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Limitations on Remedies Available to Bondowners The rights and obligations under the Bonds and the hidenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. Diversion of Gas Tax Revenues Section 6 of Article XIX of the California Constitution permits the State to loan to the State General Fund the revenues derived from taxes imposed on gasoline and diesel fuels within the State (collectively, the "Gas Tax Revenues") if (a) any amount loaned is to be repaid in full during the same fiscal year in which the loan was made, except that repayment may be delayed until a date not more than 30 days after the date of enactment of the State budget bill for the subsequent fiscal year, or (b) any amount loaned is to be repaid in full within three fiscal years from the date on which the loan was made and one of the following has occurred: (1) the Governor has proclaimed a state of emergency and declares that the emergency will result in a significant negative fiscal impact to the State General Fund, or (2) the aggregate amount of State General Fund revenues for the current fiscal year, as projected by the Governor in a report to the State Legislature in May of the current fiscal year, is less than the aggregate amount of State General Fund revenues for the previous fiscal year, adjusted for the change in the cost of living and the change in population, as specified in the budget submitted by the Governor in the current fiscal year. A loan made to the General Fund as described in this paragraph could have an adverse impact on the amount or availability of Gas Tax Revenues. While the State has, in the past, loaned Gas Tax Revenues to the State General Fund, such amounts have been loaned from the State portion of such Gas Tax Revenues, and not from amounts paid to local governments, and the City has received its full payment of applicable Gas Tax Revenues in each of the last 20 years. Notwithstanding the foregoing, on February 16, 2008, then Governor Arnold Schwarzenegger signed a six -bill budget package designed to reduce expenses in the State's fiscal year 2007-08. One of the bills enacted into law was Assembly Bill No. 7 ("ABX3 7"), which provided, as it pertained to local agencies, that gas tax revenues collected during the months of March, April, May, June, and July of 2008, and otherwise transferrable to local agencies pursuant to Section 2104, Section 2105, Section 2106, and Section 2107, would be suspended and would instead be transferred to respective local agencies along with the August 2008 Gas Tax Revenues in September 2008. ABX3 7 also permitted each of the local agencies, for cash management purposes during this five -month suspension period, to use any cash received pursuant to Proposition 1B (the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006 (Chapter 12.49 of Division 1 of Title 2 of the California Government Code)) for the same purposes for which the gas tax revenues are authorized under Article XIX of the California Constitution; provided that such cash is replaced after the suspended Gas Tax Revenues were received by the local agency in September 2008. funds. There is no guarantee that during the life of the Bonds the State will not enact another bill diverting such 5515 102