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HomeMy WebLinkAboutAcquisition Agreement, by and between the Authority and Ashby USA, LLC, together with Irrevocable Instructions of Asby USA, LLC Quint & Thimmig LLP FINAL ACQUISITION AGREEMENT by and between the TEMECULA PUBLIC FINANCING AUTHORITY and ASHBY USA, LLC Dated as of March 1, 2006 Relating to: Temecula Public Financing Authority Community Facilities District No. 03-02 (Roripaugh Ranch) 20009.01 :J5756 TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.01. Definitions 1 ARTICLE II RECITALS Section 2.01. The CFD 6 Section 2.02. The Development 6 Section 2.03. The Facilities 6 Section 2.04. The Financing 6 Section 2.05. The Bonds 6 Section 2.06. No Advantage to Authority Construction 6 Section 2.07. Agreements 7 ARTICLE III FUNDING Section 3.01. Authority Proceedings 8 Section 3.02. Series 2006-A Bonds 8 Section 3.03. Bond Proceeds 8 Section 3.04. Parity Bonds 9 Section 3.05. Letters of Credit 11 ARTICLE IV CONSTRUCTION OF FACILITIES Section 4.01. Plans 14 Section 4.02. Duty of Developer to Construct 14 Section 4.03. Relationship to Public Works; Bidding Requirements 14 Section 4.04. Independent Contractor 16 Section 4.05. Performance and Payment Bonds 16 Section 4.06. Contracts and Change Orders 17 Section 4.07. Time for Completion 17 ARTICLE V ACQUISITION AND PAYMENT Section 5.01. Inspection 18 Section 5.02. Agreement to Sell and Purchase Facilities 18 Section 5.03. Payment Requests 18 Section 5.04. Processing Payment Requests 19 Section 5.05. Payment 19 Section 5.06. Restrictions on Payments 20 Section 5.07. Acquisition of Additional Facilities 22 Section 5.08. Defective or Nonconforming Work 23 Section 5.09. Modification of Discrete Components 23 Section 5.10. EMWD Acquisition Facilities 23 Section 5.11. Right of City to Make Withdrawals From Improvement Fund 23 ARTICLE VI OWNERSHIP AND TRANSFER OF FACILITIES Section 6.01. Facilities to be Owned by the City -Conveyance of Land and Easements to City 25 Section 6.02. Facilities to be Owned by the City -Title Evidence 25 Section 6.03. Facilities Constructed on Private Lands 25 Section 6.04. Facilities Constructed on City Land 25 Section 6.05. Facilities to be Acquired by Other Public Agencies 25 Section 6.06. Maintenance and Warranties 26 ARTICLE VII INSURANCE; RESPONSIBILITY FOR DAMAGE Section 7.01. Liability Insurance Requirements 27 Section 7.02. Responsibility for Damage 29 ARTICLE VIII REPRESENTATIONS, WARRANTIES AND COVENANTS Section 8.01. Representations, Covenants and Warranties of the Developer 31 Section 8.02. Indemnification and Hold Harmless 32 ARTICLE IX TERMINATION Section 9.01. No Bonds 34 Section 9.02. Mutual Consent 34 Section 9.03. Authority Election for Cause 34 Section 9.04. Force Majeure 35 ARTICLE X MISCELLANEOUS Section 10.01. Limited Liability of Authority 36 Section 10.02. Excess Costs 36 Section 10.03. Audit 36 Section 10.04. Attorney's Fees 36 Section 10.05. Notices 36 Section 10.06. Severability 36 Section 10.07. Successors and Assigns 37 Section 10.08. Other Agreements 37 Section 10.09. Waiver 37 Section 10.10. Merger 37 Section 10.11. Parties in Interest 37 Section 10.12. Amendment 37 Section 10.13. Counterparts 37 Section 10.14. Governing Law 38 EXHIBIT A DESCRIPTION OF FACILITIES ELIGIBLE FOR ACQUISITION FROM THE DEVELOPER EXHIBIT B DISCRETE COMPONENTS OF FACILITIES AND RELATED BUDGETED COSTS EXHIBIT C FORM OF PAYMENT REQUEST EXHIBIT D PRIORITY FOR FUNDING OF FACILITIES -11- THIS ACQUISITION AGREEMENT (the "Acquisition Agreement"), dated as of March 1, 2006, is by and between (i) the Temecula Public Financing Authority, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority"), for the Authority's Community Facilities District No. 03-02 (Roripaugh Ranch) (the "CFD"); and (ii) Ashby USA, LLC, a California limited liability company (the "Developer"). ARTICLE I DEFINITIONS Section 1.01. Definitions. The following terms shall have the meanings ascribed to them in this Section 1.01 for purposes of this Acquisition Agreement. Unless otherwise indicated, any other terms, capitalized or not, when used herein shall have the meanings ascribed to them in the Fiscal Agent Agreement (as hereinafter defined). "Acceptable Title" means title to land or interest therein, in form acceptable to the Director of Public Works, which title or interest is free and clear of all liens, taxes, assessments, leases, easements and encumbrances, whether or not recorded, but subject to any exceptions determined by the Director of Public Works as not interfering with the actual or intended use of the land or interest therein. Notwithstanding the foregoing, an irrevocable offer of dedication may constitute land with an "Acceptable Title" if: (i) such offer is necessary to satisfy a condition to a tentative or final parcel map, (ii) such offer is in a form acceptable to the Director of Public Works, (iii) the Director of Public Works has no reason to believe that such offer of dedication will not be accepted by the applicable public agency, and (iv) the Developer commits in writing not to allow any liens to be imposed on such property prior to its formal acceptance by the applicable public agency. "Acceptance Date" means the date the City Council of the City (or other public entity which is to own a Facility) takes final action to accept dedication of or transfer of title to a Facility. "Account Party" means the property owner that provides a Letter of Credit to secure the payment of Special Taxes on property the Account Party or its affiliates own in the CFD. "Acquisition Agreement" means this Acquisition Agreement, together with any Supplement hereto. "Act" means the Mello-Roos Community Facilities Act of 1982, Section 53311 et seq. of the California Government Code, as amended. "Actual Cost" means the substantiated cost of a Facility or a Discrete Component, which costs may include: (i) the costs (evidenced by payments to parties unrelated to the Developer, or, in the event that the Developer avails itself of the provisions of Section 4.03(C), determined by reference to the written contract to be entered into with the Developer as referenced in said Section) incurred by the Developer for the construction of such Facility or Discrete Component, (ii) the reasonable costs incurred by the Developer in preparing the Plans for such Facility or Discrete Component and the related costs of design, engineering and environmental evaluations of the Facility or Discrete Component, (iii) the fees paid to governmental agencies for obtaining permits, licenses or other governmental approvals for such Facility or Discrete Component, (iv) professional costs incurred by the Developer associated with such Facility or Discrete Component, such as engineering, -I architecture, landscape architecture, legal, accounting, inspection, construction staking, materials testing and similar professional services; and (v) costs directly related to the construction and/or acquisition of a Facility or Discrete Component, such as costs of payment, performance and/or maintenance bonds, and insurance costs related to Facilities (including costs of any title insurance required hereunder, but not including the cost of any insurance described in Section 7.02 of this Acquisition Agreement). Actual Cost may include an amount not in excess of five percent (5%) of the cost described in clause (i) of the preceding paragraph in respect of any construction, project management or other similar fee payable to the Developer or any party related thereto. Actual Cost shall not include any financing fees, costs or charges, or any interest, cost of carry or other similar charges. "Affiliate" means any entity with respect to which fifty percent (50%) or more of the ownership or voting power is held held individually or collectively by any of the Developer and any other entity owned, controlled or under common ownership or control by or with, as applicable, the Developer, and includes the managing member of any entity that is a limited liability company, and includes all general partners of any entity which is a partnership. Control shall mean ownership of fifty percent (50%) or more of the voting power of or ownership interest in the respective entity. "Authority " means the Temecula Public Financing Authority, a joint exercise of powers agency duly created and existing under the laws of the State. "Bonds" means any indebtedness (including, but not limited to, the Series 2006-A Bonds and any Parity Bonds, if any Parity Bonds are issued) incurred the proceeds of which are to be used to pay all or a portion of the Purchase Prices of the Facilities, which indebtedness is repayable from special taxes levied pursuant to the Act in the CFD. "Budgeted Cost" means the estimated cost of a Facility or Discrete Component as shown on Exhibit B hereto. "Build-Out" means, when making calculations pursuant to Section 3.05 as to one or more parcels of property, or otherwise for purposes of clause (viii) in the definition of "Letter of Credit" in Section 1.01, the assumption that the property contains the number, size and type of homes projected in the development plans used by the Tax Consultant in connection with its email regarding "Letter of Credit Calculations" dated February 14, 2006, which report was used to calculate the initial stated amounts of the Letters of Credit to be delivered to the Fiscal Agent on the Closing Date by the Developer and another landowner in the CFD, which assumption may be adjusted from time to time based upon actual completed construction of homes in the District (as reported in connection with requests to reduce the amount of any Letter of Credit by or on behalf of an Account Party or as otherwise known by the Tax Consultant). "CFD" means the Temecula Public Financing Authority Community Community Facilities District No. 03-02 (Roripaugh Ranch), created, or to be created, by the Board of Directors of the Authority under the Act. "City" means the City of Temecula, California. "Conditions of Approval" means the conditions of approvals and mitigation measures imposed in connection with the granting of the land use entitlements for the development of land in the CFD, and any subdivision improvement, development or other agreement with the City relating to the development of the land in the CFD or the installation of the Facilities. -2- "County" means the County of Riverside, California. "Developer" means Ashby USA, LLC, a California limited liability company, and its successors and assigns to the extent permitted under Section 10.07 hereof. "Director of Public Works" means the Director of Public Works of the City, or his written designee acting as such under this Acquisition Agreement. "Discrete Component" means a functional segment or component of a Facility that the Director of Public Works has agreed can be separately identified, inspected and completed, and be the subject of a Payment Request hereunder. The Discrete Components of the Phase 1 Facilities are shown on Exhibit B hereto. The Discrete Components of other Facilities to be financed from the proceeds of Parity Bonds shall be determined by the Director of Public Works following consultation with the Developer, and shall be identified in a Supplement executed by the parties hereto prior to the issuance of any such Parity Bonds, all to the extent required by Section 3.04C. "District-wide Maximum Special Taxes" means the maximum Special Taxes that can be levied on all property in the District assuming Build-Out of all property. "Facilities" means the public facilities described in Exhibit A hereto which are eligible to be financed by the CFD. "Fiscal Agent" means the entity acting as fiscal agent under the Fiscal Agent Agreement, or any successor thereto acting as fiscal agent under the Fiscal Agent Agreement. "Fiscal Agent Agreement" means the agreement by that name between the Authority and the Fiscal Agent, providing for, among other matters, the issuance of the Series 2006-A Bonds and the establishment of an Improvement Fund, as it may be amended or supplemented from time to time. "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. "Improvement Fund" means the acquisition account within the fund by that name established by the Fiscal Agent Agreement. "Letter of Credit" means a standby letter letter of credit, which is: (i) irrevocable during its term; (ii) in a form and with draw provisions satisfactory to the Treasurer of the Authority and the initial purchaser of the Series 2006-A Bonds; (iii) for the benefit of the Fiscal Agent; (iv) issued by a federal or state chartered bank or other financial institution reasonably acceptable to the Treasurer of the Authority and the initial purchaser of the Series 2006-A Bonds, which bank's or institution's unsecured debt obligations are rated at least "A-" or better by Moody's or S&P; (v) at the time of delivery thereof to the Fiscal Agent for purposes of this Acquisition Agreement, accompanied by one or more opinions addressed to the Fiscal Agent and the Authority to the effect, singly or together, that the Letter of Credit is a legal, valid and binding obligation of the provider thereof, enforceable against the provider thereof in accordance with its terms, except as limited by applicable reorganization, insolvency, liquidation, readjustment of debt, moratorium or other similar laws affecting the enforcement of rights of creditors generally as such laws may be applied in the event of a reorganization, insolvency, liquidation, readjustment of debt or other similar proceeding of or moratorium applicable to the provider thereof and by general principles of equity (regardless of whether such enforceability is considered in a -3- proceeding in equity or at law); (vi) for a term of at least one year, effective from no later than the date it is delivered to the Fiscal Agent, and any Letter of Credit provided in substitution for any then outstanding Letter of Credit shall be for a term of at least one year commencing not later than the expiration date of the term of the prior Letter of Credit; (vii) for the account of any entity other than the City, the Authority, the CFD or any other governmental entity; (viii) in a stated amount equal to two years estimated expected annual Special Taxes to be levied on the County Assessor's parcels to which it pertains (assuming Build-Out of such parcels) and (ix) not secured, as to the reimbursement of any draws thereon, by any property located in the CFD, or if so secured, any such security shall be expressly subordinate to the lien of the Special Taxes. A standby letter of credit may be accompanied by a confirming letter of credit for the purposes of satisfying the requirements in clause (iv) above; and if a confirming letter of credit is provided, the legal opinion referred to in clause (v) above shall be with respect to the confirming letter of credit and not the related Letter of Credit. "Parcel Liens" means, with respect to any parcel or parcels of real property in the CFD, sum of: (i) the aggregate principal amount of all Bonds of the CFD then outstanding allocable to such parcel or parcels based upon the portion of the debt service payable on the Bonds of the CFD from the special taxes levied (or that, but for capitalized interest on the Bonds, could be levied) on such parcel or parcels in the then annual Fiscal Year, plus (ii) the aggregate principal amount of any fixed assessment liens on the parcel or parcels, plus (iii) a portion of the aggregate principal amount of any and all other community facilities district bonds then outstanding and payable at least partially from special taxes to be levied on such parcel or parcels (the "Other District Bonds") equal to the aggregate principal amount amount of the Other District Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other District Bonds on such parcel or parcels, and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land against which the special taxes are levied to pay the Other District Bonds (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual debt service on the Other District Bonds occurs), based upon information from the most recent available Fiscal Year. "Parcel Value" means the market value, as of the date of the appraisal described below and/or the date of the most recent County real property tax roll, as applicable, of parcels of real property in the CFD identified by an Account Party (the "Identified Parcels"), which Identified Parcels are (i) owned by the applicable Account Party or its Affiliates, (ii) are subject to the levy of the special taxes in the CFD, and (iii) are not delinquent in the payment of any special taxes then due and owing, including with respect to the Identified Parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Improvement Fund, all as determined with respect to the Identified Parcels by reference to (A) an appraisal (or an update to a prior appraisal) performed within six (6) months of the date the Treasurer expects to submit documents to the Fiscal Agent under the Fiscal Agent Agreement with respect to a reduction of a Letter of Credit by reason of an increase in the Parcel Value by an MAI appraiser (the "Appraiser") selected by the Authority, or (B), in the alternative, the assessed value of all the Identified Parcels and improvements thereon as shown on the then current County real property tax roll available to the Treasurer of the Authority. It is expressly acknowledged that, in determining a Parcel Value, the Authority may rely on an appraisal to determine the value of some or all of the Identified Parcels and/or the most recent County real property tax roll as to the value of some or all of the Identified Parcels. Neither the Authority nor the Treasurer of the Authority shall be liable to any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition. -4- "Parity Bonds" means Bonds issued by the Authority for the CFD, other than the Series 2006-A Bonds, in compliance with and under supplements to the Fiscal Agent Agreement. "Payment Request" means a document, substantially in the form of Exhibit C hereto, to be used by the Developer in requesting payment of a Purchase Price. "Phase 1 Facilities" means the Facilities shown in Exhibit B hereto proposed to be acquired with all or a portion of the proceeds the Series 2006-A Bonds. "Plans" means the plans, specifications, schedules and related construction contracts for the Facilities and/or any Discrete Components thereof approved pursuant to the applicable standards of the City or other entity that will own, operate or maintain the Facilities when completed and acquired. As of the date of this Acquisition Agreement, the City standards for construction incorporate those set forth in the Green Book, Standard Specifications for Public Works Construction (SSPWC), adopted by Public Works Standards, Inc., as modified modified by any applicable City Special Provisions. "Purchase Price" means the amount paid by the Authority for a Facility and/or any Discrete Components thereof determined in accordance with Article V hereof, being an amount equal to the Actual Cost of such Facility or Discrete Component, but subject to the limitations and reductions provided for in Article V. "Risk Manager" shall mean the person acting in the capacity of Risk Manager for the City. "Series 2006-A Bonds" means the first series of Bonds issued by the City for the CFD under the Fiscal Agent Agreement. "State" means the State of California. "Supplement" means a written document amending, supplementing or otherwise modifying this Acquisition Agreement and any exhibit hereto, including any amendments to the list of Facilities in Exhibit A, any amendments to the list of Facilities and their Budgeted Costs and Discrete Components in Exhibit B, and/or the addition to Exhibit B of additional Facilities (and Budgeted Costs and Discrete Components) to to be financed with the proceeds of the Bonds (including any Parity Bonds) deposited in the Improvement Fund. "Tax Consultant" means David Taussig & Associates, Inc. or another independent financial or tax consultant retained by the Authority or the City for the purpose of computing the Special Taxes. -5- ARTICLE II RECITALS Section 2.01. The CFD. The Board of Directors of the Authority is undertaking proceedings to establish the CFD under the Act for the financing of, among other things, the acquisition, construction and installation of public facilities identified in the proceedings to form the CFD, which include the Facilities listed in Exhibit A hereto. Section 2.02. The Development. The Developer, together with other entities, is developing land located within the CFD. Section 2.03. The Facilities. The Facilities are within or in the vicinity of the CFD, and the Authority and the Developer will benefit from a coordinated plan of design, engineering and construction of the Facilities and the development of the land that is located within the CFD. The Developer acknowledges that the inclusion of Facilities in Exhibit A hereto in no way, in itself, obligates the Authority to issue any Bonds to finance the Facilities or implies that the Authority has in any way engaged the Developer to construct the Facilities, except as specifically provided in this Acquisition Agreement. The Facilities which are the subject of acquisition from the Developer under this Acquisition Agreement are only the Facilities listed in Exhibit B hereto, as such Exhibit may be amended and/or supplemented by any Supplement, and this Acquisition Agreement shall in no way, by itself, obligate the Developer to construct the Facilities except for those Facilities listed in Exhibit B. Section 2.04. The Financing. The Developer and the Authority wish to finance the acquisition of the Facilities and the payment therefor by entering into this Acquisition Agreement for the acquisition of the Facilities and payment for Discrete Components thereof as shown in Exhibit B hereto (as it may be amended and supplemented) with a portion of the proceeds of the Bonds on deposit in the Improvement Fund. Section 2.05. The Bonds. The Authority is proceeding with the authorization and issuance of the Bonds for the CFD under the Act and the Fiscal Agent Agreement, Agreement, the proceeds of which Bonds shall be used, in part, to finance the acquisition of all or a portion of the Facilities. The execution by the Authority of this Acquisition Agreement in no way obligates the Authority to issue any Bonds, or the City to acquire any Facilities financed with proceeds of any Bonds issued, except the Facilities listed in Exhibit B hereto which are to be acquired subject to the terms and conditions set forth in this Agreement. As more fully described in Section 3.04, it is contemplated that the Bonds will be issued in more than one series, with the first series expected to be issued in the principal amount of $51,250,000 on or about April 27, 2006, and subsequent series to be issued in such principal amounts and on such date as determined by the Authority consistent with the provisions of Section 3.04. Section 2.06. No Advantage to Authority Construction. The Authority, by its approval of this Acquisition Agreement, has determined that it will obtain no advantage from undertaking the construction by the Authority directly of the Facilities, and that the provisions of this Acquisition Agreement require that the Facilities be constructed by the Developer as if they had been constructed under the direction and supervision of the Authority. The Developer hereby represents that it has experience in the supervision of the construction of public facilities of the character of the Facilities. Section 2.07. Agreements. In consideration of the mutual promises and covenants set forth herein, and for other valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Authority and the Developer agree that the foregoing recitals, as applicable to each, are true and correct and further make the agreements set forth herein. -7- ARTICLE III FUNDING Section 3.01. Authority Proceedings. The Authority shall conduct all necessary proceedings under the Act for the formation of the CFD and the issuance, sale and delivery of Bonds for the CFD; provided, however, that nothing herein shall be construed as requiring the Authority to issue the Bonds or any portion thereof. Upon the written request of the Developer, the Developer and the Authority staff shall meet regarding the amount, timing and other material aspects of the Bonds, but the legal proceedings and the principal amount, interest rates, terms and conditions and timing of the sale of the Bonds shall be in all respects subject to the approval of the Board of Directors of the Authority. Section 3.02. Series 2006-A Bonds. The Authority, in connection with this Acquisition Agreement, is proceeding with the issuance and delivery of the Series 2006-A Bonds for the CFD. The Authority shall not be obligated to pay the Purchase Price of the Facilities or any Discrete Components thereof except from amounts on deposit in the Improvement Fund on or after the closing date of the Series 2006-A Bonds. The Authority makes no warranty, express or implied, that the proceeds of the Bonds deposited and held in the Improvement Fund, and any investment earnings thereon deposited to the Improvement Fund, will be sufficient for payment of the Purchase Price of all of the Facilities. The Developer agrees to assist the Authority in the preparation of any disclosure document or continuing disclosure agreement deemed necessary by the Authority to issue each series of the Bonds, including but not limited to the submission of information reasonably requested by the Authority's disclosure counsel, any appraiser or any market absorption consultant in connection with the preparation of disclosure materials for the sale of each series of the Bonds, and the provision of such continuing disclosure obligations, certifications and legal opinions as may be reasonably required by the underwriter of each respective series of of the Bonds. Section 3.03. Bond Proceeds. The proceeds of the Bonds shall be deposited, held, invested, reinvested and disbursed as provided in the Fiscal Agent Agreement. A portion of the proceeds of the Bonds will be set aside in the Improvement Fund. Moneys in the Improvement Fund shall be withdrawn therefrom in accordance with the provisions of the Fiscal Agent Agreement and the applicable provisions hereof for payment of all or a portion of the costs of construction and/or acquisition of the Facilities (including payment of the Purchase Price of Discrete Components thereof), all as herein provided. It is hereby acknowledged that the proceeds of the sale of the Series 2006-A Bonds will not be sufficient to fund the Purchase Prices of all of the Facilities. Accordingly, available Series 2006-A Bond proceeds will be used by the Authority to make deposits under the Fiscal Agent Agreement as necessary to fund the following in the following order of priority: (i) the costs of issuance of the Bonds; (ii) the the reserve fund for the Bonds in the amount required by the Fiscal Agent Agreement; (iii) capitalized interest for the Bonds for a term determined by the underwriter for the Bonds, the Authority's financial advisor and the Authority Treasurer as appropriate in the circumstances; (iv) an amount necessary to reimburse the Developer for amounts advanced by it for a fire station pursuant to the Conditions of Approval (being a total of $3,100,000 as of the date of this Acquisition Agreement); (vi) an amount to pay administrative expenses for the CFD during the capitalized period as determined by the Authority Treasurer; (vi) an amount necessary to discharge outstanding assessment liens on the property in the CFD; (vii) amounts to be deposited to the Public Works Administration Account, the City Account and the EMWD Account, in that order, under and as such terms are defined in the Fiscal Agent Agreement as determined by the Treasurer following consultation with the Developer; (viii) remaining amounts shall be used to pay costs of the Facilities indicated as Priority A in Exhibit D hereto, except that, as to Facility No. 2 (as to which it is acknowledged that the Developer has expended at least $3,000,000.00 towards the construction thereof as of the date of issuance of the 2006 Bonds), up to $2,923,025.60 of the Purchase Price for such Facility shall not be disbursed to the Developer unless and until the Director of Public Works determines that the amounts to remain on deposit in the Acquisition Account following such disbursement will be sufficient to pay the Purchase Prices of all of the Priority A Facilities in Exhibit D not theretofore paid to the Developer; and (ix) when all costs of the Priority A Facilities have been paid in full, as determined by the Director of Public Works, for Facilities indicated as Priority B on Exhibit D hereto. The Developer acknowledges that the Authority will deposit $1,000,000, plus an amount equal to ten percent (10%) of any net Bond proceeds available to pay the Purchase Prices of Facilities that are in excess of $42,000,000 (being an amount equal to $1,000,000 plus $62,710) into the City Account under the Fiscal Agent Agreement to pay for improvements other than those listed on Exhibit A thereto and that any amount so deposited will not be available to pay for the Purchase Prices of Facilities under this Acquisition Agreement. The Developer agrees that the Authority alone shall direct the investment of the funds on deposit in the funds and accounts established by or pursuant to the Fiscal Agent Agreement, including the Improvement Fund, and that the Developer has no right whatsoever to direct investments under the Fiscal Agent Agreement. The Authority agrees to consider, in preparing the Fiscal Agent Agreement, provisions which allocate investment earnings on funds held thereunder during the period of construction of the Facilities to the Improvement Fund. The Authority shall have no responsibility whatsoever to the Developer with respect to any investment of funds made under the Fiscal Agent Agreement, including any loss of all or a portion of the principal invested or any penalty for liquidation of an investment. Any such loss may diminish the amounts available in the Improvement Fund to pay the Purchase Price of Facilities and Discrete Components hereunder. The Developer further acknowledges that the obligation of any owner of real property in the CFD, including the Developer to the extent it owns any real property in the CFD, to pay special taxes levied in the CFD is not in any way dependent on: (i) the availability of amounts in the Improvement Fund to pay for all or any portion of the Facilities or Discrete Components thereof hereunder, or (ii) the alleged or actual misconduct of the Authority in the performance of its obligations under this Acquisition Agreement, the Fiscal Agent Agreement, any developer agreement or amendment thereto or any other agreement to which the Developer and the City or the Authority are signatories. The Developer acknowledges that any lack of availability of amounts in the Improvement Fund to pay the Purchase Price of Facilities or any Discrete Components thereof shall in no way diminish any obligation of the Developer with respect to the construction of or contributions for public facilities required by the Conditions of Approval. Section 3.04. Parity Bonds. The Authority may issue one or more series of Parity Bonds for the CFD, as follows: A. Parity Bonds of the CFD. As stated in Section 2.05, the Bonds may be issued in more than one series. The first series of the Bonds for the CFD (being the -9- Series 2006-A Bonds) is expected to be in the principal amount of $51,250,000 and are expected to be issued on or about April 27, 2006. Any subsequent series of Bonds for the CFD shall be issued in such principal amount (not to exceed an aggregate of $3,750,000, being the maximum authorized principal of Bonds for the CFD, less the principal amount of the first series of the Bonds), and on such date, as determined by the Authority, following consultation with the Developer, and subject to compliance with the Parity Bond provisions of the Fiscal Agent Agreement (including any required increase in the amount available to be drawn under the Letter of Credit). It is hereby acknowledged that the intent of the Authority and the Developer is that the principal amount of any second series of the Bonds for the CFD will be, to the greatest extent possible given the constraints of the Parity Bond provisions of the Fiscal Agent Agreement, sized so as to allow for the funding of as many of the Facilities that were not fully funded from the proceeds of the Series 2006-A Bonds as practicable. It is further acknowledged, however, that the Authority does not want to issue Bonds in an aggregate principal amount such that the annual special taxes to be levied in the CFD to pay the debt service on the Bonds and the administrative expenses of the CFD, together with all other annual assessments, special taxes and other statutory encumbrances on property in the CFD, exceed 2.0% of the expected purchase prices of the homes to be constructed in the CFD (the "Special Tax Limitation") as reasonably estimated within ninety (90) days of the expected date of Bond issuance by an absorption consultant engaged by the Authority. In any event, the principal amount of any Parity Bonds for the CFD and the timing of their issuance shall be determined by the Board of Directors of the Authority consistent with the Authority's Local Goals and Policies for Community Facilities District (the "Policies"), the Act and the Fiscal Agent Agreement. B. General Provisions Related to Parity Bonds. At least ninety days prior to the issuance of any Parity Bonds, and to the extent the expected proceeds thereof to be deposited to the Improvement Fund, together with amounts, if any, then on deposit therein are estimated by the Authority to be in excess of the Purchase Prices of the Facilities listed in Exhibit B hereto not theretofore paid to the Developer in accordance with the provisions hereof, the Developer shall provide to the Authority a list of Facilities (taken solely from the list of Facilities in Exhibit A hereto) to be added to Exhibit B (by means of a Supplement) and proposed Budgeted Costs thereof, sufficient to use all amounts deposited to, and expected to be deposited from the proceeds of the Parity Bonds to, the Improvement Fund within a three year period commencing with the expected date of issuance of the Parity Bonds. City staff and consultants will review such list and propose a Supplement to this Acquisition Agreement based thereon (but with such adjustments thereto as they determine to be appropriate in the circumstances), for approval by the Developer and the Authority. The Authority will not offer for sale any Parity Bonds until any such Supplement described in the proceeding sentence has been executed by the Authority and the Developer. In connection with the issuance of any Parity Bonds, including the principal amount thereof and the timing of the offer and sale thereof, the Authority will take into account the advice of its financial advisor and the underwriter for the respective Parity Bonds, as well as current market conditions, and may reduce the principal amount of, or delay the issuance of, any series of Parity Bonds if in the judgment of the Board of Directors of the Authority it would be prudent in the circumstances. The Developer shall advance funds to the Authority as necessary to pay any and all noncontingent costs of the Authority or the City, as determined by the City, related to the issuance of Parity Bonds, subject to reimbursement, to the extent -10- permitted by the Act as determined by bond counsel to the Authority, from the proceeds of the Parity Bonds. Notwithstanding any other provision of this Agreement to the contrary, the Authority will not be obligated to consider the issuance of Parity Bonds after February 1,2008. Section 3.05. Letters of Credit. Prior to the issuance of the Series 2006-A Bonds, the Developer shall provide or cause to be provided to the Fiscal Agent for each owner of land and its Affiliates (a) that are projected by the Tax Consultant Bonds to be subject to 10% or more of the expected annual special tax levy in the CFD (assuming Build-Out) following the issuance of the Series 2006-A Bond s, and (b) that own land in a planning area and either (i) the then Parcel Value of such land is less than three times the Parcel Liens for such land, or (ii) there are conditions precedent to the issuance of building permits for all lots to be developed in such planning area, as such conditions are set forth in the Preannexation and Development Agreement, dated as of December 17, 2002, by and between the City and the Developer as amended (the "Conditions"). It is hereby acknowledged that, as of the date of issuance of the Series 2006-A Bonds, none of the other entities that own property in the CFD is an "Affiliate" of the Developer. Each Letter of Credit delivered to the Fiscal Agent shall be accompanied by a written certificate from the provider thereof or the Account Party which identifies the County of Riverside Assessor's parcels in the CFD to which such letter of credit pertains. A Letter of Credit provided to the Fiscal Agent shall be subject to draw by the Fiscal Agent (i) in the amount of any special taxes levied by the CFD on any of the "parcels in the CFD to which the Letter of Credit pertains" (as such phrase is defined in the next paragraph) which are delinquent; or (ii) in whole if the Letter of Credit (or the confirming letter of credit, if one is provided with a Letter of Credit) expires prior to the date on which it is eligible for release in whole as described below and a replacement Letter of Credit (which may include a confirming letter of credit) satisfying the criteria described in the definition "Letter of Credit" in Section 1.03 is not delivered to the Fiscal Agent at least 5 days prior to such expiration date; (iii) in whole, if the rating of the unsecured debt obligations of the provider of the Letter of Credit have been reduced to BBB or its equivalent or lower by Moody's Investor's Service or Standard & Poor's Ratings Group (if a confirming letter of credit has been delivered together with a Letter of Credit, the foregoing rating criteria shall be applied to the ratings of the institution providing the confirming letter of credit). Amounts drawn on any Letter of Credit pursuant to the preceding clause (i) will be deposited to the special tax fund for the CFD Bonds and used for the purposes of such fund, and amounts drawn on any Letter of Credit pursuant to the preceding clause (ii) or (iii) will be held in the reserve fund for the CFD Bonds and drawn upon, with the proceeds of the draw deposited to the Special Tax Fund, for the CFD Bonds, in the amount of any delinquent special taxes levied in the CFD with respect to the parcels in the CFD to which the Letter of Credit pertains, or released or reduced to the same extent the corresponding Letter of Credit would have been released or reduced as described in the succeeding paragraph of this Section 3.05. The Authority will cause the Fiscal Agent to reduce the amount available to be drawn on a letter of credit from time to time, but not more than once every six months (commencing no sooner than six months after the closing date for the initial series of the Bonds), upon the presentation to the Treasurer of a written estimate as to the expected annual special taxes that may be levied on parcels in the CFD to which the Letter of Credit pertains, assuming Build-Out (the "Maximum Amount"). In calculating the Maximum Amount (and for purposes of the first and last sentences of the prior paragraph and clause (II) of the first sentence of the second following paragraph), the term "parcels in the CFD to -11- which the Letter of Credit pertains" shall mean the parcels in the District which were initially identified by the applicable Account Party as being the subject of the respective Letter of Credit less any parcels that are, at the time of calculation, (a) owned by a party unaffiliated with the applicable Account Party, so long as the maximum Special Taxes levied on such parcels (assuming Build-Out) is less than 10% of the District-wide Maximum Special Taxes, (b) in a planning area whose Parcel Value is more than three times the Parcel Liens, and are not subject to Conditions which Conditions apply to all lots to be developed in the planning area in which the parcels are located; (c) subject to a separate Letter of Credit, as described below; or (d) owned by individual homeowners. If the Maximum Amount, multiplied by two (herein, the "Revised Stated Amount"), is less than the current stated amount of the applicable Letter of Credit, then the Treasurer shall provide written direction to the Fiscal Agent to reduce the applicable Letter of Credit by the difference between the current stated amount of the Letter of Credit and the Revised Stated Amount of the Letter of Credit. Promptly following receipt of such written direction from the Finance Director, the Fiscal Agent shall complete and deliver to the applicable Letter of Credit provider the appropriate certificates and annexes to the subject Letter of Credit to effectuate the reduction of the stated amount of such Letter of Credit. Notwithstanding the foregoing, a Letter of Credit shall not be reduced if the reason for the reduction is the sale of property to an owner (I) that will own, together with its Affiliates, property responsible for 10% or more of the expected annual Special Taxes that may be levied on such parcels in the CFD (assuming Build-Out), and (II) that will own land in a planning area and either (x) the then Parcel Value of such land is less than three times the Parcel Liens for such land, or (y) there are Conditions precedent to the issuance of of building permits for all lots to be developed in such planning area; unless the new property owner provides evidence that the new owner has posted its own Letter of Credit securing the payment of special taxes to be levied by the CFD on such property. The Authority will cause the Fiscal Agent to release any Letter of Credit or portion thereof upon receipt of a replacement letter of credit which satisfies the criteria in the definition of "Letter of Credit" in Section 1.03 and with a face amount equal to the amount of the Letter of Credit to be so released (as such face amount may be reduced pursuant to the preceding paragraph). The Fiscal Agent will agree in the Fiscal Agent Agreement to release, or reduce the amount available to be drawn on, a Letter of Credit upon receipt of written direction from the Treasurer to the effect that (I)(a) the then aggregate Parcel Value of the parcels in a planning area of the CFD identified by an Account Party and described in such written direction (the "Identified Parcels"), to which the Letter of Credit pertains, is at least three times the Parcel Liens, and (I)(b) the Conditions (as defined in the first paragraph of this Section 3.05) to the issuance of building permits for all of the Identified Parcels have been satisfied; or (II) if the Identified Parcels are subject to less than 10% of the expected annual special tax levy in the CFD (assuming Build-Out). The Treasurer shall review appraisals (or updates to prior appraisals) submitted to the Treasurer by or on behalf of an Account Party that are conducted by an appraiser and in a form acceptable to the Treasurer to determine if any Letter of Credit is to be released or reduced and, if so, shall so advise the Fiscal Agent in writing. Promptly following receipt of written direction from the Treasurer as to a Letter of Credit, the Fiscal Agent Agreement will direct the Fiscal Agent to complete and deliver to the applicable Letter of Credit provider the appropriate certificates and annexes to the subject Letter of Credit Credit to effectuate the release or reduction of such Letter of Credit. In connection with any such reduction, the amount available to be drawn on the applicable Letter of Credit shall be reduced by an amount equal to two times the expected annual Special Taxes that may be levied on the Identified Parcels (assuming Build-Out of such parcels) specified in the written direction of the Treasurer described above (however, in any -12- event, the Letter of Credit shall be released if the conditions referenced in clause (II) of the first sentence of this paragraph have been satisfied). The Authority will cause to be remitted to the provider of any Letter of Credit which has been drawn upon in respect of delinquent special taxes levied by the CFD, the amount of any such delinquent special taxes, less any costs or administrative expenses incurred in connection with the delinquency or the related draw on the Letter of Credit, not to exceed in any event the amount so drawn on the Letter of Credit and received by the Fiscal Agent, when and if such delinquent special taxes are collected by the CFD. -13- ARTICLE IV CONSTRUCTION OF FACILITIES Section 4.01. Plans. To the extent that it has not already done so, the Developer shall cause Plans to be prepared for the Facilities listed in Exhibit B. The Developer shall obtain the written approval of the Plans in accordance with applicable ordinances and regulations of the City and/or the public entity that will own and operate the Facilities. Copies of all Plans shall be provided by the Developer to the Director of Public Works upon request therefor, and, in any event, as built drawings and a written assignment of the Plans for any Facility listed in Exhibit B shall be provided to the City prior to its acceptance of the Facility. Section 4.02. Duty of Developer to Construct. All Facilities to be acquired hereunder specified in Exhibit B hereto, as amended from time to time, shall be constructed by or at the direction of the Developer in accordance with the approved Plans and the Conditions of Approval. The Developer shall perform all of its obligations hereunder and shall conduct all operations with respect to the construction of Facilities in a good, workmanlike and commercially reasonable manner, with the standard of diligence and care normally employed by duly qualified persons utilizing their best efforts in the performance of comparable work and in accordance with generally accepted practices appropriate to the activities undertaken. The Developer shall employ at all times adequate staff or consultants with the requisite experience necessary to administer and coordinate all work related to the design, engineering, acquisition, construction and installation of the Facilities to be acquired from the Developer hereunder. The Developer shall be obligated: (i) to construct and cause conveyance to the City (or other applicable governmental agency) all Facilities and Discrete Components thereof listed in Exhibit B hereto, as it may be supplemented in connection with the issuance of Parity Bonds, and (ii) to use its own funds to pay all costs thereof in excess of the Purchase Prices thereof to be paid therefor hereunder, except as may otherwise expressly provided in the Conditions of Approval. The Developer shall not be relieved of its obligation to construct each Facility and Discrete Component thereof listed in Exhibit B hereto and convey each such Facility to the City in accordance with the terms hereof, even if, (i) because of the limitations imposed by Section 5.06 hereof, the Purchase Price for such Discrete Component or Facility is less than the Actual Cost, or cost to the Developer, of such Discrete Component or Facility, or (ii) there are insufficient funds in the Improvement Fund to pay the Purchase Prices thereof, and, in any event, this Acquisition Agreement shall not affect any obligation of any owner of land in the CFD under the Conditions of Approval with respect to the public improvements required in connection with the development of the land within the CFD. Section 4.03. Relationship to Public Works; Bidding Requirements. The following shall apply to all all contracts applicable to the Facilities and any Discrete Components thereof acquired with funds withdrawn from the Improvement Fund: A. General. This Acquisition Agreement is for the acquisition of the Facilities and payment for Discrete Components thereof listed in Exhibit B hereto from moneys in the Improvement Fund and is not intended to be a public works contract. The Authority and the Developer agree that the Facilities are of local, and not state-wide concern, and that the provisions of the California Public Contract -14- Code shall not apply to the construction of the Facilities. The Authority and the Developer agree that the Developer shall award all contracts for the construction of the Facilities and the Discrete Components thereof listed in Exhibit B hereto and that this Acquisition Agreement is necessary to assure the timely and satisfactory completion of such Facilities and that compliance with the Public Contract Code with respect to such Facilities would work an incongruity and would not produce an advantage to the Authority or the CFD. B. Bidding Procedures. Notwithstanding the foregoing, the Developer shall award all contracts for construction of the Facilities and any Discrete Components thereof listed in Exhibit B, and materials related thereto, by means of a bid process consistent with this Section 4.03B. or otherwise acceptable to the Director of Public Works, in each case consistent with applicable City regulations. The Developer shall establish a list of written criteria acceptable to the Director of Public Works (including experience, ability to perform on schedule and financial ability) to determine qualified contractors for any contract. Such general contractors shall comply with any applicable City regulations. Formal bids shall be requested from those entities on the list of qualified contractors. The Developer shall prepare bid packages, including engineering reports and estimates, for each of the Facilities (or any specific Discrete Components thereof to be separately bid), and shall submit such packages to the Director of Public Works, reasonably in advance of the anticipated bid, for review. If the Developer would like the option to proceed under the provisions of Section 4.03C. below, the bid documents shall expressly disclose the rights of the Developer to elect to perform or have its agent perform the work with a specific reference to Section 53329.5 of the Act. Upon agreement by the Director of Public Works and the Developer on the content of such bid packages and a schedule of bid prices, plus an acceptable margin of variance, the Developer may proceed to take bids on the applicable Facilities (or Discrete Components). At the reasonable request of the Developer, the Director of Public Works shall also meet with the qualified general contractors to discuss the requirements of the particular contract to be bid. Bids for each Facility or Discrete Component shall be submitted to the Director of Public Works prior to the time and date prescribed for bid opening. If a bid is within the constraints of the approved bid package, the Developer shall, subject to the provisions of Section 4.03C. below, award the applicable contract to the lowest responsible bidder. If all bids are in excess of the bid parameters, the Developer shall obtain the consent of the Director of Public Works prior to awarding the contract. Upon written request of the Director of Public Works, the Developer shall provide an analysis of bids for construction and materials for the Facilities or applicable Discrete Components, indicating how how the winning bid was determined and how it was consistent with the applicable bid package. The Developer shall promptly publish notice of the award of any contract in such paper as the Director of Public Works shall specify. C. Developers Election to Perform Work. Notwithstanding the provisions of Section 4.03B. above, and in accordance with Section 53329.5 of the Act, if at the time bids are received for any particular Facility or Discrete Component the Developer owns three-fourths of the area of lands in the CFD taxed or liable to be taxed for purposes of the CFD, the Developer or a designated agent thereof (who shall provide the Director of Public Works with a written declaration under penalty of perjury in form acceptable to the Director of Public Works to the effect that the Developer so owns such land and, if applicable, that such other entity is such an -15- agent), the Developer or its designated agent may, within 10 days after the publication of the notice of the award of the contract, elect to perform the work and enter into a written contract to do the whole work at prices not exceeding the prices specified in the bid of the bidder to whom the contract was awarded, and all work done under the contract shall be subject to all provisions of this Acquisition Agreement other than the requirement that the contract work be awarded to and performed by the lowest responsible bidder. The Developer shall advise the Director of Public Works of any election under the preceding sentence, and shall promptly provide written notice to the bidder to whom the contract was awarded of its election to perform the work, and that the services of such winning bidder will no longer be required. The Developer (and its agents) may only avail itself of the foregoing provisions of this Section 4.03C. if the bid documents for the respective Facility or Discrete Component expressly disclosed its right to do so, as required by the second paragraph of Section 4.03B. above. If the Developer elects not to perform the work and not to enter into a written contract for that work within 10 days of publication of the notice of the award of the contract (as evidenced by its failure to provide the written notices described in the second preceding sentence within such 10 day period), or if the Developer (or its agent, as applicable) fails to commence the work within 15 days after the date of the written contract entered into by the Developer (or its agent) and the Authority and to continue that work with diligence to completion, as determined by the Board of Directors of the Authority, a contract shall be entered into by the Authority, on behalf of the CFD with the original bidder to whom the contract was awarded at the prices specified in his or her bid. D. Scheduling. The Developer shall develop or cause to be developed and shall maintain or cause to be maintained a schedule, using the critical path method, for the construction of the Facilities to be acquired hereunder. The Developer shall provide the Director of Public Works with complete copies of the schedule and each update to the schedule for the Director's review. E. Periodic Meetings. From time to time (expected to be at least every two weeks) at the request of the Director of Public Works, representatives of the Developer shall meet and confer with City staff, consultants and contractors regarding matters arising hereunder with respect to the Facilities, Discrete Components and the progress in constructing and acquiring the same, and as to any other matter related to the Facilities or this Acquisition Agreement. The Developer shall advise the Director of Public Works in advance of any coordination and scheduling meetings to be held with contractors relating to the Facilities, in the ordinary course of performance of an individual contract. The Director of Public Works or the Director of Public Work's designated representative shall have the right to be present at such meetings, and to meet and confer with individual contractors if deemed advisable by the Director of Public Works to resolve disputes and/or ensure the proper completion of the Facilities. Section 4.04. Independent Contractor. In performing this Acquisition Agreement, the Developer is an independent contractor and not the agent or employee of the Authority, the City or the CFD. None of the Authority, the City or the CFD shall be responsible for making any payments directly or otherwise to any contractor, subcontractor, agent, consultant, employee or supplier of the Developer. Section 4.05. Performance and Payment Bonds. The Developer agrees to comply with all applicable performance and payment bonding requirements of the Authority (and -16- other applicable public entities and/or public utilities) with respect to the construction of the Facilities listed in Exhibit B hereto. Performance and payment bonds shall not be required of the Developer to the extent moneys are available in the Improvement Fund to pay the Purchase Price of a Facility (and consistent with the Budgeted Costs therefore shown in Exhibit B and the limitations expressed in Section 5.06 hereof); provided that all contractors and/or subcontractors employed by the Developer in connection with the construction of Facilities listed in Exhibit B hereto shall provide a labor and materials and performance bonds which name the Authority and the City as additional insureds. Section 4.06. Contracts and Change Orders. The Developer shall be responsible for entering into all contracts and any supplemental agreements (commonly referred to as "change orders") required for the construction of the Facilities listed in Exhibit B hereto, as amended from time to time, and all such contracts and supplemental agreements shall be submitted to the Director of Public Works. Prior approval of supplemental agreements by the Director of Public Works shall only be required for such change orders which in any way materially alter the quality or character of the subject Facilities, or which involve an amount greater than $5,000.00. The Authority expects that such contracts and supplemental agreements needing prior approval by the Director of Public Works will be approved or denied (any such denial to be in writing, stating the reasons for denial and the actions, if any, that can be taken to obtain later approval) within ten (10) business days of receipt by the Director of Public Works thereof. Any approval by the Director of Public Works of a supplemental agreement shall in no way affect the Budgeted Costs listed in Exhibit B for any related Facility or Discrete Component, but to the extent that it increases the Actual Cost of a Facility or Discrete Component, such increased cost may be payable as part of the Purchase Price of the related Facility or Discrete Component as provided in Section 5.06A. hereof. Section 4.07. Time for Completion. The Developer agrees that this Acquisition Agreement is for the benefit of the Authority and the Developer and, therefore, the Developer represents that it reasonably expects to complete the Phase 1 Facilities and to have requested payment for the Phase 1 Facilities under this Acquisition Agreement within thirty-six (36) calendar months from the date of the closing of the Series 2006-A Bonds. -17- ARTICLE V ACQUISITION AND PAYMENT Section 5.01. Inspection. No payment hereunder shall be made by the Authority to the Developer for a Facility or Discrete Component thereof until the Facility or Discrete Component thereof has been inspected and found to be completed in accordance with the approved Plans by the City or other applicable public entity or utility. The Authority shall cause the City to make periodic site inspections of the Facilities to be acquired hereunder; provided that in no event shall the Authority incur any liability for any delay in the inspection of any Facilities or Discrete Components. For Facilities to be acquired by other public entities or utilities, the Developer shall be responsible for obtaining such inspections and providing written evidence thereof to the Director of Public Works. The Developer agrees to pay all inspection, permit and other similar fees of the City applicable to construction of the Facilities, subject to reimbursement therefor as an Actual Cost of the related related Facility. Section 5.02. Agreement to Sell and Purchase Facilities. The Developer hereby agrees to sell the Facilities listed in Exhibit B hereto to the City (or other applicable public agency that will own a Facility), and the Authority hereby agrees to use amounts in the Improvement Fund to pay the Purchase Prices thereof to the Developer, subject to the terms and conditions hereof. The Authority shall not be obligated to finance the purchase of any Facility until the Facility is completed and the Acceptance Date for such Facility has occurred; provided that the Authority has agreed hereunder to make payments to the Developer for certain Discrete Components of Facilities expressly shown in Exhibit B hereto, as it may be supplemented by any Supplement. The Developer acknowledges that the Discrete Components have been identified for payment purposes only, and that the City (or other applicable public agency that will own a Facility) shall not accept a Facility of which a Discrete Component is a part until the entire Facility has been completed. The Authority acknowledges that the Discrete Components do not have to be accepted by the City (or other applicable public agency that will own a Facility) as a condition precedent to the payment of the Purchase Price therefor, but any such payment shall not be made until the Discrete Component has been completed in accordance with the Plans therefor, as determined by the Director of Public Works. In any event, the Authority shall not be obligated to pay the Purchase Price for any Facility or Discrete Component except from the moneys in the Improvement Fund. Section 5.03. Payment Requests. In order to receive the Purchase Price for a completed Facility or Discrete Component, inspection thereof under Section 5.01 shall have been made and the Developer shall deliver to the Director of Public Works: (i) a Payment Request in the form of Exhibit C hereto for such Facility or Discrete Component, together with all attachments and exhibits required by Exhibit C and this Section 5.03 to be included therewith (including, but not limited to Attachments 1 and 2 to Exhibit C), and (ii) if payment is requested for a completed Facility, (a) if the property on which the Facility is located is not owned by the City (or other applicable public agency that will own the Facility) at the time of the request, a copy of the recorded documents conveying to the City (or other applicable public agency that will own the Facility) Acceptable Title to the real property on, in or over which such Facility is located, as described in Section 6.01 hereof, (b) a copy of the recorded notice of completion of such Facility (if applicable), (c) to the extent paid for with the proceeds of the Bonds, an assignment to the CFD of any reimbursements that may be payable with respect to the Facility, such as public or private utility reimbursements, and (d) an assignment of the warranties and guaranties for such Facility, as described in Section 6.05 hereof, in a form acceptable to the Authority. -18- Section 5.04. Processing Payment Requests. Upon receipt of a Payment Request (and all accompanying documentation), the Director of Public Works shall conduct a review in order to confirm that such request is complete, that such Discrete Component or Facility identified therein was constructed in accordance with the Plans therefor, and to verify and approve the Actual Cost of such Discrete Component or Facility specified in such Payment Request. The Director of Public Works shall also conduct such review as is required in his discretion to confirm the matters certified in the Payment Request. The Developer agrees to cooperate with the Director of Public Works in conducting each such review and to provide the Director of Public Works with such additional information and documentation as is reasonably necessary for the Director of Public Works to conclude each such review. For any Facilities to be acquired by another public entity or utility, the Developer shall provide evidence acceptable to the Director of Public Works that such Facilities are acceptable to such entity or utility. Within ten (10) business days of receipt of any Payment Request, the Director of Public Works expects to review the request for completeness and notify the Developer whether such Payment Request is complete, and, if not, what additional documentation must be provided. If such Payment Request is complete, the Director of Public Works expects to provide a written approval or denial (specifying the reason for any denial) of the request within 30 days of its submittal. If a Payment Request seeking reimbursement for more than one Facility or Discrete Component is denied, the Director of Public Works shall state whether the Payment Request is nevertheless approved and complete for any one or more Facilities or Discrete Components and any such Facilities or Discrete Components shall be processed for payment under Section 5.05 notwithstanding such partial denial. If multiple payment requests are submitted simultaneously, the Developer shall designate the order in which they are to be reviewed. Section 5.05. Payment. Upon approval of the Payment Request by the Director of Public Works, the Director of Public Works shall sign the Payment Request and forward the same to the City's Director of Finance. Upon receipt of the reviewed and fully signed Payment Request, the City's Director of Finance shall, within the then current City financial accounting payment cycle but in any event within thirty (30) days of receipt of the approved Payment Request, cause the same to be paid by the Fiscal Agent under the applicable provisions of the Fiscal Agent Agreement, to the extent of funds then on deposit in the Improvement Fund. Any approved Payment Request not paid due to an insufficiency of funds in the Improvement Fund, shall be paid promptly following the deposit into the Improvement Fund of proceeds of any investment earnings or other amounts transferred to the Improvement Fund under the terms of the Fiscal Agent Agreement. The parties hereto acknowledge that (i) the Developer will be constructing Facilities and Discrete Components prior to the issuance of any Parity Bonds the proceeds of which will be used to reimburse the Developer for those Facilities and Discrete Components not funded from the Series 2006-A Bonds, (ii) the Developer may be submitting Payment Requests to the Authority in advance of such an issuance of Parity Bonds, with knowledge that there may be insufficient funds available in the Improvement Fund for reimbursement, (iii) the Facilities and Discrete Components that are the subject of the Payment Requests submitted when there are insufficient proceeds will be inspected and reviewed by the Director of Public Works as set forth in this Article V and that such Payment Requests will be reviewed by the Director of Public Works and, if appropriate, submitted in the manner set forth in Sections 5.03, 5.04 and 5.05, and (iv) the payment for any Payment Requests approved in the preceding manner will be deferred until the date, if any, on which there are sufficient amounts in the Improvement Fund to make such payment, at which time the Director of Public Works will forward the approved Payment Requests to the City's -19- Director of Finance, who will then arrange for payment from the Fiscal Agent in the manner set forth above. At all times, the construction of the Facilities is made with the expectation that such Facilities will be purchased by the Authority (but solely from amounts available in the Improvement Fund), and that the conveyance of such Facilities to the City (or any other party that will own the same) prior to receipt of the Purchase Price for such Facilities shall not be construed as a dedication or gift, or a waiver of the obligation hereunder to pay the Purchase Price for such Facilities. Notwithstanding any other provisions of this Acquisition Agreement, no further payments of the Purchase Prices of Facilities will be made after March 1,2016. The Purchase Price paid hereunder for any Facility or Discrete Component shall constitute payment in full for such Facility or Discrete Component, including, without limitation, payment for all labor, materials, equipment, tools and services used or incorporated in the work, supervision, administration, overhead, expenses and any and all other things required, furnished or incurred for completion of such Facility or Discrete Component, as specified in the Plans. Section 5.06. Restrictions on Payments. Notwithstanding any other provisions of this Acquisition Agreement, the following restrictions shall apply to any payments made to the Developer under Sections 5.02 and 5.05 hereof: A. Amounts of Payments. Subject to the following paragraphs of this Section 5.06, payments for each Discrete Component or Facility will be made only in the amount of the Purchase Price for the respective Discrete Component or Facility; however, if the Actual Cost exceeds the Budgeted Cost for a Discrete Component or a Facility, the excess shall be borne by the Developer until such time as either (i) the proceeds of Parity Bonds are deposited to the Improvement Fund, or (ii) a Budgeted Cost for another Discrete Component or Facility is greater than the Actual Cost therefore, in which event the savings shall be applied to reduce any excess of Actual Cost over Budgeted Cost previously paid for any Facility or Discrete Component by the Developer. Any savings attributable to the Actual Cost being less than Budgeted Cost which are not disbursed under the previous sentence to cover unreimbursed Actual Costs or as otherwise consented to by the Developer shall be carried forward to be credited against future cost overruns, or costs related to supplemental agreements (change orders), or if not needed for either of the foregoing purposes, to be disposed of as provided in the Fiscal Agent Agreement for excess monies in the Improvement Fund. Nothing herein shall require the Authority in any event (i) to pay more than the Actual Cost of a Facility or Discrete Component, (ii) to make any payment beyond the available funds in the Improvement Fund, or (iii) to pay for any roadway improvements that are not generally accessible to the public (i.e. behind gates that impede the free flow of traffic). The parties hereto hereto acknowledge and agree that all payments to the Developer for the Purchase Prices of Facilities or Discrete Components are intended to be reimbursements to the Developer for monies already expended or for immediate payment by the Developer (or directly by the Authority) to third parties in respect of such Facilities and/or Discrete Components. No payment shall be made for the Purchase Price of any Discrete Component if (i) the Developer fails to fully provide any information requested pursuant to the second sentence of Section 8.01G. related thereto, or (ii) if the Authority or the City determines that the provisions of Section 8.01G. hereof were violated in connection with the work related to such Discrete Component and such violation has not been remedied to the satisfaction of the City Attorney. -20- B. Joint or Third Party Payments. The Authority may make any payment jointly to the Developer and any mortgagee or trust deed beneficiary, contractor or supplier of materials, as their interests may appear, or solely to any such third party, if the Developer so requests the same in writing (including, but not limited to, any financial institution providing financing to the Developer or any Affiliate thereof) or as the Authority otherwise determines such joint or third party payment is necessary to obtain lien releases. C. Withholding Payments. The Authority shall be entitled, but shall not be required, to withhold any payment hereunder for a Discrete Component or a Facility if the Developer or any Affiliate is delinquent in the payment of ad valorem real property taxes, special assessments or taxes, or special taxes in each case as levied on property located in the CFD. In the event of any such delinquency, the Authority shall only make payments hereunder, should any be made at the Authority's sole discretion, directly to contractors or other third parties employed in connection with the construction of the Facilities or to any assignee of the Developer's interests in this Acquisition Agreement (and not to the Developer or any Affiliate), until such time as the Developer provides the Director of Public Works with evidence that all such delinquent taxes and assessments have been paid. The Authority shall withhold payment for any Discrete Component or Facility constructed on land not previously dedicated or otherwise conveyed to the City, until Acceptable Title to such land is conveyed to the City or other public entity that will own the respective Facility, as described in Article VI hereof. The Authority shall withhold payment for any Facility or Discrete Component identified as a Priority B item in Exhibit D hereto until the Director of Public Works has determined that all costs of items identified as Priority A in Exhibit D have been paid in full. The Authority shall be entitled to withhold any payment hereunder for a Discrete Component that is the subject of a Payment Request until it is satisfied that any and all claims for labor and materials have been paid by the Developer for the Discrete Component that is the subject of a Payment Request, or conditional lien releases have been provided by the Developer for such Discrete Component. The Authority, in its discretion, may waive this limitation upon the provision by the Developer of sureties, undertakings, securities and/or bonds of the Developer or appropriate contractors or subcontractors and deemed satisfactory by the Director of Public Works to assure payment of such claims. The Authority shall be entitled to withhold payment for any Facility hereunder to be owned by the City (or the final Discrete Component of any such Facility) until: (i) the Director of Public Works determines that the Facility is ready for its intended use, (ii) the Acceptance Date for the Facility has occurred and the requirements of Section 6.01, if applicable to such Facility, have been satisfied, and (iii) a Notice of Completion executed by the Developer, in a form acceptable to the Director of Public Works, has been recorded for the Facility and general lien releases conditioned solely upon payment from the proceeds of the Bonds to be used to acquire such Facility (or final Discrete Component) have been submitted to the Director of Public Works for the Facility. The Authority hereby agrees that the Developer shall have the right to post or cause the appropriate contractor or subcontractor to post a bond with the City to indemnify it for any losses sustained by the City or the Authority because of any liens that may exist at the time of acceptance -21- of such a Facility, so long as such bond is drawn on an obligor and is otherwise in a form acceptable to the Director of Public Works. The Authority shall be entitled to withhold payment for any Facility (or the final Discrete Component of any such Facility) to be owned by other governmental entities, until the Developer provides the Director of Public Works with evidence that the governmental entity has accepted dedication of and/or title to the Facility. If the Director of Public Works determines that a Facility is not ready for intended use under (i) above, the Director of Public Works shall so notify the Developer as soon as reasonably practicable in writing specifying the reason(s) therefor. Nothing in this Acquisition Agreement shall be deemed to prohibit the Developer from contesting in good faith the validity or amount of any mechanics or materialmans lien nor limit the remedies available to the Developer with respect thereto so long as such delay in performance shall not subject the Facilities or any Discrete Component thereof to foreclosure, forfeiture or sale. In the event that any such lien is contested, the Developer shall only be required to post or cause the delivery of a bond in an amount equal to twice the amount in dispute with respect to any such contested lien, so long as such bond is drawn on an obligor and is otherwise in a form acceptable to the Director of Public Works. D. Retention. The Authority shall withhold in the Improvement Fund an amount equal to ten percent (10%) of the Purchase Price of each Facility or Discrete Component to be paid hereunder. Any such retention will be released to the Developer upon final completion and acceptance of the related Facility and the expiration of a maintenance period consistent with applicable City policy thereafter (currently a one year warranty period for any landscaping, and upon receipt of a maintenance bond acceptable to the Director of Public Works to remain in effect for one year as to other Facilities). Notwithstanding the foregoing, the Developer shall be entitled to payment of any such retention upon the completion and acceptance of a Facility or Discrete Component, if a maintenance or warranty bond is posted in lieu thereof in accordance with Section 6.06 hereof. Payment of any retention shall also be contingent upon the availability of monies in the Improvement Fund therefor. No retention shall apply if the Developer proves to the Director of Public Work's satisfaction that the Developer's contracts for the Facilities (or Discrete Components) provide for the same retention as herein provided, so that the Purchase Price paid for the Facility or Discrete Component is at all times net of the required retention. E. Frequency. Unless otherwise agreed to by the Director of Public Works, no more than one Payment Request shall be submitted by the Developer in any calendar month. F. Right-of-Way. Payments for any right-of-way described in Exhibit B hereto shall be based upon appraisals of the respective land to be acquired in a form acceptable to to the Director of Public Works, or upon such other basis as the Director of Public Works shall determine is appropriate in the circumstances. Section 5.07. Acquisition of Additional Facilities. If the construction and acquisition of all the Facilities theretofore listed in Exhibit B have been completed and the Purchase Prices (including any retentions described in 5.06D. above) with respect thereto have been paid, and funds remain on deposit in the Improvement Fund, the Authority and the Developer may designate in a Supplement hereto, Facilities (and/or Discrete -22- Components thereof) to be constructed and acquired with such remaining funds to be selected from the list of Facilities in Exhibit A. Prior to the issuance of any Parity Bonds, the City and the Developer shall designate Facilities (and any Discrete Components thereof) to be constructed and acquired with the proceeds of such Parity Bonds, to the extent required and consistent with the provisions of Section 3.04C. hereof. Section 5.08. Defective or Nonconforming Work. If any of the work done or materials furnished for a Facility or Discrete Component listed in Exhibit B are found by the Director of Public Works to be defective or not in accordance with the applicable Plans: (i) and such finding is made prior to payment for the Purchase Price of such Facility or Discrete Component hereunder, the Authority may withhold payment therefor until such defect or nonconformance is corrected to the satisfaction of the Director of Public Works, or (ii) and such finding is made after payment of the Purchase Price of such such Facility or Discrete Component, the Authority and the Developer shall act in accordance with the City's standard specification for public works construction (which are set forth in the Green Book, Standard Specifications for Public Works Construction (SSPWC), by Public Works Standards, Inc., as modified by applicable City Special Provisions. Section 5.09. Modification of Discrete Components. Upon written request of the Developer, the Director of Public Works shall consider modification of the description of any Discrete Component. Any such modification shall be subject to the written approval of the Director of Public Works, and shall not diminish the overall Facilities listed in Exhibit B to be provided by the Developer hereunder (in a material way such that the change invalidates any of the assumptions used in the appraisal conducted to sell the Bonds). It is expected that any such modification will be solely for purposes of dividing up the work included in any Discrete Component for purposes of acceptance and payment, for example: (i) separation of irrigation and landscaping from other components of a Discrete Component, (ii) modifications to allow for payment for roadway improvements prior to completion of the top course of paving, or (iii) division of utility construction by utility work orders. In most instances, the Director of Public Works will only approve modifications for payment purposes when there will be an unusual period of time between the completion and acceptance of such divided work or to better implement the phasing of the overall construction of the Facilities; but no such circumstances shall this Section in any way obligate the Director of Public Works to approve such modification. Section 5.10. EMWD Acquisition Facilities. Notwithstanding any other provision of this Acquisition Agreement, the Purchase Price for any EMWD Acquisition Facility shall be the respective "value" of such Facility as determined pursuant to Section 7(b) of the Joint Community Facilities Agreement -EMWD, dated dated as of January 1, 2005 (the "EMWD Agreement"), among the Eastern Municipal Water District, the Authority and the Developer, and such Facilities shall be constructed and accepted in accordance with the EMWD Agreement. The Developer agrees to notify the Authority in writing promptly following the date on which it will no longer submit any Payment Request relative to the EMWD Acquisition Facilities pursuant to the EMWD Agreement. Following receipt of such notice, the Authority shall direct the Fiscal Agent to close any EMWD Account established under the Fiscal Agent Agreement and to transfer any remaining amounts on deposit therein as provided in the Fiscal Agent Agreement. Section 5.11. Right of City to Make Withdrawals From Improvement Fund. The Developer acknowledges that the City may transfer or cause to be transferred amounts from -23- the Improvement Fund to the City as necessary to pay costs of the City (i) in the event that the construction of the Facilities is substantially delayed, (ii) the plans for or any other aspect of such construction are substantially altered without the consent of the City, or (iii) otherwise in the amount of any costs that the Director of Public Works determines that the City has incurred or reasonably expects to incur in connection with the performance of the obligations of the City (including the Director of Public Works) under this Acquisition Agreement that were not funded at the time of issuance of any series of the Bonds from the proceeds of such Bonds deposited to a Public Works Administration Account created under the Fiscal Agent Agreement and specifically to be used for such purpose. The City shall give written notice of the amount of any such expected transfer and the purpose(s) thereof to the Developer, prior to implementing transfer. The Developer acknowledges that any transfer described in the second preceding sentence will reduce the amount available to pay the Purchase Prices of the Facilities and Discrete Components thereof hereunder. -24- ARTICLE VI OWNERSHIP AND TRANSFER OF FACILITIES Section 6.01. Facilities to be Owned by the City -Conveyance of Land and Easements to City. Acceptable Title to all property on, in or over which each Facility to be acquired by the City will be located, shall be deeded over to the City by way of grant deed, quitclaim, or dedication of such property, or easement thereon, if such conveyance of interest is approved by the City as being a sufficient interest therein to permit the City to properly own, operate and maintain such Facility located therein, thereon or thereover, and to permit the Developer to perform its obligations as set forth in this Acquisition Agreement. The Developer agrees to assist the City in obtaining such documents as are required to obtain Acceptable Title. Completion of the transfer of title to land shall be accomplished prior to the payment of the Purchase Price for a Facility (or the last Discrete Component thereof) and shall be evidenced by recordation of the acceptance thereof by the City Council or the designee thereof. Section 6.02. Facilities to be Owned by the City -Title Evidence. Upon the request of the City, the Developer shall furnish to the City a preliminary title report for land with respect to Facilities to be acquired by the City and not previously dedicated or otherwise conveyed to the City, for review and approval at least fifteen (15) calendar days prior to the transfer of Acceptable Title to a Facility to the City. The Director of Public Works shall approve the preliminary title report unless it reveals a matter which, in the judgment of the City, could materially affect the City's use and enjoyment of any part of the property or easement covered by the preliminary title report. In the event the City does not approve the preliminary title report, the City shall not be obligated to accept title to such Facility and the Authority shall not be obligated to pay the Purchase Price for such Facility (or the last Discrete Component thereof) until the Developer has cured such objections to title to the satisfaction of the City. Section 6.03. Facilities Constructed on Private Lands. If any Facilities to be acquired are located on privately-owned land, the owner thereof shall retain title to the land and the completed Facilities until acquisition of the Facilities under Article V hereof. Pending the completion of such transfer, the Developer shall not be entitled to receive any payment for any such Facility or the last Discrete Component thereof. The Developer shall, however, be entitled to receive payment for Discrete Components (other than the last Discrete Component) upon making an irrevocable offer of dedication of such land in form and substance acceptable to the Director of Public Works. Notwithstanding the foregoing, upon written request of the Director of Public Works before payment for any Discrete Component of such a Facility, the Developer shall convey or cause to be conveyed Acceptable Title thereto in the manner described in Sections 6.01 and 6.02 hereof. Section 6.04. Facilities Constructed on City Land. If the Facilities to be acquired are on land owned by the Authority, the Authority shall cause the City to grant to the Developer a license to enter upon such land for purposes related to the construction (and maintenance pending acquisition) of the Facilities. The provisions for inspection and acceptance of such Facilities otherwise provided herein shall apply. Section 6.05. Facilities to be Acquired by Other Public Agencies. With respect to any Facility to be acquired by a public entity other than the City, the Developer shall comply with such entities rules and regulations regarding title and conveyance of property, and provide the Director of Public Works with evidence of such compliance, prior to the -25- payment of the Purchase Price for any such Facility (or the last Discrete Component thereof). Section 6.06. Maintenance and Warranties. The Developer shall maintain each Discrete Component in good and safe condition until the Acceptance Date of the Facility of which such Discrete Component is a part. Prior to the Acceptance Date, the Developer shall be responsible for performing any required maintenance on any completed Discrete Component or Facility. On or before the Acceptance Date of the Facility, the Developer shall assign to the Authority all of the Developer's rights in any warranties, guarantees, maintenance obligations or other evidence of contingent obligations of third persons with respect to such Facility. The Developer shall maintain or cause to be maintained each Facility to be owned by the City (including the repair or replacement thereof) for a period of one year from the Acceptance Date thereof, or, alternatively, shall provide a bond reasonably acceptable in form and substance to the Director of Public Works for such period and for such purpose (specifically, a one-year maintenance period for landscaping improvements, and for the posting of a warranty bond to remain in effect for one year as to other Facilities), to insure that defects, which appear within said period will be repaired, replaced, or corrected by the Developer, at its own cost and expense, to the satisfaction of the Director of Public Works. During any such one-year period, the Developer shall commence to repair, replace or correct any such defects within thirty (30) days after written notice thereof by the Authority, the City or other public entity that took ownership of the respective Facility to the Developer, and shall complete such repairs, replacement or correction as soon as practicable. After such one-year period, the City (or other public entity that has accepted title to the Facility) shall be responsible for maintaining such Facility. Any warranties, guarantees or other evidences of contingent obligations of third persons with respect to the Facilities to be acquired by the City shall be delivered to the Director of Public Works as part of the transfer of title. -26- ARTICLE VII INSURANCE; RESPONSIBILITY FOR DAMAGE Section 7.01. Liability Insurance Requirements. The Developer shall provide to the Director of Public Works evidence of insurance and endorsements thereto on forms acceptable to the Risk Manager within 10 working days of execution by it of this Acquisition Agreement. The Developer shall procure and maintain for the duration of this Acquisition Agreement the following minimum insurance coverage and limits against claims for injuries to persons or damage to property which may arise from or in connection with the performance of the work covered by this Acquisition Agreement by the Developer, its agents, representatives, employees or subcontractors: (a) Premises, operation and mobile equipment. (b) Products and completed operations. (c) Explosion, collapse and underground hazards. (d) Personal injury. (e) Contractual liability. (f) Errors and omissions for work performed by design professionals. COVERAGE PER OCCURRENCE ISO FORM Commercial General CG 00 0111 85 or or 88 Rev. Liability (Primary) $2,000,000 Umbrella Liability GL 00 0111 85 or 88 Rev. (Over Primary, if required) $1,000,000 Business Auto CA 00 01 06 92 $1,000,000 Workers' Compensation/Statutory Employers' Liability $1,000,000 Errors and Omissions $1,000,000 Combined single limit per occurrence shall include coverage for bodily injury, personal injury, and property damage for each accident and a five million dollar ($5,000,000) general aggregate. Insurance shall be placed with insurers that are admitted to the State of California and with an AM Best's Rating of no less than A:VII. The Developer shall furnish to the Risk Manager certificates of insurance and endorsements on forms specified by the Risk Manager, duly authenticated, giving evidence of the insurance coverage required in this contract and other evidence of coverage or copies of policies as may be reasonably required by the Risk Manager from time to time. Each required insurance policy coverage shall not be suspended, voided, canceled by either party, reduced in coverage or in limits except after fifteen (15) days written notice by certified mail, return receipt requested, has been given to the Risk Manager. Liability coverage shall not be limited to the vicarious liability or supervising role of any additional insured nor shall there be any limitation with the severability clause. Coverage shall contain no limitation endorsements and there shall be no endorsement or modification limiting the scope of coverage for liability arising from pollution, explosion, collapse, underground property damage or employment related practices. Any umbrella liability coverage shall apply to bodily injury/property damage, personal injury/advertising injury, at a minimum, and shall include a "drop down" -27- provision providing primary coverage above a maximum $25,000.00 self-insured retention for liability not covered by primary polices not covered by the umbrella policy. Coverage shall be following form to any other underlying coverage. Coverage shall be on a "pay on behalf" basis, with defense costs payable in addition to policy limits. There shall be no cross policy exclusion and no limitation endorsement. The policy shall have starting and ending dates concurrent with the underlying coverage. All liability insurance shall be on an occurrence basis. Insurance on a claims made basis will be rejected. Any deductibles or self-insured retentions shall be declared to and approved by the Risk Manager. The insurer shall provide an endorsement to the City eliminating such deductibles or self-insured retentions as respects the Authority, and its consultants, and each of its Boardmembers, officials, employees and volunteers. All subcontractors employed on the work referred to in this Acquisition Agreement shall meet the insurance requirements set forth in this Section 7.01 for the Developer. The Developer shall furnish certificates of insurance and endorsements for each subcontractor at least five days prior to the subcontractor entering the job site, or the Developer shall furnish the Risk Manager an endorsement including all subcontractors as insureds under its policies. Neither the City nor the Authority shall be liable for any accident, loss, or damage to the work prior to its completion and acceptance, and the Developer shall save, keep and hold harmless the Authority, the City and their consultants, and each of their Boardmembers, Councilmembers, officers, officials, employees, agents and volunteers from all damages, costs or expenses in law or equity that may at any time arise or be claimed because of damages to property, or personal injury received by reason of or in the course of performing work, which may be caused by any willful or negligent act or omission by the Developer or any of the Developer's employees, or any subcontractor. The cost of insurance required by this subsection shall be born by the Developer and its subcontractors and no compensation for purchasing insurance or additional coverage needed to meet these requirements will be paid for by the Authority. In the event that any required insurance is reduced in coverage, canceled for any reason, voided or suspended, the Developer agrees that the Authority may arrange for insurance coverage as specified, and the Developer further agrees that administrative and premium costs may be deducted from any deposits or bonds the Authority may have, or from the Improvement Fund. A reduction or cancellation will be grounds for termination of this Acquisition Agreement and will cause a halt to payment for any work on the Facilities until the insurance is reestablished. Liability policies shall contain, or be endorsed to contain the following provisions: (a) General Liability and Automobile Liability: The Authority, the City and their respective consultants, and each of their Boardmembers, Councilmembers, officers, officials, employees and volunteers shall be covered as additional insureds using ISO form CG 00 01 11 85 or 88 as it respects: liability arising out of activities performed by or on behalf of the Developer; products and completed operations of the Developer' premises owned, occupied or used by the Developer; or automobiles owned, leased, hired or borrowed by the Developer. The coverage shall contain no special limitations on the scope or protection afforded to the Authority, the City and their respective consultants, and each of their respective Boardmembers, Councilmembers, officers, officials, employees, or volunteers. -28- The Developer's insurance coverage shall be primary insurance with respect to the Authority, the City and their respective consultants, and each of their respective Boardmembers, Councilmembers, officers, officials, employees and volunteers. Any insurance or self-insurance maintained by the Authority, the City and their respective consultants, and each of their respective Boardmembers, Councilmembers, officers, officials, employees and volunteers shall be excess of the Developer's insurance and shall not contribute with it. Any failure to comply with reporting provisions of the policies shall not affect coverage provided to the Authority, the City, and their respective consultants, and each of their respective Boardmembers, Councilmembers, officers, officials, employees, and volunteers. The Developer's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. (b) Workers' Compensation and Employer's Liability: The Developer and all subcontractors shall have workers' compensation for all employees in conformance with the requirements in Section 3700 of the Labor Code. (c) Error and Omissions Liability: The Developer and all subcontractors who are design professionals shall have and maintain errors and omissions insurance. Section 7.02. Responsibility for Damage. The Developer shall take and assume all responsibility for the work performed as part of the Facilities constructed pursuant to this Acquisition Agreement. The Developer shall bear all losses and damages directly or indirectly resulting to it, to the Authority, to the City, and their respective consultants, and their respective Boardmembers, Councilmembers, officers, employees and agents, or to others on account of the performance or character of the work, unforeseen difficulties, accidents of any other causes whatsoever. The Developer shall assume the defense of and indemnify and save harmless the Authority, the City, and their respective consultants, their respective Boardmembers, Councilmembers, officers, employees, and agents, from and against any and all claims, losses, damage, expenses and liability of every kind, nature, and description, directly or indirectly arising from the performance of the work, and from any and all claims, losses, damage, expenses, and liability, howsoever the same may be caused, resulting directly, or indirectly from the nature of the work covered by this Acquisition Agreement, to the fullest extent permitted by law and regardless (except as provided in the next sentence) of responsibility for any negligence. In accordance with Civil Code section 2782, nothing in this Section 7.02 shall require defense or indemnification for death, bodily injury, injury to property, or any other loss, damage or expense arising from the sole negligence or willful misconduct of the Authority, the City, and their respective consultants, and their respective Boardmembers, Councilmembers, agents, servants or independent contractors who are directly directly responsible to the Authority or the City, or for defects in design furnished by such persons. Moreover, nothing in this Section 7.02 shall apply to impose on the Developer, or to relieve the Authority or the City from, liability for active negligence of the Authority, the City, or their respective consultants or their respective Boardmembers, Councilmembers, officers, employees or agents as delineated in Civil Code Section 2782. Any relief for determining the Authority's or the City's sole or active negligence shall be determined by a court of law. -29- The Authority does not, and shall not, waive any rights against the Developer which it may have by reason of the aforesaid hold harmless agreements because of the acceptance by the Authority or the City, or deposit with the Authority by the Developer of any insurance policies described in Section 7.01. The aforesaid hold harmless agreement by the Developer shall apply to all damages and claims for damages of every kind suffered, or alleged to have been suffered by reasons of any of the aforesaid operations of the Developer, or any subcontractor, regardless of whether or not such insurance policies are determined to be applicable to any of such damages or claims for damages. No act by the City, or its representatives in processing or accepting any plans, in releasing any bond, in inspecting or accepting any work, or of any other nature, shall in any respect relieve the Developer or anyone else from any legal responsibility, obligation or liability it might otherwise have. -30- ARTICLE VIII REPRESENTATIONS, WARRANTIES AND COVENANTS Section 8.01. Representations, Covenants and Warranties of the Developer. The Developer represents and warrants for the benefit of the Authority as follows: A. Organization. The Developer is a limited liability company duly organized and validly existing under the laws of the State of California, is in compliance with all applicable laws of the State, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. B. Authority. The Developer has the power and authority to enter into this Acquisition Agreement, and has taken all action necessary to cause this Acquisition Agreement to be executed and delivered, and this Acquisition Agreement has been duly and validly executed and delivered by the Developer. C. Binding Obligation. This Acquisition Agreement is a legal, valid and binding obligation of the Developer, enforceable against the Developer in accordance with its terms, subject to bankruptcy and other equitable principles. D. Compliance with Laws. The Developer shall not with knowledge commit, suffer or permit any act to be done in, upon or to the lands of the Developer in the CFD or the Facilities in violation of any law, ordinance, rule, regulation or order of any governmental authority or any covenant, condition or restriction now or hereafter affecting the lands in the CFD or the Facilities. E. Requests for Payment. The Developer represents and warrants that (i) it will not request payment from the Authority for the acquisition of any improvements that are not part of the Facilities, and (ii) it will diligently follow all procedures set forth in this Acquisition Agreement with respect to the Payment Requests. F. Financial Records. Until the date which is one year following the date of the final acceptance of the Facilities, the Developer covenants to maintain proper books of record and account for the construction of the Facilities and all costs related thereto. Such accounting books shall be maintained in accordance with generally accepted accounting principles, and shall be available for inspection by the Authority or its agent at any reasonable time during regular business hours on reasonable notice. G. Prevailing Wages. The Developer covenants that, with respect to any contracts or subcontracts for the construction of the Facilities listed in Exhibit B to be acquired from the Developer hereunder, it will assure complete compliance with any applicable law or regulation for the payment of prevailing wages. The Developer shall provide, at the written request of the Director of Public Works, evidence satisfactory to the Director of Public Works that the Developer has complied with the provisions of this Section 8.01G. with respect to any Facilities or Discrete Components thereof to be funded under this Acquisition Agreement. H. Plans. The Developer represents that it has obtained or will obtain approval of the Plans for the Facilities listed in Exhibit B to be acquired from from the -31- Developer hereunder from all appropriate departments of the City and from any other public entity or public utility from which such approval must be obtained. The Developer further agrees that the Facilities listed in Exhibit B to be acquired from the Developer hereunder have been or will be constructed in full compliance with such approved plans and specifications and any supplemental agreements (change orders) thereto, as approved in the same manner. I. Land Owners. The Developer agrees that in the event that it sells any land owned by it within the boundaries of the CFD other than to an individual prospective homeowner, the Developer will (i) notify the Authority within 30 days of the sale, in writing, identifying the legal name of and mailing address for the purchaser, the applicable County Assessor's parcel Number or Numbers for the land sold and the acreage of the land sold, (ii) notify the purchaser in writing prior to the closing of any such sale of the existence of this Acquisition Agreement and, in general, the Developer's rights and obligations hereunder with respect to the construction of and payment for the Facilities, and (iii) notify the purchaser (including for purposes of this clause (iii) any prospective homeowner buying property from the Developer) in writing of the existence of the CFD and the special tax lien in connection therewith, and otherwise comply with any applicable provision of Section 53341.5 of the Act. J. Additional Information. The Developer agrees to cooperate with all reasonable written requests for nonproprietary information by the original purchasers of the Bonds or the Authority related to the status of construction of improvements within the CFD, the anticipated completion dates for future improvements, and any other matter material to the investment quality of the Bonds. K. Continuing Disclosure. The Developer agrees to comply with all of its obligations under any continuing disclosure agreement executed by it in connection with the offering and sale of any of the Bonds. L. Ownership By Affiliates. The Developer agrees to provide to the City's Finance Director on the date of issuance of the Bonds, on (or within five (5) business days of) July 1 of each year so long as the Bonds are outstanding and the Developer or any Affiliate thereof owns property in the CFD, and on any other date upon three business days notice from the City's Finance Director, a written list of all Affiliates of the Developer which own or control the ownership of land located within the CFD, or which have options on land within the CFD, indicating the parcels of land by County Assessor's Parcel number of all such land so owned or optioned. M. Allocation of Sales Taxes to Authority. The Developer shall use reasonable efforts, with respect to any construction contract for a contract price of $5,000,000 or more and related to any construction by the Developer within the geographical boundaries of the City, to have the installing contractor obtain a subpermit from the California Board of Equalization under under the Bradley-Burns Uniform Local Sales and Use Tax law for the job site on which the work is to be performed. Section 8.02. Indemnification and Hold Harmless. The Developer shall assume the defense of, indemnify and save harmless the Authority, the City and the District, members of the governing board of the Authority and of the City Council of the City, their officers, officials, employees and agents and each of them, from and against all actions, damages, claims, losses or expense of every type and description to which they may be subjected or put, by reason of, or resulting from the breach of any provision of this Acquisition Agreement by the Developer, the Developer's or any other entity's negligent design, -32- engineering and/or construction of any of the Facilities acquired from the Developer hereunder, the Developer's non-payment under contracts between the Developer and its consultants, engineer's, advisors, contractors, subcontractors and suppliers in the provision of the Facilities, or any claims of persons employed by the Developer or its agents to construct the Facilities. Notwithstanding the foregoing, no indemnification is given hereunder for any action, damage, claim, loss or expense directly attributable to the intentional acts or negligence of the Authority, the CFD or the City, or their respective Boardmembers, Councilmembers, officers, officials, directors, employees or agents hereunder. No provision of this Acquisition Agreement shall in any way limit the Developer's responsibility for payment of damages resulting from the operations of the Developer, its agents, employees or its contractors. -33- ARTICLE IX TERMINATION Section 9.01. No Bonds. If, for any reason, the Authority does not issue the Series 2006-A Bonds for the CFD by December 31, 2006, this Acquisition Agreement shall terminate and be null and void and of no further effect. Section 9.02. Mutual Consent. This Acquisition Agreement may be terminated by the mutual, written consent of the Authority and the Developer, in which event the Authority may let contracts for any remaining work related to the Facilities not theretofore acquired from the Developer hereunder, and use all or any portion of the monies in the Improvement Fund to pay for same, and the Developer shall have no claim or right to any further payments for the Purchase Price of Facilities or Discrete Components hereunder, except as otherwise may be provided in such written consent. Section 9.03. Authority Election for Cause. The following events shall constitute grounds for the Authority, at its option, to terminate this Acquisition Agreement, without the consent of the Developer: (a) The Developer shall voluntarily file for reorganization or other relief under any Federal or State bankruptcy or insolvency law. (b) The Developer shall have any involuntary bankruptcy or insolvency action filed against it, or shall suffer a trustee in bankruptcy or insolvency or receiver to take possession of the assets of Developer, or shall suffer an attachment or levy of execution to be made against the property it owns within the CFD unless, in any of such cases, such circumstance shall have been terminated or released within thirty (30) days thereafter. (c) The Developer shall abandon construction of the Facilities listed in Exhibit B. Failure for a period of ninety (90) consecutive days to undertake substantial work related to the construction of the Facilities listed in Exhibit B, other than for a reason specified in Section 9.04 hereof, shall constitute a noninclusive example of such abandonment. (d) The Developer shall breach any material covenant or default in the performance of any material obligation hereunder. (e) The Developer shall transfer any of its rights or obligations under this Acquisition Agreement without the prior written consent of the Authority. (f) The Developer shall have made any material misrepresentation or omission in any written materials furnished in connection with any preliminary official statement, official statement or bond purchase contract used in connection with the sale of the Bonds. (g) The Developer or any of its Affiliates shall at any time challenge the validity of the CFD, or any of the Bonds, or the levy of special taxes within the CFD, other than on the grounds that such levy was not made in accordance with the terms of the Rate and Method of Apportionment of the Special Taxes for the CFD. -34- (h) The Developer elects to perform or have its agent perform work under the provisions of Section 4.03C., but fails to continue the work with diligence to completion, as described in the second paragraph of Section 4.03C. If any such event occurs, the Authority shall give written notice of its knowledge thereof to the Developer, and the Developer agrees to meet and confer with the Director of Public Works and other appropriate City staff and consultants within ten (10) days of receipt of such notice as to options available to assure timely completion of the Facilities listed in Exhibit B. Such options may include, but not be limited to the termination of this Acquisition Agreement by the Authority. If the Authority elects to terminate this Acquisition Agreement, the Authority shall first notify the Developer (and any mortgagee or trust deed beneficiary specified in writing by the Developer to the Authority to receive such notice) of the grounds for such termination and allow the Developer a minimum of thirty (30) days to eliminate or mitigate to the satisfaction of the Director of Public Works the grounds for such termination. Such period may be extended, at the sole discretion of the Authority, if the Developer, to the satisfaction of the Authority, is proceeding with diligence to eliminate or mitigate such grounds for termination. If at the end of such period (and any extension thereof), as determined solely by the Authority, the Developer has not eliminated or completely mitigated such grounds, to the satisfaction of the Authority, the Authority may then terminate this Acquisition Agreement. Notwithstanding the foregoing, so long as any event listed in any of clauses (a) through and including (h) above has occurred, notice of which has been given by the Authority to the Developer, and such event has not been cured or otherwise eliminated by the Developer, the Authority may in its discretion cease making payments for the Purchase Price of Facilities or Discrete Components under Article V hereof. Section 9.04. Force Majeure. Whenever performance is required of a party hereunder, that party shall use all due diligence and take all necessary measures in good faith to perform, but if completion of performance is delayed by reasons of floods, earthquakes or other acts of God, war, terrorist attacks, civil commotion, riots, strikes, picketing, or other labor disputes, damage to work in progress by casualty, or by other cause beyond the reasonable control of the party (financial inability excepted), then the specified time for performance shall be extended by the amount of the delay actually so caused. -35- ARTICLE X MISCELLANEOUS Section 10.01. Limited Liability of Authority. The Developer agrees that any and all obligations of the Authority arising out of or related to this Acquisition Agreement are special and limited obligations of the Authority and the Authority's obligations to make any payments hereunder are restricted entirely to the moneys, if any, in the Improvement Fund and from no other source. No member of the Authority's Board of Directors, or Authority staff member, employee or agent shall incur any liability hereunder to the Developer or any other party in their individual capacities by reason of their actions hereunder or execution hereof. Section 10.02. Excess Costs. The Developer agrees to pay all costs of the Facilities that it is obligated to construct pursuant to Section 4.02 in excess of the moneys available therefor in the Improvement Fund. Section 10.03. Audit. The Director of Public Works and/or the City's Director of Finance shall have the right, during normal business hours and upon upon the giving of two (2) business days prior written notice to the Developer, to review all books and records of the Developer pertaining to costs and expenses incurred by the Developer in to any of the Facilities, and any bids taken or received for the construction thereof or materials therefor. Section 10.04. Attorney's Fees. In the event that any action or suit is instituted by either party against the other arising out of this Acquisition Agreement, the party in whose favor final judgment shall be entered shall be entitled to recover from the other party all costs and expenses of suit, including reasonable attorneys' fees. Section 10.05. Notices. Any notice, payment or instrument required or permitted by this Acquisition Agreement to be given or delivered to either party shall be deemed to have been received when personally delivered, or transmitted by telecopy or facsimile transmission (which shall be immediately confirmed by telephone and shall be followed by mailing an original of the same within twenty-four hours after such transmission), or seventy-two hours following deposit of the same in any United States Post Office, registered or certified mail, postage prepaid, addressed as follows: Authority or CFD: Temecula Public Financing Authority 43200 Business Park Drive Temecula, California 92590 Attention: Director of Public Works Developer: Ashby USA, LLC 470 E. Harrison Street Corona, California 92879-1314 Each party may change its address or addresses for delivery of notice by delivering written notice of such change of address to the other party. Section 10.06. Severability. If any part of this Acquisition Agreement is held to be illegal or unenforceable by a court of competent jurisdiction, the remainder of this Acquisition Agreement shall be given effect to the fullest extent possible. -36- Section 10.07. Successors and Assigns. This Acquisition Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. This Acquisition Agreement shall not be assigned by the Developer, except in whole to an Affiliate, without the prior written consent of the Authority, which consent shall not be unreasonably withheld or delayed. In connection with any such consent of the Authority, the Authority may condition its consent upon the acceptability of the relevant experience and financial condition of the proposed assignee, the assignee's express assumption of all obligations of the Developer hereunder, and/or upon any other factor which the Authority deems relevant in the circumstances. In any event, any such assignment shall be in writing, shall clearly identify the scope of the rights and/or obligations assigned, and shall not be effective until approved in writing by the Authority. Any assignment consented to by the Authority shall release the Developer from its obligations and liabilities under this Acquisition Agreement to the extent so assigned. Notwithstanding the foregoing, the Developer may assign its rights to payment hereunder, without the prior consent of the Authority, to any financial institution providing financing to the Developer or an Affiliate of the Developer. Section 10.08. Other Agreements. The obligations of the Developer hereunder shall be those of a party hereto and not as an owner of property in the CFD. Nothing herein shall be construed as affecting the Authority's or the Developer's rights, or duties to perform their respective obligations, under other agreements, use regulations or subdivision requirements relating to the development of the lands in the CFD. This Acquisition Agreement shall not confer any additional rights, or waive any rights given, by either party hereto under any development or other agreement to which they are a party. Section 10.09. Waiver. Failure by a party to insist upon the strict performance of any of the provisions of this Acquisition Agreement by the other party, or the failure by a party to exercise its rights upon the default of the other party, shall not constitute a waiver of such party's right to insist and demand strict compliance by the other party with the terms of this Acquisition Agreement thereafter. Section 10.10. Merger. No other agreement, statement or promise made by any party or any employee, officer or agent of any party with respect to any matters covered hereby that is not in writing and signed by all the parties to this Acquisition Agreement shall be binding. Section 10.11. Parties in Interest. Nothing in this Acquisition Agreement, expressed or implied, is intended to or shall be construed to confer upon or to give to any person or entity other than the Authority, the City, and the Developer any rights, remedies or claims under or by reason of this Acquisition Agreement or any covenants, conditions or stipulations hereof; and all covenants, conditions, promises, and agreements in this Acquisition Agreement contained by or on behalf of the Authority or the Developer shall be for the sole and exclusive benefit of the Authority, the City, and the Developer. The City is an intended third party beneficiary of this Agreement. Section 10.12. Amendment. This Acquisition Agreement may be amended, from time to time, by written Supplement hereto and executed by both the Authority and the Developer. Section 10.13. Counterparts. This Acquisition Agreement may be executed in counterparts, each of which shall be deemed an original. -37- Section 10.14. Governing Law. The provisions of this Acquisition Agreement shall be governed by the laws of the State of California applicable to contracts made and performed in such State. -38- IN WITNESS WHEREOF, the parties have executed this Acquisition Agreement as of the day and year first-above written. TEMECULA PUBLIC FINANCING AUTHORITY, for and on behalf of the TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 03-02 (RORIPAUGH RANCH) By:_ Executive Director ASHBY USA, LLC By: Ashby Development Company, Inc., a California corporation, Managing Member By: Justin K. Ashby, President By: USA Investment Partners, LLC, a Nevada limited liability company, its Member By: Joseph D. Milanowski Manager IN WITNESS WHEREOF, the parties have executed this Acquisition Agreement as of the day and year first-above written. TEMECULA PUBLIC FINANCING AUTHORITY, for and on behalf of the TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 03-02 (RORIPAUGH RANCH) By:_ Executive Director ASHBY USA, LLC By: Ashby Development Company, Inc., a California corporation, Managing Member //j-4 /:"" :' /4*~~y 7"'/;' 'y Justin K. Ashby, President By: USA Investment Partffers, LLC_ Nevada'lrmite^. liability com its Member Manager ACQUISITION AGREEMENT EXHIBIT A DESCRIPTION OF FACILITIES ELIGIBLE FOR ACQUISITION FROM THE DEVELOPER 1. Murrieta Hot Springs Road Murrieta Hot Springs Road (MHSR) from the Westerly Boundary Line of Tract 29661 (existing end of pavement) to Butterfield Stage Road: Improvements include grading for full right-of-way with 2:1 slopes, paving, curb and gutter, median curb, sidewalk, street lights, signing and striping, traffic signal(s) landscaping, irrigation, storm drain, concrete slope protection, sewer and water pipelines, and other appurtenant improvements necessary to complete MHSR. 2. Butterfield Stage Road Butterfield Stage Road (BSR) from the Northerly tract boundary to Rancho California Road: Improvements include grading full right-of-way with 2:1 slopes, paving, curb and gutter, median curb, sidewalk, street lights, traffic signal(s), signing and striping, landscaping, irrigation, storm drain, concrete slope protection, bridges over Santa Gertrudis Creek, and Long Valley Channel, sewer and water pipelines, and other appurtenant improvements necessary to complete Butterfield Stage Road. 3. Nicolas Road 3a Nicolas Road BSR to the Easterly Metropolitan Water District (MWD) R/W: Improvements include grading right-of-way with 2:1 slopes, paving, asphalt berms, curb and gutter, sidewalk, asphalt path, split rail fence, street lights, landscaping, irrigation, storm drain, underground sewer and water pipelines, and other appurtenant improvements necessary to complete Nicolas Road. 3b Nicolas Road from the Easterly MWD R/W to Liefer Road including construction of Calle Garisol realignment to Nicolas Road: Improvements include grading partial right-of-way (40' travel way) with 2:1 slopes, paving, asphalt berms, curb and gutter, sidewalk, asphalt path, utility relocations, traffic detour, split rail fence, street lights, signing and striping, landscaping, irrigation, sewer, storm drain, bridge over Santa Gertrudis Creek (including channel lining and transition structure to bridge), access road, exit structure and other appurtenant improvements necessary to complete Nicolas Road. 3c Nicolas Road Sewer Pipeline from Liefer Road to Joseph Road: Improvements include installing a 15" main line sewer including street re-pavement, traffic detour and other appurtenant improvements necessary to complete Nicolas Road Sewer pipeline. Exhibit A Pagel 3d Nicolas Road and North General Kearny Road intersection signalization: Improvements include signalization of intersection, striping, traffic control and other appurtenant improvements necessary to complete the signalization. 3e Nicolas Road and Winchester Road intersection widening and signal modification: Improvements include modifications to existing traffic signal, storm drain, paving, curb and gutter, median curb, bus turn-out, striping, traffic control and other appurtenant improvements necessary to complete the intersection and signal modifications. 4. Calle Chapos Calle Chapos from BSR to Walcott Lane: Improvements include grading half right-of-way width plus twelve feet with 2:1 slopes, paving, AC dike, storm drain and other appurtenant improvements necessary to complete Calle Chapos. 5. Long Valley Channel Long Valley Channel from the Westerly R/W of BSR to the Easterly Project Boundary: Improvements include grading of channel, flow-by detention basin, construction of drop structures, trapezoidal channel lining, transition structures to Butterfield Stage Road Bridge, rip-rap, grading and paving of access roads, fencing, and other appurtenant improvements necessary to complete Long Valley Channel. 6. Santa Gertrudis Creek Santa Gertrudis Creek from the Habitat Area to the exit channel at MWD R/W: Improvements include a flow-by detention basin, headwalls, trapezoidal channel lining and transition structures; grading, fencing and paving for access roads; desilting and detention basins, rip-rap protection, rip-rap dissipaters, berms, grading of exit structure and other appurtenant improvements necessary to complete Santa Gertrudis Creek. 7. Environmental Mitigation Mitigation for the Long Valley Channel and Santa Gertrudis Creek improvements: Creation of 8.2 acres of habitat within open space to include grading, access road, electrical service, irrigation, plant and seed installation and other appurtenant improvements necessary to complete resource agency conditioned environmental mitigation for the Long Valley Channel and Santa Gertrudis Creek improvements. Exhibit A Page 2 8. Sports Park Sports Park at the SE corner of the intersection of North Loop Road and Butterfield Stage Road: Construct 19.7-acre Sports Park including grading, parking, building, lighting landscaping, irrigation, playing fields, basketball courts, children's play area, equipment with a useful life of five (5) years or more and other appurtenant improvements necessary to complete the Sports Park. 9. Fire Station Site Grading Roripaugh Ranch Fire Station site grading Improvements include site grading and other appurtenant improvements necessary to provide a rough graded fire station site. 10. North Loop Road North Loop Road from BSR to Gate House East of BSR (Public Section only): Improvements include grading full right-of-way with 2:1 slopes, paving, curb and gutter, median curb, sidewalk, street lights, signing and striping, landscaping, irrigation, storm drain, sewer and water pipelines, North Loop Road Bridge and other appurtenant improvements necessary to complete the public segment of the North Loop Road East of BSR. 11. South Loop Road South Loop Road from BSR to Gate House East of BSR (Public Section only): Improvements include grading full right-of-way with 2:1 slopes, paving, curb and gutter, median curb, sidewalk, street lights, signing and striping, landscaping, irrigation, storm drain, sewer and water pipelines, and other appurtenant improvements necessary to complete the public segment of the South Loop Road East of BSR. 12. Roripaugh Valley Road (A Street) Roripaugh Valley Road Grading and Street Improvements from Murrieta Hot Springs Road to Butterfield Stage Road: Improvements include grading full right-of-way with 2:1 slopes, paving, curb and gutter, median curb, sidewalk, street lights, signing and striping, landscaping, irrigation, storm drain, sewer and water pipelines, and other appurtenant improvements necessary to complete Roripaugh Valley Road between Murrieta Hot Springs Road and Butterfield Stage Road. Exhibit A Page 3 13. Fiesta Ranch Road (B Street) Fiesta Ranch Road Grading and Street Improvements from Roripaugh Valley Road to Nicolas Road: Improvements include grading full right-of-way with 2:1 slopes, paving, curb and gutter, median curb, sidewalk, street lights, signing and striping, landscaping, irrigation, storm drain, sewer and water pipelines, and other appurtenant improvements necessary to complete Fiesta Ranch Road between Roripaugh Valley Road and Nicolas Road. 14. Neighborhood Park Neighborhood Park at the SW corner of the intersection of Murrieta Hot Springs Road and Roripaugh Valley Road (A Street): Construct 5.1-acre Neighborhood Park including grading, parking, restroom building, lighting, landscaping, irrigation, open grass area, basketball court, children's play area, equipment with a useful life of five (5) years or more and other appurtenant improvements necessary to complete the Neighborhood Park. Exhibit A Page 4 ACQUISITION AGREEMENT EXHIBIT B DISCRETE COMPONENTS OF PHASE 1 FACILITIES AND RELATED BUDGETED COSTS Facility No. Segment Description Discrete Component Discrete Component Budget Segment Budget 1. MURRIETA HOT SPRINGS ROAD la. Murrieta Hot Springs Rd from W. Bndry of Tr 29661 to N. Bndry of Tr 29661 Rough Grading Finish Grading Water Streets $25,610.40 $7,876.45 $84,238.33 $494,128.45 $611,854 Ib. Murrieta Hot Springs Rd from N. Bndry of Tr 29661 to Westside of MWD ROW-2,300' Rough Grading Finish Grading Storm Drain Water Streets Landscape/Irrigation $602,129 $83,817 $284,593 $323,772 $908,729 $115,854 $2,318,893 Ic. Murrieta Hot Springs Rd from Westside of MWD ROW to Butterfield Stage Rd-1,500' Rough Grading Finish Grading Storm Drain Sewer Water Streets Landscape/Irrigation $396,050 $64,973 $423,636 $23,810 $209,522 $931,058 $40,149 $2,089,197 TOTAL FOR MURRIETA HOT SPRINGS ROAD: $5,019,944 Exhibit B Pagel BUTTERFIELD STAGE ROAD 2a. Butterfield Stage Rd from North R.O.W. of Murrieta Hot Springs Rd to North ROW of Nicolas Road-2,300' Rough Grading Finish Grading Storm Drain Water Streets Landscape /Irrigation $1,478,326 $177,095 $879,736 $205,025 $1,127,442 $150,124 $4,017,748 2b. Butterfield Stage Rd from Nicolas Rd. to 550' South of Nicolas Rd-5501 Rough Grading Finish Grading Storm Drain Sewer Water Streets Bridge(Sta. Gertrudis Crossing) Landscape/Irrigation $176,869 $21,744 $510,156 $68,757 $134,109 $242,534 $6,675,0902 $14,955 $7,844,217 2c Butterfield Stage Rd from 550'S/of Nicolas Rd to Sly Bndry Line-1,910' Rough Grading Finish Grading Storm Drain Sewer Water Streets Bridge (Long Valley Crossing) Landscape/Irrigation $950,554 $88,019 $581,815 $176,054 $155,728 $744,143 $1,724,569 $130,371 $4,551,255 2d. ButterfieldStageRdfromS/BndryofTract29 533tol230'N/ofLaSerenaWay-2,110'(50% within County) Rough Grading Finish Grading Storm Drain Water Streets Landscape /Irrigation $760,345 $122,315 $434,265 $0 $1,658,246 $0 $2,975,171 Exhibit B Page 2 2e. Butterfield Stage Rd from 1230'N/of La Serena Way to 700'S/of La Serena Way-1,930' (Westerly 1/2 completed by Shea Homes) Rough Grading $1,016,801 Finish Grading $117,092 Storm Drain $183,351 Water $0 Streets $1,451,391 Landscape/Irrigation $0 $2,768,635 2f. ButterfieldStageRdfrom700'S/ofLaSerenat oCheminClinetl /2Width-2,620' Rough Grading $777,529 Finish Grading $129,000 Storm Drain $160,768 Streets $1,822,880 Landscape/Irrigation $0 $3,051,999 2g. ButterfieldStageRdfromChemintoRancho CaliforniaRoadfromexistingpavingtoeaster lyROW-2600' Rough Grading $167,221 Finish Grading $37,234 Storm Drain $0 Streets $980,200 Landscape/Irrigation $0 $1,184,655 TOTAL FOR BUTTERFIELD STAGE RD: $26,393,674 NICOLAS ROAD 3a. Nicolas Road from Butterfield Stage Road to MWD ROW-1200' Rough Grading $267,136 Finish Grading $32,677 Storm Drain $357,774 Sewer $143,684 Water $62,922 Streets $570,691 Landscape/Irrigation $59,298 $1,494,183 Exhibit B Page 3 3bl. Nicolas Road from MWD ROW to 450' East of Calle Girasol-2,4001 Rough Grading Finish Grading Storm Drain Sewer Streets Landscape/Irrigation $38,431 $71,009 $67,505 $502,112 $446,715 $0 $1,125,772 3b2. Nicolas Road from 450' East of Calle Girasol to E. ROW Liefer Rd-1,1801 Rough Grading Finish Grading Storm Drain Sewer Streets Bridge(Sta. Gertrudis Crossing) Landscape /Irrigation $113,498 $97,193 $0 $145,788 $221,721 $2,854,797 $0 $3,432,998 SUBTOTAL FOR NICOLAS ROAD (new): $6,052,953 3c Nicolas Road Trunk Sewer from 190'E/of Leifer Rd to Joseph Rd-2,770T Sewer Streets $547,757 $0 $547,757 3d Nicolas Road @North General Kearney Signalized Intersection Signalization $219,896 $219,896 3e NicolasRoad@WinchesterRoadIntersectio nWideningandSignalModificati on Intersection Mods $3,259,093 $3,259,093 TOTAL NICOLAS ROAD: $10,079,699 Exhibit B Page 4 CALLE CHAPOS Calle Chapos from Butterfield Stage Rd to Walcott Lane-500' Rough Grading Finish Grading Storm Drain Streets $23,835 $11,940 $98,428 $117,359 TOTAL FOR CALLE CHAPOS: $251,562 LONG VALLEY CHANNEL Long Valley Channel from MWD ROW to Easterly Project Boundary TOTAL FOR LONG VALLEY CHANNEL $7,685,939 SANTA GERTRUDIS CREEK CHANNEL 6a. Santa Gertrudis Creek from Habitat Area to North Loop Road Segment Subtotal $1,736,244 6b. Santa Gertrudis Creek from North Loop Road to MWD Segment Subtotal $1,406,978 TOTAL FOR SANTA GERTRUDIS CREEK: $3,143,222 FIRE STATION SITE GRADING Fire Station Site Grading PA32 TOTAL FOR FIRE STATION GRADING: $144,638.12 12 RORIPAUGH VALLEY ROAD (A Street) Roripaugh Valley RoadGradingandStreet ImprovementsfromMurrieta HotSprings RoadtoButterfieldStageRoad Rough Grading Finish Grading Storm Drain Sewer Water Streets Landscape/Irrigation $707,311 $56,692 $530,129 $69,612 $192,732 $460,665 $22,082 TOTAL FOR RORIPAUGH VALLEY ROAD (A STREET): $2,039,223 Exhibit B Page 5 13 FIESTA RANCH ROAD (B Street) FiestaRanchRoadGradingandStreet ImprovementsfromRoripaughValleyRoad toNicolasRoad Rough Grading $406,555 Finish Grading $38,349 Storm Drain $25,683 Sewer $106,506 Water $156,915 Streets $326,280 Landscape/Irrigation $44,118 TOTAL FOR FIESTA RANCH ROAD (B STREET): $1,104,406 OVERALL TOTAL: $55,862,312 Exhibit B Page 6 ACQUISITION AGREEMENT EXHIBIT C FORM OF PAYMENT REQUEST PAYMENT REQUEST NO. The undersigned (the "Developer"), hereby requests payment in the total amount of $ for the Facilities (as defined in the Acquisition Agreement, dated as of March 1, 2006, between the Temecula Public Financing Authority (the "Authority"), for and on behalf of the Temecula Public Financing Authority Community Facilities District No. 03-02 (Roripaugh Ranch), and the Developer), or Discrete Components thereof (as described in Exhibit B to that Agreement), all as more fully described in Attachment 1 hereto. In connection with this Payment Request, the undersigned hereby represents and warrants to the Authority as follows: 1. He(she) is a duly authorized officer of the Developer, qualified to execute this Payment Request for payment on behalf of the Developer and is knowledgeable as to the matters set forth herein. 2. To the extent that this payment request is with respect to a completed Facility, the Developer has submitted or submits herewith to the City of Temecula (the "City") asbuilt drawings or similar plans and specifications for the items to be paid for as listed in Attachment 1 hereto with respect to any such completed Facility, and such drawings or plans and specifications, as applicable, are true, correct and complete. To the extent that this payment request is for a Discrete Component, the Developer has in its construction office a marked set of drawings or similar plans and specifications for the Discrete Components to be acquired as listed in Attachment 1 hereto, which drawings or plans and specifications, as applicable, are current and show all changes or modifications which have been made to date. 3. All costs of the Facilities or Discrete Components thereof for which payment is requested hereby are Actual Costs (as defined in the Agreement referenced above) and have not been inflated in any respect. The items for which payment is requested have not been the subject of any prior payment request submitted to the Authority. 4. 4. Supporting documentation (such as third party invoices) is attached with respect to each cost for which payment is requested. 5. There has been compliance with applicable laws relating to prevailing wages for the work to construct the Facilities or Discrete Components thereof for which payment is requested. 6. The Facilities or Discrete Components thereof for which payment is requested were constructed in accordance with all applicable City or other governmental standards, and in accordance with the as-built drawings or plans and specifications, as applicable, referenced in paragraph 2 above. 7. The Developer is in compliance with the terms and provisions of the Acquisition Agreement and no portion of the amount being requested to be paid was previously paid. Exhibit C Page 1 8. The Purchase Price for each Facility or Discrete Component (a detailed calculation of which is shown in an Attachment 2 hereto for each such Facility or Discrete Component), has been calculated in conformance with the terms of Section 5.06 of the Acquisition Agreement. 9. Neither the Developer nor any Affiliate (as defined in the Acquisition Agreement) is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the CFD (as defined in the Acquisition Agreement), except as follows: . I hereby declare under penalty of perjury that the above representations and warranties are true and correct. DEVELOPER: ASHBY USA, LLC By: Authorized Representative of the Developer Date: AUTHORITY: Payment Request Approved for Submission to the Director of Finance of the City of Temecula By: Director of Public Works Date: Exhibit C Page 2 ATTACHMENT 1 EXHIBIT C [list here all Facilities or Discrete Components thereof for which payment is requested, and attach support documentation] Exhibit C-l Page 3 ATTACHMENT 2 EXHIBIT C CALCULATION OF PURCHASE PRICE [Use a separate sheet for each Facility or Discrete Component for which payment is being requested] 1. Description (by reference to Exhibit B to the Acquisition Agreement) of the Facility or Discrete Component 2. Actual Cost (list here total of supporting invoices and/or other documentation supporting determination of Actual Cost): 3. Budgeted Cost: 4. Permitted Addition to Budgeted Cost (to the extent, and only to the extent, that Actual Cost exceeds Budgeted Cost), consisting of Savings (Actual Costs less than Budgeted Cost) carried forward from prior acquired Facilities/Discrete Components (see first paragraph of Section 5.06A) and not previously applied to cover cost overruns (Actual Costs greater than Budgeted Cost) on previously acquired Facilities: 5. Subtractions from Purchase Price: A. Holdback for Lien releases (see Section 5.06(C) of the Acquisition Agreement) B. Retention (see Section 5.06(D) of the Acquisition Agreement) 6. Total disbursement disbursement requested (amount listed in 3, plus amount, if any, listed in 4 (total of amounts in 3 and 4 not to exceed amount listed in 2), less amounts, if any, listed in 5) Exhibit C-2 Page 4 ACQUISITION AGREEMENT EXHIBIT D PRIORITY FOR FUNDING OF FACILITIES Priority A -funded by proceeds of first series of bonds issued by the CFD Priority B -Bond funding only available after all priority A facilities complete Facility No. Description 1. MURRIETA HOT SPRINGS ROAD 2 BUTTERFIELD STAGE ROAD 3 NICOLAS ROAD 4 CALLE CHAPOS 5 LONG VALLEY CHANNEL 6 SANTA GERTRUDIS CREEK CHANNEL 7 ENVIRONMENTAL MITIGATION 8 COMMUNITY SPORTS PARK 9 FIRE STATION SITE GRADING 10 NORTH LOOP ROAD 11 SOUTH LOOP ROAD 12 RORIPAUGH VALLEY ROAD (A Street) 13 FIESTA RANCH ROAD ( B Street ) 14 NEIGHBORHOOD PARK Priority AABBAABBABBBBB A -Budget $5,019,944 $26,393,679 $0 $0 $7,685,939 $3,143,222 $0 $0 $144,638 $0 $0 $0 $0 $0 B -Budget $0 $0 $10,079,699 $251,562 $0 $0 $1,030,706 $5,645,611 $0 $2,223,285 960,449 2,039,223 $1,104,406 $1,516,655 OVERALL TOTAL: $67,239,018 $42,387,422 $24,851,596 Exhibit D Page 1 IRREVOCABLE INSTRUCTIONS To: City of Temecula Temecula City Hill 43200 Business Park Drive Temecula, CA 92589-9033 Attn: Genie Roberts, Director of Finance Temecula Public Financing Authority Temecula City Hall 43200 Business Park Drive Temecula CA 92589-9033 Attn: Genie Roberts, Director of Finance Pursuant to Section 5.06 (B) of the Acquisition Agreement, the undersigned, Ashby USA, LLC, a California limited liability company, hereby irrevocably instructs the City of Temecula (the "City") and the Temecula Public Financing Authority, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority") to direct the Fiscal Agent to pay from the proceeds of the Bonds all funds payable to the undersigned pursuant to a "Payment Request" made by the undersigned under the certain Acquisition Agreement between the Authority and the undersigned dated as of March 1, 2006 (referred to as the "Assigned Funds") directly to Ohio Savings Bank, a federal savings bank in accordance with the wire transfer instructions attached. These instructions are irrevocable unless revocation or amendment is consented to by Ohio Savings Bank until such time as Ohio Savings Bank has released the undersigned from its obligations under the certain Assignment and Agreement (Roripaugh Ranch) dated as of April 20, 2006 (the "Assignment Agreement"). In addition, pursuant to the First Operating Memorandum, Ashby USA, LLC, a California limited liability company, hereby irrevocably instructs the City and the Authority to direct the Fiscal Agent to pay from the proceeds of the Bonds any reimbursements for the Fire Station Advances payable to the undersigned pursuant to the First Operating Memorandum directly to Ohio Savings Bank, a federal savings bank in accordance with the wire transfer instructions attached. These instructions are irrevocable unless revocation or amendment is consented to by Ohio Savings Bank until such time as Ohio Savings Bank has released the undersigned from its obligations under the certain Assignment Agreement. You are further instructed and authorized to accept all instructions of Ohio Savings Bank with respect to the Assigned Funds without further authorization or consent of the undersigned, and regardless of any contrary or conflicting instructions you may at any time receive from the undersigned. 534858.4 17810-977 All capitalized terms used herein shall have the meanings given to such terms in the Assignment Agreement. Dated: April ,2006 ASHBY USA, LLC, a California limited liability company By: Ashby Development Company, Inc., a California-corporation, its Magging Member ,-f iJustin K. Ashby President By: USA Investment Partners, LLG, ) a Nevada limited liability company^ its Member •h*b. Milano Manager 534858.4 17810-977 The undersigned hereby acknowledge receipt of these Irrevocable Instructions. Dated: ,2006 CITY OF By: Dated: _, 2006 City Manager TEMECULA PUBLIC FINANCING AUTHORITY By: Executive Director 534858.3 17810-977 OHIO SAVINGS BANK WIRING INSTRUCTIONS OHIO SAVINGS BANK 1801 EAST NINTH STREET CLEVELAND, OHIO 44114 ABA NUMBER: 241070433 DEPOSIT TO ACCT: 146410 ATTN: Construction Lending 480-945-8333 x!7 REF: AshbyUSA, LLC #6035-343938 534858.4 17810-977