NEW ISSUE NO RATING In the opinion of· Quint & Thimmig LLP, San Francisco, CalifOrnia, Bond Counsel, subject, however, to certain qualifications described herein, under existing law, interest on the Bonds is excludablefrom gross income of the owners thereoffor federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but is taken into account in computing an adjustment used in determining the fi?.deral alternative minimum taxjOr certain corporations. In the jitrther opinion of.Bond Counsel, such interest is exempt from California personal income taxes. See "LEGAL MATTERS - Tax Matters" herein. CITY OF PALMDALE LIMITED OBLIGATION REFUNDING BONDS lOTH STREET WEST ASSESSMENT DISTRICT NO. 88-1 (REASSESSMENT AND REFUNDING OF 2005), $8,675,000 SERIES A $3,436,684 SUBORDINATE SERIES B Dated: Date of Issuance Due: September 2, as shown below The Series A Bonds and the Subordinate Series B Bonds (collectively, the "Bonds") are being issued by the City of Palmdale, California (the "City") pursuant to a Fiscal Agent Agreement, dated as of July 1, 2005 (the "Fiscal Agent Agreement"), between the City and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent") and the Refunding Act of 1984 for 1915 Improvement Bonds, for the following purposes: (i) To refund a portion of the City's outstanding Limited Obligation Improvement Bonds, City of Palmdale 10th Street West Assessment District No. 88-1 Series 1989-A (the "Prior Assessment Bonds"). The City will use proceeds of special tax bonds to be concurrently issued by the City for and on behalf of its Community Facilities District No. 05-1 (Trade and Commerce Area) ("CFD 05-1") to refund the remaining Prior Assessment Bonds. (ii) To make an initial deposit into a debt service reserve fund for the Series A Bonds (there is no debt service reserve fund for the Subordinate Series B Bonds). (iii) To pay certain costs of issuance associated with the Bonds. The Series A Bonds will be issued in the denominations of $5,000 or any integral multiple thereof, and the Subordinate Series B Bonds will be issued in the denominations of$250,000 or any integral multiple of$5,000 in excess thereof (except that one Subordinate Series B Bond may be in an odd amount and except as otherwise described in this Official Statement). Interest on the Bonds is payable on March 2, 2006 and semiannually thereafter on September 2 and March 2 each year. The Series A Bonds will be initially issued only in book-entry form and registered to Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DIC"), which will act as securities depository of the Series A Bonds. Principal and interest (and premium, if any) on the Series A Bonds is payable by the Fiscal Agent to DIC, which remits such payments to its Participants for subsequent distribution to the beneficial owners. As long as DIC acts as securities depository for the Series A Bonds, purchasers of beneficial interests in the Series A Bonds will not receive certificates evidencing their interests in the Series A Bonds and will not be paid dmctly by the Fiscal Agent. See "THE BONDS - Book-Entry Only System" and APPENDIX G - "DIC and the Book-Entry Only System" herein. The Subordinate Series B Bonds will not be issued in book-entry form. Principal and interest (and premium, if any) on the Subordinate Series B Bonds is payable by the Fiscal Agent to the registered o-wners thereof. Debt service due in each Bond Year on the Bonds will be paid from special assessments ("Reassessments") levied in the City's 10th Street West Assessment District No. 88-1 (the "District"). Although the Fiscal Agent Agreement provides that debt service on the Series A Bonds will be paid from available funds before such funds are used to make payments on the Subordinate Series B Bonds, the Reassessments used to pay both series of Bonds are secured by a single lien on each parcel of taxable property in the District. The City will establish a debt service reserve fund for the Series A Bonds under the Fiscal Agent Agreement, but will not establish a debt service reserve fund for the Subordinate Series B Bonds. The Subordinate Series B Bonds are subject to restrictions on transfer. See ""THE BONDS -Payment, Registration, Transfer and Exchange of Bonds" and "'SPECIAL RISK FACTORS -Transfer Restrictions". The Bonds are subject to redemption prior to maturity as described herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF LOS ANGELES, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. MATURITY SCHEDULE (see inside cover) This cover page contains certain information for quick reference only. /tis not a summary ofthe issue. Potential investors must read the entire Official Statement to obtain information essential to the making ofan informed investment decision with respect to the Bonds. Investment in the Bonds involves risks which may not be appropriate for some investors. See "SPECIAL RISK FACTORS" for a discussion of special risk factors that should be considered in evaluating the investment qualiry of the Bonds. The Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their legality by Quint & Thimmig LLP, San Francisco, California, Bond Counsel. In addition, certain legal matters will be passed upon for the City by the City Attorney. Jones Hall, A Professional Law Corporation, San Francisco, California, is acting as disclosure counsel to the City. It is anticipated that the Bonds in definitive form will be available for delivery on or about August 2, 2005. STONE & YOUNGBERG LLC Dated: June 30, 2005. MATURITY SCHEDULE

(Base CUSIP': 69672H)

Series A Bonds

Maturity Principal lnterest (September 2) Amount Rate Price CUSIPNo.' 2006 $ 765,000.00 5.000% 101.578 DWI 2007 835,000.00 5.000 102.580 DX9 2008 875,000.00 4.625 102.229 DY7 2009 920,000.00 4.625 102.329 DZ4 2010 960,000.00 4.625 101.694 EA8 2011 1,005,000.00 4.750 101.846 Ell6 2012 1,050,000.00 4.875 102.249 EC4 2013 1,105,000.00 4.875 101.835 ED2 2014 1,160,000.00 5.000 102.193 EEO

Subordinate Series B Bonds

$3,436,684 5.75% Term Subordinate Series B Bond due September 2, 2014, Price: 59.146 CUSIPt No. EF 7

r Copyright 2003-2005, American Bankers Association. CUSIP data herein is provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CITY OF PALMDALE

CITY COUNCIL

James C. Ledford, Jr., Mayor Mike Dispenza, Mayor Pro Tem Steven D. Hofbauer, Councilmember Richard Loa, Councilmember James A. Root, Council member

CITY STAFF

Robert W. Toone, Jr., City Manager Stephen Williams, Assistant City Manager Betsy St. John, Director of Finance Leon Swain, Director of Public Works Matthew Ditzhazy, City Attorney Victoria L. Hancock, CMC, City Clerk

PROFESSIONAL SERVICES

BOND COUNSEL Quint & Thimmig LLP San Francisco, California

DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California

FINANCIAL ADVISOR Northcross, Hill & Ach, Inc. Petaluma, California

REASSESSMENT ENGINEER NBS Government Finance Group Temecula, California

FISCAL AGENT U.S. Bank National Association Los Angeles, California

VERIFICATION AGENT Grant Thornton LLP San Francisco, California

APPRAISER (1 parcel only) Valentine Appraisal & Associates Santa Clarita, California (THIS PAGE INTENTIONALLY LEFT BLANK) CITY OF PALMDALE Los Angeles County, CA

'-'""

TABLE OF CONTENTS

INTRODUCTION ...... 1 The City ...... l The District and the Prior Assessment Bonds ...... 1 The Reassessments and Refinancing of the Prior Assessment Bonds ...... 2 Sources of Payment for the Bonds ...... 3 Subordinate Nature of Subordinate Series B Bonds; No Reserve Fund ...... 3 Description of the Bonds...... 3 Professionals Involved in the Offering ...... 4 Authority for Issuance of the Bonds ...... 4 Continuing Disclosure ...... 5 PLAN OF REFINANCING ...... 5 Refunding of the Prior Assessment Bonds ...... 5 Estimated Sources and Uses of Funds ...... 6 Ongoing Efforts to Resolve Tax and Assessment Delinquencies and Bond Defaults ...... 7 THEBONDS ...... 7 General Provisions ...... 7 Authority for Issuance ...... 8 Estimated Debt Service Schedule ...... 9 Redemption ...... 10 Payment, Registration, Transfer and Exchange of Bonds ...... 11 Book-Entry Only System ...... 12 SECURITY FOR THE BONDS ...... 12 Reassessments ...... 12 Redemption Fund ...... 13 Covenant to Commence Foreclosure Proceedings ...... 14 Sales of Tax Defaulted Property Generally ...... 15 Priority of Liens ...... 15 Reserve Fund for the Series A Bonds Only ...... 16 Limited Obligations of the City Upon Delinquency ...... 17 No Acceleration ...... 17 Limitation on Tenders of Bonds for Payments of Reassessments ...... 17 THE DISTRICT ...... 17 Background ...... 17 Entitlements for Development of Undeveloped Reassessment Parcels ...... 19 Methods of Assessment and Reassessment Spread ...... 20 Property Values ...... 20 Value to Lien Ratios ...... 22 Assessment Installment Delinquencies ...... 30 SPECIAL RISK FACTORS ...... 32 Subordinate Status of Subordinate Series B Bonds; Priority of Liens ...... 32 Depletion of Reserve Fund ...... 32 Foreclosure and Sale Proceedings ...... 32 Factors Affecting Parcel Value and Aggregate Values ...... 33 Other Possible Claims Upon the Value of a Reassessment Parcel ...... 35 Bankruptcy Proceedings ...... 36 Payments by FDIC ...... 36 Proposition 218 ...... 37 Payment of the Reassessment Not a Personal Obligation ...... 38 Limited City Obligation to Pay Debt Service ...... 39 No Acceleration ...... 39 Transfer Restrictions ...... 39 Potential Conflicts of Interest ...... 39

-I- Tax Matters ...... 40 LEGAL MATTERS ...... 40 Tax Matters ...... 40 Absence of Litigation ...... 40 Legal Opinion ...... 41 VERIFICATION ...... 41 MISCELLANEOUS ...... 41 No Rating ...... 41 Underwriting ...... 41 Additional Information...... 42

APPENDIX A - General Information About the City of Palmdale ...... A-1 APPENDIX B - Form of Bond Counsel Opinion ...... B-1 APPENDIX C - Form of Continuing Disclosure Certificate ...... C-1 APPENDIX D - Reassessment Diagram ...... D-1 APPENDIX E-Table of Value-to-Lien Ratios ...... E-1 APPENDIX F - Summary of Fiscal Agent Agreement ...... F-1 APPENDIX G - DTC and the Book-Entry Only System ...... G-1 APPENDIX H - Complete Appraisal Summary Report...... H-1 APPENDIX I - Form of Investor Letter ...... I-1

-11- GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offerin!{ May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the City or the Undenvriter to give any information or to make any representations with respect to the Bonds other than as 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 City or the Undenvriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are suOject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the City, the District, any other parties described in this Official Statement, or in the condition of property within the District since the date of this Official Statement.

Use of this 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 with the purchasers of the Bonds.

Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness.

The Undenvriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Undenvriter does not guarantee the accuracy or completeness of such information.

Document References and Sunnnaries. All references to and summaries of the Fiscal Agent Agreement or other documents contained in this Official Statement are subject to the provisions of those documents and do not purport to be complete statements of those documents.

Stabilization of and Changes to Offerin!{ Prices. The U ndenvriter may overallot or take other steps that stabilize or maintain the market price of the Bonds at a level above that which might othenvise prevail in the open market. If commenced, the Undenvriter may discontinue such market stabilization at any time. The Undenvriter may offer and sell the Bonds to certain dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated on the cover page of this Official Statement, and those public offering prices may be changed from time to time by the Undenvriter.

Bonds are Exempt from Securities Laws Registration. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.

Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute "fonvard-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27 A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ANY EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.

-111- (THIS PAGE INTENTIONALLY LEFT BLANK) OFFICIAL STATEMENT

CITY OF PALMDALE LIMITED OBLIGATION REFUNDING BONDS lOTH STREET WEST ASSESSMENT DISTRICT NO. 88-1 (REASSESSMENT AND REFUNDING OF 2005), SERIES A AND SUBORDINATE SERIES B $8,675,000 SERIES A $3,436,684 SUBORDINATE SERIES B

INTRODUCTION

The purpose of this Official Statement, which includes the cover page and Appendices hereto (the 'Official Statement"), is to provide certain information concerning the sale and issuance of the City of Palmdale Limited Obligation Refunding Bonds, 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Series A (the "Series A Bonds") and Subordinate Series B (the "Subordinate Series B Bonds," and together with the Series A Bonds, the "Bonds").

This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement.

The City

The City encompasses approximately 104 square miles within the northeast portion of the Antelope Valley in southern California, and had a 2004 population of approximately 131,300. Located approximately 60 miles north of Los Angeles, the City is situated in the high desert, at an elevation of 2,600 feet. The City was incorporated on August 24, 1962 as a general law city and uses the Council-Administrator form of government. See "APPENDIX A - General Information About the City of Palmdale."

The District and the Prior Assessment Bonds

The City formed the 10th Street West Assessment District No. 88-1 (the "District") on March 9, 1989 pursuant to the Municipal Improvement Act of 1913, Division 12 of the California Streets and Highways Code (the "Formation Act"). Pursuant to a Resolution of Intention No. 89-21, adopted by the City Council of the City on January 12, 1989 (the "Prior Resolution of Intention"), the City confirmed unpaid assessments (the "Unpaid Assessments") upon the parcels in the District.

On July 27, 1989, the City issued sr,ecial assessment bonds entitled "Limited Obligation Improvement Bonds, City of Palmdale lOt Street West Assessment District No. 88-1 Series 1989- A", dated July 1, 1989, in the initial aggregate principal amount of $34,834,852 (the "Prior Assessment Bonds") pursuant to the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code) (the "1915 Act''). The Prior Assessment Bonds were issued to finance improvements of benefit to the Palmdale Trade and Commerce Center, a

-1- commercial area that is currently partially developed and zoned for business park, light industrial, regional and community commercial uses.

The District originally encompassed 61 assessable parcels with unpaid assessments on approximately 592.41 net assessable acres (632.33 gross acres). Since then, assessments on approximately 17 4 acres have been paid in full, leaving approximately 399 net assessable acres (divided into 131 parcels) subject to the lien of the Unpaid Assessments.

The Reassessments and Refinancing of the Prior Assessment Bonds

For the purpose of refunding the Prior Assessment Bonds, the City is undertaking the following:

1. Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds (the "Act"), Resolution No. CC 2005-062 adopted by the City Council of the City on March 28, 2005 (the "Resolution of Intention"), and Resolution No. CC 2005-145 adopted by the City Council of the City on June 13, 2005 (the "Resolution of Issuance"), the City is levying reassessments (along with the Assessments, as defined immediately below, the "Reassessments") on 87 parcels in the District (the "Reassessment Parcels") to supplant a portion of the remaining Unpaid Assessments (other than "Assessments", which term is defined in the Fiscal Agent Agreement as the portion of the Unpaid Assessments authorized to be levied for Fiscal Year 2004-05 which were delinquent as of May 9, 2005, excluding any such delinquent Unpaid Assessments on land located in CFD 05-1, as defined below, which are not being supplanted), and issuing the Bonds upon the security of such Reassessments (including any Assessments). The Reassessment Parcels constitute (A) 4 parcels in the District with multiple years' outstanding delinquencies with respect to the payment of Unpaid Assessments, all of which parcels are undeveloped and (B) 83 parcels in the District with no prior years' Unpaid Assessment delinquencies outstanding (i.e., no delinquencies outstanding with respect to Unpaid Assessment installments prior to the December 10, 2004 installment), all of which parcels are developed. Of the 83 parcels with no prior years' assessment delinquencies outstanding, 3 have prior years' County ad valorem tax delinquencies outstanding and 10 of the parcels have 2004-05 delinquencies in the payment of Unpaid Assessments. See "THE DISTRICT - Background" below.

2. Pursuant to the Mello-Roos Community Facilities Act of 1982 (the "Mello-Roos Act"), the City has formed its Community Facilities District No. 05-1 (Trade and Commerce Area) (the "CFD 05-1") and is concurrently issuing special tax bonds (the "CFD 05-1 Bonds") for the purpose, among other things, of eliminating Unpaid Assessments on the remaining 44 parcels in the District (the "CFD 05-1 Parcels") and refunding the remaining portion of the outstanding Prior Assessment Bonds not refunded with proceeds of the Bonds. The CFD 05-1 Parcels are undeveloped and have multiple prior years' assessment delinquencies outstanding.

See "PLAN OF REFINANCING" herein.

-2- Sources of Payment for the Bonds

The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of July 1, 2005 (the "Fiscal Agent Agreement''), between the City and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"). The Bonds are limited obligation refunding improvement bonds of the City. The Bonds are issued upon and are secured by the Reassessments (including any Assessments) against the Reassessment Parcels together with interest thereon. The unpaid Reassessments together with interest thereon constitute a trust fund for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are also secured by the monies in the Redemption Fund, and the Series A Bonds are secured by moneys in the Reserve Fund.

The City's obligation to advance funds to pay debt service on the Series A Bonds in the event Reassessment installment collections are insufficient is limited to amounts on deposit from time to time in the Series A Reserve Fund, and if so advanced will reduce the Series A Reserve Fund by the amount of the funds advanced.

See ''SECURITY FOR THE BONDS" herein.

Subordinate Nature of Subordinate Series B Bonds; No Reserve Fund

The Subordinate Series B Bonds are payable from Reassessments collected by the City each Bond Year on a basis subordinate to the Series A Bonds. Although the Fiscal Agent Agreement provides that debt service due in each Bond Year on the Series A Bonds will be paid from Reassessments collected by the City before it is paid on the Subordinate Series B Bonds, the Reassessments are secured by a single lien on each parcel of taxable property in the District.

The City has not established a debt service reserve fund for the Subordinate Series B Bonds.

Description of the Bonds

Payments. Interest is payable on March 2, 2006, and semiannually thereafter on September 2 and March 2 each year. Principal of and premium, if any, on the Bonds shall be payable by the Fiscal Agent. See "THE BONDS - General Provisions" herein.

Denominations. The Series A Bonds will be issued as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof, except that one Series A Bond may be in an odd amount.

The Subordinate Series B Bonds will be issued as fully registered bonds without coupons in the denomination of $250,000 or any integral multiple of $5,000 in excess thereof, except that one Subordinate Series B Bond may be in an odd amount and, to the extent that the outstanding principal amount of the Subordinate Series B Bonds is less than $250,000, one Subordinate Series B Bond may be in a denomination equal to the outstanding principal amount of the Subordinate Series B Bonds.

Redemption. The Bonds are subject to redemption on any March 2 or September 2, at a redemption price equal to the principal amount to be redeemed, plus accrued interest to the redemption date, together with a premium. See "THE BONDS - Redemption" herein.

-3- Registration, transfers and exchanges. The Series A Bonds will be issued 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 actual purchasers of the Series A Bonds (the "Beneficial Owners") under the book-entry system maintained by DTC. See "THE BONDS - Payment, Registration, Transfer and Exchange of Bonds" and "Book-Entry Only System." The Subordinate Series B Bonds will not be issued in book-entry form.

The Subordinate Series B Bonds may not be transferred unless the Fiscal Agent receives from the transferee an executed Investor's Letter in substantially the form of Appendix I (with only such changes approved in writing by the Director of Finance in his/her sole and absolute discretion). In any event, Subordinate Series B Bonds may only be transferred in denominations of at least $250,000; or, if as a result of redemptions, there are less than $250,000 principal amount of Subordinate Series B Bonds then outstanding, only if all Series B Bonds then owned by a Series B Bond owner are being transferred. See "SPECIAL RISK FACTORS - Transfer Restrictions".

Professionals Involved in the Offering

The following professionals are participating in this financing:

• Quint & Thimmig LLP, San Francisco, California, is serving as Bond Counsel to the City.

• Jones Hall, A Professional Law Corporation, San Francisco, California, is acting as Disclosure Counsel to the City.

• Northcross, Hill & Ach, Inc, Petaluma, California, is serving as financial advisor to the City.

• U.S. Bank, National Association, Los Angeles, California, will serve as the paying agent, registrar, authentication and transfer agent for the Bonds and will perform the functions required of it under the Fiscal Agent Agreement.

• NBS Government Finance Group, of Temecula, California, is acting as Reassessment Engineer and will act as initial administrator to the City in connection with annual reassessments, and as dissemination agent for the City under the Continuing Disclosure Certificate described below.

• Valentine Appraisal & Associates, Santa Clarita, California, prepared the appraisal of the parcel responsible for the greatest single Reassessment, the parcel owned by Acton Crown Valley Road, Inc. (the "Acton Crown Valley Parcel").

• Grant Thornton LLP, San Francisco, California, will act as verification agent with respect to the escrow established to defease the Prior Assessment Bonds.

Authority for Issuance of the Bonds

The Bonds are issued pursuant to the Act, the Resolution of Intention, the Resolution of Issuance, and the Fiscal Agent Agreement. See "THE BONDS - Authority for Issuance" herein.

-4- Continuing Disclosure

The City will covenant in a continuing disclosure certificate, the form of which is set forth in "APPENDIX C - Form of Continuing Disclosure Certificate" (the "Continuing Disclosure Certificate"), for the benefit of holders and beneficial owners of the Bonds, to provide certain financial information and operating data relating to the District and the Bonds (the "Annual Report") by not later than seven months after the end of the City's Fiscal Year, resulting in a deadline of January 31 of each year, beginning with an initial deadline of January 31, 2006. The Continuing Disclosure Certificate also requires the City to provide notices of the occurrence of certain enumerated events, if material. The initial Dissemination Agent under the Continuing Disclosure Certificate will be NBS Government Finance Group.

The covenants of the City in the Continuing Disclosure Certificate will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5) (the "Rule").

A default under the Continuing Disclosure Certificate will not, in itself, constitute a default under the Fiscal Agent Agreement, and the sole remedy under the Continuing Disclosure Certificate in the event of any failure of the City or the Dissemination Agent to comply with the terms of the Continuing Disclosure Certificate will be an action to compel specific performance.

The City has never failed to comply, in any material respect, with an undertaking under the Rule.

PLAN OF REFINANCING

Refunding of the Prior Assessment Bonds

The purpose of the Bonds is to provide funds which, along with other moneys related to the Prior Assessment Bonds and proceeds of the CFD 05-1 Bonds, will be deposited into an escrow fund (the "Escrow Fund") held by the Fiscal Agent. Funds in the Escrow Fund will be invested in federal securities, the principal of and interest on which will be used to (i) pay principal of and interest due on the Prior Assessment Bonds on September 2, 2005 and (ii) redeem the remaining outstanding principal of the Prior Assessment Bonds on September 2, 2005. See "VERIFICATION" below. Unpaid Assessments other than "Assessments" (which are defined in the Fiscal Agent Agreement as fiscal year 2004-05 delinquent Unpaid Assessments) will be eliminated either because they will be supplanted by Reassessments, refinanced by CFD 05-1 or otherwise waived by the City.

Certain moneys in the existing funds and accounts relating to the Prior Assessment Bonds will be applied to the redemption. See" - Estimated Sources and Uses of Funds" below.

Moneys in the Escrow Fund are not available to pay debt service on the Bonds.

-5- Estimated Sources and Uses of Funds

The proceeds to be received from the sale of the Bonds, together with other applicable sources necessary to accomplish the refunding of the Prior Assessment Bonds (including proceeds of the CFD 05-1 Bonds and moneys relating to the Prior Assessment Bonds), are estimated to be applied as follows:

ESTIMATED SOURCES AND USES

SOURCES

Series A Bonds Series B Bonds other Total Par Amount of the Bonds $8,675,000.00 $3,436,684.00 $12,111,684.00 Plus Funds Relating to the Prior Assessment Bonds 828,249.00 828,249.00 Plus Certain Proceeds of the CFD 05-1 Bonds $5,286,066.21 5,286,066.21 Plus/Less Original Issue Premium (Discount) 178,690.00 (1,404,021.04) (1,225,331.04) Less Undenvriter's Discount (151,812.50) (85,917.10) (237,729.60)

Total Sources $9,530, 126.50 $1,946,745.86 $5,286,066.21 $16,762,938.57

Series A Bonds Series B Bonds Deposit to Escrow Fund for Prior Assessment Bonds $8,746,098.30 $1,878,422.13 $5,286,066.21 $15,910,586.64 Deposit to Reserve Fund for the Series A Bonds 609,031.77 609,031.77 Deposit to Costs of Issuance Fund (1) 174 996.43 68,323.73 243,320.16

Total $9,530, 126.50 $1,946,745.86 $5,286,066.21 $16,762,938.57

(1) Costs of Issuance include legal fees, engineering fees, escrow verification fees, Gty administration fees, Fiscal Agent fees, financial advisory fees, printing costs, and other costs associated with issuance of the Bonds.

-6- Ongoing Efforts to Resolve Tax and Assessment Delinquencies and Bond Defaults

The refunding of the Prior Assessment Bonds is part of a larger effort by the City and a major property owner in the City (who is an affiliate of the Underwriter, see "SPECIAL RISK FACTORS - Potential Conflicts of Interest") to resolve ongoing tax and assessment delinquencies and bond defaults in two of the City's assessment districts, including the District.

Part of the City's ongoing workout efforts relate to unpaid assessments (the "AD 90-2 Assessments") in the City's 7th Street West Assessment District No. 90-2 ("Assessment District 90-2"); the unpaid 90-2 Assessments secure the City's Limited Obligation Improvement Bonds 7th Street West Assessment District No. 90-2, Series 1990-A (the "AD 90-2 Bonds").

The Prior Assessment Bonds and the AD 90-2 Bonds are currently in default with respect to payment of debt service as a result of delinquencies in the payment of assessment installments by property owners in the District and Assessment District No. 90-2.

Although there have been substantial assessment delinquencies in the District and debt service defaults with respect to the Prior Assessment Bonds, 83 of the 87 Reassessment Parcels constitute developed parcels in the District that currently have no delinquencies with respect to Unpaid Assessments levied in fiscal years prior to fiscal year 2004-05 (although 3 of the parcels with no prior years' delinquencies with respect to Unpaid Assessments have prior years' delinquencies with respect to County ad valorem property taxes and 10 of the parcels have 2004-05 delinquencies with respect to Unpaid Assessments). The parcels primarily responsible for the tax and assessment delinquencies and the debt service defaults with respect to the Prior Assessment Bonds are (i) 4 of the 87 Reassessment Parcels and (ii) 44 of the CFD 05-1 Parcels. See "THE DISTRICT - Background" below.

Fifty-two of the Reassessment Parcels are also in Assessment District 90-2; 4 of the Reassessment Parcels have prior years' delinquencies with respect to the AD 90-2 Assessments. All of the CFD 05-1 Parcels are in Assessment District 90-2 and have multiple years' delinquencies in the payment of AD 90-2 Assessments. The City believes it is not currently feasible to refinance the AD 90-2 Bonds. However, as described below in "SECURITY FOR THE BONDS - Priority of Liens", the lien of the AD 90-2 Assessments is subordinate to the lien of the Reassessments.

THE BONDS

General Provisions

The Bonds will be dated their date of issuance (the "Bond Date"), and will be issued in the aggregate principal amount set forth on the cover hereof. The Bonds will bear interest from the Bond Date at the rates per annum set forth on the inside cover page hereof, payable semiannually on each March 2 and September 2, commencing March 2, 2006 (each, an 'Interest Payment Date"), and will mature in the amounts and on the dates set forth on the cover page hereof.

The Series A Bonds will be issued as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof, except that one Series A Bond may be in an odd amount.

-7- The Subordinate Series B Bonds will be issued as fully registered bonds without coupons in the denomination of $250,000 or any integral multiple of $5,000 in excess thereof, except that one Subordinate Series B Bond may be in an odd amount and, to the extent that the outstanding principal amount of the Subordinate Series B Bonds is less than $250,000, one Subordinate Series B Bond may be in a denomination equal to the outstanding principal amount of the Subordinate Series B Bonds.

Principal of and premium, if any, on the Bonds are payable in lawful money of the United States of America upon surrender of the Bonds at the principal corporate trust office of the Fiscal Agent. Interest on the Bonds (including the final interest payment upon maturity or early redemption) is payable by check of the Fiscal Agent mailed by first class mail to the registered owners as shown on the Fiscal Agent's books as of the fifteenth day of the calendar month immediately preceding each interest payment date, or by wire transfer made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds delivered to the Fiscal Agent prior to the applicable Record Date.

Each Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated and registered as of an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated prior to February 16, 2006, in which event it shall bear interest from the Bond Date.

Authority for Issuance

The Bonds are issued pursuant to the Act, the Resolution of Intention, the Resolution of Issuance and the Fiscal Agent Agreement. The Bonds are issued upon and primarily secured by the Reassessments against the Reassessment Parcels within the District, together with interest thereon.

A Notice of Reassessment was recorded in the real property records of Los Angeles County on May 31, 2005.

The Bonds are issued pursuant to particular provisions of the Act which permit their authorization, issuance and sale without public hearing if three conditions are satisfied. The three conditions are summarized as follows:

(a) Each estimated annual installment of principal and interest on the Reassessment is less than the corresponding annual installment of principal and interest on the portion of the original assessment being superseded and supplanted by the same percentage for all Reassessment Parcels.

(b) The number of years to maturity of all the Bonds is not more than the number of years to the last maturity of the Prior Assessment Bonds.

(c) The principal amount of the Reassessment on each Reassessment Parcel is less than the unpaid principal amount of the portion of the original assessment being superseded and supplanted by the same percentage for each Reassessment Parcel.

The City Council, as part of the refunding proceedings, has made a finding that the three conditions are satisfied.

-8- Estimated Debt Service Schedule

The following table presents the debt service schedule for the Bonds, assummg no optional redemptions are made.

Year Series A Series A Series A Series B Series B Series B Ending Bonds Bonds Bonds Bonds Bonds Bonds Bonds September 2 Principal Interest Total Principal Interest Total Total

2006 $765,000.00 $453,063.54 $1,218,063.54 $287,973.40 $214,076.78 $502,050.18 $1,720, 113.72 2007 835,000.00 379,962.50 1,214,962.50 320,999.30 181,050.86 502,050.16 1,717,012.66 2008 875,000.00 338,212.50 1,213,212.50 339,456.80 162,593.40 502,050.20 1,715,262.70 2009 920,000.00 297,743.76 1,217,743.76 358,975.60 143,074.64 502,050.24 1,719,794.00 2010 960,000.00 255,193.76 1,215,193.76 379,616.60 122,433.54 502,050.14 1,717,243.90 2011 1,005,000.00 210,793.76 1,215,793.76 401,444.60 100,605.58 502,050.18 1,717,843.94 2012 1,050,000.00 163,056.26 1,213,056.26 424,527.70 77,522.52 502,050.22 1,715,106.48 2013 1, 105,000.00 111,868.76 1,216,868.76 448,938.00 53,112.18 502,050.18 1,718,918.94 2014 1, 160,000.00 58,000.00 1,218,000.00 474,752.00 27,298.24 502,050.24 1,720,050.24

Total $8,675,000.00 $2,267,894.84 $10,942,894.84 $3,436,684.00 $1,081,767.74 $4,518,451.74 $15,461,346.58

The City established the respective principal amounts of the Series A Bonds and the Subordinate Series B Bonds on the basis of the following assumptions:

(A) that 2 parcels would remain delinquent in the foreseeable future (and, therefore, the Subordinate Series B debt service should be equal to scheduled Reassessment installments attributable to these parcels):

• the Acton Crown Valley Parcel (which is the largest assessee, is vacant, and is responsible for prior years' and current year's delinquencies of Unpaid Assessments, AD 90-2 Assessments and County ad valorem property taxes) and

• the parcel shown on the County tax rolls as owned by Funland USA (the "Funland Parcel"),1 which is the ninth largest assessee, is developed with a family entertainment center, and is responsible for prior years' and current year delinquencies in the payment of County ad valorem taxes, Unpaid Assessments and AD 90-2 Assessments,

(B) that Reassessment installments payable with respect to the 85 remaining Reassessment Parcels, if paid as scheduled, would be sufficient to pay debt service on the Series A Bonds, although potential investors in the Series A Bonds should note the following:

• 2 of these parcels have prior years' delinquencies in the payment of Unpaid Assessments totaling approximately $10,784, including penalties and interest, all of which are being supplanted and reassessed in connection with issuance of the Bonds: the Reassessment Parcels owned by Samih Mouneimne (April 10, 2002 installment, penalties and interest

1 The owner of the Funland Parcel is listed on the County tax roll and in the various tables in this Official Statement as Daniel Alunad, who is the chief executive officer of Funland USA. The City was recently informed that the Funland Parcel was sold by Funland USA, although the City has not independently verified whether any such sale occurred or the terms of any such sale; delinquent Reassessments were not paid as a result of any such transfer.

-9- equal to $3, 998)1 and K Partners Palmdale LP (April 10, 2004 installment, penalties and interest equal to $6,786)2, and

• 10 of these parcels have 2004-05 delinquencies in the payment of Unpaid Assessments totaling approximately $150,352 including penalties and interest: the Reassessment Parcels owned by Pacific West Dermatology (April 10, 2005 installment, penalties and interest on 2 parcels totaling $22,527), Matavos and Kathleen Davoodian (December 10, 2004 and April 10, 2005 installment, penalties and interest totaling $16,092)3, PH Land Development (April 10, 2005 installment, penalties and interest totaling $4,527), Edward Greco (December 10, 2004 and April 10, 2005 installments, penalties and interest totaling $511)4 and Antelope Valley Mall (April 10, 2005 installment, penalties and interest on 5 parcels totaling $106,695)5. These Unpaid Assessments are referred to herein and in the Fiscal Agent Agreement as "Assessments" and were not supplanted by the Reassessments and remain obligations of the Reassessment Parcels.

Redemption

Optional Redemption. The Bonds, or any portion of the principal thereof in the principal amount of $5,000 or any integral multiple thereof, may be redeemed and paid in advance of maturity on any Interest Payment Date in any year by giving at least 30 days notice to the Owner thereof and by paying the principal amount thereof, plus interest to the date of redemption, unless sooner surrendered, in which event said interest will be paid to the date of payment, together with a redemption premium of 3%.

The Treasurer will notify the Fiscal Agent in writing of the Bonds to be called for redemption upon prepayment of Reassessments in amounts sufficient therefor, or whenever sufficient surplus funds are available therefor in the Redemption Fund. In the case of an optional redemption of the Bonds in part, the Fiscal Agent shall select Bonds for retirement among maturities as designated by the Treasurer in writing to the Fiscal Agent; provided that (A) no Subordinate Series B Bond may be called for redemption so long as any Series A Bonds are Outstanding, and (B) following the redemption of any Bonds, the remaining unpaid Reassessments are at least equal to the remaining amounts owed on the Bonds to remain Outstanding following such redemption. Within each annual series, the Fiscal Agent will select Bonds for retirement by lot in any manner that the Fiscal Agent determines.

Mandatory Sinking Fund Redemption of Subordinate Series B Bonds. The Outstanding Subordinate Series B Bonds are subject to mandatory redemption in part by lot, on September 2 in each year commencing September 2, 2006 from sinking fund payments made by the City

1 The Reassessment Parcel owned by Samih Mouneinme, which is developed with a McDonald's restaurant, is current in the payment of installments of Unpaid Assessments except for the April 10, 2002 installment. 2 K Partners Palmdale LP is developing a hotel on its Reassessment Parcel and has paid 2004-05 installments of Unpaid Assessments. 3 The Davoodians recently completed a payment plan with the City to bring prior years' delinquent installments of Unpaid Assessments current. The Davoodians are not current in the payment of County ad valoretn taxes, and have informed the City that, as a result of completing the payment plan, they were not currently able to pay the 2004-05 installments of Unpaid Assessments. 4 Edward Greco recently moved into a new medical office building on this property, and the City believes the County tax bills are being sent to an incorrect mailing address. 5 According to the County, Antelope Valley Mall paid its entire April 10, 2005 installment of County ad valorem taxes and Unpaid Assessments, but paid it after the April 10, 2005 deadline. As a result, Antelope Valley Mall owes penalties and interest, and the County has not forwarded to the City any amounts paid by Antelope Valley Mall. For purposes of showing value-to-lien relationships in this Official Statement, the Gty treats the April 10, 2005 installment as having been paid by Antelope Valley Mall.

-10- from the Redemption Fund, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on September 2 in the respective years, all as set forth in the following table; provided, however, if some but not all of the Subordinate Series B Bonds have been redeemed as described in "Optional Redemption" above, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of Subordinate Series B Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral multiples of $5,000 as determined by the Fiscal Agent, notice of which determination shall be given by the Fiscal Agent to the City.

Sinking Fund Payment Date Sinking Fund (September 2) Payment Amount 2006 $287,973.40 2007 320,999.30 2008 339,456.80 2009 358,975.60 2010 379,616.60 2011 401,444.60 2012 424,527.70 2013 448,938.00 2014 (maturity) 474,752.00

Redemption Notice. The Fiscal Agent Agreement provides that the Fiscal Agent shall cause notice of any redemption of Bonds to be mailed at least 30 days prior to the applicable redemption date to the respective Owners of any Assessment Bonds designated for redemption, at their addresses appearing on the Bond Register. The Fiscal Agent shall also cause notice of redemption to be mailed to the Securities Depositories and to one or more of the Information Services at least one day earlier than the giving of notice to the Owners as aforesaid; provided, however, such mailing to the Securities Depositories and Information Services shall not be a condition precedent to such redemption. The Fiscal Agent Agreement provides that, notwithstanding the foregoing, the failure to mail or of any person or entity to receive any redemption notice, or any defect in any notice of redemption, shall not affect the validity of the proceeding for the redemption of the Bonds.

Payment, Registration, Transfer and Exchange of Bonds

The Series A Bonds will be issued 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 actual purchasers of the Series A Bonds (the "Beneficial Owners") in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined herein) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Series A Bonds. See" - Book-Entry Only System" below.

The Subordinate Series B Bonds will not be issued in book-entry form. Principal and interest (and premium, if any) on the Subordinate Series B Bonds is payable by the Fiscal Agent to the registered owners thereof.

No transfers of Bonds shall be required to be made (i) fifteen days prior to the date established by the Fiscal Agent for selection of Bonds for redemption, (ii) with respect to a Bond

-11- after such Bond has been selected for redemption, or (iii) between a Record Date and the succeeding Interest Payment Date.

The Subordinate Series B Bonds may not be transferred unless the Fiscal Agent receives from the transferee an executed Investor's Letter in substantially the form of Appendix I (with only such changes approved in writing by the Director of Finance in his/her sole and absolute discretion). In any event, Subordinate Series B Bonds may only be transferred in denominations of at least $250,000; or, if as a result of redemptions, there are less than $250,000 principal amount of Subordinate Series B Bonds then outstanding, only if all Series B Bonds then owned by a Series B Bond owner are being transferred. See "SPECIAL RISK FACTORS - Transfer Restrictions".

Book-Entry Only System

DTC will act as securities depository for the Series A Bonds. The Series A Bonds will be executed and delivered as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully-registered certificate will be issued for each maturity of the Series A Bonds, each in the initial aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX G - "DTC and the Book-Entry Only System." References in this Official Statement to the owners or holders of the Series A Bonds means OTC, and not the beneficial owners of the Series A Bonds.

The Subordinate Series B Bonds will not be issued in book-entry form. Principal and interest (and premium, if any) on the Subordinate Series B Bonds is payable by the Fiscal Agent to the registered owners thereof in the manner provided in the Fiscal Agent Agreement.

SECURITY FOR THE BONDS

Reassessments

The Bonds are secured by a first pledge of all of the Reassessments and all moneys deposited in the Redemption Fund (other than the Administrative Expense Subaccount therein), and the Series A Bonds also are secured by a first pledge of the moneys in the Reserve Fund. Moneys in the Redemption Fund will be applied to the payment of amounts owing on the Series A Bonds prior to applying such moneys to the payment of amounts owing on the Subordinate Series B Bonds. See " - Redemption Fund" below. The Subordinate Series B Bonds are not secured by moneys in the Reserve Fund.

The Fiscal Agent Agreement defines "Reassessments" and "Assessments" as follows:

"Assessments" means the portion of the unpaid assessments authorized to be levied for Fiscal Year 2004-05 pursuant to proceedings commenced under the Prior Resolution of Intention on parcels in the District which were delinquent as of May 9, 2005, which assessments are not in any way supplanted by the Reassessments; but do not include any such delinquent assessments on land located in CFD 05-1.

"Reassessments" means, collectively, (a) the unpaid reassessments levied within the District by the City under the proceedings taken pursuant to the Act, the Formation Act and the Resolution of Intention, and (b) the unpaid Assessments.

The Reassessments and all moneys deposited into the Redemption Fund (except as otherwise provided in the Fiscal Agent Agreement) are dedicated in the Fiscal Agent

-12- Agreement to the payment of the principal of, and interest and any premium on, the Bonds as provided in the Fiscal Agent Agreement, in the Act and in the Improvement Bond Act of 1915 (the "Bond Law") until all of the Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose in accordance with the Fiscal Agent Agreement.

Amounts in the Improvement Fund (and improvements financed with moneys from the Improvement Fund), the Administrative Expense Subaccount of the Redemption Fund, and the Costs of Issuance Fund are not pledged to the repayment of the Bonds.

Although the unpaid Reassessments constitute fixed liens on the Reassessment Parcels, they do not constitute personal indebtedness of the owners of the Reassessment Parcels. Furthermore, there can be no assurance as to the ability of the owners to pay the unpaid Reassessments.

The unpaid Reassessments levied on the Reassessment Parcels will be collected in annual installments, together with interest on the declining balances, on the tax roll of the County of Los Angeles (the "County") on which general taxes on real property are collected, and the unpaid reassessments are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do general taxes, and the Reassessment Parcels are subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes. The annual reassessment installments together with interest are to be paid into the Redemption Fund which will be used to pay the principal of and interest on the Bonds as they become due.

The Bonds are not secured by the general taxing power of the City or the State or any political subdivision of the State, and neither the City nor the State nor any political subdivision of the State has pledged its full faith and credit for the payment thereof.

Redemption Fund

The Fiscal Agent Agreement establishes a Redemption Fund (and, within the Redemption Fund, a Prepayment Subaccount and an Administrative Expense Subaccount) to be held by the Fiscal Agent Redemption Fund. Moneys in the Redemption Fund will be held by the Fiscal Agent for the benefit of the City and the Owners of the Assessment Bonds, and shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds, as described below.

Disbursements. On each Interest Payment Date, the Fiscal Agent will withdraw from the Redemption Fund and pay to the Owners of the Bonds an amount equal to the principal of, and interest and any premium, then due and payable on the Bonds. If there are insufficient funds in the Redemption Fund to make the payments on the Bonds, the Fiscal Agent will apply available funds as follows:

First, to the payment of interest due on the Series A Bonds,

Second, to the payment of principal and any redemption premium due on the Series A Bonds (including any amounts due by reason of the redemption of Series A Bonds not otherwise paid from the Prepayment Subaccount),

Third, to the payment of interest due on the Subordinate Series B Bonds, and

Fourth, to the payment of any principal or premium due on the Subordinate Series B Bonds (including any amounts due by reason of the redemption of Subordinate

-13- Series B Bonds) not otherwise paid from the Prepayment Subaccount). Any scheduled sinking payment for the Subordinate Series B Bonds or any portion thereof not made as scheduled due to a shortfall in amounts available in the Redemption Fund will be added to the amount due for redemption on the next succeeding September 2.

Transfers from Reserve Fund for Series A Bonds. If the amount on deposit in the Redemption Fund on any Interest Payment Date is not sufficient to pay all amounts due on the Series A Bonds, the Fiscal Agent shall transfer from the Reserve Fund an amount necessary to cure such insufficiency with respect to the Series A Bonds (not to exceed the amount then on deposit in the Reserve Fund), and if, on any Interest Payment Date an insufficiency still exists with respect to amounts owing on the Series A Bonds, the Fiscal Agent shall apply the available funds to the payment of the Series A Bonds in the manner provided in the Bond Law, as directed by the City in writing. Past due payments of principal and interest shall continue to bear interest at the rate of interest on the Assessment Bonds. In the event of any delinquency in payment of the Assessment Bonds, such delinquency shall be paid from the first available moneys arising from the collection of delinquent Reassessments; provided that all such delinquencies with respect to the Series A Bonds shall be paid in full prior to the payment of any such delinquencies with respect to the Subordinate Series B Bonds.

Redemption of Bonds. Funds placed in the Prepayment Subaccount of the Redemption Fund shall be disbursed therefrom by the Treasurer to the Fiscal Agent for the call and redemption of the Bonds on the redemption date; provided that amounts in the Prepayment Subaccount shall be used to make payments on Series A Bonds called for redemption prior to the use of any such amounts to make payments on Subordinate Series B Bonds called for redemption.

Payment of Administrative Expenses. Funds placed in the Administrative Expense Subaccount of the Redemption Fund shall be remitted by the Fiscal Agent to the City upon receipt of an Officer's Certificate requesting a draw on amounts in such account, and shall be used by the City to pay the costs of the City in complying with the provisions of the Fiscal Agent Agreement and the administration of the District.

Credits and Rebate. Any earnings on amounts in the Redemption Fund not required to be disbursed as described above, shall be credited against Debt Service or, in the sole discretion of the City, applied to the call and redemption or defeasance of the Bonds; provided, however, that before any such credit shall be made, such earnings shall be available for the payment of any rebate that may be owed.

Covenant to Commence Foreclosure Proceedings

The Act provides that in the event any reassessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of the unpaid reassessment. In such an action, the real property subject to the unpaid reassessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory.

-14- However, in the Fiscal Agent Agreement, the City has covenanted to order, and cause to be commenced, and thereafter diligently prosecute an action in the superior court to foreclose the lien of any Reassessment or installment thereof which has been billed, but has not been paid. The Treasurer will notify the City Attorney of any such delinquency of which the Treasurer is aware, and the City Attorney will commence, or cause to be commenced, such foreclosure proceedings, including collection actions preparatory to the filing of any complaint. The following conditions will apply to the foreclosure proceedings which will be commenced within 60 days of any of the following determinations which shall be made by the Treasurer not later than October 1 of each Fiscal Year:

(a) If the Treasurer determines that there is a delinquency of a Reassessment of $3,000 or more for a prior Fiscal Year or Years for any single parcel of land in the District.

(b) If the Treasurer determines that the total amount of delinquent Reassessments for the prior Fiscal Year for the entire District, less the total delinquencies under subsection (a) above, exceeds three percent (3%) of the total Reassessments due and payable in the prior Fiscal Year, foreclosure shall be commenced against each parcel of land in the District with a delinquency of $2,000 or more for the prior Fiscal Year or Fiscal Years.

In the event court foreclosure proceedings are necessary, there may be a delay in payments to Bondowners pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See also the section herein entitled "SPECIAL RISK FACTORS."

Sales of Tax Defaulted Property Generally

Property securing delinquent Reassessment installments which is not sold pursuant to the judicial foreclosure proceedings described above (see "SECURITY FOR THE BONDS - Covenant to Commence Foreclosure Proceedings") may be sold, subject to redemption by the property owner, in the same manner and to the same extent as real property sold for nonpayment of general County property taxes. On or before June 30 of the year in which such delinquency occurs, the property becomes tax-defaulted. This initiates a five-year period during which the property owner may redeem the property. At the end of the five-year period the property becomes subject to sale by the County Treasurer and Tax Collector. Except in certain circumstances, as provided in the Act, the purchaser at any such sale takes such property subject to all unpaid reassessments, interest and penalties, costs, fees and other charges which are not satisfied by application of the sales proceeds and subject to all public improvement reassessments which may have priority.

Priority of Liens

Each Reassessment (and any reassessment thereof) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. The lien is subordinate to all fixed special assessment liens imposed upon the same property prior to the date that the Reassessments became a lien on the property assessed, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. The lien is co-equal to and independent of the lien for general taxes and any community facilities district special taxes.

-15- The Subordinate Series B Bonds are payable from Reassessments on a basis subordinate to the Series A Bonds. Although the Fiscal Agent Agreement provides that debt service due in each Bond Year on the Series A Bonds will be paid from Reassessments before it is paid on the Subordinate Series B Bonds, the Reassessments are secured by a single lien on each parcel of taxable property in the District.

The lien of the Reassessments (based on the date the Unpaid Assessments were confirmed) is not subordinate to any assessment liens (because there were no outstanding assessment liens at the time), and has priority over the lien of AD 90-2 Assessments described in "THE PLAN OF REFINANCING - Ongoing Efforts to Resolve Tax and Assessment Delinquencies and Bond Defaults".

The lien of the Reassessments on 47 of the Reassessment Parcels is co-equal to the lien for special taxes levied by Community Facilities District No. 1 of the County of Los Angeles ("County CFD No. 1") with respect to its outstanding Community Facilities District No. 1 of the County of Los Angeles (Palmdale/Lancaster Area Waterworks Improvements) Special Tax Refunding Bonds, Series 1999A (the "County CFD No. 1 Bonds"). Approximately 9% of the County CFD No. 1 Bonds (approximately $481,000 of the $5,325,000 outstanding principal amount) is attributable to the 47 Reassessment Parcels, resulting in an 2004-05 levy on those Reassessment Parcels of approximately $56,032 (of the total 2004-05 County CFD No. 1 levy of $620,189).

Reserve Fund for the Series A Bonds Only

On the date of issuance and delivery of the Series A Bonds, and solely for the benefit of the Series A Bonds, the City will make an initial deposit from Series A Bond proceeds into the Reserve Fund equal to the Reserve Requirement (see "THE BONDS - Estimated Sources and Uses of Funds").

The Reserve Requirement is defined in the Fiscal Agent Agreement to be, as of any date of calculation, an amount equal to the lesser of (i) an amount equal to 50% of the Maximum Annual Debt Service on the Series A Bonds as of the Closing Date (being $609,031.77), plus the amount of the aggregate interest earnings from time to time on amounts on deposit in the Reserve Fund (whether or not such earnings have been used for purposes of the Reserve Fund), or (ii) the least of (a) an amount equal to Maximum Annual Debt Service on the then Outstanding Series A Bonds, (b) an amount equal to 125% of average annual debt service on the then Outstanding Series A Bonds, or (c) an amount equal to 10% of the principal of the then Outstanding Series A Bonds.

This definition assumes interest earnings on moneys in the Reserve Fund will remain in the Reserve Fund until the amount specified in clause (ii) is reached. However, it is possible the balance in the Reserve Fund will never increase to the amount specified in clause (ii), whether because interest earnings are insufficient for that purpose or because the City is forced to draw on the Reserve Fund to pay debt service on the Series A Bonds.

See APPENDIX F - "Summary of the Fiscal Agent Agreement" for a description of the provisions of the Fiscal Agent Agreement relating to the Reserve Fund.

-16- Limited Obligations of the City Upon Delinquency

If a delinquency occurs in the payment of any Reassessment installment, the City has no duty to transfer into the Redemption Fund the amount of the delinquency except from monies available in the Reserve Fund (which moneys may only be used to pay debt service on the Series A Bonds). There is no assurance that funds will be available in the Reserve Fund for this purpose and if, during the period of delinquency, there are insufficient funds in the Reserve Fund, a delay may occur in payments to the owners of the Series A Bonds or there may be insufficient funds to make such payments. If there are additional delinquencies after exhaustion of funds in the Reserve Fund, the City has no direct or contingent liability to transfer into the Redemption Fund the amount of delinquency out of any other available monies of the City.

No Acceleration

The principal of the Bonds will not be subject to acceleration under the provisions of the Fiscal Agent Agreement.

Limitation on Tenders of Bonds for Payments of Reassessments

The Fiscal Agent Agreement limits the use of Bonds to pay Reassessments. See APPENDIX F - "Summary of Fiscal Agent Agreement".

THE DISTRICT

Background

As described above in "PLAN OF REFINANCING - Ongoing Efforts to Resolve Tax and Assessment Delinquencies and Bond Defaults," there have been substantial assessment delinquencies in the District and debt service defaults with respect to the Prior Assessment Bonds.

Prior Years' Delinquencies. Eighty-three of the 87 Reassessment Parcels constitute developed parcels in the District that have no prior years' delinquencies with respect to Unpaid Assessments or AD 90-2 Assessments. Because the Unpaid Assessments and the AD 90-2 Assessments are usually billed on the County's ad valorem property tax bill, if a parcel is delinquent in the payment of assessments it will usually also be delinquent in the payment of ad valorem property taxes. One exception to this general rule is that, in the event a property in one or both of the assessment districts is delinquent in the payment of assessments, the City removes the assessments from the County tax roll in order to initiate judicial foreclosure actions pursuant to its foreclosure covenant to owners of the Prior Assessment Bonds and the AD 90-2 Bonds. As a result, the County reports that three of the parcels with no pre-December 10, 2004 assessment delinquencies (which are responsible in the aggregate for 5.04% of the Reassessment lien) are delinquent in the payment of ad valorem property taxes prior to the December 10, 2004 installment in the aggregate amount of approximately $440,058:

• APN 3005-004-077 (Grae Crenshaw): The current property owner reports that it purchased the parcel without being informed of the ad valorem property tax delinquency (although it was informed of and paid the Prior Assessment and AD 90-2 Assessment delinquencies). The parcel is delinquent in the payment of $190,164 of pre-December 10, 2004 ad valorem property taxes.

-17- • APN # 3003-002-071 (Davoodian): The property owner recently completed a payment plan with the City to eliminate historical Unpaid Assessment delinquencies, but has not been paying ad valorem property taxes. The parcel is delinquent in the payment of $9, 180 of pre-December 10, 2004 ad valorem property taxes.

• APN # 3003-002-082 (Ragi): The current property owner purchased the property at an August 2004 judicial sale to foreclose on property because of Unpaid Assessment and AD 90-2 Assessment delinquencies but has not brought the ad valorem property taxes current. The parcel is delinquent in the payment of $240,714 of pre-December 10, 2004 ad valorem property taxes.

The following are the four Reassessment Parcels with prior years' outstanding delinquencies with respect to Unpaid Assessments; these Reassessment Parcels are responsible in the aggregate for 29.11% of the Reassessment lien:

• APN # 3004-001-032 (Acton Crown Valley Parcel). The Acton Crown Valley Parcel is undeveloped and is responsible for prior years' delinquencies of Unpaid Assessments, AD 90-2 Assessments and County ad valorem property taxes. The Acton Crown Valley Parcel is also responsible for fiscal year 2004-05 delinquencies ($95,808).

• APN # 3003-001-049 (Funland Parcel). The Funland Parcel is developed with a family entertainment center and is responsible for prior years' delinquencies in the payment of County ad valorem taxes, Unpaid Assessments and AD 90-2 Assessments. The Funland Parcel is also responsible for fiscal year 2004-05 delinquencies ($28,823).

• APN # 3003-001-031 (Samih Mouneimne). This parcel is developed with a McDonald's restaurant and is current in the payment of installments of Unpaid Assessments except for the April 10, 2002 installment ($3,998 including penalties and interest).

• APN # 3003-001-061 (K Partners Palmdale LP). This parcel is being developed with a hotel and has paid 2004-05 installments of Unpaid Assessments, but is delinquent with respect to an April 10, 2004 installment ($6,786 including penalties and interest).

2004-05 Delinquencies. In addition to the Acton Crown Valley Parcel and the Funland Parcel (with, as described above, aggregate fiscal year 2004-05 delinquent Unpaid Assessments of $124,631), there are 10 parcels with fiscal year 2004-05 delinquencies totaling approximately $150,352 (including penalties and interest). However, approximately 71% of the non-Acton Crown Valley /Funland Unpaid Assessment delinquency for fiscal year 2004-05 is attributable to 5 parcels owned by Antelope Valley Mall, which, as explained in greater detail below, actually paid its 2004-05 installments of Unpaid Assessments, but did so on an untimely basis.

• APN # 3003-002-011, 3003-002-026 (Pacific West Dermatology). These parcels are delinquent in the payment of the April 10, 2005 installment ($22,527 including penalties and interest).

• APN 3003-002-071 (Davoodian). This parcel is delinquent in the payment of the December 10, 2004 and April 10, 2005 installments ($16,092 including penalties and interest). The Davoodians recently completed a payment plan with the City to bring prior years' delinquent installments

-18- of Unpaid Assessments current. The Davoodians are not current in the payment of County ad valorem taxes, and have informed the City that, as a result of completing the payment plan, they were not currently able to pay the 2004-05 installments of Unpaid Assessments.

• APN # 3004-001-031 (PH Land Development). This parcel is delinquent in the payment of the April 10, 2005 installment ($4,527, including penalties and interest).

• APN # 3004-004-029 (Greco). This parcel is delinquent in the payment of the December 10, 2004 and April 10, 2005 installments ($511 including penalties and interest). The owner of this parcel recently moved into a new medical office building on the parcel, and the City believes the County tax bills are being sent to an incorrect mailing address.

• APN # 3005-038-011. 3005-038-014, 3005-038-021. 3005-038-025, 3005-038- 063 (Antelope Valley Mall). According to the County tax roll, these parcels are delinquent in the payment of the April 10, 2005 installment ($106,695 including penalties and interest). However, Antelope Valley Mall paid its entire April 10, 2005 installment of County ad valorem taxes and Unpaid Assessments, but did so after the April 10, 2005 deadline. As a result, Antelope Valley Mall owes penalties and interest, and the County has not forwarded to the City any amounts paid by Antelope Valley Mall. For purposes of showing value-to-lien relationships in this Official Statement, the City treats the April 10, 2005 installment as having been paid by Antelope Valley Mall.

Entitlements for Development of Undeveloped Reassessment Parcels

Zoning. The largest parcel of undeveloped property, which is the Acton Crown Valley Parcel, is zoned Planned Development (PD). The Planned Development zone was established for the development of a regional commercial center to serve the residents of the Antelope Valley and surrounding areas. The zoning will accommodate major retail outlets; hotels and motels; entertainment facilities; administrative, professional and medical offices; financial institutions; community commercial uses; and personal services. PD does not accommodate agricultural, industrial, manufacturing or residential land uses.

Off-Site Improvements. The Acton Crown Valley Parcel is a "finished lot" with all off­ site improvements completed, including curbs, gutters, sidewalks, streetlights and utilities in the streets.

Utilities. Sewer service is provided by the Los Angeles County Sanitation District No. 20. Water service is provided by Palmdale Water District and Los Angeles County Water District No. 40. The City is not aware that either utility has issued a "can and will serve" letter for development of the Acton Crown Valley Parcel.

-19- Methods of Assessment and Reassessment Spread

As described in the Reassessment Engineer's Report prepared with respect to the District, the assessments levied in the District were spread on the basis of special and direct benefits received by the assessed parcels from the improvements to be constructed, as initially recommended by the assessment engineer and as finally approved by the City Council. The Reassessments are spread in amounts exactly proportional to the respective outstanding Unpaid Assessments securing the Prior Assessment Bonds.

Property Values

Assessed Values. The City has obtained the "full cash values" of the Reassessment Parcels as shown in the records of Los Angeles County for fiscal year 2004-05 property tax purposes. According to the Los Angeles County tax roll for fiscal year 2004-05, the total "full cash value" of the Reassessment Parcels (including the Acton Crown Valley Parcel) for property tax purposes is $266,898,630.

The "full cash value" of each individual Reassessment Parcel (except the Acton Crown Valley Parcel, for which the appraised value is shown) is shown in Appendix E.

Article XIIIA of the California Constitution (Proposition 13) defines "full cash value" to mean "the county assessor's valuation of real property as shown on the 1975/76 bill under 'full cash value', or thereafter, the appraised value of real property when purchased or newly constructed or when a change in ownership has occurred after the 1975 reassessment," subject to exemptions in certain circumstances of property transfer or reconstruction. The "full cash value" is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Because of the general limitation to 2% per year in increases in full cash value of properties which remain in the same ownership the county tax roll does not reflect values uniformly proportional to actual market values.

Appraised Value. In connection with issuance of the Bonds, the City retained Valentine Appraisal & Associates, Santa Clarita, California (the "Appraiser") to determine the appraised value as of April 30, 2005 (the "Appraisal") of the Acton Crown Valley Parcel. In connection with issuance of the CFD 05-1 Bonds, the Appraiser also valued and included in the Appraisal two parcels that are not part of the Reassessment District, but instead are part of CFD 05-1 (the "Arrache Parcels").

Because the Acton Crown Valley Parcel, although a single parcel, is divided by a street, the Appraisal treats the Acton Crown Valley Parcel as two parcels. A copy of the Complete Appraisal Summary Report is attached hereto as Appendix H.

Conditions and Assumptions. The Appraisal was based on certain assumptions and limiting conditions set forth in Appendix H, including

• There are no hazardous materials on the site (the Appraiser did not inspect conditions beneath the soil).

• The "highest and best use" of the Acton Crown Valley Parcel is to legally subdivide the lot into two parcels and to develop the parcels for either a professional office building and I or various other commercial uses, independent of one another.

-20- Value Estimate. The Appraiser appraised the Acton Crown Valley Parcel in its "as is" condition as follows:

1. Retail value: The Appraiser appraised the fair market "retail value" of the parcels' fee simple interest, which is the summation of the fair market value of each lot.

2. With and without consideration of bonded indebtedness: The Appraiser appraised the fair market value of the parcels with and without bonded indebtedness as of April 30, 2005.

Subject to the assumptions contained in the Appraisals, the Appraiser estimated the following fair market values as of April 30, 2005.

Appraised Value Property Tax and Appraised Value Property Without Bonded Bonded Without Bonded Owner (ll Acres Indebtedness* Indebtedness Indebtedness*

Acton Crown Valley (APN 4.693 $1,300,000 $3,579,080 ($2,279,000) 3004-001-032 (west portion)

Acton Crown Valley (APN 11.387 3,126,000 8,684,208 (5,558,000) 3004-001-032 east portion)

Total 16.080 $4,426,000 $12,263,288 ($7,837,000)

(1) The Acton Crown Valley Parcel is a single parcel. Because it is divided by a street, the Appraisal treats it as two parcels. * Rounded.

Valuation Methods. The Appraiser utilized only the Sales Comparison Approach (as described below) to value the Acton Crown Valley Parcel in its "as is" condition.

The Appraisal states that the Sales Comparison Approach involves the following: (1) gathering sales of vacant lots comparable to the subject parcels, (2) adjusting them for different conditions and characteristics, (3) considering the reliability and applicability of each adjusted sale price, and (4) selecting a final value indication for each of the subject lots as though the lots are ready for development and with all off-site improvements in place. The resulting value is the "retail value".

The Appraiser identified several sales in the geographic vicinity that were useful for the Sales Comparison Approach, and utilized a variety of characteristics and elements of comparison, including the nature of the real property rights conveyed (e.g., leasehold vs. fee simple interest), financing terms, conditions of sale, expenditures after sale, marketing conditions, location (which the Appraiser considers the most important factor affecting property values in the subject area), size of the parcels (larger parcels typically bring lesser unit prices), physical characteristics (e.g., parcel size, shape, access, terrain), availability of utilities, and zoning and highest and best use,

The preceding is a summary of certain provisions of the Appraisal, which should be read in conjunction with the full text of the Appraisal attached as Appendix H. The City makes no representation as to the accuracy or completeness of the Appraisal.

-21- Value to Lien Ratios

District-Wide Value to Lien Ratio of the Reassessment Parcels'. The following tables set forth the following:

• Table lA: (i) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, and prior years' delinquencies of County ad valorem property taxes (but not the lien of the AD 90-2 Assessments, which is subordinate to the lien of the reassessments), (ii) fiscal year 2004-05 assessed values of the Reassessment Parcels (except the Acton Crown Valley Parcel, for which the appraised value is provided), and (iii) the resulting value­ to-lien ratio.

• Table lB: The City established the respective principal amounts of the Series A Bonds and the Subordinate Series B Bonds on the basis of the following assumptions:

(A) that the Acton Crown Valley parcel and the Funland Parcel would remain delinquent in the foreseeable future (and, therefore, the Subordinate Series B debt service should be equal to scheduled Reassessment installments attributable to these parcels):

(B) that Reassessment installments payable with respect to the 85 remaining Reassessment Parcels, if paid as scheduled, would be sufficient to pay debt service on the Series A Bonds.

Therefore, in order to give owners of the Series A Bonds a picture of the value-to­ lien ratio for the Series A Bonds, Table lB shows (i) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, and prior years' delinquencies of County ad valorem property taxes (but not the lien of the AD 90-2 Assessments) on all the parcels except the Acton Crown Valley Parcel and the Funland Parcel, (ii) fiscal year 2004-05 assessed values of the Reassessment Parcels except the Acton Crown Valley Parcel and the Funland Parcel, and (iii) the resulting value-to-lien ratio,

• Table 2A: (i) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, prior years' delinquencies of County ad valorem taxes and remaining unpaid assessments in Assessment District 90-2, (ii) fiscal year 2004-05 assessed values of the Reassessment Parcels (except the Acton Crown Valley Parcel, for which the appraised value is provided), and (iii) the resulting value-to-lien ratio.

• Table 2B: (i) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, prior years' delinquencies of County ad valorem taxes and remaining unpaid assessments in Assessment District 90-2 on all the parcels except the Acton Crown Valley Parcel and the Funland Parcel, (ii) fiscal year 2004-05 assessed values of the Reassessment Parcels except the Acton Crown Valley Parcel and the Funland Parcel, and (iii) the resulting value-to-lien ratio.

' Although the Fiscal Agent Agreement defines "Reassessments" to include 2004-05 delinquent Unpaid Assessments that are not being "reassessed" under the Act, the following tables separately identify (i) reassessments of Unpaid Assessments and (ii) delinquent 2004-05 Unpaid Assessments, which were not "reassessed" or supplanted and superceded as contemplated by the Act.

-22- TablelA City of Palmdale 10th Street West Assessment District No. 88-1 District-Wide Value-to-Lien Ratio (2004-05 Assessed and Appraised Values) Excluding Assessment District 90-2

2004-05 Prior Years' Fiscal Year 2004-05 Delinq. Delinquent County Assessed and Unpaid Ad Valorem CFD Total Appraised Value-to-Lien Reassessment Assessments Taxes No. l Lien Value(11 Ratio (21

$12,111,684 $163,786 $2,396,661 $481,099 $15,153,230 $269,054,488 17.76:1

(1) Includes the appraised value of the Acton Crown Valley Parcel (see Appendix G). (2) Does not include lien of AD 90-2 Assessments, which is subordinate to the lien of the Reassessments. Source: NBS Govenunent Finance Group.

TablelB City of Palmdale 10th Street West Assessment District No. 88-1 District-Wide Value-to-Lien Ratio (Assessed and Appraised Values) Excluding Assessment District 90-2 Excluding the Acton Crown Valley Parcel and the Funland Parcel

2004-05 Prior Years' Appraised Value and Delinq. Delinquent County Fiscal Year 2004-05 Unpaid Ad Valorem CFD Total Assessed Value-to-Lien 1 11 11 11 11 Reassessment( J Assessments( Taxes (lJ No. l Lien( Value( Ratio(

$8,675,527.37 $39,155 $440,058 $465,539 $9,620,279 $262,018,886 27.24:1

(1) Excludes the Acton Crown Valley Parcel and the Funland Parcel. Source: NBS Govenunent Finance Group.

-23- Table2A City of Palmdale 10th Street West Assessment District No. 88-1 District-Wide Aggregate Value-to-Lien Ratio (2004-05 Assessed and Appraised Values) Including Assessment District 90-2

Fiscal Year Prior Years' 2004-05 2004-05 Delinq. Unpaid Delinquent County Assessed and Unpaid AD 90-2 Ad Valorem CFD Total Appraised Value-to-Lien Reassessment Assessments Assessments Taxes No. 1 Burden Value Ratio

$12,111,684 $163,786 $9,930,112 $2,396,661 $481,099 $25,083,341 $269,054,488 10.73:1

(1) Includes the appraised value of the Acton Crown Valley Parcel (see Appendix G). Source: NBS Govenunent Finance Group.

Table2B City of Palmdale 10th Street West Assessment District No. 88-1 District-Wide Aggregate Value-to-Lien Ratio (Assessed and Appraised Values) Including Assessment District 90-2 Excluding the Acton Crown Valley Parcel and the Funland Parcel

Prior A~raised Years' V ue and 2004-05 Delinquent Fiscal Year Delinq. Unpaid Ad County 2004-05 Unpaid AD 90-2 Valorem CFD Total Assessed Value-to-Lien 1 11 11 Taxes (lJ 11 11 11 Reassessment( J Assessments( Assessments( No. l Burden( Value( Ratio(

$8,675,527.37 $39,155 $2,263,044 $440,058 $465,539 $11,883,323 $262,018,886 22.05:1

(1) Excludes the Acton Crown Valley Parcel and the Funland Parcel. Source: NBS Govenunent Finance Group.

-24- Value to Lien Distribution. The following table summarizes the value-to-lien distribution in the District based on the following: (i) the fiscal year 2004-05 assessed value of the Reassessment Parcels (except the Acton Crown Valley Parcel, for which the appraised value is provided) and (ii) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, prior years' delinquencies of County ad valorem property taxes, and remaining unpaid AD 90-2 Assessments. The lien amount reflected in the third and fourth columns is the lien of the Reassessments and 2004-05 delinquent Unpaid Assessments.

Table 3 City of Palmdale 10th Street West Assessment District No. 88-1 Value to Lien Distribution As of June 1, 2005

Value-to-Lien Number of Lien Percent of 2 2 3 3 Ratio (ll Parcels (ll, ( l Amount ( l,( l Total Lien( l

25:1 and above 37 $3,574,945 29.12% 20:1- 24.99:1 9 736,269 6.00 15:1-19.99:1 7 792,086 6.45 10:1-14.99:1 2 473,902 3.86 5:1- 9.99:1 17 1,457,320 11.87 3:1- 4.99:1 6 1,114,725 9.08 1:1- 2.99:1 8 897,444 7.31 Less than 0. 99:1 _l 3,228,779 26.30

District Total 87 $12,275,470 100.00%

(1) Based on (i) the 2004-05 assessed values of the Reassessment Parcels (except, with respect to the Acton Crown Valley Parcel, the appraised value) and (ii) the lien of the Reassessments, County CFD No. 1 Bonds, 2004-05 delinquent Unpaid Assessments, unpaid AD 90-2 Assessments and prior years' delinquencies of County ad valorem property taxes. (2) The Series A Bonds in the amount of $8,675,000, have been sized as if they were secured only by Reassessments on 85 Reassessment Parcels ( excluding the Acton Crown Valley Parcel and the Funland Parcel); these 85 parcels are subject to a Reassessment lien (not including fiscal year 2004- 05 delinquent Unpaid Assessments) of $8,676,858. (3) Reflects only the fien of the Reassessments and 2004-05 delinquent Unpaid Assessments. Source: City of Palmdale.

-25- Debt service coverage and value-to-lien distribution. The following table shows debt service coverage on the Series A Bonds and the Subordinate Series B Bonds as a function of value-to­ lien distribution and the Reassessments. The City established the respective principal amounts of the Series A Bonds and the Subordinate Series B Bonds on the basis of the following assumptions:

(A) that the Acton Crown Valley Parcel and the Funland Parcel would remain delinquent in the foreseeable future (and, therefore, the Subordinate Series B debt service should be equal to scheduled Reassessment installments attributable to these parcels), and

(B) that Reassessment installments payable with respect to the 85 remaining Reassessment Parcels, if paid as scheduled, would be sufficient to pay debt service on the Series A Bonds.

The following table shows the following:

• Value-to-lien distribution based on the following: (i) the fiscal year 2004-05 assessed value of the Reassessment Parcels (except the Acton Crown Valley Parcel, for which appraised value is used), and (ii) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, prior years' delinquencies of County ad valorem property taxes, and remaining unpaid AD 90-2 Assessments. • Debt service coverage on the Series A Bonds and the Subordinate Series B Bonds based on the Reassessments and the 2004-05 delinquent Unpaid Assessments only.

-26- Table 4 City of Palmdale 10th Street West Assessment District No. 88-1 Debt Service Coverage and Value to Lien Distribution As of June 1, 2005

Reassessments as Reassessments as Percentage of Number Percentage of Subordinate Series B Assessed Value- of Lien Percent of Series A Bonds Bonds 2 2 3 2 3 to-Lien Ratio (il Parcels Amount( l TotaF'l Debt Service ( l( l Debt Service( l, ( l

25: 1 and above 37 $3,574,945 29.12% 41.20% 0.00% 20:1 - 24.99:1 9 736,269 6.00 8.49 0.00 15:1 - 19.99:1 7 792,086 6.45 9.13 0.00 10:1 - 14.99:1 2 473,902 3.86 5.46 0.00 5:1 - 9.99:1 17 1,457,320 11.87 16.75 0.00 3:1 - 4.99:1 6 1,114,725 9.08 12.66 8.82(4) 1:1 - 2.99:1 8 897,444 7.31 6.30 0.00 Less than 0.99:1 1 3,228,779 26.30 0.00 91.18(5)

District Total 87 12,275,470 100.00% 100.00% 100.00%

(1) Based on (i) the 2004-05 assessed values of the Reassessment Parcels (except the Acton Crown Valley Parcel, for which appraised value is shown) and (ii) the lien of the anticipated Reassessments, fiscal year 2004-05 delinquent Unpaid Assessments, prior years' delinquencies of County ad valorem property taxes, and remaining unpaid AD 90-2 Assessments. (2) Includes the lien of the Reassessments and the fiscal year 2004-05 delinquent Unpaid Assessments (which were not supplanted by the Reassessments). (3) The Series A Bonds in the amount of $8,675,000, have been sized as if they were secured only by Reassessments on 85 Reassessment Parcels (excluding the Acton Crown Valley Parcel and the Funland Parcel); these 85 parcels are subject to a Reassessment lien (not including fiscal year 2004-05 delinquent Unpaid Assessments) of $8,676,858. ( 4) Reflects the value-to-lien ratio of the Funland Parcel. (5) Reflects the value-to-lien ratio of the Acton Crown Valley Parcel. Source: City of Palmdale.

-27- Value to Lien Ratios on a Parcel-by Parcel Basis. A summary of the value to lien ratios of the Reassessment Parcels on a parcel-by-parcel basis, based on (i) the fiscal year 2004-05 assessed value of the Reassessment Parcels (except the Acton Crown Valley Parcel, for which appraised value is shown) and (ii) the lien of the Reassessments, County CFD No. 1 Bonds, 2004-05 delinquent Unpaid Assessments, prior years' delinquencies of County ad valorem property taxes, and remaining unpaid AD 90-2 Assessments, is set forth in Appendix E: "Table of Value-to-Lien Ratios".

Value-to-Lien Ratios of Top Ten Reassessees. The following table sets forth (i) the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, and prior years' delinquencies of County ad valorem property taxes (but not the lien of the AD 90-2 Assessments, which is subordinate to the lien of the Unpaid Assessments and the Reassessments), (ii) fiscal year 2004-05 assessed values, and (iii) the resulting value-to-lien ratios for the top ten Reassessees in the District.

-28- Table 5 City of Palmdale loth Street West Assessment District No. 88-1 Top Ten Assessees' Value-to-Lien Ratios As of June 1, 2005

Assessed Prior Years' Value- Appraised Appraised/ Number 2004-05 Delinq. Delinquent 2004-05 to- And Assessed of Land Unpaid Ad Valorem County Assessed Lien Assessed Value-to-Lien Assessee Parcels Use Reassessment Assessments Taxes CFD Value (lJ Rat:io(21 Value (3J Rat:io(21

Acton Crown Valley Road Inc. 1 Vacant $3,132,971.63 $95,808 $1,832,103 $2,270,142 0.45,1 $4,426,000 0.87,1 Antelope Valley Mall Developers Ltd. 10 Retail (4l 1,864,485.60 $146,833 86,802,252 46.56,1 86,802,252 46.56,1 Gottschalks Inc. 1 Retail 522,292.22 26,437 10,163,000 19.46,1 10,163,000 19.46,1 JC Penney Properties Inc. 1 Retail 474,331.89 23,022 10,822,000 22.82,1 10,822,000 22.82,1 Grae Crenshaw 1 Retail (SJ 439,045.31 190,164 10,632,846 12.98,1 10,632,846 12.98,1 Sears Roebuck & Co. 2 Retail 388,732.38 21,577 12,240,981 31.49,1 12,240,981 31.49,1 Ming Tsung Huang and 3.07'1 Shu Chin Hsieh 2 Vacant 382,538.96 65,064 1,175,852 3.07'1 1,175,852 McAlpin Company 1 Retail (OJ 376,847.36 30,378 15,053,708 39.95,1 15,053,708 39.95,1 Daniel Alunad (Funland) 1 Entertaimnent (7J 303,184.95 28,823 124,500 15,560 2,609,602 4.49,1 2,609,602 4.49,1 Palmdale Marketplace LLC 10 Retail (SJ 285,126.58 20,377,521 71.47,1 20,377,521 71.47,1

Total - Top 10 Assessees 30 8,169,556.93 124,631 2,146,767 328,870 172,147,904 16.01'1 174,303,762 16.21'1

Retnaining Assessees 57 3,942,127.07 39 155 249,894 152,229 94,750,726 21.62,1 94,750,726 21.62,1

Total - District 87 $12,111,634.00 $163,786 $2,396,661 $481,099 $266,898,630 17.61'1 $269,054,488 17.76,1

(1) Reflects the 2004-05 assessed value of the Reassessment Parcels. (2) Does not include lien of AD 90--2 Assessments, which is subordinate to the lien of the Reassessments. (3) Reflects the 2004-05 assessed values of the Reassessment Parcels except for the Acton Crown Valley Parcel, for which the appraised value is provided (see APPENDIX H). (4) Antelope Valley Mall Developers Ltd. owns property comprising a portion of the Antelope Valley Mall. The Antelope Valley mall is a one-level, one million square foot enclosed mall developed by Forrest City (which still owns approximately 380,000 square feet), and opened in 1990. Mall anchors include Harris--Gottschalk"s (2 stores), Dillard"s, Mervyn"s, JC Penney and Sears, with a 10-screen Cinemark theater (currently located inside the mall in leased space) and more than 125 specialty shops. For purposes of this Official Statement, the City assumes the April 10, 2005 installment of County ad valorem property taxes and Unpaid Assessments was paid by Antelope Valley Mall (see "-Background" above). (5) This 114,343 sf building was originally built in the early 1990s as a K-Mart department store, across the street from the Antelope Valley Mall. When K-Mart went into bankruptcy in early-2002., the store closed and the property was an asset in the bankruptcy estate. In June 2004, a new buyer, Grae Crenshaw, closed escrow on the property and has been actively seeking tenants for the site. The building is currently under rehabilitation, and the owner reports it has entered into a lease agreement with Wick"s Furniture for approx. 42,000 sf, and some medical office uses for another 4,500 sf. A site plan has been approved by the City"s Planning Department, which will also include the new construction of a 7,000 sf Mimi"s Cafe restaurant. (6) This property is the location of a Dillard's department store in the Antelope Valley Mall. (7) A family entertainment center is located on this property, including a miniature golf course, batting cage, arcade games, bumper boats, and a miniature car racing. (8) The Marketplace in Palmdale is a retail power center developed in the late-1990s and early-2000s and totaling approx. 195,514 square feet. Tenants include Barnes & Noble, Staples, Sport Chalet, Linens N Things, Catherine"s Plus Sizes, Ross Dress for Less, Jamba Juice, Baskin Robbins, Blue Koi Oriental restaurant, Panda Express, Sharkey"s Mexican Grill, Me-N-Ed"s Pizzeria, among others. In addition to the ten parcels owned by the Palmdale Marketplace LLC, the shopping center also includes parcels owned and operated by Lowe"s, Target and Best Buy. Source: NBS Government Finance Group.

-29- Assessment Installment Delinquencies

Property taxes (including assessment and Reassessment installments) may be paid in two installments. The first installment is due on November 1 and is delinquent if not paid by December 10. The second installment is due on March 1 and is delinquent if not paid by April 10. The Bonds are limited obligation improvement bonds of the City payable from Reassessments. The Reassessments are spread in amounts exactly proportional to the respective outstanding Unpaid Assessments securing the Prior Assessment Bonds.

See "PLAN OF REFINANCING - Ongoing Efforts to Resolve Tax and Assessment Delinquencies and Bond Defaults" above for a description of the history of assessment delinquencies in the District; 4 of the 87 Reassessment Parcels have prior years' delinquencies with respect to Unpaid Assessments, AD 90-2 Assessments and County Taxes; 12 of the Reassessment Parcels have 2004-05 delinquencies in the payment of Unpaid Assessments, although for purposes of the following table, it is assumed that the 2004-05 Unpaid Assessment installments attributable to 5 parcels owned by Antelope Valley Mall have been paid (see "THE DISTRICT - Background").

The City has determined that the Reassessments will include prior years' delinquent installments of Unpaid Assessments and the penalties and interest thereon, but not 2004-05 delinquent installments of Unpaid Assessments (defined as "Assessments" in the Fiscal Agent Agreement). Thus, the lien of the original assessments will not be superseded and supplanted with respect to 2004-05 delinquent installments and will be equal in priority to the lien of the Reassessments.

30 The following table sets forth, as of June 1, 2005, the amount of remaining delinquent assessments on the Reassessment Parcels for the indicated fiscal year. The County is not on the Teeter Plan with respect to assessments and the Reassessments; therefore, revenues realized from assessments and the Reassessments reflect actual collections.

Table 6 City of Palmdale 10th Street West Assessment District No. 88-1 Remaining Delinquent Assessments on the Reassessment Parcels Fiscal 1999-00 to 2004-05 (As of June 1, 2005)

Fiscal Year Amount Levied Amount Delin<_Juenf1l Percent Delin<_Juent ('l 1999-00 $1,666,224 $94,027 5.64% 2000-01 1,631,216 94,545 5.80 2001-02 1,627,346 124,786 7.67 2002-03 1,576,317 123,269 7.82 2003-04 1,577,559 128,642 8.15 2004-05 1,527,307 163,786 10.72

(1) Assumes the 2004-05 Unpaid Assessment installments attributable to parcels owned by Antelope Valley Mall have been paid. See "THE DISTRICT- Background". (2) Fiscal year 2004-05 delinquencies for the Acton Crown Valley Parcel ($95,808) and the Funland Parcel ($28,823) total $124,631, or aprroximately 76% of all fiscal year 2004-05 delinquencies as of June 1, 2005. See APPENDIX E. Prior fisca year delinquencies are primarily attributable to the Acton Crown Valley Parcel. Source: City of Palmdale.

31 SPECIAL RISK FACTORS

This Special Risk Factors section of the Official Statement does not summarize the Official Statement. Rather, it supplements other sections in order to provide a practical perspective on the material risks of the investment. Necessarily, the listing and discussion of risks is neither comprehensive nor definitive. It is based largely upon typical experience with special assessment bonds in other situations.

Subordinate Status of Subordinate Series B Bonds; Priority of Liens

As described more completely in "SECURITY FOR THE BONDS - Redemption Fund," the Subordinate Series B Bonds are payable from Reassessments on a basis subordinate to the Series A Bonds. However, the Reassessments from which the Series A Bonds and the Subordinate Series B Bonds are payable are secured by a single lien on each parcel of taxable property in the District.

The lien of the Reassessments is senior to the lien of unpaid assessments in Assessment District 90-2.

Depletion of Reserve Fund

On the date of issuance and delivery of the Bonds, certain amounts will be deposited in the Reserve Fund, which moneys shall be available for payment of debt service only on the Series A Bonds. See "SECURITY FOR THE BONDS - Reserve Fund for the Series A Bonds Only". Whenever there are insufficient funds in the Redemption Fund to pay the next maturing installment of principal and interest on the Series A Bonds, the amounts necessary to make up the deficiency, to the extent available, will be transferred from the Reserve Fund to the Redemption Fund. Amounts so transferred will be reimbursed to the Reserve Fund from the payments of delinquent installments and from the proceeds of redemption or sale of delinquent parcels.

The Reserve Fund is subject to reduction if and when the unpaid balance of the Reassessment on a parcel is prepaid. Upon prepayment of a Reassessment in whole, the City is required to reduce the Reserve Fund by a proportional reduction equal to the ratio of the amount initially provided for the funding of the Reserve Fund to the total amount originally assessed. Upon prepayment of a Reassessment in part only, the Reserve Fund is reduced by a proportionate lesser amount. A reduction in the Reserve Fund by prepayment of a Reassessment is a permanent, non reimbursable reduction, but the amount remaining in the Reserve Fund after a prepayment will bear approximately the same proportionate relationship to outstanding Bonds as would be the case if the prepayment was not made because accumulating reassessment prepayments will be used to redeem Bonds earlier than their maturity dates.

Foreclosure and Sale Proceedings

The City Council is obligated under certain conditions to institute foreclosure and sale proceedings against Reassessment Parcels which have delinquent reassessment installments, and may do so in other circumstances even if not so obligated. Foreclosure proceedings are instituted by the bringing of an action in the superior court of the county in which the Reassessment Parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same manner as other civil actions. Upon judgment of foreclosure the Reassessment Parcel may be offered for sale at a minimum price. The established minimum

32 price will be sufficient to cover the amount of the delinquent installments and unpaid interest together with penalties, costs, fees and charges and the costs of execution and sale.

However, in the event a Reassessment Parcel does not sell for the minimum price the court may modify its judgment and reduce or eliminate the minimum price. In order to do so, however, written notice of a hearing on the matter of reducing or eliminating the minimum price is required to be given all registered Owners of the Bonds.

If, at the hearing, the court determines that such a sale will not result in an ultimate loss to the Bond owners, or if the owners of seventy-five percent (75%) of the outstanding Bonds by principal amount consent and the sale will not result in an ultimate loss to the nonconsenting owners of Bonds, the court may reduce or eliminate the minimum price at which a Reassessment Parcel may be sold. Further, if the owners of seventy-five percent (75%) of the outstanding Bonds by principal amount consent the court may reduce or eliminate the minimum price at which a Reassessment Parcel may be sold even if sale below the minimum price will result in an ultimate loss to nonconsenting owners of Bonds, provided that the court makes certain additional determinations specified by statute including the reasonable unavailability of any other remedy acceptable to the owners of seventy-five percent (75%) or more of the outstanding Bonds by principal amount. Upon sale of the Reassessment Parcel for less than the minimum price the remaining unpaid balance of the reassessment on the Reassessment Parcel will be reduced by the difference between the minimum price and the sale price. By such a reduction, the aggregate principal amount of the outstanding Bonds will exceed the aggregate principal amount of the unpaid reassessment.

Under such circumstances, unless other funds are available or unless consenting owners of Bonds agree to the protection from ultimate loss of nonconsenting owners of Bonds, proportionate payments are to be made, periodically, of the unpaid principal and interest of the Bonds without priority or preference between Bondowners as funds become available from collection of the unpaid reassessment installments. The maturity dates of the Bonds are to be disregarded and no redemption premiums are to be payable on payments of the principal of Bonds the maturity dates of which are subsequent to the date of any such payments. The Bondowners may be required to surrender the Bonds for cancellation in order to participate in such proportionate payments.

Although the Fiscal Agent Agreement provides that debt service due in each Bond Year on the Series A Bonds will be paid from Reassessments before it is paid on the Subordinate Series B Bonds, the Reassessments are secured by a single lien on the Reassessment Parcels; the single lien prevents owners of the Series A Bonds from extinguishing or otherwise reducing or altering the rights of the owners of the Subordinate Series B Bonds as a result of foreclosing on Reassessment Parcels (as may otherwise be permitted under California law with respect to junior lienholders).

Factors Affecting Parcel Value and Aggregate Values

The facts and circumstances concerning the values of the Reassessment Parcels that are of importance are not confined to those relating to individual Reassessment Parcel values because the Bonds are not individually secured by particular Reassessment Parcels. The Bonds are secured by all of the unpaid reassessments on all of the Reassessment Parcels. Therefore the value of the Reassessment Parcels must also be evaluated in the aggregate. The following are some of the factors which may affect the market for and value of particular Reassessment Parcels individually and in the aggregate.

The completion of improvements. The basis for the reassessment is the benefit to the Reassessed Parcels from the District improvements. Many factors may lead to improvements

33 not being constructed on the unimproved Reassessed Parcels; for example, general economic conditions and environmental conditions affecting the District. There can be no assurances that improvements will be constructed on the unimproved Reassessment Parcels, or if constructed, when construction might occur.

Geologic, topographic and climatic conditions. Values of Reassessment Parcels can be adversely affected by a variety of natural events and conditions. These include, without limitation:

geologic conditions such as earthquakes; topographic conditions such as earth movements and floods; and climatic conditions such as droughts.

The possibility of the occurrence of some of these conditions and events has been taken into account to a limited extent in the design of the District improvements and has been or will be taken into account to a limited extent in the designs of other public improvements which may be approved by the City or other public agencies. Building codes require that some of these conditions be taken into account to a limited extent in the design of private improvements. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change from time to time leaving previously designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria, at the time of their establishment, reflect a balance between the present costs of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Also reflecting that balance are decisions not to impose design criteria at all.

The City expects that one or more of these conditions may occur from time to time, and, even if design criteria do exist, such conditions may result in damage to property improvements. That damage may entail significant repair or replacement costs, and repair or replacement may never occur. Under any of these circumstances, the value of the Reassessment Parcels could depreciate substantially notwithstanding the establishment of design criteria.

Legal requirements. Other events which may affect the value of a Reassessment Parcel include changes in the law or application of the law. Such changes may include, without limitation, the following:

local growth control initiatives; local utility connection moratoriums; local application of statewide tax and governmental spending limitation measures.

Prepayment of Reassessments. There is rarely a uniform relationship between the value of Reassessment Parcels and the proportionate share of debt service on the Bonds to be borne by the Reassessment Parcels.

One of the factors that may effect a significant change in the relationship between the aggregate Reassessment Parcel values and the reassessment is the prepayment before final bond maturity of the remaining balance of the reassessments on particular Reassessment Parcels. Should the reassessments on Reassessment Parcels having a relatively high ratio of value to reassessment be prepaid, the security for the Bonds, as evidenced by the ratio of the aggregate remaining Reassessment Parcel values to the remaining balance of the reassessment, will be reduced.

34 Other Possible Claims Upon the Value of a Reassessment Parcel

While the reassessment is secured by the Reassessment Parcels, the security only extends to the value thereof that is not subject to priority and parity liens and similar claims relative to the reassessments. Other governmental obligations may be authorized and undertaken or issued in the future the tax, reassessment or charge for which may become an obligation of one or more of the Reassessment Parcels and may be secured by liens on a parity with the liens of the reassessments securing the Bonds.

In general, as long as installments of the reassessment are collected on the County tax roll, the installments and all other taxes, reassessments and charges also collected on the tax roll are on a parity. Questions of priority become significant when collection of one or more of the taxes, reassessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings of foreclosure for delinquency of installments of a Reassessment securing the Bonds, the reassessment will have priority over specific-amount special reassessments levied subsequent to the levy of the reassessments but will be subordinate to those referred to above. Otherwise, in the event of such foreclosure proceedings the installments of the reassessment will generally be on a parity with the other taxes, reassessments and charges. The reassessment will have priority over non-governmental liens on a Reassessment Parcel regardless of whether or not the non-governmental liens are in existence at the time of the levy of the reassessment.

While governmental taxes, reassessments and charges are a common claim against the value of a Reassessment Parcel other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the reassessment installments is a claim with regard to a hazardous substance. In general, the owners and operators of a Reassessment Parcel may be required by law to remedy conditions of the Reassessment Parcel relating to released or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or "Superfund Act", is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws the owner or operator of a property is obligated to remedy a hazardous substance condition 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 Reassessment Parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition.

The values shown in the section herein entitled "THE DISTRICT - Land Value" do not take into account, unless otherwise noted, the possible reduction in marketability and value of any of the Reassessment Parcels by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the Reassessment Parcel.

Further, it is possible that liabilities may arise in the future with respect to any of the Reassessment Parcels resulting from the current existence on the Reassessment Parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence on the Reassessment Parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a Reassessment Parcel that is realizable upon delinquency.

35 Bankruptcy Proceedings

Regardless of the priority of the reassessment securing the Bonds over non­ governmental liens the exercise by the City of the foreclosure and sale remedy or by the County of the tax sale remedy may be forestalled or delayed by bankruptcy, reorganization, insolvency or other similar proceedings affecting the owner of a Reassessment Parcel. The Federal bankruptcy laws provide for an automatic stay of foreclosure and sale or tax sale proceedings thereby delaying such proceedings perhaps for an extended period. Delay in exercise of remedies, especially if the owner owns Reassessment Parcels the reassessments of which are significant or if bankruptcy proceedings are instituted with respect to a number of owners owning Reassessment Parcels the reassessments of which are significant, may result in periodic reassessment installment collections which, even in conjunction with the Reserve Fund, may be insufficient to pay the debt service on the Bonds as it comes due. Further, should remedies be exercised under the bankruptcy law against the Reassessment Parcels, payment of installments of the reassessment may be subordinated to bankruptcy law priorities. Therefore, certain claims may have priority over the reassessment lien, even though they would not were the bankruptcy law not applicable.

Payments by FDIC

The City's ability to collect interest and penalties specified by State law and to foreclose the lien of a delinquent Reassessment, may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies has or obtains an interest. On June 4, 1991 the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes. The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9, 1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its proper tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent.

Under the Policy Statement, it is unclear whether the FDIC considers special reassessments, such as those levied by the Issuer, to be "real property taxes" which they intend to pay. The Policy Statement provides: "The [FDIC] is only liable for state and local taxes which are based on the value of the property during the period for which the tax is imposed, notwithstanding the failure of any person, including prior record owners, to challenge a reassessment under the procedures available under state law. In the exercise of its business judgment, the [FDIC] may challenge reassessments which do not conform with the statutory provisions, and during the challenge may pay tax claims based on the reassessment level deemed appropriate, provided such payment will not prejudice the challenge. The [FDIC] will generally limit challenges to the current and immediately preceding taxable year and to the

36 pursuit of previously filed tax protests. However, the [FDIC] may, in the exercise of its business judgment, challenge any prior taxes and reassessments provided that (1) the [FDIC]'s records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the [FDIC], (3) the challenge will not unduly delay the sale of the property, and (4) there is a reasonable likelihood of a successful challenge".

However, the Resolution Trust Corporation (which dissolved at the end of 1995 and transferred all of its assets to the FDIC), which adopted a similar policy, stated in a letter dated July 2, 1993 to the Honorable Lucille Roybel-Allard, member of the United States House of Representatives from the State of California, that it"... will pay Mello-Roos special taxes and other special reassessments and related interest where those taxes and reassessments were imposed prior to receivership. However, Mello-Roos special taxes and other special reassessments that are imposed on property when the institution owning the property is in receivership will not be paid."

The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a reassessment parcel in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any reassessment parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment of the Bonds. The City has not undertaken to determine whether the FDIC currently has, or is likely to acquire, any interest in any of the Reassessment Parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding.

Proposition 218

Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Over the past 18 years, the voters have exercised this power through the adoption of Proposition 13 and similar measures, the most recent of which was approved as Proposition 218 in the general election held on November 5, 1996.

Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the Bonds.

Proposition 218-Voter Approval for Local Government Taxes-Limitation on Fees, Reassessments, and Charges-Initiative Constitutional Amendment, added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, reassessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including reassessment districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote.

Proposition 218 also provides that no tax, reassessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property

37 ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) reassessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for reassessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all reassessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such reassessments, fees and charges.

Proposition 218 also provides that the constitutional initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local taxes, reassessments, fees and charges. This provision with respect to the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, reassessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts.

The Reassessments are being levied against Reassessment Parcels after the passage of Proposition 218. However, the City believes that the issuance of the Bonds does not require the conduct of further proceedings under the Act or Proposition 218 because Senate Bill 919 (effective July 1, 1997) amended the Act to provide: "Any reassessment that is approved and confirmed pursuant to [the Act] shall not be deemed to be an assessment within the meaning of, and may be ordered without compliance with the procedural requirements of, Article XIIID of the California Constitution."

Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative scrutiny before its impact on the City and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under both State and federal constitutional law. The City is not able to predict the outcome of any such examination.

The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.

Payment of the Reassessment Not a Personal Obligation

The owners of Reassessment Parcels are not personally liable for the payment of the Reassessment or the Reassessment installments. Rather, the Reassessment is an obligation only of the Reassessment Parcels. If the value of a Reassessment Parcel is not sufficient to fully secure the Reassessment on it the City has no recourse against the owner under the laws by which the Reassessment has been levied and the Bonds have been issued.

38 Limited City Obligation to Pay Debt Service

THE CITY'S OBLIGATION TO ADVANCE FUNDS TO PAY DEBT SERVICE ON THE BONDS IN THE EVENT REASSESSMENT INSTALLMENT COLLECTIONS ARE INSUFFICIENT, WILL NOT EXCEED THE AMOUNT ON DEPOSIT FROM TIME TO TIME IN THE RESERVE FUND (WHICH IS AVAILABLE TO PAY DEBT SERVICE ONLY ON THE SERIES A BONDS), AND IF SO ADVANCED WILL REDUCE THE BALANCE IN THE RESERVE FUND BY THE AMOUNT OF THE FUNDS ADVANCED.

No Acceleration

The principal of the Bonds will not be subject to acceleration under the provisions of the Fiscal Agent Agreement. Bondholders must rely on other remedies contained in the Fiscal Agent Agreement in the event there is a deficiency in the amounts held under the Fiscal Agent Agreement for the payment of the principal of and interest on the Bonds.

Transfer Restrictions

The Fiscal Agent Agreement establishes certain restrictions on the transfer of the Subordinate Series B Bonds (see "THE BONDS - Payment, Registration, Transfer and Exchange of Bonds").

As a result, there is not currently any public market for the Subordinate Series B Bonds and none is expected to develop in the future. Therefore, investors should be aware that they might be required to bear the financial risks of this investment for an indefinite period of time and/or that the secondary market price of the Subordinate Series B Bonds may be affected as a result of the restrictions.

Potential Conflicts of Interest

Palmdale T&C Partners LLC ("Palmdale T &C") owns property currently responsible for a substantial portion of the Unpaid Assessments and the AD 90-2 Assessments. Following issuance of the Bonds and the CFD 05-1 Bonds, Palmdale T&C will no longer own property in the District subject to the Reassessments, but will own the bulk of the property in CFD 05-1. Palmdale T&C's sole member is S&Y Capital Group LLC. S&Y Capital Group is a private real estate investment and development firm. S&Y Capital Group's owners are S&Y Management, Inc. and the senior management of S&Y Capital Group. S&Y Management, Inc. is a California corporation, owned by the Managing Directors of Stone & Youngberg LLC, a regional investment banking and municipal bond underwriting firm. Stone & Youngberg LLC is a broker-dealer licensed with the National Association of Securities Dealers. Stone & Youngberg LLC was the original underwriter of the Prior Assessment Bonds and the AD 90-2 Bonds, is the Placement Agent with respect to the CFD 05-1 Bonds, and is the Underwriter with respect to the Bonds. Stone & Youngberg and its affiliated entities also own a portion of the AD 88-1 Bonds and the AD 90-2 Bonds and are likely to hold for their own account, at least initially, all of the Subordinate Series B Bonds and a substantial portion of the CFD 05-1 Bonds.

When making the decision whether to purchase the Bonds, potential investors should consider the various roles played by Stone & Youngberg LLC and its affiliates in the ongoing workout of assessment delinquencies and bond defaults in Assessment District No. 88-1 and Assessment District No. 90-2.

39 Tax Matters

As discussed in the section herein entitled "LEGAL MATTERS -Tax Matters," interest on the Bonds could become includable in gross income for purposes of federal income taxation, retroactive to the date of issuance, as a result of acts or omissions of the City subsequent to issuance in violation of the City's covenants applicable to the Bonds. Should interest become includable in gross income, the Bonds are not subject to redemption by reason thereof and may remain outstanding.

LEGAL MATTERS

Tax Matters

In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, under existing law, subject to the City's compliance with certain covenants, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under section 103 of the Internal Revenue Code of 1986, as amended (the "Code") and, under section 55 of the Code, is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Code but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure by the City to comply with one or more of such covenants could cause interest on the Bonds to not be excludable from gross income under section 103 of the Code for federal income tax purposes retroactively to the date of issuance of the Bonds.

In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

Bondowners should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds might have tax consequences other than as described above. Bond Counsel expresses no opinion regarding any collateral tax consequences arising with respect to the Bonds other than as expressly described above.

The complete text of Bond Counsel's proposed opinion is set forth in Appendix B hereto.

Absence of Litigation

At the time of delivery of and payment for the Bonds, the City will deliver a certificate to the effect that there is no known action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or regulatory agency against the City affecting the existence of the City or the title of its officers to office or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Fiscal Agent Agreement, or the collection or application of Reassessments to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution of Issuance, the Fiscal Agent Agreement, or any other applicable agreements or any action of the City or contemplated by any of said documents.

40 Legal Opinion

All proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality of Quint & Thimmig LLP, San Francisco, California, Bond Counsel for the City of Palmdale in connection with the Bonds. The City Attorney will pass upon certain matters for the City, and Jones Hall, A Professional Law Corporation, San Francisco, California, is acting as Disclosure Counsel to the City.

Payment of the fees and expenses of Bond Counsel and Disclosure Counsel is contingent upon issuance of the Bonds.

VERIFICATION

Grant Thornton LLP, San Francisco, California, upon delivery of the Bonds, will deliver a report on the mathematical accuracy of certain computations, contained in schedules provided to them on behalf of the City by the Underwriter, relating to the sufficiency of the anticipated receipts from the securities deposited into the Escrow Fund to pay, when due, the principal, whether at maturity or upon prior redemption, interest and redemption premium requirements of the Prior Assessment Bonds. See "THE BONDS - Purpose of Issue and Refunding Plan" above.

MISCELLANEOUS

No Rating

The City has not made, and does not contemplate making, an application to any rating agency for the assignment of a rating to the Bonds.

Underwriting

The Bonds are being purchased by Stone & Youngberg LLC (the "Underwriter") at the following purchase prices:

Series A Bonds: $8,701,877.50 (representing the par amount of the Series A Bonds less underwriter's discount of $151,812.50 plus an original issue premium of $178,690.00).

Subordinate Series B Bonds: $1,946,745.86 (representing the par amount of the Subordinate Series B Bonds less underwriter's discount of $85,917.10 less original issue discount of $1,404,021.04).

The Bond Purchase Agreement relating to the Bonds provides that all Bonds will be purchased if any are purchased, and that the obligation to make such purchase is subject to certain terms and conditions set forth in said Bond Purchase Agreement, including, but not limited to, the approval of certain legal matters by counsel.

41 Additional Information

References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof.

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Bonds.

The execution and delivery of this Official Statement has been duly authorized by the City.

CITY OF PALMDALE

By: /s/ RobertW. Toone, Tr. City Manager

42 APPENDIX A

GENERAL INFORMATION ABOUT THE CITY OF PALMDALE

The information regarding the City set forth in this Appendix A is for background informational purposes only. The City is not in any way obligated to pay debt service on the Bonds from its own funds.

General

The City encompasses approximately 103 square miles within the northeast portion of the Antelope Valley. Located approximately 60 miles north of Los Angeles, the City is situated in the high desert, at an elevation of 2,600 feet. The climate is mild and the average mean temperature is 72 degrees Fahrenheit.

The City was incorporated on August 24, 1962 as a general law city and uses the Council-Manager form of government. Four City Council members are elected at large to overlapping four-year terms. The mayor is elected to a two-year term. The mayor pro tern is selected from among the City Council members. The City Manager serves at the pleasure of the City Council to administer the City's affairs and to carry out policy established by the City Council.

The Antelope Valley and the Los Angeles Basin are the two major economic zones which influence the economic outlook for the City of Palmdale. The Antelope Valley encompasses over 3,000 square miles. It generally extends from the northern end of the San Gabriel Mountains northwards to Randsburg and Johannesburg in Kern County, and from the eastern region of Los Angeles County and the southern region of Kern County westward to the western end of the Tehachapi Mountains. The southern portion of the Antelope Valley is significantly urbanized and focused around the City of Lancaster and the City of Palmdale. These two cities accommodate nearly half of Antelope Valley's population and are located close to the metropolitan employment center of the Los Angeles Basin.

Population

The following table sets forth population estimate figures for the City for 2001 through 2005.

City of Palmdale Population Estimates As of January 1 of 2000 through 2004

Year (as ofJanuary 1) Population

2001 121,413 2002 123,717 2003 127,225 2004 131,300 2005 136,734

Source: State of California, Department of Finance.

A-1 Industry and Employment

As of July, 2004, the unemployment rate in the City of Palmdale was 6.5%.

The following table summarizes the civilian labor force and wage and salary employment statistics for the Los Angeles Metropolitan Statistical Area (which consists of Los Angeles County) for the years 2000 through 2004.

Los Angeles Metropolitan Statistical Area Civilian Labor Force Employment and Unemployment (1) For Calendar Years 1999 through 2003 (in thousands)

Unemployment Labor Force Employment (2) Unemployment (3) Rate (4)

2000 4,671,800 4,421,900 249,900 5.3% 2001 4,777,000 4,506,900 270,100 5.7 2002 4,789,800 4,465,600 324,200 6.8 2003 4,788,800 4,451,700 337,100 7.0 2004 4,809,700 4,494,000 315,700 6.6

(1) Civilian labor force, employment, and unemployment are by place of residence (see note below). (2) Includes persons involved in labor-management trade disputes. (3) Includes all persons without jobs and actively seeking work. (4) The unemployment rate is computed from unrounded data; it may differ from rates using rounded figures in this table. Nate: The figures used for the civilian labor force employment and unemployment are an annual average. Source: State of California Employment Development Department.

A-2 The following tables lists the largest employers in the Antelope Valley area.

Antelope Valley Area Largest Employers As of June 30, 2004

Company Product/Service Employees

Edwards Air Force Base Aerospace Research 12,270 Lockheed Martin Aeronautics Co. Commercial Aircraft 4,250 Palmdale Elementary School District Education 3,065 Antelope Valley Hospital Medical/Hospital 2,500 Antelope Valley Union High School Education 1,876 District Lancaster School District Education 1,600 Northrop Grumman B-2 Division Military Aircraft 1,500

Wal-Mart Retail 1,400 California State Prison Corrections 1,300 Countrywide Mortgage Banking/Financial 1,100 Services Rite Aid Distribution Center 1,000

Source: City of Palmdale Economic Development Department.

A-3 The table below lists the larger employers in the Los Angeles County area as of January 1, 2005. Major private employers in the Los Angeles area include those in health care, electronics, retail and package delivery services. Major public sector employers include the State of California and the County.

LOS ANGELES COUNTY MAJOR EMPLOYERS

Employer Name Location Industry Aerospace Corp. El Segundo Commercial & Physical Research American Honda Motor Co. Torrance Automobile & Truck Brokers Amtrak Los Angeles Gov. Railroad Ariana Trading Rancho Palos Verdes Importers Boeing Co. Long Beach Aircraft Manufacturer California Institute of Technology Pasadena Non-Profit Organization California State University Long Beach University Edison International Rosemead Utility Fox Films Los Angeles Television & Broadcasting Informative Technology-IT! Monterey Park Internet Hardware & Software Jet Propulsion Lab Pasadena Marketing Programs & Services Kaiser Foundation Hospital Los Angeles Hospital Kaiser Permanente Los Angeles Physicians & Surgeons King Drew Medical Center Los Angeles Hospital Little Company of Mary Hospital Torrance Hospital Lockheed Martin Aeronautics Co. Burbank Library Long Beach Memorial Medical Long Beach Hospital Cntr Memorial Rehabilitation Hospital Long Beach Rehabilitation Service Six Flags Valencia Amusement Park UCLA Los Angeles University University of Southern California Los Angeles University VA Greater Los Angeles Los Angeles Hospital Walt Disney Company Burbank Motion Picture Studio Xerox Corporation El Segundo Office Machines

Source: State of California Employment Development Department.

A-4 Largest Taxpayers

The following tables present twenty of the largest property taxpayers in the City as of the year ended June 30, 2004, and twenty-five of the largest sales taxpayers in the City as of the fourth quarter 2004. Because confidentiality requirements, individual sales tax figures are not provided.

Percentage 2004-05 of Total Assessed Assessed Taxpayer Land Use Valuation Valuation(1l Lockheed Corporation Manufacturing Plant $299,232,120 4.18% Antelope Valley Mall Developers Vacant Land/ Shopping Ctr 86,005,492 1.20 Bascom Fountains LLC Residential Land 26,786,500 0.37 Wal Mart Realty Company Commercial 25,673,337 0.36 Palmdale T & C Partners LLC Commercial 25,092,194 0.35 California Investors VII Residential Land 25,057,429 0.35 Palmdale Marketplace LLC Commercial 20,377,543 0.28 Heritage Inn & Suites Commercial 19,655,112 0.27 McAlpin Company Shopping Center 15,053,708 0.21 Lowes HIW Inc. Shopping Center 13,403,087 0.19 Sears Roebuck & Company Shopping Center 13,254,440 0.19 Beazer Homes Holdings Corporation Vacant Land 12,756,279 0.18 Gottschalks, Inc. Shopping Center 11,984,725 0.17 Palmdale Resort LLC Commercial 11,581,100 0.16 JCPenney Properties Inc. Shopping Center 10,822,000 0.15 El Corte Ingles SA Shopping Center 10,740,000 0.15 Mountain Shadows Apartments Inc. Residential Land 10,646,038 0.15 WilliamJ. Wade Trust Residential Land 10,632,846 0.15 Palm Chaparral Apartments LLC Residential Land 10,465,138 0.15 Dayton Hudson Corporation Shopping Center 10 412 963 0.15 TOTAL $669,632,051 9.36%

(1) 2004-05 Total Assessed Valuation: $7,162,036,808. Source: Los Angeles County Assessor 2004/ 05 Secured & Unsecured Tax Rolls

A-5 Principal Sales Taxpayers (listed alphabetically)

Taxpayer Type of Business Antelope Valley Nissan Auto Dealership Arco AM/PM Mini Mart Service Stations AV. Kia Auto Dealership Best Buy Stores Department Store Circuit City Department Store Dillard's Department Store Department Store Gottschalks Department Store Department Store Home Depot Building Materials J C Penney Company Department Store Kohl's Department Stores Department Store Lockheed Martin Skunk Works Transportation Equipment Lowe's Home Improvement Center Building Materials Mervyn's Department Store Department Store Rally Chevrolet Auto Dealership Robertson's Palmdale Honda Auto Dealership Sam's Club Department Store Saturn Antelope Valley Auto Dealership Sears Roebuck & Company Department Store Service Rock Products Building Materials Shell Service Stations Service Stations Stater Bros. Markets Supermarket Target Stores Department Store Terry Lumber Building Materials Vons Grocery Company Supermarket Wal-Mart Stores Department Store

Source: Municipal Resource Consultants Sales Tax Analysis and Reporting Service Preliminary Results Fourth Quarter 2004

Personal 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 City's median household Effective Buying Income has been consistently greater than that of the County, State or United States.

A-6 The following table summarizes the total effective buying income for the City, the County of Los Angeles, the State and the United States for the period 1999 through 2003. Annual figures for 2004 are not yet available.

City of Palmdale Personal Income For Calendar Years 1999 Through 2003 (As ofJanuary 1)

Total Effective Median Household Buying Income Effective Year and Area (OOOs omitted) Buying Income

1999 City of Palmdale $ 1,706,835 $43,490 County of Los Angeles 157,009,411 36,730 California 590,376,663 39,492 United States 4,877,786,658 37,233

2000 City of Palmdale $ 2,075,811 $47,528 County of Los Angeles 169,417,226 41,628 California 652,190,282 44,464 United States 5,230,824,904 39,129

2001 City of Palmdale $ 2,007,811 $50,081 County of Los Angeles 170,490,432 40,789 California 650 ,521,407 43,532 United States 6,303,481,498 38,365

2002 City of Palmdale $ 1,676,820 $41,212 County of Los Angeles 162,413,790 37,983 California 644,879,427 42,484 United States 5,340,682,818 38,035

2003 City of Palmdale $ 1,758,143 $41,833 County of Los Angeles 169,307,295 38,311 California 674,721,020 42,924 United States 5,466 ,880,008 38,201

Source: Sales and Marketing Management, The Survey of Buying Power, Demographics USA.

A-7 New Construction Activity

The following table shows the number and value of new construction in the City during calendar years 2000 through 2004.

City of Palmdale New Construction Activity and Valuation Calendar Years 1999 through 2003 (Dollars in thousands)

2000 2001 2002 2003 2004 Permit Valuation New Single-family $69,930.7 $141,154.8 $176,679.0 $179,263.1 $297,665.0 New Multi-family 13,918.6 0.0 0.0 0.0 0.0 Res. Alterations/ Additions 1 270.1 2,023.5 3 033.6 3 471.8 3 905.9 Total Residential 29,100.3 143,178.3 179,712.6 182,734.9 301,570.9 New Commercial 29,100.3 14,297.9 9,403.3 32,371.3 12,975.7 New Industrial 400.0 6,437.8 115.6 6,155.4 4,617.0 New Other 5,429.0 5,404.9 7,331.1 12,611.0 18,937.7 Com. Alterations/ Additions 10,658.6 14,688.5 7 763.7 12,345.4 14531.0 Total Nonresidential 45,588.0 40,829.2 24,613.7 63,483.2 51,061.4

New Dwelling Units Single Family 495 812 978 946 1,371 Multiple Family 344 _Q _Q _Q __o TOTAL 839 812 978 946 1,371

Source: Constrndion Industry Research Board, Building Pennit Summary.

Los Angeles County Building Permit Valuation (Valuation in Thousands of Dollars)

2000 2001 2002 2003 2004 Permit Valuation New Single-family $2,083,486.5 $1,946,804.2 $2,031,609.8 $2,584,850.1 $2,923,786.0 New Multi-family 819,451.8 1,066,438.5 1,094,703.1 1,178,699.9 1,915,862.5 Res. Alterations/ Additions 934 394.5 972,492.7 1,172,433.0 1,390,128.9 1 727 799.4 Total Residential 3,837,332.9 3,985,735.4 4,298,745.8 5,153,678.9 6,567,448.0 New Commercial 977,359.6 1,241,821.6 951,063.1 687,654.4 975,900.5 New Industrial 358,633.4 201,927.2 225,428.5 276,414.1 178,199.5 New Other 462,684.4 549,208.5 446,748.1 602,067.1 615,702.5 Com. Alterations/ Additions 1,497,226.0 1 558 316.5 1 297 057.0 1 376 541.5 1 403 741.8 Total Nonresidential 3,295,903.6 3,551,273.8 2,920,296.7 2,931,677.1 3,173,544.4

New Dwelling Units Single Family 8,417 8,181 8,217 10,217 11,752 Multiple Family 8,654 9,926 11147 11096 15,183 TOTAL 17,071 18,107 19,364 21,313 26,935

Source: Constrndion Industry Research Board, Building Pennit Summary.

A-8 Previous Defaults With Respect to Certain of the City's Other Community Facilities Districts or Assessment Districts

In addition to the District and Assessment District No. 90-2, other special districts formed by the City are experiencing significant tax or assessment delinquencies and, as a result, the districts are in default on payment of debt service on certain assessment and special tax bonds.

Sierra Gateway Community Facilities District 91-1. In December 1991, the City issued $7,970,000 of special tax bonds. Proceeds were used for the development of public improvements for the Sierra Gateway Center, a master-planned, mixed-use business park which is proposed to ultimately include 2.5 million square feet of industrial, office and retail buildings. The bonds financed acquisition of land, acquisition and construction of storm drainage retention facilities, landscaping, and street, water, and utility improvements. As of June 1, 2005, a total of $7,425,000 in bonds was outstanding. The principal and interest on the bonds is to be paid from collection of special taxes on the property in the Sierra Gateway Community Facilities District 91-1.

Of the seven parcels of land in the district, only three (which are improved with office buildings and a parking lot) are current in the payment of taxes. Tax revenues generated by the developed parcels, assuming the maximum rate in 2005-06, would pay approximately 20% of debt service on the bonds.

The other four parcels, which are presently vacant, are owned by Financing Facilitators Inc. Financing Facilitators Inc., which is affiliated with Stone & Youngberg, LLC, the Underwriter of the Bonds, acquired the property from Bank of America, who purchased the property via foreclosure in April 1994 and made the special tax payments due prior to December 1995. After selling the two parcels improved with office buildings, Bank of America determined the value of the remaining four parcels of undeveloped land was less than the allocated share of the unpaid bond debt on such parcels and expressed an interest in selling the property. Stone & Youngberg LLC formed Financing Facilitators, Inc. to take ownership of the four undeveloped parcels with the goal of working with the City to help create a viable workout strategy, but expressly stated that it would not make property or special tax payments until, or if, a viable workout strategy could be devised. To date, Financing Facilitators, Inc. has not paid property or special taxes on the four undeveloped parcels.

Debt service on the bonds is paid in June and December. Due to delinquencies in special tax payments, partial payments of debt service were made in respect of these bonds since December 1, 1997. Payment defaults are expected to continue indefinitely.

Ritter Ranch Community Facilities District 93-1. In April 1995, the City issued $50,000,000 of special tax bonds to finance the design, acquisition and construction of public improvements for a master-planned community known as Ritter Ranch consisting of approximately 10,625 acres.

Construction of certain public improvements commenced in May 1995; no substantial work was ever undertaken toward construction of the private improvements. In January 1997, the original landowner's interest in the property was foreclosed upon by a bank who had lent the landowner approximately $26 million for the construction of private improvements.

Because special taxes levied by the City commencing in December 1996 for the purpose of paying debt service on the Bonds had not been paid, the City commenced foreclosure proceedings in December 1997. In May 1998, the City entered into a Settlement Agreement with

A-9 the then-owner of the property in the Ritter Ranch community facilities district and others that provided for certain payments and a stipulated foreclosure judgment if those payments were not made and certain agreements were not completed by March 1999 (or September 1999 if certain payments were made). Some of the required payments were made, including some used to pay the bonds, as described in the following paragraph. However, the property within the Ritter Ranch community facilities district was sold to a prospective developer (Ritter Ranch Development, LLC ("RRD")) in the fall of 1998. Upon acquiring title to the Ritter Ranch property, RRD promptly filed a chapter 11 bankruptcy case. The filing of a bankruptcy petition operates as a stay of all actions to collect debts that accrue before the petition date. As such, the City could not proceed to judgment on its foreclosure action.

As of August 1, 2002, there was a default in payment of debt service due on the bonds, and all debt service reserve funds had been exhausted. Prior to August 1, 2002, improvement fund earnings were used to make the last two debt service payments on the bonds. As of June 30, 2003, a total of $40,700,000 of the bonds were outstanding.

On August 6, 2004, after an auction, the Bankruptcy Court entered an order approving the sale of the Ritter Ranch property to SCC Acquisitions Inc., an affiliate of SunCal Companies, for $57.2 million. A portion of the proceeds of the sale were received by the City on account of defaulted special taxes and are expected to be used to pay owners of the Ritter Ranch community facilities district bonds. A settlement agreement was recently submitted for approval by the Bankruptcy Court regarding the disposition of the remaining proceeds of the sale, and no assurance can be given as to when the remaining proceeds of the sale will be distributed pursuant to the settlement agreement (if approved), or otherwise.

A-10 APPENDIXB

FORM OF BOND COUNSEL OPINION

Upon the issuance and delivery of the Bonds, Quint & Thimmig LLP, San Francisco, California, Bond Counsel proposes to issue its approving opinion in substantially the following form:

August ~ 2005

City Council City of Palmdale 38300 North Sierra Highway Palmdale, California 93550

OPINION: $8,675,000 City of Palmdale Limited Obligation Refunding Bonds 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Series A and $3,436,684 City of Palmdale Limited Obligation Refunding Bonds 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Subordinate Series B

Members of the City Council:

We have acted as bond counsel in connection with the issuance by the City of Palmdale (the "City") of its $8,675,000 City of Palmdale Limited Obligation Refunding Bonds 10th Street West Assessment District No. 88-1 (Reassessment and RefundinS of 2005), Series A and $3,436,684 City of Palmdale Limited Obligation Refunding Bonds 10 h Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Subordinate Series B (collectively, the "Bonds"), pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds, Division 11.5 of the California Streets and Highways Code, (the "Act"), Resolution No. CC 2005-145 of the City adopted June 13, 2005 (the "Resolution") and a Fiscal Agent Agreement, dated as of July 1, 2005 by and between the City and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent Agreement"). We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing, we are of the opinion as of the date hereof, under existing law, that:

1. The City is duly created and validly existing as a municipal corporation, with the power to adopt the Resolution, enter into the Fiscal Agent Agreement and perform the agreements on its part contained therein and issue the Bonds.

2. The Fiscal Agent Agreement has been duly entered into by the City pursuant and constitutes a valid and binding obligation of the City enforceable upon the City.

B-1 3. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement for the security of the Bonds.

4. The Bonds have been duly authorized, executed and delivered by the City and are valid and binding limited obligations of the City, payable solely from the sources provided therefor in the Fiscal Agent Agreement.

5. Subject to the City's compliance with certain covenants, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under section 103 of the Internal Revenue Code of 1986, as amended (the "Code") and, under section 55 of the Code, is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Code but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure by the City to comply with one or more of such covenants could cause interest on the Bonds to not be excludable from gross income under section 103 of the Code for federal income tax purposes retroactively to the date of issuance of the Bonds.

6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.

Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds.

The rights of the owners of the Bonds and the enforceability of the Bonds, the Resolution and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

In rendering this opinion, we have relied upon certifications of the City and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

B-2 APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTIFICATE

CONTINUING DISCLOSURE CERTIFICATE (City of Palmdale)

CITY OF PALMDALE LIMITED OBLIGATION REFUNDING BONDS lOTH STREET WEST ASSESSMENT DISTRICT NO. 88-1 (REASSESSMENT AND REFUNDING OF 2005), $8,675,000 SERIES A $3,436,684 SUBORDINATE SERIES B

This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and delivered by the City of Palmdale (the "City") in connection with the issuance of the bonds captioned above (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"). The City hereby covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5).

Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Annual Report Date" means the date that is seven months after the end of the City's fiscal year (currently January 31 based on the City's fiscal year end of June 30).

"CPO" means the Internet-based filing system currently located at www.DisclosureUSA.org, or such other similar filing system approved by the Securities and Exchange Commission.

"Dissemination Agent" means NBS Government Finance Group or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

"Listed Events" means any of the events listed in Section S(a) of this Disclosure Certificate.

"National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Securities and Exchange Commission's Internet site at www.sec.gov.

C-1 "Official Statement" means the final official statement executed by the City in connection with the issuance of the Bonds.

"Participating Underwriter" means Stone & Youngberg LLC, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository" means each National Repository and each State Repository, if any.

"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State Repository" means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing January 31, 2006 with the report for the 2004-05 fiscal year (provided, however, that the report for the 2004-05 fiscal year may consist of the City's audited financial statements (along with the statement set forth in Section 4(a) below) and the Official Statement for the Bonds), provide to the Participating Underwriter and to each Repository an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). 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 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) If the City does not provide, or cause the Dissemination Agent to provide, an Annual Report to the Repositories by the Annual Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to (i) either the National Repositories or the Municipal Securities Rulemaking Board and (ii) the appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating Underwriter. In lieu of filing the notice with each Repository, the City or the Dissemination Agent may file such notice with the CPO.

(c) With respect to the Annual Report, the Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the name and address of each National Repository and each State Repository, if any; and

(ii) if the Dissemination Agent is other than the City, file a report with the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

C-2 (d) In lieu of filing the Annual Report with each Repository in accordance with the preceding paragraph (c), the City or the Dissemination Agent may file such Annual Report solely with the CPO.

Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following documents and information:

(a) The City's audited financial statements for the most recently completed fiscal year, together with the following statement:

THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15C2-12. NO FUNDS OR ASSETS OF THE CITY ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS.

(b) Total assessed value (per the Los Angeles County Assessor's records) of all Reassessment Parcels with unpaid Reassessments, showing the total assessed valuation for all land and the total assessed valuation for all improvements and distinguishing between the assessed value of improved and unimproved parcels. Parcels are considered improved if there is an assessed value for the improvements in the Assessor's records.

(c) The District-wide value-to-lien ratio based on (i) the assessed value of the Reassessment Parcels and the lien of the Reassessments and (ii) the assessed value of the Reassessment Parcels and all direct, overlapping special tax and assessment liens (including interest and penalties), in each case as of June 30 of the most recently completed fiscal year.

(d) With respect to delinquent Reassessments,

(i) delinquency information for each Reassessment Parcel responsible for more than $3,000 in the payment of Reassessments for a prior fiscal year or years, amounts of delinquencies, length of delinquency and status of any foreclosure of each such parcel, and

(ii) the total dollar amount of Reassessment delinquencies as of June 30 of the prior fiscal year for the entire District and, in the event that the total Reassessment delinquencies (less the delinquencies described in clause (i)) exceeds 3% of the Reassessments due and payable in the prior fiscal year, delinquency information for each Reassessment Parcel responsible for more than $2,000 in the payment of Reassessments, amounts of delinquencies, length of delinquency and status of any foreclosure of each such parcel.

(e) The amount of prepaid Reassessments for the prior Fiscal Year.

(f) A land ownership summary listing property owners responsible for more than 5% of the annual Reassessments, as shown on the Los Angeles County Assessor's report as of the end of the most recently completed fiscal year.

(g) With respect to any Reassessment Parcels described in the preceding paragraph, the value-to-lien ratios for any such Reassessment Parcels based on (i) the assessed value of such Reassessment Parcels and the lien of the Reassessments and (ii) the assessed value of the

C-3 Reassessment Parcels and all direct, overlapping special tax and assessment liens (including interest and penalties), in each case as of June 30 of the most recently completed fiscal year.

(f) The principal amount of the Bonds outstanding and the balance in the Reserve Fund (along with a statement of the Reserve Requirement) as of the September 30 next preceding the Annual Report Date.

In addition to any of the information expressly required to be provided under paragraphs (a) through (f) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

(1) Principal and interest payment delinquencies.

(2) Non-payment related defaults.

(3) Unscheduled draws on debt service reserves reflecting financial difficulties.

(4) Unscheduled draws on credit enhancements reflecting financial difficulties.

(5) Substitution of credit or liquidity providers, or their failure to perform.

(6) Adverse tax opinions or events affecting the tax-exempt status of the security.

(7) Modifications to rights of security holders.

(8) Contingent or unscheduled bond calls.

(9) Defeasances.

(10) Release, substitution, or sale of property securing repayment of the securities.

(11) Rating changes.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law.

(c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with (i) each National

C-4 Repository or the Municipal Securities Rulemaking Board and (ii) the appropriate State Repository, if any, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(S) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Fiscal Agent Agreement.

In lieu of filing the notice of Listed Event with each Repository in accordance with the preceding paragraph, the City or the Dissemination Agent may file such notice of a Listed Event with the CPO.

Section 6. Termination of Reporting Obligation The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5( c).

Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent will be NBS Government Finance Group.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or S(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting

C-5 principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c).

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City 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) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Property Owner, the Fiscal Agent, the Bond owners or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows:

To the Issuer: City of Palmdale 38300 Sierra Highway Palmdale, CA 93550 Attention: Director of Finance Fax: (661) 267-5454

To the Fiscal Agent: U.S. Bank National Association Corporate Trust Services 633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, CA 90071 Fax: 213-615-6199

C-6 To the Dissemination Agent: NBS Government Finance Group 41661 Enterprise Circle North, Suite 225 Temecula, CA 92590 Attention: Fax: (909) 296-1998

To the Participating Underwriter: Stone & Youngberg LLC One Ferry Building San Francisco, California 94111 Attention: Municipal Research Department Fax: (415) 445-2395

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.

Date: August 2, 2005

CITY OF PALMDALE

AGREED AND ACCEPTED: NBS GOVERNMENT FINANCE GROUP, as Dissemination Agent

By: ______

Name: ~~~~~~~-

Title: ~~~~~~~~-

C-7 EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: City of Palmdale

Name of Bond Issire City of Palmdale Limited Obligation Refunding Bonds 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Series A and Subordinate Series B

Date of Issuance: August 2, 2005

NOTICE IS HEREBY GIVEN to [(i) each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository] [the CPO and the Municipal Securities Rulemaking Board] that the City has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate dated August 2, 2005 executed by the City and countersigned by NBS Government Finance Group, as dissemination agent. The City anticipates that the Annual Report will be filed by

Dated:---

DISSEMINATION AGENT:

NBS GOVERNMENT FINANCE GROUP

By: ______

Its: ______

C-8 APPENDIXD

REASSESSMENT DIAGRAM

D-1 (THIS PAGE INTENTIONALLY LEFT BLANK) Sheet 1 of 1 Reassessment Diagram Oty mPalmdale I 0th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005)

Ot)I of Palmdale Couf1\Y of Los 1'ngeles State of califomia

..__.,._ := ·­. - .,_·­. - . - . ------. =- - =- =- =- - - • - :• - • - • - rmr &iiicum ...... __ .: - .: =- • -

-- (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIXE

TABLE OF VALUE-TO-LIEN RATIOS

The following table summarizes the value to lien ratios of the Reassessment Parcels on a parcel­ by-parcel basis, based on (i) the fiscal year 2004-05 assessed value of the Reassessment Parcels (except the appraised value for the Acton Crown Valley Parcel is included in this table) and (ii) the lien of the Reassessments, 2004-05 delinquent Unpaid Assessments, County CFD No. 1 Bonds, pnor years' delinquencies of County ad valorem property taxes, and remaining unpaid AD 90-2 Assessments (even though the AD 90-2 Assessments are subordinate to the lien of the Unpaid Assessments and the Reassessments).

2004-05 Deliq. Prior Years' Unpaid County Assess. District Delinquent 2004-05 Assessed Assessed Value APN Reassessment Assessments CFD No. 1 No. 90--2 Ad Valorem Taxes Value (1) to Lien Ratio 3003-001-019 $16,988.25 $26,368 1.55:1 3003-001-031 32,596.54 $3,575 666,239 18.42:1 3003-001-044 22,759.77 $1,947 1,079,047 43.67:1 3003-001-046 11,524.52 356,391 30.92:1 3003-001-047 18,558.86 16,001 2,212,119 64.01:1 3003-001-048 114,71233 786,775 3,525,040 3.91:1 3003-001-049 303,184.95 $28,823 15,560 384,103 $124,500 2,609,6(]2 3.05:1 3003-001-050 33,673.61 2,950 45,149 429,000 5.25:1 3003-001-051 33,399.85 2,925 44,782 429,000 5.29:1 3003-001-052 22,188.35 4,198 29,709 1,375,203 24.52:1 3003-001-056 18,551.78 2,679 24,840 806,663 17.51:1 3003-001-059 24,778.03 2,043 33,222 376,907 6.28:1 3003-001-060 33,278.75 2,742 44,620 509,335 6.32:1 3003-001-061 57,281.68 3,773 993,203 16.27:1 3003-002-011 197,041.31 15,982 790,000 3.71:1 3003-002-026 51,987.82 4,222 460,000 8.18:1 3003-002-067 63,611.% 54,953 132,977 1.12:1 3003-002-071 88,917.07 14,432 9,180 264,956 2.35:1 3003-002-072 60,280.49 317,406 5.27:1 3003-002-075 145,335.98 22,129 841,107 5.CJ.2:1 3003-002-076 93,304.26 21,156 841,107 7.35:1 3003-002-082 82,870.91 72,666 240,714 590,236 1.49:1 3003-080-003 64,691.72 130,232 1,330,504 6.83:1 3003-080-020 164,494.76 36,956 723,125 3.59:1 3003-085-004 10,829.26 9,337 1,156,766 57.36:1 3003-085-005 15,187.38 13,094 802,850 28.39:1 3003-085-006 79,502.64 68,546 5,956,773 40.24:1 3003-085-007 50,976.77 43,951 2,852,953 30.05:1 3003-085-008 13,206.41 11,386 819,365 33.32:1 3003-085-009 11,885.78 10,248 485,912 21.95:1 3003-085-010 45,165.95 38,941 5,133,893 61.04:1 3003-085-013 9,640.68 8,312 1,593,199 SS.74:1 3003-085-014 12,017.85 10,362 1,139,109 50.901 3003-085-016 187,787.49 171,069 10,143,364 28.27:1 3003-085-017 109,217.09 94,165 5,470,010 26.901 3003-085-019 6,999.41 6,035 923,464 70.85:1 3004-001-024 180,934.32 29,948 10,678,000 50.63:1 3004-001-026 71,360.44 82,593 1.16:1 3004-001-028 208,466.79 34,719 627,796 2.58:1 3004-001-031 72,372.83 4,060 11,763 93,513 1.06:1 3004-001-035 174,07217 30,345 548,056 2.68:1 3004-001-036 150,821.65 25,389 427,000 2.42:1 3004-004-015 44,731.19 1,998,761 44.68:1 3004-004-016 149,520.01 1,075,595 7.19:1 3004-004-029 2,609.46 459 521,000 169.82:1 3005-004-071 24,111.58 9,537 677,896 20.15:1 3005-004-072 28,398.78 11,233 1,252,567 31.61:1 3005-004-074 34,046.22 13,466 834,517 17.56:1 3005-004-075 40,003.40 15,823 1,116,971 20.01:1 3005-004-076 42,634.CE 16,863 400,478 6.73:1 3005-004-077 439,045.31 173,658 190,164 10,632,846 13.24:1 3005-038-001 239,955.95 47,512 1,120,537 3.90:1 3005-038-005 340,223.72 17,307 11,000,000 30.77:1

E-1 3005-038-006 271,064.02 13,531 10,740,000 37.74:1 3005-038-007 474,331.89 23,CJ.22 27,569 10,822,000 20.62:1 3005-038-008 522,29222 26,437 32,192 10,163,000 17.49:1 3005-038-011 43,938.32 3,021 979,829 20.87:1 3005-038-012 57,763.11 394 2,125,074 36.54:1 3005-038-014 24,385.98 672,977 27.601 3005-038-016 59,840.73 3,054 3,688 1,227,235 18.43:1 3005-038-017 40,782.19 2,069 2,514 1,073,168 23.66:1 3005-038-020 37,572.70 1,905 2,316 1,360,000 32.54:1 3005-038-021 34,856.52 1,773 2,148 520,189 13.41:1 3005-038-023 40,710.47 3,580 2,050,000 46.29:1 3005-038-025 23,105.25 2,036 540,894 21.51:1 3005-038-027 48,508.66 4,269 1,240,981 23.51:1 3005-038-030 33,167.86 2,989 1,376,881 38.08:1 3005-038-031 22,232.05 1,346 948,268 40.22:1 3005-038-037 62,723.04 3,186 4,159 1,818,380 25.95:1 3005-038-038 29,601.45 1,511 3,920 756,712 21.601 3005-038-039 63,604.46 3,218 1,824 2,130,846 31.04:1 3005-038-047 61,972.49 3,054 3,820 2,246,140 32.63:1 3005-038-048 66,520.91 3,448 4,100 1,979,238 26.72:1 3005-038-054 37,000.24 3,875 1,898,643 46.45:1 3005-038-059 39,567.91 3,087 602 1,359,744 31.43:1 3005-038-060 67,477.00 3,415 3,866 1,200,000 16.05:1 3005-038-063 1,053,605.37 84,894 19,887 80,211,426 69.24:1 3005-038-064 376,847.36 30,378 7,113 15,053,708 36.33:1 3005-038-065 35,618.85 2,857 2,750,409 71.48:1 3005-038-066 35,618.85 2,857 201,699 5.24:1 3005-038-067 140,694.43 11,330 796,760 5.24:1 3005-038-068 68,388.18 5,517 387,279 5.24:1 3005-038-069 47,373.(}5 3,810 268,271 5.24:1 3005-038-070 357,256.99 28,769 2,023,171 5.24:1 3005-038-071 70,881.50 5,682 401,456 5.24:1 3005-038-072 77,670.10 2,496 3,021 2,052,791 24.68:1 3004-001-032 3 132 971.68 95 808 7 282 964 1 832 103 4 426 000 0.36:1

$12,111,684.00 $163,786 $481,099 $9,930,112 $2,396,661 $269,054,488 10.73:1

(1) Reflects the 2004-05 assessed value of the Reassessment Parcels except for the Acton Crown Valley Parcel, for which the appraised value is provided (see APPENDIX H). Source: NBS Government Finance Group.

E-2 APPENDIXF

SUMMARY OF FISCAL AGENT AGREEMENT

The following is a brief summary of certain provisions of the Fiscal Agent Agreement not otherwise described in the text of this Official Statement. Such summary is not intended to be definitive, and reference is made to the text of the Fiscal Agent Agreement for the complete terms thereof.

Definitions

The Fiscal Agent Agreement includes the following defined terms.

"Act" means the Refunding Act of 1984 for 1915 Improvement Act Bonds, as amended, being Division 11.5 of the California Streets and Highways Code.

"Administrative Expense Subaccount" means the subaccount by that name within the Redemption Fund, as established pursuant to the Agreement.

"Agreement" means the Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement executed pursuant to the provisions thereof.

"Assessments" means the portion of the unpaid assessments authorized to be levied for Fiscal Year 2004-05 pursuant to proceedings commenced under the Prior Resolution of Intention on parcels in the District which were delinquent as of May 9, 2005, which assessments are not in any way supplanted by the Reassessments; but do not include any such delinquent assessments on land located in the City of Palmdale Community Facilities District No. 05-1 (Trade and Commerce Center Area).

"Assessment Bonds" means, collectively, the Series A Bonds and the Series B Bonds.

"Auditor" means the auditor/ controller or tax collector of the County, or such other official of the County who is responsible for preparing real property tax bills for parcels in the County.

"Authorized Investments" means the following, but only to the extent that the same are acquired at Fair Market Value:

(a) Federal Securities;

(b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: (i) Export-Import Bank; (ii) Farmers Home Administration ( or Rural Economic and Community Development Services as the successor thereto); (iii) General Services Administration; (iv) U.S. Maritime Administration; (v) small Business Administration; (vi) Government National Mortgage Association ("GNMA"); (vii) U.S. Department of Housing and Urban Development or (viii) Federal Housing Administration; (ix) Student Loan Marketing Association; (x) Federal Financing Bank; and (xi) Federal Farm Credit Bank;

(c) bonds, debentures, notes or other evidences of indebtedness issued or fully unconditionally guaranteed by and of the following United States Government non-full faith and credit agencies: Federal Home Loan Bank and Federal Land Bank;

F-1 (d) bonds, notes or other evidences of indebtedness rated "Aaa" by Moody's or "AAA" by S&P and issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation;

(e) U.S. dollar denomination deposit accounts, federal funds and bankers acceptances and certificates of deposit (whether negotiable or non-negotiable) with domestic commercial banks; provided that either: (i) the obligations of such bank are rated in one of the two highest rating categories (without regard to plus ( +) or minus (-) designations) by Moody's or S&P (the ratings of the holding company of a bank are not considered the rating of such bank); or (ii) such deposits are fully insured by the Federal Deposit Insurance Corporation, provided, however that the portion of any certificates of deposit in excess of the amount insured by the Federal Deposit Insurance Corporation, if any, shall be secured at all times in the manner provided by law by collateral security having a market value not less than the amount of such excess, consisting of securities described in paragraphs (a) through (d);

(f) commercial paper which is rated at the time of purchase in a single highest classification, "P-1" by Moody's and "A-1 +" by S&P, and which mature not more than 270 days after the date of purchase;

(g) investments in a money market fund (including any funds of the Fiscal Agent or its affiliates) registered with the Securities and Exchange Commission rated in the highest rating category (without regard to plus(+) or minus(-) designations) by Moody's orS&P;

(h) pre-refunded municipal obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obliger prior to maturity or as to which irrevocable instruction have been given by the obliger to call on the date specified in the notice: and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody's or any successors thereto; or (ii) (A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or obligations described in paragraph (a) above, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of an interest and redemption premium, if any, on the Assessment Bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate;

(i) a guaranteed investment contract or investment agreement with a financial institution whose long-term unsecured debt obligations or claims paying ability are rated in one of the two highest rating categories (without regard to plus ( +) or minus (-) designations) by Moody's Investors Service and Standard & Poor's Ratings Services at the time of execution of such contract or agreement. Such contract or agreement must be collateralized with securities described in the above definitions (a) through (d). All such collateral to be held by the Fiscal Agent or a third party custodian, with a market value of at least 102% of the principal invested, and in a form acceptable to the Fiscal Agent and the Treasurer. Provided, however, that (i) moneys invested thereunder may be withdrawn without penalty, premium, or charge, for reasons in the bond documents, upon not more than seven day's notice; (ii) the agreement is not subordinated to any other obligation of

F-2 such agreement provider; (iii) the same guaranteed interest rate will be paid on any future deposits made to restore the reserve to its required amount, provided such replenishment is delivered to the contract or agreement provider within six months of the date of withdrawal; (iv) the Fiscal Agent will receive an opinion of counsel that such agreement is an enforceable obligation of such company; (v) the agreement provides that the agreement provider must promptly notify the Fiscal Agent if the rating assigned by Moody's or S&P to its long term unsecured debt obligations or claims-paying ability, as applicable, is lowered or withdrawn; and (vi) the Fiscal Agent shall withdraw all amounts held under such contract or agreement following receipt of any written notice of such downgrade; and

(j) the Local Agency Investment Fund of the State of California, created under Section 16429.1 of the California Government Code.

"Authorized Officer" means the City Manager, City Director of Finance, the City Clerk or any other officer or employee of the City authorized by the City Council of the City or by an Authorized Officer to undertake the action referenced in the Agreement as required to be undertaken by an Authorized Officer.

"Bond Counsel" means (i) Quint & Thimmig LLP, or (ii) any attorney or other firm of attorneys acceptable to the City and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.

"Bond Date" means the dated date of the Assessment Bonds, which is the Closing Date.

"Bond Law" means the Improvement Bond Act of 1915, as amended, being Division 10 of the California Streets and Highways Code.

"Bond Register" means the books maintained by the Fiscal Agent pursuant to the Agreement for the registration and transfer of ownership of the Assessment Bonds.

"Bond Year" means the twelve-month period beginning on September 2 in each year and ending on the day prior to September 2 in the following year except that the first Bond Year shall begin on the Closing Date and end on the day prior to the next September 2.

"Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the state in which the Fiscal Agent has its Principal Office are authorized or obligated by law or executive order to be closed.

"City Attorney" means the City Attorney of the City or other designated counsel to the City with respect to the District and/ or the Reassessments.

"Closing Date" means the date upon which there was a physical delivery of the Assessment Bonds in exchange for the amount representing the purchase price of the Assessment Bonds by the Original Purchaser.

"Code" means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced in the Agreement) as it may be amended to apply to obligations issued on the Closing Date, together with applicable, temporary and final regulations promulgated under the Code.

"Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate of the City relating to the Assessment Bonds, dated the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

F-3 "Costs of Issuance" means items of expense payable or reimbursable directly or indirectly by the City and related to the authorization, sale and issuance of the Assessment Bonds and the refunding and defeasance of the Prior Bonds, which items of expense shall include, but not be limited to, printing costs for the Assessment Bonds and the Official Statement pertaining to the Assessment Bonds, costs of reproducing and binding documents, closing costs, appraisal costs, filing and recording fees, fees and expenses of the City, the Fiscal Agent, and the Escrow Bank, initial fees and charges of the Fiscal Agent including its first annual administration fee, expenses incurred by the City in connection with the Reassessments and the issuance of the Assessment Bonds, bond (underwriter's) discount, legal fees and charges, including bond counsel and disclosure counsel, charges for execution, transportation and safekeeping of the Assessment Bonds and other costs, charges and fees in connection with the foregoing.

"Costs of Issuance Fund" means the fund by that name established and administered under the Agreement.

"County" means the County of Los Angeles, State of California.

"Debt Service" means, for each Bond Year, the sum of (i) the interest due on the Outstanding Assessment Bonds in such Bond Year, assuming that the Outstanding Assessment Bonds are retired as scheduled, and (ii) the principal amount of the Outstanding Assessment Bonds due in such Bond Year.

"Defeasance Securities" means any of the following which are non-callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Trustee: (i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as stripped obligations and coupons; or (ii) any of the following obligations of the following agencies of the United States of America: (a) direct obligations of the Export-Import Bank, (b) certificates of beneficial ownership issued by the Farmers Home Administration, (c) participation certificates issued by the General Services Administration (d) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, (e) project notes issued by the United States Department of Housing and Urban Development, and (f) public housing notes and bonds guaranteed by the United States of America.

"DTC' means The Depository Trust Company and any successor thereto.

"Depository" means (a) initially, OTC, and (b) any other Securities Depository acting as Depository pursuant to the book entry provisions of the Agreement.

"Escrow Agreement" means the Escrow Agreement dated July 1, 2005, by and between the City and the Escrow Bank, providing for the establishment and administration of the Escrow Fund and the redemption of the Prior Bonds.

"Escrow Bank" means U.S. Bank National Association acting in such capacity under the Escrow Agreement.

"Escrow Fund" means the fund of that name established pursuant to the Escrow Agreement.

"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

F-4 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 (a) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (b) 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) that is acquired in accordance with applicable regulations under the Code, (c) 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 (d) the investment is the Local Agency Investment Fund of the State of California 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.

"Fiscal Agent" means the Fiscal Agent appointed by the City and acting as an independent fiscal agent with the duties and powers provided in the Agreement, its successors and assigns, and any other corporation or association which may at any time be substituted in its place.

"Fiscal Year" means the twelve-month period extending from July 1 in a calendar year to June 30 of the succeeding year, both dates inclusive.

"Formation Act" means the Municipal Improvement Act of 1913, as amended, being Division 12 of the California Streets and Highways Code.

"Independent Financial Consultant" means any financial consultant or firm of such financial consultants appointed by the Treasurer and who, or each of whom: (a) is judged by the Treasurer to have experience with respect to the financing of public capital improvement projects; (b) is in fact independent and not under the domination of the City; (c) does not have any substantial interest, direct or indirect, with the City, other than as Original Purchaser; and (d) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City.

"Information Services" means Financial Information, Inc.' s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny S&P, 55 Water Street, New York, New York 10041, Attention: Notification Department; Mergent/FIS, Inc. 5250-77 Center Drive, Charlotte, North Carolina 28217 Attention: Called Bond Dept.; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such other services providing information with respect to called bonds as the City may designate in an Officer's Certificate delivered to the Fiscal Agent.

"Improvement Fund" means the fund established and administered under the Agreement.

"Investment Earnings" means all interest earned and any gains or losses on the investment of moneys in any fund or account created by the Agreement.

"Maximum Annual Debt Service" means the largest Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Assessment Bonds.

"Moody's" means Moody's Investors Service, its successors and assigns.

"Officer's Certificate" means a written certificate of the City signed by an Authorized Officer of the City.

F-5 "Original Purchaser" means Stone & Youngberg LLC, as the first purchaser of the Assessment Bonds from the City.

"Outstanding" when used as of any particular time with reference to Assessment Bonds, means, subject to the provisions of Section 8.04, all Assessment Bonds except: (i) Assessment Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Assessment Bonds paid or deemed to have been paid within the meaning of Section 9.03 of the Agreement; (iii) Assessment Bonds in lieu of or in substitution for which other Assessment Bonds shall have been authorized, executed, issued and delivered by the City pursuant to the Agreement or any Supplemental Agreement.

"Owner" or "Bond Owner" means the registered owner of any Outstanding Assessment Bond as shown on the Bond Register of the Fiscal Agent.

"Prepayment Subaccount" means the subaccount by that name within the Redemption Fund, as established pursuant to the Agreement.

"Principal Office" means the principal office of the Fiscal Agent in San Francisco, California, located at such address as shall be specified in a written notice by the Fiscal Agent to the City under the Agreement or such other office designated for payment, transfer or exchange of Assessment Bonds.

"Prior Bonds" means the Limited Obligation Improvement Bonds City of Palmdale 10th Street West Assessment District No. 88-1, Series 1989-A, issued pursuant to the Prior Fiscal Agent Agreement.

"Prior Fiscal Agent Agreement" means the Fiscal Agent Agreement, dated as of July 1, 1989, between the City and U.S. Bank National Association, as successor fiscal agent, pursuant to which the Prior Bonds were issued.

"Prior Resolution of Intention" means Resolution No. 89-21 of the City, adopted by the City Council on January 12, 1989.

"Prior Resolutions" means, collectively, Prior Resolution of Intention and Resolution No. 89- 137, adopted by the City Council of the City on April 27, 1989, authorizing the issuance of the Prior Bonds.

"Project" means the acquisitions and improvements authorized to be financed by the District under the proceedings undertaken pursuant to the Prior Resolution of Intention.

"Purchase Contract" means the written agreement between the City and the Original Purchaser for the sale of the Assessment Bonds.

"Reassessments" means, collectively, (a) the unpaid reassessments levied within the District by the City under the proceedings taken pursuant to the Act, the Formation Act and the Resolution of Intention, and (b) the unpaid Assessments.

"Record Date" means the fifteenth (15th) day of the calendar month immediately preceding the applicable Interest Payment Date.

"Redemption Fund" means the fund by that name established and administered under the Agreement.

F-6 "Reserve Fund" means the fund by that name established and administered under the Agreement.

"Reserve Requirement" means as of any date of calculation, an amount equal to the lesser of (i) an amount equal to fifty percent (50%) of the Maximum Annual Debt Service on the Series A Bonds as of the Closing Date, plus the amount of the aggregate interest earnings from time to time on amounts on deposit in the Reserve Fund (whether or not such earnings have been used for purposes of the Reserve Fund); or (ii) the least of (a) an amount equal to Maximum Annual Debt Service on the then Outstanding Series A Bonds, (b) an amount equal to 125% of average annual debt service on the then Outstanding Series A Bonds, or (c) an amount equal to 10% of the principal of the then Outstanding Series A Bonds.

"Resolution of Intention" means Resolution No. CC 2005-062, adopted by the City Council on March 28, 2005.

"Resolution of Issuance" means Resolution No. CC 2005-145, adopted by the City Council on June 13, 2005, authorizing, among other matters, the issuance of the Assessment Bonds.

"Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th Floor, New York, New York 10041-0099 Attention: Call Notification Department, Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such other securities depositories as the City may designate in an Officer's Certificate delivered to the Fiscal Agent.

"Series A Bonds" means the City of Palmdale Limited Obligation Refunding Bonds 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Series A, authorized by, and at any time Outstanding pursuant to, the Agreement.

"Series B Bonds" means the City of Palmdale Limited Obligation Refunding Bonds 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Subordinate Series B, authorized by, and at any time Outstanding pursuant to, the Agreement.

"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services, its successors and assigns.

"Supplemental Agreement" means an agreement the execution of which is authorized by a resolution which has been duly adopted by the Council of the City under the Bond Law and which agreement is amendatory of or supplemental to the Agreement, but only if and to the extent that such agreement is specifically authorized hereunder.

"Treasurer" means the City Treasurer, or designee thereof.

Application of Proceeds of Sale of Assessment Bonds

The proceeds of the purchase of the Assessment Bonds by the Original Purchaser shall be paid to the Fiscal Agent, who shall forthwith set aside, pay over and deposit such proceeds on the Closing Date into the into the Costs of Issuance Fund, the Escrow Fund, the Redemption Fund and the Reserve Fund as provided in the Agreement.

In addition to the foregoing, on the Closing Date the City shall transfer or cause to be transferred (i) to the Fiscal Agent for deposit by the Fiscal Agent in the Improvement Fund, the amount on deposit in the improvement fund created under the Prior Fiscal Agent Agreement as of the Closing Date, and (ii) to the Escrow Bank for deposit in the Escrow Fund, from amounts in the

F-7 funds and accounts relating to the Prior Assessment Bonds, moneys as provided in the Agreement.

Funds and Accounts

Redemption Fund. There is established under the Agreement, as a separate fund to be held by the Fiscal Agent, the Redemption Fund, to the credit of which deposits shall be made as required by the Agreement, and any other amounts required to be deposited therein by the Agreement or the Bond Law. Moneys in the Redemption Fund shall be held by the Fiscal Agent for the benefit of the City and the Owners of the Assessment Bonds, and shall be disbursed for the payment of the principal of, and interest and any premium on, the Assessment Bonds, and for payment of administrative expenses of the District, as described below.

Within the Redemption Fund the Fiscal Agent shall establish the following subaccounts: (i) the Prepayment Subaccount into which shall be placed the proceeds of the prepayment of any Reassessment which occurs after the Closing Date, and which Prepayment Subaccount shall be administered in accordance with the provisions of Section 8767 of the Bond Law; and (ii) the Administrative Expense Subaccount into which shall be placed funds attributable to the administrative costs of prepayment of Reassessments, any amounts collected pursuant to Sections 8682 and 8682.1 of the Bond Law, as further specified in the Agreement, and transfers from the Costs of Issuance Fund pursuant to the Agreement, which Administrative Expense Subaccount shall be administered as hereinafter provided. Disbursements.

(i) General. On each Interest Payment Date, the Fiscal Agent shall withdraw from the Redemption Fund and pay to the Owners of the Assessment Bonds an amount equal to the principal of, and interest and any premium, then due and payable on the Assessment Bonds. If there are insufficient funds in the Redemption Fund to make the payments on the Assessment Bonds provided for in the preceding sentence, the Fiscal Agent shall apply available funds first to the payment of interest due on the Series A Bonds, then to the payment of principal and any redemption premium due on the Series A Bonds (including any amounts due by reason of the redemption of Series A Bonds not otherwise paid from the Prepayment Subaccount pursuant to subsection (ii) below), then to the payment of interest due on the Series B Bonds, and then to the payment of any principal or premium due on the Series B Bonds (including any amounts due by reason of the redemption of Series B Bonds not otherwise paid from the Prepayment Subaccount pursuant to subsection (ii) below). Any scheduled sinking payment for the Series B Bonds pursuant to the mandatory sinking payment provisions of the Agreement or any portion thereof not made as scheduled due to a shortfall in amounts available in the Redemption Fund shall be added to the amount due for redemption on the next succeeding September 2 under the mandatory sinking payment provisions of the Agreement.

If the amount on deposit in the Redemption Fund on any Interest Payment Date is not sufficient to pay all amounts due on the Series A Bonds, the Fiscal Agent shall transfer from the Reserve Fund an amount necessary to cure such insufficiency with respect to the Series A Bonds (not to exceed the amount then on deposit in the Reserve Fund), and if, on any Interest Payment Date an insufficiency still exists with respect to amounts owing on the Series A Bonds, the Fiscal Agent shall apply the available funds to the payment of the Series A Bonds in the manner provided in the Bond Law, as directed by the City in writing. Past due payments of principal and interest shall continue to bear interest at the rate of interest on the Assessment Bonds. In the event of any delinquency in payment of the Assessment Bonds, such delinquency shall be paid from the first available moneys arising from the collection of delinquent Reassessments; provided that all such delinquencies with

F-8 respect to the Series A Bonds shall be paid in full prior to the payment of any such delinquencies with respect to the Series B Bonds.

The Bond Owners, by their acceptance of the Bonds, agree to waive any provision of the Formation Act or the Bond Law (including but not limited to Section 8775 of the Bond Law) which would require a distribution of funds that is contrary to the foregoing provisions of the Agreement.

(ii) Redemption of Bonds. Funds placed in the Prepayment Subaccount of the Redemption Fund shall be disbursed therefrom by the Fiscal Agent for the call and redemption of Assessment Bonds on the redemption date, pursuant to the redemption provisions of the Agreement; provided that amounts in the Prepayment Subaccount shall be used to make payments on Series A Bonds called for redemption prior to the use of any such amounts to make payments on Series B Bonds called for redemption.

(iii) Payment of Administrative Expenses. Funds placed in the Administrative Expense Subaccount of the Redemption Fund shall be remitted by the Fiscal Agent to the City upon receipt of an Officer's Certificate requesting a draw on amounts in such account, and shall be used by the City to pay the costs of the City in complying with the provisions of this Agreement and the administration of the District.

Investment. Moneys in the Redemption Fund and the subaccounts therein shall be invested and deposited in accordance with the Agreement. Interest earnings and profits resulting from such investment and deposit shall be retained in the Redemption Fund and the subaccounts therein, respectively, to be used for the purposes of such fund and subaccounts.

Escrow Fund. On the Closing Date, the Fiscal Agent shall remit the amount described in the Agreement to the Escrow Bank for deposit under the Escrow Agreement. The purpose of the establishment of the Escrow Fund shall be to assure the timely retirement of the Prior Bonds, all as specified in the Escrow Agreement. Amounts in this fund are not pledged as security for the Assessment Bonds.

Costs of Issuance Fund. The Costs of Issuance Fund is established as a separate fund to be held by the Fiscal Agent to the credit of which a deposit shall be made as required in the Agreement. Moneys in the Costs of Issuance Fund shall be held by the Fiscal Agent for the benefit of the City and shall be disbursed as provided in the Agreement for the payment or reimbursement of Costs of Issuance. Amounts in this fund are not pledged as security for the Assessment Bonds.

Reserve Fund. There is established under the Agreement, as a separate fund to be held by the Fiscal Agent, a Reserve Fund, to the credit of which a deposit shall be made as required by the Agreement, and deposits shall be made as provided in the Bond Law. Moneys in the Reserve Fund shall be held by the Fiscal Agent for the benefit of the City and the owners of the Series A Bonds as a reserve for the payment of principal of and interest and any premium on, the Series A Bonds. The City shall cause the Reserve Fund to be administered in accordance with Part 16 of the Bond Law and shall advise the Fiscal Agent in accordance therewith; provided that proceeds from redemption or sale of properties with respect to which payment of delinquent Reassessments and interest thereon was made from the Reserve Fund, shall be credited to the Reserve Fund.

Use of Fund. Except as otherwise provided in the Agreement all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Redemption Fund in the event of any deficiency at any time in the Redemption Fund of the amount then required for payment of the principal of and interest and any premium on, the Series A Bonds or, in accordance with the provisions of the Agreement, for the purpose of

F-9 redeeming Assessment Bonds from the Redemption Fund or paying rebate to the federal government.

Transfer Due to Deficiency in Redemption Fund. Transfers shall be made from the Reserve Fund to the Redemption Fund in the event of a deficiency in the Redemption Fund with respect to amounts owing on the Series A Bonds, in accordance with the Agreement.

Payment of Assessments. Whenever, after the issuance of the Assessment Bonds, a Reassessment is paid, in whole or in part, as provided in the Bond Law, the Fiscal Agent, at the written direction of an Authorized Officer, shall transfer from the Reserve Fund to the Prepayment Subaccount of the Redemption Fund an amount specified in such direction equal to the product of the ratio of the original amount of the Reassessment so paid to the original amount of all unpaid Reassessments, times the amount, if any, on deposit in the Reserve Fund.

Transfer of Excess of Reserve Requirement. Whenever, on any Interest Payment Date, or on any other date when requested by the Treasurer, the amount in the Reserve Fund exceeds the then applicable Reserve Requirement, the Fiscal Agent shall, except as otherwise provided in the Agreement for purposes of rebate and as evidenced by an appropriate Officer's Certificate, transfer on or before such Interest Payment Date an amount equal to the excess from the Reserve Fund to the Redemption Fund to be used in accordance with Part 16 of the Bond Law as directed in such Officer's Certificate.

Transfer When Balance Exceeds Outstanding Assessment Bonds. Whenever the balance in the Reserve Fund is sufficient to retire all the Outstanding Assessment Bonds, whether by advance retirement or otherwise, collection of the principal and interest on the Reassessments shall be discontinued and the Reserve Fund liquidated by the Fiscal Agent in retirement of the Outstanding Assessment Bonds, as directed by an Officer's Certificate. In the event that the balance in the Reserve Fund at the time of liquidation exceeds the amount required to retire all of the Outstanding Bonds, the excess shall after payment of amounts due to the Fiscal Agent, be transferred to the City to be used in accordance with the Bond Law.

Investment. Moneys in the Reserve Fund shall be invested and deposited in accordance with the Agreement. Interest earnings and profits resulting from said investment shall be retained in the Reserve Fund subject to the provisions of the Agreement.

Improvement Fund. The Improvement Fund is established as a separate fund to be held by the Fiscal Agent. The Fiscal Agent shall deposit in the Improvement Fund on the Closing Date the amount required by the Agreement. Moneys in the Improvement Fund shall be held by the Fiscal Agent for the benefit of the City, and shall be disbursed, except as otherwise provided in the Agreement, for the payment or reimbursement of costs of the Project. Amounts in this fund are not pledged as security for the Assessment Bonds.

Disbursement. Disbursements from the Improvement Fund shall be made by the Fiscal Agent upon receipt of an Officer's Certificate which shall: (i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made, the person to which the disbursement is to be paid and state that such disbursement is for a Project cost; and (ii) certify that no portion of the amount then being requested to be disbursed was set forth in any Officers Certificate previously filed requesting disbursement.

Investment. Moneys in the Improvement Fund shall be invested and deposited in accordance with the Agreement. Interest earnings and profits from such investment and deposit shall be retained in the Improvement Fund to be used for the purposes of such fund.

F-10 Closing of Fund. Upon the filing of an Officer's Certificate stating that the Project has been completed and that all costs of the Project have been paid, or that no future Project costs are required to be paid from the Improvement Fund, the Fiscal Agent shall transfer the amount, if any, remaining in the Improvement Fund as directed in said Officer's Certificate (which directions shall be pursuant to the Prior Resolution of Intention and to the provisions of Sections10427 and 10427.1 of the Formation Act) and the Improvement Fund shall be closed.

Covenants of the City

Collection of Reassessments. The City shall comply with all requirements of the Act, the Bond Law and the Agreement to assure the timely collection of the Reassessments, including, without limitation, the enforcement of delinquent Reassessments. Any funds received by the City in and for the District, including, but not limited to, collections of Reassessments upon the secured tax rolls, collections of delinquent Reassessments and penalties thereon, through foreclosure proceedings and the prepayment of Reassessments or portions thereof, shall be immediately deposited into the Redemption Fund. To that end, the following shall apply:

The Reassessments (other than the Assessments) as set forth on the list thereof on file with the Treasurer together with the interest thereto, shall be payable in annual series corresponding in number to the number of serial maturities of the Assessment Bonds issued. An annual proportion of each Reassessment shall be payable in each year preceding the date of maturity of each of the several series of Assessment Bonds issued sufficient to pay the Assessment Bonds when due and such proportion of each Reassessment coming due in any year, together with the annual interest thereon, shall be payable in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interests after delinquency as do the general taxes on real property. All sums received from the collection of the Reassessments and of the interest and penalties thereon shall be transmitted by the City to the Fiscal Agent, to be placed in the Redemption Fund; provided that any prepayments of Reassessments shall be placed in the Prepayment Subaccount and administered as provided in the Agreement, and amounts representing the collection of delinquent Reassessments (whether by foreclosure or otherwise) shall, after deduction of the costs of collection, be transferred to the Redemption Fund only in the amount of any then delinquency in the payment of the principal of or interest on the Assessment Bonds and otherwise shall be transferred to the Fiscal Agent for deposit to the Reserve Fund.

The Treasurer shall, before the final date on which the Auditor will accept the transmission of the Reassessments (other than the Assessments) for the parcels within the District for inclusion on the next tax roll, prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the installments of the Reassessments (other than the Assessments) on the next secured tax roll.

The Reassessments (other than the Assessments) shall be payable and be collected in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property.

In addition to any amounts authorized pursuant to Section 8682 of the Bond Law to be included with the annual amounts of installments as aforesaid, the City, pursuant to Section 8682.1 of the Bond Law, may cause to be entered on the Reassessment roll on which taxes will next become due, opposite each lot or parcel of land within the District in the manner set forth in said Section 8682, each lot's pro rata share of the estimated annual expenses of the City in connection with the administrative duties thereof for the Assessment Bonds, including, but not limited to, the

F-11 costs of registration, authentication, transfer and compliance with the provisions of Article V of the Agreement, which amounts shall be placed in the Administrative Expense Subaccount of the Redemption Fund.

Delinquent Reassessments shall be subject to foreclosure pursuant to the Agreement.

Punctual Payment. The City will punctually pay or cause to be paid the principal of, and interest and any premium on, the Assessment Bonds when and as due in strict conformity with the terms of the Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Agreement and all Supplemental Agreements and of the Assessment Bonds.

Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the City shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Assessment Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of the Agreement, except subject to the prior payment in full of the principal of all of the Assessment Bonds then Outstanding and of all claims for interest which shall not have so extended or funded.

No Encumbrances. The City will not encumber, pledge or place any charge or lien upon any of the unpaid Reassessments or other amounts pledged to the Assessment Bonds superior to or on a parity with the pledge and lien created for the benefit of the Assessment Bonds, except as permitted by the Fiscal Agent Agreement, the Act or the Bond Law.

Books and Accounts. The City will keep, or cause to be kept, proper books of record and accounts, separate from an other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to the Reassessments, which records shall be subject to inspection by the Fiscal Agent upon reasonable prior notice on any Business Day.

Protection of Security. The City will preserve and protect the security of the Assessment Bonds and the rights of the Owners thereto, and will warrant and defend their rights to such security against all claims and demands of all persons. From and after the delivery of any of the Assessment Bonds by the City, the Assessment Bonds shall be incontestable by the City.

Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Fiscal Agent Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Fiscal Agent Agreement.

Tax Covenants. The City shall assure that the proceeds of the Prior Bonds and of the Assessment Bonds are not so used as to cause the Assessment Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(b) of the Code.

The City shall assure that the proceeds of the Prior Bonds and of the Assessment Bonds are not so used as to cause the Assessment Bonds to satisfy the private loan financing test of section 141(c) of the Code.

The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Assessment Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code.

F-12 The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the Prior Bonds and of the Assessment Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Assessment Bonds would have caused the Assessment Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code.

The City shall take all actions necessary to assure the exclusion of interest on the Assessment Bonds from the gross income of the owners of the Assessment Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Assessment Bonds.

The City shall take all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, as applicable to the Assessment Bonds and/ or the Prior Bonds. Earnings on the Reserve Fund shall be used for rebate purposes before any application thereof as credits to the Redemption Fund as provided in the Agreement.

Continuing Disclosure. The City covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Agreement, failure of the Authority to comply with the Continuing Disclosure Certificate shall not be considered a default under the Agreement; however, any Participating Underwriter (as defined in the Continuing Disclosure Certificate) or any holder or beneficial owner of the Assessment Bonds may take such actions as may be necessary and appropriate to compel performance by the City of its obligations thereunder, including seeking mandate or specific performance by court order.

Yield of the Assessment Bonds. In determining the yield of the Assessment Bonds to comply with the Agreement, the City will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the City, as of the Closing Date, regarding prepayments of Reassessments and use of prepayments for redemption of the Assessment Bonds, without regard to whether or not prepayments are received or Assessment Bonds redeemed.

Completion of Project. The City will comply with all applicable provisions of the Formation Act and the Bond Law in completing the acquisition and construction of the Project; provided that the City shall have no obligation to advance any funds to complete the Project in excess of the amounts available therefor in the Improvement Fund.

Tender of Assessment Bonds for Payment of Reassessments. Notwithstanding any provision to the contrary contained in the Formation Act or the Bond Law, the Bondowners agree in the Agreement not to tender (i) Series B Bonds for payment of Reassessments, except with respect to Reassessments and related penalties and interest with respect to Parcel Nos. 2, 7 and 14, as such parcels are identified in the Reassessment Report dated May 9, 2005 for the District, and (ii) Series A Bonds for payment of Reassessments in amounts which would result in an insufficient amount on deposit in the Redemption Fund to pay debt service due or to become due on Series A Bonds owned by any entity other than the tendering Bondowner without the prior written consent of the affected Bondowner. The City, including the Treasurer and the Director of Finance, are directed in the Agreement not to accept tenders of Assessment Bonds that are inconsistent with the foregoing provisions.

F-13 Investments

Moneys in any fund or account created or established by the Agreement and held by the Fiscal Agent shall be invested by the Fiscal Agent in Authorized Investments, as directed pursuant to an Officer's Certificate filed with the Fiscal Agent at least two (2) Business Days in advance of the making of such investments.

The following provisions of the Agreement apply to such investments:

(a) In the absence of any such Officer's Certificate, the Fiscal Agent shall invest any such moneys in Authorized Investments described in clause (g) of the definition of Authorized Investments in the Agreement. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account, subject, however, to the requirements of the Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts.

(b) The Fiscal Agent may act as principal or agent in the acquisition or disposition of any investment. The Fiscal Agent shall incur no liability for losses arising from any investments made pursuant to the Agreement.

(c) Subject in all respects to the federal rebate provisions of the Agreement, investments in any and all funds and accounts may at the discretion of the Fiscal Agent be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions in the Agreement for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent thereunder, provided that the Fiscal Agent shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Agreement.

(d) The Fiscal Agent shall sell at the highest price reasonably obtainable, or present for redemption, any investment security whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and the Fiscal Agent shall not be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance with the Agreement.

(e) For funds held by the Treasurer, the foregoing provisions shall also apply, except that an Officer's Certificate shall not be required. For such funds the Treasurer shall keep records or accounts of all expenditures or disbursements therefrom which records shall be available for inspection during business hours on any Business Day upon prior written request.

Except as otherwise provided in the next sentence, the City covenants that all investments of amounts deposited in any fund or account under the Agreement, or otherwise containing gross proceeds of the Bonds (under section 148 of the Code) shall be acquired, disposed of and valued (as of the date that valuation is required by this Agreement or the Code) at Fair Market Value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code and (unless valued at least annually) investments in the Reserve Fund shall be valued at their present value (under section 148 of the Code).

The Treasurer may act as principal or agent in the acquisition or disposition of any investment. The City shall incur no liability for losses arising from any investments made pursuant to the Agreement. For purposes of determining the amount on deposit in any fund or account held under the Agreement, all investments credited to such fund or account shall be

F-14 valued at the lesser of the cost thereof (excluding accrued interest and brokerage commissions, if any) or fair market value. Investments in any and all funds and accounts may at the discretion of the Treasurer be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions in the Agreement for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the City under the Agreement.

Liability of City

The City shall not incur any responsibility in respect of the Assessment Bonds or the Agreement other than in connection with the duties or obligations explicitly provided therein or in the Assessment Bonds. The City shall not be liable to any Owner in connection with the performance of its duties thereunder, except for its own negligence or willful misconduct. The City shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions covenants or agreements of the Fiscal Agent in the Agreement or of any of the documents executed by the Fiscal Agent in connection with the Assessment Bonds, or as to the existence of a default thereunder.

In the absence of bad faith, the City, including the Treasurer, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the City and conforming to the requirements of the Fiscal Agent Agreement. The City, including the Treasurer, shall not be liable for any error of judgment made in good faith unless it shall be proved that it was negligent in ascertaining the pertinent facts other than to the extent of money improperly obtained or retained by the City.

No provision of the Agreement shall require the City to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to (i) imposing and collecting the Reassessments and transferring the same to the Fiscal Agent; and (ii) defending the validity of the Reassessments and the Assessment Bonds and the proceedings related thereto) in the performance of any of its obligations under the Agreement or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

The City may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The City may consult with counsel, who may be the City Attorney, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Agreement in good faith and in accordance therewith.

The City shall not be bound to recognize any person as the Owner of an Assessment Bond unless duly registered and until such Assessment Bond is submitted for inspection, if required, and his title thereto satisfactory established, if disputed.

Whenever in the administration of its duties under the Agreement the City shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Agreement, such matter (unless other evidence in respect thereof be specifically prescribed in the Agreement) may, in the absence of willful misconduct on the part of the City, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent or other expert retained by the City for the purposes of the Agreement, and such certificate shall be full warrant to the City for any action taken or suffered under the provisions of the Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the City may, in lieu thereof,

F-15 accept other evidence of such matter or may require such additional evidence as to it may deem reasonable.

In order to perform its duties and obligations under the Agreement, the Treasurer may employ such persons or entities as he deems necessary or advisable. The City shall not be liable for any of the acts or omissions of such persons or entities employed by it with reasonable care and in good faith under the Agreement, and shall be entitled to rely, and shall be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities.

Amendment of the Agreement

The Agreement and the rights and obligations of the City and of the Owners of the Assessment Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Assessment Bonds then Outstanding, exclusive of Assessment Bonds disqualified as provided in the Agreement. No such modification or amendment shall (i) extend the maturity of any Assessment Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Assessment Bond, without the express consent of the Owner of such Assessment Bond, or (ii) permit the creation by the City of any pledge or lien upon the Reassessments superior to or on a parity with the pledge and lien crea led for the benefit of the Assessment Bonds (except as otherwise permitted by the Act, the Resolution of Issuance, the laws of the State of California or the Agreement), or reduce the percentage of Assessment Bonds required for the amendment of the Agreement. No such amendment may modify any of the rights or increase any of the obligations of the Fiscal Agent (except as otherwise specifically provided therein) without its written consent.

The Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the City contained in the Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power in the Agreement reserved to or conferred upon the City;

(b) to make modifications not adversely affecting any outstanding series of Assessment Bonds in any material respect;

(c) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Agreement, or in regard to questions arising under the Agreement, as the City may deem necessary or desirable and not inconsistent with the Agreement, and which shall not adversely affect the rights of the Owners of the Assessment Bonds; and

(d) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Assessment Bonds.

The City and the Fiscal Agent may at any time adopt a Supplemental Agreement amending the provisions of the Assessment Bonds or of the Agreement or any Supplemental Agreement, to the extent that such amendment is not permitted by the provisions of the Agreement, to take effect when and as provided in the Agreement.

F-16 The prov1s10ns of the Agreement shall not prevent any Owner from accepting any amendment as to the particular Assessment Bonds held by him, provided that due notation thereof is made on such Assessment Bonds.

Discharge of the Fiscal Agent Agreement

Subject to the provisions of the Agreement, if the City shall pay and discharge the entire indebtedness on all Assessment Bonds Outstanding in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of (including any sinking fund payments), and interest and any premium on, all Assessment Bonds Outstanding, as and when the same become due and payable;

(b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which is fully sufficient to pay all Assessment Bonds Outstanding, including all principal (including sinking fund payments if applicable), interest and redemption premiums; or

(c) by irrevocably depositing with the Fiscal Agent, in trust, cash and Defeasance Securities in such amount as the City shall determine, as confirmed by Bond Counsel or an independent certified public accountant, which will, together with the interest to accrue thereon and moneys then on deposit in the funds provided for in the Agreement, be fully sufficient to pay and discharge the indebtedness on all Assessment Bonds (including all principal, sinking fund payments, interest and redemption premiums) at or before their respective maturity dates; and if such Assessment Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in the Fiscal Agent Agreement provided or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any Assessment Bonds shall not have been surrendered for payment, the pledge of the Reassessments and other funds provided for in the Agreement and all other obligations of the City under the Agreement with respect to all Assessment Bonds Outstanding shall cease and terminate, except only the obligation of the City to pay or cause to be paid to the Owners of the Assessment Bonds not so surrendered and paid all sums due thereon and all amounts owing to the Fiscal Agent pursuant to the Agreement; and thereafter Reassessments shall not be payable to the Fiscal Agent. Notice of such election shall be filed with the Fiscal Agent. Any funds thereafter held by the Fiscal Agent which are not required for said purpose shall be paid over to the City to be used by the City as provided in the Act and the Bond Law.

F-17 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIXG

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company ("DTC"), the procedures and record keeping with respect to beneficial ownership interests in the Series A Bonds, payment of principal, interest and other payments on the Series A Bonds to OTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Series A Bonds and other related transactions by and between OTC. the OTC Participants and the Beneficial Owners is based solely on information provided by OTC. Accordingly, no representations can be made by the issuer of the Series A Bonds (the "Issuer") concerning these matters and neither the OTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with OTC or the OTC Participants, as the case may be.

No assurances can be given that OTC. OTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Series A Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Series A Bonds, or ( c) redemption or other notices sent to OTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that OTC. OTC Participants or OTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to OTC are on file with the Securities and Exchange Commission and the current "Procedures" of OTC to be followed in dealing with OTC Participants are on file with OTC.

DTC and its Participants. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series A Bonds. The Series A 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 security certificate will be issued for each maturity of the Series A Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post­ trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, "NSCC", "GSCC", "MBSCC", and "EMCC", also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ('Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC

G-1 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.

Book-Entry Only System. Purchases of the Series A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series A Bonds on DTC's records. The ownership interest of each actual purchaser of each Security ('Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series A Bonds, except in the event that use of the book-entry system for the Series A Bonds is discontinued.

To facilitate subsequent transfers, all Series A 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 the Series A 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 Series A Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series A 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 the Series A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the Series A Bonds may wish to ascertain that the nominee holding the Series A 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 Series A Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series A Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal of, premium, if any, and interest evidenced by the Series A 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 Issuer or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments

G-2 by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Fiscal Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest evidenced by the Series A Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Series A Bonds at any time by giving reasonable notice to the Issuer or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

Discontinuance of DTC Services. If (a) DTC determines not to continue to act as securities depository for the Series A Bonds, or (b) the Issuer determines that DTC will no longer so act and delivers a written certificate to the Fiscal Agent to that effect, then the Issuer will discontinue the Book-Entry Only System with DTC for the Series A Bonds. If the Issuer determines to replace DTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Bond for each maturity of the Series A Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Fiscal Agent Agreement. If the Issuer fails to identify another qualified securities depository to replace the incumbent securities depository for the Series A Bonds, then the Series A Bonds will no longer be restricted to being registered in the Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Series A Bonds designates.

If the Book-Entry Only System is discontinued, the following provisions would also apply: (i) the Series A Bonds will be made available in physical form, (ii) principal of, and redemption premiums, if any, on, the Series A Bonds will be payable upon surrender thereof at the corporate trust office of the Fiscal Agent in Los Angeles, California, (iii) interest on the Series A Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of Series A Bonds received by the Fiscal Agent on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Series A Bonds will be transferable and exchangeable as provided in the Fiscal Agent Agreement.

G-3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIXH

COMPLETE APPRAISAL SUMMARY APPRAISAL REPORT

H-1 (THIS PAGE INTENTIONALLY LEFT BLANK) COMPLETE APPRAISAL

SUMMARY REPORT

OF

4 PARCELS IN THE PALMDALE TRADE AND COMMERCE CENTER

Located at

South of Avenue Q, East of 10th Street West, South of Avenue P-8 (Technology Drive), and West of 5th Street West Palmdale, Los Angeles County, California VAAFileNo.: 105-413C

OWNERSHIP: Subject Parcel 1: Ronald and Nancy Arrache Trust Subject Parcel 2: Ronald and Nancy Arrache Trust Subject Parcel 3: Acton Crown Valley Road, Inc Subject Parcel 4: Acton Crown Valley Road, Inc

DATE OF VALUE: April 30, 2005

DATES OF INSPECTION: April 16, 2005 and May 13, 2005

DATE OF REPORT: May 17, 2005

PREPARED FOR

Mr. RobertW. Toone, Jr City Manager City of Palmdale 38300 Sierra Highway Palmdale, California 93550

PREPARED BY

VALENTINE APPRAISAL & ASSOCIATES 23942 Lyons Avenue, Suite 212 Santa Clarita, California 91321 Community Redevelopment Agency of the City of Palmdale May 17, 2005 Page 2

This is a summary appraisal report, which is intended to comply with the reporting requirements set forth under Standard Rule 2-2 of USPAP. As such, it presents a summary discussion of data, reasoning, and analysis that is used in the appraisal process to develop the opinion of value. Supporting documentation 23942 Lyons Avenue, Suite 212 is retained in my 1iles. The depth of the discussion contained in this report is specific to the needs of the Santa Clarita, CA 91321 client and for the intended use of the report I am not responsible for the unauthorized or unintended use Ph (661) 28&-0198 Fax (661) 28&-0197 of the report www.valenflneappra,sal.com [email protected] A copy of this report and the field data supporting it will remain in my files for review upon your request VAAFile#: 105-413C Very truly yours, May 17, 2005

City of Palmdale 38300 Sierra Highway Palmdale, CA 93550

Attn: RobertW. Toone, Jr Gary Valentine, MAI, ASA, SRM/A Cert1f1ed Real Estate Appraiser#AG006526 At your request, I have inspected and appraised the fair market values of the subjects' fee simple interest and considered a bond and property tax indebtedness due to delinquent payments. The four parcels are located south of Avenue Q, East of 10th Street West, south of Avenue P-8 (Technology Drive), and west of 5th Street West, City of Palmdale, Los Angeles County, California

Based on the data and conclusions presented in the attached report, and based on my experience in the field of real estate appraising, it is my opinion that the fair market values of the subject properties, as of April 30, 2005, are as follows

Fair Market Fair Market Value Property Tax and Value after Assessor Parcel befora Bond Indebtedness Acraage Indebtedness Indebtedness (Rounded) '"·1 3003-080-006'"· 1.005 $300,000 $114,494 $186,000 2 3003-080-009 1.003 $300,000 $114,494 $186,000 3004-001-032 3 (west portion) 4.693 (sca~bl•) $1,300,000 $3,579,080 -$2,279,000 3004-001-032 4 (east portion) 11.387 (sca~bl•) $3,126,000 $8,684,208 -$5,558,000

I, Gary Valentine, MAI, ASA, SRM/A, have performed the appraisal based upon the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the California Debt and Investment Advisory Commission (CDIAC) 4 Parcels -Trade & Commerce Center TABLE OF CONTENTS 4 Parcels -Trade & Commerce Center SUBJECT PHOTOGRAPHS

Title Page Letter of Transmittal Table of Contents Subject Photographs Certification of the Appraisal Summary of Important Data and Conclusions

INTRODUCTION Identification of the Purpose ottheAp,,ra,sal. Inspection Function of the Appraisal Environmental Issues 2 Scope Appraisal u,no,,r,oc,s ...... Property History 5

FACTUAL DATA Arna

Office Retail Market Overview 25 Industrial Market Overview 28 City Analysis Neighborhood Data 41 Site Data Zoning Assessment and Taxes Improvement Data 62 Exposure Time Highest and Best Use

ANALYSES AND CONCLUSIONS Appraisal Procedures 68 Sales Comparison Approach 70 Conclusion 81 Assumptions and Limiting Conditions 82

ADDENDA Delinquent Bond and Penalty Roll Preliminary Title Report Comparable Sales Plat Maps Company Quali1ications Appraiser's Qualifications

VAA File No. 1 05-413C Valentine Appraisal & Associates. Inc. VAA File No. 105-413C Valentine Appraisal & Associates. Inc. 4 Parcels -Trade & Commerce Center SUBJECT PHOTOGRAPHS 4 Parcels -Trade & Commerce Center CERTIFICATION OF THE APPRAISAL

I certify that, to the best of my knowledge and belief

The statements of fact in this report are true and correct

2 The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, unbiased professional analyses, opinions, and conclusions

3 I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved

4 My compensation is not contingent on the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

5 To the best of my knowledge and belief, the reported analyses, opinions, and conclusions were developed and this report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation, the Code of Professional Ethics, and the Standards of Professional Practice of the Appraisal Institute, and the California Debt and Investment Advisory Commission (CDIAC)

6 The use of this report is subject to the requirements of the Appraisal Institute, American Society of Appraisers, and the International Right-of-Way Association relating to review by its duly authorized representatives

No. 3: APN 3004-001-032 7 Gary Valentine has made a personal inspection of the property that is the subject of this report 0fVest Portion) 8 No one provided significant professional assistance to the person signing this report

9 As of the date of this appraisal, I have completed the requirements under the continuing education program of the Appraisal Institute, American Society of Appraisers, and the International Right-of-Way Association

10 The appraisal assignment was not based on a requested minimum valuation, specific valuation, or approval of a loan

11 Gary Valentine is currently certified in the state where the subject is located

12 As part of the market research, my investigation, client confidentiality and privacy are maintained at all times with regards to this assignment

Gary S. Valentine, MAI, ASA, SRN./A Certi1ied Real Estate Appraiser #AG006526

(East Portion)

VAA File No. 1 05-413C Valentine Appraisal & Associates, Inc. VAA File No. 105-413C Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SUMMARY OF IMPORTANT DATA AND CONCLUSIONS 4 Parcels -Trade & Commerce Center IDENTIFICATION OF THE PROPERTY

Location South of Avenue Q, East of 10th Street West, South of The subject properties are located South of Avenue Q, East of 10th Street West, South of Avenue P- Avenue P-8 (Technology Drive), and West of 5th 8 (Technology Drive), and West of 5th Street West, City of Palmdale, Los Angeles County, California Street West, City of Palmdale, Los Angeles County, California in the Palmdale Trade and Commerce Center, City of Palmdale, Los Angeles County For the best available title information, please refer to the Addenda section of this report Ownership (1) Ronald and Nancy Arrache Trust (2) Ronald and Nancy Arrache Trust PURPOSE OF THE APPRAISAL (3) Acton Crown Valley Road, Inc The purpose of the appraisal is to express my opinion of the fair market values of the subjects' fee simple (4) Acton Crown Valley Road, Inc interest of their retail and bulk values before and after bond indebtedness as of April 30, 2005 Property Type PUD INSPECTION DATE Proposed Development 4 finished lots ranging from 1.003 acres to 11.387 This property was inspected on April 16, 2005 and May 13, 2005, by Gary Valentine, MAI, ASA, SRM/A acres

Principal Improvements Improved roads, including curbs, gutters, sidewalks, FUNCTION OF THE APPRAISAL streetlights, and all public utilities in streets It is my understanding that this appraisal report is to be used in connection with issuance of one or more series of special tax and assessment bonds for the purpose of refinancing a portion of the unpaid Zoning Palmdale Trade and Commerce Center Specific Plan assessments on parcels in the city of Palmdale's Tenth Street West Assessment District No. 88-1 ("AD (MX) 88-1") and all other related outstanding Limited Obligation Improvement Bonds, City of Palmdale Tenth Fair Market Value Street West Assessment District No. 88-1 Series 1989-A (the "AD 88-1 Bonds"); and to refinance the unpaid special taxes on parcels in the City of Palmdale's Community Facilities District No. 99-1 (Trade Fair Market and Commerce Center Area) ("CFD 99-1") and all of the related outstanding City of Palmdale Fair Market Value Properly Tax and Value after Community Facilities District No. 99-1 (Trade and Commerce Center Area) 1999 Special Tax Bonds (the Assessor Parcel before Bond Indebtedness Acrea.ge Indebtedness Indebtedness (Rounded) "CFD 99-1 Bonds") I hereby consent to the use of this Appraisal in the Official Statement, Private '"·1 3003-080-006'"· 1.005 $300,000 $114,494 $186,000 Placement Memorandum or other disclosure documents relating to such special tax and assessment 2 3003-080-009 1.003 $300,000 $114,494 $186,000 bonds. If this report is used for any other purpose or valuation date, it may invalidate the appraisal 3004-001-032 3 (west portion) 4.693 (scalab~) $1,300,000 $3,579,080 -$2,279,000 3004-001-032 4 (east portion) 11.387 (scalab~) $3,126,000 $8,684,208 -$5,558,000

Date of Value April 30, 2005

Dates of Inspection April 16, 2005 and May 13, 2005

Date of Report May 17, 2005

VAA File No, 1 05-413C Valentine Appraisal & Associates, Inc, VAA File No, 105-413C Valentine Appraisal & Associates, Inc, 4 Parcels -Trade & Commerce Center ENVIRONMENTAL ISSUES 4 Parcels -Trade & Commerce Center SCOPE OF THE APPRAISAL

I, Gary Valentine, MAI, ASA, SRM/A, did review the Environmental Impact Report for the Palmdale The scope of the appraisal included a physical inspection of the subject property, a visual review of Trade and Commerce Speci1ic Plan dated July 1990. I considered the information found in the document comparable properties, and an analysis of regional and neighborhood trends All market data were upon preparing this appraisal and arriving at its conclusions verified by the buyer, seller, broker, deed, title company, and/or leasing agent wherever possible; the accumulated data have been presented in this Summary Appraisal Report, resulting in the market value conclusion

The appraisal has addressed no issues of law, engineering, code conformance, insect or rodent infestation, or contamination by discharge of asbestos or other hazardous materials, inter alia, unless specifically identi1ied in the body of the report

The appraisal has accordingly been completed under the Assumptions and Limiting Conditions and the Certification in the attached report

VAA File No. 1 05-413C Valentine Appraisal & Associates, Inc. VAA File No. 105-413C Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center APPRAISAL DEFINITIONS 4 Parcels -Trade & Commerce Center PROPERTY HISTORY

The following definitions pertain to this report After reviewing the public records for subjects' history of recent transactions, I found the following

Fair Market Value. The fair market value of the property taken is the highest price on Subject parcels 1 and 2 were recently acquired by Ronald and Nancy Arrache, according to document the date of valuation that would be agreed to by a seller, being willing to sell but under No. 815083, dated April 6, 2004. They acquired the property for $247 ,255, or approximately $2.82/sq. ft no particular or urgent necessity or so doing, nor obliged to sell, and a buyer, being plus the assumption of 99-1 bond debt of approximately $2.68/sq. ft., equaling an adjusted sale price of ready, willing and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all uses and purposes for which the $5.50 per square foot. The existing liens are special tax liens represented by future 99-1, and there are property is reasonably adaptable and available no delinquencies. Further, there are no 99-1 or county tax delinquencies

The fair market value of the property taken for which there is no relevant market is its Subject parcels 3 and 4, found in this appraisal report, have property tax and bonded indebtedness due value on the date of valuation as determined by any method of valuation that is just and equitable.1 to liens, delinquent payments, penalties and interest, from AD 88-1 bonds, AD 90-2 bonds, and delinquent property taxes Real Property. The interest, benefits, and rights inherent in the ownership of real estate

Fee Simple Interest. Absolute ownership unencumbered by any other interest or state subject only to the limitations exposed by the governmental powers of taxation, eminent domain, police power and escheat. 2

1 Code of Civil Procedures, Section 1263.320 2 Ibid

VAA File No. 1 05-413C 4 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center AREA ANALYSIS 4 Parcels -Trade & Commerce Center AREA ANALYSIS

The subject property is located in the City of Palmdale, Los Angeles County, California, in the High Desert area, approximately 60 miles northeast of downtown Los Angeles

Los Angeles County is bounded by the Ventura County line to the northwest, the Kem County line to the north, the San Bernardino County line to the northeast, the Riverside County line to the east, the Orange County line to the south, and the Pacific Ocean coastline to the west The county is comprised of 88 incorporated cities plus unincorporated areas

Real property reflects and is influenced by the interaction of basic forces that motivate human activity These forces are divided into four major categories social trends, economic circumstances, governmental controls and regulations, and environmental conditions The interaction of all the forces influences the value of every parcel of real estate in the market. I analyzed the trends and the forces that influence value to determine the direction, speed, duration, strength, and limits of these trends

AREA MAP

VAA File No. 1 05-413C Valentine Appraisal & Associates, Inc. VAA File No. 105-413C Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center AREA ANALYSIS 4 Parcels -Trade & Commerce Center AREA ANALYSIS

Governmental Influences Environmental Forces Governmental, political, and legal activities at all levels can have great impact on property values Legal Both natural and man-made environmental forces influence real property values Environmental forces climate at a particular time or in a particular place may overshadow the natural market forces of supply that may be analyzed for real estate appraisal purposes include climatic conditions such as snowfall, and demand The government provides many necessary facilities and services that affect land-use rainfall, temperature, humidity, topography and soil condition; toxic contaminants such as asbestos, and patterns radon; natural barriers to future developments such as rivers, mountains, lakes and oceans; primary transportation systems, including federal and state highways, railroads, airports, navigational waterways; The county of Los Angeles is governed by elected supervisors who oversee the county administrative and nature and desirability of the immediate area surrounding the property All these factors are office Its purpose is to improve the quality of life in Los Angeles County by providing responsive, environmental, although market participants usually associate the term with issues involving conservation efficient, and high-quality public services that promote self-sufficiency, well-being, and prosperity of of natural resources and the regulation of man-made pollution. The environmental forces that affect the individuals, families, businesses, and communities Its philosophy of teamwork and collaboration is value of specific real property may be understood in relation to the property's location Location anchored in its shared values of responsiveness, professionalism, accountability, compassion, integrity, considers time-distance relationships, or linkages, between a property or neighborhood and all possible commitment, a can-do attitude and respect for diversity. It takes the position as a premiere organization origins and destinations of residents coming to or going from the property or neighborhood Location is for those working in the public interest and is established by: (1) a capability to undertake programs that both an environmental and an economic character have public value; (2) an aspiration to be recognized through achievements as the model for civic innovation; and (3) a pledge to always work to earn the public trust The area climate is described as summers that are generally hot and dry, while winters are generally temperate and semi-moist Overall, the area's climate is relatively mild, with summertime high State law requires that the county be in charge of providing numerous services that affect the lives of all temperatures averaging about 90° F and wintertime lows in the 30s and 40s Annual precipitation residents Traditionally, mandatory services include law enforcement, property assessment, tax averages about 13 inches and almost all the rainfall occurs between October and early April collection, public health protection, public social services, and relief to indigents. Among the specialized Precipitation in the mountain areas is substantially higher, reaching 22 inches per year and higher services are flood control, water conservation, parks and recreation, and many diversified cultural activities. The 88 cities within the county, each with its own city council, contract in some degree with the Los Angeles County's topography varies substantially As shown below, just over 40% of the land in the county to provide municipal services. Thirty-seven contract for nearly all of their municipal services county is flat, excellent for development

More than 65% of the county is unincorporated For the 1,000,000 people living in those areas, the Description Square Miles Percentage Board of Supervisors is their "city council" and the county departments provide municipal services Thirty-one percent of the revenue comes from the state, 27% from the federal government, 13% from Land Area 4,081.58 100% property taxes, and 29% from other sources. The largest percentage - 30% - of the budget goes to pay Unincorporated Area 2,653.50 65% for social services, while 20% is spent on public protection and 23% on health services Incorporated Area 1,428.08 35% Flat Land 1,741.00 43% The county, with 95,544 budgeted employees, is the largest employer in the five-county region Of Mountains 1,875.00 46% these, 27,197 positions are in law and justice, 26,574 are in health services, and 22,192 are in social Hilly Land 246.00 6% services. The wide spectrum of job listings, from clerk to truck driver, sanitarium to psychiatrist, scientist Highlands 131.00 3% to scuba diver, attorney to helicopter pilot, encompasses nearly every trade and profession and illustrates Mountain Valleys 59.00 1% the complexity of the county government Marshland 28.00 1%

State tax laws have created competition among cities for sales tax-generating commercial uses of land Los Angeles County has one of the largest and most comprehensive freeway systems in the world One Because of the limitation on property tax revenues, cities place lower priority on accommodating of the major problems facing the region is freeway congestion due to growth and population. Highway residential development and higher priority on sales tax-generating uses. This has greatly contributed to congestion has increased substantially, and commute times have lengthened. Meeting strict air quality a trend of housing production, lagging job growth, and population increases. Many service and blue­ standards in the face of increasing driving and congestion have become more of a challenge. These collar workers, along with moderate-income white-collar workers employed in and around high-tech problems largely result from a lack of new housing construction, especially near major job centers, and nodes, are consequently forced to commute long distances from areas where they can 1ind affordable the inability of major workers to purchase housing being produced. Housing-rich areas, particularly in the homes Inland Empire, have seen substantial job growth over the last decade. This job growth is forecasted to

VAA File No. 1 05-413C Valentine Appraisal & Associates, Inc. VAA File No. 105-413C Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center AREA ANALYSIS 4 Parcels -Trade & Commerce Center AREA ANALYSIS

continue, which will result in increasing jobs/housing ratios for areas in western portions of the Inland billion Alameda Corridor rail link, completed in mid-2002, to the $430 million "Hollywood and Highland" Empire. Nevertheless, much of the job growth of the Inland Empire has been in relatively low-paying entertainment/retail project, which includes a 3,300-seat, permanent home for the Academy Awards blue-collar sectors of the economy and the gap in the per capita between it and the rest of the region has Another recently completed significant item is Disney's "California Adventure," a $1.4 billion development been increasing Another unrecognized aspect of the Southern California economy is the rail mass transit network that has developed with a high spot being the mid-2000 completion of the Metrorail Red Line through Hollywood The job growth of north Los Angeles County, another housing-rich area with a relatively high amount of to Universal Studios and North Hollywood In addition, the Gold Line, extending from downtown Los commuters, has not been as robust as that of the Inland Empire. The new jobs created have, in general, Angeles to Pasadena, was just completed in mid-2003 Rail transit in the region currently totals 68,000 been higher-paying, with the migration of the white-collar professional jobs to the Santa Clarita Valley average daily boardings, with a solid growth trend and with the consolidation of the aerospace industry in the Antelope Valley. In fact, the Santa Clarita RSA is forecast to change from a balanced status to being housing-rich due to the excess amount of Accounting and law practices are expected to continue to be weak, which translates into soft demand for commuters by 2025 professional office space

An analysis of land development needs for accommodating forecasted housing shows that there is an New homebuilding in Southern California has made great strides in recent years, and there should be insufficient amount of raw, developable land in Orange and Los Angeles counties to accommodate the continued gains in 2005, fueled by lower interest rates. One favorable development is a plan to provide forecasted housing needs at current densities Development strategies involving current vacant and affordable "construction defects" insurance to developers of condominiums and townhouses, which could underutilized lots and the development at high densities are necessary for these counties to meet their revive this moribund segment of the industry The outlook for non-residential construction is more forecasted housing needs and to achieve the benefits of a job/housing balance restrained due to a cautious attitude on the part of developers plus the need to digest the recent surge in supply, the housing industry and retailing Historically, geographic imbalance between jobs and housing in the Southern California Association of Governments region has been a problem that has been largely self-correcting. Jobs have moved from Nonetheless, the region has a number of hot spots for development In downtown Los Angeles, their original centers to the housing-rich suburbs to take advantage of lower land and labor costs and to conversion of older office buildings into loft apartments continues. In Long Beach, the Queensway Bay provide shorter commute trips for their employees. The end result is the multi-centered urban fabric that project is underway, while City Place is under construction at the site of the former Long Beach Mall characterizes the region today. The phenomenon also explains why average home-to-work times in the Santa Clarita is still seeing lots of development, with a focus emerging on biomedical activities. Antelope region have remained constant over the last several decades Valley is making a major economic development push, while Palmdale is bene1iting from defense buildup. Northrop Grumman is planning a major R & D facility at Plant 42, in addition to continued Still, many local politicians are hoping that the various Metrorail and Metrolink systems throughout the operations by Lockheed Martin Aeronautics region will alleviate traffic congestion and busy freeways Unfortunately, the high expense of these projects, coupled with continued population growth, suggests that the overall transportation network in The 5,900-acre government-owned, contractor-operated facility is one of five Air Force industrial the five-county Southern California area will remain relatively unchanged into the long range plants in the country. However, Plant 42 is unique because it is the only one to play host to more than one major aircraft corporation and has assigned U.S. Air Force staff to manage its operations Economic Forces Aerospace giants Lockheed Martin Aeronautics Company (Lockheed), The Boeing Company Economic forces are also significant to real property value Appraisers analyze the fundamental (Boeing), and Northrop Grumman (Northrop) are all located at Plant 42 and jointly bene1it from a full relationships between current and anticipated supply and demand and the economic ability of the complement of production facilities, runways and services. Plant 42's production flight test installation population to satisfy its wants and needs through its purchasing power Many speci1ic market is specifically tailored to the production, flight-testing, modification and depot maintenance of the characteristics are considered in the analysis of economic forces (e.g., employment, wage levels, nation's most advanced aerospace systems built under government contract. As the second largest industrial expansion, the economic base of the region and community, price levels, the cost and regional employer behind Edwards Air Force Base, Plant 42 is a major force in the local economy availability of mortgage credit, availability of vacant and improved properties, new development under Employment levels have shown a steady increase over the last several years, with a reported 6,805 construction or in the planning stage, occupancy rates, the rental price patterns of existing properties, employees at December 2004 generating over $481 million in payroll and $58.6 million in locally and construction costs). Other economic trend considerations may be studied as the appraiser focuses awarded contracts during 2004. Through the years, many vital programs have come and gone at on successively smaller geographic areas Plant 42 and employment levels have fluctuated with the programs The City continues to be diligent in its lobbying efforts to keep jobs in Palmdale There has been a burst of development in the Southern California area There are $13.6 billion in projects recently completed, under construction, or in development in the area, ranging from the $2.4

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The Palmdale site performs upgrades and modifications of U-2S and F-117 aircraft and is the Northrop Grumman is moving ahead on five major programs at Sites 3 and 4 at Plant 42 in Palmdale headquarters for Advanced Development Programs (ADP) initiatives across the Lockheed Martin the F-35 Joint Strike Fighter (JSF), B-2 Spirit stealth bomber, RQ-4 Global Hawk unmanned Aeronautics Company This is the legendary Skunk Works operation Responsibilities include reconnaissance system, X-478 unmanned combat air vehicle and BQM-74 aerial target The derivatives or upgrades of current aircraft systems, new development systems, critical technology company employs approximately 1,500 people at Plant 42. Northrop Grumman is a principal member development and integration, and operational effectiveness and system analysis. Palmdale performs of the Lockheed Martin industry team developing the F-35 JSF, which is expected to be the largest rapid prototyping: for example, the YF-22 and the X-35 Joint Strike Fighter concept demonstrators fighter production program in modern U.S. history Northrop Grumman assembles the center were designed, built and tested at the Palmdale facility and Edwards Air Force Base Next fuselage section of the high-tech aircraft at Site 4, and the 1irst one was shipped in May 2005 to generation platforms such as unmanned air vehicle concepts and long range strike systems are Lockheed Martin in Forth Worth, Texas, to be mated with the rest of the aircraft First flight is undergoing research and testing. Lockheed Martin's Palmdale facility was awarded two multimillion­ expected in August 2006. Work on the fuselage sections is expected to increase to a rate of one a dollar contracts in August 2004 toward developing high-speed aircraft technologies aimed at day by about 2012 during full production In June 2004, Northrop Grumman began hiring increasing the American military's ability to attack faraway targets quickly. The first contract in the engineering, manufacturing and associated support staff in Palmdale, and the program is expected to amount of $8.3 million was awarded by the Air Force and the Defense Advanced Research Projects employ more than 200 people there over the next several years. Northrop Grumman is the prime Agency to continue development of technologies need for a pilotless, hypersonic bomber capable of contractor for the Air Force's B-2 stealth bomber, and its program office is based at Plant 42. The striking targets anywhere in the world in less than two hours. This program is called Falcon. The company's major tasks are airframe depot maintenance and enhancements of the B-2's capabilities second contract awarded to Lockheed is a five-year contract that may total as much as $175 million Aircraft in the operational fleet are sent to Site 4 for regular maintenance as part of the company's B-2 for work on the Revolutionary Approach to Time-critical Long Range Strike program. The contract, support. The major task in B-2 airframe maintenance is restoration of the aircraft's outer mold line to awarded by the Office of Naval Research, is to develop technologies that will produce an advanced its precise specifications. The enhancements to the B-2 will make it better equipped to communicate propulsion system capable of speeds greater than Mach 4 in an expendable vehicle. Work for both and exchange date with joint force commanders and receive updated target information during a contracts will be conducted by existing staff at the Palmdale facility. One of Lockheed Martin's core mission In 2004, Northrop Grumman was awarded a $388 million Air Force contract to continue competencies is the ability to manufacture low observable leading wing edges and radomes for the work on the bomber's radar system Northrop Grumman also is the prime contractor for the Air F/A-22 and for the F-35 beginning in 2005. Currently the Palmdale facility has 4,200 employees Force's Global Hawk and assembles each air vehicle at Site 4. Global Hawk is a high-altitude, long­ Steady employment is anticipated through 2005 with approximately 150 new hires each year endurance reconnaissance system that provides military filed commanders with high-resolution imagery of large geographic areas in near real time. While still in its test and evaluation phase, the In Orange County, the Irvine Spectrum is doing a retail expansion that will bring in a Robinson-May store system has surpassed 4,000 flight hours in support of the war on terrorism and in other deployments The proposed retaiVentertainment center east of Disneyland began construction in 2002, and completion to Florida, Australia and Germany Although some assemble will shift to an expanded facility in occurred in 2004 With plans for a commercial airport at El Toro, debate still continues about its final Mississippi in early 2006, the largest share of the work on the aircraft will remain in Palmdale, and development flight testing will continue at Edwards Air Force Base. In 2004, Northrop Grumman was awarded a contract valued at up to $1.04 billion over five years to continue work on its X-4 78 portion of the Joint The western end of the Inland Empire continues to see strong demand for monster blocks of warehouse Unmanned Combat Air Systems (J-UCAS) demonstration program. J-UCAS is a joint effort of the Air space, although there are some dissident voices being heard about the traffic impact. The extension of Force, Navy and the Defense Advanced Research Projects Agency to demonstrate the feasibility of the 210 freeway east of Los Angeles County to the 15 freeway is generating lots of retail and residential technologies for unmanned aerial vehicles that could deliver munitions In this phase, Northrop activity along the route Given the expansion controversy of the Los Angeles International Airport, Grumman will produce and flight-test three unmanned X-478 aircraft and their associated systems changes may be in store for other smaller regional airports like Ontario International, March Field, San The three vehicles will be assembled at Site 3. Finally, under contracts awarded in previous years, Bernardino International, Southern California Logistics Airport in Victorville, and Palmdale Airport production continues for the Navy's BQM-7 4E aerial target. This unmanned vehicle's primary mission is to simulate tactical threats by enemy aircraft and missiles for naval defense readiness training, air­ Another industry that is expected to be soft is the manufacturing sector to-air combat training and the development and evaluation of weapons systems The new economy jobs are in the high-tech 1ields, which pay high salaries To encourage the Lockheed Martin Aeronautics Company, headquartered in Forth Worth, Texas with site locations in development and growth of these companies in areas where a good housing supply exists, SCAG Palmdale, California and Marietta, Georgia, is a leader in the design, development, systems suggests several strategies to policy makers. They are the following integration, production, and support of advanced military aircraft and related technologies Its customers include the military services of the United States and allied countries and throughout the Target education and research toward new economy jobs through research parks; world. Products include the F-16, F/A-22, F-35 (JSF), F-117, T-50, C-5, C-130J, S-3, P-3 and U-2S

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Institute community-based job training programs to train and retrain workers for new economy jobs; According to Mr. Jerry Gates, Regional President of Beazer Homes, builders are not able to meet the Promote and cultivate venture capital investments; ever-rising demand in statewide economy with construction lagging population while climbing in price Sponsor business incubation programs; Between 1995 and 2001 approximately 460,000 homes in Southern California were built, but there was a Invest in telecommunications, specifically 1iber optic investments; demand for approximately 800,000 This is a shortfall of approximately 340,000 homes. Economist Promote airport construction and development Jack Kyser, Senior Vice President for the Los Angeles County Economic Development Corporation, confirmed that there is no "housing bubble", but there will be a long-term demand for homes, extending As illustrated below, the latest unemployment rates, published by SCAG between the years 2000 and from 5 to 10 years 2002, have gradually increased in the SCAG region Even to this day, they still remain relatively low, which is a reflection of a continued strong economy Although the nation's economy is uneasy and cautious because of the confrontations with Iraq and North Korea, and California suffering from a record high budget deficit, most parts of California are experiencing continued significant growth Unemployment Rates in SCAG Region 2000-2002 County Year 2000 Year 2001 Year2002 In conclusion, cities have recently been placing lower priority on accommodating residential Imperial 26.32% 21.26% 16.52% development and higher priority on sales tax generating uses. This has contributed to the shortfall of Los Angeles 5.36% 5.68% 6.80% the housing supply and an imbalance between job growth and affordable housing. Also, jobs have Orange 2.54% 3.01% 3.93% moved from the downtown centers to the housing rich suburban areas, cutting commuter trips to the Riverside 5.47% 5.22% 5.67% office. Job growth, which directly affects the demand for real estate, is expected to remain steady at San Bernardino 4.75% 4.76% 5.46% nearly 2% for the next two years, but in the next 5 to 15 years, job growth is projected to weaken to Ventura 5.44% 4.50% 5.52% nearly 1% annually Still, real estate experts believe that all types of real estate will continue to SCAG Region 4.90% 5.11% 6.04% appreciate in the long run

The following projects the population growth in the five surrounding counties through 2020

Projected Population Growth ea, ea, Avg Annual Pro1 ~ 2001 2002 % Change 2010 Chg ror 20 yrs Los Angeles 9,653,900 9,824,800 +18% 10,605,200 11,584,800'"' 091% Orange 2,880,200 2,939,500 +21% 3,266,700 3,541,700 105% Rr1ers,de 1,583,600 1,644,300 +38% 2,159,700 2,817,600 375% San Bernardino 1,741,100 1,783,700 +24% 2,231,600 2,800,900 2 94% Venlura 765,200 780,000 +19% 877,400 1,007,200 151% Californ,a 34,385,000 35,037,000 +19% 40,262,400 45,821,900 158%

High-technology companies demand educated employees. This may require colleges and universities to redirect their training efforts, and primary and secondary schools to better prepare their students before they get to college. High-technology companies also need to access venture capital investments and places to grow. University-affiliated research parks and other incubation centers offer places to develop new high-tech businesses. Public investments in fiber optic cable can make areas more attractive to the new economy 1irrns. High-technology firms require reliable air travel, both commercial and cargo, to move their employees and products quickly throughout the world. Developing and expanding airports in outlying areas can help spread new economy companies across the nation. Old economy jobs (i.e., blue-collar) are expanding in the Inland Empire. However, new economy jobs (i.e., white-collar high-tech industry) are growing in the north Los Angeles County area and are beginning to move slowly inland, but this change will have to take place to have substantial impact

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The greater Antelope Valley is a 3,000 square mile high desert mountain region in northern Los reporting income above $100,000 per year (14.2% in 2003 versus 8.9% in 2000) The average Angeles and southeastern Kern counties. The Antelope Valley lies between the Tehachapi and San income of the Antelope Valley households varies considerably depending on the unique geographic, Gabriel mountain ranges. Distances from other Southern California areas, measured from Palmdale, employment, and household factors. The average income of households with employed workers is are: Downtown Los Angeles, 60 miles southwest; Santa Clarita, 35 miles southwest; Burbank, 45 $70,608 per year, compared to $37,000 per year for retiree households with no workers. Households miles south; and Bakersfield, 90 miles northwest with two full-time workers reported an annual income of $83,504 per year on average, compared to $54,701 per year for households with only one wage earner working full-time. In terms of housing Over 400,000 persons live in the Antelope Valley region, which include the incorporated cities of types, single-family detached residences are the predominant form of housing in the Antelope Valley, Lancaster, Palmdale, Tehachapi, and California City The unincorporated communities include posting 80.7% of the resident households Overall, apartments host 8.5% of the Antelope Valley Edwards Air Force Base, Mojave, Rosamond, Boron, Quartz Hill, Littlerock, Lake Los Angeles, households. 6.5% of Antelope Valley households live in a condo or town home-type residence, and Pearblossom, Acton, Leona Valley, Lake Hughes, North Edwards, and Sun Village 4.3% live in mobile homes In this survey, 75.4% of households in the Antelope Valley are homeowners. The total employed population of the Antelope Valley is estimated at approximately The valley ranges in elevation from 2,500 to 3,975 feet above sea level and it offers a semi-arid four­ 165,230 employed household adults, or 68% report working at jobs within the Antelope Valley In season climate with low humidity Precipitation days average 14 per year, and the day high 1990, the manufacturing industry, including aerospace, employed 22% of the Antelope Valley temperature from July 1 to August 31 is 94° F. Winter day average high is 62° F workers. Based on 2003 survey results, the manufacturing/aerospace sectors employ about 7% of the Antelope Valley workers, reflecting signi1icant restructuring between 1993 and 1997. The current The Antelope Valley's modem history began in the last quarter of the 19th century with the arrival of competitive position of the Antelope Valley housing market has supported 1,600 to 1,900 residential the railroad and immigrant farmers. The Antelope Valley remained largely agricultural until World permits per year on a consistent basis. Over the mid-term, it is expected that the Antelope Valley will War II, when it became a center for military aviation training, in-flight testing and research continue to function as a competitive alternative to housing offered in the Santa Clarita Valley and Completion of the Antelope Valley (14) Freeway in the mid-1960s provided fast access to the Los other Los Angeles Metropolitan locations Within the Antelope Valley, 80 to 90% of residential Angeles area, leading to the Antelope Valley's rapid growth and development development is expected to be located in the Lancaster and Palmdale areas over the mid-term Combined taxable retail sales performance describing stores within the cities of Lancaster and Home construction permits in the Antelope Valley outnumber the number of permits issued in the Palmdale provides a good measuring stick of the effectiveness of the Antelope Valley retail sector in Santa Clarita Valley, parts of Orange County, and Los Angeles County. Through the end of July satisfying growing demand of the region's residential population. Constant dollar taxable retail sales 2004, a full 23% of all homes planned for Los Angeles County received building permits in the of stores in Lancaster-Palmdale area grew at an average annual rate of 5.1% over a 10-year period Antelope Valley These areas are steadily running out of developable land According to recent ending in 2002. 5.1% annual rate compares to an effective 1.96% average annual rate for a similar reports issued by the Construction Industry Research Board, new home building in the Antelope 10-year period ending in 1998. As many as 1,600,000 new households moved to the Antelope Valley Valley is up more than 50% from the previous year, with investors in residential construction up well region in 2003 The arrival of new households in response to housing market opportunities also over 70%. There were over 2,500 permits issued in the Antelope Valley during the first nine months represents a form of economic development, as does the influx of households in direct response to of 2004. The value of those permits was $505.2 million, a 71% increase from the 1irst nine months of business relocation and expansion efforts 2003 Prices of new homes continue to rise, with a median price in Lancaster at the end of the summer 2004 ranging from $203,000 to $270,000. Palmdale's median price during the same period According to the same study, there is currently an imbalance of jobs and housing. As indicated ranged from $177,000 to $360,000. Prices paid for existing homes throughout the valley increased previously, there are 120,000 residents employed in the greater Antelope Valley area, and 7,000 are over 35% compared to 2003 figures. Analysts do not anticipate seeing any slowing of these rates unemployed and seeking work (6.6%). Sixty thousand four hundred are employed within the region, until interest rates rise substantially, but with 7 to 10 million residents only an hour drive away and and 52,600 are employed outside the region and commute daily up to 4 hours However, the much higher home prices in those areas, the case for moving to the Antelope Valley remains strong problem, according to the study, is that the number of residents continues to grow at a rate exceeding the valley's capacity to attract employment. Lancaster's population grew by 32.7% since 1990, and According to an extensive labor-based analysis on the Greater Antelope Valley Region by Dr. Alfred Palmdale's population grew by a staggering 89.8% during the same period As such, there is an Gobar, 2004, the resident household population of the Antelope Valley was estimated at urgency in the valley for aggressive economic development approximately 390,000 persons, based on the results of a 2003 survey. The Lancaster and Palmdale areas account for approximately 75% of total population in the Antelope Valley since 1997. The Jack Kyser, Senior Economist for the Los Angeles County Economic Development Corporation, is of average income of households in the Antelope Valley ($58,476 per year), reflects a 10.2% increase the opinion that there will be a terri1ic demand for affordable housing, which puts the Antelope Valley over the average income reported in 2000. The increase is attributed to a smaller portion of residents in a great position to sell homes to people being pushed out of the metropolitan areas. In addition, reporting total household income below $30,000 per year, and significant increase of households several thousand new jobs are expected to be added to the Antelope Valley in the next couple of

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years, putting even more pressure on the local and regional housing market. Furthermore, Mr. Kyser reconnaissance system, X-47B unmanned combat air vehicle and BQM-74 aerial target The confirmed that in the past few years the economy has suffered in the shadow of the recession, the company employs approximately 1,500 people at Plant 42. Northrop Grumman is a principal member September 11 tragedy, corporate scandals, the popping of the stock market bubble, technology and of the Lockheed Martin industry team developing the F-35 JSF, which is expected to be the largest telecommunication crashes, and the current uncertain situations in Iraq and North Korea. Real estate fighter production program in modern U.S. history Northrop Grumman assembles the center and new car sales have been the only bright spot on the financial pages. Mr. Kyser predicted the fuselage section of the high-tech aircraft at Site 4, and the first one was shipped in May 2005 to continued local economy. Since the valley's population is growing, and aerospace and defense are Lockheed Martin in Forth Worth, Texas, to be mated with the rest of the aircraft First flight is fairly stable, Mr. Kyser recommended that the area secure as many retail chains as possible. He expected in August 2006. Work on the fuselage sections is expected to increase to a rate of one a added that defense historically has been the mainstay of the valley, and the buildup of the national day by about 2012 during full production In June 2004, Northrop Grumman began hiring military since September 11 is going to continue bringing jobs and money to the region engineering, manufacturing and associated support staff in Palmdale, and the program is expected to employ more than 200 people there over the next several years. Northrop Grumman is the prime Mr. Duke Dufresne, Vice President of Long Range Strike IPT for Northrop Grumman, states that its contractor for the Air Force's B-2 stealth bomber, and its program office is based at Plant 42. The company is opening its Antelope Valley Manufacturing Center at Plant 42, which is home for work on company's major tasks are airframe depot maintenance and enhancements of the B-2's capabilities the B-2 Spirit Bomber, Global Hawk, F-35 Joint Strike Fighter, and Target Drones. Work coming to Aircraft in the operational fleet are sent to Site 4 for regular maintenance as part of the company's B-2 the center will be responsible for an additional 1,000 jobs predicted over the next decade. Most of it support. The major task in B-2 airframe maintenance is restoration of the aircraft's outer mold line to will be on the F-35 program, for which Northrop Grumman manufactures the center fuselage In its precise specifications. The enhancements to the B-2 will make it better equipped to communicate addition, the draw for companies in the Antelope Valley is strong for aerospace business. Much of and exchange date with joint force commanders and receive updated target information during a that growth is driven by the F/A-22 Lockheed alone employs approximately 4,400 people in mission In 2004, Northrop Grumman was awarded a $388 million Air Force contract to continue Palmdale on programs that include not only the F/A-22 and F-35, but also the F-117 Stealth Fighter, work on the bomber's radar system Northrop Grumman also is the prime contractor for the Air the U-2 Reconnaissance Aircraft, and special aircraft operation C-130. Northrop Grumman's Global Force's Global Hawk and assembles each air vehicle at Site 4. Global Hawk is a high-altitude, long­ Hawk is a proven member of the nation's arsenal, with thousands of combat hours flown. These endurance reconnaissance system that provides military filed commanders with high-resolution aircraft are assembled at Plant 42 at the rate of approximately 3 vehicles a year, a rate that could imagery of large geographic areas in near real time. While still in its test and evaluation phase, the increase to as many as 30 per year system has surpassed 4,000 flight hours in support of the war on terrorism and in other deployments to Florida, Australia and Germany Although some assemble will shift to an expanded facility in Northrop Grumman is planning a major R & D facility at Plant 42, in addition to continued operations by Mississippi in early 2006, the largest share of the work on the aircraft will remain in Palmdale, and Lockheed Martin Aeronautics flight testing will continue at Edwards Air Force Base. In 2004, Northrop Grumman was awarded a contract valued at up to $1.04 billion over five years to continue work on its X-47B portion of the Joint The 5,900-acre government-owned, contractor-operated facility is one of 1ive Air Force industrial Unmanned Combat Air Systems (J-UCAS) demonstration program. J-UCAS is a joint effort of the Air plants in the country. However, Plant 42 is unique because it is the only one to play host to more Force, Navy and the Defense Advanced Research Projects Agency to demonstrate the feasibility of than one major aircraft corporation and has assigned U.S. Air Force staff to manage its operations technologies for unmanned aerial vehicles that could deliver munitions In this phase, Northrop Aerospace giants Lockheed Martin Aeronautics Company (Lockheed), The Boeing Company Grumman will produce and flight-test three unmanned X-47B aircraft and their associated systems (Boeing), and Northrop Grumman (Northrop) are all located at Plant 42 and jointly benefit from a full The three vehicles will be assembled at Site 3. Finally, under contracts awarded in previous years, complement of production facilities, runways and services. Plant 42's production flight test installation production continues for the Navy's BQM-74E aerial target. This unmanned vehicle's primary mission is specifically tailored to the production, flight-testing, modification and depot maintenance of the is to simulate tactical threats by enemy aircraft and missiles for naval defense readiness training, air­ nation's most advanced aerospace systems built under government contract. As the second largest to-air combat training and the development and evaluation of weapons systems regional employer behind Edwards Air Force Base, Plant 42 is a major force in the local economy Employment levels have shown a steady increase over the last several years, with a reported 6,805 Lockheed Martin Aeronautics Company, headquartered in Forth Worth, Texas with site locations in employees at December 2004 generating over $481 million in payroll and $58.6 million in locally Palmdale, California and Marietta, Georgia, is a leader in the design, development, systems integration, awarded contracts during 2004. Through the years, many vital programs have come and gone at production, and support of advanced military aircraft and related technologies. Its customers include the Plant 42 and employment levels have fluctuated with the programs The City continues to be diligent military services of the United States and allied countries and throughout the world. Products include the in its lobbying efforts to keep jobs in Palmdale F-16, F/A-22, F-35 (JSF), F-117, T-50, C-5, C-130J, S-3, P-3 and U-2S. The Palmdale site performs upgrades and modifications of U-2S and F-117 aircraft and is the headquarters for Advanced Northrop Grumman is moving ahead on five major programs at Sites 3 and 4 at Plant 42 in Palmdale Development Programs (ADP) initiatives across the Lockheed Martin Aeronautics Company. This is the the F-35 Joint Strike Fighter (JSF), B-2 Spirit stealth bomber, RQ-4 Global Hawk unmanned legendary Skunk Works operation Responsibilities include derivatives or upgrades of current aircraft

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systems, new development systems, critical technology development and integration, and operational State Route 58, and ending at the Antelope Valley station. This line will include a substation in Mojave effectiveness and system analysis. Palmdale performs rapid prototyping: for example, the YF-22 and the Southern California Edison is expecting approvals to take 12 to 18 months. Once they are given the go­ X-35 Joint Strike Fighter concept demonstrators were designed, built and tested at the Palmdale facility ahead, the project will be complete in another 12 to 18 months. This is the largest renewable resource and Edwards Air Force Base. Next generation platforms such as unmanned air vehicle concepts and potential in California, except for solar-powered installations, which the CEC reports are not currently long range strike systems are undergoing research and testing. Lockheed Martin's Palmdale facility was cost-competitive. The project is expected to cost between $100,000,000 and $250,000,000. Electricity awarded two multimillion-dollar contracts in August 2004 toward developing high-speed aircraft generated would be transmitted to customers throughout California. Currently, Enexco is completing a technologies aimed at increasing the American military's ability to attack faraway targets quickly. The 60-megawatt wind farm west of Mojave, north of Oak Creek Road, and the Los Angeles Department of first contract in the amount of $8.3 million was awarded by the Air Force and the Defense Advanced Water and Power plans a 120-megawattfarm 12 miles north of Mojave Research Projects Agency to continue development of technologies need for a pilotless, hypersonic bomber capable of striking targets anywhere in the world in less than two hours. This program is called In conclusion, the expanded Greater Antelope Valley encompasses 3,000 square miles and is home Falcon. The second contract awarded to Lockheed is a five-year contract that may total as much as to over 400,000 people and has experienced record growth over the past decade due in large part to $175 million for work on the Revolutionary Approach to Time-critical Long Range Strike program. The the historically low home prices. However, historically local job growth rates have not kept up with the contract, awarded by the Office of Naval Research, is to develop technologies that will produce an population growth rate as 34% of the local work force commutes outside the area. Also, the national advanced propulsion system capable of speeds greater than Mach 4 in an expendable vehicle. Work for economic slowdown has not really affected the local economy, and the local economy is expected to both contracts will be conducted by existing staff at the Palmdale facility. One of Lockheed Martin's core continue to expand in the coming years. As such, local real estate values will continue to appreciate competencies is the ability to manufacture low observable leading wing edges and radomes for the F/A- 22 and for the F-35 beginning in 2005. Currently the Palmdale facility has 4,200 employees Steady employment is anticipated through 2005 with approximately 150 new hires each year

Recently, US Pole Company and Delta Scientific relocated to the Antelope Valley, with nearly 200 employees, and have expressed appreciation for the numerous advantages and cost reductions they received through relocating their business to the valley. In addition, Countrywide Mortgage recently expanded their facilities, along with Delta Scienti1ic in the Fairway Business Park, employing 145 employees at their facility

Passenger service has returned to Palmdale Regional Airport For the 1irst time in more than six years, the airport offers regular passenger air service Scenic Air Lines started offering round-trip flights in December 2004 between Palmdale and Las Vegas, using 19-seat propeller-driven planes. Scenic Air Lines is targeting the recreation market, providing flights for people in Southern California wanting to head off to Las Vegas. The response Scenic Air Lines is receiving is good. The airline carried more than 650 passengers between Palmdale and North Las Vegas in January 2005, its 1irst full month of service in Palmdale

Southern California Edison has submitted a proposal that could allow them to build miles of power transmission lines and additional substations from Tehachapi, through the Antelope Valley, and on to the Acton and Santa Clarita stations. If the project moves ahead, significant wind farms will be added in the area of West Lancaster and on both sides of the Kern County line. The network is expected to more than quadruple the power that is currently generated by the wind farms along the Tehachapi Mountains. The first segment of transmission lines will be installed about 25 miles from the Antelope Valley station in northwest Lancaster to the station near 1-5 north of Santa Clarita. The second segment will begin at the Antelope Valley station and run 18 miles to the station near Acton. The third segment will be 26 miles, beginning at the station east of Tehachapi, going through the East Kem Wind Resource Area, south of

VAA File No. 1 05-413C 20 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 21 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center OFFICE MARKET OVERVIEW 4 Parcels -Trade & Commerce Center OFFICE MARKET OVERVIEW

According to the Grubb & Ellis 2005 Market Real Estate Forecast, the much improved Los Angeles markets as Pasadena and the West and Conejo Valleys of northern Los Angeles, where vacancies County office leasing market in 2004 is anticipated to carry forward through 2005. Through each are expected to reach single digits by late 2005 quarter during the past year, the leasing market got stronger, posting lower vacancies across all submarkets and enough absorption for landlords to consider asking rate increases These rent Investment activity in Los Angeles County remains strong Two signi1icant transactions in 2004 put increases should become more evident and pronounced across the LA Metro region in 2005, an exclamation point on the multitude of deals and the soaring prices. One involved TIAA-CREF in a particularly for the tighter submarkets like North Los Angeles where vacancy has hovered around joint venture with Equity Office Properties purchasing the Colorado Center in Santa Monica from 10% most of the year. The Tri-Cities and the Wilshire Center could also experience a turning in the Tishman Speyer Properties for $445 million The partnership outbid 15 other competitors for the leasing market from a tenant's market to a landlord's market due to sub 12% vacancies property This deal is also representative of the "unattached money" of pension funds as they continue to earmark more capital to real estate investment without much constraint. The other major deal in 2004 was in Downtown Los Angeles where Trizec Properties purchased the Bank of America Asking Rental Rates Plaza at 333 South Hope Street from Beacon Capital for $435 million Annual Percent Change

CCias,A 111c1 ..,a Market at a Glance 2004 Year End

Suburban Total Renlable' 31,715"' 147,213 178,928 Vacanl" 6,057 20,082 26,139 Vacancy Rale 19.1% 13.6% 14.6% Absorbed" 1,815 1,846 Under ConslruclKJn "0 1,548 1,546 2002 2003 Renlal Rale"" Class A $2.67 $224 $2.33 Class B $1.86 $2.08 $2.01

Rents in the county saw very little change throughout 2004, floating at an average of a little over $2.40 per square foot per month on a full service gross Although rents in the most expensive submarket of West Los Angeles dropped over the last 12 months, other markets like Tri-Cities and The appetite for office investment has not abated despite the federal funds rate increases, at a Downtown Los Angeles have had increased rents from one year ago. Most submarkets experienced "measured" pace, throughout the year. As interest rates rise, investors will focus more on underlying a flattening of rents, suggesting that the bottom was hit The market should not experience any leasing fundamentals, putting pressure on lower-performing properties that are not meeting their pro­ fluctuations through the first half of 2005 forma. Eventually rising interest rates could erode property values, adjusting cap rates higher. But long-term interest rates have remained surprisingly low and may not increase enough to have much impact on property values for at least the next 12 months. Yield expectations have been falling as Vacancy Rate All C~••••ofSpae< investors are more willing to take less return for their perceived risk Helping support the real estate market has been the lackluster performance of the securities markets. The real estate market has become much more institutionalized through the establishment and popularity of REITs and secondary CMBS markets It is becoming more evident that institutional investors will not reduce :::l1£% their real estate allocations as interest rates rise or as the equity markets strengthen. Instead, they 14% will continue to increase the amount of capital allotted for real estate investments and development 12% projects in the coming years. The tremendous amount of capital allocated to real estate investments 10%+------~ and development will become the norm rather than an anomaly 2002 2003 '""' 2005 Hurdles. In addition to the common problem of a shortage of developable land in the Los Angeles area, another concern for developers has been the increasing cost of land acquisition and Landlord concessions diminished in the last half of the year and are now only found in select construction costs. Land prices have skyrocketed and the cost of steel and concrete has gone up buildings and submarkets Little to no concessions are anticipated in 2005 for tenants in such significantly, creating serious uncertainty for developers trying to generate realistic pro-forrnas for a project that will not be completed for two to three years The housing shortage, further magni1ied by

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the higher costs of construction, has also contributed to the slow turnaround in the office leasing According to Grubb & Ellis 2005 Real Estate Forecast, the trend continued through 2004 and is sector Other factors that are slowing expansion and demand for office developments are expected to continue in 2005 for real estate property According to the retail experts at an commercial land entitlements and zoning regulations that now favor residential or mixed-use projects International Council of Shopping Centers conference, these so-called lifestyle centers - open air over other commercial development uses in most submarkets shopping centers such as The Grove and Pasadena's Paseo Colorado - will double in number in the next 1ive years. One reason for the trend is that traditional malls are usually hulking eyesores that Opportunities. The recent boom in office conversions to condominiums and apartments should help require a tremendous amount of land. Here in Southern California land is a limited commodity, and congregate employees closer to their offices. This will ease the strain on the Los Angeles County's lifestyle centers usually require less property due to smaller or no anchor stores Consumers already sub-par transportation infrastructure, help with the supply of desperately needed housing, and continue to demand more from their retail destinations and developers are responding with mixed-use combat those factors hindering growth in the office sector. Leasing activity will remain on a path of properties and lifestyle centers that create a sense of community recovery as long as the US economy continues to add jobs and GDP keeps growing at a healthy pace Los Angeles Retail Cap Rates CR

Consumer Confidence Index J OITioo buildings over 20,000 square reel Counl1es included Los Angeles, Orange, Inland Empire (R1versde San Bernardino), San Diego Retail indicators look favorable for growth to continue in the industry. There were fewer bankruptcies among retailers in 2004, down 25% from the previous year. Consumer confidence has continued to gain strength since bottoming out in early 2003 and will be the catalyst along with job growth for

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increased sales. Rents are anticipated to increase through 2005 by a rate that just outpaces the CPI, or in the range of 3.5% to 4.5% annually. Meanwhile, vacancy should drift down to 5% or below as demand for retail space stays steady, helped along by new crops of retail categories and concepts Southern California Retail Investments Average Cap Rates by Region European retailers are also helping prop up demand for space as they look to expand in U.S malls and street level shopping districts

Los Angeles/Long Beach MSA IIIIIJob Creation

Los Angol<>S Orangg County Inland Emplrg San Dlggo

omoo bu1kl1ngsover 30,000 square reel Counles included Los Angeles, Orange, Inland Empire (Rr;erside San Bernardino), San Diego

A big win for Wal-Mart in late 2004 will make it easier for the retailer to expand in Southern California Governor Schwarzenegger vetoed a Democrat-sponsored bill that would have required local communities to commission economic impact studies on all super-center-type stores larger than 130,000 square feet with at least 10% dedicated to grocery before approving them Wal-Mart plans to build 40 Supercenters in the state by 2009

The retail investment market may see a bit of "normalizing" in 2005, with sale activity remaining high but not at the frenzied pace of the past couple of years. Investment prices seem to have topped out and cap rates have seen a leveling. Southern California cap rates through 2004 stayed below the national average and should continue the trend due to the tremendous amount of excess demand in the market

With no signs of letting up, retail continues its dominance as a stable choice among investors. Once considered too risky due to over-retailing and the threat of e-commerce, retail has proven to be more consistent than other property types. The public loves to shop, and families must eat, so retail sales have been relatively strong and stable, with no change expected. Owners of shopping centers are enjoying sale prices beyond their expectation, while investors justify the higher prices by comparing yields to alternative types of real estate In some instances, investors are using the "break-up" strategy; buying a shopping center then selling off individual buildings to smaller investors at more aggressive pricing Many institutional funds are underweighted in retail, as a result of their risk avoidance in past years, and now need to find larger, dominant centers. The result, more buyers than sellers

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Although the demand for buildings for sale will continue throughout the county in 2005, the leasing According to Grubb & Ellis 2005 Real Estate Forecast, Los Angeles County's industrial market market will drive much of the activity In 2005, more companies will consider an expansion or exhibited signs of renewed stability in 2004. Rents were up 6% from the previous year. The market relocation posted more than 53 million square feet of sale and lease activity, a 20% increase from a year ago With close to 1 billion square feet of space and a 2.7% vacancy rate (the lowest in the nation) this Market at a Glance 2004 Year End market, which is devoid of any significantly large parcels of land for industrial development, will be challenged in 2005 As the economy improves upward pressure on interest rates will cool sale Total activity, but sale prices will hold steady Lease rates will increase as the demand for leasing versus Total" 949,277 Vacant• 25,3342 purchasing takes hold Vacancy Rate 2.7% Absorbed" 17,104 Under Construction 3,419 Asking Rental Rates Rental Rate•• $0.54 Annual P•rcont Cl'lang• " Square reel ,n lhousands, ,ncludesowner-occup,ed "" We,ghled average ask,ng renUSFlmonlhly ror non-manuracluring space Triple Nel

15% 10% 5% South Bay 0% In 2004, the South Bay market recorded the highest volume of sale and lease activity in Los Angeles -5% County with the vacancy rate hitting an unprecedented low of 2.7%. The South Bay is home to the Ports of Los Angeles and Long Beach, the nation's busiest. The two ports together account for 36% of all U.S. trade, and this volume is expected to double in the next 10 years The World Ports Industrial Market Report prepared by Grubb & Ellis forecasts an impending shortage of Class A space Even though interest rates are expected to climb moderately during 2005, demand for smaller and a waning supply of Class B space. And at the current rate of increase, rents could set a new all­ industrial buildings for sale will remain strong as long as interest rates remain low enough that tenants time high in 2005. The current construction level of Class A buildings will not be adequate to meet are encouraged to own rather than lease. The amount of construction in Los Angeles County has accelerating demand. Although a few buildings are planned to start construction, a shortage of land declined since 2003, in part a direct result of the land shortage Competition is intense with sites will severely limit future supply Future construction will be based solely on in-fill development commercial developers as well as residential developers vying for any scarce parcels. The market with increasing rents the norm will continue to lose industrial land to residential developers as they purchase industrial product and convert it to residential use Central Los Angeles There are five distinct industrial districts in Downtown Los Angeles apparel/textiles, flowers, jewelry, produce and toys. The closer a property is to the center of a speci1ic district such as the Fashion or Vacancy Rate the Toy District, the higher the lease rate. Due to a shortage of buildings for sale, we will see tenants AIIP"'dU<1T\'I"' signing either new leases or renewals Firms with 1 to 49 employees account for 94.5% of total business establishments in Downtown Los Angeles. A breakdown of the manufacturing sector in Downtown Los Angeles reveals that apparel and textiles is by far the largest component. Followed by printing, food products, and furniture products. The Central Los Angeles market will continue to lose ):lt--~ its industrial base to residential developers shrinking the inventory and driving up prices for industrial '" space 0%'" 1----~----~----l 2002 2003 2004 2005 North Los Angeles In 2005, we will not only see continued strong demand for buildings for sale from owners/users and investors, but also pent-up leasing demand Most of the industrial product in the San Fernando Valley is older and due to the shortage of land, not a lot of new product has been built. While the San

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Fernando Valley attracts and can accommodate smaller businesses, larger firms with a desire to relocate or expand choose the Santa Clarita Valley. For instance, in 2004, the John Paul Mitchell Company of Beverly Hills purchased a 171,000-sq. ft. build-to-suit at Centre Pointe Business Park Southern Cal1forn1a ln

San Gabriel Valley In the first seven months of 2004, there were five major expansions in the San Gabriel Valley, two by foreign firms. The market already has a signi1icant number of firms from Taiwan and Hong Kong, and now 1irms from China are moving there as well. In 2005, the demand for larger blocks of space for lease will continue. In 2004, Majestic Realty broke ground on two buildings totaling 1.4 million square lnduslrial bu1ld1ngs over 1 0,000 square reel Counles included Los Angeles, Orange, Inland Empire (Rr;erside, feet at the Grand Crossing Business Park, which will be completed during the third quarter of 2005 San Bernardino), San Diego Already, 600,000 square feet in one of the buildings has been pre-leased to JAKKS Pacific, Inc., a toy manufacturer

Mid-Cities Vacancy in the Mid-Cities market has been dropping since the second quarter of 2003 With its strategic location along the Los Angeles/Orange County border, access to the ports and diversified list of tenants, the Mid-Cities market will continue to be one of the most sought after markets in Los Angeles County in 2005 This market claims the highest concentration of institutional owners in Southern California In 2005, institutional owners will continue to see the Mid-Cities as a prime market for long-term investment because of its strategic location. Like other markets in Los Angeles County, the Mid-Cities market will experience an increase in leasing activity and a gradual increase in lease rates

Industrial real estate in Southern California still remains a top choice for many investors, especially the institutional money. As these funds demand more industrial to balance their portfolio, there is little to choose from in Southern California. Very little traded in 2004, and the book is still open for 2005 Capitalization rates seem to get lower and lower for quality properties, from 8% to 7% to sub-7% The Inland Empire, once considered too risky due to all the excess land, has now become a focus of many investors Rents, which have arguably remained in a very narrow band for a decade, are beginning to show signs of growth as certain areas transcend to infill locations. In other areas, such as Orange County, many industrial parks are being acquired with a change in use planned, mostly to residential or retail use to capture higher rents and more density on the site. As for that good old solid industrial building in an industrial market, there is still plenty of need for that use and investors will line up to acquire them

VAA File No. 1 05-413C 30 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 31 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center CITY ANALYSIS 4 Parcels -Trade & Commerce Center CITY ANALYSIS

The subject property is located in the City of Palmdale, Los Angeles County, California, approximately 60 The Ohio-based Forest City will complete on both the exterior and interior of the million-square-foot miles northeast of downtown Los Angeles regional mall, a $27,000,000 renovation. A 21-acre expansion will include a Hilton Garden Inn & Suites, a 16-screen Cinemark movie theater and new restaurants Johnny Carino's, Famous Dave's Governmental Influences Legendary Pit Bar-B-Que, Ginza Steakhouse, and Ruby's Diner The city receives revenues from a wide variety of sources To make sure that the revenue is spent properly, separate funds are established to record the revenue and expenditures. The General Fund is Unemployment Rates the main fund and includes revenue to provide for city services such as law enforcement and recreation Revenues are obtained by the City through the Los Angeles County property tax, retail sales tax, 2005 2004 2003 United States 5.4 5.6 5.8 business license tax, and transient occupancy tax. The basic property tax rate is 1% of market value, California 5.7 6.2 6.8 subject to an annual 2% increase, plus any voter indebtedness such as special assessments. The retail Los Anqeles County 5.6 6.5 6.4 sales tax in Los Angeles County is 8.25%. Palmdale receives 1% of taxable sales generated in the city Lancaster 7.7 5.9 6.0 Business license tax in the City of Palmdale is calculated using a maximum base fee of $45.00, plus a Palmdale 6.7 5.9 5.9 maximum per employee fee of $5.00. The transient occupancy tax is a tax against lodging and is 7%, which is considerably less than the 12% rate for areas in the unincorporated Los Angeles County The new 47,000-square-foot, $23.9 million Palmdale Sheriff's Station will open in December. Located Since the City received the State Enterprise Zone (Zone) designation in 1997, over 8,223 people have on 11.5 acres at the comer of Avenue Q and Sierra Highway, it will feature a helipad, a 7,800-square­ been hired through the Zone, at an average hourly rate of $9.29 per hour, providing up to $238 million in foot holding facility and an 8,300-square-foot vehicle maintenance building. All booking, dispatching, hiring tax credits as of April 2005. Enterprise Zone incentives have proven to be a significant component and evidence storage for Palmdale will be handled out of this station. The new Palmdale Station will of the decision for relocating and expanding businesses in Palmdale continue to serve the City of Palmdale and unincorporated areas from Wrightwood to Acton

The biggest news last year was the agreement between the City and Los Angeles County Fire District to The City of Palmdale is the Grantee of Foreign-Trade Zone No. 191 Established in 1993, the Foreign­ open two new fire stations-Fire Station No. 93 at Domenic Massari Park and Fire Station 136 at Rancho Trade Zone (FTZ) allows qualifying companies to save money by deferring, reducing and eliminating duty Vista Park. Los Angeles County Fire Department is currently preparing planning documents and site taxes and by streamlining U.S. Customs clearances. The FTZ is actively marketed in the City's business plans for the planning department's review and approval. The City is providing land for the two sites at a attraction efforts to businesses involved in international trade. The FTZ is included in the City's Economic cost of $415,000 and is providing design, project management and construction of off-site improvements Development marketing packet, in addition to a stand-alone marketing piece that is in the process of having already spent almost $200,000 in improvements at the two sites This year the budget includes being updated. The Palmdale Foreign-Trade Zone offers 1,300 acres of industrial property, and includes $130,000 to complete the off-site improvements 12 separate sites. Boundary modifications have provided FTZ designation to property at the Palmdale Regional Airport, including Site 9 at U.S. Air Force Base Plant 42, 40 acres at the California City Af the Fairway Business Park, Delta Scientific processed an application to add another 60,000 Municipal Airport, and 91.38 acres at the Mojave Airport in the East Kern Airport District square feet less than a year after it opened its 125,000-square-foot facility. The company is working to fulfill a $25 million order for DSC501 barriers, the largest contract ever of its kind. Completion of the Economic Forces Palmdale is the eighth largest City in Los Angeles County with a population of 136,734 With an $5 million 41,000-square-foot FedEx Ground distribution center is expected by midsummer In average household income of $73,027, Palmdale residents have the discretionary income that addition more than 50,000 square feet of light industrial and commercial spec space is planned at the attracts new retail chains and restaurant owners. New businesses that opened last year include an business park 18,000-square-foot Office Depot, an Albertson's, a new branch of Wells Fargo, T-Mobile, Verizon Wireless, DiClemente Salon, Wescom Credit Union, Angeles Dental Office and another Starbucks Palmdale businesses of all sizes and types are served by the City's economic development drive-thru managers of the Antelope Valley Enterprise Zone and the Foreign-Trade Zone and a business liaison. Business professionals from the Small Business Development Center and the Women's Set to open this year are Jo-Ann Etc., Original Tommy's Hamburger, Mimi's Cafe, a 12,000-square­ Business Center provide no cost one-on-one business consulting and no- and low-cost business foot Sit 'n Sleep, an 85-room Hampton Inn, a 42,000-square-foot Wickes furniture store, a 138,000- training on a regular basin in their office space provided free of charge by the City square-foot Lowe's Home Improvement Warehouse and a 224,000-square-foot Wal-Mart Super Center that will be joined by seven major stores and 10 smaller outlets The City of Palmdale is in the process of developing a One-Stop Career Center in Palmdale, directly funded by Los Angeles County, to better meet the needs of employers and job seekers in Palmdale

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and the south Antelope Valley areas. If approved by the County, the new center will open in August site utilities within the Business Park Last year, the Agency installed perimeter landscaping and and will be developed with an entrepreneurial business focus to better prepare for emerging and monument signage to enhance the value and attractiveness of the Business Park. This common changing industry trends in the workforce area will be maintained by a lot owners association that was formed under covenants, conditions and restrictions recorded on the property in March 2004. U.S. Pole Company became the first tenant to Infrastructure construction for the up to 250-bed Universal Health Services hospital at Tierra Subida locate in the prestigious Fairway Business Park, opening its new headquarters in May 2002. Joining and Avenue Q-5 began in 2005. Construction of the hospital will begin by the end of the 2005 and is U.S. Pole in April 2004 was Delta Scientific Corporation. Delta's new $8 million, 125,000-square foot expected to be completed in late 2006. The hospital will have the largest emergency room in the manufacturing facility is on 8.73 acres, with room for expansion. In fact, after being open less than a Antelope Valley. The housing portion of the complex will also be completed in 2006 and will include year, the company has employed about 200 people and is already processing a 60,000 square foot up to 80 units of affordable senior housing and two 60,000-square-foot professional office buildings expansion. Delta is the world's leading manufacturer of vehicle access control equipment, supplying The City provided the land and funded the off-site infrastructure, including roadways, traffic signals, barricade systems to more than 160 U.S. embassies and consulates in more than 130 countries streetlights, storm drainage, sanitary sewers, water and other utilities for the project They secure more than 110 federal buildings in the U.S., more than 85 percent of all U.S. nuclear power plants, and are currently shipping products to protect our troops in Iraq Delta is presently Plant 42's production flight test installation is specifically tailored to the production, flight-testing, working to fulfill an estimated $25 million order placed by the government in May 2004 for 541 of its modification and depot maintenance of the nation's most advanced aerospace systems built under DSC501 barriers, the largest contract ever of its kind. The DSC501 barricade will stop and destroy a government contract. As the second largest regional employer behind Edwards Air Force Base, Plant 15,000-pound vehicle traveling at 50 mph. In February 2005, construction commenced on a 41,000 42 is a major force in our local economy. Employment levels have shown a steady increase over the square foot FedEx Ground distribution center in the Fairway Business Park. Completion of the $5 last several years, with a reported 6,805 employees as of December 2004 generating over $481 million facility is expected by midsummer. The Fairway Business Park has proven to be a desirable million in payroll and $58.6 million in locally awarded contracts during 2004. Northrop Grumman is location for development. In March 2005, the City Council, acting as the Community Redevelopment moving ahead on five major programs at Sites 3 and 4 at Plant 42 in Palmdale: the F-35 Joint Strike Agency approved the sale of a 1-acre parcel to the Fischer Development Group. The Fischer group Fighter (JSF), B-2 Spirit stealth bomber, RQ-4 Global Hawk unmanned reconnaissance system, X- will construct 19,000 square feet of industrial space that will be leased to tenants In a separate 478 unmanned combat air vehicle and BQM-74 aerial target. The company employs approximately Council action the Agency also voted to approve the sale of 2 acres to Arnie Rodio Rodio will 1,500 people at Plant 42 Lockheed Martin Aeronautics Company, headquartered in Forth Worth, construct 28,400 square feet of industrial space that will be leased to tenants Texas with site locations in Palmdale, California and Marietta, Georgia, is a leader in the design, development, systems integration, production, and support of advanced military aircraft and related In August 2001 the Palmdale City Council voted to approve $6.67 million in incentives for Universal technologies Steady employment is anticipated through 2005 with approximately 150 new hires Health Services, Inc. (UHS) to construct a full service hospital in the City within 1ive years. UHS is a each year. Boeing's Team Palmdale-Edwards AFB provides a multitude of products and services for Pennsylvania-based firm and the nation's third largest hospital developer/operator UHS plans to the Company, NASA, and Department of Defense. One of eight production facilities adjacent to Plant build a 170-bed hospital that could later be expanded to 250 beds and include the largest emergency 42, Site 9 was home to Rockwell international and their famous B-1 bombers until it became part of room in the Antelope Valley. The project will include 60 to 80 units of affordable housing and two Boeing In early 2005, LAWA entered into another short-term lease with Worldwide Aeros 60,000 square foot professional office buildings UHS is planning to complete the hospital in late Corporation to use the facility for flight test and pilot training activities The company is flight-testing 2006 and has submitted plans to OSHPD for State approval. The housing portion of the complex will its 408 "Sky Dragon," a 143-foot long airship (blimp) also be completed in 2006. The site for the hospital is on an undeveloped, commercially zoned, 37- acre parcel at Tierra Subida and Avenue Q-5, near the freeway and major roadways. Infrastructure Passenger service has returned to the Palmdale Regional Airport! For the first time in more than six construction began in 2005 and construction of the hospital will begin by the end of the year In years, the airport offers regular passenger air service. Scenic Airlines started offering round trip flights in March 2003 Kaiser Permanente opened its new Palmdale medical office building. The 47,000 square December 2004 between Palmdale and Las Vegas, using 19-seat propeller-driven planes This is an foot building serves the Antelope Valley's 77,000 Kaiser members, along with the Lancaster facility important step in attracting other air carriers and provides an opportunity to expand air service to other The City of Palmdale provided $750,000 in assistance to construct this $10.5 million facility destinations Ground was broken in December 2004 for construction of a new motorcycle and watercraft dealership The Agency purchased 120 acres of property south of Avenue O between ?1° Street West and in the Antelope Valley Auto Center The 9,152 square foot dealership will sell new and used Division Street in February 1999 for the purpose of attracting large-scale industrial users City Yamaha, Kawasaki, Suzuki and Polaris lines and accessories. The building will have a 6,752 square officials felt the land purchase would facilitate the needs of users who are unable to wait for land foot retail store and a 2,400 square foot service center. The new dealership is expected to open at assembly. In previous years, the Agency provided funding for the installation of the required public the end of 2005 and will employ between 20 to 45 people. This year, Antelope Valley Nissan moved infrastructure on Division Street, Avenue O and as well as all of the interior streets, sidewalks and off- its location from 421 Auto Center Drive to 451 Auto Center Drive, into the former Holiday Buick

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building. Antelope Valley Nissan doubled its sales in the last year, increased its staff, and rated venture that successfully developed the Amargosa Commons. The former K-Mart building, one of the among the top 100 Nissan dealerships in the U.S. in respect to retail sales. In addition, construction largest for retailers in Palmdale, will be split into four stores under a site plan approved by the is expected to begin this year for a new Hyundai showroom. After necessary lot line adjustments Palmdale's Planning Commission in March 2005. A Wickes Furniture Store will be one of first new were completed, escrow closed with Larry Mayle on four acres in April 2004 This facility is located tenants, taking up approximately 42,000 square feet. Negotiations are underway with three other immediately south of Mr. Mayle's Chevrolet dealership potential tenants for the building. It is expected the Wickes store will open later this summer. Also planned for this property is a 7,000 square foot Mimi's Cafe restaurant, which will be constructed on After the improvements were installed, the recession of the 1990's hit hard, and many of the vacant the corner lot in front of the building. Joining the soon to be remodeled K-Mart building and Mimi's parcels became delinquent. The City, in its fiduciary capacity on behalf of the bond owners, removed Cafe restaurant will be a 2,429 square foot Original Tommy's Hamburger restaurant. Construction is the delinquent assessments from the county tax rolls and began foreclosure Despite various well underway for the restaurant on a one-acre parcel located on Rancho Vista Boulevard foreclosure sales the property is still largely delinquent and undeveloped. The basic problem is that immediately west of the 14 freeway. The restaurant is expected to open this summer the mounting delinquent assessments, penalties and interest, added to the delinquent County ad valorem taxes, penalties and interest far outweigh the value of the property. The City has worked for The Antelope Valley Mall, located on the northwest corner of 10th Street West and Rancho Vista years with a 1inance team, consisting of a financial advisor, bond counsel, underwriter, assessment Boulevard, offers some of the best shopping and dining opportunities in the Antelope Valley. This district administrator and staff from various City departments, attempting to resolve the problems year, the mall will be getting a $27 million renovation. Ohio-based Forest City, the mail's owner and With the recent rebound in the economy and continued low interest rates, the time is right for a developer, plans to perform a face-lift on the exterior of the mall and to remodel select areas of the workout to succeed. In October 2004 the City approved a tax lien resolution agreement and related interior. Mall officials have also announced a 21-acre expansion to build a new Hilton hotel and a 16- Chapter 8 agreement concerning certain parcels in the center. The Chapter 8 agreement seeks a screen stadium-style theater by Cinemark at the northwest corner of the mall property Four new reduction of amounts due to the County. The County's participation is critical in the overall resolution restaurants are also planned for the mall Construction has commenced for a 6,452 square foot to these problems. The County Board of Supervisors approved the agreement in March 2005 and Johnny Carino's Country Italian restaurant A Famous Dave's Legendary Pit Bar-B-Que, Ginza forwarded it to the State Controller for additional approval. State approval is expected by June 2005, Steakhouse and Ruby's Diner will also join Johnny Carino's which will free up several acres, equaling over millions of dollars in delinquent County taxes In addition to addressing the County taxes, the finance team has been working on an overall solution for Continuing north, the Destination 0-8 Center located at 10th Street West south of Avenue 0-8 the assessment districts. Work is nearly complete for a refinance of the senior AD 88-1 bonds to take became home to a new 152,261 square foot Sam's Club in August 2003. Kohl's joined Sam's Club in advantage of low interest rates, which is anticipated to close in mid 2005 A refinance of the March 2004 with the opening of their 96,226 square foot store. A new 18,000 square foot Office subordinate AD 90-2 bonds would likely follow a year later. Despite the delinquencies described Depot opened in December 2004. The Center is also home to a new Wells Fargo Bank, Subway, T­ above, a new 22,400 square foot building was constructed on a one-acre parcel located at the Mobile, Game Stop, Bellisima Nail & Spa and a Starbucks drive-thru Currently under construction southeast comer of Trade Center Drive and Auto Center Drive. Bimbo Bakery, the parent company are Jo-Ann Etc. and Panda Express for Oroweat and Entenmann's has occupied 14,000 square feet, operating a bakery outlet and distribution center. The additional 8,440 square feet is available for lease Phase two of the Destination 0-8 Center is underway with the construction of a 224,000 square foot Wal-Mart Super Center, which will anchor this phase. With the two phases combined, this shopping Across the street from the Marketplace is Amargosa Commons, with several grand openings in 2003 center is expected to total 750,000 square feet on 35 acres. The site plan calls for seven major Palmdale residents welcomed Trader Joe's. The specialty grocery store had been the most highly stores and 10 smaller outlets Announcements for additional tenants are expected during the next requested retailer by citizens in the Antelope Valley for the past several years. In addition to Trader year Joe's, the 18-acre Amargosa Commons Center is home to Bed, Bath & Beyond, Circuit City, Verizon Wireless, T.J. Maxx, Panera Bread, Dress Barn, PETsMART, Shoe Pavilion, Rubio's Baja Grill, The Palmdale Promenade Center, located on Rancho Vista Boulevard and 5th Street West continues Palmdale Dental, Fazoli's Italian Restaurant, Fantastic Sams, Big Tuna Japanese Restaurant, The to be a popular center with residents and out-of-town visitors. The Center is home to two Marriott Woman's Image Medi-Spa, Contempo Nails, Cigs N Cigar, H&R Block, 4-Day Mattress, Fantastic Hotels, which enjoy very high occupancy rates The Palmdale Promenade Center is near build out Sams and Casual Male Big & Tall with only one pad remaining for development

Heading north from Amargosa Commons is the former K-Mart building located on the northeast Development continues just west of the 14 Freeway south of Rancho Vista Boulevard This last fiscal corner of 1 oth Street West and Rancho Vista Boulevard, a location offering the highest traffic counts in year construction was completed on a 10,000 square foot commercial center on the southeast corner the Antelope Valley. The 110,000 square foot building has been vacant since K-Mart closed in 2002 of Lowe's Drive and Trade Center Drive New tenants to this center include Verizon Wireless, The site was sold in June 2004 to Grae Ventures and Sierra Development Group, the same joint DiClemente Salon, Wescom Credit Union and Angeles Dental Office Additional lease space is

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available in the center. Construction is well underway for a new 85-room Hampton Inn on a four-acre 5th Street East and 10th Street East, installed a traffic signal interconnect to improve signal timing and parcel north of Funland The K Partners Hospitality Group of San Antonio is constructing the $7 traffic flow from the Antelope Valley Freeway to 40111 Street East Avenue S will be widened this year million, three-story hotel, which is part of the Hilton Hotels Corporation family of hotels. Finally, Sit 'n between 50 111 Street East and 55th Street East Sleep furniture outlet has commenced construction on a 12,000 square foot store adjacent to the Hampton Inn. The store will anchor a center that will include 10 additional shops that will be available The $11.8 million Palmdale Transportation Center opened on April 25 with media fanfare and happy for lease in the summer of 2005 travelers embarking on Metrolink commuter trains. The center is the prominent transportation hub of the Antelope Valley, enhancing the economic vitality of Palmdale and the surrounding region and is Environmental Conditions strategically located west of Sierra Highway and south of Technology Drive. The center serves as a Work will continue this year on acquiring and removing older residential properties in the Courson Metrolink station, a regional and local Antelope Valley Transit Authority bus transfer center and a vanpool Connection Project area east of Poncitlan Square. More than $1.2 million is budgeted for property and park-and-ride center. Amtrak and Greyhound will also provide services at the center. Plans call for acquisition and design. The project will provide 300 units of affordable senior housing, a new 12,000- a future high speed rail stop there as well. Concessions are located inside the building, and the center square-foot Senior Center, a park with senior-oriented activities and space for small commercial has a 24-hour security program. Scheduled enhancements to the center for this year include providing establishments catering to senior citizens The City is working with leading nonprofit housing computerized information kiosks, improving bicycle and pedestrian access, providing citywide signage developers to complete the project by 2008 directing traffic to the center and landscaping upgrades

The new 33-acre Palmdale Oasis Park at 40th Street East and Avenue Sand the 40-acre expansion of The Tierra Subida Avenue Improvement Project is a major job that is necessary for the new hospital that Marie Kerr Park at 30th Street West and Rancho Vista Boulevard (Avenue P) will each open with a will be built in the vicinity. The project will widen the street from Avenue Q-8 to Rayburn Road. Because special celebration this summer. Both sites will have 25-yard x 25-meter swimming pools. Palmdale much of the work is adjacent to property owned by the Los Angeles County Waterworks District, the City Oasis Park will feature a six-acre Western-themed aquatic facility, Dry Town Water Park, with a 900-foot and County will enter into a cooperative agreement for funding to complete the design of this project lazy river, a 35-foot water slide tower featuring three tube slides with splash pool, a 6,000-square-foot children's water playground, food and beverage snack bar with patio area, a merchandise stand, covered Federal funding is expected for the much-anticipated widening of Rancho Vista Boulevard from four picnic area, large grassy area for group outings, a community room and a storytelling/performance area to six lanes from Fairway Drive to 20th Street East. This is a severely congested area especially Palmdale Oasis Park will also have a 4.5-acre landscaped area designed for community events and a when aerospace workers travel to and from work. The project will also include storm drain landscaped 12-acre flood detention basin that will be used for soccer and football activities. A 16,800- improvements, signal installations and modifications, landscaping and irrigation and a bike route for square-foot recreation center with a gymnasium that includes a regulation basketball court and two cross east and west traffic courts, multipurpose hall that can be divided into three separate activity/meeting rooms, a kitchen, a dance and 1itness studio with wood flooring, a youth game area and a lounge/vending machine area will Because 20th Street West is a major north/south arterial serving the Westside of Palmdale, the be included at the Eastside site. The Westside expansion features the Palmdale Amphitheater and the crossing atAmargosa Creek is critical, providing another link between commercial development in the Best of the West Softball Complex The 7,000-person capacity amphitheater will have a 60' x 40' Trade and Commerce Center and the residential areas of Anaverde and Ritter Ranch The covered stage and an BOO-square-foot dressing/restroom building. The softball complex will have seven improvement of 20th Street West between Avenue P-8 and Elizabeth Lake Road is included in the lighted 1ields, four designed to accommodate girls and women's play, and three with fences at 300 feet Ten-Year Capital Improvement Plan at an estimated cost of $5 million. The focus this year is to for slow-pitch prepare a Preliminary Engineering Project Report, which is to determine the most cost-effective and efficient crossing structural type, and to identify issues to resolve and develop budgets. It will also The Anaverde master-planned community has plans for a 130-acre community park with picnic areas, assist the City in applying for grants that may be available to construct components of the project soccer and softball fields, basketball, volleyball and tennis courts, driving range, clubhouse, community center, competition-sized swimming pool with slide and zero-entry, gymnasium, The City has long recognized the potential for high speed rail, and the California High Speed Rail playgrounds and an amphitheater Four neighborhood parks with picnic areas and playgrounds are Authority unanimously voted in favor of the Antelope Valley alignment in early 2005. High speed rail also planned is equivalent to the capacity of a new eight-lane freeway. Currently California voters are slated to vote on funding for the proposed rail system in the 2006 general election, but the vote may be The $20 million Avenue S Corridor Improvement Project is the largest public works project that the City deferred to 2008 due to the uncertainty surrounding the northern alignments through and around the has undertaken. When this new four-lane road opens from the Antelope Valley Freeway to 20th Street Bay Area. The bond would provide $9 billion for starting the construction of the system The first East this summer, it will create a major traffic artery joining the Eastside to the Westside. The project section of this system would be constructed between Los Angeles and the Bay Area replaced the old railroad bridge with two new bridges, installed new traffic signals at the intersections of

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Social Forces A neighborhood is a group of complementary land uses. A neighborhood can be further defined as a Palmdale is a fast-growing city that provides an outstanding quality of life for its residents In July 2004, district. A district is also defined as a type of neighborhood that is characterized by homogenous land Palmdale ranked in population as Los Angeles County's fastest-growing City. With a population of over uses. The subject properties are located east of 10th Street West, south of Technology Drive, west of 131,000, Palmdale is the eighth largest City in Los Angeles County. With an average household income 5th Street West, and north of Avenue Q, in the Palmdale Trade and Commerce Center, City of Palmdale, of $73,027, Palmdale's impressive demographics have proven that Palmdale is the "place to be" for new Los Angeles County, California retail and restaurant businesses Many new top-name retailers and restaurants have joined our community in the last year, providing residents with more and more wonderful shopping and dining The subject's immediate neighborhood, known as the Palmdale Trade and Commerce Center, is defined opporb.mities in the Speci1ic Plan as 756 acres located in the central portion of the city of Palmdale. It is bordered by Division Street to the east, Palmdale Boulevard to the south, 10th Street West to the west, and Rancho New home sales are booming in Palmdale As of March 2005, 17 builders were constructing 58 new Vista Boulevard (Avenue P) to the north. Af the date of the adoption of the Specific Plan, there were 118 housing tracts in the City. The beautiful Anaverde master-planned community of 5,200 homes is well separate parcels included in the area, ranging in size from less than 1/2 acre to 40 acres underway and considered to be one of north Los Angeles County's most important master-planned developments The Ritter Ranch master-planned community broke ground in April 2005 This The subject's immediate neighborhood is located in the Palmdale Trade and Commerce Center, south of community is expected to bring 7,200 new homes ranging from first-time buyer levels to executive Rancho Vista Boulevard, east of 10th Street West, north of Palmdale Boulevard, and west of State Route homes As of March 2005, the average price for both new and resale homes in Palmdale was 14, the Antelope Valley Freeway $291,250. Although home prices in Palmdale have increased, they are still very affordable compared to the rest of the State Statewide the median sales price for a resale house was $471,620 in According to recent traffic studies, the average daily traffic count at the northern boundary, Rancho Vista February 2005. Palmdale's relatively low housing costs and high average income result in significant Boulevard, is 40,920 cars a day, along 10th Street West it is 36,282 cars a day, along Palmdale discretionary income for residents This continues to help attract quality retailers and restaurants to Boulevard it is 18,566 cars a day, and along Division Street there are 1,728 cars a day Along the City Technology Drive between 1010 Street West and Division Street, the daily traffic count is 7,477 cars Along Auto Center Drive, in the immediate neighborhood, the average daily traffic count is approximately 1,634, and on Avenue Q it is 3,313 cars

Projected Land Uses A Market Analysis and Alternative Land Use Scenario Analysis were conducted during the preparation of the Specific Plan concerning the neighborhood These analyses were performed to establish a tie between the proposed land uses and the Palmdale market. Demand and market capture characteristics of the Palmdale Trade and Commerce Center by land use category, as derived from the Market Analysis, are as follows

Retail A demand of 405 acres of retail development is projected for Palmdale by the year 2010 Of this, the Palmdale Trade and Commerce Center is anticipated as being able to capture approximately 40%, or approximately 163 acres

Recreational/Commercial. A demand of 38 acres of recreational/commercial uses (i.e., hotels) is projected for Palmdale by the year 2010 Of this, the Palmdale Trade and Commerce Center is anticipated as being able to capture 75%, or approximately 28 acres

Commercial Office. A demand of 196 acres of commercial office uses is projected for Palmdale by the year 2010. Of this, the Palmdale Trade and Commerce Center is anticipated as being able to capture 75%, or approximately 146 acres

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Industrial. A demand of 386 acres of industrial uses is projected for Palmdale by the year 2010 Marketplace, which is occupied by various big box stores, including Sports Chalet, Ross Dress Of this, the Palmdale Trade and Commerce Center is anticipated as being able to capture 80%, for Less, Linens-n-Things, Barnes & Noble Booksellers, Party City, Staples, Best Buy, and or approximately 310 acres Lowe's Home Improvement Center Other smaller retail stores in the Marketplace Center include Sally's Beauty Supply, Panda Express, Jenny's Restaurant, Jamba Juice, Alex's Fruits & Some of the uses in and around the neighborhood include the following Nuts, Togo's Sandwiches, Baskin Robbins, Fast Frame, Baja Fresh, Paint A Dream, Cinnamon Rose, Vitamin Shoppe, Blue Koi Restaurant, Katherine's Plus Sizes, Le Chateau, Mortgage 10th Street West and Palmdale Boulevard Factory, Nailissinmo, Bronze Bunz Tanning Salon, a dentist office, Ambrosia Jewelers, Green At the northeast corner of 10th Street West and Palmdale Boulevard is the Posada West Plaza, Earth Cleaners, IHOP, and Me & Ed's Pizza which includes Sizzler Restaurant, Posada Dental, American Home Loans, Cigar/Cigarette Store, Hopper Chiropractic, a nail store, Sundown Tanning Salon, a floral store, Impressive Af the northwest corner of 10th Street West and Rancho Vista Boulevard is the Antelope Valley Printing, post office, Thai Restaurant, Weight Watchers, an Italian restaurant, a dry cleaning Mall shopping center, anchored by Gottschalk's, Dillard's Department Store, J.C. Penney's and store, All State Insurance, Tuxedo Station, Alice's Breakfast Restaurant, and the new High Sears. Around the perimeter of the shopping center are Sears Automotive Repair Shop, Shell Desert Indoor RC Speedway and chiropractic office gas station, Kinko's Printing Store, 24-Hour Fitness, Carl's Jr., Red Lobster, Olive Garden, Outback Steakhouse, and other restaurants At the northwest comer of 10th Street West and Palmdale Boulevard is El Toreo West Mexican Restaurant and USA Gasoline station to the north of that Af the northeast comer of 10th Street West and Rancho Vista Boulevard is the vacated K-Mart Store. This large department store has been vacated for nearly a year and is available for lease At the southeast comer of 10th Street West and Palmdale Boulevard is the Desert View Liquor Other out-parcels to the former K-Mart Store include a floral shop, Taco Bell, Applebee's, an Store, Aida's Beauty Salon, PFC Tea House Chinese Food, Ford Corbin Auto Parts, Kung Fu Original Tommy's under construction, Mimi's Restaurant is in the planning stage, and Wickes studio, a new and used bookstore, and Karen's Kitchen. South of that strip retail center is vacant Furniture Store will be located in a portion of the former K-Mart Store Other retail space is land and a proposed hospital site available in the former K-Mart building

At the southwest corner of 10th Street West and Palmdale Boulevard is the Albertson's shopping Continuing along the east side of 10th Street West, but on the other side of the Antelope Valley center. Other tenants in this center include Subway Sandwich Shop, Little Caesar's, Curves Freeway, is the new Sam's Club, Office Depot, and various other retail stores. North of the Fitness Center, Realty Response, Westside Video, Water Supply Company, UPS Store, a dry Sam's Club is commercial acreage to build a new Wal-Mart Super Center on the site cleaning store, beauty salon, H & R Block, a Yoga studio, Danish Donuts, Rice Bowl, Edward Jones Investment, Cost Cutters, Palmdale Dental Group, and Smile Care South of the As indicated previously, at the southeast comer of 10th Street West and Rancho Vista Boulevard Albertson's shopping center are detached single-family dwellings built in the 1990s is McDonald's. Further east is a vacant lot, followed by Dunn Edwards Paint Store, then more vacant land followed by Wendy's Hamburger Restaurant, Starbuck's Coffee Shop, Popeye's 10th Street West and Rancho Vista Boulevard Chicken, Sit-n-Sleep, a new hotel under construction, and Funland Located east of the Continuing northbound on 10th Street West is the subject's neighborhood and the Palmdale Antelope Valley Freeway, along the south side of Rancho Vista Boulevard, are the Jack-in-the­ Trade and Commerce Center to the east To the west are more detached single-family Box Restaurant, Weinerschnitzel, Krispy Kreme Donut Shop, Mobil Oil gas station, a dentist dwellings built circa the 1950s and 1960s and apartment buildings built in the 1970s. North of office, Subway Sandwich Shop, Marriott Courtyard and Marriott Residence Inn, Wal-Mart, Home the homes on the west side of 10th Street West is Palmdale YMCA, a chiropractic center and Depot, Hometown Buffet, and other retail stores Along the north side of Rancho Vista nursery, and the new Amargosa Commons shopping center occupied by Circuit City, Pan era Boulevard (Avenue P) are detached single-family residences and the Antelope Valley Country Bread, Bed, Bath & Beyond, T J Maxx, Dress Barn, Shoe Pavilion, Clothing Shack, Trader Joe's, Club Rubio's, Casual Male Big & Tall, and PetsMart. A gas station is located on the southwest corner of Rancho Vista Boulevard and 10th Street West, and adjacent to that to the west are Jiffy Lube Palmdale Boulevard and a Los Angeles County Fire Station Along Palmdale Boulevard, east of the Posada West Plaza, is the new Home Gallery Furniture Store, Tom's 1/:2.5 Fast Food Restaurant, more vacant land, the Trade Commerce Center, At the southeast corner of 10th Street West and Rancho Vista Boulevard are McDonald's, Union Holiday Inn, followed by more vacant land, retail uses under construction and Westside Business Bank of California, Sharky's, Target, American Title Company, Woody's Furniture, William Center, whose tenants include Farmer's Insurance, Del Taco, AITC Escrow Company, Century Jewelers, and a Thai Restaurant Further south, along the east side of 10th Street West, is the Draperies, Freedom Home Properties, Assert Real Estate, JJ's Electronics, Aquarium Zone,

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American Residential Funding, and an orthodontist's office Further east includes Denny's indebtedness is not reduced or if the property values in the neighborhood do not go up in a rapid Restaurant, Arco AM/PM, and a Motel 6. On the south side of Palmdale Boulevard, west of the manner, very little development will ever occur in the immediate neighborhood, and vacant lots will Antelope Valley Freeway, are the Ramada Inn, Baker's Square Restaurant, Budget 8 Motel, continue to sit, absent of any new development Valero Gas Station, a new storage facility that just recently opened, and a new hotel and more retail uses in the planning stages The West Palmdale Plaza includes an orthodontist's office, Hair & Nail Salon, MS Mortgage Company, Home Buyer's Info Center, the Guild Mortgage, and Chicago Title Company Further west, along the south side of Palmdale Boulevard, is Best Western John Jay Inn & Suites

Other Uses in the Palmdale Trade and Commerce Center Other uses in the subject's Trade and Commerce Center include Senior Systems Technology at the southwest corner of 5th Street West and Trade Center Drive, Texaco Carwash at the northwest comer of Commerce Avenue and 5th Street West, Laborer's Union Local 300 building at the northwest corner of 5th Street West and Avenue Q, and at the southeast comer of Commerce Avenue and Auto Center Drive is Entenmann's. The new Class C concrete tilt-up building located at the northeast corner of Commerce Avenue and Trade Center Drive is the Fisher's building and is now occupied. The Antelope Valley Auto Mall, located in the center of the Palmdale Trade and Commerce Center, includes AV Nissan, Antelope Valley \NJ, Rally Hyundai, GMC, Pontiac, Chevrolet, Cadillac & Buick, Kia and a Kawasaki store under construction, Saturn of Antelope Valley, and Robertson Honda

Only approximately 25% of the Palmdale Trade and Commerce Center is improved with structures The remaining area is vacant, although all off-sites and utilities are in place. The improved sites within the Palmdale Trade and Commerce Center are primarily along the north side of Palmdale Boulevard between the Antelope Valley Freeway and 10th Street West, and along the east side of 10th Street West and south side of Rancho Vista Boulevard, north of Technology Drive

The Palmdale Trade & Commerce Center roughly bounded by Rancho Vista Boulevard, Palmdale Boulevard, and 1010 Street West and Division Street, covers approximately 750 acres in the heart of Palmdale Most of this property, as well as the regional shopping mall to the north, has two overlapping assessment districts known as AD 88-1 and AD 90-2 The City issued these improvement bonds to finance certain public infrastructure benefiting parcels within the districts, including streets, traffic signals, sidewalks, utilities, sewer, water and drainage improvements. The repayment of the assessment district debt is secured solely by liens on property within each district and the City has no obligation to make payments to the bond owners

Projected market capture characteristics in the City of Palmdale by the year 2010 of the Palmdale Trade and Commerce Center will include approximately 40% of all retail development, 75% of all commercial office development, and 80% of all new industrial developments

In addition, property tax and bond indebtedness for the Palmdale T & C Partners properties and many other properties in the neighborhood, due to liens, delinquent payments, penalties and interest are significant This indebtedness is often more than the property is worth. Therefore, if this

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The subject properties are located east of 10th Street West., south of Auto Center Drive, west of the Antelope Valley Freeway, and north of Palmdale Boulevard, City of Palmdale, Los Angeles County, California

NEIGHBORHOOD MAP Topography Topographically, the subject parcels near Rancho Vista Boulevard are characterized by low, northeasterly trending ridges with plateaus separated by broad, shallow drainage courses. A segment of the northeast.erly draining Amargosa Creek transects the northwesterly tip of the area. The southern half is characterized by a broad, generally northeasterly sloping surface. Elevation across the neighborhood ranges from a maximum of about 2,690 feet mean sea level along the southern margin to about 2,630 feet MSL along the northeastern margin. The surface gradient slopes down northeasterly through a southwest/northeast trending low ridge in the central portion of the site. Man-made modifications to the natural topography include roads, curbs, sidewalks, streetlights and all utilities located below surface

Geology The natural earth material consist.s of alluvial materials ranging in age from modem st.ream channel alluvium to alluvial deposits on the order of 140,000 +/- 40,000 years old

Soils According to Soil Conservation Service (SCS), surface soils have been identified as belonging to three soil series, Adelanto, Greenfield, and Ramona. The Adelanto and Greenfield series of soils are related to most. of the old alluvial unit. Adelanto soils are present within an approximately 1/4 mile wide, east-west. trending band south of Avenue Q. These soils are classified as a coarse sandy loam, which is relatively -

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Seismicity Regional arterials for major access roads to and through the subject's neighborhood require a 126-foot The subject properties lie within the highly seismic Southern California region However, there are no wide road in order to accommodate 8 travel lanes and a median or tum lane, except for a small section of known active faults that trend toward or through the subject's neighborhood. The closest major fault to 10th Street West, which has a right-of-way requirement of 136 feet to also accommodate a bikeway the neighborhood is the active San Andreas Fault, which passes approximately 1 mile southwesterly of the southern margin of the site through the Leona Valley Other major faults that may influence Major arterials are those on-site circulation spines and include Rancho Vista Boulevard (Avenue P), 5th seismicity in the neighborhood include the Garlock Fault, Big Pine Fault, White Wolf Fault, Sierra Street West, Avenue P-8 (Technology Drive), and Division Street. Right-of-way requirements for this Madre/Cucamonga Fault, and San Jacinto Fault. These faults are believed to be capable of producing street category range from 100 feet to 104 feet, except for a portion of Rancho Vista Boulevard which maximum magnitude earthquakes in the range of 6.5 to 7.5. Maximum magnitude earthquake on the has a right-of-way requirement of 114 feet to also accommodate a bike way San Andreas Fault in the vicinity of the neighborhood is commonly reported to be 8.25, which would cause substantial structural damage and ground rupture Secondary arterial or collector streets include Avenue Q, as well as other internal site collector streets Their right-of-way widths may vary according to development plans as approved by the City Climate The subject's neighborhood lies within the northwesterly portion of the southeastern desert air basin Infrastructure Plan (SEDAB), an extreme southwestern extension of the Mojave Desert. The eastern edge of the SEDAB is The Specific Plan identi1ies that the neighborhood sewer service is from the Los Angeles County bounded by the Colorado River. The western boundary follows the ridgeline of a series of high mountain Sanitation District No. 20. The wastewater generated within the neighborhood is collected and routed to ranges, the San Gabriel, San Bernardino, and San Jacinto ranges, which form both a physical and an existing 18-inch line in Avenue P-8 (Technology Drive). From that point, sewage flows east to the climatological barrier between the southeast desert and south coast air basins. The SEDAB has a desert Palmdale Water District Reclamation Plant located at Avenue P-8 (Technology Drive) and 30th Street climate characterized by low annual rainfall, low humidity, hot days, and very cold nights. The mean East. Sewer lines within the plan area range from 8 inches to 24 inches and utilize gravity flow. The annual precipitation in the SEDAB portion of Los Angeles County averages about 2.5 inches, most of Palmdale sewer treatment plant handles 8.1 million gallons per day and is adequate to treat the which occurs between November and March. Temperature varies greatly between summer and winter neighborhood as though fully built out The average annual temperature is 60.7 degrees, ranging from an average minimum of 41.7 degrees in January to an average maximum of 83.9 degrees in July Relative humidity is generally low in the Water summer, and afternoons are particularly dry. These clean, dry conditions result in intense solar radiation Water service in the neighborhood is provided by Palmdale Water District and Los Angeles County that, combined with high temperatures, is highly conducive to photochemical smog formation. Winds in Water District No. 40. The water lines range from 12 inches to 16 inches and provide adequate 1ire the Antelope Valley are typically brisk and highly persistent, originating mainly from the west and flows. There are no pumping or storage facilities, but the ultimate development of the neighborhood will wesUsouthwest. The average speed of approximately 13 mph usually allows any localized pollution to be require an additional 200,000 gallons of elevated storage within Palmdale Water District scattered Most regional air quality problems are, therefore, due to interbasin transport from the Los Angeles area through mountain passes such as Soledad Canyon. The prevailing winds typically move Drainage polluted air from the more densely populated portions of the south coast air basin toward the southeast The majority of the subject property falls within the Ana Verde Creek watershed Approximately 33 acres desert air basin, with the air entering the desert basin from mid-afternoon to late evening of the Plan area at the northwesterly corner fall in the Amargosa watershed The impact of the Amargosa watershed on the development has been mitigated by recently channelizing the creek Circulation Plan The Antelope Valley Freeway bisects the Speci1ic Plan from Palmdale Boulevard to north of Rancho Flood Zone Vista Boulevard (Avenue P) at 10th Street West. The freeway provides a total of 6 through lanes within The subject properties are categorized as a non-flood hazard area, Flood Zone X, according to FEMA the Specific Plan limits and includes a total of 53.2 acres of right-of-way. On and off-ramps within or Flood Community Panel No. 06014400100, dated March 30, 1998. Zone Xis determined as those adjacent to the Speci1ic Plan include northbound and southbound on and off-ramps at Palmdale areas of 500-year flood; areas of 100-year flood with average depths of less than 1-foot or with drainage Boulevard, and a northbound off-ramp and southbound on-ramp at Avenue P A northbound on-ramp less than 1 square mile; areas protected by levies from 100-year flood and southbound off-ramp is provided at 10th Street West Functional Utility The State of California Department of Transportation (Cal Trans) has proposed a future interchange at Based on a thorough inspection of the subject properties, subject parcels 1 and 2 are 1inished lots with all the approximate alignment of the Antelope Valley Freeway and Avenue P-8 (Technology Drive) for an utilities and all off-site improvements in place, ready for construction. However, subject parcels 3 and 4 eastbound limited access freeway include one legal lot, which is physically divided by Corporate Court and West Park Drive City officials

VAA File No. 1 05-413C 48 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 49 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SITE DATA 4 Parcels -Trade & Commerce Center SITE DATA

con1irrn that a new parcel map would have to be submitted to the City for its review of the tentative parcel map and approval by the Planning Commission and Engineering Department before legally subdividing the lot. This would take approximately 3 months in order to legally subdivide parcels 3 and 4 and make it more marketable. The total estimated cost of doing so is approximately $3,000 for drawing up a new parcel map, and an additional $3,000 for reviewing the tentative parcel map, $594 for the Engineering Department to review the new parcel map, plus $25 per lot, equaling a total cost of approximately $6,645, plus 20% for entrepreneurial profit, equals $7,974, divided by two parcels, equals $3,987 subdivision cost per parcel. Subdividing the lot would occur while the property is being marketed

Assuming parcels 3 and 4 are legally parcelized and marketable, independent of one another, all the four subject lots have characteristics, both external and internal, that are functional and marketable within the local market area. After careful consideration of the foregoing factors, the subject sites will be considered fully functional and well-suited to support certain commercial and/or light industrial uses Access, _J visibility, location and overall site utility are good, and the sites are ready for construction

No. Assessor Parcel No. Acrea!:le 1 3003-080-006 1.005 2 3003-080-009 1.003 3 3004-001-032 (West portion) 4.693 (scalable) 4 3004-001-032 (East portion) 11.387 (scalable)

Total 18.088 ' ~ I

PLAT MAP

VAA File No. 1 05-413C 50 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 51 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SITE DATA 4 Parcels -Trade & Commerce Center ZONING

The goals for the Palmdale Trade and Commerce Center Specific Plan are to provide a viable mix of commercial, industrial and public uses consistent with capabilities of the City and special districts to provide services and to establish a mixed-use activity center to complement residential development in the city

The objectives of the Speci1ic Plan are the following

Provide for commercial/industrial facilities in the Palmdale Trade and Commerce Center Specific Plan Area which serve both the employment needs of local residents as well as regional needs of North Los Angeles County; 2 Establish the Speci1ic Plan Area as a focal point and gateway to the city; 3 Encourage lot consolidations and master-planning to provide larger parcels of developable land; 4 Encourage the development of regional transit facilities within the Specific Plan Area; and 5 Promote attractive and high-quality commercial and industrial uses N Existing surrounding land uses of the Specific Plan Area and General Plan Designations are as follows

North Land Use The Specific Plan Area is bounded on the north by Rancho Vista Boulevard (Avenue P) and a short segment of the Antelope Valley Freeway Existing adjacent uses include the Antelope Valley Country Club, a residential housing tract, and vacant land. The predominant use on the north side of Rancho Vista Boulevard (Avenue P) is single-family residential and vacant regional, commercial and office/commercial land on the east and west ends of the residential development The Antelope Valley Mall development is located to the northwest of the Specific Plan Area at the intersection of Rancho Vista Boulevard (Avenue P) and 10th Street West. Single-family residential-3 (3.1- 6 du/ac) includes the Antelope Valley Country Club, regional, commercial and office/commercial

East Land Use. The Specific Plan Area is bounded on the east by Division Street and includes vacant land, single-family residences, and commercial uses South of Rancho Vista Boulevard (Avenue P) to P-8 (Technology Drive) is designated as business park (BP), south of Avenue P-8 (Technology Drive) to Avenue Q is designated as open space and industrial and business park, and from Avenue Q to Palmdale Boulevard is designated as single-family residential (3.1-6 du/ac), multiple-family residential (10.1-16 du/ac), and community commercial

South Land Use. The Speci1ic Plan Area is bounded on the south by Palmdale Boulevard and existing commercial uses (gas stations, restaurants, hotels, shopping centers) and vacant land. Community commercial (CC) is the primary zone designation for the length of Palmdale Boulevard

PLAT MAP

VAA File No. 1 05-413C 52 Valentine Appraisal & Associates. Inc. VAA File No. 105-413C 53 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center ZONING 4 Parcels -Trade & Commerce Center ZONING

West Land Use. The Specific Plan Area is bounded on the west by 10th Street West and Subject parcel nos. 1 and 2 are zoned MX (Mixed Use), and subject parcel nos. 3 and 4 are zoned PD includes single-family and multiple-family residences, a church, daycare center, commercial (Planned Development) uses, and vacant land. Regional commercial is to the northwest of the Specific Plan Area, and community commercial and multiple-family residential (10.1-16 du/ac) is along 10th Planned Development Zone (PD) Street West The Planned Development zone was established for the development of a regional commercial center to serve the residents of the Antelope Valley and surrounding areas. Uses appropriate in this zone include Antelope Valley Auto Center One additional land use to be noted is the Antelope Valley major retail outlets, hotels and motels, entertainment facilities, administrative, professional and medical Auto Center, which is located south of Avenue P-8 (Technology Drive), north of Avenue Q, offices, and financial institutions. This zone will also accommodate community commercial uses and east of 5th Street West, and west of the Antelope Valley Freeway, lying within the personal services. This zone is not intended for agricultural, industrial, manufacturing or residential land boundaries of Antelope Valley Auto Center Speci1ic Plan Area. All development within the uses. Outdoor storage or display use is prohibited unless speci1ically permitted in the land use matrix auto center is governed by the Antelope Valley Auto Center Speci1ic Plan and is not subject Permitted uses operating on a 24-hour schedule within the PD zone are subject to Conditional Use to provisions of the Palmdale Trade and Commerce Center Specific Plan Permit approvals

According to the Palmdale Trade and Commerce Center Speci1ic Plan, without considering the auto mall, The following uses are permitted in the PD zone retail trade for parts and accessory for automobile, there are four zoning classifications. There is the Planned Development (PD) zone; Mixed Use (MX) marine craft and aircraft, retail sales of building supplies, business supplies and equipment, sale of zone; Mixed Use -AICUZ Restricted (MX-A) zone; and the Public Facilities (PF) zone durable goods, sale of personal goods, food and beverage sales, eating and drinking establishments, administrative and professional office uses, automotive rental agencies, automobile service stations, As shown on the following map, the Palmdale Trade and Commerce Center Speci1ic Plan is divided into automotive services, business support services, communication services, conference/convention/ seven planning areas They are as follows meeting facilities, 1inancial institutions, health clubs and spas, hotels and motels, medical and healthcare services, personal services, repair and rental services, schools and studios, veterinary clinics, park and Planning Area Land Use Designation Net Area Acres % Total Site ride facilities, collection facilities, charitable fundraising organizations, daycare accessory uses, public facilities including libraries, museums, parks, and post offices, flood control facilities, and various PD Planned Development 125.8 16.9 temporary uses like special events including Christmas tree lots, pumpkin lots and fireworks stands, haunted houses, carnivals, temporary trailers, stockpiling of earth for grading purposes, and other uses 2 MX-A Mixed Use 41.0 5.4 with Conditional Use Permits AICUZ Minimum Site Development Standards 3 PF Public Facility 18.9 2.5 PD (Planned Development) Land Use Zone 1 Minimum Developable Area 1/2 acre 4 PD Planned Development 71.7 9.7 2 Minimum Lot Width 150feet 3 Minimum Lot Depth NA 5 PD Planned Development 64.9 8.7 4 Maximum Height Limitations All locations 45 feet 6 MX Mixed Use 77.0 10.3 All locations with CUP 45+ feet 5 Maximum Site Coverage 90% 7 PD Planned Development 199.1 26.7 6 Minimum On-Site Landscaping 10% 7 Minimum Building and Parking Setback Building - 30 feet; Subtotal 598.4 80.2 and depth of landscaping along major Parking - 20 feet; Streets/Other 94.7 12.7 and secondary street frontages Landscaping - 20 feet Antelope Valley Freeway Right-of-Way 53.2 l1 8 Minimum Building and Parking Setback Building - 20 feet; Total 746.3 100.0 and depth of landscaping along local streets Parking - 10 feet; Landscaping - 10 feet 9 Minimum rear yard setback from property line

VAA File No. 1 05-413C 54 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 55 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center ZONING 4 Parcels -Trade & Commerce Center ZONING

a Adjacent to existing or planned commercial, property, a minimum 20-foot building office or industrial development Ofeet setback shall be required b Adjacent to existing or planned freeway Building - 20 feet; Rear Yard Not less than 10 feet in depth Parking - 20 feet a. Where a public facility abuts Landscaping - 20 feet single-family residential designated 10 Minimum side yard setback from property line property, a minimum of 20-foot a Adjacent to existing or planned commercial, building setback shall be required office or industrial development Ofeet Maximum Height Requirement Shall not exceed 1 story or 17 feet b Adjacent to existing or planned freeway Building - 20 feet; Maximum Lot Coverage Not to exceed 90% Parking - 20 feet; Maximum Floor Area Ratio Not to exceed 1.0 Landscaping - 20 feet Mixed Use (MX) Zone Public Facilities Zone The purpose and intent of the Mixed Use (MX) zone is established for the development of a combination The Public Facilities zone was established to provide an area for public and quasi-public or institutional of business park, light industrial, regional and community commercial uses Uses also considered uses, including community facilities and capital improvements such as flood control facilities appropriate in this zone include entertainment facilities, administrative, professional and medical offices, personal services, and financial institutions. This zone will accommodate business parks, light industrial The permitted uses in the PF zone are limited to include park and ride facilities, public facilities including and manufacturing uses which are conducted entirely within an enclosed building and which do not libraries, museums, parks and post offices, flood control facilities, stockpiling of earth for grading produce odor, noise, vibration, pollution, or other nuisance which would adversely impact adjacent uses purposes, and various other uses when accompanied by a Conditional Use Permit This zone is not intended for heavy industrial and manufacturing, agricultural, and residential uses

According to Section 71.01 of the City's Zoning Ordinance, the intent and purpose of the Public Facility Some of the more speci1ic uses allowed in the MX zone include custom manufacturing and assembling zone is intended to provide for the continued use and the future development of public and quasi-public uses, light manufacturing and assembly, light wholesale trade, light warehousing, retail trade of parts and uses, including but not limited to schools, governmental administrative facilities, police and fire stations, accessories for automotive uses, building supply uses, business supplies and equipment, durable goods libraries, park and recreation uses, community facilities and public open space areas. Due to the broad activities, activities for personal goods, food and beverage sales, eating and drinking establishments, service function of this district and the difficulty of planning all public uses in advance, the PF zone may administrative and professional offices, automotive rental agencies, automotive service stations, be designated throughout the planning area, provided the use does not conflict with other established automotive services, building maintenance services, business support services, communication services, uses and conforms to the General Plan conference and convention facilities, 1inancial institutions, health clubs and spas, hotels and motels, laundry services, medical and healthcare services, personal services, repair and rental services, schools The minimum lot standards are as follows and recreational uses, vocational training, veterinary clinics, park and ride facilities, recyclable collection facilities, public libraries, museums, parks and post offices, flood control facilities, special event uses, Lot Area Each lot or parcel of land in the zone other temporary uses and 24-hour businesses PF shall have a minimum lot area sufficient to accommodate all Minimum Development Standards required parking, setbacks, landscaping, loading, trash Minimum Developable Area 1 acre enclosures and access requirements Minimum Lot Width 150 feet Minimum Lot Width None Minimum Lot Depth None Setbacks Maximum Height Limitation 35feet Front yard Not less than 20 feet in depth Maximum Site Coverage 90% Side Yard Not less than 10 feet in depth Minimum On-Site Landscaping 10% a. Where public facility abuts single­ Minimum Setback Areas Along Major and Secondary family residential designated Street Frontages Building 30feet

VAA File No. 1 05-413C 56 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 57 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center ZONING 4 Parcels -Trade & Commerce Center ZONING

Parking 20 feet Maximum Site Coverage 40% Landscaping 20 feet Minimum On-Site Landscaping 10% Minimum Setbacks Along Local Streets Minimum Setback Areas Along Major and Secondary Building 20feet Street Frontages Parking 10 feet Building 30feet Landscaping 10feet Parking 20feet Minimum Rear Yard Setback Landscaping 20feet When adjacent to existing or planned commercial, office Minimum Setbacks Along Local Streets or industrial development Ofeet Building 20feet When adjacent to existing or planned freeway Parking 10feet Building 20 feet Landscaping 10feet Parking 20feet Minimum Rear Yard Setback Landscaping 20feet When adjacent to existing or planned commercial, office Minimum Side Yard Setback or industrial development O feet When adjacent to existing or planned commercial, office, When adjacent to existing or planned freeway or industrial development Ofeet Building 20feet When adjacent to existing or planned freeway Parking 20feet Building 20 feet Landscaping 20feet Parking 20feet Minimum Side Yard Setback Landscaping 20feet When adjacent to existing or planned commercial, office, or industrial development O feet Mixed Use • AICUZ Restricted (MX-A) Zone When adjacent to existing or planned freeway The purpose and intent of this zone is established to provide an area to accommodate the same regional Building 20feet and community commercial, business park and light industrial uses permitted in the MX zone with the Parking 20feet exception of those uses found to be incompatible with the Air Force Plant 42 Installation Compatibility Landscaping 20feet Use Zone II. Those uses deemed compatible include hospitals, medical facilities, and educational uses Other uses such as general retail, restaurants, and manufacturing may be deemed to be incompatible by Off Street Parking Requirements the Air Force if such uses have an average density of greater than 25 persons per acre per hour during a According to Article 87 of the City's Zoning Ordinance, certain off-street parking is required. Some of the 24-hour period, resulting in greater than 50 persons per acre at any time This zone is not intended for uses and their parking requirements are as follows uses such as heavy industrial and manufacturing, agricultural or residential Commercial Uses 1 space per 250 sq. ft. of gross floor area Some of the more speci1ic uses permitted in the MX-Azone include manufacturing assemblage use, light Financial Institutions 1 space per 200 sq. ft. of gross floor area manufacturing and assembly, light wholesale trade, light storage and warehousing, automotive rental Hotels & Motels 1 space per guest room, plus 1 space per 100 agencies, automotive services, building maintenance services, communication services, laundry sq. ft. of eating area, plus 1 space per 70 sq services, repair and rental services, veterinary clinics, park and ride facilities, collection facilities, flood ft. of seating area, plus 1 space per 3 control facilities, various temporary and 24-hour businesses employees on the largest shift lndustriaVManufacturing Unspeci1ied 1-5,000 sq. ft. requires 1 space per 500 sq. ft Minimum Development Standards of gross floor area; 5,001-10,000 sq. ft requires 1 space per each 750 sq. ft. of gross Minimum Developable Area 1 acre floor area; 10,001-50,000 sq. ft. requires 1 Minimum Lot Width 150feet space per each 1,000 sq. ft. of gross floor Minimum Lot Depth None area; and 50,001 + sq. ft. requires 1 space per Maximum Height Limitation 35feet each 1,250 sq. ft. of gross floor area

VAA File No. 1 05-413C 58 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 59 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center ZONING 4 Parcels -Trade & Commerce Center ASSESSMENTS AND TAXES

Professional Office Use 1 space per 250 sq. ft. of leasable floor area According to records at the Los Angeles County Assessor's Office, the 2004/2005 assessed values, tax Research & Development, Light rates and property taxes for the subject lots are as follows. According to the County Assessor's Office, Industrial Use 3 spaces per 1,000 sq. ft. of gross floor area the subject parcels are in default Additional bond indebtedness and penalties are found in the Addenda Retail Uses 1 space per 250 sq. ft. of gross floor area section of this report

Other building requirements unique to the Palmdale Trade and Commerce Specific Plan include the Assessed 2004/2005 following No. Assessor Parcel No. Acreage Value Taxes Tax Rate 1 3003-080-006 1.005 $217,400 $2,624.79 1.21% 2 3003-080-009 1.003 $217,400 $2,624.79 1.21% No fence or wall exceeding 3 feet in height shall be constructed closer than 30 feet from the ,.. 3004-001-032 (west portion) 4.693 (Sea lab I•) $641,984 $95,446.62 14.87% curb line of a fronting street; ,.. 3004-001-032 (east portion) 11.387 (Sea lab I•) $1,628,116 $242,059.12 14.87% 2 No fence or wall shall exceed a height of 8 feet; Total 18.088 $2,704,900 $342,755.32 32.15% 3 Walls and fences between buildings and fronting streets are discouraged; .. Pro rata share 4 All fences and walls shall be designed as integrated parts of the overall architectural and site design All materials shall be durable and finished in textures and colors The Los Angeles County Assessor's Office confirms that each of the subject parcels is in default for their complementary to the overall architectural design; and property taxes and bond indebtedness 5 Double walls will not be permitted unless capped Liens, delinquencies, penalties and interest total the following

APN 3003-080-006 $114,494; $2.62/sq. ft APN 3003-080-009 $114,494; $2.62/sq. ft APN 3003-001-032(west)** $3,579,080; $17.51/sq. ft APN 3003-001-032(east)** $8,684,208; $17.51/sq. ft

Property tax and bond indebtedness for the subject property are due to liens and delinquency payments When Ronald and Nancy Arrache acquired subject parcels 1 and 2 recently, they did not pay off the CFD 99-1 bonds. They are still responsible for future payments. In regards to subject parcels 3 and 4, the Acton Crown Valley Road property, the bond indebtedness includes future CFD 99-1 bonds and delinquencies

According to records at the Los Angeles County Assessor's Office, real properties are assessed only upon change of ownership or upon completion of new construction. Annual increases are limited by Proposition 13, a voter-approved initiative, to a maximum of 2% per year. Tax rates are limited by this proposition to 1 % of the full cash value, plus any voter-approved bonded indebtedness

VAA File No. 1 05-413C 60 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 61 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center IMPROVEMENT DATA 4 Parcels -Trade & Commerce Center EXPOSURE TIME

The/ subject parcels are 1inished lots with all off-sites, including curbs, gutters, sidewalks, streetlights, Exposure time is the estimated length of time the property interest being appraised would have been and all utilities, located in the Palmdale Trade and Commerce Center No other improvements or offered on the market prior to the hypothetical consummation of a sale at fair market value on the structures are located on the subject lots effective date of the appraisal; a retrospective opinion based upon an analysis of past events assuming a competitive and open market.3 My opinion of a reasonable exposure time is based on statistical information about days on the market, information gathered through sales verification, and interviews with market participants

Based on the above analysis and my discussions with local real estate brokers, I conclude that the marketing time for each of the subject parcels is approximately four weeks

3 USPAP, 1999 edition, p. 65

VAA File No. 1 05-413C 62 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 63 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center HIGHEST AND BEST USE 4 Parcels -Trade & Commerce Center HIGHEST AND BEST USE

The twelfth edition of The Appraisal of Real Estate, published by the Appraisal Institute, defines highest provide services and to establish a mixed-use activity center to complement residential development in and best use thus the city

the reasonably probable and legal use of vacant land or an improved property, which is The objectives of the Speci1ic Plan are the following physically possible, appropriately supported, 1inancially feasible, and that results in the highest value Provide for commercial/industrial facilities in the Palmdale Trade and Commerce Center Specific Plan Area which serve both the employment needs of local residents as well as The highest and best use for the land assumes that it is vacant and available for use regional needs of North Los Angeles County; 2 Establish the Speci1ic Plan Area as a focal point and gateway to the city; Estimating highest and best use essentially involves four stages of analysis 3 Encourage lot consolidations and master-planning to provide larger parcels of developable land; 1. Legally Permissible Which use is permitted by zoning and deed restrictions on the site 4 Encourage the development of regional transit facilities within the Specific Plan Area; and in question? 2. Physically Possible To which use is it physically possible to put the site in question? 5 Promote attractive and high-quality commercial and industrial uses 3. Financially Feasible. Which permissible and possible use will produce any net return to the owner of the site? Subject parcel Nos. 1 and 2 are zoned MX, and subject parcel Nos. 3 and 4 are zoned PD 4. Maximally Productive. Among the feasible uses, which use will produce the highest net return or the highest present value? The purpose and intent of the Mixed Use (MX) zone is to establish for the development of a combination of business park, light industrial, and regional and community commercial uses Uses considered Legally Permissible appropriate in this zone include entertainment facilities, administrative, professional and medical offices, The use must be legal Moreover, it must be probable, not speculative or conjectural A possible personal services, and financial institutions. This zone will accommodate business parks, light industrial demand for such use exists, and it must return to land the highest net return per the longest period of and manufacturing uses that do not adversely impact adjacent uses The zone is not intended for heavy time industrial and manufacturing, agricultural or residential uses

Two types of legal restrictions apply to the subject properties private restrictions (deed restrictions The Planned Development (PD) zone was established for the development of a regional commercial and/or easements) and public restrictions (zoning). As con1irmed in the title reports, there are private center to serve the residents of the Antelope Valley and surrounding areas. Uses appropriate in this restrictions on the sites. In addition, there are common restrictions as well zone include major retail outlets, hotels and motels, entertainment facilities, administrative, professional and medical offices, and 1inancial institutions. The zone will also accommodate community commercial Subject parcels 3 and 4 include 16.08 acres and are physically divided by 70-foot wide paved streets uses and personal services It is not intended for agricultural, industrial, manufacturing, or residential known as Corporate Court and Westpark Drive. The west part of the subject property includes 4.693 land uses acres(scaled). On the south and east side of the streets, the subject incorporates a large 11.387 acre parcel(scaled). Each parcel is irregular shape, but in order to make this parcel more marketable, and to The next step is to determine which of the main uses are physically possible to develop divide the lot into two legal parcels, as indicated previously, a new engineering tentative parcel map would have to be submitted to the City for review both from the Planning Department and the Physically Possible Engineering Department, at a cost of approximately $6,645, including the estimated cost of engineering The second constraint imposed on a possible use of the subject properties is dictated by the physical plans and a minimal three-month time period aspects of each of the 4 lots. Size, location, and allowable density are the most important determinates of value. In general, the larger the site, the greater the potential for achieving economies of scale Subject lots 1 and 2 are owned by Ronald and Nancy Arrache Trust, and subject lots 3 and 4 are owned by Acton Crown Valley Road, Inc., and are located in the Palmdale Trade and Commerce Center, City of The size of the parcels, when considered within the provisions of the zoning, considerably influences the Palmdale, Los Angeles County, California site's ultimate development: the permitted size determines how the site is developed

The goals for the Palmdale Trade and Commerce Center Specific Plan are to provide a viable mix of The subject lots are located in the Palmdale Trade and Commerce Center, east of 10th Street West, commercial, industrial and public uses consistent with capabilities of the City and special districts to south of Auto Center Drive, west of the Antelope Valley Freeway, and north of Palmdale Boulevard, in the City of Palmdale, Los Angeles County, California The lots range in size from 1.003 acres to 11.90

VAA File No. 1 05-413C 64 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 65 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center HIGHEST AND BEST USE 4 Parcels -Trade & Commerce Center HIGHEST AND BEST USE

acres. The subject sites can easily be reached via the Antelope Valley Freeway from Rancho Vista historical low home prices However, historically, local job growth rates have not kept up with the Boulevard to the north and Palmdale Boulevard to the south. The Antelope Valley Freeway provides population growth rate, with 34% of the local work force commuting outside the area. As the national excellent access to all parts of Southern California and the Central Valley economic slowdown has not really affected the local economy, the local economy is expected to continue expanding in the coming years Financially Feasible The feasibility of the real estate project normally relates to its probable economic potential According to The use that requires the smallest investment for development and produces the greatest return the twelfth edition of The Appraisal of Real Estate, all uses expected to produce a positive return are would qualify as the highest and best use. Therefore, it is my opinion that the highest and best use regarded as financially feasible Therefore, in this stage, the appraiser further analyzes the legally for the subject properties includes professional office and/or light industrial uses for subject parcels 1 permissible and physically possible uses to identify 1inancially feasible alternatives and 2. For subject parcels 3 and 4, it is for legally subdividing the lot into two parcels and to develop the parcels for either a professional office building and/or various other commercial uses. However, it Developing subject lots 1 and 2 with various commercial and/or light industrial uses is consistent with the is my opinion that the highest and best use of subject parcels 1 through 4 is for development of each site standards and zoning. Likewise, developing subject lots 3 and 4 with more intense commercial uses parcel independent of one another like a hotel or professional office building is consistent with its site standards and zoning. With the steady increase in local population and local businesses, demand for such uses will continue to increase

Highest and Best Use (Maximally Productive) The city's rate of retail and commercial development has been booming in recent years The Marketplace at Palmdale, just west of the subject lots, is improved with various big box stores and is doing well. North of the subject lots are various fast food restaurants, the new Hampton Inn that is under construction, and the Family Fun Center. The Antelope Valley Mall, which has over 1,000,000 sq. ft. and provides shopping, dining, entertainment, community activities and special events, is anchored by Dillard's, Gottschalk's, J.C. Penney's, Sears, Mervyn's, and over 134 retail outlets and movie theaters Recently completed is the Amargosa Commons Center, along the west side of 10th Street West and built out with various other big box stores including PetsMart, Shoe Pavilion, Dress Barn, T J Maxx, Bed, Bath & Beyond, and Circuit City. Also, Kohl's and Sam's Club, a 150,000 sq. ft. retail store, is located just north of the Antelope Valley Mall along the east side of 10th Street West at Avenue 0-8. Just north of Sam's Club is a Wal-Mart Super Center under construction Yet, the subject lots lack the commercial influence and visibility for a large retail center

Jack Kyser, Senior Economist for the Los Angeles County Economic Development Corporation, con1irrned that the valley's population is growing, and aerospace and defense are fairly stable Historically, the defense industry has been the mainstay of the valley, and the build-up of the national military is going to continue in the long run as an effect of the September 11 tragedy. Much of that growth is driven by the FA-22, by Lockheed. Lockheed alone employs approximately 4,400 people in Palmdale in programs that include various other aerospace projects. Boeing also has a solid future in the Antelope Valley, with various projects including the next phase of space travel, with the X-37, which is scheduled to flight test in 2004 and space launch in 2006 Recently, US Pole Company and Delta Scienti1ic relocated to the Antelope Valley, and with nearly 300 employees, they have expressed appreciation for numerous advantages and cost reductions they received through relocating their business to the valley

In short, the expanded Greater Antelope Valley encompasses 3,000 square miles, is home to over 400,000 people, and has experienced record growth over the past decade, due in large part to the

VAA File No. 1 05-413C 66 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 67 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center APPRAISAL PROCEDURES 4 Parcels -Trade & Commerce Center APPRAISAL PROCEDURES

Developing a reasonable opinion of value for the 4 parcels typically requires an understanding of the construction costs are minimized. The income forecast represents the proceeds from the sale of the lots following appraisal techniques and methodologies over the anticipated sell-out period. As mentioned previously, the cost of development is minimized since all off-sites are in place and the sites are ready for development, but selling expenses and overhead The cost approach considers the current cost of reproducing a property, less accrued expenses will still be incurred due to the required sell out period. In the cash flow forecast, the appraiser depreciation in the property. A summation of the fair value of the land assumed vacant must properly identify and include each item of income and expenses in the appropriate period and the depreciated replacement cost new (RCN) of the improvements provides an Theoretically, the techniques used to forecast entrepreneurial profit should not impact the ultimate value indication of the total value of the property of the land because entrepreneurial profit is recognized and supported by the market. The final step in The income capitalization approach is based on an estimate of the subject property's estimating the value of vacant land when the Developmental Approach is applied is to discount the net possible net operating income. The net operating income is capitalized to arrive at an periodic cash flow forecast to a present value with an appropriate discount rate indication of value from the standpoint of an investment. This method measures the present worth of anticipated future bene1its (net income) derived from the property

The safes comparison approach produces an estimate of value by comparing the sales and/or listings of similar properties in the same area as the subject property or in competing areas. This technique is used to indicate the value established by informed buyers and sellers in the market

The developmental approach is a technique for valuing undeveloped acreage which involves discounting the cost of development and the probable proceeds from the sale of developed sites.4

Since vacant land generally is not purchased for income-producing purposes or ground leasing, I found the Income Capitalization Approach is limited in its function in estimating land value. In addition, the Cost Approach is not necessary since the subject property is vacant. The Developmental Approach, which involves discounting the cost of development and the probable proceeds from the sale of several sites, is not applicable in this report since the four parcels analyzed in this report are owned by two different property owners, and all the parcels can be marketed and sold in the normal marketing period without the necessity of discounting the proceeds. Therefore, the Sales Comparison Approach, the most applicable and most common way of appraising vacant land, will be used exclusively in this report. Given the circumstances, most experienced real estate appraisers would use the Sales Comparison Approach exclusively

Two of the previous described methods and techniques will be utilized in appraising the subject property First, the Sales Comparison Approach is used by gathering sales of vacant lots comparable to the subject's 4 parcels and analyzing the comparable sales appropriately; and adjusting them for differences in real property rights conveyed, financing terms, conditions of sale, expenditures after sale, marketing conditions, location, and physical characteristics. After considering the reliability and applicability of each adjusted sale price, the appraiser selects a 1inal value indication for each of the subject lots as though the lots are ready for development and with all off-site improvements in place This value is known as the "retail value," which is necessary in arriving at the Developmental Approach

The Developmental Approach is to prepare a complete cash flow forecast of the expected income and the cost being paid by the owner of the land during both the construction phase and the sell-out period of the subdivision Since the lots are currently 1inished with all off-sites, including utilities, in place,

4 Dictionary of Real Estate Appraisal, 3rd edition

VAA File No. 1 05-413C 68 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 69 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH

The sales comparison approach, the most common way of developing a fair market value Marketing Conditions. Generally, prices rise over time due to inflation and the decreasing supply estimate for land, involves collecting and analyzing sales and listings of vacant land comparable of land As previously discussed, the Southern California economy suffered a significant to the subject Such sales and listings are commonly called comparables or comps The downturn in the early 1990s. In the late 1990s, the real estate values stabilized with some signs appraiser adjusts prices to some common unit of comparison, such as price per acre or price per of appreciation. In recent years, land values, including those in the subject's neighborhood, have square foot, and then adjusts the prices for market conditions, location, physical characteristics, increased substantially at approximately 15% annual rate of appreciation, coupled with increased available utilities, zoning, highest and best use, and other relevant variations; such comparable real estate activity. Necessary adjustments were applied adjustment characteristics applicable in the analysis of vacant land are generally described in the sales comparison approach. Finally, the appraiser analyzes this information and derives a unit Location. This, in my opinion, is the most important factor affecting property values in the subject value applicable to the subject property When applied to the appropriate unit measure, this area. Those locations accessible to freeways, surrounded by compatible land uses, and void of value yields an estimate of the market value of the land as if vacant criminal influences like graffiti and gang activities with good appeal warrant the higher values The subject property has good freeway access, and there is no evidence of criminal influences, As mentioned in the Highest and Best Use section, I will value the fair market value "as is" with such as graffiti and gang activities the assumption that the Highest and Best Use is for developing the 4 parcels for professional office and/or light industrial uses, independent of one another without any assemblage necessary Size. Larger parcels typically bring lesser unit prices than otherwise equally desirable parcels The primary reason for this is that the purchase of large acreage entails a much greater capital An investigation of land comparables in the subject's vicinity disclosed various sales with similar outlay, which restricts the number of possible buyers as compared to the relatively larger market zoning and potential Highest and Best Uses as the subject parcels for smaller parcels The sales were analyzed for differences in price due to size As such, smaller comparable sales generally warrant downward adjustments, and larger comparable sales Characteristics and elements of comparison concluded in this approach follow generally warrant slight upward adjustments

Real Property Rights Conveyed. A transaction price is always predicated on the real property Physical Characteristics If the physical characteristics of the comparable property and the interest conveyed. Many types of real estate, particularly the income-producing property, are sold subject property differ, each of these differences may require comparison adjustments The subject to existing leases. The revenue-generating potential of a property is often fixed or limited physical differences may include differences in parcel size, shape, access, and terrain. All sales by terms of the existing leases. In the valuation process, adjustments must be made to reflect the were analyzed and adjusted for these factors difference between properties leased at market rent and those leased at rent either below or above market levels When verifying the comparable sales data, I found that very few Utilities. Availability of utilities is a major factor in the development of any property If the site has comparables included long-term lease agreements, as all of them transferred fee simple interest, no access to utility service, it must acquire access and may be very difficult to develop thus warranting no adjustments for real property rights Therefore, the price paid for such a site would be affected by the lack of availability of utilities These comparables were adjusted accordingly Financing Terms The transaction price of one property may differ from that of an identical property due to financing arrangements A financing adjustment may or may not include an Zoning and Highest and Best Use. An appraiser must address any differences in the zoning and adjustment for conditions of sale. The comparable sales used in the analysis are either all cash the highest and best use of a potential comparable to the subject property. The appraiser must transactions or include financing with market interest rates recognize this difference and determine whether the sale is an appropriate comparable and whether an adjustment is required. In most cases the buyer or his or her agent must confirm the Condition of Sale. This adjustment takes into consideration unusual features of the transaction, ultimate use for which the comparable is purchased All comparables were analyzed and such as financing whether or not the sale took place under open market conditions. All the sales adjusted for these factors used in this analysis were either cash transactions or believed to have financing at market rates, thus requiring no adjustments for condition of sale An investigation of the land com parables in the subject's vicinity disclosed several sales that were useful in my analysis A map of the land com parables and their analysis appear on the following Expenditures After Sale. This considers curable, physical deterioration that should be corrected pages immediately, although work did not commence prior to the transaction Deferred maintenance implies the need for immediate expenditures, but does not necessarily suggest inadequate maintaining in the past

VAA File No. 1 05-413C 70 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 71 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH

SUMMARY OF COMPARABLE LAND SALES 1113 Wi,sL Rancho V~La BlvJ l{lb,000 1000 11 I 19 C4 APN 300b-{J3B-006 Palmda~. CA Doc# 114Bl91

~,o,,,v, K"'"'"'" ,,.,,.,,,,~,, HalaDela Ha1aaooa jaa,ao~ arica>SF "'"'"" """'""'""' '"'"'"" '"" ""''""'""' Avaaoa D-8, Caslol 15lh Slraal IBs:J,000 118 17 APN a:J05-03B-07B D""•lopec G,anL•• Palm B"'ckLP Financing ConsLr,,cL~nloanLhcough Palmdala,CA lalaaded Usa Gm.ca Japaaasa FlrsLFarni•~.~~MuhanLsBanklo,

Gcaaloc Aalabpa Val~y Mall Davabpac """'"'""Val~y Mall Dev•~P•t Gcaalae Pc,oe Assomlas, lac ConllrniaL~n Del• 4/{Jb -maarn,a Sal~ccarr~d back \668,003, lam,sNA. 600WM Palmda~ Bo,~vard 12.000.000 b910 1169 CPD APN 3004-{)04-{)21 &03b Vanl,cal,oa CvaraLLShma,Aalabpa Palmda~. CA Doc# 1136436 Val~y Mall Deva lo pee lnL•rtd•d Usia Mad~al 011~• B,ILilng Coal,cmal,oa Dela 41{)5 Gean Lo, WM Palmda~ PIS.ca LLC Waslsda ol S,arra H,gITWay 1518 PD-M1 APN a:J10-Cl.25-035&036 G,anL•• TH OonsLt,cL~n LLC Financing All Cash V•rilicaL~n Rob•n Maclin. sial~, Palmdala,CA lalaaded Usa A,Lo-calaladshoppmg ConllrniaL~n 4Jlb

Gcaaloc Pa,ILaernaBa 10~SLt••LWM,Smaarn,a All Cash Palmda~. CA lnL•rtd•d Usia NA. Vanl,cal,oa Walaed Khalb Granto, S~l~TrnsL b,ymahomacom Coal,cmal,oa Dela 21{)5 SCColAvaaoaQaad 5lh Slraal 11.000,000 1614

Palmdala,CA lalaaded Usa Sparnlal,oa NonhsLi•olAv•n"" P-4alblh 10!{)3 IBbB,000 24b0 1804 SC APN 3003-{)01-0bO &Ob1 Gcaaloc Malac>am,tyLP " s,,..,was1 Doc# 303219b Gcaal•• Pcahlad S &J,IISK Ka,lay Palmda~. CA >maarn,a Sal~ccarr~d back '""'"'"" 1628,596, lacms &road,L,oas NA '"'"'""'"""'""'"' G,anL•• Joyl,ck, LLC Vanl,cal,oa Ha"')' Holloway, Vallay Financing All Cash Raally V•rilicaL~n CEO of Desian Oommonlly

1

AvaaoaD-8,aaslol 15lh Slraal 1875,000 11522 APN 3005-03B-

Palmdala,CA lalaadad Usa Rasla""'"' 12 EasLsLi• olTcad• CanL•cDriv• 11.000,000 22b0 11020 PD APN 3006-()26-001 G"rnloc An la lope Val~y Mall NonholAv•no• P-4 Doc# NA Devalopac Palmda~. CA lnL•rtd•d Usia OonsLtc,cL~nolnew G"rnl•• Desacl Brack LP haaacmg [

Gcaaloc K-MacLDocpocaL,oa Gcaal•• lomdaa Cala,pc,sas, lac haaacmg All Cash Vaal,cal,oa Dawaa Cyka, lomdaa 1;:::::: "°"'"'' '"'°' Calacpasas Doal,cmaL,oaDala 41{)5

1470,000

Palmdala,CA Gcaaloc DoadaaPmpacL,as Gcaal•• Wasl Palmda~ 10Lh Slcaal

haaacmg All Cash

11.237,000 1511

Palmdala,CA lalaadad Usa 011,ce B"'ldmg Gcaaloc Wasl Palmdala Mad,cal

Gcaal•• AalalopaVal~y haaacmg Sallaccamadback 1sl ID lo,1602,500 Vaal,cal,oa Kao f-lolmaa, >cl Doal,cmal,oa Dal• 41{)5

VAA File No. 1 05-413C 72 Valentine Appraisal & Associates. Inc. VAA File No. 105-413C 73 Valentine Appraisal & Associates. Inc. 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH

Comparable 1 is located approximately 1.2 miles northwest of the subject within the influence of the Antelope Valley Mall, located along the west side of the Antelope Valley Freeway. Mr. Shine confirmed COMPARABLE SALES l\1AP that this property was on the market for approximately 180 days prior to sale, and the new Ginza Japanese Steakhouse will be built on the site. This is a slightly irregular shape parcel with excellent comer access as an out-parcel on the north side of the Antelope Valley Mall It also has level terrain with all available utilities

Comparable 2 is located 2.5 miles southeast of the subject along the west side of Sierra Highway, south of Avenue R. Mr. Khalid, listing agent, con1irmed the property was on the market for approximately 153 days prior to sale, and the buyers intend to develop an automobile-related shopping center on the site This is a 1.02-acre site, which is slightly irregular in shape, with average interior access, level terrain, all utilities available to the site, and lacking curbs, gutters, sidewalks, and streetlights The adjacent property is occupied by Classic Smog Check and other automobile-related uses

Comparable 3 is located .5 mile south of the subject at the southeast corner of Avenue Q and 5th Street West in the Trade and Commerce Center. This rectangular shape parcel benefits from 410 feet of frontage along Avenue Q and 407 feet of frontage along 5th Street West. The buyer acquired the property for speculative purposes. The sale price includes all improvement bond indebtedness. All utilities are to the site, all curbs, gutters, sidewalks, and streetlights are in place, as this is a good comer parcel nearby the proposed Palmdale hospital

Comparable 4 is located 1.2 miles northwest of the subject as part of the Antelope Valley Mall The property was on the market 180 days prior to sale, and the buyer intends to construct a restaurant on the site. It has level terrain, all off-sites are in place, irregular shape, and excellent interior access

Comparable 5 is located .75 mile north of the subject at the northwest comer of Rancho Vista Boulevard and Antelope Valley Freeway, adjacent to the Taco Bell and a flower shop. Wendy's fast food restaurant is located across the street on the south side of Rancho Vista Boulevard. This property benefits from approximately 360 feet of frontage along the north side of Rancho Vista Boulevard and 370 feet of frontage along the Antelope Valley Freeway It has level terrain, all utilities to the site, and is irregular in shape

Comparable 6 is located 1.3 miles north of the subject along the west side of 10th Street West, north of Avenue 0-8. This 1.14-acre site is rectangular in shape with good interior access. It has level terrain, but only limited off-site improvements fronting along 10th Street West. In addition, the Antelope Valley Freeway is nearby and the proposed Super Walmart Center, located just to the across the street, is currently under construction Previously to this sale another transaction recorded in June 2004 for $400,000 per document no. 1407145. Efforts were made to confirm these transactions with both buyer DetaZoom l'.M and seller, without success. This sudden rate of appreciation of 17.5% in just 3 months shows the impact of a proposed Wal-Mart Super Center on nearby real estate values Reliability of these transactions were based on the recorded deeds COMPARABLE LAND SALES MAP

VAA File No. 1 05-413C 74 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 75 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH

Comparable 7 is located adjacent to the subject property at the northeast comer of 10th Street West and site, for $125,235, or approximately $2.61/sq ft. plus 99-1 bond debt of approximately $2.68/sq. ft., Auto Center Drive. The buyer intends to construct a medical office building on the site The sale price equaling an adjusted sale price of $5.29/sq ft This transaction recorded February 13, 2004, according includes all bond indebtedness debt to document No. 331215

Comparable 8 is located 1 mile northwest of the subject in the Antelope Valley Mall It has level terrain, Subject Parcel 1 (APN 3003-080-006) & Subject Parcel 2 (APN 3003-080-009) with all off-sites in place and slightly irregular shape. The buyer acquired this property for restaurant use In my analysis of subject parcels 1 and 2, I gave most weight to comparable sales 2, 3, 7 and 10. The remaining comparables act as supporting data. Comparable 2 was weighted for its recent sale date, Comparable 9 is located .5 mile south of the subject at 600 West Palmdale Boulevard in Palmdale, comparable size, shape, off-site improvements, and zoning. In comparixon to the subject, an upward adjacent to the new Best Western Hotel. This site has level terrain, all utilities to the site, and is slightly adjustment is warranted for its inferior location and a downward adjustment is warranted for its superior irregular in shape. The buyers intend to construct a medical office building on the site, as the property is comer access. Comparable 3 was weighted for its recent sale date, proximity to the subject, similar adjacent to the proposed new hospital location, shape, off-site improvements and comparable zoning. In comparison to the subject, an upward adjustment is warranted for its larger size, and a downward adjustment is warranted for its superior Comparable 10 is located 1.6 miles north of the subject along the east side of 10th Street West, south of comer access, which are offsetting. Comparable 7 was weighted for its proximity to the subject, similar Avenue O in Palmdale. It bene1its from 100 feet of frontage along 10th Street West It has level terrain, location, shape, off-site improvements, and zoning. In comparison to the subject, an upward adjustment all off-sites, and is zoned for industrial use is warranted for its larger size and a downward adjustment is warranted for its superior comer influence Overall, an upward adjustment is warranted. Comparable 10 was weighted for its comparable location, Comparable 11 is located just north of the subject along the north side of Avenue P-4, at 5th Street West, similar shape, and access. In comparison to the subject, an upward adjustment is warranted for its larger at the end of the cul-de-sac along the east and south sides of Family Fun Center and the west side of the size, limited off-site improvements, and inferior zoning Antelope Valley Freeway. The CEO of Desert Community Bank, the seller, con1irmed that this property LAND COtlPS AD.JU STMENT GRID sold at a fair market price, and he was unaware of what the buyer intends to do with the property. All Comp1 Comp2 Comp! Comp4 Comps Comp£ Comp7 CompB Comp9 Comp10 Comp11 Comp12 improvement bonds were assumed at the time of purchase, but there were no delinquencies The Sa~ Price/Sq FL 11811 lb18 1614 l1b22 12041 lb11 11119 1169 1488 11020 buyers are still responsible for future liens not paid off. This comparable is slightly irregular, at the end of R•al Pcop.ny Rights Gonv•,..d '"" '"' a cul-de-sac, with level terrain, and all utilities and off-sites available. It has good commercial potential POC•AI~, Adj,sLm•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 1804 11020

Flnandr,gT•rrns Comparable 12 is located just north of the subject along the east side of Trade Center Drive, north of POC•AI~, Adj,stm•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 1804 11020 Avenue P-4. The selling agent, Mr. Roche of CB Richard Ellis, con1irmed that the buyer intends to GondlL~n of Sa~ (MoLWallon) POC•AI~, Adj,stm•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 1804 11020 construct a Hampton Inn Hotel on the site. Included in the sale price are plans and permits for the hotel Exp•rtdll,"'sAIL•cSal•

This property is slightly irregular in shape, as it is located adjacent to the north side of the Family Fun POC•AI~, Adj,stm•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 1804 11020 Center, west of the Antelope Valley Freeway, and in the Palmdale Trade and Commerce Center Also, it Mack•L Gondlllons (Sa~ Dal•) 111{)4 111{)4 m, ,~ m, 10!{)3 ""' ""' '"' '"' '"' '"' has good interior access, level terrain, all utilities and off-sites in place, and it is zoned PD '' POC•AI~, Adj,stm•nL 11926 lb49" 1669"' 11689"' 12212"' 11031"' )bl{"' 1Zl28"' 181{"' lb61"' 1981"' 11326'"' Three additional sales have recently occurred in the Trade and Commerce Center, but are not included OLh•cAdj,stm•nts in the valuation of this report since signi1icant amount of bond indebtedness was encumbered on each of Locallon -3b% -3b% -3b% -40% Physical ChacacL•c~Ucs ""'-1b% '"' "' -10%"' ""'-20% "' ""'-1b% "' these properties at or near the time of sale. These large bond tax debts can act as a stigma and may not '"' Aval~b~ UUIIL~s " "' " "' " " " reflect market value of a sale. Rather, they are included for information purposes only. As of April 6, "' "' "' "' "' " "' "' " " "' "' Zoning Density -10% "' "' -10% -10% " "' -10% "' '"' "' "' 2004, Ronald and Nancy Arrache acquired lots 4 and 5 of tract 49556 (APN 3003-080-006 & 009), EronomlcCha,acL•risLb "' "' "' "' "' "' "' "' "' "' "' "' approximately 2.01 acres in total. The purchase price was $247,255, or approximately $2.82/sq. ft. plus Total OLh•cAdj,stm•nts '" "' "' '"' -10% -40% "' "' "' "' "' -3b% the assumption of 99-1 bond debt of approximately $2.68/sq. ft., equaling an adjusted sale price of Sa~ Price AIL•cAd',stm•nts 1614 ,,. 1669 1616 1682 1619 163b 1110 l/02 1613 1681 1862 $5.50/sq. ft West Palmdale Medical Investors acquired a 5.5-acre site (APN 3003-079-004) for $1,234,226, or approximately $5.15/sq. ft. free and clear of bond debt. Bonds 88-1 and 90-2 were paid After all adjustments are made, the adjusted unit value range is from $6.35 and $6.86 per square foot off through escrow using city waivers and bond inventory purchased over the years at various discounts Based on the above analysis, it is my opinion that the fair market value of subject parcels 1 and 2 is This sale recorded on June 30, 2004, according to document No. 1671073. The third transaction is $6.86 per square foot, or where Fisher Development Group, LLC acquired lot No 5 oftract49556 (APN 3003-080-007), a 1.1-acre

VAA File No. 1 05-413C 76 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 77 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH

After all adjustments are made, the adjusted unit value range for the weighted comparable sales is from

Lot Size Fair Market Value $5.48 to $6.38 per square foot. Based on the above analysis, it is my opinion that the fair market value of No. (Acres) $/Sq. Ft. Fair Market Value (Rounded) subject parcel 3 is $6.38/sq. ft., or 1 1.005 $6.86 $300,316 $300,000 ** See "Site Data" section for cost of subdividing parcel into 2 lots 2 1.003 $6.86 $299,718 $300,000 Lot Size Fair Market Value No. (Acres) $/Sq. Ft. Fair Market Value (Rounded) Subject Parcel 3 (APN 3004-001-032; West Portion) 3 4.693 $6.38 $1,304,245 less:•• In my analysis of subject parcel 3, I gave most weight to comparable sales 2, 3, 7, and 11 The $3,987 Total $1,300,258 $1,300,000 remaining comparables act as supporting data. Comparable 2 was weighted for its recent sale date, comparable access, similar off-site improvements, and zoning. In comparison to the subject, an upward Subject Parcel 4 (APN 3004-001-032; East Portion) adjustment is warranted for its inferior location, but downward adjustments are warranted for its smaller In my analysis of subject parcel 4, I gave most weight to comparable sales 2, 3, 7, 9 and 11 The size and rectangular shape. Overall, an upward adjustment is warranted. Comparable 3 was weighted remaining comparables act as supporting data. Comparable 2 was weighted for its recent sale date, for its recent sale date, proximity to the subject, similar zoning, size, access and comparable off-site access, and off-site improvements. In comparison to the subject, an upward adjustment is warranted for improvements In comparison to the subject, a downward adjustment is warranted for its superior its inferior location, and downward adjustments are warranted for its smaller size and superior rectangular shape. Comparable 7 was weighted for its proximity to the subject, location, size, off-site rectangular shape. Comparable 3 was weighted for its recent sale date, proximity to the subject, access, improvements, and zoning. In comparison to the subject, a downward adjustment is warranted for its off-site improvements, and zoning. In comparison to the subject, downward adjustments are warranted superior shape and superior comer access Comparable 11 was weighted for its proximity to the subject, for its smaller size and superior rectangular shape. Comparable 7 was weighted for its proximity to the similar shape, off-site improvements, and zoning In comparison to the subject, downward adjustment is subject, size, off-site improvements, and zoning. In comparison to the subject, downward adjustments warranted for its superior location and smaller size However, an upward adjustment is warranted for its are warranted for its superior shape and superior corner access. Comparable 9 was weighted for its inferior cul-de-sac access Overall, a downward adjustment is warranted proximity to the subject, size, and zoning In comparison to the subject, downward adjustment is LAND COMPS ADJUSTMENT GRID warranted for its superior location, and superior shape, and upward adjustments are warranted for its Comp 1 Comp2 Comp! Comp4 Comp 5 Comp£ Comp7 CompB Comp9 Comp10 Comp11 Comp 12 inferior interior access and inferior limited off-site improvements. Comparable 11 was weighted for its Sa~ Prbe/Sq FL 11811 lb1B 1614 l1b22 12041 1946 lb11 11119 1169 1488 18 04 11020 proximity to the subject, shape, off-site improvements, and zoning In comparison to the subject, R•al Pe:,pMy Rights Conv.,..d downward adjustment is warranted for its superior location and smaller size An upward adjustment is PriceAIL•rAdj,s"'1•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 18 04 11020 warranted for its inferior cul-de-sac access FlnardngT•rrns

PriceAIL•rAdjos"'1•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 18 04 11020

Cortdll~nclSal•(MoUvaL~n) PriceAIL•rAdjos"'1•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 18 04 11020

Exp•ndll,"'sAl~rSa~

PriceAIL•rAdjos"'1•nL 11811 lb18 1614 l1b22 12041 1946 lb11 11119 1169 1488 18 04 11020 Marhl Cortdll~ns (Sal• Dal•) 111{)4 11Jl4 ""' m, m, w, ""' ""' ""' w, 1@S '"" "" 11" 11" "" 1SS 1

OLh•rAdj,Mm•nts LocaL~n sos """ "" -40% -40% -3b% "" -40% -3b% "" -3b% sos Physical CharacL•risLb -20% -10% SS -1b% -2b% -10% SS -10% "" "" "" SS Avallabl•ULIIIL~s "" "" "" "" "" SS "" "" SS SS "" "" Zoning D•nslly -10% "" "" -10% -10% SS "" -10% "" '"" "" "" Eronom~CharacL•rist~s "" Total OLh•r Adj,stm•nts -10%"" "" ""SS -6b%"" -lb% SSS"" ""SS -60%"" -30%"" "" -3b%"" SSS"" Sa~ Prbe AIL•rAd'<>i;Lmflnls lb18 l6b9'"" 1636 lb91 lb68 lb61 lb48 1811 1614 164b'"" 1638 1129

VAA File No. 1 05-413C 78 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 79 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center SALES COMPARISON APPROACH 4 Parcels -Trade & Commerce Center CONCLUSION

LAND COMPS .ADJUSTMENT GRID The Sales Comparison Approach uses a number of value indicators, both physical and economic, Comp 1 Comp2 Comp! Comp4 Comp 5 Comp£ Comp7 Comp B Comp9 Comp 10 Comp 11 Comp 12 including investor strategies and attitudes reflected in documented market transactions. The principle of Sal•Pcbe/Sq FL 11811 lb1B 1614 l1b22 12041 1946 lb11 11119 1169 14BB IB 04 11020 substitution, the basis of this approach, states that a prudent investor will pay no more to buy a property R•al Pe:,pMy Righls Corrv•y<>d than the cost to buy a comparable substitute property. In the valuation of the subject property, the Sales PcbeAIL•cAdjusLmenL 11811 lb1B 1614 l1b22 12041 1946 lb11 11119 1169 14BB IB 04 11020 Comparison Approach is the best reflection of value from activities of buyers and sellers FlnandngT•cms

PcbeAIL•cAdjusLmenL 11811 lb1B 1614 l1b22 12041 1946 lb11 11119 1169 14BB IB 04 11020

Condll~n of Sa~ (MoLWaL~n) Upon appraising the subject property, I utilized the Sales Comparison Approach exclusively, and I PcbeAIL•cAdjusLmenL 11811 lb1B 1614 l1b22 12041 1946 lb11 11119 1169 14BB IB 04 11020 considered opinions of local professional real estate experts Traditionally, the Sales Comparison Exp•ndlLoci,sAIL•cSa~ Approach is the most reliable approach in reflecting land value and the motivations of buyers and sellers PcbeAIL•cAdjusLmenL 11811 lb1B 1614 l1b22 12041 1946 lb11 11119 1169 14BB IB 04 11020 I am aware that a significant amount of delinquent property taxes and improvement bonds encumber the Marl<•LCondlL~ns(Sal• [).;L•) 111{)4 111{)4 m, 10!{)3 ""' '" "" ""' ""' '" '" '"" subject properties, and this appraisal does not consider those debts. But, I reserve the right to revise this "" "" report if an Environmental Impact Report, Title Report, or total debt amount for delinquent bonds and PcbeAIL•cAdjusLmenL 11926"" lb49"" 1669 11689''" 12212''" 11031 )bl{'"" 12028''" 181{''" lb61''" 1981"" 11326""" property taxes become available me. Therefore, it is my opinion that the fair market values of the o~., Adj,sLm•nLs to LocaL~n -40% """ "" """ -40% -3b% "" """ -3b% "" -3b% """ subjects' fee simple interest, considering the attached definitions and assumptions and limiting PhyslcalCha,acL•risLb -2b% -1b% -10% -20% -30% -1b% -10% -1b% '" '" '" -10% conditions, as of April 30, 2005, are Aval~b~ UUIIUi,s "" "" "" "" "" '" "" "" '" '" "" "" ZonlngD•nslLy -10% "" "" -10% -10% '" "" -10% "" '"" "" "" Eronom~ChacacL•c~Ucs "" To Lal OLh•cAdj,sLm•nLs -lb%"" "" -10%"" -10%"" -BO%"" -b0%"" -10% "" -3b%"" "" "" -b0%"" Fair Market Fair Market Value Property Tax and Value after Sal•PcbeAIL•cAd',sLm•nLs 1482 .,,"" 1602 lbOI 14b4 lb16 lb19 1110''" lblO 1611'"" lbB9""" '"" Assessor Parcel before Bond Indebtedness ,o. ,o. Acreage Indebtedness Indebtedness (Rounded) After all adjustments are made, the adjusted unit value range for the weighted comparable sales is from 1 3003-080-006 1.005 $300,000 $114,494 $186,000 $5.19 to $6.31/sq. ft Based on the above analysis, it is my opinion that the fair market value of subject 2 3003-080-009 1.003 $300,000 $114,494 $186,000 parcel 4 is $6.31/sq. ft., or 3004-001-032 3 (west portion) 4.693 (sca~bl•) $1,300,000 $3,579,080 -$2,279,000 3004-001-032 Lot Size Fair Market Value No. (Acres) $/Sq. Ft. Fair Market Value (Rounded) 4 (east portion) 11.387 (sca~bl•) $3,126,000 $8,684,208 -$5,558,000 4 11.387 $6.31 $3, 129,872 less:•• $3 987 Total $3, 125,885 $3, 126,000

** See "Site Data" section for cost of subdividing parcel into 2 lots

VAA File No. 1 05-413C 80 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 81 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center ASSUMPTIONS AND LIMITING CONDITIONS 4 Parcels -Trade & Commerce Center ASSUMPTIONS AND LIMITING CONDITIONS

qualified in matters of engineering. In addition, Valentine Appraisal & Associates, Inc. has not retained independent engineers in connection with this appraisal. Valentine Appraisal & Associates, Inc. was not furnished any engineering ASSUMPTIONS AND LIMITING CONDITIONS studies by the owner or client If questions in these areas are critical to the decision process of the reader, Valentine Appraisal & Associates, Inc. recommends securing the services of an independent engineering consultant for certainty Unless otherwise indicated in the body of this report, no investigation of legal title was made, and I render no opinion as In addition, we reserve the right to revise this report if an engineering study becomes available to us to ownership of the properties or condition of the titie I assume the following· All furnishings, fixtures, equipment and going concern, except as specifically stated and typically considered as part of The title to the property is marketable; real property, have been disregarded with only real property being considered in the report unless otherwise stated Any existing or proposed improvements, as well as any alterations or repairs considered, are assumed to be completed Unless otherwise indicated in this report, the property is free and clear of all liens, encumbrances, easements, and in a typical workmanlike manner according to the information submitted to Valentine Appraisal & Associates, Inc. This restrictions; report may be subject to revision upon re-inspection of the subject property subsequent to repairs, modifications, alterations, and completed new construction The property does not exist in violation of any applicable codes, ordinances, statutes, or other government regulations; The date of value ofthe appraisal is based upon the United States dollar on that date, unless otherwise stated The property is under responsible ownership and competent management and is available for its highest and best cse 10 The allocation of values for land and/or buildings are not intended to be used in conjunction with any other property or appraisal. Otherwise, this report shall be invalid Documents dealing with liens, encumbrances, easements, deed restrictions, clouds and other conditions that may affect the quality of title have not been reviewed. Insurance against financial loss resulting in claims that may arise out of defects in the subject properties' title should be sought from a qualified title company that issues or insures title to real 11 Unless otherwise stated in this report, it is assumed that no changes in the present zoning ordinance for the subject property property or properties are being considered as of the date of value of this report. The property is appraised assuming that all required permits have been or can be obtained or renewed by any use on which the value estimates contained in this report are based It is assumed that all factual data furnished by the client, property owner, or persons designated by the client are accurate. Unless otherwise specifically noted in the appraisal report, Valentine Appraisal & Associates, Inc. has no reason to believe that any of the data furnished contains any material error. The provided factual data could have 12 Unless stated otherwise, nothing in the report shall be a recommendation by Valentine Appraisal & Associates, Inc. to significant impact on conclusions reported. Therefore, if errors do exist in the factual data provided to the appraiser, buy, sell, or hold the properties at the value stated. These decisions are provided through Valentine Appraisal & Valentine Appraisal & Associates, Inc. reserves the right to revise the report upon receiving the revised factual data Associates, Inc. consultation services after an in-depth investment analysis, specific to the client Accordingly, the client shall review the report within 30 days from the date of delivery and immediately notify Valentine Appraisal & Associates, Inc. of any errors 13 No survey of the boundaries of the property was taken. All areas and dimensions are assumed to be correct, and we also assume that there are no encroachments unless otherwise stated in the report 4 Unless otherwise stated in this report, the existence of any hazardous material which may or may not be present on the property was not observed by the appraisers. The appraiser for Valentine Appraisal & Associates, Inc. has no 14 It is assumed that there is full compliance with all applicable governmental agencies and laws, unless stated otherwise knowiedge of the existence of such materials on or in the property, and we are not qualified to detect such substances The presence of hazardous materials such as asbestos, urea formaldehyde foom insulation, contaminated groundwater or other potentially hazardous materials may affect the value of the property. Valentine Appraisal & Associates, Inc 15 Because earthquakes are not uncommon in the area, no responsibility is assumed for their possible effect on individual assumes that the subject property has no hazardous materials on the site. The client is urged to retain an expert in this properties unless detailed geologic reports are made available to us field, if desired. Based on our visual inspection only, employees of Valentine Appraisal & Associates, Inc. appraised the subject property as thoroughly as possible. However, it was not possible to inspect conditions beneath the soil 16 Testimony or attendance in court by reason of this appraisal shall not be required unless armngements for such Therefore, no representation is made as to these matters unless specified otherwise in the report services have previously been made

This report and supporting notes are confidential. Neither any part nor whole of this appraisal shall be copied or disclosed to any party or conveyed to the public in spoken or written form through advertising, public relations, news, 17 Unless previously stated in the report, the value estimate applies to the entire property, and any proration or division of the title into fractional interests will invalidate the value estimate sales, or any other mains without the prior written consent and approval of both the appraiser and its client

No opinion is intended to be expressed on matters beyond that which is customarily employed by real estate 18 The Americans with Disabilities Act (ADA) became effective January 26, 1992 Aside from any discussion of possible appraisers Unless otherwise stated, values and opinions expressed presume that environmental and other readily achievable ba1Tier removal construction items in this report, Valentine Appraisal & Associates, Inc. has not made a specific compliant survey and analysis of the subject to determine whether it is in conformance with the ADA. It is governmental restrictions and conditions by applicable agencies have been met, including but not limited to seismic possible that a compliant survey of the property, together with a detailed analysis of the requirements of the ADA, could hazards, fiight patterns, decibel levels, noise envelopes, fire hazards, hillside ordinances, density allowable uses, reveal that the property is not in compliance. If so, it could have a negative effect on its value. Since Valentine building codes, permit, license, etc. No survey, engineering study or architectural analysis has been made to Valentine Appraisal & Associates, Inc. is not qualified to make such an assessment, any possible non-compliance with the Appraisal & Associates, Inc., unless otherwise stated within the body of this report. Valentine Appraisal & Associates, requirements of the ADA was not considered in the value estimate Inc. assumes no responsibility for any costs or consequences arising due to the absence of permits or lack of insurance coverage 19 If the client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, it may result in damages to the appraisal. The client shall indemnify and hold the appraiser harmless from any claims which may arise Unless otherwise noted in the report, it is assumed that the existing improvements of the property or properties being as a result of the client's misrepresentation ofthe appraisal report In the event of any litigation between the parties, the appraised are structurally sound, seismically safe and conforming to governmental building codes, including building prevailing party in litigation shall be entitled to recover from the other any reasonable attorney fees and costs systems (mechanical/electrical, HVAC, etc.), are in good working order with no major maintenance or repair requirements, the roof and exterior are in good condition, and the property or properties conform to all applicable building codes and ordinances Employees of Valentine Appraisal & Associates, Inc. are not engineers and are not

VAA File No. 1 05-413C 82 Valentine Appraisal & Associates, Inc. VAA File No. 105-413C 83 Valentine Appraisal & Associates, Inc. 4 Parcels -Trade & Commerce Center ASSUMPTIONS AND LIMITING CONDITIONS

20 Acceptance and/or use of this report constitutes full acceptance of the Limiting Conditions and Assumptions in this report. Neither the appraiser nor Valentine Appraisal & Associates, Inc. assumes responsibility for any situation arising out of the client's failure to read and understand the attached Limiting Conditions and Assumptions. The client is advised to retain experts in areas that fall outside the scope ofthe real estate appraisal/consulting profession

VAA File No. 1 05-413C 84 Valentine Appraisal & Associates, Inc. i:xtw ~r; NC5'w'!WMA2 Rilige~:l

First American Title Inwranai Company National Commerdal Se,vjl)l!S SSC S, ~ ~ Sli~ 1950 l.os Angt!lla'St CA 1f0071

lll6ll

Phone: (211) 443"5003 Fax: (213'.l ~J-50:a:J

The L$nd referred t,; heroin 1$ ~kl d5 follows:

~e ()l'fio:)11": {See a~ u:,gal DesttiptJOn) ..""'"'"Fax ,_ No.:

A, fl, Ni>,;

2, TheUer!

Tax: Rate Arm; A.~. No.: Amount tu tedoem: Valid ttd'Oltgh: Aniooot to 11!:deem: \lalldt11,wa11: ,.

Tom oo,~l was ~tad pursmmt IP !he 1915 ffOM Act and the arnoum aie {)Ol!e:t;ed Wttb property t-. ••

The b'1(td amounts are dehnqtn:n Mm a~ in foreci~ ~~:I:~i~~~~• ~on 101h street Weest

The bond amounts lo omient ~ are l10t' mduded ll'i pey {:ltf qucdt 1111,. ~ was created f)Jrsuant to the l91S OOl\d act and the amoonts are-~wffti prnperty taxes.

The bond amoonts are delinquent Md .!fie b foredostlre.

Toeoood atr10IJOt!l 1n currert1:~are n« indudied m pay off quote,

This~ W!!I$ aei!ted ~ntfo the 191.5 Bond Act and the amOsUnts are~ Witt, •• """""¥"""' The bond alf!Wnt!. am delfriq:ueot and are ra ~ura

'The bond an'IO!!.lnl:S in wrnmt tifml> arLZOOJ $6,547.60 .,...,. Jarnnuy 31, ZOO

JanUMY311 ~

$1,,281,95, OPeN 11100 IL !!740& l(l(i;}-0$0-009 ,.

'Ta Aate Arna: .,.,. A,P, l\k'i,: 300JH)8CH)OO Amount to na:teem: $5'6,728,% Amoog othei' th11'19St ~,d doa.Jrneef 31, 2000 that ~id suJ:qoct land royalty $57,111,06 rdes 1~ lriterost ls m an 1/8 owners 14.

••• ~ 5:Qpenor Court of l11e stated CaHfomla North Olstid: case_, no., """'"'"" lS. Oefl!lildant;

P\Jrpose'.

••• 19. rmrt; case Nos; J>slqbff; Oefi:!ndarrtc 17.

l)alm, "'"""" Trustor: Trustee: ~ ~ Februai)' 4, 1993,a& fnslr'l.!!ftc11t No, 93·2t51JQ,, OOk:iruR~ Beooflci,iry;

~ teOOitled febnlary 1't, 1993 ai, Jnstrom,ent No. 9$'".tl&f%4, Offidal R:li!aindt:, LosAlim Angirnies fw m_,.., County, "':::.:re ~:;~;:;,~ ac;:::.:,:'t:':'~:l',,'::;,,";;;s I :,c.a:_:~- Debtui:; 'i'iW $. No.: AmoWll:r

32. A ltcn fur 1111sewmd {)£d)t0f:"" Yeat&No.:: A.rrlQuOI::

JJ,

An~ Valley AW) CE:nter ,,._Vas &No., om; 40080016 Ftom:_, $9,407.94, and ati'; other amm.ml:5 due thereunder. ;>!. ;:,;l~~~:::.e;,.~,~1:•.,;:;;.:::;.;;::::;:;;:·;No~. :::~~:;:;;:~': ruar&No.: 97/499&!017"""" """"' -Amou<>t -!JS, m.ro, ano -atl)I m:trer amounts (We tttereunder. Affect$; '5. A Um for 2L

-Amount: Cnmt O,i,se No,: DL--btor~ "" "'""'"Year & No.; M!Qwtt: -·Amount: Affects: "·

22. A1'11ects Ar>N 3003--080-006 "'· '" particulars. A, 1. ~llftlq)TJU~m»tSTAN!WtP~fflUC'<· lll90 $QIEDIJll$lt

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VAAFile105-413 Valentine Appraisal & Associates, Inc. VAAFile105-413 Valentine Appraisal & Associates, Inc. Palmdale T & C Partners COMPARABLE LAND SALE No. 8 Palmdale T & C Partners COMPARABLE LAND SALE No. 9

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Plat Map Plat Map

VAAFile105-413 Valentine Appraisal & Associates, Inc. VAAFile105-413 Valentine Appraisal & Associates, Inc. Palmdale T & C Partners COMPARABLE LAND SALE No.10 Palmdale T & C Partners COMPARABLE LAND SALE No. 11

Plat Map Plat Map

VAAFile105-413 Valentine Appraisal & Associates, Inc. VAAFile105-413 Valentine Appraisal & Associates, Inc. Palmdale T & C Partners COMPARABLE LAND SALE No.12

HISTORY

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The cJieri!:s include

VAAFile105-413 Valentine Appraisal & Associates, Inc. CONStll flNC

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BANKERS AND TRUST OFFICERS: inheii!anw and estato cases,

U?ASEHOLD !MPROVF._MENTS: l!otns of a strocturnl rmtura btitfl by ;;s losoon.

PROPFRTY RIGHTS: condnmna1 ion.

\/aJenti'ne ,& Associates estate, held OiJSllH1$Sili$ oonsutttng. PRESENT POS!TlON

PROFESSIONAL AFFILIA TlON:S

'COURT TESTIMONY 1 have bClUl a q1.ta!lfled expert WifnfWs in Superior Court,

TAX APPEAL HEARlNG

FOREIGN LANGUAGE:

INDUSTR1AL .'SPEC..'J'AL!ZATlONS sefVt!$ s~a.tlons EMPLOYMENT =:l:,:i~~mlrae!oraGOVoi.!,mtnefits

EDUCATION PARTIAl UST OF CUE:NTS PERSONALLY SERVED PAftTIAL LIST OF CLIENTS PERSONALLY SERVED

HospitaUMQB

Arrnw votvo Cetri!OS Ford Thon,mnGMC T-0yula Mohn Credit COi p.

lndustrla!

Easl West Bank First Financ+al Credit Unioo Nal1ooa! Bank !!Bhk PAR Tl At UST OF SPECIALAPPRMSAL ASSIGNMENTS

for f,ll:Ht Of the North EmJ ~nl tif ih& A!IIITl('OO reaml

~:nrumtD'I « 2 Pemtls hm!m:!klg e wtkim1fud \l\.1pla~. slrlgJo 1'$.mlty d:w,eUJog and a Y8C$1AI !ct tor too dffi'.1\!llipment of ill COOJ:1 ~. Patrnda 10, CA (Cir ot Palrm-..tu and Kiiine, Batirner $ 'il'Si'kmanJ

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l:[email protected]'HrUJ • t'll ~ Cf ulmt'.!lnd nM C~rte µea.:h ut1:;h.vd l~I i•1 F:re,soo, 0A (DMa Fstms. lru:;)

Fr~~tl~§! ~ 2G,S4 $\;fe e!lrus tum, RB,:Jmd11, CA. {Nu!lrn faml!y TN>$'t}

lmpnrjpl SC:hoof • a twmei :Scl1oci tliQ of 5.66 aars ltl El &lgurtdt,\ L'A, {B Segumki Unilled S<::l'lOO! Ols!!'ir..1/ ~11!:l.¢/OGL;,d s:•fliiM ram11y wemoos. 2 detechoo dl¥i'l!llogs oum 1n 1991, Los AllQs1Je~. CA. (FD1C)

~~~~~;;1-~;:::;~\"it:::~~O[:;';:,~:.;;:~~;:r Bmedical ot!lo: btri1dlfl!l$ Oil !hi! it~ of tho £:ifY:fr • toor city parks located ih Temqevl~l, (';t,,, (City ofTernt:1CU~)

Ppfi§ijty pompk.J!li}tL~~J~J.i;i.J:st'.!'.iklflttjlal Qeypfooqtpnl!s - Rarmho Cucu1 POfl\lS, CA, (FCHC)

PJ0@9§'iKl £00W!elAA l§@lffi! h:jmdy mibdwision , L,, Cnrmdn. CA (Foolhill lndt:q.mn:dm If &mkf

(Frui!hl!I lnrleprmdr.rn Bank)

Bhqpplng Cgfi:tpr- 1'tJ,01\l s,;uat1;< ttxlt, t"'°"'a:bry strw!luru. bum in 1954, El Mtmle, CA {GMAC M~age}

a ton mry Ci.in A cti1t:e bulldlng bul!l ir1 rnM lor..alml in Loriw !Booi:ih, CA. (SHl

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,u.:rno Trapr,qq[Wl11m ~arndw- for a proµosoo roote.illcm irarl J~too fri Smn:m1t11, CA. (SPTC1>) S·M11e Tra(JS00$1ion CsrrJ1lw: - fm alfeet l'lk:feulng located 1n Vasaik.. CA. (SPTCo) 4;a_ mile pipe!JM. atrmg trn±So. Gal. Edinnn lrim5prnt:1Jior1 emrMor, l-0119 Bead\ t:A (So_ (".al Gas Comprmy) APPENDIX I

FORM OF INVESTOR LETTER

[date of transfer]

City of Palmdale 38300 Sierra Highway Palmdale, California 93550

U.S. Bank National Association 633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, California 90071

City of Palmdale Limited Obligation Refunding Bond 10th Street West Assessment District No. 88-1 (Reassessment and Refunding of 2005), Subordinate Series B

Ladies and Gentlemen:

In connection with our purchase of the above-referenced bonds (the "Bonds") on the date hereof, or a portion of the Bonds in a principal amount of at least $250,000 (or such lesser amount as may be permitted under the Agreement referenced in paragraph 8 below), the undersigned (the "Purchaser") hereby represents, warrants and agrees that:

1. The Purchaser has sufficient knowledge and experience in financial and business matters to be able to evaluate the risks and merits of the investment represented by the purchase of the Bonds, and to be able to evaluate the creditworthiness the owner or owners of the real property in the City of Palmdale 10th Street West Assessment District No. 88-1 (the "District"), and the credit quality of the Bonds.

2. The Purchaser has made its own inquiry and analysis with respect to the District, the value of the land in the District, the security for the Bonds and the ability of the owners of the land in the District to pay the special taxes levied and to be levied to repay the Bonds.

3. The Purchaser either has been supplied with or has had access to such information as it has requested relating to its investment decision to purchase the Bonds.

4. The Purchaser acknowledges that none of the City of Palmdale (the "City"), U.S. Bank National Association, as fiscal agent (the "Fiscal Agent") or any Bond Counsel, Disclosure Counsel or Financial Advisor to the City have made any representation regarding the quality, creditworthiness or liquidity of the Bonds.

5. The Bonds (a) are not being registered under the Securities Act of 1933, as amended, and are not being registered or otherwise qualified for sale under the "Blue Sky" laws or regulations of any state, (b) will not be listed on any stock or other securities exchange, (c) may not carry a rating from any rating service, and (d) may not be readily marketable. The Purchaser agrees and acknowledges that the Bonds cannot be sold to an entity unless (i) the transfer is approved in advance by the Director of Finance of the City in the Director's sole and absolute discretion, or (ii) the Bonds are transferred in increments of at least $250,000 (or such lesser amount as may be permitted under the Agreement referenced in paragraph 8 below) to one or

1-1 more investors who each delivers a letter substantially in the form of this letter and addressed and delivered to the same addressees.

6. The Purchaser is able to bear the economic risk of the investment represented by its purchase of the Bonds.

7. The Purchaser is acquiring the Bonds for its own account for investment and not with a view to dividing its participation with others or with a view to, or for resale in connection with, a "distribution" (as that term is used in United States Securities Act of 1933, as amended, and Rules and Regulations of the Securities and Exchange Commission promulgated thereunder) of all or any portion thereof. The Purchaser has no present intention of selling, negotiating or otherwise disposing of the Bonds or any participation therein. In the event that it does so sell the Bonds in the future, it shall assume the responsibility for disclosure of all material information that may be necessary to comply with all federal and related state securities laws.

8. The Purchaser shall not assign or offer the Bonds or any interest therein for sale without complying with all applicable securities laws and the applicable provisions of the Fiscal Agent Agreement, dated as of July 1, 2005 (the "Agreement"), between the City and the Fiscal Agent pursuant to which the Bonds were issued, a copy of which has been provided to and read by the Purchaser. The Purchaser understand that all obligations of the City under the Agreement and the Bonds are special obligations of the City, payable solely from the Reassessments identified in the Agreement and the funds pledged therefore under the Agreement. Neither the faith and credit nor the taxing power of the City or the State of California or any political subdivision thereof is pledged to the payment of the Bonds.

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