor-Controller and the Successor Agency, with regard to the performance of its Covenant 2 by the Successor Agency.

Covenant 12. Final and Conclusive Letter of Determination of the State Department of Finance. The Successor Agency covenants that it will use its best efforts to obtain at the earliest possible date following issuance of the Bonds a final and conclusive letter of determination from the State Department of Finance pursuant to Section 34177.5(i) of the Health and Safety Code, stating that the Bonds, and the scheduled payment of debt service thereon, constitute an enforceable obligation and that such determination is final and conclusive. The letter will further state that the State Department of Finance’s authority to review and approve or disapprove future debt service payments on the Bonds, as reflected on all future Recognized Obligation Payment Schedule, shall be limited to confirming that such debt service payments are required by the Bonds.

A-17

Covenant 13. Further Assurances. The Successor Agency covenants to 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 Indenture, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Indenture.

Covenants of the County. As long as the Bonds are Outstanding, the County shall (through its proper officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture for the benefit of the Owners which are necessary, convenient and desirable to secure the Bonds. The Owners shall have no right to bring any legal action with respect to the Bonds or the Indenture against the County or the County Auditor-Controller, or any of their officers, agents or employees, except for an action against the County Auditor-Controller for the breach of any of Covenant 1, 2, 3 or 4 below:

Covenant 1. Deposit of Pledged Tax Revenues into Redevelopment Property Tax Trust Fund. Pursuant to Section 34170.5(b) of the Health and Safety Code, and for the benefit of the Owners, the County acting through the County Auditor-Controller covenants to deposit all Pledged Tax Revenues into the Redevelopment Property Tax Trust Fund in accordance with the requirements of the Health and Safety Code.

Covenant 2. Remittance of Pledged Tax Revenues Pursuant to a Recognized Obligation Payment Schedule. Provided that the Successor Agency has complied with its Covenant 2, the County acting through the County Auditor-Controller (including his or her designee) covenants to remit, pursuant to a Recognized Obligation Payment Schedule approved by the Department of Finance, by wire or bank transfer in immediately available funds to the Trustee on each Remittance Date, the following:

(i) on January 2 of each year from Pledged Tax Revenues, an amount equal to the sum of (a) all scheduled principal payments due and payable on the Bonds during the then-current Bond Year, (b) all scheduled interest payments due and payable on the Bonds during the then-current Bond Year, and (c) the amount of any deficiency in the Reserve Fund; and

(ii) on June 1 of each year from Pledged Tax Revenues, the amount determined in accordance with (i) above, less any amount remitted on the immediately preceding January 2 of such year.

Notwithstanding anything in the Indenture to the contrary, the County Auditor-Controller is not required to remit any funds to the Trustee other than from Pledged Tax Revenues and unless such amounts have been included on a Recognized Obligation Payment Schedule approved by the Department of Finance.

Covenant 3. Submission of Deposit Report. The County acting through the County Auditor-Controller (including his or her designee) covenants that it will, commencing January 2, 2014, not later than five (5) Business Days after each Remittance Date, provide the Successor Agency with a written report that contains, as of such Remittance Date, the total amount of Pledged Tax Revenues deposited into the Redevelopment Property Tax Trust Fund since the preceding Remittance Date. Notwithstanding any other provision of the Indenture, failure by the County Auditor-Controller to comply with this Covenant 3 shall not be an Event of Default; however, any participating underwriter, Owner or beneficial owner of any Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

A-18

Covenant 4. No Deduction or Offset from Pledged Tax Revenues. With respect to the debt service payments on the Bonds and other payments pursuant to the Indenture, the County and the County Auditor-Controller each covenants not to deduct or offset from Pledged Tax Revenues, any “unpaid amount” pursuant to Section 34179.6(h)(2) of the Health and Safety Code or any other provision of law.

Indemnification. (a) The Successor Agency, to the fullest extent permitted by law, shall indemnify, defend and hold harmless the County and its officers, directors, agents and employees, including but not limited to the County Auditor-Controller (each an “Indemnified Party”), from and against any and all Indemnifiable Losses arising out of, resulting from, or in any way connected with:

(1) the redevelopment projects to be financed, or the conditions, occupancy, use, possession, conduct or management of, work done in or about, or from the planning, design, acquisition, installation or construction, of any facilities within the redevelopment projects, or any part thereof, including, without limitation, Indemnifiable Losses resulting from or in any way relating to any generation, processing, handling, transportation, storage, treatment or disposal of solid wastes, hazardous materials or any other hazardous material activity including, but not limited to, any of those activities occurring, to occur or having previously occurred and any releases on, under or from the facilities to the extent occurring or existing prior to the execution and delivery of the Indenture;

(2) the issuance, sale or remarketing of the Bonds, the carrying out of any of the transactions or undertakings contemplated by the Indenture, the Bonds, the Indenture, or any document delivered by the Successor Agency pursuant to, or in connection with, any of the foregoing;

(3) any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of any material fact in any official statement, offering statement, offering circular or continuing disclosure document for the Bonds or any statement made in connection with the purchase or sale of the Bonds (other than any such statement in the Official Statement provided by the County expressly for use in the Official Statement or any other official statement, offering statement, offering circular or continuing disclosure document for the Bonds), or any omission or alleged omission to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading;

(4) any declaration of taxability of interest paid or payable on the Bonds, or allegations (or regulatory inquiry) that interest paid or payable on the Bonds is taxable, for federal income tax purposes;

(5) the Trustee's acceptance or administration of the trust of the Bond Indenture or the exercise or performance of any of its powers or duties thereunder or under any of the documents relating to the Bonds to which it is a party;

(6) the refunding, retirement, tender for purchase and/or redemption, in whole or in part, of the Bonds;

(7) any misrepresentation or breach of warranty by the Successor Agency of any representation or warranty in the Indenture or any document delivered by the Successor Agency pursuant to, or in connection with, any of the foregoing or the Bonds;

A-19

(8) any breach by the Successor Agency of any covenant or undertaking set forth in the Indenture, or any document delivered by the Successor Agency pursuant to, or in connection with, any of the foregoing or the Bonds;

(9) the exercise and performance of the Indemnified Parties’ powers and duties pursuant to the Indenture and related documents; or

(10) the exercise and performance of the Indemnified Parties’ powers and duties pursuant to any Adverse Change in State Law or pursuant to any Court Order obtained in connection with any Adverse Change in State Law.

(b) The County agrees to notify the Successor Agency promptly, but in no event later than 45 Business Days, after written notice to the County that any third party has brought any action, suit or proceeding against an Indemnified Party that may result in an Indemnifiable Loss (a “Third Party Action”). Upon such notice or other notice from an Indemnified Party of a Third Party Action, the Successor Agency shall assume the investigation and defense thereof, including the employment of counsel selected by the Indemnified Party and reasonably acceptable to the Successor Agency, and shall assume the payment of all Litigation Expenses related thereto, with full power to litigate, compromise or settle the same in its discretion; provided that the Indemnified Party shall have the right to review and approve or disapprove (in its sole and absolute discretion) any such compromise or settlement and the Indemnified Party has no liability with respect to any compromise or settlement of any Third Party Claim effected without its written approval. If the Indemnified Party fails to provide such notice to the Successor Agency, the Successor Agency is still obligated to indemnify the Indemnified Party for Indemnifiable Losses.

(c) The rights and undertakings set forth in the indemnification section of the Indenture (“Indemnification”) do not terminate and shall survive the final payment or defeasance of the Bonds and the termination or defeasance of the Indenture or any related agreement.

For purposes of this Section “Indemnifiable Losses” means the aggregate of Losses and Litigation Expenses; provided that such indemnification pursuant to this Section shall not apply to Losses or Litigation Expenses resulting because of the gross negligence or willful misconduct of any Indemnified Party.

For purposes of this Section “Losses” means any liability, loss, claim, settlement payment, cost and expense, interest, award, judgment, damages (other than punitive damages to the extent they may not, under law, be indemnified), diminution in value, fine, fee and penalty, and other charge or cost, of every conceivable kind, character and nature whatsoever, contingent or otherwise, known or unknown, except Litigation Expenses. For purposes of this Section “Litigation Expenses” means any court filing fee, court cost, witness fee, any fee associated with any alternative dispute resolution mechanism (such as arbitration or mediation), and each other fee and cost of investigating and defending or asserting a claim, including, without limitation, in each case, attorneys’ fees, other professionals’ fees and disbursements. The Successor Agency shall place all costs expected to be incurred and actually incurred in connection with its indemnification obligations, including any amounts in connection with a valid indemnification claim received from the County, on the next Recognized Obligation Payment Schedule and shall make best efforts at ensuring that such expenditures are approved by the Oversight Board and the Department of Finance. Any unpaid amounts shall constitute a debt and an enforceable obligation of the Successor Agency and shall continue to be carried forward and placed on subsequent Recognized Obligation Payment Schedules until paid in full. If payable to the County, the term “paid in full” in the preceding sentence includes payment of interest in addition to the unpaid amount and the interest rate on the unpaid amount shall increase over time as follows: (a) the rate of return earned by the County Treasury

A-20

Investment Pool for the relevant time period (“County Pool Rate”) for the first year that payments are overdue to the County; (b) the County Pool Rate plus 3 percent for the second year that payments are overdue to the County; (c) the County Pool Rate plus 6 percent for the third year the payments are overdue and (d) the County Pool Rate plus 9 percent for the fourth year and any additional years the payments are overdue; provided, however, that in no event shall the interest rate exceed 10 percent in any year.

The payment of any Indemnifiable Losses that are reimbursable under the Indenture shall be subordinate to the payment of debt service on the Bonds and to the replenishment of the Reserve Fund.

TAX COVENANTS

The Successor Agency covenants in connection with the 2013A Bonds as follows:

(A) Special Definitions. When used in this Section, the following terms have the following meanings:

“Code” means the Internal Revenue Code of 1986.

“Computation Date” has the meaning set forth in section 1.148-1(b) of the Treasury Regulations.

“Gross Proceeds,” with respect to an issue, means any proceeds of that issue as defined in section 1.148-1(b) of the Treasury Regulations (referring to sales, investment and transferred proceeds), and any replacement proceeds of that issue as defined in section 1.148-1(c) of the Treasury Regulations.

“Investment” means (i) any security (within the meaning of section 165(g)(2)(A) or (B) of the Code), (ii) any obligation (notwithstanding that such obligation may be a tax-exempt bond), (iii) any annuity contract, (iv) when allocated to a bond other than a private activity bond, any residential rental property for family units that is not located within the jurisdiction of the issuer and that is not acquired to implement a court ordered or approved housing desegregation plan, or (v) any investment-type property (as defined in section 1.148-1(e) of the Treasury Regulations).

“Nonpurpose Investment,” with respect to an issue, means any investment other than a tax-exempt bond that is not a specified private activity bond (within the meaning of section 57(a)(5)(C) of the Code), in which Gross Proceeds of that issue are invested and that is not acquired to carry out the governmental purposes of that issue.

“Prior Issue” shall mean the Morgan Hill Redevelopment Agency Variable Rate Tax Allocation Bonds (Ojo de Agua Redevelopment Project Area) Series 2008A.

“Proceeds,” with respect to an issue of governmental obligations, has the meaning set forth in has the meaning set forth in section 1.148-1(b) of the Treasury Regulations (referring to sales, investment and transferred proceeds, but not replacement proceeds, of that issue).

“Rebate Amount” has the meaning set forth in section 1.148-1(b) of the Treasury Regulations.

A-21

“Treasury Regulations” means the United States Treasury Regulations promulgated pursuant to sections 103 and 141 through 150 of the Code.

“Yield” shall have:

(1) with respect to any Investment or class of Investments, that meaning which is set forth in section 1.148-5 of the Treasury Regulations; and

(2) with respect to any issue, that meaning which is set forth in section 1.148-4 of the Treasury Regulations.

(B) Not to Cause Interest to Become Taxable. The Successor Agency shall not use, permit the use of, or omit to use Gross Proceeds of the 2013A Bonds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on the 2013 Bonds to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Successor Agency receives a written opinion of Bond Counsel to the effect that failure to comply with such covenant will not adversely affect the exclusion pursuant to section 103(a) of the Code of interest on any 2013A Bond from the gross income of the owners thereof for federal income tax purposes, the Successor Agency shall comply with each of the specific covenants in this Section.

(C) Private Use or Private Payments. Except as would not cause any 2013A Bond to become a “private activity bond” within the meaning of section 141 of the Code and the Treasury Regulations and rulings thereunder, the Successor Agency shall at all times prior to the final cancellation of the last of the 2013A Bonds to be retired:

(1) exclusively own, operate and possess all property the acquisition, construction or improvement of which has been or is to be financed or refinanced directly or indirectly with Gross Proceeds of the 2013A Bonds or of the Prior Issue and not use or permit the use of such Gross Proceeds or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, or agency or instrumentality thereof, unless such use is solely as a member of the general public;

(2) not directly or indirectly impose or accept any charge or other payment by any governmental or nongovernmental person or entity in respect of the use of Gross Proceeds of the 2013A Bonds or of the Prior Issue, or of any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, of the type described in clause (i) foregoing, other than payments that are of taxes of general application within the jurisdiction of the Successor Agency; and

(3) where the 2013A Bonds are refunded, the Successor Agency will apply the foregoing restrictions taking cognizance of the provisions of sections 1.141-3(g) and 1.141-4(c)(2)(ii) of the Treasury Regulations and of any subsequently adopted rules or regulations applicable to such a refunding.

A-22

(D) No Private Loan. Except as would not cause any 2013A Bond to become a “private activity bond” within the meaning of section 141 of the Code and the Treasury Regulations and rulings thereunder, the Successor Agency shall not use Gross Proceeds to make or finance any loan to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be “loaned” to a person or entity not only if such Gross Proceeds are provided to such a person or entity under circumstances that create an indebtedness of that person or entity under local law or for federal income tax purposes, but also if: (a) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (b) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (c) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. For purposes of this covenant, the Successor Agency will treat any transaction constituting a loan of Gross Proceeds of the Prior Issue as resulting in a loan of Gross Proceeds of the 2013A Bonds.

(E) Not to Invest at Higher Yield. Except as would not cause any 2013A Bond to become an “arbitrage bond” within the meaning of section 148 of the Code and the Treasury Regulations and rulings thereunder, the Successor Agency shall not, at any time prior to the final cancellation of the last 2013A Bond to be retired, directly or indirectly invest Gross Proceeds of the 2013A Bonds in any Investment, if as a result of such investment the Yield of any Investment or class of Investments acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the 2013A Bond, all as determined in accordance with the provisions of said section 148 and Treasury Regulations and rulings.

(F) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Treasury Regulations and rulings thereunder, the Successor Agency shall not take or omit to take any action that would cause any 2013A Bond to be “federally guaranteed” within the meaning of section 149(b) of the Code and the Treasury Regulations and rulings thereunder. Without limitation of the foregoing, the Successor Agency will not permit any portion of the debt service on the 2013A Bonds to be guaranteed (in whole or in part) by the United States, or more than 5% of the proceeds of the 2013A Bonds to be loaned to any person under which the obligation of that person to repay such loan is guaranteed (in whole or in part) by the United States, or more than 5% of the proceeds of the 2013A Bonds to be invested (directly or indirectly) in federally insured deposits or accounts. For this purpose, a guarantee or insurance by an agency or instrumentality of the United States will be treated as though made or provided by the United States.

(G) Information Report. The Successor Agency shall timely file any information required by section 149(e) of the Code with respect to the 2013A Bonds with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe.

(H) Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Treasury Regulations, in order to assure that no 2013A Bond is treated as an arbitrage bond:

(1) the Successor Agency shall account for all Gross Proceeds of the 2013A Bonds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six

A-23

years after the day on which the last 2013A Bond is discharged. However, to the extent permitted by law, the Successor Agency may commingle Gross Proceeds of 2013A Bonds with its other monies, provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith in accordance with applicable Treasury Regulations;

(2) not less frequently than each Computation Date, the Successor Agency shall retain the services of a qualified rebate analyst to calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Treasury Regulations and rulings thereunder. The Successor Agency promptly shall report to the Trustee the results of such calculation, including the basis therefor, in sufficient detail and on a timely basis in order that the Successor Agency shall be able to comply with its covenants in the Indenture. The Trustee may rely conclusively upon the Successor Agency’s determinations, calculations and certifications required by this Section. The Trustee shall have no responsibility to independently make any calculation or determination or to review the Successor Agency’s calculations under the Indenture. The Trustee shall maintain a copy of the calculation with its official transcript of proceedings relating to the issuance of the 2013A Bonds until six years after the final Computation Date;

(3) to assure the exclusion pursuant to section 103(a) of the Code of interest on 2013A Bonds from the gross income of the owners thereof for federal income tax purposes, the Successor Agency shall provide to the Trustee for deposit into a “Rebate Fund” (established hereby and to be held in trust by the Trustee and governed by the Tax Certificate) an amount sufficient to permit the Successor Agency timely to pay to the United States the amount that when added to the future value of previous rebate payments made for the 2013A Bonds equals (i) in the case of a Final Computation Date as defined in section 1.148-3(e)(2) of the Treasury Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate payments shall be made by the Successor Agency at the times and in the amounts as are or may be required by section 148(f) of the Code and the Treasury Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by section 148(f) of the Code and the Treasury Regulations and rulings thereunder for execution and filing by the Successor Agency; and

(4) the Successor Agency shall exercise reasonable diligence to assure that no error is made in the calculations and payments required by paragraphs (ii) and (iii), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including by payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section 1.148-3(h) or other provision of the Code or Treasury Regulations.

(I) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Treasury Regulations and rulings thereunder, the Successor Agency shall, not at any time prior to the final cancellation of the last of the 2013A Bonds to be retired, enter into any

A-24

transaction that reduces the amount required to be paid to the United States pursuant to paragraph (H) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm’s length and had the Yield on the 2013A Bonds not been relevant to either party.

(J) 2013A Bonds Not Hedge Bonds. The Successor Agency represents and covenants that the Prior Issue or the 2013A Bonds does and will not comprise “hedge bonds” within the meaning of section 149(g) of the Code. Without limitation of the foregoing, with respect to the Prior Issue, the Successor Agency warrants that: (i)(A) on the date of issuance of that issue the Prior Agency reasonably expected (based upon its own knowledge and upon representations made by other governmental persons upon the issuance of those obligations) that within the three-year period commencing on such date no less than 85% of the spendable proceeds of that issue would be expended for the governmental purposes thereof and (B) at no time has been or will be more than 50% of the proceeds of that issue invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. For purposes of the preceding sentence, amounts treated as proceeds of the Prior Issue have been treated as continuing so to be proceeds of the Prior Issue notwithstanding the refunding thereof by the 2013A Bonds.

(K) Use of Proceeds; Weighted Average Maturity. The Successor Agency hereby represents and covenants that it will apply the proceeds of the 2013A Bonds in a manner so that the weighted average maturity of the 2013A Bonds does not exceed 120% of the average reasonably expected remaining economic life of the facilities financed or refinanced therewith (all determined in accordance with the provisions of section 147(b) of the Code).

(L) Elections. The Successor Agency hereby directs and authorizes the City Manager of the Successor Agency to make elections permitted or required pursuant to the provisions of the Code or the Treasury Regulations, as such authorized Successor Agency representative (after consultation with Bond Counsel) deems necessary or appropriate in connection with the 2013A Bonds, in the 2013A Bond as to Tax Exemption or similar or other appropriate certificate, form or document.

(M) Closing Certificate. The Successor Agency agrees to execute and deliver in connection with the issuance of 2013A Bonds a Tax Certificate as to Arbitrage and the Provisions of Sections 103 and 141-150 of the Code, or similar document containing additional representations and covenants pertaining to the excludability of interest from the gross income of the Owners for federal income tax purposes, which representations and covenants are incorporated as though expressly set forth in the Indenture.

A-25

THE 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 Indenture and no implied covenants shall be read into the Indenture against the Trustee. 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 Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(b) The Successor 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 Bonds then Outstanding (or their attorneys duly authorized in writing) or (ii) if at any time the Successor Agency has knowledge that the Trustee has ceased to be eligible in accordance with subsection (e) of this Section, or has become incapable of acting, or has been adjudged as bankrupt or insolvent, or a receiver of the Trustee or its property has been appointed, or any public officer shall have taken 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 Successor Agency to the Trustee, whereupon the Successor Agency shall appoint a successor Trustee by an instrument in writing.

(c) The Trustee may at any time resign by giving prior written notice of such resignation to the Successor Agency, and by giving the Owners notice of such resignation by first class mail, postage prepaid, at their respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Successor Agency shall promptly appoint a successor Trustee by an instrument in writing.

(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. If no successor Trustee shall have been appointed and have accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Owner (on behalf of such Owner and all other Owners) 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 Indenture shall signify its acceptance of such appointment by executing and delivering to the Successor Agency and to its predecessor Trustee a written acceptance thereof, and thereupon 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 Indenture; but, nevertheless at the Written Request of the Successor 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 Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions in the Indenture set forth. Upon request of the successor Trustee, the Successor 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, the Successor Agency shall mail, with a copy to the Successor Trustee, a notice of the succession of such Trustee to the trusts

A-26

under the Indenture to each Rating Agency which then has a current rating on the Bonds and to the Owners at their respective addresses shown on the Registration Books. If the Successor Agency fails to mail such notice within 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 Successor Agency. Notwithstanding any other provisions of the Indenture, no removal, resignation or termination of the Trustee shall take effect until a successor shall be appointed.

(e) Every successor Trustee appointed under the provisions of the Indenture shall be a trust company, national banking association, or bank in good standing authorized to exercise trust powers or having the powers of a trust company and duly authorized to exercise trust powers within the State having a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federal or state authority. If such bank, national banking association, or trust company 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 the combined capital and surplus of such bank, national banking association, or trust company 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 the Indenture.

(f) The Trustee shall have no responsibility or liability with respect to any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of these Bonds.

(g) Before taking any action at the request or direction of the Owners, the Trustee may require that an indemnity bond satisfactory to the Trustee be furnished by the Owners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or its willful misconduct in connection with any action so taken.

(h) Upon receipt of notice of an Adverse Change in State Law from the Successor Agency pursuant to Covenant 13, the Trustee shall, not less than 90-days prior to each subsequent January 2, submit to the County Auditor-Controller a Remittance Request for all scheduled interest and principal on the Bonds that are due and payable during the then-current Bond Year, together with any amount required to replenish the Reserve Fund. If, on January 2 of any year following receipt of a notice that the amount of Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee is less than all scheduled interest and principal on the Bonds that are due and payable during the then-current Bond Year, together with an amount required to replenish the Reserve Fund, then not less than 90-days prior to June 1 of such year, the Trustee shall submit to the County Auditor-Controller a Remittance Request for the balance due.

Merger or Consolidation. Any bank, national banking association, or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank, national banking association, or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, national banking association, or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank, national banking association, or trust company shall be eligible under the Indenture, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

A-27

Liability of Trustee.

(a) The recitals of facts in the Indenture and in the Bonds contained shall be taken as statements of the Successor 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 Indenture or of the Bonds nor shall incur any responsibility in respect thereof, other than as expressly stated in the Indenture. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee may become the Owner of any Bonds with the same rights it would have if they were not Trustee and, to the extent permitted by law, may act as depository 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 the Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the Bonds then Outstanding.

(b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless the Trustee shall have been 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 the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the 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 Indenture, except for actions arising from the negligence or willful misconduct of the Trustee. The permissive right of the Trustee to do things enumerated under the Indenture shall not be construed as a mandatory duty.

(e) The Trustee shall not be deemed to have knowledge of any Event of Default under the 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 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 Indenture or of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default thereunder.

(f) No provision in the Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability under the Indenture.

(g) The Trustee may execute any of the trust or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care.

(h) The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty.

(i) The immunities extended to the Trustee also extend to its directors, officers, employees and agents.

(j) The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons

A-28

designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Successor Agency elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding that any such instructions may conflict or be inconsistent with a subsequent written instruction. The Successor Agency agrees: (i) to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties; other than in the event of the Trustee’s own negligence or willful misconduct; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting instructions to the Trustee and that there may be more secure methods of transmitting instructions than the method(s) selected by the Successor Agency; and (iii) that the security procedures, if any, to be followed in connection with the transmission of instructions provide to the Successor Agency a commercially reasonable degree of protection in light of its particular needs and circumstances.

(k) The Trustee shall not be liable to the parties hereto or deemed in breach or default under the Indenture if and to the extent its performance under the Indenture is prevented by reason of force majeure. The term “force majeure” means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include but not be limited to acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences.

(l) The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions of the Indenture.

Compensation and Indemnification. The Successor Agency shall pay to the Trustee from time to time reasonable compensation for all services rendered under the Indenture and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under the Indenture. Upon the occurrence of an Event of Default, the Trustee shall have a first lien on the Pledged Tax Revenues and all funds and accounts held by the Trustee under the Indenture to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel incurred in declaring such Event of Default and in exercising the rights and remedies set forth in the Indenture.

The Successor Agency further covenants and agrees to indemnify and hold the Trustee and its officers, directors, agents and employees, harmless against any loss, expense, and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties under the Indenture, including the costs and expenses and those of its attorneys and advisors of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or willful misconduct of the Trustee, its officers, directors, agents or employees. The obligations of the Successor Agency under this Section shall survive resignation or removal of the Trustee under the Indenture and payment of the Bonds and discharge of the Indenture.

Investment of Moneys in Funds and Accounts; Value of Permitted Investments. Subject to the provisions of the Indenture, all moneys held by the Trustee in the Revenue Fund, Costs of Issuance Funds, the Redemption Account or the Rebate Fund, shall, at the written direction of the Successor Agency, be invested only in Permitted Investments. If the Trustee receives no written directions from the

A-29

Successor Agency as to the investment of moneys held in any Fund or Account, shall invest such moneys solely in Permitted Investments described in subsection (i) of the definition thereof; provided, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received written instructions specifying a specific money market fund and, if no such written instructions of the Successor Agency is so received, the Trustee shall hold such moneys uninvested.

Moneys in the Redevelopment Obligation Retirement Fund shall be invested by the Successor Agency only in obligations permitted by the Health and Safety Code which will by their terms mature not later than the date the Successor Agency estimates the moneys represented by the particular investment will be needed for withdrawal from the Redevelopment Obligation Retirement Fund.

Moneys in the Interest Account, the Principal Account, and the Redemption Account of the Revenue Fund shall be invested at the written direction of the Successor Agency by the Trustee only in obligations which will by their terms mature on such dates as to ensure that before each Interest Payment Date and Principal Payment Date, there will be in such account, from matured obligations and other moneys already in such account, cash equal to the interest and principal payable on such payment date.

Moneys in the Reserve Fund shall be invested, subject to requirement that amounts be available for the purpose described above in “Third,” at the written direction of the Successor Agency by the Trustee in (i) obligations that by their terms mature on or before the earlier of the date of final maturity of the Bonds or five (5) years from the date of investment, or (ii) an Investment Agreement that permits withdrawals or deposits without penalty at such time as such moneys will be needed or to replenish the Reserve Fund; provided that in neither case shall moneys in the Reserve Fund be applied to the acquisition of any investment at a price greater than the fair market value thereof on the date of acquisition, as determined under section 1.148-5(d) of the Treasury Regulations or successor regulatory promulgation interpreting the provisions of section 148(a) of the Code. The Trustee shall have no responsibility for compliance with section 1.148-5(d) of the Treasury Regulations.

Moneys in the Rebate Fund shall be invested at the written direction of the Successor Agency in Defeasance Securities which mature on or before the date such amounts are required to be paid to the United States.

Obligations purchased as an investment of moneys in any of the Funds or Accounts shall be deemed at all times to be a part of such respective Fund or Account and the interest accruing thereon and any gain realized from an investment shall be credited to such Fund or Account and any loss resulting from any authorized investment shall be charged to such Fund or Account without liability to the Trustee. The Successor Agency or the Trustee, as the case may be, shall sell or present for redemption any obligation purchased whenever it shall be necessary to do so in order to provide moneys to meet any payment or transfer from such Fund or Account as required by the Indenture and shall incur no liability for any loss realized upon such a sale. All interest earnings received on any monies invested in the Interest Account, the Principal Account, the Redemption Account or the Reserve Fund, to the extent they exceed the amount required to be in such Account, shall be transferred on each Interest Payment Date to the Revenue Fund. All interest earnings on monies invested in the Rebate Fund shall be retained in such Fund and applied at the written direction of the Successor Agency as set forth in the Tax Certificate. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the Indenture. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the Indenture. The Successor Agency acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Successor Agency the right to receive brokerage confirmations of security transactions as they occur, the Successor Agency specifically waives receipt of such confirmations to the extent permitted by law.

A-30

The Trustee will furnish the Successor Agency periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Indenture. 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 Indenture.

The value of Permitted Investments shall be determined as follows: (i) as to investments the bid and asked prices of which are published on a regular basis in The Wall Street Journal (or, if not there, then in The New York Times): the average of the bid and asked prices for such investments so published on or most recently prior to such time of determination; (ii) as to investments the bid and asked prices of which are not published on a regular basis in The Wall Street Journal or The New York Times: the average bid price at such time of determination for such investments by any two nationally recognized government securities dealers (selected by the Trustee in its absolute discretion) at the time making a market in such investments or the bid price published by a nationally recognized pricing service; (iii) as to certificates of deposit and bankers acceptances: the face amount thereof, plus accrued interest; and (iv) as to any investment not specified above: the value thereof established by prior agreement between the Successor Agency and the Trustee. If more than one provision of this definition of “value” shall apply at any time to any particular investment, the value thereof at such time shall be determined in accordance with the provision establishing the lowest value for such investment; provided, notwithstanding the foregoing, in making any valuations under the Indenture, the Trustee may utilize and conclusively rely upon such pricing services as may be regularly available to it, including, without limitation, those within its regular accounting system.

Accounting Records and Financial Statements; Notices to EMMA.

(a) The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds and all funds and accounts held by it established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Successor Agency at reasonable hours and under reasonable circumstances with reasonable prior notice. The Trustee shall furnish to the Successor Agency, at least quarterly, an accounting of all transactions in the form of its regular account statements relating to the proceeds of the Bonds and all funds and accounts held by the Trustee pursuant to the Indenture.

(b) The Trustee upon receiving a remittance on a Remittance Date shall notify the Successor Agency within one (1) Business Day of the amount received. On the Business Day following each Remittance Date, the Trustee shall file a notice with EMMA indicating the amount of Pledged Tax Revenues received on such date, the balance in the Revenue Fund, and the balance in the Reserve Fund.

Appointment of Co-Trustee or Agent. It is the purpose of the Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under the Indenture, and in particular in case of the enforcement of the rights of the Trustee on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies in the Indenture granted to the Trustee or hold title to the properties, in trust, as in the Indenture granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee or Successor Agency appoint an additional individual or institution as a separate co-trustee.

In the event that the Trustee or Successor Agency appoint an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by the Indenture to be exercised by or

A-31

vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee to exercise such powers, rights and remedies, and every covenant an obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them.

Should any instrument in writing from the Successor Agency be required by the separate trustee or co-trustee so appointed by the Trustee or Successor Agency for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Successor Agency. In case any separate trustee or co-trustee, or a successor to either, shall become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-trustee.

In addition to the appointment of a co-trustee under the Indenture, the Trustee may, at the expense and with the prior written consent of the Successor Agency, appoint any agent of the Trustee in New York, New York, for the purpose of administering the transfers or exchanges of Bonds or for the performance of any other responsibilities of the Trustee under the Indenture.

MODIFICATION OR AMENDMENT OF THE INDENTURE

Amendment Without Consent of Owners. Upon written consent of the County, the Indenture and the rights and obligations of the Successor Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without consent of any Owners, to the extent permitted by law and for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Successor Agency in the Indenture contained, other covenants and agreements thereafter to be observed or to limit or surrender any rights or power in the Indenture reserved to or conferred upon the Successor Agency; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Successor Agency may reasonably deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners; or

(c) to amend any provision of the Indenture relating to the requirements of or compliance with the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income for purposes of federal income taxation of interest on any of the Bonds, in the opinion of nationally-recognized bond counsel.

Amendment With Consent of Owners. Except as set forth otherwise in the Indenture, the Indenture and the rights and obligations of the Successor Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the County and of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Successor Agency to pay the principal, interest or redemption premiums (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee.

A-32

Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to the Indenture, the Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties hereto or thereto and all Owners, as the case may be, shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Endorsement or Replacement of Bonds After Amendment. After the effective date of any amendment or modification of the Indenture, the Successor Agency may determine that any or all of the Bonds shall bear a notation, by endorsement in form approved by the Successor Agency, as to such amendment or modification and in that case upon demand of the Successor Agency, the Owners of such Bonds shall present such Bonds for that purpose at the Corporate Trust Office of the Trustee, and thereupon a suitable notation as to such action shall be made on such Bonds. In lieu of such notation, the Successor Agency may determine that new Bonds shall be prepared and executed in exchange for any or all of the Bonds and, in that case upon demand of the Successor Agency, the Owners of the Bonds shall present such Bonds for exchange at the Corporate Trust Office of the Trustee, without cost to such Owners.

Amendment by Mutual Consent. The provisions of the Indenture shall not prevent any Owner from accepting any amendment as to the particular Bond held by such Owner, provided that due notation thereof is made on such Bond.

EVENTS OF DEFAULT AND REMEDIES

Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under the 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 the County acting through the County Auditor-Controller fails to comply with Covenant 1 or Covenant 2 of the County and such failure shall have continued for a period of thirty (30) days;

(c) if default shall be made by the Successor Agency in the observance of any of the covenants, agreements or conditions on its part in the Indenture or in the 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 receipt by the Successor Agency of written notice from the Trustee or any Owner of the occurrence of such default; or

(d) if the Successor Agency shall commence a voluntary action under Title 11 of the United States Code or any substitute or successor statute.

If an Event of Default has occurred and is continuing, the Trustee may, or if requested in writing by the Owners of the majority in aggregate principal amount of the Bonds then Outstanding, the Trustee shall, by written notice to the Successor Agency and the County, (i) only in the event of a default under (a) or (b) above, declare the principal of the 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

A-33

payable, and (ii) upon any Event of Default (with receipt of indemnity to its satisfaction) exercise any remedies available to the Trustee and the Owners in law or at equity.

Immediately upon becoming aware of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Successor Agency by telephone confirmed in writing. Such notice shall also state whether the principal of the Bonds shall have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clauses (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 Successor Agency, and the Owners in the same manner as provided in the Indenture for notices of redemption of the Bonds, which shall include the statement that interest on the Bonds shall cease to accrue from and after the date, if any, on which the Trustee shall have declared the Bonds to become due and payable pursuant to the preceding paragraph (but only to the extent that principal and any accrued, but unpaid interest on the Bonds is actually paid on such date.)

This provision, however, is subject to the condition that if, at any time after the principal of the 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 Successor Agency shall deposit with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal and interest (to the extent permitted by law) at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, including but not limited to attorneys’ fees, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the 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 Bonds then Outstanding, by written notice to the Successor Agency and to the Trustee, may, on behalf of the Owners of all of the 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.

Upon the occurrence of an event of default, the Trustee may, with the consent of a majority of the Owners, by written notice to the Successor Agency, declare the principal of the Bonds to be immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in the Indenture in the Bonds to the contrary notwithstanding.

Application of Funds Upon Acceleration. All of the Pledged Tax Revenues and all sums in the funds and accounts established and held by the Trustee under the Indenture upon the date of the declaration of acceleration as provided in the Indenture, and all sums thereafter received by the Trustee under the Indenture, shall be applied by the Trustee in the order following, 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 in declaring such Event of Default and in exercising the rights and remedies set forth in the Indenture, including reasonable compensation to its agents, attorneys and counsel including all sums owed the Trustee pursuant to the Indenture; and

Second, to the payment pro rata of the whole amount then owing and unpaid on the Bonds and any refunding bonds payable from Pledged Tax Revenues on a parity with

A-34

Outstanding 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 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, ratably to the aggregate of such principal and interest or any Bond over any other Bond.

Power of Trustee to Control Proceedings. If the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in principal amount of the Outstanding Bonds under the Indenture opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation.

Limitation on Owner’s Right to Sue. No Owner of any Bond issued under the Indenture shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Indenture; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under the Indenture, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any provisions of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Owners of the Outstanding Bonds.

The right of any Owner of any Bond to receive payment of the principal of and interest and redemption premium (if any) on such Bond as provided in the Indenture, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions or any other provision of the Indenture.

Non-waiver. Nothing in the Indenture or in the Bonds, shall affect or impair the obligation of the Successor Agency, which is absolute and unconditional, to pay from the Pledged Tax Revenues and other amounts pledged under the Indenture, the principal of and interest and redemption premium (if any) on the Bonds to the respective Owners on the respective Interest Payment Dates, as provided in the Indenture, or affect or impair the right of action, which is also absolute and unconditional, of the Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds.

A-35

A waiver of any default by any Owner shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Health and Safety Code or by the Indenture may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners.

If a suit, action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Owners, the Successor Agency and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.

Actions by Trustee as Attorney-in-Fact. Any suit, action or proceeding which any Owner shall have the right to bring to enforce any right or remedy under the Indenture may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners by taking and holding the Bonds shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact, provided the Trustee shall have no duty or obligation to enforce any such right or remedy if it has not been indemnified to its satisfaction from loss, liability or any expense including, but not limited to reasonable fees and expenses of its attorneys.

Remedies Not Exclusive. No remedy conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or now or hereafter existing, at law or in equity by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Health and Safety Code or any other law.

MISCELLANEOUS

Benefits Limited to Parties. Nothing in the Indenture expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Successor Agency, the Trustee, and the registered Owners of the Bonds, any right, remedy or claim under or by reason of the Indenture or any covenant, condition or stipulation of the Indenture, and all covenants, stipulations, promises and agreements in the Indenture contained by and on behalf of the Successor Agency shall be for the sole and exclusive benefit of the Successor Agency, the Trustee, and the registered Owners of the Bonds.

Successor is Deemed Included in All References to Predecessor. Whenever in the Indenture or any Supplemental Indenture either the Successor Agency or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the Successor Agency or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.

Discharge of Indenture. If the Successor Agency shall pay and discharge the entire indebtedness on all Bonds or any portion thereof in any one or more of the following ways:

(i) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on all Outstanding Bonds, including all principal, interest and redemption premiums, (if any), or;

A-36

(ii) by irrevocably depositing with the Trustee or another fiduciary, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established pursuant to the Indenture, is fully sufficient to pay all Outstanding Bonds, including all principal, interest and redemption premiums (if any), or

(iii) by irrevocably depositing with the Trustee or another fiduciary, in trust, Defeasance Securities in such amount as an Independent Certified Public Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture, be fully sufficient to pay and discharge the indebtedness on all Bonds (including all principal, interest and redemption premiums, if any) at or before maturity,

and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice then, at the election of the Successor Agency, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Pledged Tax Revenues and other funds provided for in the Indenture and all other obligations of the Trustee, the County and the Successor Agency under the Indenture with respect to all Outstanding Bonds shall cease and terminate, except only (a) the obligation of the Trustee to transfer and exchange Bonds under the Indenture and (b) the obligation of the Successor Agency to pay or cause to be paid to the Owners, from the amounts so deposited with the Trustee, all sums due thereon and to pay the Trustee all fees, expenses and costs of the Trustee. Notice of such election shall be filed with the Trustee. Any funds thereafter held by the Trustee, which are not required for said purpose, shall be paid over to the County.

Execution of Documents and Proof of Ownership by Owners. Any request, declaration or other instrument which the Indenture may require or permit to be executed by any Owner may be in one or more instruments of similar tenor, and shall be executed by such Owner in person or by their attorneys appointed in writing. Except as otherwise expressly provided in the Indenture, the fact and date of the execution by any Owner or his attorney of such request, declaration or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. The ownership of Bonds and the amount, maturity, number and date of ownership thereof shall be provided by the Registration Books. Any request, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the Successor Agency or the Trustee in good faith and in accordance therewith.

Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are owned or held by or for the account of the Successor Agency (but excluding Bonds held in any employees’ retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, provided, however, that for the purpose of determining whether the Trustee shall be protected in relying on any such demand, request, direction, consent or waiver, only Bonds which the Trustee knows to be so owned or held shall be disregarded. Upon request of the Trustee, the Successor Agency shall specify in a Certificate of the Successor Agency those Bonds disqualified pursuant to the Indenture and the Trustee may conclusively rely on such Certificate.

No Personal Liability. No member, office, agent or employee of the Successor Agency, the County or the County Auditor-Controller shall be individually or personal liable for the payment of the principal of or interest or redemption premium (if any) on the Bonds; but nothing contained in the

A-37

Indenture shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law.

No Liability of County. Notwithstanding anything contained in the Indenture, the County shall not be required to risk, expend or advance any of its own funds or otherwise incur any financial liability under the Indenture or with respect to the Bonds. Any action against the County under the Indenture shall be limited to a writ of mandamus for specific performance of the covenants of the County under the Indenture or for a writ of attachment for the Pledged Tax Revenues. The County or County Auditor-Controller in no event shall be liable for any direct, consequential, indirect or punitive damages for its actions under the Indenture. Absent gross negligence or willful misconduct, the County and the County Auditor-Controller shall not be liable or responsible for any error, omission, interruption or delay in transmission, dispatch, action or inaction taken by it in good faith. The Bonds are limited obligations of the Successor Agency and are payable, as to interest thereon, principal thereof and any premiums upon the redemption of any thereof, solely from the Pledged Tax Revenues as provided in the Indenture, and neither the County nor the County Auditor-Controller is obligated to pay them. The Bonds are not a debt of the County, the State or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable thereon, nor in any event shall the Bonds be payable out of any funds or properties other than those of the Successor Agency to the extent of the Pledged Tax Revenues, as provided in the Indenture.

[THIS PAGE INTENTIONALLY LEFT BLANK]

B-1

APPENDIX B

PROPOSED FORM OF OPINION OF BOND COUNSEL

December 4, 2013

Successor Agency to the Morgan Hill Redevelopment Agency Morgan Hill, California

$74,310,000 Successor Agency to the

Morgan Hill Redevelopment Agency Refunding Revenue Bonds, Series 2013A

$14,365,000 Successor Agency to the

Morgan Hill Redevelopment Agency Refunding Revenue Bonds, Series 2013B

(Taxable) Ladies and Gentlemen: We have served as bond counsel to the Successor Agency to the Morgan Hill Redevelopment Agency (the “Successor Agency”) in connection with the issuance by the Successor Agency of its Refunding Revenue Bonds, Series 2013A, in the aggregate principal amount of $74,310,000 (the “2013A Bonds”) and its Refunding Revenue Bonds, Series 2013B (Taxable), in the aggregate principal amount of $14,365,000 (the “2013B Bonds” and, together with the 2013A Bonds, the “Bonds”). The Bonds are being issued under the Community Redevelopment Law (Part 1 of Division 24 of the Health and Safety Code of the State of California), Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, and pursuant to an Indenture, dated as of December 1, 2013 (the “Indenture”), by and among the Successor Agency, the County of Santa Clara (the “County”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In our capacity as bond counsel, we have reviewed the Indenture and certifications of the Successor Agency, the County and the Trustee, and such other documents, opinions and instruments as we deemed necessary to render the opinions set forth herein.

Fulbright & Jaworski LLP 555 South Flower Street Forty-First Floor Los Angeles, California 90071 United States

Tel +1 213 892 9200 Fax +1 213 892 9494 nortonrosefulbright.com

B-2

We have assumed the genuineness of all documents and signatures presented to us. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Indenture has been duly and validly authorized, executed and delivered by the Successor Agency and, assuming such Indenture constitutes the legally valid and binding obligation of the Trustee and the County, constitutes the legally valid and binding obligation of the Successor Agency, enforceable against the Successor Agency in accordance with its terms, and the Bonds are entitled to the benefits of the Indenture.

2. The proceedings for the issuance of the Bonds have been taken in accordance with the laws and Constitution of the State of California, and the Bonds, having been issued in duly authorized form and executed by the proper officials and delivered to and paid for by the purchasers thereof, constitute legal and binding special obligations of the Successor Agency enforceable in accordance with their terms.

3. The Bonds are secured by a pledge of the Pledged Tax Revenues and certain other amounts held in the funds and accounts so specified and provided for in the Indenture, subject to the application thereof on the terms and conditions as set forth in the Indenture.

4. Under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants mentioned herein, interest on the 2013A Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the “Code”) from the gross income of the owners thereof for federal income tax purposes. We are of the further opinion that under existing law the 2013A Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, that interest on the 2013A Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code; however, receipt or accrual of interest on 2013A Bonds owned by a corporation may affect the computation of its alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed.

The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the 2013A Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Non-compliance with such requirements could cause the interest on the 2013A Bonds to fail to be excluded from the gross income of the owners thereof retroactive to the date of issuance of the 2013A Bonds. Pursuant to the Indenture and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986 being delivered by the Successor Agency in connection

B-3

with the issuance of the 2013A Bonds, the Successor Agency is making representations relevant to the determination of, and is undertaking certain covenants regarding or affecting, the exclusion of interest on the 2013A Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching our opinion described in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by the Successor Agency with its covenants. Further, except as stated in the preceding paragraph, we express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the 2013A Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequence with respect to the 2013A Bonds, or the interest thereon, if any action is taken with respect to the 2013A Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel.

The opinions expressed in paragraphs (1) through (3) above are qualified to the extent the enforceability of the Indenture and the Bonds may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, fraudulent conveyance, moratorium or similar laws or to the application of equitable principles relating to or limiting creditors’ rights generally or as to the availability of any particular remedy. The enforceability of the Indenture and the Bonds is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against public agencies in the State of California.

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of results and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds.

This opinion is limited to the laws of the State of California and the federal laws of the United States.

Respectfully submitted,


C-1

APPENDIX C

BOOK-ENTRY SYSTEM

The information in this APPENDIX C concerning The Depository Trust Company (“DTC”),

New York, New York, and DTC’s book-entry system has been obtained from DTC and the Successor Agency takes no responsibility for the completeness or accuracy thereof. The Successor Agency cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, 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 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 securities 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 Successor Agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 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 is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. 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 a Standard & Poor’s rating of AA+. 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. The information set forth on such website is not incorporated herein by reference.

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

C-2

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 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 DTC’s 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 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. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

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 maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect

to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Successor 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 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 Successor 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, the Trustee, or the Successor Agency, 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 Successor Agency or the Trustee, disbursement of such payments to Direct Participants will be the

C-3

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 Successor Agency or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, certificates representing the Bonds are required to be printed and delivered.

The Successor Agency may decide to discontinue use of the system of book-entry-only

transfers through DTC (or a successor securities depository). In that event, representing the Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture.

The information in this section concerning DTC and DTC’s book-entry system has been

obtained from sources that the Successor Agency believes to be reliable, but the Successor Agency takes no responsibility for the accuracy thereof.


D-1

APPENDIX D

FORM OF SUCCESSOR AGENCY CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (this “Disclosure Agreement”) is executed and delivered by the Successor Agency to the Morgan Hill Redevelopment Agency (the “Successor Agency”) and The Bank of New York Mellon Trust Company, N.A., in connection with the issuance of $74,310,000 aggregate principal amount of Successor Agency to the Morgan Hill Redevelopment Agency Refunding Revenue Bonds, Series 2013A and $14,365,000 aggregate principal amount of Successor Agency to the Morgan Hill Redevelopment Agency Refunding Revenue Bonds, Series 2013B (Taxable) (together, the “Bonds”). The Bonds are being issued pursuant to an Indenture, dated as of December 1, 2013 (the “Indenture”), by and among the Successor Agency to the Morgan Hill Redevelopment Agency, the County of Santa Clara, California (the “County”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Successor Agency and the Trustee covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Successor Agency and the Trustee for the benefit of the Owners and Beneficial Owners of the Bonds.

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Successor Agency pursuant to, and as described in, Section 3 this Disclosure Agreement.

“Beneficial Owner” shall mean any person that (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

“Business Day” means any day other than (i) a Saturday or Sunday or legal holiday or a day on which banking institutions in the city in which the corporate trust office of the Trustee is located are authorized to close, or (ii) a day on which the New York Stock Exchange is closed.

“Dissemination Agent” shall mean initially, the Successor Agency, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Successor Agency, and which has filed with the Trustee and the Successor Agency a written acceptance of such designation.

“EMMA” shall mean the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for Municipal Securities disclosures, maintained on the internet at http://emma.msrb.org.

D-2

“Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any twelve-month or fifty-two week period hereafter selected by the Successor Agency, with notice of such selection or change in fiscal year to be provided as set forth herein.

“Independent Redevelopment Consultant” shall have the meaning set forth in the Indenture.

“Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, as amended, or any other entity designated or authorized by the United States Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the United States Securities and Exchange Commission, filings with the MSRB are to be made through the EMMA website of the MSRB, currently located at http://emma.msrb.org.

“Official Statement” shall mean the Official Statement, dated November 19, 2013, relating to the Bonds.

“Owner” shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in such depository system.

“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Rule” shall mean Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SEC” shall mean the Securities and Exchange Commission.

“State” shall mean the State of California.

SECTION 3. Provision and Contents of Annual Report.

(a) Not later than November 1 of each year, commencing with November 1, 2014, the Successor Agency shall cause the Independent Redevelopment Consultant to produce and the Dissemination Agent to provide to the MSRB through EMMA, the Participating Underwriter, and the Trustee an Annual Report that shall include the following information:

(1) Redevelopment Project Area taxable assessed valuation for the Fiscal Year ending June 30 of the next ensuing calendar year;

(2) Redevelopment Project Area base year assessed valuation;

D-3

(3) Taxable assessed valuation for each of the ten largest taxpayers in the Redevelopment Project Area for the Fiscal Year ending June 30 of the next ensuing calendar year;

(4) Total Pledged Tax Revenues deposited into the Redevelopment Property Tax Trust Fund by the County Auditor-Controller since the previous November 1;

(5) Total Pledged Tax Revenues remitted by the County Auditor-Controller to the Trustee on each of January 2 and June 1 of the then-current calendar year;

(6) The balance in the Reserve Fund as of the immediately preceding September 1; and

(7) Annual Debt Service Coverage for the Bond Year ending on the immediately preceding September 1.

(b) So long as any Bonds remain outstanding, the Successor Agency shall, or shall cause the Dissemination Agent to, not later than December 31 following the end of each Fiscal Year, commencing with the Fiscal Year ended June 30, 2013, provide to the MSRB, through EMMA, the Participating Underwriter, and the Trustee, an audit of the financial transactions and records of the Successor Agency for such Fiscal Year. To the extent permitted by law, such audit may be included within the annual audited financial statements of the City. If an audit is not available by the time required pursuant to this Section 3(b), an unaudited statement of financial transactions and records of the Successor Agency shall be provided to the Dissemination Agent, and the audit shall be filed in the same manner as the Annual Report when they have become available.

(c) Not later than 15 Business Days prior to the date specified in Section 3(b) for providing the audit to the MSRB, through EMMA, the Successor Agency shall provide, or cause to be provided, the Dissemination Agent with the audit identified in Subsection 3(b).

(d) The Annual Report must be submitted in electronic format, accompanied by such identifying information as required by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3(e) of this Disclosure Agreement. If the Fiscal Year changes for the Successor Agency, the Successor Agency shall give notice of such change in the manner provided under Section 5(e) hereof.

(e) Any or all of the items listed above may be included by specific reference to other documents, including official statements or other disclosure documents of debt issues of the Successor Agency or related public entities, available to the public on EMMA or filed with the SEC. The Successor Agency shall clearly identify each such other document so included by reference.

(f) The contents, presentation and format of the Annual Reports may be modified from time to time as determined in the judgment of the Successor Agency to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Successor Agency or to reflect changes in the business, structure, operations,

D-4

legal form of the Successor Agency; provided, that any such modifications shall comply with the requirements of the Rule.

(g) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A.

(h) The Dissemination Agent shall:

(i) determine the electronic filing address of, and then-current procedures for submitting Annual Reports to, the MSRB prior to the date for providing the Annual Reports; and

(ii) to the extent known to the Dissemination Agent file a report with the Successor Agency and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, and stating the date it was provided.

SECTION 4. Reserved.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Successor Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, in a timely manner not more than ten (10) Business Days after the event:

(i) principal and interest payment delinquencies;

(ii) defeasances;

(iii) tender offers;

(iv) rating changes;

(v) adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701-TEB);

(vi) unscheduled draws on the debt service reserves reflecting financial difficulties;

(vii) unscheduled draws on credit enhancements reflecting financial difficulties;

(viii) substitution of credit or liquidity providers or their failure to perform; or

(ix) bankruptcy, insolvency, receivership or similar proceedings.

D-5

For these purposes, any event described in the immediately preceding paragraph (9) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Successor Agency in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Successor Agency, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Successor Agency.

(b) Pursuant to the provisions of this Section 5, the Successor 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:

(i) the consummation of a merger, consolidation or acquisition involving the Successor Agency or the sale of all or substantially all of the assets of the Successor Agency, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions;

(ii) appointment of a successor or additional Trustee or the change of the name of a Trustee;

(iii) non-payment related defaults;

(iv) modifications to the rights of Owners;

(v) Bond calls;

(vi) release, substitution or sale of property securing repayment of the Bonds; or

(vii) in addition to the adverse tax opinions or determinations of taxability described in Section 5(a)(5) above, any other notices or determinations with respect to the tax status of the Bonds.

(c) Whenever the Successor Agency obtains knowledge of the occurrence of a Listed Event, described in subsection (b) of this Section 5, the Successor Agency shall as soon as possible determine if such event would be material under applicable federal securities law.

(d) If the Successor Agency determines that knowledge of the occurrence of a Listed Event described in subsection (b) of this Section 5 would be material under applicable federal securities law, the Successor Agency shall promptly notify the Dissemination Agent in writing and instruct the Dissemination Agent to report the occurrence to EMMA in a timely manner not more than ten (10) Business Days after the event.

D-6

(e) If the Dissemination Agent has been instructed by the Successor Agency to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB.

SECTION 6. Filings with the MSRB. All information, operating data, financial statements, notices and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.

SECTION 7. Termination of Reporting Obligation. The Successor Agency’s obligations under this Disclosure Agreement with respect to the Bonds shall terminate upon the legal defeasance, prior redemption or payment in full of all Outstanding Bonds. If such termination occurs prior to the final maturity of the Bonds, the Successor Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5.

SECTION 8. Dissemination Agent. The Successor Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing’ a successor Dissemination Agent. The initial Dissemination Agent shall be the Successor Agency.

SECTION 9. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the Successor Agency may amend this Disclosure Agreement, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of such party, and any provision of this Disclosure Agreement may be waived if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to the Successor Agency to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule.

SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Successor Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement 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 Agreement. If the Successor 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 Agreement, the Successor Agency shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 11. Default. In the event of a failure of the Successor Agency or the Dissemination Agent (if the Dissemination Agent is other than the Successor Agency) to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of outstanding Bonds with indemnification satisfactory to it, shall), or any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including

D-7

seeking mandate or specific performance by court order, to cause the Successor Agency or the Dissemination Agent (if the Dissemination Agent is other than the Successor Agency), as the case may be, to comply with its obligations under this Disclosure Agreement. The sole remedy under this Disclosure Agreement in the event of any failure of the Successor Agency or the Dissemination Agent (if the Dissemination Agent is other than the Successor Agency) to comply with this Disclosure Agreement shall be an action to compel performance. The Trustee shall not owe any fiduciary duty to the Participating Underwriter nor shall its failure to comply with the request of any Participating Underwriter result in a breach of any of its fiduciary duties owed to the Owners.

SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Successor Agency agrees to indemnify and save the Dissemination 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 and expenses) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the Successor Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. If the Trustee performs the duties assigned to it hereunder, the Trustee shall not be responsible to any person for any failure by the Successor Agency or the Dissemination Agent (if other than the Trustee) to perform duties or obligations imposed hereby. The Dissemination Agent shall have the same rights and protections hereunder as accorded to the Trustee under the Indenture. It is understood and agreed that any information that the Dissemination Agent may be instructed to file with the MSRB shall be prepared and provided to it by the Successor Agency. The Dissemination Agent has undertaken no responsibility with respect to any reports, notices or disclosures provided to it under this Disclosure Agreement, and has no liability to any person, including any owner of Bonds, with respect to any such reports, notices or disclosures. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the Successor Agency shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition except as may be provided by written notice from the Successor Agency.

SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Successor Agency, the Trustee, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. No person shall have any right to commence any action against the Trustee or the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. Neither the Trustee nor the Dissemination Agent shall be liable under any circumstances for monetary damages to any person for any breach of this Disclosure Agreement.

SECTION 14. Governing Law. This Disclosure Agreement shall be governed and construed in accordance with the laws of the State.

D-8

SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Dated: December 4, 2013 SUCCESSOR AGENCY TO THE MORGAN

HILL REDEVELOPMENT AGENCY

By City Manager for the City of Morgan Hill

on behalf of the Successor Agency

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

By Authorized Officer

E-1

APPENDIX E

STATE DEPARTMENT OF FINANCE APPROVAL LETTER


~~T 0,_ .,t- A t ' "-t.

~ 'P Q. z Ill 0 0 ,

lf DEPARTMENT OF EDMUND G . BROWN JR .• GOVERNOR

~""'- 1.-oR.,,p- F I N A N C E------9-l_S_L-ST_R_E-ET-.-S-AC_ R_A_M-EN_T_o_C:_A_•_9_5B-1 4---3-70-6::-=-•-w_w_w-.o-o-.-.-cA-.-G-ov

June 20, 2013

Mr. Kevin Riper, Finance Director City of Morgan Hill 17575 Peak Avenue Morgan Hill , CA 95037

Dear Mr. Riper:

Subject: Approval of Oversight Board Action

The City of Morgan Hill Successor Agency (Agency) notified the California Department of Finance (Finance) of its April 17, 2013 Oversight Board (OB) resolution on April 19, 2013. Pursuant to Health and Safety Code (HSC) section 34179 (h), Finance has completed its review of the OB action.

Based on our review and application of the law, OB Resolution No. OB-020 approving the issuance of the Refunding Revenue Bonds, Series 2013A and Series 2013B, consistent with HSC section 34176.5 is approved. The 2013 Bonds are to refinance the Variable Rate Tax Allocation Bonds Series 2008A and Series 2008B to a fixed interest rate. This is our determination with respect to the OB action taken.

Please direct inquiries to Wendy Griffe, Supervisor, or Jenny DeAngelis, Lead Analyst at ( 916) 445-1546.

Sincerely,

STEVE SZALAY Local Government Consultant

cc: Ms. Tina Reza, Assistant Director of Finance, City of Morgan Hill Ms. Irene Lui, Controller Treasurer, County of Santa Clara California State Controller's Office


F-1

APPENDIX F

VALIDATION JUDGMENT


2

3

4

5

6

7

8

9

10

II

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Oot\l.wtM'f'Jtl'tJIW QfoiRF:c'rt:lJDP~rE~

FILED/ENDORSED

OCT 9 2013

By: --~E~~c;;;a~Mr.,ed~ln~a ---\ DEPUTY CLlFI!(

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SACRAMENTO

SUCCESSOR AGENCY TO THE MORGAN Case No. 34-2013-00145235 HILL REDEVELOPMENT AGENCY,

Plaintiff,

v.

KAMALA HARRIS, in her official capacity as the Califomia Anomey General; ANA MA TOSANTOS, in her official capacity as the Califomia State Director of Finance; JOHN CHIANG, in his oFficial capacity as the Califomia State Controller; VINOD K. SHARMA, in his official capacity as the Director of the Santa Clara County Finance Agency and Auditor-Controller of the County of Santa Clara; COUNTY OF SANTA CLARA; OVERSIGHT BOARD OF THE SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY; LIBRARY JOINT POWERS AUTHORiTY OF SANTA CLARA COUNTY; CITY OF MORGAN HILL; MORGAN HILL UNIFIED SCHOOL DISTRJCT; GAVILAN COLLEGE; SANTA CLARA COUNTY OFFICE OF EDUCATION; SANTA CLARA VALLEY WATER DISTRICT; BAY AREA AIR QUALITY MANAGEMENT DISTRICT; LOMA PRJETA RESOURCE CONSERVATION DISTRICT; and ALL PERSONS INTERESTED IN THE MATTER OF THE ISSUANCE AND SALE OF BONDS FOR THE PURPOSE OF REFUNDING CERTAIN OBL!GA TIONS OWED BY THE SUCCESSOR AGENCY TO THE MORGAN HILL REDEVELOPMENT AGENCY AND 57287139.1

[PROPOSED! JUDGMENT

(PROPOSED] JUDGMENT

ALL PROCEEDINGS LEADING THERETO, INCLUDfNG THE ADOPTION OF

2 RESOLUTIONS AUTHORIZING THE ISSUANCE AND SALE OF SUCH BONDS,

3

4

5

6

7

8

Defendants.

11------------------------~

9 Having considered the pleadings and documents on file in this matter, the evidence

I 0 received, the arguments presented, and the defaults previously entered against all defendants

II herein, the Court hereby enters Judgment as follows in favor of plaintiff Successor Agency To

12 The Morgan Hill Redevelopment Agency ("Plaintiff") and against defendants KAMALA

13 HARRJS, in her official capacity as the California Attorney General; ANA MATOSANTOS, in

14 her official capacity as the California State Director of Finance; JOHN CHIANG, in his official

15 capacity as the California State Controller; VINOD K. SHARMA, in his official capacity as the

16 Director of the Santa Clara County Finance Agency and Auditor-Controller of the County of

17 Santa Clara; COUNTY OF SANTA CLARA; OVERSIGHT BOARD OF THE SUCCESSOR

18 AGENCY TO THE MORGAN BILL REDEVELOPMENT AGENCY; LIBRARY JOINT

19 POWERS AUTHORITY OF SANTA CLARA COUNTY; CITY OF MORGAN HILL;

20 MORGAN HILL UNIFIED SCHOOL DISTRICT; GAVIL~N COLLEGE; SANTA CLARA

21 COUNTY OFFICE OF EDUCATION; SANTA CLARA VALLEY WATER DISTRICT; BAY

22 AREA AIR QUALITY MANAGEMENT DISTRICT; LOMA PRIETA RESOURCE

23 CONSERVATION DISTRICT; and ALL PERSONS INTERESTED IN THE MATTER OF THE

24 ISSUANCE AND SALE OF BONDS FOR THE PURPOSE OF REFUNDING CERTAfN

25 OBLIGATIONS OWED BY THE SUCCESSOR AGENCY TO THE MORGAN HILL

26 REDEVELOPMENT AGENCY AND ALL PROCEEDINGS LEADING THERETO,

27 fNCLVDING THE ADOPTION OF RESOLUTIONS AUTHORIZING THE ISSUANCE AND

28 SALE OF SUCH BONDS (collectively, "Defendants").

S7287139.1 - 2 . [PROPOS WI JUDGMENT

I

2

IT IS ORDERED AND ADJUDGED THAT:

I. This action is properly brought pursuant to California Civil Procedure Code

3 section 860 et seq.; California Government Code section 53511; and California Healih and Safety

4 Code sections 33501,34177.5, and 34189.1.

5 2. The Bonds, the Resolutions, and the Indenture identified in the! Complaint, 1

6 including all proceedings leading thereto, were and are valid, legal, and binding Qbligations in

7 accordance with their terms.

8 3. The Bonds, the Resolutions, and the Indenture, including all proceedings leading

9 thereto, were and are in conformity with the provisions of all laws and enactments at any time in

I 0 force or controlling (whether of law, statute, or ordinance, and whether federal, state, or

I I municipal) and were and arc in conformity with all requirements of all regulatory bodies,

I 2 agencies, or officials having authority over or asserting authority over said procee.dings or any

13 part thereof.

14 4. All conditions, things, and acts required by law to exist, happen, or be performed

15 precedent to the adoption of the Resolutions and execution of the Indenture, and the terms and

I 6 conditions thereof, including the authorization for the issuance of the Bonds and the execution

I 7 and delivery of all related contracts or agreements approved by the Resolutions or contemplated

18 in connection with the issuance of the Bonds or execution of the Indenture, ~ave existed,

19 happened, and been performed in the time, form, and manner required by law.

20 5. The Successor Agency has the authority under California law to issue the Bonds

21 and to execute and deliver all contracts and agreements enacted with respect thereto. ,

22 6. The Successor Agency has the authority under California law to provide for the

23 refunding of its obligations by issuing the Bonds and applying the proceeds of the :Bonds to the

24 retirement of its obligations.

25 7. The Bonds and all agreements related thereto are legal, valid 'and binding

26 obligations under the Constitution and laws of the State ofCalifornia.

27

28 1 Unless otherwise noted herein, all capitalized terms have the meanings assigned to ~hem in the Complaint. S7287ll9.1 - 3-

[PROPOSED) JUDGMENT

8. The Successor Agency's incurrence of any and all indebtedness and/or liability in

2 connection with the Bonds and all agreements related thereto is exempt from and not subject to

3 the debt limitation set forth in Article XVI, Section 18, of the California Constitutio~.

4 9. The County is authorized to remit funds directly to the Trustee p9rsuant to the

5 assignment in the Indenture by the Successor Agency in favor of the Trustee, i and all such ' 6 remittances are deemed to comply with California Health and Safety Code sectio:ns 34183 and

7 34185.

8

9

10

II

12

13

14

IS

16

10. Pursuant to California Health and Safety Code section 34171 (d)( I), )he Successor

Agency and/or Trustee may hold amounts in the Reserve Fund and/or Revenu~ fund when I

required by the Indenture or when the next property tax allocation will be insufficient to pay all !

obligations due under the provisions of the Bonds for the next payment due in the following half I

of the calendar year pursuant to a valid ROPS.

II. The Pledged Tax Revenues identified in the Indenture are not s~bject to any

allocation or set aside to any Low and Moderate Income Housing fund pursuant! to California

Health and Safety Code section 33334.2 et seq.

12. The Successor Agency is authorized to issue the Bonds pursuant. to California

17 Health and Safety Code section 34177.5.

18 13. Pursuant to California Health and Safety Code section 34177.5(a)(l ), the successor

19 agency may pledge to the refunding bonds or other indebtedness the revenues pJedged to the

20 bonds or other indebtedness being refunded, and that pledge, when made in connection with the

21 issuance of such refunding bonds or other indebtedness, shall have the same lien P,riority as the I

22 pledge of the bonds or other obligations to be refunded, and shall be valid, :binding, and

23 enforceable in accordance with its terms. Pursuant to Section 5.0 I of the Prior lnqenture, dated

24 February I, 2008 (the "Prior Indenture"), between the Predecessor Agency and The;Bank of New

25 York Trust Company, N.A., the Prior Bonds were secured by a first pledge of and c~arge and lien

26 upon Tax Revenues (as defined therein). Therefore, pursuant to California Hcalih and Safety

27 Code section 34!77 .5(a)( I), upon the issuance of the Bonds, the Bonds shall be secured by a first I

28 pledge of and charge and lien upon Pledged Tax Revenues.

572871)9.1 - 4-[PROPOSED) JUDGMENT

14. Pursuant to California Health and Safety Code section 34l77.5(a)( I), the pledge of

2 the Bonds has the same lien priority as the pledge of the Prior Bonds and is valid,! binding and

3 enforceable in accordance with its tenns, and the pledge with respect to the Prior Bonds, and the

4 pledge with respect to the Bonds also shall not be subject to any deduction or ~ffset by the

5 County or any other taxing entity.

6

7

8

9

10

II

12

13

14

15

15. The Successor Agency shall place the amounts identified in Exhi~it B to the

Indenture on the applicable ROPS and then the Oversight Board shall approve slch amounts

identified in Exhibit B to the Indenture (to be inserted and finalized after sale and p,ricing of the

Bonds).

16. No payments or allocations may or shall be made for any other obliga~ion listed on I

the relevant ROPS from Pledged Tax Revenues until all obligations arising under the tenns of the I

Indenture as set forth on a valid ROPS have been satisfied for the relevant time period.

17. No funds or properties of the County shall be pledged to, or otherwise liable for, I

the payment of principal of or interest or redemption premium (if any) on the Bonds. I

18. In accordance with the Indenture, continuing costs related to the Bonds, such as

16 trustee fees and expenses, auditing and continuing disclosure related fees and ekpenses are

17 payable from property tax revenues pursuant to California Health and Safety Code s~ction 34183 I

18 and shall not count toward the Successor Agency's "Administrative Cost Allowance." I

19 19. In accordance with the Indenture, specific costs incurred by the Cou~ty Auditor-

20 Controller in connection with its compliance with the Indenture are chargeable I against the

21 Redevelopment Property Tax Trust Fund.

22 20. Upon receipt by the Trustee in the then-current Bond Year of all amourts required

23 to be deposited in the funds and accounts pursuant 10 this Indenture in such Bon<:i Year, any I

24 remaining Pledged Tax Revenues wherever held shall be released from the lien of the Indenture !

25 and returned to the County Auditor-Controller for distribution pursuant to law.

26 21. In accordance with the Indenture, and consistent with California Heal!~ and Safety I

27 Code section 34187(b), the Successor Agency shall not terminate its existence at any time prior to I

28 the payment in full of all debt service on Bonds and all other expenses related to the Bonds. '

57287139.1 - 5. !PROPOSED] JUDGMENT

IT IS FURTHER ORDERED AND ADJUDGED THAT the Court shall hav1! jurisdiction

2 over this matter to make any and all further orders that might be necessary to carry put the terms

3 and provisions of this Judgment.

4 IT IS SO ORDERED.

5

6 DATED: -------------

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

57287139.1 -6-

JUDGE OF THE SUPERJOR C<;)URT I

[PROI'OSE01 JUDGMENT

G-1

APPENDIX G

Successor Agency Fiduciary Fund The following Fiscal Year 2011-12 financial statement with respect to the Successor

Agency Fiduciary Fund is excerpted from the audited City of Morgan Hill, California, Year End June 30, 2012 Comprehensive Annual Financial Statement. The financial statement with respect to Fiscal Year 2012-13 is excerpted from the internal records of the City and is unaudited.

Fiscal Year

2011-12 Fiscal Year

2012-13 Assets: Pooled cash and investments $ 50,320,533 $ 38,092,230

Cash and investments with fiscal agents Accounts receivable 13,349 45,621 Interest receivable 34,534 17,135 Deposit in escrow/prepaid items 47,483 47,526 Prepaid expenses 2,681 Loans receivable, net 3,767,398 3,289,781 Capital assets, net

Non-depreciable 22,899,434 28,650,279 Depreciable 32,824,381 9,548,588

Total Assets 109,909,793 $ 79,691,160 Liabilities:

Accounts payable 1,883,815 521,358 Accrued liabilities 220,720 15,756 Customer and other deposits Deferred revenue 5,434,272 2,605,819 Loans payable 6,136,339 6,136,339 Interest payable 14,767 8,589 Non-current liabilities:

Due within one year 2,940,000 3,065,000 Due in more than one year 96,378,605 93,369,075

Total Liabilities 113,008,518 105,721,936 Net Assets

Held in trust $ (3,098,725) $ (26,030,776)

G-2

Statement of Changes in Fiduciary Net Assets Private Purpose Trust Funds For the Fiscal Year Ended June 30, 2012 Private-Purpose

Trust Fund Successor Agency

Additions: Grant/Project reimbursements $ 229,117 Other 82,469 Investment earnings 93,068 Total additions 404,654

Deductions:

Community development 3,177,709 Interest expense 92,285 Depreciation expense 550,581 Total deductions 3,820,575

Extraordinary Item:

Net assets received upon dissolution of redevelopment agency 317,196 Change in net assets (3,098,725)

Total net assets-beginning Total net assets-ending $(3,098,725) Preliminary Statement of Changes in Fiduciary Net Assets Private Purpose Trust Funds For the Fiscal Year Ended June 30, 2013 Private-Purpose

Trust Fund Successor Agency

Additions: Grant/Project reimbursements $ 84,322 RPTTF 5,989,008 Rent and Investment earnings 168,502 Other 10,193,401

Deductions:

Community development 7,145,787 Interest expense 209,595 Depreciation expense 360,765 7,716,147

Extraordinary Item:

SCO Asset Transfer Review return 5,337,992 SCO Asset Transfer Review 3,951,569 SCO Asset Transfer Review Recon (22,857,233) Due Diligence Review Payment (10,101,633) Sale of Property per dissolution (1,740,000) (25,409,305) Change in net assets (22,932,051)

Total net assets-beginning (3,098,725) Total net assets-ending $(26,030,776)

H-1

APPENDIX H

SUPPLEMENTAL INFORMATION - THE CITY OF MORGAN HILL The following information concerning the City of Morgan Hill (the “City”) and surrounding

areas is included only for the purpose of supplying general information regarding the community. The Bonds are not a debt of the City, County, the State or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor.

General

The County. Santa Clara County (the "County") covers an area of over 1,300 square

miles and is located south of the San Francisco Bay in northern California. There are two distinct valleys in the County, which are referred to as North County and South County. South County has more of an agricultural base and is comprised of only two cities, twenty miles apart from each other. As a contrast, North County is densely populated, heavily industrialized and extensively urbanized. This part of the County is comprised of 13 cities, each adjacent to another. Due to its high concentration of high-technology industries, the northwestern portion of North County is commonly referred to as "Silicon Valley". Several small lakes and reservoirs are scattered across the County and the highest peak can be found in San José at Mount Hamilton with an elevation of 4,213 feet. Several major highways serve the County, including Highway 101 providing access to San Francisco and Los Angeles.

The City. The City is approximately 24 miles south of downtown San Jose, 13 miles

north of Gilroy, and 15 miles inland from the Pacific coast. Lying in a roughly 4-mile wide southern extension of the Santa Clara Valley, it is bounded by the Santa Cruz Mountains to the west and the Diablo Range to the east. Due to the moderating influence of the Pacific Ocean, the City enjoys a mild, Mediterranean climate. Summer months are characterized by coastal fog which arrives from the ocean around 10 p.m. and dissipates the next morning by 10 a.m. Winter months have many sunny and partly cloudy days, with frequent breaks between rainstorms.

H-2

Population The following table lists population estimates for the County, the City, and the other

major cities in the County as of January 1 each year for the last five calendar years.

COUNTY OF SANTA CLARA, CITY OF MORGAN HILL Population Estimates

Calendar Years 2009 through 2013

Area 2009 2010 2011 2012 2013 Total County 1,767,204 1,781,427 1,794,337 1,813,696 1,842,254 Total Unincorporated 92,075 89,926 85,887 86,230 87,100 Campbell 39,032 39,345 39,610 39,820 40,404 Cupertino 57,289 58,084 58,665 58,931 59,620 Gilroy 48,627 48,853 49,316 50,081 51,544 Los Altos 28,376 28,791 29,136 29,414 29,792 Los Altos Hills 7,892 7,935 7,969 8,015 8,264 Los Gatos 29,182 29,359 29,613 29,808 30,247 Milpitas 66,392 66,672 66,637 66,864 67,894 Monte Sereno 3,328 3,344 3,360 3,368 3,420 Morgan Hill 37,653 37,865 38,255 39,067 40,079 Mountain View 73,074 73,958 74,618 75,157 76,260 Palo Alto 63,496 64,352 64,853 65,443 66,368 San José 937,965 946,954 957,369 969,876 984,299 Santa Clara 114,795 116,184 117,998 118,632 120,284 Saratoga 29,815 29,940 30,153 30,316 30,706 Sunnyvale 138,213 139,865 140,898 142,674 145,973

Source: California Department of Finance, Demographic Research Unit.

H-3

Industry and Employment The District is part of the San Jose Sunnyvale Santa Clara Metropolitan Statistical Area

(“MSA”), which is comprised of Santa Clara and San Benito Counties. The unemployment rate in the San Jose-Sunnyvale-Santa Clara MSA was 6.8% in August 2013, down from a revised 7.2% in July 2013, and below the year-ago estimate of 8.7%. This compares with an unadjusted unemployment rate of 8.8% for California and 7.3% for the nation during the same period. The unemployment rate was 8.5% in San Benito County, and 6.7% in Santa Clara County.

Unemployment rates are not available for the City.

SAN JOSE SUNNYVALE SANTA CLARA MSA Civilian Labor Force, Employment and Unemployment

Calendar Years 2008 through 2012 Annual Averages

2008 2009 2010 2011 2012

Civilian Labor Force (1)(2) 895,300 900,500 907,700 920,000 937,600 Employment 840,900 802,200 806,300 828,200 857,300 Unemployment 54,400 98,300 101,400 91,800 80,300 Unemployment Rate 6.1% 10.9% 11.2% 10.0% 8.6% Wage and Salary Employment: (3) Agriculture 6,100 5,600 5,200 5,000 4,900 Mining and Logging 300 200 200 200 200 Construction 44,200 34,400 32,200 31,600 34,900 Manufacturing 168,000 155,800 153,500 157,400 157,500 Wholesale Trade 39,800 35,600 34,900 33,900 34,900 Retail Trade 84,400 78,800 78,800 81,800 83,700 Transportation, Warehousing, Utilities 13,500 12,100 12,000 12,100 12,900 Information 42,300 41,600 43,900 48,400 50,200 Finance and Insurance 19,900 18,300 18,300 19,400 20,200 Real Estate and Rental and Leasing 14,400 13,200 12,800 13,000 13,500 Professional and Business Services 178,900 161,400 162,000 168,600 180,700 Educational and Health Services 108,200 109,300 112,700 115,500 118,500 Leisure and Hospitality 78,100 74,900 74,900 77,400 82,000 Other Services 25,400 24,500 24,300 24,600 24,600 Federal Government 11,000 10,800 10,700 10,100 9,800 State Government 7,500 6,800 6,400 6,400 6,400 Local Government 79,400 78,900 77,300 76,100 75,300 Total all Industries (4) 921,000 862,100 860,200 881,400 910,100 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic

workers, and workers on strike. March 1, 2011 benchmark. (2) Civilian Labor Force numbers for years 2006-2008 will be recalculated by the State of California Employment Development

Department. (3) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic

workers, and workers on strike. (4) Totals may not add due to rounding. Source: State of California Employment Development Department.

H-4

Largest Employers The following table lists the largest manufacturing and non-manufacturing employers

within the City as of 2012:

CITY OF MORGAN HILL Principal Employers

2012

Employer Name

No. of Employees

% of City Employment

Morgan Hill Unified School District 765 4.81% Anritsu Company 499 3.13 Specialized Bicycle 292 1.83 Flextronics International 286 1.80 Paramit 269 1.69 Fox Racing 243 1.53 Infineon Technologies, North America Corp. 228 1.43 Wal-Mart Supercenter # 5766 170 1.12 Lusamerica Foods Inc. 170 1.07 Extreme Learning 148 0.93 Comcast Cable Communications 147 0.92 Mission Bell Mfg., Inc. 147 0.92 Target Store # T2252 144 0.90 Young’s Market Company, LLC 134 0.84 Covenant Care MH LLC 124 0.78 Safeway # 1455 123 0.77 Safeway # 1891 110 0.69 Gryphon Financial Group 104 0.65 24 Hour Fitness 101 0.63 TenCate Advanced Composites 99 0.62 The Home Depot # 7572 99 0.62 Sakata Seed America, Inc. 91 0.57

Source: City of Morgan Hill Comprehensive Annual Financial Report for Fiscal Year 2011-12.

H-5

The following table lists the largest manufacturing and non-manufacturing employers within the County as of 2013:

COUNTY OF SANTA CLARA

Largest Employers January 2013

(In Alphabetical Order)

Employer Name Location Industry Aaa-Affordable Tutoring Santa Clara Tutoring Adobe Systems Inc San Jose Publishers-Computer Software (Mfrs) Advanced Micro Devices Inc Sunnyvale Computers-System Designers & Consultants Apple Inc Cupertino Computers-Electronic-Manufactu Cafe Adobe San Jose Full-Service Restaurant California's Great America Santa Clara Amusement Places Christopher Ranch LLC Gilroy Garlic (Mfrs) Fine Pitch Milpitas Solar Energy Equipment-Manufacturers Hewlett-Packard Cupertino Computers-Electronic-Manufactu Hewlett-Packard Co Palo Alto Computers-Electronic-Manufactu Hp Pavillion At San Jose San Jose Stadiums Arenas & Athletic Fields Intel Corp Santa Clara Semiconductor Devices (Mfrs) Kaiser Permanente San Jose Hospitals Kaiser Permanente Medical Ctr San Jose Hospitals Lockheed Martin Corp San Jose Aerospace Industries (Mfrs) Lockheed Martin Space Systems Sunnyvale Satellite Equipment & Systems-Mfrs Microsoft Corp Mountain View Computer Software-Manufacturers NASA Mountain View Federal Government-Space Research/Tech Net App Inc Sunnyvale Computer Storage Devices (Mfrs) Philips Lumileds Lighting Co San Jose Lighting Fixtures-Supplies & Parts-Mfrs San Jose State San Jose Schools-Universities & Colleges Academic Santa Clara Valley Med Ctr San Jose Hospitals Silicon Valley Sports & Entrtn San Jose Ticket Service Stanford Univ School Medicine Stanford Schools-Medical VA Medical Ctr-Palo Alto Palo Alto Hospitals

Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, 2013 1st edition.

H-6

Effective Buying Income “Effective Buying Income” is defined as personal income less personal tax and nontax

payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.”

The following table summarizes the total effective buying income for the City, the County, the State of California and the United States for the period 2008 through 2012.

CITY OF MORGAN HILL AND SANTA CLARA COUNTY EFFECTIVE BUYING INCOME

As of January 1, 2008 through 2012

Year

Area

Total Effective Buying Income (000’s Omitted)

Median Household Effective

Buying Income

2008 City of Morgan Hill $ 1,186,475 $75,281 Santa Clara County 53,987,635 68,929 California 832,531,445 48,952 United States 6,443,994,426 42,303





Source: The Nielsen Company (US), Inc.

H-7

Commercial Activity In 2009, the State Board of Equalization converted the business codes of sales and use

tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 is not comparable to that of prior years. A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table.

Total taxable sales during the first two quarters of calendar year 2012 in the City were

reported to be $315.6 million, a 22.6% increase over the total taxable sales of $257.4 million reported during the first two quarters of calendar year 2011. Annual figures are not yet available for 2012.

CITY OF MORGAN HILL

Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions Calendar Years 2007 through 2011 (Dollars in Thousands)

Retail Stores Total All Outlets

Number

of Permits

Taxable

Transactions

Number

of Permits

Taxable

Transactions 2007 469 $439,873 1,160 $583,307 2008 500 414,541 1,212 531,210 2009 (1) 650 339,751 1,136 420,506 2010 (1) 662 370,765 1,158 467,096 2011 (1) 647 422,627 1,142 539,548

(1) Data for retail stores not comparable to prior years. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

Total taxable sales during the first two quarters of calendar year 2012 in the County

were reported to be $17.2 billion, an 8.0% increase over the total taxable sales of $15.9 billion reported during the first two quarters of calendar year 2011. Annual figures are not yet available for 2012.

COUNTY OF SANTA CLARA

Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions Calendar Years 2007 through 2011 (Dollars in Thousands)

Retail Stores Total All Outlets

Number

of Permits

Taxable

Transactions

Number

of Permits

Taxable

Transactions 2007 20,480 $20,790,119 47,651 $33,633,448 2008 20,603 19,313,313 47,253 32,274,306 2009 (1) 26,695 16,385,238 43,396 27,427,709 2010 (1) 27,215 17,695,858 43,583 30,523,322 2011 (1) 27,252 19,419,542 43,390 33,431,217

(1) Data for retail stores not comparable to prior years. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

H-8

Construction Activity

Construction activity in the City and the County for the past five years for which data is

available is shown in the following tables.

CITY OF MORGAN HILL Building Permit Valuation

For Calendar Years 2008 through 2012 (Dollars in Thousands)

2008 2009 2010 2011 2012

Permit Valuation New Single-family $12,980 $6,207 $32,718 $28,539 $61,985 New Multi-family 0 0 7,987 0 23,709 Res. Alterations/Additions 4,812 3,115 5,094 8,881 2,058

Total Residential 17,792 9,322 45,798 37,420 87,752 New Commercial 4,456 0 0 7,250 8,866 New Industrial 0 0 0 0 1,437 New Other 3,545 2,983 3,910 0 0 Com Alterations/Additions 7,370 10,520 6,323 4,739 4,080

Total Nonresidential 15,370 13,502 10,233 11,989 14,383 New Dwelling Units Single Family 57 23 108 97 235 Multiple Family 0 0 49 0 190 TOTAL 57 23 157 97 425 Source: Construction Industry Research Board, Building Permit Summary.

SANTA CLARA COUNTY Building Permit Valuation

For Calendar Years 2008 through 2012 (Dollars in Thousands)

2008 2009 2010 2011 2012

Permit Valuation New Single-family $382,423 $245,033 $307,367 $366,126 $678,169 New Multi-family 302,105 74,466 457,924 315,853 558,544 Res. Alterations/Additions 366,601 259,190 320,583 392,229 288,105

Total Residential 1,051,129 578,690 1,085,874 1,074,209 1,524,818 New Commercial 489,101 215,434 267,010 228,075 745,469 New Industrial 48,565 0 33,862 68,701 22,482 New Other 389,032 213,976 119,683 47,729 19,197 Com Alterations/Additions 987,855 758,366 735,060 1,122,235 1,115,633

Total Nonresidential 1,914,552 1,187,776 1,155,615 1,466,740 1,902,781 New Dwelling Units Single Family 1,254 667 826 978 1,432 Multiple Family 2,417 450 3,627 2,234 4,245 TOTAL 3,671 1,117 4,453 3,212 5,677 Source: Construction Industry Research Board, Building Permit Summary.