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2010-02 Refinance Hall Property BondsATTACHMENT 1 RESOLUTION NO. 2010-02 RESOLUTION OF THE BOARD OF DIRECTORS OF THE ENCINITAS PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCE OF ITS REFUNDING REVENUE BONDS IN THE AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $20,000,000 IN CONNECTION WITH THE REFINANCING OF THE ACQUISITION OF LAND FOR PUBLIC PARKS, AUTHORIZING AND DIRECTING EXECUTION OF AN INDENTURE OF TRUST AND AN AMENDED AND RESTATED LEASE AGREEMENT, ESCROW DEPOSIT AND TRUST AGREEMENT AUTHORIZING THE SALE OF THE BONDS AND AN OFFICIAL STATEMENT AND AUTHORIZING OFFICIAL ACTIONS AND EXECUTION OF RELATED DOCUMENTS WHEREAS, the Encinitas Public Financing Authority (the "Authority") is a Joi Exercise of Powers Agreement (the "Agreement) between the City of Encinitas (the "City") E the San Dieguito Water District, and is authorized under said Agreement and under the laws the State of California to finance the acquisition and construction of public capital improveme for the City; and WHEREAS, the City has requested the Authority to issue its bonds for purpose of providing funds to enable the City to refinance the acquisition of land to be used asl a public park (the "2001 Project"); and WHEREAS, the Authority has previously issued its 2001 Lease Revenue Series A (Acquisition Project) (the "2001 Bonds") in an original principal amount $22,645,000; and WHEREAS, the 2001 Bonds were issued for the purpose of providing funds enable the City to acquire 2001 Project and the 2001 Bonds are payable from lease payments ATTACHMENT 1 be paid to the Authority by the City pursuant to a Lease Agreement between the City and the Authority dated April 1, 2001 (the "2001 Lease Agreement"); and WHEREAS, to defease and redeem the 2001 Bonds, if financially feasible, the Authority proposes to issue its revenue bonds (the "Bonds") in an aggregate principal amount of not to exceed $20,000,000 under the provisions of Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act"), which are proposed to be payable from the revenues to be derived by the Authority from lease payments to be made by the City for the lease of certain facilities pursuant to an Amended and Restated Lease Agreement relating to refinancing of the 2001 Project (the "Lease Agreement"); and WHEREAS, if financially feasible to do so, a portion of the proceeds of the Bonds will be deposited in an escrow established under an Escrow Deposit and Trust Agreement, and used to prepay the lease payments to be made under the 2001 Lease Agreement and defease and redeem the 2001 Bonds; and WHEREAS, the Authority has determined that the 2010 Bonds should be initially offered for sale on a competitive basis and there has been presented to the Authority a form of notice of sale to be used in connection with the sale thereof, and WHEREAS, in order to maintain the maximum flexibility in the sale of the Bonds during the current fluctuating conditions in the municipal bond market, the Authority has further determined to authorize, as an alternative to offering the Bonds for sale on a competitive basis, that the Bonds be offered for sale on a negotiated basis if the Authority is unable, as a result of such market conditions, to sell the 2010 Bonds on a competitive basis on terms that are in the best financial interests of the Authority; and 2 ATTACHMENT 1 WHEREAS, the Board of the Authority (the "Board") has duly considered such transactions and has determined that it approves said transactions in the public interests of the City and the Authority; THEREFORE, BE IT RESOLVED by the Board of the Encinitas Public Financing Authority adopt as follows: Section 1. Findings and Determinations. (a) Pursuant to the Act, the Board hereby finds and determines that the issuance of the Bonds will result in savings in effective interest rates, bond underwriting costs and bond issuance costs and thereby result in significant public benefits within the contemplation of Section 6586 of the Act. (b) The Board finds and determines that the above recitals are true and correct and that the fair rental value of 2001 Project exceeds the present value of Lease Payments to be made under the Lease Agreement. Section 2. Issuance of Bonds. The Board hereby authorizes the issuance of the 2010 Bonds for the purpose of refinancing the 2001 Bonds under and pursuant to the Act, in the maximum aggregate principal amount not to exceed $20,000,000. Section 3. Approval of Financing Documents. The Board hereby approves each of the following documents in substantially the respective forms on file with the Secretary, together with such additions thereto and changes therein as Bond Counsel shall deem necessary, desirable or appropriate, the execution of which by the Chairperson, the Vice-Chairperson, the Executive Director, or the City Finance Director shall be conclusive evidence of the approval of any such additions and changes: 3 ATTACHMENT 1 (1) the Amended and Restated Lease Agreement (Attachment 2) relating to the lease of the 2001 Project by the City from the Authority for the purpose of refinancing the existing 2001 Lease Agreement; and (2) the Escrow Deposit and Trust Agreement (Attachment 3) by and among the City, the Authority and Union Bank, N.A. (3) the Indenture of Trust (Attachment 4) relating to the issuance of the Bonds and to the 2001 Project, by and between Union Bank, N.A. (the "Trustee") and the Authority; The Chairperson, the Vice-Chairperson, the Executive Director, or the City Finance Director are hereby authorized and directed to execute, and the Secretary is hereby authorized and directed to attest and affix the seal of the Authority to, the final form of each of the foregoing documents and agreements for and in the name and on behalf of the Authority. The Board hereby authorizes the delivery and performance of each of the foregoing documents and agreements. Section 4. Official Notice of Sale. The form of Official Notice of Sale (Attachment 6) as presented to this meeting is hereby approved and the Executive Director, or his designee, is hereby authorized and directed to execute the same in substantially the form presented to this meeting, with such changes therein as he may approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 5. Award of Sale of Bonds; Final Terms of Bonds. The Authority hereby authorizes the sale of the Bonds at competitive or negotiated sale pursuant to and consistent with the terms and conditions of this resolution. In the case of a competitive bid, the terms of the 4 ATTACHMENT I Bonds are hereby established as follows: (i) the final principal amount of the Bonds shall not exceed $20,000,000 in the aggregate; and (ii) the Executive Director, or his designee, is hereby authorized and directed to award the sale of the Bonds to the bidder with the lowest true interest cost, provided that such interest costs shall result in a net present value savings of debt service on the 2001 Bonds of at least 5.00%. Following publication of the Notice of Intention to Sell Securities (Attachment 7) and the distribution of the Official Notice of Sale as provided for in Section 6 below and the receipt of competitive bids for the sale of the Bonds, the Executive Director, or his designee, may accept or reject all or any of the bids received on the Bonds. In any event, if the Executive Director, in consultation with the Authority's Financial Advisor, determines that a competitive sale of the bonds would not be likely to produce the best financial result for the Authority, the Executive Director is hereby authorized to negotiate the sale of the Bonds with one or more underwriters (the "Underwriter") and execute and deliver the Purchase Contract pursuant to Section 7 hereof. Section 6. Publication of Notice. The Secretary in cooperation with the City Clerk of the City and Bond Counsel is hereby authorized and directed to publish a Notice of Intention to Sell Securities in The Bond Buyer at least 5 days prior to the date bids are to be received. The Secretary, in cooperation with the Financial Advisor, shall cause the Official Notice Inviting Bids to be circulated among prospective bidders. Section 7. Purchase Contract. The Form of Purchase Contract (Attachment 8) as presented to this meeting, among the City, the Authority and the proposed Underwriter and the-sale of the Bonds pursuant thereto upon the terms and conditions set forth therein in the event of a negotiated sale is hereby approved. Subject to such approval and subject to the provisions of 5 ATTACHMENT 1 Section 8 hereof, in the event of a negotiated sale of the Bonds, the Executive Director or his designee is hereby authorized and directed to evidence the Authority's acceptance of the offer made by the Purchase Contract by executing and delivering the Purchase Contract in substantially the form presented to this meeting with such changes therein as the officer executing the same may approve and such matters are as authorized by Section 8 hereof, such approval to be conclusively evidenced by the execution and delivery thereof. Section 8. Executive Director Authorized to Establish Final Terms of Negotiated Sale of 2010 Bonds. In the event of a negotiated sale of the Bonds, the Executive Director, or his designee based on such advice of Authority staff and the Authority's financial consultant as said officer may deem necessary, is hereby authorized and directed to act on behalf of the Authority to establish and determine (i) the final principal amount of the various maturities of the Bonds, which amount shall not exceed $20,000,000; (ii) the final interest rates on various maturities of the Bonds shall result in a net present value savings of debt service from the 2001 Bonds of at least 5.00%. Section 9. Official Statement; Continuing Disclosure. The Board hereby approves the preparation of, and hereby authorizes the Executive Director to deem final within the meaning of Rule 15c2-12 of the Securities and Exchange Commission except fbr permitted omissions, a preliminary, form of Official Statement (Attachment 5)of the Bonds. The Executive Director or the City Finance Director is hereby authorized to execute the final Official Statement in the name and on behalf of the Authority, including any modifications resulting from additions thereto and changes therein as Bond Counsel shall deem necessary, desirable or appropriate, with the execution of the final Official Statement by the Chairperson to be conclusive evidence of the approval of any such additions and changes. The Executive Director or City Finance Director is 6 further authorized to sign on behalf of the Authority a continuing disclosure certificate with respect to the financing, in such form as may be approved by Bond Counsel. Section 10. Official Actions. The Chairperson, the Vice-Chairperson, the Executive Director, the City Finance Director, the Secretary and any and all other officers of the Authority are hereby authorized and directed, for and in the name and on behalf of the Authority, to do any and all things and take any and all actions, including obtaining a rating on the Bonds and/or a municipal bond insurance policy and a debt service reserve fund surety bond, and including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they, or any of them, may deem necessary or advisable in connection with the issuance and sale of the Bonds. Section 11. Effective Date. This Resolution shall take effect from and after the date of its passage and adoption. ADOPTED this 12th day of May, 2010. AYES: Barth, Bond, Dalager, Houlihan, Stocks. NAYS: None. ABSENT: None. ABSTAIN: None. Dan Dalager, Mayor ATTEST: \ f Deborah Cervone, Secretary Encinitas Public Financing 8 CERTIFICATION I, Deborah Cervone, Secretary of the Encinitas Public Financing Authority, do hereby certify that the foregoing resolution was adopted by the Board of Directors of the Encinitas Public Financing Authority at a regular meeting thereof held on the 12th day of May, 2010, by the following vote of the Public Financing Authority: AYES: Barth, Bond, Dalager, Houlihan, Stocks. NAYS: None. ABSENT: None. ABSTAIN: None. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the Encinitas Public Financing Authority this 12th day of May, 2010. Deborah Cervone, Secretary of the Encinitas Public Financing Authority (SEAL) ATTACHMENT 2 AMENDED AND RESTATED LEASE AGREEMENT Dated as of 2010 by and between the ENCINITAS PUBLIC FINANCING AUTHORITY, aslessor and the CITY OF ENCINITAS, aslessee Relating to Encinitas Public Financing Authority 2010 Lease Revenue Refunding Bonds Series A (Park Project) ATTACHMENT 2 LEASE AGREEMENT THIS AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement"), dated as of , 2010, is by and between the ENCINITAS PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California, as lessor (the "Authority"), and the CITY OF ENCINITAS, a municipal corporation organized and existing under the laws of the State of California, as lessee (the "City"); WITNESSETH: WHEREAS, the Authority is a joint powers authority duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement dated as of November 6, 1991, executed by and among the City, Cardiff Sanitation District, Encinitas Fire Protection District, Encinitas Sanitary District, and San Dieguito Water District; and WHEREAS, under Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the "Bond Law") the Authority is authorized to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations of, or for the purpose of making loans to, public entities including the City, and to provide financing for public capital improvements of public entities including the City and to lease and lease back such public capital improvements including the land on which the public capital improvements are or will be located; and WHEREAS, for the purpose of providing moneys to acquire or construct capital projects of the City, the Authority issued its $22,645,000 aggregate principal amount 2001 Lease Revenue Bonds, Series A (the "2001 Bonds") under that certain Indenture of Trust dated as of April 1, 2001 (the "2001 Indenture") by and between the Authority and Union Bank, N.A., as trustee; and WHEREAS, the City secured the 2001 Bonds with the lease payments pursuant to a Lease Agreement dated as of April 1, 2001 (the "2001 Lease") and in which the City leased certain sites owned by the City (the "Leased Premises") pursuant to the laws of the State of California to enter into leasehold agreements for such purpose; and WHEREAS, the Leased Premises constitute a public capital improvement, as that term is defined in the Bond law; and WHEREAS, the City wishes to refinance its obligations under the 2001 Lease in order to achieve an interest cost savings; and WHEREAS, the Authority and the City purpose to lease and lease back the Leased Premises as provided in this Lease Agreement, such lease back to the City being for the purpose (among others) of providing amounts sufficient to provide for the payment of the principal of and interest on the Bonds (as defined herein); and 1 ATTACHMENT 2 WHEREAS, all conditions to the execution and delivery of this Lease Agreement have been satisfied and the Authority and the City are duly authorized to execute and deliver this Lease Agreement; NOW, THEREFORE, for and in consideration of the premises and the material covenants hereinafter contained, the parties hereto hereby formally covenant, agree and bind themselves as follows: ARTICLE I DEFINITIONS AND EXHIBITS SECTION 1.01 Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms in this Lease Agreement shall have the respective meanings specified in Section 1.01 of the Indenture. In addition, the following terms heretofore defined in this Lease Agreement and the following terms defined in this Section 1.01 shall, for all purposes of this Lease Agreement, have the respective meanings herein specified. "Event of Default" means any of the events of default defined as such in Section 9.01. "Facilities" means all of the buildings, improvements and facilities at any time situated on the Site and described in any amendment to this Lease Agreement hereto and by this reference incorporated herein. "Fiscal Year" means the twelve-month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve-month period established by the City as its fiscal year pursuant to written notice filed with the Authority and the Trustee. "Hazardous Substance" means any substance, pollutant or contamination included in such (or any similar) term under any federal, state or local statute, law, ordinance, code or regulation now in effect or hereafter enacted or amended. "Indenture" means the Indenture of Trust dated as of , 2010, by and between the Authority and the Trustee, together with any duly authorized and executed amendments thereto. "Lease Payment Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date. "Lease Payments" means the amounts payable by the City pursuant to Section 4.03(a), including any prepayment thereof pursuant hereto and including any amounts payable upon a delinquency in the payment thereof "Leased Premises" means the Site subject to the provisions of Section 4.08, described in Exhibit A attached hereto and by this reference incorporated herein. "Miscellaneous Rent" means the amounts of additional rental which are payable by the City pursuant to Section 4.08. 2 ATTACHMENT 2 "Permitted Encumbrances" means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may permit to remain unpaid pursuant to Article V; (b) this Lease Agreement, the Indenture and any other agreement or other document contemplated hereunder to be recorded against the Leased Premises; (c) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; and (d) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record and which the City certifies in writing will not materially impair the use of the Leased Premises for their intended purposes. "Site" means all of the land described in Exhibit A attached hereto and by this reference incorporated herein. "Term of this Lease Agreement" means the time during which this Lease Agreement is in effect, as provided in Section 4.02. "Trustee" means Union Bank, N.A. or any successor thereto acting as Trustee pursuant to the Indenture. SECTION 1.02 Exhibits. The following exhibits are attached to, and by this reference made a part of, this Lease Agreement. Exhibit A: Description of the Leased Premises. Exhibit B: Schedule of Lease Payments. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES SECTION 2.01 Representations, Covenants and Warranties o the City. The City makes the following covenants, representations and warranties to the Authority as of the date of the execution and delivery of this Lease Agreement: (a) Due Organization and Existence. The City is a municipal corporation duly organized and validly existing under the laws of the State, has full legal right, power and authority under the laws of the State to enter into this Lease Agreement and to carry out and consummate all transactions contemplated hereby and thereby, and by proper action the City has duly authorized the execution and delivery of this Lease Agreement. (b) Due Execution. The representatives of the City executing this Lease Agreement have been fully authorized to execute the same pursuant to a resolution duly adopted by the City Council of the City. (c) Valid, Binding and Enforceable Obligation s. This Lease Agreement has been duly authorized, executed and delivered by the City and constitutes the legal, valid and binding agreement of the City enforceable against the City in accordance with the terms hereof. ATTACHMENT 2 (d) No Conflicts. The execution and delivery of this Lease Agreement, the consummation of the transactions herein contemplated and the fulfillment of or compliance with the terms and conditions hereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the City is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the City, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Lease Agreement or the financial condition, assets, properties or operations of the City. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the City or of the voters of the City, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Lease Agreement, or the consummation of any transaction herein contemplated, except as have been obtained or made and as are in full force and effect. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending or, to the knowledge of the City after reasonable investigation, threatened against or affecting the City or the assets, properties or operations of the City which, if determined adversely to the City or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of this Lease Agreement, or upon the financial condition, assets, properties or operations of the City, and the City is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Lease Agreement or the financial conditions, assets, properties or operations of the City. (g) Essentiality. The Leased Premises constitutes property that is essential to carrying out the governmental functions of the City. SECTION 2.02 Representations, Covenants and Warranties of Authority. The Authority makes the following covenants, representations and warranties to the City as of the date of the execution and delivery of this Lease Agreement: (a) Due Organization and Existence. The Authority is a joint powers authority duly organized and existing under and by virtue of the laws of the State; has power to enter into this Lease Agreement and the Indenture; is possessed of full power to own and hold, improve and equip real and personal property, and to lease and lease back the same; and has duly authorized the execution and delivery of each of the aforesaid 4 ATTACHMENT 2 agreements and such agreements constitute the legal, valid and binding agreements of the Authority, enforceable against the Authority in accordance with their respective terms. (b) Due Execution. The representatives of the Authority executing this Lease Agreement and the Indenture are fully authorized to execute the same pursuant to official action taken by the governing body of the Authority. (c) Valid Binding and Enforceable Obligations. This Lease Agreement and the Indenture have been duly authorized, executed and delivered by the Authority and constitute the legal, valid and binding agreements of the Authority, enforceable against the Authority in accordance their respective terms. (d) No Conflicts. The execution and delivery of this Lease Agreement and the Indenture, the consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof and thereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the Authority is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Authority, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Lease Agreement and the Indenture or the financial condition, assets, properties or operations of the Authority. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the Authority, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Lease Agreement or the Indenture, or the consummation of any transaction herein or therein contemplated, except as have been obtained or made and as are in full force and effect. (0 No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending or, to the knowledge of the Authority after reasonable investigation, threatened against or affecting the Authority or the assets, properties or operations of the Authority which, if determined adversely to the Authority or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of this Lease Agreement or the Indenture, or upon the financial condition, assets, properties or operations of the Authority, and the Authority is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Lease Agreement or the Indenture or the financial conditions, assets, properties or operations of the Authority. 5 ATTACHMENT 2 ARTICLE III THE BONDS SECTION 3.01 The Bonds. The Authority has authorized the issuance of the Bonds pursuant to the Indenture in the aggregate principal amount of Dollars The Authority agrees that the proceeds of sale of the Bonds shall be paid to the Trustee on the Closing Date for deposit and application pursuant to the terms and conditions of the Indenture. The City hereby approves the Indenture, the assignment to the Trustee of the rights of the Authority assigned or purported to be assigned thereunder, and the issuance of the Bonds by the Authority thereunder. SECTION 3.02 RefnancinQof Leased Premises. In order to pay the Authority's lease payment for the Leased Premises hereunder, on the Closing Date, the Authority and the City shall execute all documents and take all action as may be required to refinance the Site by depositing sufficient funds with the Escrow Fund established under the Escrow Agreement. SECTION 3.03 Payment of Costs o Issuance. Payment of all Costs of Issuance shall be made from the moneys deposited with the Trustee in the Costs of Issuance Fund, which moneys shall be disbursed for such purpose in accordance with Section 3.03 of the Indenture. Any Costs of Issuance for the payment of which insufficient funds shall be available on deposit in the Costs of Issuance Fund, shall be paid by the City. ARTICLE IV LEASE; TERM OF THIS LEASE AGREEMENT; RENTAL PAYMENTS SECTION 4.01 Lease by Authority and Lease Back to City. (a) In consideration of the payment of $ by the Authority less the Underwriters' Bond discount, original issue discount, the payment of Costs of Issuance, and in consideration of the execution of this Lease Agreement by the City, and other good and valuable consideration, the City hereby leases to the Authority, and the Authority hereby leases from the City, the Leased Premises for the Term of this Lease Agreement, plus one week following the end of the Term of this Lease Agreement. (b) The Authority hereby leases the Leased Premises to the City, and the City hereby leases the Leased Premises from the Authority, upon the terms and conditions set forth in this Lease Agreement. (c) The City hereby takes possession of the Leased Premises on the Closing Date. SECTION 4.02 Term o Lease Agreement. The Term of this Lease Agreement shall commence on , 2010 and shall end on April 1, 2031, unless such term is extended as hereinafter provided or unless Lease Payments have been paid or prepaid in full or provision shall have been made for such payment pursuant to Section 4.03(g) hereof. If on April 1, 2031, the Indenture shall not be discharged by its terms or if the Lease Payments payable hereunder shall have been abated at any time and for any reason, then the Tenn of this Lease Agreement shall be extended until the earlier of April 1, 2041, or the date the Indenture shall be 6 ATTACHMENT 2 discharged by its terms. If prior to April 1, 2031, the Indenture shall be discharged by its terms and any amounts then owed to the Trustee have been paid in full, the Term of this Lease Agreement shall thereupon end. SECTION 4.03 Lease Payments; Security Deposit. (a) Obligation to Pay. In consideration of the lease and lease back by the Authority of the Leased Premises and in consideration of the issuance of the Bonds by the Authority for the purpose of acquiring the Site, and subject to the provisions of Sections 6.01 and 6.03, the City agrees to pay to the Authority, its successors and assigns, as rental for the use and occupancy of the Leased Premises during each Fiscal Year, the Lease Payments (denominated into components of principal and interest) for the Leased Premises in the respective amounts specified in Exhibit B hereto, to be due and payable on the fifteenth day prior to each respective Lease Payment Date specified in Exhibit B hereto. Any amount held in the Bond Fund (but not including any amounts on deposit in the Reserve Account), the Interest Account, the Sinking Account or the Principal Account (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to Section 4.05) on any Lease Payment Date shall be credited towards the Lease Payment then due and payable. The Lease Payments coming due and payable in any Fiscal Year shall be for the use of the Leased Premises for such Fiscal Year. (b) Effect of Prepayment. In the event that the City prepays all Lease Payments in full pursuant to Section 4.05, the City's obligations under this Lease Agreement shall thereupon cease and terminate, including but not limited to the City's obligation to pay Lease Payments under this Section 4.03. In the event that the City prepays the Lease Payments in part but not in whole pursuant to Section 4.05 the Authority shall provide, or cause to be provided, to the Trustee and the City a revised schedule of Lease Payments due after such partial prepayment, which revised schedule of Lease Payments shall be sufficient to provide for the scheduled payment of remaining principal of and interest on the Bonds, and which schedule shall represent an adjustment to the schedule of Lease Payments set forth in Exhibit B hereto after taking into account said partial prepayment. (c) Rate on Overdue Payments. In the event the City should fail to make any of the payments required in this Section 4.03, the payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date of default to the date of payment at the rate per annum equal to the average interest rate on the Bonds. Such interest, if received, shall be deposited in the Bond Fund. (d) Fair Rental Value. The Lease Payments and Miscellaneous Rent coming due and payable hereunder in each Fiscal Year shall constitute the total rental for the Leased Premises for each Fiscal Year and shall be paid by the City in each Fiscal Year for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of, the Leased Premises during each Fiscal Year. The parties hereto have agreed and determined that the total amount of such Lease Payments and 7 ATTACHMENT 2 Miscellaneous Rent for the Leased Premises do not exceed the fair rental value of the Leased Premises. In making such determination, consideration has been given to the obligations of the parties under this Lease Agreement, the uses and purposes which may be served by the Leased Premises and the benefits therefrom which will accrue to the City and the general public. (e) Source of Payments; Budget and Appropriation. The Lease Payments shall be payable from any source of available funds of the City, subject to the provisions of Sections 6.01 and 6.03. The City covenants to take such action as may be necessary to include all Lease Payments and Miscellaneous Rent due hereunder in each of its budgets during the Term of this Lease Agreement and to make the necessary annual appropriations for all such Lease Payments and Miscellaneous Rent. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be ministerial duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City. The City and the Authority understand and intend that the obligation of the City to pay Lease Payments and other payments hereunder constitutes a current expense of the City and shall not in any way be construed to be a debt of the City in contravention of any applicable constitutional or statutory limitation or requirement concerning the creation of indebtedness by the City, nor shall anything contained herein constitute a pledge of the general tax revenues, funds or moneys of the City. Lease Payments due hereunder shall be payable only from current funds which are budgeted and appropriated, or otherwise legally available, for the purpose of paying Lease Payments or other payments due hereunder as consideration for use of the Leased Premises during the Fiscal Year for which such funds were budgeted and appropriated or otherwise made legally available for such purpose. This Lease Agreement shall not create an immediate indebtedness for any aggregate payments which may become due hereunder. The City has not pledged the full faith and credit of the City, the State or any agency or department thereof to the payment of the Lease Payments or any other payments due hereunder, the Bonds or the interest thereon. (f) Assignment. The City understands and agrees that all Lease Payments have been assigned by the Authority to the Trustee in trust, pursuant to the Indenture, for the benefit of the Owners of the Bonds, and the City hereby assents to such assignment. The Authority hereby directs the City, and the City hereby agrees, to pay all of the Lease Payments to the Trustee at its Office. (g) Security Deposit. Notwithstanding any other provision of this Lease Agreement, the City may on any date secure the payment of the Lease Payments in whole or in part by depositing with the Trustee an amount of cash which, together with other available amounts, is either (a) sufficient to pay such Lease Payments, including the principal and interest components thereof, in accordance with the related Lease Payment schedule set forth in Exhibit B, or (b) invested in whole or in part in non-callable Federal Securities in such amount as will, in the opinion of an Independent Accountant, together 8 ATTACHMENT 2 with interest to accrue thereon and together with any cash which is so deposited, be fully sufficient to pay such Lease Payments when due hereunder or on any optional prepayment date pursuant to Section 4.05, as the City shall instruct at the time of said deposit. Said security deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of this Lease Agreement. In connection with the making of any such security deposit, the Authority shall take, and shall cause the Trustee to take, any actions necessary to remove the appropriate portions Leased Premises from the lien of this Lease Agreement. (h) Delinquent Lease Pa moments. Any delinquent Lease Payment shall be made to the Trustee for application as set forth in the Indenture. SECTION 4.04 [Intentionally Reserve. SECTION 4.05 Optional Prepayment. The City shall have the option to prepay the principal components of the Lease Payments in whole, or in part in any integral multiple of $5,000, on any date on or after April 1, , by paying a prepayment price equal to the aggregate principal components of the Lease Payments to be prepaid, together with a prepayment premium equal to the premium (if any) required to be paid on the corresponding redemption of the Bonds pursuant to Section 4.01(b) of the Indenture and together with accrued interest to the prepayment date. Such prepayment price (except the interest portion thereof, which shall be deposited into the Interest Account) shall be deposited by the Trustee in the Redemption Fund to be applied to the redemption of Bonds pursuant to Section 4.01(b) of the Indenture. The City shall give the Trustee written notice of its intention to exercise its option not less than sixty (60) days in advance of the date of exercise. Notwithstanding any such prepayment, as long as any Bonds remain Outstanding or any Miscellaneous Rent payments remain unpaid, the City shall not be relieved of its obligations hereunder as to such Bonds or such Miscellaneous Rent. SECTION 4.06 Quiet Enio ry nent. During the Term of this Lease Agreement, the Authority shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall, during such Term, peaceably and quietly have and hold and enjoy the Leased Premises without suit, trouble or hindrance from the Authority, except as expressly set forth in this Lease Agreement. The Authority will, at the request of the City and at the City's cost, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding the foregoing, the Authority shall have the right to inspect the Leased Premises as provided in Section 7.02. SECTION 4.07 Title. During the Term of the Lease Agreement, the Authority shall hold a leasehold in the Leased Premises, and in any and all additions which comprise fixtures, repairs, replacements or modifications to the Leased Premises, except for those fixtures, repairs, replacements or modifications which are added to the Leased Premises by the City at its own expense and which may be removed without damaging the Leased Premises and except for any items added to the Leased Premises by the City pursuant to this Lease Agreement. All right, title and interest of the Authority in and to the Leased Premises shall be transferred to and vested in the City if (a) the City pays all of the Lease Payments and Miscellaneous Rent during the Term of this Lease Agreement as the same become due and payable, or if the City posts a security deposit for payment of the Lease Payments pursuant to Section 4.03(g) or prepays the 9 ATTACHMENT 2 Lease Payments pursuant to Section 4.05, and (b) if the City has paid in full all of 1 Miscellaneous Rent coming due and payable as of the date of such prepayment; and provided any event that no Event of Default shall have occurred and be continuing. The Authority agre to take any and all steps and execute and record any and all documents reasonably required the City to consummate any such transfer of title. SECTION 4.08 Miscellaneous Rent. In addition to the Lease Payments, the shall pay when due the following items of Miscellaneous Rent: (a) All fees and expenses incurred by the Authority in connection with or by reason of its leasehold estate in the Leased Premises as and when the same become due and payable; (b) All compensation and indemnification to the Trustee pursuant to Section 8.06 of the Indenture for all services rendered under the Indenture and for all reasonable expenses, charges, costs, liabilities, legal fees and other disbursements incurred in arid about the performance of its powers and duties under the Indenture; (c) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under this Lease Agreement or the Indenture; and (d) The reasonable out-of-pocket expenses of the Authority in connecti n with the execution and delivery of this Lease Agreement or the Indenture, or n connection with the issuance of the Bonds, including but not limited to amounts payable pursuant to Section 5.11, and including but not limited to any and all expenses incurred n connection with the authorization, issuance, sale and delivery of the Bonds, or incurred by the Authority in connection with any litigation which may at any time be institut d involving this Lease Agreement, the Bonds, the Indenture or any of the other documents contemplated hereby or thereby, or otherwise incurred in connection with the administration of this Lease Agreement. SECTION 4.09 Substitution or Release of Leased Premises. The City shall have, and is hereby granted, the option at any time and from time to time during the Term of this Lease Agreement, to substitute other land, facilities or improvements (the "Substitute Leased Premises") for the Leased Premises or any portion thereof (the "Former Leased Premises") or to release a portion of the Leased Premises (the "Released Premises") from the lien of this Lea e Agreement, provided that the City shall satisfy all of the following requirements which a e hereby declared to be conditions precedent to such substitution or release: (a) The City shall provide written notification of such substitution or release to the Trustee and Rating Agencies, which notice shall contain the certification that all conditions set forth in this Section 4.09 are met with respect to such substitution or release; (b) The City shall take all actions and shall execute all documents required subject the Substitute Leased Premises to the terms and provisions of this Le, 10 ATTACHMENT 2 Agreement, including the filing with the Authority and the Trustee an amended Exhibit A which adds thereto a description of the Substitute Leased Premises and deletes therefrom the description of the Former Leased Premises or the Released Premises, as applicable; (c) (i) In the case of a substitution, the City shall determine and certify to the Authority and the Trustee that the fair rental value of the Substitute Leased Premises is at least equal to the fair rental value of the Former Leased Premises and that the Substitute Leased Premises is essential to the governmental functions of the City; (ii) In the case of a release, the City shall determine and certify to the Authority and the Trustee that the fair rental value of the remaining Leased Premises after removal of the Released Premises is at least equal to the then remaining Lease Payments; (d) In the case of a substitution, the City shall certify in writing to the Authority and the Trustee that the Substitute Leased Premises serve the public purposes of the City and constitute property which the City is permitted to lease under the laws of the State; (e) In the case of a substitution, the City shall certify in writing to the Authority and the Trustee that the estimated useful life of the Substitute Leased Premises at least extends to the date on which the final Lease Payment becomes due and payable hereunder; (f) In the case of a substitution, the City shall obtain a CLTA policy of title insurance meeting the requirements of Section 5.06 with respect to any real property portion of the Substitute Leased Premises; (g) In the case of a substitution, the substitution of the Substitute Leased Premises shall not cause the City to violate any of its covenants, representations and warranties made herein; and (h) The City shall obtain and cause to be filed with the Trustee and the Authority an opinion of Bond Counsel stating that such substitution or release is permitted hereunder and does not cause interest on the Bonds to become includable in the gross income of the Bond Owners for federal income tax purposes. From and after the date on which all of the foregoing conditions precedent to such substitution or release are satisfied, the Term of this Lease Agreement shall cease with respect to the Former Leased Premises or Released Premises, as applicable, and shall be continued with respect to the Substitute Leased Premises and the remaining Leased Premises and all references herein to the Former Leased Premises shall apply with full force and effect to the Substitute Leased Premises. The City shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution or release. 11 ATTACHMENT 2 ARTICLE V MAINTENANCE; TAXES; INSURANCE; USE LIMITATIONS; AND OTHER MATTERS SECTION 5.01 Maintenance. Utilities, Taxes and Assessments. Throughout the Term of this Lease Agreement, as part of the consideration for the rental of the Leased Premises, all improvement, repair and maintenance of the Leased Premises shall be the responsibility of the City and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Leased Premises which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Lease Payments herein provided, the Authority agrees to provide only the Leased Premises, as hereinbefore more specifically set forth. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver-shall not limit any of the rights of the City under the terms of this Lease Agreement. The City shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the City affecting the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the 'Term of this Lease Agreement as and when the same become due. The City may, at the City's expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the City that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Leased Premises will be materially endangered or the Leased Premises or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority. SECTION 5.02 Modification of Leased Premises. The City shall, at its own expense, have the right to make additions, modifications and improvements to the Leased Premises. All additions, modifications and improvements to the Leased Premises shall thereafter comprise part of the Leased Premises and be subject to the provisions of this Lease Agreement. Such additions, modifications and improvements shall not in any way damage the Leased Premises or cause the Leased Premises to be used for purposes other than those authorized under the provisions of State and federal law; and the City shall file with the Trustee and the Leased Premises, upon completion of any additions, modifications and improvements made thereto pursuant to this Section 5.02, shall be of a value which is not substantially less than the value of the Leased Premises immediately prior to the making of such additions, modifications and improvements. The City will not permit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the City 12 ATTACHMENT 2 pursuant to this Section 5.02; provided that if any such lien is established and the City shall first notify or cause to be notified the Authority of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the City. SECTION 5.03 Public Liability and Property Damage Insurance. The City shall maintain or cause to be maintained throughout the Term of this Lease Agreement, but only if and to the extent available from reputable insurers at reasonable cost in the reasonable opinion of the City, a standard comprehensive general insurance policy or policies in protection of the Authority, City, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $25,000) of damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy or policies in the amount of $3,000,000 (subject to a deductible clause of not to exceed $25,000) covering all such risks. Such policy or policies shall provide coverage in such liability limits and be subject to such deductibles as the City shall deem adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of self-insurance by the City, subject to the provisions of Section 5.07, or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. In the case of the City's self-insurance of public liability and workers' compensation, the City may maintain a self-insured retention, and pay up to $500,000 of each liability claim and up to $300,000 of each worker's compensation claim, so long as the provisions of Section 5.07(b) hereof. The proceeds of such liability insurance shall be applied by the City toward extinguishment or satisfaction of the liability with respect to which paid. SECTION 5.04 Casualty Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease Agreement, insurance against loss or damage to any Facilities by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended coverage insurance, if required, shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, and shall include earthquake coverage if such coverage is available at reasonable cost from reputable insurers in the judgment of the City's risk manager. Such insurance shall be in an amount at least equal to the lesser of (a) one hundred percent (100%) of the replacement cost of the Facilities, or (b) the aggregate unpaid principal components of the Lease Payments allocable to the Facilities. Such insurance may be subject to such deductibles as the City shall deem prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The Net Proceeds of such insurance shall be applied as provided in Section 6.02(a). 13 ATTACHMENT 2 Each policy of insurance to be maintained by the City pursuant to this Section 5.04 shall (a) provide for the full payment of insurance proceeds up to the applicable dollar limit in connection with damage to the Leased Premises and shall, under no circumstances, be contingent upon the degree of damage sustained at other facilities owned or leased by the City; and (b) explicitly waive any co-insurance penalty. SECTION 5.05 Rental Interruption Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any Facilities to be constructed on the Leased Premises, as a result of any of the hazards covered by the insurance required by Section 5.04, in an amount at least equal to the maximum Lease Payments allocable to the Facilities coming due and payable during any future twenty-four (24) month period. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such insurance, if any, shall be paid to the Trustee and deposited in the Bond Fund, and shall be applied for the uses and purposes set forth in Article V of the Indenture. SECTION 5.06 Recordation Hereof; Title Insurance. On or before the Closing Date the City shall, at its expense, (a) cause this Lease Agreement, or a memorandum hereof in form and substance approved by Bond Counsel, to be recorded in the office of the San Diego County Recorder and (b) obtain a CLTA policy of title insurance insuring the City's leasehold estate hereunder, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Bonds. All Net Proceeds received under said policy shall be deposited with the Trustee in the Redemption Fund and shall be applied to the redemption of the Bonds pursuant to Section 4.01(c) of the Indenture. SECTION 5.07 Net Proceeds oflnsurance: Form of Policies. (a) Each policy of insurance maintained pursuant to Sections 5.04, 5.05 and 5.06 shall name the Trustee as loss payee so as to provide that all proceeds thereunder shall be payable to the Trustee and shall name the Authority, the City and the Trustee as insureds. The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease Agreement. All such policies shall provide that the Trustee shall be given thirty (30) days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. The Trustee shall not be responsible for the sufficiency or amount of any insurance or self-insurance herein required and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. The City shall cause to be delivered to the Trustee annually, no later than May l in each year, a certificate stating that all of the insurance policies required by this Lease Agreement are in full force and effect and identifying whether any such insurance is then maintained in the form of self-insurance. (b) In the event that any insurance maintained pursuant to Section 5.03 shall be provided in the form of self-insurance, the City shall file with the Trustee annually, 14 ATTACHMENT 2 within ninety (90) days following the close of each Fiscal Year, a statement of the risk manager of the City or an independent insurance adviser engaged by the City identifying the extent of such self-insurance and stating the determination that the City maintains sufficient reserves with respect thereto. In the event that any such insurance shall be provided in the form of self-insurance by the City, the City shall not be obligated to make any payment with respect to any insured event except from such reserves. The Trustee shall not be responsible for the sufficiency or adequacy of any insurance herein required and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Trustee. (c) If the City shall fail to perform any of its obligations under this Article V, the Authority or the Trustee may, but shall not be obligated to, take such action as may be necessary to cure such failure, including the advancement of money, and the City shall be obligated to repay all such advances as soon as possible, with interest at the rate payable by the Authority on the Bonds from the date of the advance to the date of repayment. SECTION 5.08 Installation of Personal Property. The City may, at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon any portion of the Leased Premises. All such items shall remain the sole property of the City, in which neither the Authority nor the Trustee shall have any interest, and may be modified or removed by the City at any time provided that the City shall repair and restore any and all damage to the Leased Premises resulting from the installation, modification or removal of any such items. Nothing in this Lease Agreement shall prevent the City from purchasing or leasing items to be installed pursuant to this Section 5.08 under a lease or conditional sale agreement, or subject to a vendor's lien or security agreement, as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Leased Premises. SECTION 5.09 Liens. Neither the City nor the Authority shall, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to any portion of the Leased Premises, other than the respective rights of the Authority and the City as provided herein and other than Permitted Encumbrances. Except as expressly provided in this Article V, the City and the Authority shall promptly, at their own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time. The City shall reimburse the Authority for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. SECTION 5.10 Tax Covenants. (a) Private Activity Bond Limitation. The City shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. 15 ATTACHMENT 2 (b) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The City shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Tax Code. (d) Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. SECTION 5.11 Payment of Rebatable Amounts. The City agrees to furnish all information to, and cooperate fully with, the Authority and their respective officers, employees, agents and attorneys, in order to assure compliance with the provisions of Section 6.07(e) of the Indenture. In the event that the Authority shall determine, pursuant to Section 6.07(e) of the Indenture, that any amounts are due and payable to the United States of America thereunder and that neither the Authority nor the Trustee has on deposit an amount of available moneys (excluding moneys on deposit in the funds and accounts established for the payment of the principal of or interest or redemption premium, if any, on the Bonds) to make such payment, the Authority shall promptly notify the City of such fact. Upon receipt of any such notice, the City shall promptly pay the amounts determined by the Authority to be due and payable to the United States of America under such Section 6.07(e), such payments to be made in accordance with the applicable provisions of the Tax Code. SECTION 5.12 Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of its Undertaking to Provide Continuing Disclosure with respect to the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Notwithstanding any other provision of this Lease Agreement, failure of the City to comply with such Undertaking to Provide Continuing Disclosure shall not be considered an Event of Default; however, any Owner may take such actions, as provided in such Undertaking to Provide Continuing Disclosure, as may be necessary and appropriate to cause the City to comply with its obligations under such Undertaking to Provide Continuing Disclosure. ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS SECTION 6.01 Eminent Domain. If all of the Leased Premises shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of this Lease Agreement shall cease as of the day possession shall be so taken. If less than all of the Leased Premises shall be taken permanently, 16 ATTACHMENT 2 or if all of the Leased Premises or any part thereof shall be taken temporarily under the power eminent domain, (a) this Lease Agreement shall continue in full force and effect and shall not terminated by virtue of such taking and the parties waive the benefit of any law to the contra and (b) there shall be a partial abatement of Lease Payments in an amount to be agreed upon the City and the Authority such that the resulting Lease Payments for the Leased Premis represent fair consideration for the use and occupancy of the remaining usable portion of 1 Leased Premises. SECTION 6.02 Application ofNet Proceeds. (a) From Insurance Award. The Net Proceeds of any insurance a," resulting from any damage to or destruction of the Leased Premises by fire or of casualty shall be deposited in its Insurance and Condemnation Fund or the Redempi Fund, as applicable, by the Trustee and applied in accordance with Section. 5.08 of Indenture. (b) From Eminent Domain Award. The Net Proceeds of any eminent dor award resulting from any event described in Section 6.01 shall be deposited in Insurance and Condemnation Fund or the Redemption Fund, as applicable, by the Tru and applied in accordance with Section 5.08 of the Indenture. SECTION 6.03 Abatement of Lease Pavments in the Event of _Damaze Destruction. The Lease Payments allocable to the Leased Premises shall be abated during aj period in which by reason of damage or destruction (other than by eminent domain which hereinbefore provided for) there is substantial interference with the use and occupancy by t] City of the Leased Premises or any portion thereof. The amounts of the Lease Payments and such circumstances may not be less than the amounts of the unpaid Lease Payments, unless sul unpaid amounts are determined to be greater than the fair rental value of the portions of t: Leased Premises not damaged or destroyed, based upon the opinion of an MAI appraiser wi expertise in valuing such properties or other appropriate method of valuation, in which event t] Lease Payments shall be abated such that they represent said fair rental value. Such abateme shall continue for the period commencing with such damage or destruction and ending with t] substantial completion of the work of repair or reconstruction. In the event of any such dama; or destruction, this Lease Agreement shall continue in full force and effect and the City waiv any right to terminate this Lease Agreement by virtue of any such damage and destructio Notwithstanding the foregoing, there may be no abatement of Lease Payments to the extent th (a) the proceeds of rental interruption insurance, are available to pay Lease Payments, (b) amounts in the Bond Fund are available to pay Debt Service payable from Lease Paymer which would otherwise be abated. ARTICLE VII DISCLAIMER OF WARRANTIES; ACCESS SECTION 7.01 Disclaimer of Warranties. Neither the Authority nor the Trust, makes any warranty or representation, either express or implied, as to the value, desig condition, merchantability or fitness for any particular purpose or fitness for the u contemplated by the City of the Leased Premises, or any other representation or warranty wi 17 ATTACHMENT 2 respect to the Leased Premises. In no event shall the Authority, the Trustee, and their respective assigns be liable for incidental, indirect, special or consequential damages in connection with or arising out of this Lease Agreement or the Indenture for the existence, furnishing, functioning or the City's use of the Leased Premises. SECTION 7.02 Ri hits o Access. The City agrees that the Authority and any Authorized Representative of the Authority, and the Authority's successors or assigns, shall have the right at all reasonable times to enter upon and to examine and inspect the Leased Premises. The City further agrees that the Authority, any Authorized Representative of the Authority, and the Authority's successors or assigns shall have such rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the Leased Premises in the event of failure by the City to perform its obligations hereunder. SECTION 7.03 Release and Indemnification Covenants. The City shall and hereby agrees to indemnify and save the Authority, the Trustee, and their respective officers, agents, successors and assigns, harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (a) the use, maintenance, condition or management of, or from any work or thing done on the Leased Premises by the City, (b) any breach or default on the part of the City in the performance of any of its obligations under this Lease Agreement, (c) any act or negligence of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (d) the use, presence, storage, disposal of any Hazardous Substances, Substance on or about the Leased Premises, or (e) any act or negligence of any sublessee of the City with respect to the Leased Premises. No indemnification is made under this Section 7.03 or elsewhere in this Lease Agreement for willful misconduct, negligence under this Lease Agreement by the Authority or the Trustee or any of their respective officers, agents, employees, successors or assigns. ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT SECTION 8.01 Assignment by the Authority. The Authority's rights under this Lease Agreement, including the right to receive and enforce payment of the Lease Payments to be made by the City under this Lease Agreement, have been pledged and assigned to the Trustee for the benefit of the Owners of the Bonds pursuant to the Indenture, to which pledge and assignment the City hereby consents. The assignment of this Lease Agreement to the Trustee is solely in its capacity as Trustee under the Indenture and the duties, powers and liabilities of the Trustee in acting hereunder shall be subject to the provisions of the Indenture, including, without limitation, the provisions of Article VIII thereof. SECTION 8.02 Assignment and Subleasing by the City. This Lease Agreement may not be assigned by the City. The City may sublease the Leased Premises or any portion thereof, but only with the written consent of the Authority and subject to all of the following conditions: (a) This Lease Agreement and the obligation of the City to make Lease Payments hereunder shall remain obligations of the City; 18 ATTACHMENT 2 (b) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c) No such sublease by the City shall cause the Leased Premises to be used for a purpose other than as may be authorized under the provisions of the laws of the State; and (d) The City shall furnish the Authority and the Trustee with a written opinion of Bond Counsel, stating that such sublease is permitted by this Lease Agreement and the Indenture, and will not cause the interest on the Bonds to become included in gross income for federal income tax purposes. SECTION 8.03 Amendment Hereof. The Authority and the City may at any time amend or modify any of the provisions of this Lease Agreement, but only (a) with the prior written consent of a majority in aggregate principal amount of the Outstanding Bonds, or (b) without the consent of any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes: (a) to add to the covenants and agreements of the City contained in this Lease Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the City; (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, or in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments will not materially adversely affect the interests of the Owners of the Bonds; (c) to amend any provision thereof relating to the Tax Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on the Bonds under the Tax Code, in the opinion of Bond Counsel; (d) to amend the description of the Leased Premises set forth in Exhibit A hereto to add property acquired by the City and the Authority from proceeds on deposit in the Project Fund or to reflect accurately the property originally intended to be included therein, or in connection with any substitution or release pursuant to Section 4.08; or (e) to obligate the City to pay additional amounts of rental hereunder for the use and occupancy of the Leased Premises, provided that (A) no Event of Default has occurred and is continuing under this Lease, (B) such additional amounts of rental do not cause the total rental payments made by the City hereunder to exceed the fair rental value of the Leased Premises, as set forth in a certificate of a City Representative filed with the Trustee and the Authority, (C) the City shall have obtained and filed with the Trustee and the Authority a Written Certificate of an Authorized Representative of the City showing that the fair rental value of the Leased Premises is not less than the sum of the aggregate unpaid principal components of the Lease Payments and the aggregate principal 19 ATTACHMENT 2 components of such additional amounts of rental, (D) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which shall be applied to finance the construction or acquisition of land, facilities or other improvements which are authorized pursuant to the laws of the State, and (E) such additional rental is not at variable rates. ARTICLE IX EVENTS OF DEFAULT; REMEDIES SECTION 9.01 Events of Default Defined. The following shall be "Events of Default" under this Lease Agreement: (a) Failure by the City to pay any Lease Payment required to be paid hereunder at the time specified herein. (b) Failure by the City to make any Miscellaneous Rent payment required hereunder and the continuation of such failure for a period of thirty (30) days. (c) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding clauses (a) or (b), for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority, or the Trustee; provided, however, that if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such sixty (60) day period, such failure shall not constitute an Event of Default if the City shall commence to cure such failure within such sixty (60) day period and thereafter diligently and in good faith shall cure such failure in a reasonable period of time. (d) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of applicable federal bankruptcy law, or under any similar acts which may hereafter be enacted. SECTION 9.02 Remedies on De ault. Whenever any Event of Default referred to in Section 9.01 shall have happened and be continuing, it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement; provided, however, that notwithstanding anything to the contrary herein or in the Indenture, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable or to terminate this Lease Agreement or to cause the leasehold interest of the Autliority or the subleasehold interest of the City in the Site to be sold, assigned or otherwise alienated. Each and every covenant hereof to be kept and performed by the City is expressly made a condition and upon the breach thereof the Authority may exercise any and all rights of entry and re-entry upon the Leased Premises. In the event of such default and notwithstanding any re-entry by the 20 ATTACHMENT 2 Authority, the City shall, as herein expressly provided, continue to remain liable for the payment of the Lease Payments and/or damages for breach of this Lease Agreement and the performance of all conditions herein contained, and in any event such rent and damages shall be payable to the Authority at the time and in the manner as herein provided, to wit: (a) The City agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions herein contained and shall reimburse the Authority for any deficiency arising out of the re-leasing of the Leased Premises, or, in the event the Authority is unable to relet the Leased Premises, then for the full amount of all Lease Payments to the end of the Term of this Lease Agreement, but said Lease Payments and/or deficiency shall be payable only at the same time and in the same manner as hereinabove provided for the payment of Lease Payments hereunder, notwithstanding such entry or re-entry by the Authority or any suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Premises or the exercise of any other remedy by the Authority. (b) The City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to enter upon and re-lease the Leased Premises in the event of default by the City in the performance of any covenants herein contained to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises to place such property in storage or other suitable place in the County of San Diego, for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Leased Premises and the removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. (c) The City hereby waives any and all claims for damages caused or which may be caused by the Authority in re-entering and taking possession of the Leased Premises as herein provided and all claims for damages that may result from the destruction of or injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that may be in or upon the Leased Premises. (d) The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Authority to re-lease the Leased Premises in the event of such re-entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Authority in effecting such releasing shall constitute a surrender or termination of this Lease Agreement irrespective of the term for which such re-leasing is made or the terms and conditions of such re-leasing, or otherwise. (e) The City further waives the right to any rental obtained by the Authority in excess of the Lease Payments and hereby conveys and releases such excess to the Authority as compensation to the Authority for its services in re-leasing the Leased Premises. 21 ATTACHMENT 2 SECTION 9.03 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive and every such remedy shall be cumulative and shall, except as herein expressly provided to the contrary, be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article IX it shall not be necessary to give any notice, other than such notice as may be required in this Article IX or by law. SECTION 9.04 Aueement to Pay Attorneys' Fees and Expenses. In the event either party to this Lease Agreement should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party agrees that it will on demand therefor pay to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. SECTION 9.05 No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. SECTION 9.06 Trustee and Bondholder to Exercise Rights. Such rights and remedies as are given to the Authority under this Article IX have been assigned by the Authority to the Trustee under the Indenture, to which assignment the City hereby consents. Such rights and remedies shall be exercised by the Trustee and the Owners of the Bonds as provided in the Indenture. ARTICLE X MISCELLANEOUS SECTION 10.01 Notices. All written notices to be given under this Lease Agreement shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) otherwise, upon actual receipt. The Authority, the City, or the Trustee may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Encinitas Public Financing Authority 505 South Vulcan Avenue Encinitas, CA 92024-3633 Attention: Executive Director 22 ATTACHMENT 2 If to the City: City of Encinitas 505 South Vulcan Avenue Encinitas, CA 92024-3633 Attention: City Manager If to the Trustee: Union Bank, N.A. 120 S. San Pedro Street, Suite 400 Los Angeles, CA 90012 Fax: (213) 972-5694 Attn: Corporate Trust Department SECTION 10.02 Binding Ff ect. This Lease Agreement shall inure to the benefit of and shall be binding upon the Authority and the City and their respective successors and assigns. SECTION 10.03 Severabilitv. In the event any provision of this Lease Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. SECTION 10.04 Net-net-net Lease. This Lease Agreement shall be deemed and construed to be a "net-net-net lease" and the City hereby agrees that the Lease Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever. SECTION 10.05 Further Assurances and Corrective Instruments. The Authority and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Premises hereby leased or intended so to be or for carrying out the expressed intention of this Lease Agreement. SECTION 10.06 Execution in Counterparts. This Lease Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 10.07 Applicable Law. This Lease Agreement shall be governed by and constructed in accordance with the laws of the State. SECTION 10.08 Authorized Representatives. Whenever under the provisions of this Lease Agreement the approval of the Authority or the City is required, or the Authority or the City is required to take some action at the request of the other, such approval or such request shall be given for the Authority by an Authorized Representative of the Authority and for the City by an authorized Representative of the City, and any party hereto shall be authorized to rely upon any such approval or request. SECTION 10.09 Captions. The captions or headings in this Lease Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Section of this Lease Agreement. 23 ATTACHMENT 2 IN WITNESS WHEREOF, the Authority has caused this Lease Agreement to be executed in its corporate name by its duly authorized officers and sealed with its corporate seal; and the City has caused this Lease Agreement to be executed in its name by its duly authorized officers and sealed with its corporate seal, as of the date first above written. ENCINITAS PUBLIC FINANCING AUTHORITY Attest: Secretary By Chairperson CITY OF ENCINITAS By Mayor (S E A L) Attest: City Clerk 24 ATTACHMENT 2 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) On before me, , a Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (Seal) 25 ATTACHMENT 2 EXHIBIT A DESCRIPTION OF THE LEASED PREMISES [Legal description of Hall Property] A-1 ATTACHMENT Z EXHIBIT B SCHEDULE OF LEASE PAYMENTS Lease Payment Principal Interest Total Lease Annual Lease Date Component Component Payment Payment B-1 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.01 Definitions 2 Section 1.02 Exhibits 3 ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.01 Representations, Covenants and Warranties of the City 3 Section 2.02 Representations, Covenants and Warranties of Authority 4 ARTICLE III THE BONDS Section 3.01 The Bonds 6 Section 3.02 Refinancing of Leased Premises 6 Section 3.03 Payment of Costs of Issuance 6 ARTICLE IV LEASE; TERM OF THIS LEASE AGREEMENT; RENTAL PAYMENTS Section 4.01 Lease by Authority and Lease Back to City. Section 4.02 Term of Lease Agreement Section 4.03 Lease Payments; Security Deposit Section 4.04 [Intentionally Reserved] Section 4.05 Optional Prepayment Section 4.06 Quiet Enjoyment Section 4.07 Title Section 4.08 Miscellaneous Rent Section 4.09 Substitution or Release of Leased Premises. 6 6 7 9 9 9 9 10 10 ARTICLE V MAINTENANCE; TAXES; INSURANCE; USE LIMITATIONS; AND OTHER MATTERS Section 5.01 Maintenance, Utilities, Taxes and Assessments 12 Section 5.02 Modification of Leased Premises 12 Section 5.03 Public Liability and Property Damage Insurance 13 Section 5.04 Casualty Insurance 13 Section 5.05 Rental Interruption Insurance 14 Section 5.06 Recordation Hereof, Title Insurance 14 Section 5.07 Net Proceeds of Insurance; Form of Policies 14 Section 5.08 Installation of Personal Property 15 Section 5.09 Liens 15 -i- TABLE OF CONTENTS (continued) Page Section 5.10 Tax Covenants 15 Section 5.11 Payment of Rebatable Amounts 16 Section 5.12 Continuing Disclosure 16 ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.01 Eminent Domain 16 Section 6.02 Application of Net Proceeds 17 Section 6.03 Abatement of Lease Payments in the Event of Damage or Destruction........ 17 ARTICLE VII DISCLAIMER OF WARRANTIES; ACCESS Section 7.01 Disclaimer of Warranties 17 Section 7.02 Rights of Access 18 Section 7.03 Release and Indemnification Covenants 18 ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.01 Assignment by the Authority 18 Section 8.02 Assignment and Subleasing by the City 18 Section 8.03 Amendment Hereof 19 ARTICLE IX EVENTS OF DEFAULT; REMEDIES Section 9.01 Events of Default Defined 20 Section 9.02 Remedies on Default 20 Section 9.03 No Remedy Exclusive 22 Section 9.04 Agreement to Pay Attorneys' Fees and Expenses 22 Section 9.05 No Additional Waiver Implied by One Waiver 22 Section 9.06 Trustee and Bondholder to Exercise Rights 22 ARTICLE X MISCELLANEOUS Section 10.01 Notices 22 Section 10.02 Binding Effect 23 Section 10.03 Severability 23 Section 10.04 Net-net-net Lease 23 Section 10.05 Further Assurances and Corrective Instruments 23 Section 10.06 Execution in Counterparts 23 -11- TABLE OF CONTENTS (continued) Page Section 10.07 Applicable Law 23 Section 10.08 Authorized Representatives 23 Section 10.09 Captions 23 EXHIBIT A - DESCRIPTION OF THE LEASED PREMISES A-1 EXHIBIT B - SCHEDULE OF LEASE PAYMENTS B-1 -iii- ATTACHMENT 3 ESCROW DEPOSIT AND TRUST AGREEMENT by and among the CITY OF ENCINITAS, CALIFORNIA ENCINITAS PUBLIC FINANCING AUTHORITY and UNION BANK, N.A., as Escrow Bank Dated as of .2010 ATTACHMENT 3 ESCROW DEPOSIT AND TRUST AGREEMENT This ESCROW DEPOSIT AND TRUST AGREEMENT is made and entered into 1 st day of , 2010, by and among the CITY OF ENCINITAS, a municipal corporation organized and existing by virtue of Constitution and laws of the State of California (the "City"), ENCINITAS PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority") and UNION BANK, N.A., as Escrow Bank (the "Escrow Bank"); WITNESSETH: WHEREAS, the City and the Authority have heretofore entered into an Lease Agreement, dated as of April 1, 2001 (the "Prior Agreement"); WHEREAS, payments by the City of lease payments pursuant to the Prior Agreement (the "Prior Payments") are applied to the payment of the $22,645,000 original principal amount of Encinitas Public Financing Authority 2001 Lease Revenue Bonds, Series A (the "Prior Bonds"); WHEREAS, the Prior Agreement provides that in the event that the City deposits, or causes the deposit on its behalf of, moneys and certain Federal Securities (as defined in the Prior Agreement) in an amount, together with investment earnings and certain funds held under the Prior Indenture of Trust (defined below), sufficient to pay and discharge all or a portion of the indebtedness of the Prior Agreement at or before maturity, then the obligations of the City under the Prior Agreement shall cease and terminate with respect to the obligations so discharged, except only the obligation of the City to pay or cause to be paid to the Authority all sums due thereon out of the Escrow Fund with respect to the obligations so discharged and thereafter such Lease Payments (as defined in the Prior Agreement) shall be released from the lien of the Prior Agreement; and WHEREAS, pursuant to a Trust Agreement, relating to and dated as of the same date as the Prior Agreement, by and between the Authority and the Prior Trustee (the "Prior Indenture of Trust"), the Prior Bonds were issued, secured in part by the prior payments; and WHEREAS, the City has determined that it is in the best interests of the City at this time to refinance the City's obligation to make the lease payments under the Prior Agreement and, as a result thereof, to prepay such lease payments on said , 2010 at a prepayment price of 100% of the principal amount thereof, plus accrued interest; and WHEREAS, the City proposes to make the deposit of moneys and Federal Securities referenced in Section 10.01 of the Prior Indenture of Trust and to appoint the Escrow Bank as its agent for the purpose of applying said deposit to the prepayment of lease payments in accordance with the instructions provided by this Escrow Deposit and Trust Agreement and of applying said lease payments to the payment and redemption of the Prior Bonds in accordance with the Prior Indenture of Trust and Prior Agreement, and the Escrow Bank will accept said appointment; and issue its $ WHEREAS, to obtain moneys to make such deposit, the Authority proposes to Encinitas Public Financing Authority 2010 Lease Revenue Refunding ATTACHMENT 3 Bonds, Series A (the "2010 Bonds") pursuant to that certain Indenture of Trust, dated as of , 2010 (the "Indenture"), by and between the Authority and the Trustee; and WHEREAS, the City wishes to make such a deposit with the Escrow Bank and to enter into this Escrow Deposit and Trust Agreement for the purpose of providing the terms and conditions for the deposit and application of amounts so deposited; and WHEREAS, the Escrow Bank has full powers to act with respect to the irrevocable escrow and trust created herein and to perform the duties and obligations to be undertaken pursuant to this Escrow Deposit and Trust Agreement. NOW, THEREFORE, in consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: Section 1. Definition of Federal Securities. As used herein, the term "Federal Securities" means direct non-callable obligations of the United States of America, Refcorp interest strips, or securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, provided, that the full faith and credit of the United States of America has been pledged to any such obligation or guarantee. Section 2. Appointment of Escrow Bank. The City and the Authority hereby appoint the Escrow Bank as escrow bank for all purposes of this Escrow Deposit and Trust Agreement and in accordance with the terms and provisions of this Escrow Deposit and Trust Agreement, and the Escrow Bank hereby accepts such appointment. Section 3. Establishment of Escrow Fund. There is hereby created by the City and the Authority with, and to be held by, the Escrow Bank, as security for the payment of the Prior Payments as hereinafter set forth, an irrevocable escrow to be maintained in trust by the Escrow Bank on behalf of the City and the Authority and for the benefit of the owners of the Prior Bonds, said escrow to be designated the "Escrow Fund." All moneys and Federal Securities deposited in the Escrow Fund shall be held as a special fund for the payment of the lease payments in accordance with the provisions of the Prior Indenture of Trust. If at any time the Escrow Bank shall receive actual knowledge that the moneys and Federal Securities in the Escrow Fund will not be sufficient to make any payment required by Section 5 hereof, the Escrow Bank shall notify the City of such fact and the City shall immediately cure such deficiency. Section 4. Deposit into Escrow Fund; Investment of Amounts. Concurrently with delivery of the Bonds, the City and Authority shall cause to be transferred to the Escrow Bank for deposit into the Escrow Fund the amount of $ in immediately available funds which shall be derived as follows: $ representing funds on deposit in the Bond Fund with respect to the Prior Bonds and $ to come from the proceeds of the 2010 Bonds. The Escrow Bank shall hold the Escrow Fund which shall be held in cash uninvested (the "Cash") in a non-interest earning account. 2 ATTACHMENT 3 The Escrow Bank shall not be liable or responsible for any loss resulting from any reinvestment made pursuant to this Escrow Deposit and Trust Agreement and in full compliance with the provisions hereof. Section 5. Instructions as to Application of Doosit• Authority Retains Right of Optional Redemption. The City and the Authority hereby irrevocably direct and instruct the Escrow Bank to prepay the remaining Prior Payments in full on , 2010 at a prepayment price of 100% of the principal amount thereof, all as more particularly, set forth in Exhibit B attached hereto and hereby made a part hereof. For such purpose of call and redemption prior to maturity of the Prior Bonds, the Authority hereby instructs the Escrow Bank, and the Escrow Bank, hereby agrees to cause to be given notice of redemption of the Prior Bonds, such notice of redemption to be given timely for redemption of the Prior Bonds on the dates indicated in Exhibit B, in accordance with the applicable provisions of the Prior Trust Agreement. Section 6. Application of Certain Terms of Prior Indenture of Trust. All of the terms of the Prior Indenture of Trust relating to the making of payments of principal and interest with respect to the Prior Bonds are incorporated in this Escrow Deposit and Trust Agreement as if set forth in full herein. The provisions of the Prior Indenture of Trust relating to the limitations from liability and protections afforded the Prior Trustee and the resignation and removal of the Prior Trustee are also incorporated in this Escrow Deposit and Trust Agreement as if set forth in full herein and shall be the procedure to be. followed with respect to any resignation or removal of the Escrow Bank hereunder. Section 7. Compensation to Escrow Bank. The City shall pay the Escrow Bank full compensation for its duties under this Escrow Deposit and Trust Agreement, including out-of-pocket costs such as publication costs, prepayment or redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, fees, costs and expenses relating to the purchase of any Federal Securities after the date hereof, pursuant to a separate agreement between the City and the Escrow Bank. Under no circumstances shall amounts deposited in the Escrow Fund be deemed to be available for said purposes. Section 8. Liabilities and Obligations of Escrow Bank. The Escrow Bank shall have no obligation to make any payment or disbursement of any type or incur any financial liability in the performance of its duties under this Escrow Deposit and Trust Agreement unless the City shall have deposited sufficient funds with the Escrow Bank to satisfy such obligation. The Escrow Bank may rely and shall be protected in acting upon the written instructions of the City or its agents relating to any matter or action as Escrow Bank under this Escrow Deposit and Trust Agreement. The Escrow Bank undertakes such duties as specifically set forth herein and no implied duties or obligations shall be read into this Escrow Deposit and Trust Agreement against the Escrow Bank. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and hold harmless the Escrow Bank and its respective successors, assigns, agents and servants from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, 3 ATTACHMENT 3 expenses and disbursements (including legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, at any time, the Escrow Bank (whether or not also indemnified against by any other person under any other agreement or instrument) and in any way relating to or arising out of the execution and delivery of this Escrow Deposit and Trust Agreement, the establishment of the Escrow Fund, the retention of the moneys therein and any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Escrow Deposit and Trust Agreement, or as may arise by reason of any act, omission or error of the Escrow Bank made in good faith in the conduct of its duties; provided, however, that the City shall not be required to indemnify the Escrow Bank against its own negligence or misconduct. The indemnities contained in this Section 8 shall survive the termination of this Escrow Deposit and Trust Agreement and the resignation and removal of the Escrow Bank. The Escrow Bank shall not have any liability hereunder except to the extent of its own negligence or willful misconduct. In no event shall the Escrow Bank be liable for any special indirect or consequential damages. The Escrow Bank may consult with counsel of its own choice and the opinion of such counsel shall be full and complete authorization to take or suffer in good faith any action hereunder in accordance with such opinion of counsel. The Escrow Bank shall not be responsible for any of the recitals or representations contained herein. No provision of this Agreement shall require the Escrow Bank to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties hereunder, or in the exercise of its rights or powers. Section 9. Amendment. This Escrow Deposit and Trust Agreement may be modified or amended at any time by a supplemental agreement which shall become effective when the written consents of the owners of one hundred percent (100%) in aggregate principal amount of the Prior Bonds then outstanding shall have been filed with the Escrow Bank. This Escrow Deposit and Trust Agreement may be modified or amended at any time by a supplemental agreement, without the consent of any such owners, but only (1) to add to the covenants and agreements of any party, other covenants to be observed, or to surrender any right or power herein or therein reserved to the City, (2) to cure, correct or supplement any ambiguous or defective provision contained herein, (3) in regard to questions arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable and which, in the opinion of counsel, shall not adversely affect the interests of the owners of the Prior Bonds or the Bonds, and that such amendment will not cause interest on the Prior Bonds or the Bonds to become subject to federal income taxation. Section 10. Termination; Unclaimed Money. This Escrow Deposit and Trust Agreement shall terminate when the Prior Payments have been paid; provided, however, that (1) money held by the Escrow Bank pursuant to this Escrow Deposit and Trust Agreement for the payment and discharge of any of the Prior Payments (which shall not be payable as to interest from and after the date set for redemption) which remain unclaimed for two (2) years after such payments were due, shall be repaid by the Escrow Bank to the City free from the trust created by 4 ATTACHMENT 3 the Prior Indenture of Trust and this Escrow Deposit and Trust Agreement, and the Escrow Bank shall thereupon be released and discharged with respect thereto and hereto and all liability of the Escrow Bank with respect to such money shall thereupon cease and (ii) excess moneys held by the Escrow Bank not needed for the payment and discharge of the Prior Payments shall be transferred to the Bond Fund under the Indenture. Section 11. Severability. If any section, paragraph, sentence, clause or provision of this Escrow Deposit and Trust Agreement shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such section, paragraph, sentence, clause or provision shall not affect any of the remaining provisions of this Escrow Deposit and Trust Agreement. Section 12. Notice of Escrow Bank Authority and City. Any notice to or demand upon the Escrow Bank may be served and presented, and such demand may be made, at the principal corporate trust office of the Escrow Bank as specified by the Escrow Bank as Prior Trustee in accordance with the provisions of the Prior Indenture of Trust or by physical delivery with confirmation of receipt or by confirmed telecopy. Any notice to or demand upon the City or the Authority shall be deemed to have been sufficiently given or served for all purposes by being mailed by registered or certified mail, and deposited, postage prepaid, in a post office letter box, addressed to such party as provided in the Prior Agreement (or such other address as may have been filed in writing by the City or the Authority with the Escrow Bank). Section 13. Merger or Consolidation of Escrow Bank. Any company into which the Escrow Bank may be merged or converted or with which may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Escrow Bank may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible to act as Trustee under the Indenture and the Prior Trust Agreement, shall be the successor hereunder to the Escrow Bank without the execution or filing of any paper or any further act. Section 14. Execution in Several Counte arts. This Escrow Deposit and Trust Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts shall constitute but one and the same instrument. 5 ATTACHMENT 3 IN WITNESS WHEREOF, the Authority, the City and the Escrow Bank have each caused this Escrow Deposit and Trust Agreement to be executed by their duly authorized officers all as of the date first above written. CITY OF ENCINITAS By: Finance Director UNION BANK, N.A., as Escrow Bank By: Authorized Officer ENCINITAS PUBLIC FINANCING AUTHORITY By: Executive Director [SEAL] ATTEST: Secretary 6 ATTACHMENT 3 EXHIBIT A IDENTIFICATION OF AND PAYMENT SCHEDULE FOR ESCROWED FEDERAL SECURITIES Delivery Date Securi Maturity Date Amount ESCROW REQUIREMENTS Principal Period Ending Principal Interest Redeemed Rate Total A-1 EXHIBIT B PAYMENT SCHEDULE OF PRIOR PAYMENTS ATTACHMENT 3 Date Principal Interest Rollovers Net Escrow Receipts B-1 EXHIBIT C $22,645,000 Encinitas Public Financing Authority 2010 Lease Revenue Bonds, Series A CUSIP # NOTICE OF DEFEASANCE AND REDEMPTION ATTACHMENT 3 OWNERS of certain maturities of the above-described Bonds (the "Defeased Bonds") are hereby NOTIFIED that, pursuant to an Escrow Deposit and Trust Agreement dated as of , 2010, by and among the City of Encinitas, the Encinitas Public Financing Authority (the "Authority") and Union Bank, N.A., as Escrow Bank (the "Escrow Bank"), the Escrow Bank has received and holds in irrevocable trust, cash moneys or noncallable direct and general obligations of the United States of America or obligations of any agency or instrumentality of the United States the payment of principal of and interest on which is unconditionally guaranteed by the full faith and credit of the United States of America (collectively, the "Escrowed Securities") interest on and the principal of which obligations, when due, will provide moneys together with any such cash sufficient to redeem the Defeased Bonds on 2010, at a redemption price of 100%, all as verified by an independent certified public accountant. The Escrow Bank shall collect interest on and the principal of such obligations and shall pay the same, together with any such cash moneys held by the Escrow Bank, to owners of record of the Defeased Bonds, in such amounts and at such times as shall be required to pay interest on and the principal of the Defeased Bonds to the redemption date of , 2010, as applicable. Owners of the Defeased Bonds should surrender Defeased Bond to Union Bank, N.A., for payment. The Defeased Bonds are now deemed to have been paid, and the owners thereof shall hereafter be limited to the application of such cash moneys or Escrowed Securities for the payment of interest on and the principal of such Defeased Bonds as the same become due and payable as described above. UNION BANK, N.A., as Escrow Bank C-1 TABLE OF CONTENTS Page SECTION 1. DEFINITION OF FEDERAL SECURITIES 2 SECTION 2. APPOINTMENT OF ESCROW BANK 2 SECTION 3. ESTABLISHMENT OF ESCROW FUND 2 SECTION 4. DEPOSIT INTO ESCROW FUND; INVESTMENT OF AMOUNTS 2 SECTION 5. INSTRUCTIONS AS TO APPLICATION OF DEPOSIT; AUTHORITY RETAINS RIGHT OF OPTIONAL REDEMPTION 3 SECTION 6. APPLICATION OF CERTAIN TERMS OF PRIOR INDENTURE OF TRUST 3 SECTION 7. COMPENSATION TO ESCROW BANK 3 SECTION 8. LIABILITIES AND OBLIGATIONS OF ESCROW BANK 3 SECTION 9. AMENDMENT 4 SECTION 10. TERMINATION; UNCLAIMED MONEY 5 SECTION 11. SEVERABILITY 5 SECTION 12. NOTICE OF ESCROW BANK, AUTHORITY AND CITY 5 SECTION 13. MERGER OR CONSOLIDATION OF ESCROW BANK 5 SECTION 14. EXECUTION IN SEVERAL COUNTERPARTS 5 EXHIBIT A - IDENTIFICATION OF AND PAYMENT SCHEDULE EXHIBIT B - PAYMENT SCHEDULE OF PRIOR PAYMENTS EXHIBIT C - NOTICE OF DEFEASANCE AND REDEMPTION...... A-1 B-1 .................................C-1 -I- ATTACHMENT 4 INDENTURE OF TRUST Dated as of 12010 by and between UNION BANK, N.A. as trustee and the ENCINITAS PUBLIC FINANCING AUTHORITY Authorizing the Issuance of Encinitas Public Financing Authority 2010 Lease Revenue Refunding Bonds Series A (Park Project) ATTACHMENT 4 INDENTURE OF TRUST This INDENTURE OF TRUST (this "Indenture"), made and entered into , 2010, is by and between the ENCINITAS JOINT POWERS FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California (the "Authority"), and UNION BANK, N.A., a national banking association, organized and existing under the laws of the United States of America, as trustee (the "Trustee"); WITNESSETH: WHEREAS, the Authority is a joint powers authority duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement dated as of November 6, 1991, originally executed by and among the City, Cardiff Sanitation District, Encinitas Fire Protection District, Encinitas Sanitary District, and San Dieguito Water District; and WHEREAS, under Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the "Bond Law") the Authority is authorized to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations of, or for the purpose of making loans to, public entities including the City, and to provide financing for public capital improvements of public entities including the City and to lease and lease back such public capital improvements including the land on which the public capital improvements are or will be located; and WHEREAS, for the purpose of providing moneys to acquire or construct capital projects of the City, the Authority issued its $22,645,000 aggregate principal amount 2001 Lease Revenue Bonds, Series A (the "2001 Bonds") under that certain Indenture of Trust dated as of April 1, 2001 (the "2001 Indenture") by and between the Authority and Union Bank, N.A., as trustee; and WHEREAS, the City secured the 2001 Bonds with the lease payments pursuant to a Lease Agreement dated as of April 1, 2001 (the "2001 Lease") and in which the City leased certain sites owned by the City (the "Leased Premises") pursuant to the laws of the State of California to enter into leasehold agreements for such purpose; and WHEREAS, the Leased Premises constitute a public capital improvement, as that term is defined in the Bond law; and WHEREAS, the City wishes to refinance its obligations under the 2001 Lease in order to achieve an interest cost savings; and WHEREAS, the Authority and the City purpose to lease and lease back the Leased Premises as provided in this Lease Agreement, such lease back to the City being for the purpose (among others) of providing amounts sufficient to provide for the payment of the principal of and interest on the Bonds (as defined herein); and WHEREAS, the Authority hereby certifies that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the Authority, and 2 ATTACHMENT 4 to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of and the interest and premium (if any) on all Bonds at any time issued and outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the owners thereof, and for other valuable considerations, the receipt and adequacy whereof is hereby acknowledged, the Authority does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the Bonds, as follows: ARTICLE I DEFINITIONS; RULES OF INTERPRETATION SECTION 1.01 Definitions. Unless the context otherwise requires, the terms defined in this Section 1.01 shall, for all purposes of this Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. In addition, all capitalized terms used herein and not otherwise defined in this Section 1.01 shall have the respective meanings given such terms in the Lease Agreement. "Authority" means the Encinitas Public Financing Authority, a joint powers authority duly organized and existing under the laws of the State. "Authorized Representative" means: (a) with respect to the Authority, its Chairperson, Vice Chairperson, Executive Director, Treasurer or Secretary or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Chairperson or Vice Chairperson, Executive Director or Treasurer and filed with the City and the Trustee; and (b) with respect to the City, its Mayor, Deputy Mayor, City Manager, City Clerk, Financial Services Director or any other person designated as an Authorized Representative of the City by a Written Certificate of the City signed by its Mayor, Mayor, City Manager or Financial Services Director and filed with the Authority and the Trustee. "Bond Counsel" means (a) Best Best & Krieger LLP, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Authority of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code. "Bond Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.01. "Bond Law" means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the 3 ATTACHMENT 4 Government Code of the State, as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year" means each twelve-month period extending from April 2 in one calendar year to April 1 of the succeeding calendar year, both dates inclusive; except that the first Bond Year shall commence on the Closing Date and extend to and including April 1, 2010. "Bonds" means the $ aggregate principal amount of Encinitas Public Financing Authority Lease Revenue Refunding Bonds, 2010 Series A authorized by and at any time Outstanding pursuant to this Indenture. "Book-Entry Depository" means DTC or any successor as Book-Entry Depository for the Bonds, appointed pursuant to Section 2.11. "Business Day" means a day (other than a Saturday or a Sunday) on which banks are not required or authorized to remain closed in the city in which the Office of the Trustee is located. "City" means the City of Encinitas, a municipal corporation organized under the laws of the State. "Closing Date" means , 2010, being the date of delivery of the Bonds to the Original Purchaser. "Costs of Issuance" means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds and the application of the proceeds of the Bonds, including but not limited to all compensation, fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority, initial fees and expenses of the Trustee and its counsel, Insurance Policy premium, title insurance premiums, appraisal fees, compensation to any financial consultants or underwriters, legal fees and expenses, filing and recording costs, rating agency fees, costs of preparation and reproduction of documents and costs of printing. "Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.03. "Debt Service" means, during any period of computation, the amount obtained for such period by totaling the following amounts: (a) the principal amount of all Outstanding Serial Bonds coming due and payable by their terms in such period; (b) the minimum principal amount of all Outstanding Term Bonds scheduled to be redeemed by operation of mandatory sinking fund deposits in such period; and (c) the interest which would be due during such period on the aggregate principal amount of Bonds which would be Outstanding in such period if the Bonds are retired as scheduled, but deducting and excluding from such aggregate amount the amount of Bonds no longer Outstanding. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "Escrow Account" means the account of that name established under the Escrow Agreement. 4 ATTACHMENT 4 "Escrow Agent" means Union Bank, N.A., or its successor in interest, pursuant to the Escrow Agreement. "Escrow Agreement" means the Escrow Deposit and Trust Agreement, dated as of 2010, among the City, the Authority and the Escrow Agent. "Event of Default" means any of the events specified in Section 7.01. "Fair Market Value" means, with respect to any investment, the price at which a willing buyer would purchase such investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, or (iii) the investment is a United States Treasury Security - State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt. "Federal Securities" means: (a) any direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America; (b) any obligations the principal of and interest on which are unconditionally guaranteed by the United States of America; and (c) pre-refunded municipal obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice: and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody's or any successors thereto; or (ii)(A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or obligations described in paragraphs (a) or (b) above, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. 5 ATTACHMENT 4 "Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture" means this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant" means any certified public accountant or firm of certified public accountants appointed and paid by the Authority or the City, and who, or each of whom (a) is in fact independent and not under domination of the Authority or the City; (b) does not have any substantial interest, direct or indirect, in the Authority or the City; and (c) is not connected with the Authority or the City as an officer or employee of the Authority or the City but who may be regularly retained to make annual or other audits of the books of or reports to the Authority or the City. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's "Municipal and Government," 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Reports; S&P's "Called Bond Record," 25 Broadway, 16th Floor, New York, New York 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other information services providing information with respect to called bonds as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. "Insurance and Condemnation Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.08. "Interest Account" means the account by that name established in the Bond Fund pursuant to Section 5.02. "Interest Payment Date" means each April 1 and October 1 commencing October 1, 2010. "Lease Agreement" means that certain Amended and Restated Lease Agreement, dated as of , 2010, by and between the Authority, as lessor, and the City, as lessee. "Moody's" means Moody's Investors Service, its successors and assigns. "Net Proceeds" means all amounts derived from any policy of casualty insurance or title insurance with respect to the Leased Premises, or the proceeds of any taking of the Leased Premises or any portion thereof in eminent domain proceedings (including sale under threat of such proceedings), to the extent remaining after payment therefrom of all expenses incurred in the collection and administration thereof. 6 ATTACHMENT 4 "Office" means with respect to the Trustee, the corporate trust office of the Trustee at 120 South San Pedro Street, Suite 400, Los Angeles, California 90012, or at such other or additional offices as may be specified in writing to the Authority and the City. "Original Purchaser" means Salomon Smith Barney Inc., as the original purchasers of the Bonds upon their delivery by the Trustee on the Closing Date. "Outstanding", when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except: (a) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.02, including Bonds (or portions thereof) described in Section 11.10; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture. "Owner", whenever used herein with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books. "Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: 1. Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. 2. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only pennitted if they have been stripped by the agency itself): a. Farmers Home Administration (FmHA) Certificates of beneficial ownership b. Federal Housing Administration Debentures (FHA) C. General Services Administration Participation certificates d. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage-backed bonds GHMA - guaranteed pass-through obligations (participation certificates) (not acceptable for certain cash-flow sensitive issues.) e. U.S. Maritime Administration Guaranteed Title XI financing 7 ATTACHMENT 4 f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds 3. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): a. Federal Home Loan Bank System Senior debt obligations (Consolidated debt obligations) b. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mae") Participation Certificates (Mortgage-backed securities) Senior debt obligations c. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage-backed securities and senior debt obligations (excluded are stripped mortgage securities which are valued greater than par on the portion of unpaid principal). d. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations e. Resolution Funding CoM. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. f Farm Credit System Consolidated systemwide bonds and notes 4. Money market funds registered under the Federal Investment Company of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAAm, or AA-m and if rated by Moody's rated Aaa, Aal or Aa2 including funds for which the Trustee or an affiliate advises or services. 5. Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. CD's must have a one year or less maturity. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks whose term obligations are rated "A-1" or better by S&P and "Prime-1" by Moody's. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. 6. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. 7. Investment agreements with a domestic or foreign bank or corporation, the long- term debt or financial strength of which, or, in the case of a guaranteed corporation the long-term 8 ATTACHMENT 4 debt, or, in the case of a monoline financial guarantee insurance company, financial strength, of the guarantor is rated in at least the "double A" category by Moody's and S&P; provided, that, by the terms of the investment agreement: a. interest payments are to be made to the Trustee at all times and in the amounts as necessary to pay debt service, or for the Reserve Account, applied as directed in Section 5.06 hereof (or, if the investment agreement is for the construction fund, construction draws) on the Bonds; b. the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice; the Issuer and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; C. the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; d. the Issuer or the Trustee receives the opinion of domestic counsel (which opinion shall be addressed to the Issuer and Trustee) that such investment agreement is legal, valid, binding and unenforceable upon the provider in accordance with its terms and of foreign counsel (if applicable) in a form and substance acceptable by the Issuer; e. the investment agreement shall provide that if during its term (i) the provider's rating by either S&P or Moody's falls below "AA-" or "AaY, respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (a) collateralize the investment agreement by delivering or transferring in accordance with the applicable state and federal laws (other than by means of entries on the provider's books) to the Issuer, the Trustee or a third party acting solely as agent therefor (the "Holder of the Collateral") collateral free and clear of any third party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); or (b) repay the principal of and accrued but unpaid interest on the investment (including such other amounts as are required to permit the Trustee to receive the initially contemplated yield through the term of the Agreement), or (c) assign its obligations thereunder to a financial counter-party, acceptable to the Issuer, and rated in the double A category by both Moody's and S&P; and (ii) the provider's rating by either S&P or Moody's is withdrawn or suspended or falls below "A-" or "A3", respectively, the provider must, at the 9 ATTACHMENT 4 direction of the Issuer or the Trustee (who shall give such direction if so directed by the Issuer), within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Issuer or Trustee; and f. the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); or g. the investment agreement must provide that if during its term (i) the provider shall default in its payment obligations, the provider's obligation under the investment agreement shall, at the direction of the Issuer or the Trustee (who shall give such direction if so directed by the Issuer), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Issuer or Trustee, as appropriate; and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ("event of insolvency"), the provider's obligations shall automatically be accelerated and the amounts invested and accrued but unpaid interest thereon shall be repaid to the Issuer or Trustee, as appropriate. 8. Commercial paper rated "Prime-1" by Moody's and "A-1+" or better by S&P. 9. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in the highest long-term rating categories assigned by such agencies unless such obligations are issued by the State, in which case such obligations are rated in one of the two highest long-term rating categories of S&P and Moody's. 10. Federal funds or bankers acceptances with a maximum term of one- year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime-1" or "AY or better by Moody's and "A-W' or better by S&P. 11. Repurchase agreements that provide for the transfer of securities from a dealer bank or securities firm (selleriborrower) to the Trustee (buyer/lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. Repurchase Agreements must satisfy the following criteria: a. Repos must be between the municipal entity and a dealer bank or securities firm. 10 ATTACHMENT 4 (1) Primary dealers on the Federal Reserve reporting dealer list which fall under the jurisdiction of the SIPC and which are rated A or better by Standard & Poor's Ratings Group and Moody', or (2) Banks rated "A" or above by Standard & Poor's Ratings Group and Moody's Investor Services. b. The written repo contract must include the following: (1) Securities which are acceptable for transfer are: (a) Direct U.S. governments. (b) Federal agencies backed by the full faith and credit of the U.S. Government (and FNMA & FHLMC) (2) The term of the repo maybe up to 30 years (3) The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). (4) The trustee has perfected first priority security interest in the collateral. (5) Collateral is free and clear of third-party liens and in the case of SIPC broker was not acquired pursuant to a repo or reverse repo. (6) Failure to maintain the requisite collateral percentage, after a two day restoration period, will require the trustee to liquidate collateral. (7) Valuation of Collateral (a) The securities must be valued weekly, marked-to-market at a current market price plus interest. (b) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 11 ATTACHMENT 4 C. Legal opinion which must be delivered to the municipal entity: Repo meets guidelines under state law for legal investment of public funds. 12. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If, however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this condition. 13. State of California Local Agency Investment Fund (LAIF) "Principal Account" means the account by that name established in the Bond Fund pursuant to Section 5.02. "Project Fund" means the Project Fund established pursuant to Section 3.04 hereof. "Record Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date. "Redemption Fund" means the fund by that name established pursuant to Section 5.07. "Registration Books" means the records maintained by the Trustee pursuant to Section 2.05 for the registration and transfer of ownership of the Bonds. "Representation Letter" means the letter of representations from the Authority to, or other instrument or agreement of the Authority with, a Book-Entry Depository in which the Authority, among other things, makes certain representations to such Depository with respect to the Bonds, the payment thereof and delivery of notices with respect thereto. "Reserve Account" means the account by that name in the Bond Fund established pursuant to Section 5.02. "Reserve Account Credit Facility" means any policy of insurance, a surety bond, a letter of credit or other comparable credit facility, or a combination thereof, which, together with money on deposit in the Reserve Account, if any, provide an aggregate amount equal to the Reserve Requirement, so long as on the date of delivery of such Reserve Account Credit Facility, the provider of any such policy of insurance, surety bond, letter of credit or other comparable credit facility is rated in the highest rating category by S&P and Moody's and A.M. Best & Company (but only if such credit facility is rated by A.M. Best & Company). "Reserve Requirement" means, as of the date of calculation, an amount equal to the lesser of (i) the maximum amount of annual Debt Service coming due and payable in the current or any future Bond Year; (ii) 125% of average annual Debt Service on the Bonds; or (iii) ten percent (10%) of initial outstanding principal amount of the Bonds. "Revenues" means: (a) all amounts received by the Authority or the Trustee pursuant to or with respect to the Lease Agreement, including, without limiting the generality of the 12 ATTACHMENT 4 foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding any amounts payable under Section 4.8(d) of the Lease Agreement; and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to this Indenture. "S&P" means Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc., its successors and assigns. "Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th Floor, New York, New York 10041-0099 Atn. Call Notification Department, Fax (212) 855- 7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. "Serial Bonds" means the Bonds maturing on April 1 in each of the years _ through inclusive. "Sinking Account" means the account by that name established and held by the Trustee pursuant to Section 5.02. "State" means the State of California. "Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Code" means the Internal Revenue Code of 1986, as amended. "Tax Regulations" means temporary and permanent regulations promulgated under or with respect to Sections 103 and 141 through 150, inclusive, of the Tax Code. "Term Bonds" means the Bonds maturing on April 1, and April 1, "Trustee" means Union Bank, N.A., a national banking association organized and existing under the laws of the United States of America, or its successor, as Trustee hereunder as provided in Section 8.01. "Undertaking to Provide Continuing Disclosure" means, as applicable, that certain Certificate of the Authority or the City, as applicable, by that name and dated as of the Closing Date and referred to, in the case of the Authority, in Section 6.10 hereof, and in the case of the City, in Section 5.12 of the Lease Agreement. "Written Certificate", "Written Request" and "Written Requisition" of the Authority or the City mean, respectively, a written certificate, request or requisition signed in the name of the Authority or the City by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with 13 ATTACHMENT 4 any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. "2001 Bonds" means the $22,645,000 original principal amount of Encinitas Public Financing Authority 2001 Lease Revenue Bonds, Series A. "2001 Indenture" means the Indenture of Trust, dated as of April 1, 2001, among the Authority, the City and the 2001 Trustee and relating to the 2001 Bonds. "2001 Project Fund" means Project Fund established pursuant to section 3.04 of the 2001 Indenture. "2001 Trustee" means Union Bank, N.A., as Trustee under the 2001 Indenture. SECTION 1.02 Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of-reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles", "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein", "hereof', "hereby", "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE BONDS SECTION 2.01 Authorization o Bonds. The Authority hereby authorizes the issuance hereunder of the Bonds, which shall constitute special obligations of the Authority, for the purpose of providing funds to the Authority to refinance the 2001 Bonds and the acquisition of the Leased Premises by the City under the 2001 Lease Agreement. The Bonds are hereby designated the "Encinitas Public Financing Authority 2010 Lease Revenue Refunding Bonds, Series A." The aggregate principal amount of Bonds initially issued and Outstanding under this Indenture shall equal Dollars (S This Indenture constitutes a continuing agreement with the Trustee and the Owners from time to time of the Bonds to secure the full payment of the principal of and interest and premium (if any) on all the Bonds, subject to the covenants, provisions and conditions herein contained. SECTION 2.02 Terms of the Bonds. The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds 14 ATTACHMENT 4 shall mature on April 1 in each of the years and in the amounts set forth below and shall bear interest on each Interest Payment Date at the rates set forth below: Maturity Date Principal Interest (April 1 Amount Rate Interest on the Bonds shall be payable semi-annually calculated based on a 360-day year of twelve thirty day months on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee mailed by first class mail to the Owner at the address of such Owner as its appears on the Registration Books; provided however, that payment of interest may be by wire transfer in immediately available funds to an account in the United States of America to any Owner of Bonds in the aggregate principal amount of $1,000,000 or more who shall furnish written wire instructions to the Trustee at least five (5) days before the applicable Record Date. Principal of any Bond and any premium upon redemption shall be paid by check of the Trustee upon presentation and surrender thereof at the Office of the Trustee. Principal of and interest and premium (if any) on the Bonds shall be payable in lawful money of the United States of America. Each Bond shall be dated as of the Closing Date, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (b) unless it is authenticated on or before 15 ATTACHMENT 4 [September 15, 2010], in which event it shall bear interest from the Closing Date; provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. SECTION 2.03 Transfer o Bonds. Any Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. Transfer of any Bond shall not be permitted by the Trustee during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption pursuant to Article IV. Whenever any Bonds or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount and of like maturity. The Trustee may require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. SECTION 2.04 Exchange of Bonds. Any Bond may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of like maturity. Exchange of any Bond shall not be permitted during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption pursuant to Article IV. The Trustee shall require the Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. SECTION 2.05 Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall at all reasonable times, upon reasonable notice, be open to inspection during regular business hours by the Authority, the City and the Owners; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. SECTION 2.06 Form and Execution of Bonds. The Bonds shall be signed in the name and on behalf of the Authority with the manual or facsimile signature of its Chairperson and attested with the manual or facsimile signature of its Secretary or any assistant duly appointed by the Authority, under the printed seal of the Authority, and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority who shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though the individual who signed the same had continued to be such officer of the Authority. Also, any Bond may be signed on behalf of the Authority by any individual who on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. 16 ATTACHMENT 4 Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. SECTION 2.07 Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the Authority, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. SECTION 2.08 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it and destroyed. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to it and indemnity satisfactory to it shall be given, the Authority, at the expense of the Owner of such lost, destroyed or stolen Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been called for redemption, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof). The Trustee may require payment by the Owner of a sum not exceeding the actual cost of preparing each new Bond issued under this Section 2.08 and of the expenses which may be incurred by the City, the Authority and the Trustee in the premises. Any Bond issued under the provisions of this Section 2.08 in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds secured by this Indenture. SECTION 2.09 Cancellation of Bonds. All Bonds properly surrendered to the Trustee for payment upon maturity or for redemption shall upon payment therefor or redemption thereof be cancelled immediately as more particularly provided in Section 11.05 hereof. SECTION 2.10 CUSIP Numbers. "CUSIP" identification numbers shall be imprinted on the Bonds, but such numbers shall not constitute a part of the contract evidenced by the Bonds and any error or omission with respect thereto shall not constitute cause for refusal of 17 ATTACHMENT 4 any purchaser to accept delivery of and pay for the Bonds. In addition, failure on the part of the Authority to use such CUSIP numbers in any notice to Owners shall not constitute an Event of Default or any violation of the Authority's contract with such Owners and shall not impair the effectiveness of any such notice. SECTION 2.11 Book-Entry Bonds. (a) The Bonds shall be initially issued in the form of a single, separate fully registered Bond (which may be typewritten) in the full aggregate principal amount for each maturity of the Bonds, and upon initial issuance, the ownership of such Bonds shall be registered in the Bond register in the name of Cede & Co., as nominee of DTC, the initial Book-Entry Depository. Except as provided in the immediately preceding sentence or in subsection (e) of this Section, all of the Bonds shall be registered in the Bond register in the name of Cede & Co., or such other nominee of DTC or any successor Book-Entry Depository or the nominee thereof, as shall be specified pursuant to the applicable Representation Letter. (b) With respect to Bonds registered in the Bond register in the name of the Book- Entry Depository, or its nominee, the Authority shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the Authority shall have no responsibility or obligation with respect to the accuracy of the records of the Book-Entry Depository, the nominee of the Book-Entry Depository or any Participant with respect to any ownership interest in the Bonds, the delivery to any Participant or any other Person, other than a Holder as shown in the Bond register, of any notice with respect to the Bonds, or the payment to any Participant or any other person, other than an Owner as shown in the Bond register, of any amount with respect to principal of or interest on the Bonds. The Authority may treat and consider the person in whose name each Bond is registered in the Bond register as the Owner and absolute owner of such Bond for the purpose of payment of principal and interest on such Bond and for all other purposes whatsoever. (c) The Trustee shall pay all principal of and interest on the Bonds only to or upon the order of the respective Owners, as shown in the Bond register on the applicable Record Date, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to satisfy and discharge fully the obligations with respect to the payment of principal of and interest on the Bonds under this Indenture and the Bonds to the extent of the sums so paid. Upon delivery by the Book-Entry Depository to the Authority of written notice to the effect that the Book-Entry Depository has determined to substitute a new nominee in place of the incumbent nominee, and subject to the provisions herein with respect to Record Dates, the word nominee in this Indenture shall refer to such new nominee of the Book-Entry Depository. (d) In order to qualify the Bonds for the Book-Entry Depository's book-entry system, the Executive Director or the Treasurer of the Authority is hereby authorized to execute and deliver on behalf of the Authority to the Book-Entry Depository a Representation Letter representing such matters as shall be necessary to so qualify the Bonds. The execution and delivery of the Representation Letter shall not in any way limit the provisions of subsection (b) of this Section or in any other way impose upon the Authority any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners as shown in the Bond 18 ATTACHMENT 4 register. In addition to the execution and delivery of the Representation Letter, the officers of the Authority, and their authorized representatives, each are hereby authorized to take any other actions, not inconsistent with this Indenture, to qualify the Bonds for each Book-Entry Depository's book-entry program. (e) In the event (i) the incumbent Book-Entry Depository determines not to continue to act as Book-Entry Depository for the Bonds, or (ii) the Authority determines that the incumbent Book-Entry Depository shall no longer so act, and delivers a written certificate to the incumbent Book-Entry Depository to that effect, then the Authority will discontinue the book- entry system for the Bonds with the incumbent Book-Entry Depository. If the Authority determines to replace the incumbent Book-Entry Depository with another qualified Book-Entry Depository, the Authority shall prepare or direct the preparation of and execute, and the Trustee shall authenticate and deliver, a new single, separate fully registered bond (which may be typewritten) for the aggregate outstanding principal amount for each maturity of the Bonds held by the incumbent Book-Entry Depository, registered in the name of such successor or substitute qualified Book-Entry Depository or its nominee, or make such other arrangement acceptable to the Authority and the successor Book-Entry Depository as are not inconsistent with the terms of this Indenture. If the Authority fails to identify another qualified successor Book-Entry Depository to replace the incumbent Book-Entry Depository, then the Bonds shall no longer be restricted to being registered in the Bond register in the name of the Book-Entry Depository or its nominee, but shall be registered in whatever name or names the Book-Entry Depository or its nominee. shall designate. In such event the Authority shall prepare or direct the preparation of and execute, and the Trustee shall authenticate and deliver to the Owners thereof, such Bonds as are necessary to carry out the transfers and exchanges provided in this Indenture. All such Bonds shall be in fully registered form in denominations authorized hereunder. (f) Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Book-Entry Depository or its nominee, all notices and payments with respect to principal of and interest on such Bond shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed by the Book- Entry Depository. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS SECTION 3.01 Issuance of the Bonds. At any time after the execution of this Indenture, the Authority may execute and the Trustee shall authenticate and, upon the Written Request of the Authority, deliver Bonds in the aggregate principal amount of Dollars SECTION 3.02 Application of Proceeds at Closing. The proceeds received from the sale of the Bonds (being $ in par amount of Bonds and less $ in purchaser's discount less $ in original issue discount) shall be deposited in trust with the Trustee, who shall forthwith deposit such proceeds on the Closing Date as follows: 19 ATTACHMENT 4 (i) the Trustee shall transfer the amount of $ to the Escrow Agent for deposit in the Escrow Account representing the prepayment amount for the 2001 Bonds on , 2010; (ii) the Trustee shall deposit the amount of $ Costs of Issuance Fund; in the (iii) from the Prior Trustee, the amount of $ from the 2001 Project Fund established under the 2001 Indenture shall be transferred to the Trustee for deposit in the Project Fund; and (iv) the Trustee shall deposit the amount of $ to the Reserve Account. For record keeping purposes, the Trustee may establish such accounts as may be necessary to reflect such transfer of proceeds. SECTION 3.03 Establishment and Application o Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the "Costs of Issuance Fund." The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee to pay the Costs of Issuance upon submission of Written Requisitions of the Authority stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. On 2010, or upon the earlier Written Request of the Authority, all amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the Project Fund. SECTION 3.04 Project Fund. The Trustee shall establish, maintain and hold in trust a separate fund to be known as the "Project Fund". The Trustee shall disburse moneys in the Project Fund from time to time upon receipt by the Trustee of a Written Requisition of the Authority or the City which: (a) states with respect to each disbursement to be made (1) the requisition number, (ii) the name and address of the person, firm or corporation to whom payment will be made, (iii) the amount to be disbursed, (iv) that each obligation mentioned therein is a proper charge against the Project Fund and has not previously been disbursed by the Trustee from amounts in the Project Fund, (v) that all conditions precedent set forth in the Lease Agreement with respect to such disbursement have been satisfied, and (vi) that the amount of such disbursement is to purchase additional property or to improve the Leased Premises and (b) specifies in reasonable detail the nature of the obligation. Upon the filing with the Trustee of a Written Certificate of the Authority stating that the construction of any Facilities or the acquisition of any additional property has been completed or that all Written Requisitions intended to be filed by the Authority have been filed, the Trustee shall withdraw all amounts then on deposit in the Project Fund and transfer such amounts to the Bond Fund. Any funds deposited into the Bond Fund shall cause a corresponding proportionate credit to Lease Payments due from the City. Notwithstanding the foregoing provisions of this Section 3.04, upon the occurrence and continuation of an Event of Default under and as defined in Section 7.01(a) or (b), the Trustee 20 ATTACHMENT 4 shall immediately withdraw all amounts then on deposit in the Project Fund and apply such amounts in accordance with the provisions of Section 7.03. SECTION 3.05 Validity o Bonds. The validity of the authorization and issuance of the Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the Authority or the Trustee with respect to or in connection with the Lease Agreement. The recital contained in the Bonds that the same are issued pursuant to the Constitution and laws of the State shall be conclusive evidence of their validity and of compliance with the provisions of law in their issuance. ARTICLE IV REDEMPTION OF BONDS SECTION 4.01 Terms of Redemption. (a) Sinking Account Redemption. The Term Bonds are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on April 1, with respect to Term Bonds maturing April 1, , and on April 1, with respect to Term Bonds maturing April 1, , and on April 1 in each year thereafter to and including April 1, _ and April 1, , respectively, at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been redeemed pursuant to subsections (b) or (c) below, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed pursuant to this subsection (a) by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Authority with the Trustee. Term Bonds Maturing April 1, Mandatory Sinking Fund Redemption Date (April 1) Principal Amount to Be Redeemed Term Bonds Maturing April 1, 2031 Mandatory Principal Sinking Fund Amount Redemption Date to Be Redeemed (April 1) 21 ATTACHMENT 4 In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Authority prior to the selection of Bonds for redemption, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Authority. (b) Optional Redemption. The Bonds maturing on or before April 1, shall not be subject to redemption prior to their respective stated maturities. The Bonds maturing on or after April 1, , shall be subject to redemption at the option of the Authority as a whole or in part, on any date on or after April 1, , from any available source of funds, a redemption price equal to the principal amount of the Bonds to be redeemed together with accrued interest thereon to the date fixed for redemption plus a premium, as set forth below: Redemption Period Redemption Price (c) Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds shall also be subject to redemption as a whole or in part on any date, from Net Proceeds required to be used for such purpose as provided in Section 5.08, at a redemption price equal to the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. SECTION 4.02 Selection of Bonds for Redemption. Except for Sinking Account Redemption pursuant to Section 4.01(a), whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds or such given portion thereof not previously called for redemption from such maturities as shall be set forth in a Written Request of the Authority filed with the Trustee, or in the absence of such designation of maturities by the Authority, then on a pro rata basis among maturities, and in any case, by lot within a maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, the Trustee shall treat each Bond as consisting of separate $5,000 portions and each such portion shall be subject to redemption as if such portion were a separate Bond. SECTION 4.03 Notice of Redemption. Notice of redemption shall be mailed by first class mail, postage prepaid, not less than thirty (30) nor more than sixty (60) days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books, and to the Securities Depositories and to one or more of the Information Services. Each notice of redemption shall state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and, if less than all of the Bonds of a maturity are to be redeemed, Bond numbers of the Bonds to be redeemed, the maturity or maturities of the Bonds to be redeemed and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest 22 ATTACHMENT 4 thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither the failure to receive any notice nor any defect therein shall affect the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. Notice of redemption of Bonds shall be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority. SECTION 4.04 Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered. SECTION 4.05 E ect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under this Indenture, and the Owners of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. All Bonds redeemed pursuant to the provisions of this Article shall be cancelled by the Trustee upon surrender thereof and destroyed. ARTICLE V REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST SECTION 5.01 Pledge and Assignment; Bond Fund. (a) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to this Indenture are hereby pledged to secure the payment of the principal of and interest on the Bonds in accordance with their terms and the provisions of this Indenture. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act. (b) The Authority hereby transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the rights of the Authority in the Lease Agreement (other than the rights of the Authority under Sections 4.8, 7.3 and 8.3 thereof). The Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and shall, subject to the provisions of Article VIII, take all steps, actions and 23 ATTACHMENT 4 proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the Lease Agreement. SECTION 5.02 Allocation of Revenues. On or before each date on which principal of or interest on the Bonds becomes due and payable, the Trustee shall transfer from the Bond Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Bond Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) The Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all Bonds then Outstanding. (b) The Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such date. (c) The Trustee shall deposit in the Sinking Account an amount equal to the aggregate principal amount of the Term Bonds required to be redeemed on such date, if any, pursuant to Section 4.01(a). (d) The Trustee shall deposit in the Reserve Account an amount, if any, required to cause the amount on deposit in the Reserve Account to be equal to the Reserve Requirement. SECTION 5.03 Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to this Indenture). SECTION 5.04 Application o Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds at their respective maturity dates. SECTION 5.05 Application of Sinking Account. All moneys on deposit in the Sinking Account shall be used and withdrawn by the Trustee for the sole purpose of redeeming or purchasing (in lieu of redemption) Term Bonds pursuant to Section 4.01(a). SECTION 5.06 implication of Reserve Account. (a) Generally. All amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying principal of or interest on the Bonds, including the principal amount of any Term Bonds subject to mandatory Sinking Account redemption 24 ATTACHMENT 4 pursuant to Section 4.01(a), when due and payable to the extent that moneys deposited in the Interest Account, Principal Account or Sinking Account are not sufficient for such purpose, and (ii) making the final payments of principal of and interest on the Bonds. On the date on which all Bonds shall be retired hereunder or provision made therefor pursuant to Article X, all moneys then on deposit in the Reserve Account shall be withdrawn by the Trustee and paid to the City as a refund of overpaid Additional Lease Payments. If, on any date, moneys on deposit in the Reserve Account, together with amounts then on deposit in the Bond Fund, are sufficient to pay all Outstanding Bonds, including all principal thereof and interest thereon, at the Written Request of the Authority the Trustee shall transfer all amounts then on deposit in the Reserve Account, together with such amounts in the Bond Fund, to the Redemption Fund to be applied to the redemption of the Bonds in accordance with the provisions of Section 4.01(b). Any amounts remaining in the Reserve Account upon payment in full of all Outstanding Bonds, shall be withdrawn by the Trustee and paid to the City as a refund of overpaid Lease Payments. Any amounts on deposit in the Reserve Account on or before each Interest Payment Date in excess of the Reserve Requirement shall be transferred to the Bond Fund. Nothing in this paragraph is intended or shall be construed to authorize or require the Trustee to draw amounts under the Reserve Account Credit Facility for the uses described in this paragraph. (b) Reserve Account Credit Facility. The Reserve Requirement may be satisfied by crediting to the Reserve Account moneys and/or a Reserve Account Credit Facility which in the aggregate make funds available in the Reserve Account in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of a Reserve Account Credit Facility, the Trustee shall transfer moneys then on hand in the Reserve Account in excess of the Reserve Requirement (after giving effect to the Reserve Account Credit Facility) to the Authority to be applied for any lawful purpose. In the event any such Reserve Account Credit Facility is so acquired, the Trustee shall draw on it in accordance with its terms when and if moneys are needed pursuant to the provisions of subsection (a); The Authority shall notify the Rating Agencies upon the deposit with the Trustee of a Reserve Account Credit Facility. Such Reserve Account Credit Facility shall have a term commensurate with the final maturity of the Bonds. Notwithstanding any other provisions of this Indenture, any amounts invested in Permitted Investments in the Reserve Account shall (a) be valued at fair market value and marked to market twice per year and (b) not have a maturity outstanding beyond five years unless such investment is redeemable at par for payment of debt service on the Bonds. SECTION 5.07 Application of Redemption Fund. When required the Trustee shall establish and maintain the Redemption Fund, amounts in which shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of on the Bonds to be redeemed pursuant to Sections 4.01(b) or (c); provided, however, that at any time prior to giving notice of redemption of any such Bonds, the Trustee may apply such amounts to the purchase of Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the Authority received prior to the selection of Bonds for 25 ATTACHMENT 4 redemption, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. SECTION 5.08 Insurance and Condemnation Fund. (a) Establishment of Fund. Upon the receipt of any proceeds of insurance or eminent domain with respect to any portion of the Leased Premises, the Trustee shall establish and maintain a separate Insurance and Condemnation Fund, to be held and applied as hereinafter set forth in this Section 5.08. (b) Application of Insurance Proceeds. Any proceeds of insurance against accident to or destruction of the Facilities collected by the City in the event of any such accident or destruction shall be applied in accordance with Section 6.2(a) of the Lease Agreement. The City shall cause any such proceeds to be paid to the Trustee for deposit in the Insurance and Condemnation Fund. If the City fails to determine and notify the Trustee in writing of its determination, within forty-five (45) days following the date of such deposit, to replace, repair, restore, modify or improve the Facilities, then such proceeds shall be promptly transferred by the Trustee to the Redemption Fund and applied to the redemption of Bonds pursuant to Section 4.01(c); provided, however, that such redemption will occur only if the fair rental value of the remaining portion of the Leased Premises is sufficient to allow the City to continue to make Lease Payments in amounts sufficient to pay debt service on the Bonds that remain Outstanding after such redemption. Notwithstanding the foregoing sentence, however, in the event of damage or destruction of the Facilities in full, the proceeds of such insurance shall be used by the City to rebuild or replace the Facilities if such proceeds are not sufficient, together with other available funds then held by the Trustee, to redeem all of the Outstanding Bonds. All proceeds deposited in the Insurance and Condemnation Fund and not so transferred to the Redemption Fund shall be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Facilities by the City, upon receipt of Written Requisitions of the City as agent for the Authority (i) stating with respect to each payment to be made (A) the requisition number, (B) the name and address of the person to whom payment is due, (C) the amount to be paid and (D) that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Fund, has not been the basis of any previous withdrawal; (ii) specifying in reasonable detail the nature of the obligation; and (iii) accompanied by a bill or a statement of account for such obligation. The "Trustee may conclusively rely on any such Written Requisitions. Any balance of the proceeds remaining after such work has been completed as certified by the City as agent for the Authority shall be paid to the City. (c) Application of Eminent Domain Proceeds. If all or any part of the Leased Premises shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain) the proceeds therefrom shall be applied in accordance with Section 6.2(b) of the Lease Agreement. The City shall cause any such proceeds to be paid to the Trustee for deposit in the Insurance and Condemnation Fund, to be applied and disbursed by the Trustee as follows: (i) If the City has not given written notice to the Trustee, within forty-five (45) days following the date on which such proceeds are deposited with the Trustee, of its 26 ATTACHMENT determination that such proceeds are needed for the replacement of the Leased Pre or such portion thereof, the Trustee shall transfer such proceeds to the Redemption to be applied towards the redemption of the Bonds pursuant to Section 4.01(c). (ii) If the City has given written notice to the Trustee, within forty-five (4 ) days following the date on which such proceeds are deposited with the Trustee, of i s determination that such proceeds are needed for replacement of the Leased Premises or such portion thereof, the Trustee shall pay to the City, or to its order, from said procee s such amounts as the City may expend for such replacement, upon the filing of Written Requisitions of the City as agent for the Authority in the form and containing the provisions set forth in subsection (b) of this Section 5.08 and upon which the Trustee may conclusively rely. SECTION 5.09 Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to this Indenture shall. be invested by the Trustee solely in Permitted Investments which mature not later than the date such moneys are estimated by the Authority to be required. Such investments shall be directed by the Authority pursuant to a Written Request of the Authority filed with the Trustee at least two (2) Business Days in advance of the making of such investments (which Written Request shall certify that the investmen s constitute Permitted Investments). In the absence of any such directions from the Authority, the Trustee shall invest any such moneys in Permitted Investments described in clause (4) oft the definition thereof. Permitted Investments purchased as an investment of moneys in any fu rd shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Bond Fund, except that interest or gain derived from the investment of the amount in the Reserve Account shall be retained therein to the extent required to maintain the Reserve Requirement. For purposes of acquiring a y investments hereunder, the Trustee may commingle funds held by it hereunder. The Trustee, or an affiliate, may act as principal or agent in the acquisition or disposition of any investment a d may impose its customary charges therefor. The Trustee shall incur no liability for losses arisi g from any investments made pursuant to this Section. 5.09. Permitted Investments that are registered securities shall be registered in the name of the Trustee. The Authority covenants that all investments of amounts deposited in any fund or account created-by or pursuant to this Indenture, or otherwise containing proceeds of the Bonds, shall be acquired and disposed of at the Fair Market Value thereof. SECTION 5.10 Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund or account shall be valued at the Fair Market Value thereof; provided, however, that investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code and investments in the Reserve Account shall be valued at their present value (within the meaning of Section 148 of the Tax Code), consisting generally oft the cost thereof. The Trustee shall have no duty in connection with the determination of Fair Market Value other than to follow the investment directions of the Authority. 27 ATTACHMENT ARTICLE VI PARTICULAR COVENANTS SECTION 6.01 Punctual Payment. The Authority shall punctually pay or cause be paid the principal of and interest and premium (if any) on all the Bonds in strict conformi with the terms of the Bonds and of this Indenture, according to the true intent and meanie thereof, but only out of Revenues and other assets pledged for such payment as provided in & Indenture. SECTION 6.02 Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section 6.02 shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and su h issuance shall not be deemed to constitute an extension of maturity of the Bonds. SECTION 6.03 Against Encumbrances. The Authority shall not create, or 1 the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, the pledge and assignment created by this Indenture. Subject to this limitation, the Aut expressly reserves the right to enter into one or more other indentures for any of its cor purposes, and reserves the right to issue other obligations for such purposes. SECTION 6.04 Power to Issue Bonds and Make Pledge and Assi rtg ment. TI Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indentu and to pledge and assign the Revenues and other assets purported to be pledged and assigne respectively, under this Indenture in the manner and to the extent provided in this Indenture. Tl Bonds and the provisions of this Indenture are and will be the legal, valid and binding speci obligations of the Authority in accordance with their terms, and the Authority and the Trust shall at all times, subject to the provisions of Article VIII and to the extent permitted by lal defend, preserve and protect said pledge and assignment of Revenues and other assets and all tl rights of the Bond Owners under this Indenture against all claims and demands of all perso whomsoever. SECTION 6.05 Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall. be made of all transactions made by it relating to the proceeds of Bonds, the Revenues, the Lease Agreement and all funds and accounts established pursuant to this Indenture. Such books of record a d account shall be available for inspection by the Authority, the City, during business hours, up n reasonable notice, and under reasonable circumstances. The Trustee shall deliver a month y account of the funds and accounts hereunder to the Authority, provided that the Trustee shall n t 28 ATTACHMENT 4 be obligated to deliver any accounting of any fund or account that (a) has a balance of zero and (b) has not had any activity since the last reporting date. SECTION 6.06 Additional Obligations. The Authority may issue additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part pursuant to Section 9.01(b)(v) hereof, for the purpose of financing any construction of a new city hall or for any other municipal purpose, so long as no Event of Default hereunder has occurred and is continuing and provided that the conditions of Section 8.3(e) of the Lease Agreement have been satisfied. SECTION 6.07 Tax Covenants. (a) Private Activity Bond Limitation. The Authority shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax. Code. (b) Federal Guarantee Prohibition. The Authority shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The Authority shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Tax Code. (d) Maintenance of Tax-Exemption. The Authority shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. (e) Rebate of Excess Investment Earnings. The Authority shall calculate or cause to be calculated all amounts of excess investment earnings with respect to the Bonds which are required to be rebated to the United States of America pursuant to Section 148(f) of the Tax Code, at the times and in the manner required pursuant to the Tax Code. The Authority shall pay or cause to be paid when due an amount equal to excess investment earnings to the United States of America in such amounts, at such times and in such manner as may be required pursuant to the Tax Code, such payments to be made from amounts provided by the City for such purpose pursuant to Section 5.11 of the Lease Agreement. The Authority shall keep or cause to be kept, and retain or cause to be retained for a period of six (6) years following the retirement of the Bonds, records of the determinations made pursuant to this subsection (e). The Trustee shall have no duty to monitor the compliance by the Authority with any of the covenants contained in this subsection (e). SECTION 6.08 Lease Agreement. Subject to the provisions of Article VIII hereof, the Trustee shall promptly collect all amounts due from the City pursuant to the Lease Agreement. Subject to the provisions of Article VIII, the Trustee shall enforce, and take all steps, actions and proceedings which the Trustee determines to be reasonably necessary for the 29 ATTAC enforcement of all of its rights thereunder as assignee of the Authority and for the enforcement all of the obligations of the City under the Lease Agreement. SECTION 6.09 Waiver of Laws. The Authority shall not at any time insist upon plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay extension law now or at any time hereafter in force that may affect the covenants and agreemei contained in this Indenture or in the Bonds, and all benefit or advantage of any such law or la' is hereby expressly waived by the Authority to the extent permitted by law. SECTION 6.10 Further Assurances. The Authority will make, execute and del any and all such further indentures, instruments and assurances as may be reasonably neces: or proper to carry out the intention or to facilitate the performance of this Indenture and for better assuring and confirming the rights and benefits provided in this Indenture to the B Owners. 4 SECTION 6.11 Leased Premises. If an event of abatement occurs pursuant to Section 6.3 of the Lease Agreement, the City shall use its best efforts to the extent penmissi le under the laws of the State of California to make all lease payments in excess of the amount of rental interruption insurance, if necessary, in order to ensure the reconstruction, repair, restoration, modification or improvement of the Leased Premises. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES SECTION 7.01 Events o fefault. The following events shall be Events of hereunder: (a) Default in the due and punctual payment of the principal of any when and as the same shall become due and payable, whether at maturity as expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Default in the due and punctual payment of any installment of interest any Bonds when and as the same shall become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, ifs such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee; provided, however, that if in the reasonable opinion of he Authority the default stated in the notice can be corrected, but not within such thirty ( 0) day period, such default shall not constitute an Event of Default hereunder if he Authority shall commence to cure such default within such sixty (60) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The occurrence and continuation of an event of default under and defined in the Lease Agreement. as 30 ATTACHMENT 4 SECTION 7.02 No Acceleration Upon Event of Default. If any Event of Default shall occur there shall not be any right on the part of the Trustee or the Bondholders to declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately. SECTION 7.03 Application of Revenues and Other Funds After Default. Notwithstanding anything to the contrary contained herein, if an Event of Default shall occur and be continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee as follows and in the following order: (a) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Indenture; (b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid) in accordance with the provisions of this Indenture, as follows: First. To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second. To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference. SECTION 7.04 Trustee to Represent Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, this Indenture and applicable provisions of any law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, the Trustee shall, proceed to protect or enforce its 31 ATTACHMENT 4 rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Bonds, this Indenture or any other law. Upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under this Indenture, pending such proceedings. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of this Indenture. Notwithstanding any other provision of this Indenture in determining whether the rights of the Bondholders will be adversely affected by any action taken pursuant to the terms and provisions of this Indenture, the Trustee shall consider the effect on the Bondholders as if there were no Insurance Policy. SECTION 7.05 Bond Owners' Direction of Proceedings. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would expose it to liability. SECTION 7.06 Limitation on Bond Owners' Right to Sue. Notwithstanding any other provision hereof, no Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Lease Agreement or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have failed to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of 32 ATTACHMENT 4 Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, this Indenture, the Lease Agreement or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Indenture. SECTION 7.07 Absolute Obli attiion of Authority. Nothing in Section 7.06 or in any other provision of this Indenture or in the Bonds contained shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest and premium (if any) on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. SECTION 7.08 Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Bond Owners, then in every such case the Authority, the Trustee and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken. SECTION 7.09 Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. SECTION 7.10 No Waiver of DeLault. No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and every power and remedy given by this Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient. ARTICLE VIII THE TRUSTEE SECTION 8.01 Duties Immunities and Liabilities o Trustee. (a) The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture and no implied duties or covenants shall be read into 33 ATTACHMENT 4 this Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) The Authority may remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and the Authority shall remove the Trustee if at any time requested to do so by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section 8.01, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and the City and thereupon shall appoint a successor Trustee by an instrument in writing. Any such removal shall be made upon at least thirty (30) days' prior written notice to the Trustee. Upon giving such written notice of removal, the Authority shall promptly appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the Authority, to the City, and by giving the Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, with the prior written consent of the Authority shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that no removal resignation or termination of the Trustee shall take effect until a successor shall be appointed. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the Authority shall, and the Trustee may, petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture, shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such 34 ATTACHMENT 4 moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance appointment by a successor Trustee as provided in this subsection, the Authority shall mail cause the successor Trustee to mail a notice of the succession of such Trustee to the tru hereunder to the Bond Owners at the addresses shown on the Registration Books. If Authority fails to mail such notice within fifteen (15) days after acceptance of appointment the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expel of the Authority. (e) Any Trustee appointed under this Indenture shall be a corporation or association organized and doing business under the laws of any state or the United States of America or the District of Columbia, authorized under such laws to exercise corporate trust powers, which shall have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least Seventy-Five Million Dollars ($75,000,000), and subject to supervision or examination by federal or State agency, so long as any Bonds are Outstanding. If such corporation publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining agency above referred to then for the purpose of this subsection (e), the combin d capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. SECTION 8.02 Merger or Consolidation. Any bank or trust company into whi the Trustee may be merged or converted or with which it may be consolidated or any bank trust company resulting from any merger, conversion or consolidation to which it shall be a pai or any bank or trust company to which the Trustee may sell or transfer all or substantially all its corporate trust business, provided such bank or trust company shall be eligible unc subsection (e) of Section 8.01 shall be the successor to such Trustee, without the execution filing of any paper or any further act, anything herein to the contrary notwithstanding. SECTION 8.03 Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall not be taken statements of the Authority, and the Trustee shall not assume responsibility for the correctness the same, or make any representations as to the validity or sufficiency of this Indenture, t Bonds or the Lease Agreement, nor shall the Trustee incur any responsibility in respect there, other than as expressly stated herein in connection with the respective duties or obligatic herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, responsible for its representations contained in its certificate of authentication on the Bonds. T Trustee shall not be liable in connection with the performance of its duties hereunder, except its own negligence. The Trustee may become the Owner of Bonds with the same rights it woe have if it were not Trustee, and, to the extent permitted by law, may act as depository for a permit any of its officers or directors to act as a member of, or in any other capacity with respi to, any committee formed to protect the rights of Bond Owners, whether or not such commib shall represent the Owners of a majority in principal amount of the Bonds then Outstanding. f or as of Id ee 35 ATTACHMENT 4 (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (d) The Trustee shall not. be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. (e) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder, or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until it shall have actual knowledge thereof, or shall have received written notice thereof, at its Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the Authority or the City of any of the terms, conditions, covenants or agreements herein, under the Lease Agreement or of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default. The Trustee shall not be responsible for the validity, effectiveness or priority of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be required to ascertain or inquire as to the performance or observance by the City and the Authority of the terms, conditions, covenants or agreements set forth in the Lease Agreement, other than the covenants of the City to make Additional Lease Payments to the Trustee when due and to file with the Trustee, when due, such reports and certifications as the City is required to file with the Trustee thereunder. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it is not assured to its satisfaction that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of Owners pursuant to this Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or 36 ATTACHMENT 4 direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. (i) Whether or not therein expressly so provided, every provision of this Indenture and the Lease Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of Section 8.01(a), this Section 8.03 and Section 8.04 hereof. 0) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof. (k) The Trustee makes no representation or warranty, expressed or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for the use contemplated by the Authority or the City of the Leased Premises. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Lease Agreement or this Indenture for the existence, furnishing or use of the Leased Premises. (1) The Trustee may establish such funds and accounts hereunder as it deems necessary or appropriate to perform its obligations hereunder. SECTION 8.04 Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, requisition, consent, order, certificate, report, opinion, bonds or other paper or document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the Bonds appearing in the Registration Books as the absolute owners of the Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate, Written Request or Written Requisition of the Authority or the City, and such Written Certificate, Written Request or Written Requisition shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, Written Request or Written Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. SECTION 8.05 Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in their respective 37 ATTACHMENT 4 possession and shall be subject at all reasonable times to the inspection of the Authority, the City and any Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. SECTION 8.06 Compensation and Indemnification. The Authority shall pay to the Trustee (solely from Miscellaneous Rent) from time to time the compensation for all services rendered under this Indenture and also all reasonable expenses and disbursements, incurred in and about the performance of its powers and duties under this Indenture. The Authority shall indemnify, defend and hold harmless the Trustee and its officers, directors, agents and employees, against any loss, liability or expense incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder. As security for the performance of the obligations of the Authority under this Section 8.06 and the obligation of the City to pay Miscellaneous Rent to the Trustee, the Trustee shall have a lien prior to the lien of the Bonds upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of or interest on particular Bonds. The rights of the Trustee and the obligations of the Authority under this Section 8.06 shall survive the discharge of the Bonds and this Indenture. ARTICLE IX MODIFICATION OR AMENDMENT HEREOF SECTION 9.01 Amendments Permitted. (a) This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the Authority and the Trustee may enter into when the written consents of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, shall have been filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of t11e Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture except as permitted herein, or deprive; the Owners of the Bonds of the lien created by this Indenture on such Revenues and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. (b) This Indenture and the rights and obligations of the Authority, of the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the 38 ATTACHMENT 4 consent of any Bond Owners, if the Trustee has been furnished an opinion of counsel that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Bonds, including, without limitation, for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in this Indenture, or in regard to matters or questions arising under this Indenture, as the Authority may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners, in the opinion of Bond Counsel filed with the Trustee; (iii) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (iv) to modify, amend or supplement this Indenture in such manner as to cause interest on the Bonds to remain excludable from gross income under the Tax Code; or (v) to facilitate the issuance of additional bonds of the Authority secured by Lease Payments of the City pursuant to Section 8.3(e) of the Lease Agreement. (c) The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by subsections (a) or (b) of this Section 9.01 which materially adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. (d) Prior to the Trustee entering into any Supplemental Indenture hereunder, there shall be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of this Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion from gross income for purposes of federal income taxes of interest on the Bonds. SECTION 9.02 Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article IX, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. 39 ATTACHMENT 4 SECTION 9.03 Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand on the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same series and maturity. SECTION 9.04 Amendment of Particular Bonds. The provisions of this Article IX shall not prevent, any Bond Owner from accepting any amendment as to the particular Bonds held by him. ARTICLE X DEFEASANCE SECTION 10.01 Discharge of Indenture. Any or all of the Outstanding Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority: (a) by paying or causing to be paid the principal of and interest and premium (if any) on such Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem such Bonds; or (c) by delivering to the Trustee, for cancellation by it, all of such Bonds. If the Authority shall also pay or cause to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Written Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any of such Bonds shall not have been surrendered for payment, this Indenture and the pledge of Revenues and other assets made under this Indenture with respect to such Bonds and all covenants, agreements and other obligations of the Authority under this Indenture with respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the Authority, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver to the City all moneys or securities or 40 ATTACHMENT 4 other property held by it pursuant to this Indenture which are not required for the payment or redemption of any of such Bonds not theretofore surrendered for such payment or redemption. SECTION 10.02 Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of Section 10.04. The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. SECTION 10.03 Deposit o Money or Securities with Trustee. Whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to this Indenture and shall be: (a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds and all unpaid interest thereon to the redemption date; or (b) non-callable Federal Securities, the principal of and interest on which when due will, in the written opinion of an Independent Accountant filed with the City, the Authority and the Trustee, provide money sufficient to pay the principal of and interest and premium (if any) on the Bonds to be paid or redeemed, as such principal, interest and premium become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that (i) the Trustee shall have been irrevocably instructed (b, the terms of this Indenture or by Written Request of the Authority) to apply such money to the payment of such principal, interest and premium (if any) with respect to such Bonds, and (ii) the Authority shall have delivered to the Trustee an opinion of Bond Counsel to the effect that such Bonds 41 ATTACHMENT 4 have been discharged in accordance with this Indenture (which opinion may rely upon and assume the accuracy of the Independent Accountant's opinion referred to above). SECTION 10.04 Unclaimed Funds. Notwithstanding any provisions of this Indenture, and subject to applicable provisions of State law, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any Bonds and remaining unclaimed for two (2) years after the principal of such Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Indenture), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when such Bonds became due and payable, shall be repaid to the Authority free from the trusts created by this Indenture upon receipt of a Written Request of the Authority, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided/ however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee may (at the cost of the City) first mail to the Owners of Bonds which have not yet been paid, at tl~e addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS SECTION 11.01 Liability o Authority Limited to Revenues. Notwithstanding anything in this Indenture or in the Bonds contained, the Authority shall not be required to advance any moneys derived from any source other than the Revenues and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Indenture. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes. SECTION 11.02 Limitation of Ris,,hts to Parties and Bond Owners. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the City and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the City and the Owners of the Bonds. SECTION 11.03 Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05 and for the protection of the security of the Bonds and the rights of every Owner thereof. 42 ATTACHMENT 4 SECTION 11.04 Waiver of Notice; Requirement of Mailed Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. SECTION 11.05 Destruction o Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee may, in lieu of such cancellation and delivery, destroy such Bonds as may be allowed by law, and deliver a certificate of such destruction to the Authority upon its request. SECTION 11.06 Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. SECTION 11.07 Notices. All written notices to be given under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) otherwise, upon actual receipt. The Authority, the City or the Trustee may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Encinitas Public Financing Authority 505 South Vulcan Avenue Encinitas, CA 92024-3633 Attention: Executive Director If to the City: City of Encinitas 505 South Vulcan Avenue Encinitas, CA 92024-3633 Attention: City Manager 43 ATTACHMENT 4 If to the Trustee: Union Bank, N.A. 120 S. San Pedro Street, Suite 400 Los Angeles, CA 90012 Fax: (213) 972-5694 Attn: Corporate Trust Department SECTION 11.08 Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and the Authority if made in the manner provided in this Section 11.07. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon. SECTION 11.09 Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 11.10 Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest or principal due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 44 ATTACHMENT 4 Bonds entitled thereto, subject, however, to the provisions of Section 10.04 hereof but without any liability for interest thereon. SECTION 11.11 Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the principal of or interest or premium (if any) on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Indenture. SECTION 11.12 Benefit of Parties. Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Authority, the Trustee, and the registered Owners of the Bonds, any right, remedy or claim under or by reason of this Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Authority, the Trustee and the registered Owners of the Bonds. SECTION 11.13 Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Authority, the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority, the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. SECTION 11.14 Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. SECTION 11.15 Governinz Law. This Indenture shall be governed by and construed in accordance with the laws of the State. 45 ATTACHMENT 4 IN WITNESS WHEREOF, the ENCINITAS PUBLIC FINANCING AUTHORITY has caused this Indenture to be signed in its name by its Chairperson and attested to by its Secretary, and Union Bank, N.A., in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. ENCINITAS PUBLIC FINANCING AUTHORITY By Chairperson Attest: By Secretary UNION BANK, N.A., as Trustee By Authorized Officer 46 ATTACHMENT 4 EXHIBIT A FORM OF BOND No. R- UNITED STATES OF AMERICA STATE OF CALIFORNIA ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REVENUE REFUNDING BONDS, SERIES A INTEREST RATE: MATURITY DATE: DATED DATE: CUSIP: REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS The ENCINITAS PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under and by virtue of the laws of the State of California (the "Authority"), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the "Registered Owner"), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond unless (i) this Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth day of the month preceding such interest payment date, in which event it shall bear interest from such Interest Payment Date, or (ii) this Bond is authenticated on or before [September 15, 20101 in which event it shall bear interest from the Dated Date; provided, however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on this Bond, at the Interest Rate per annum specified above, payable semiannually on each April 1 and October 1, commencing [October 1, 20101 (collectively, the "Interest Payment Dates"), calculated on the basis of a 360-day year composed of twelve 30-day months. Principal hereof and premium, if any, upon early redemption hereof are payable upon presentation and surrender hereof at the corporate trust office (the "Office") of Union Bank, N.A., as trustee (the "Trustee"), in Los Angeles, California. Interest hereon is payable by check of the Trustee mailed to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each Interest Payment Date (a "Record Date"), or, upon written request filed with the Trustee (at least five days prior) to such Record Date by a Registered Owner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately available funds to an account in the United States designated by such Registered Owner in such written request. This Bond is one of a duly authorized issue of bonds of the Authority designated as the "Encinitas Public Financing Authority 2010 Lease Revenue Refunding Bonds, Series A" (the "Bonds"), in an aggregate principal amount of Dollars A-1 ATTACHMENT 4 all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers, maturities, interest rates or redemption provisions) and all issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Bond Law"), and pursuant to an Indenture of Trust, dated as of , 2010, by and between the Authority and the Trustee (the "Indenture") and a resolution of the governing body of the Authority adopted on , 2010, authorizing the issuance of the Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the Authority) and all supplements thereto for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the Revenues, and the rights thereunder of the owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Authority thereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued by the Authority to aid in refinancing the leasing by the Authority of certain public facilities to be leased back to the City pursuant to the hereinafter described Lease Agreement, by and between the Authority and the City, and causing the redemption in full of the outstanding Encinitas Public Financing Authority 2001 Lease Revenue Bonds, Series A. This Bond and the interest and premium, if any, hereon and all other Bonds and the interest and premium, if any, thereon (to the extent set forth in the Indenture) are special obligations of the Authority, and are payable from, and are secured by a charge and lien on the Revenues as defined in the Indenture, consisting primarily of lease payments payable by the City for the use and possession of certain land and improvements (the "Leased Premises") pursuant to a Lease Agreement dated as of , 2010, by and between the Authority as lessor and the City as lessee (the "Lease Agreement"). As and to the extent set forth in the Indenture, all of the Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on the Bonds. The rights and obligations of the Authority and the owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the owner of each Bond so affected. The Bonds maturing on or before April 1, , are not subject to redemption prior to their respective stated maturities. The Bonds maturing on or after April 1, , are subject to redemption at the option of the Authority as a whole or in part, on any date on or after April 1, from any available source of funds, at the following respective redemption prices (expressed as a percentage of the principal amount of the Bonds to be redeemed) together with accrued interest thereon to the date fixed for redemption. A-2 ATTACHMENT 4 Redemption Period Redemption Price The Bonds maturing on April 1, and April 1, 2031, are also subject to mandatory redemption, in part by lot, from Sinking Account payments on April 1 in each year commencing April 1, , with respect to the Bonds maturing April 1, , and April 1, with respect to the Bonds maturing April 1, 2031, in the amounts as set forth in the following schedule, at a redemption price equal to one hundred percent (100%) of the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of such Bonds have been redeemed pursuant to the foregoing or following redemption provisions, the total amount of Sinking Account payments to be made with respect to such Bonds on April 1 in each year subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Authority with the Trustee. Term Bonds Maturing April 1, Mandatory Sinking Fund Redemption Date (April 1) Principal Amount to Be Redeemed Term Bonds Maturing April 1, 2031 Mandatory Sinking Fund Redemption Date (April 1) Principal Amount to Be Redeemed The Bonds are also subject to redemption as a whole or in part, on any date, from any Net Proceeds (as such term is defined in the Indenture) of hazard or title insurance proceeds not used to repair or replace any portion of the Leased Premises or condemnation proceeds received with respect to the Leased Premises and elected by the City to be used for such purpose pursuant to A-3 ATTACHMENT 4 the Lease Agreement, at a redemption price equal to the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. As provided in the Indenture, notice of redemption shall be mailed by the Trustee by first class mail not less than thirty (30) nor more than sixty (60) days prior to the redemption date to the respective owners of any Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption or the cessation of accrual of interest thereon from and after the date fixed for redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default, as defined in the Indenture, shall occur, the principal of all Bonds may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture, but such declaration and its consequences may be rescinded and annulled as further provided in the Indenture. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. This Bond may be exchanged at the Office of the Trustee for Bonds of the same tenor, aggregate principal amount, interest rate and maturity, of other authorized denominations. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. This Bond is not a debt of the City of Encinitas (the "City"), the San Dieguito Water District (the "Water District") as a member of the Authority, the County of San Diego, the State of California, or any of its political subdivisions, and neither the City, said Water District, said County, said State, nor any of its political subdivisions, is liable hereon nor in any event shall this Bond be payable out of any funds or properties of the Authority other than the Revenues as such term is defined in the Indenture. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF WHICH FURTHER PROVISIONS SHALL, FOR ALL PURPOSES, HAVE THE SAME EFFECT AS IF SET FORTH IN THIS PLACE. It is hereby certified, recited and declared by the Authority that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Bond Law and the laws of the State of A-4 ATTACHMENT 4 California and that the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Bond Law or any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been signed by the Trustee. IN WITNESS WHEREOF, the Encinitas Public Financing Authority has caused this Bond to be executed in its name and on its behalf with the facsimile signature of its Chairperson and attested to by the facsimile signature of its Secretary, all as of the Dated Date specified above. ENCINITAS PUBLIC FINANCING AUTHORITY By Chairperson (S E A L) Attest: Secretary A-5 ATTACHMENT 4 CERTIFICATE OF AUTHENTICATION Dated: This is one of the Bonds described in the within-mentioned Indenture. UNION BANK, N.A., as Trustee By Authorized Signatory A-6 ATTACHMENT 4 (FORM OF ASSIGNMENT) For value received the undersigned do(es) hereby sell, assign and transfer unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within Bond and do(es) hereby irrevocably constitute and appoint attorney, to transfer the same on the books of the Trustee, with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature guarantee shall be made by a Note: guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever. A-7 ATTACHMENT 4 EXHIBIT B DESCRIPTION OF PROJECT B-1 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; RULES OF INTERPRETATION Section 1.01 Section 1.02 Definitions 3 Interpretation 14 ARTICLE II THE BONDS Section 2.01 Section 2.02 Section 2.03 Section 2.04 Section 2.05 Section 2.06 Section 2.07 Section 2.08 Section 2.09 Section 2.10 Section 2.11 Authorization of Bonds 14 Terms of the Bonds 14 Transfer of Bonds 16 Exchange of Bonds 16 Registration Books 16 Form and Execution of Bonds 16 Temporary Bonds 17 Bonds Mutilated, Lost, Destroyed or Stolen 17 Cancellation of Bonds 17 CUSIP Numbers 17 Book-Entry Bonds 18 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01 Issuance of the Bonds 19 Section 3.02 Application of Proceeds at Closing 19 Section 3.03 Establishment and Application of Costs of Issuance Fund 20 Section 3.04 Project Fund 20 Section 3.05 Validity of Bonds 21 ARTICLE IV REDEMPTION OF BONDS Section 4.01 Terms of Redemption 21 Section 4.02 Selection of Bonds for Redemption 22 Section 4.03 Notice of Redemption 22 Section 4.04 Partial Redemption of Bonds 23 Section 4.05 Effect of Redemption 23 ARTICLE V REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01 Pledge and Assignment; Bond Fund 23 Section 5.02 Allocation of Revenues 24 Section 5.03 Application of Interest Account 24 -i- TABLE OF CONTENTS (continued) Page Section 5.04 Application of Principal Account 24 Section 5.05 Application of Sinking Account 24 Section 5.06 Application of Reserve Account 24 Section 5.07 Application of Redemption Fund 25 Section 5.08 Insurance and Condemnation Fund 26 Section 5.09 Investments 27 Section 5.10 Valuation and Disposition of Investments 27 ARTICLE VI PARTICULAR COVENANTS Section 6.01 Punctual Payment 28 Section 6.02 Extension of Payment of Bonds 28 Section 6.03 Against Encumbrances 28 Section 6.04 Power to Issue Bonds and Make Pledge and Assignment 28 Section 6.05 Accounting Records and Financial Statements 28 Section 6.06 Additional Obligations 29 Section 6.07 Tax Covenants 29 Section 6.08 Lease Agreement 29 Section 6.09 Waiver of Laws 30 Section 6.10 Further Assurances 30 Section 6.11 Leased Premises 30 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01 Events of Default 30 Section 7.02 No Acceleration Upon Event of Default 31 Section 7.03 Application of Revenues and Other Funds After Default 31 Section 7.04 Trustee to Represent Bond Owners 31 Section 7.05 Bond Owners' Direction of Proceedings 32 Section 7.06 Limitation on Bond Owners' Right to Sue 32 Section 7.07 Absolute Obligation of Authority 33 Section 7.08 Termination of Proceedings 33 Section 7.09 Remedies Not Exclusive 33 Section 7.10 No Waiver of Default 33 ARTICLE VIII THE TRUSTEE Section 8.01 Duties, Immunities and Liabilities of Trustee 33 Section 8.02 Merger or Consolidation 35 Section 8.03 Liability of Trustee 35 Section 8.04 Right to Rely on Documents 37 -ii- TABLE OF CONTENTS (continued) Page Section 8.05 Preservation and Inspection of Documents 37 Section 8.06 Compensation and Indemnification 38 ARTICLE IX MODIFICATION OR AMENDMENT HEREOF Section 9.01 Amendments Permitted 38 Section 9.02 Effect of Supplemental Indenture 39 Section 9.03 Endorsement of Bonds; Preparation of New Bonds 40 Section 9.04 Amendment of Particular Bonds 40 ARTICLE X DEFEASANCE Section 10.01 Discharge of Indenture 40 Section 10.02 Discharge of Liability on Bonds 41 Section 10.03 Deposit of Money or Securities with Trustee 41 Section 10.04 Unclaimed Funds 42 ARTICLE XI MISCELLANEOUS Section 11.01 Liability of Authority Limited to Revenues 42 Section 11.02 Limitation of Rights to Parties and Bond Owners 42 Section 11.03 Funds and Accounts 42 Section 11.04 Waiver of Notice; Requirement of Mailed Notice 43 Section 11.05 Destruction of Bonds 43 Section 11.06 Severability of Invalid Provisions 43 Section 11.07 Notices 43 Section 11.08 Evidence of Rights of Bond Owners 44 Section 11.09 Disqualified Bonds 44 Section 11.10 Money Held for Particular Bonds 44 Section 11.11 Waiver of Personal Liability 45 Section 11.12 Benefit of Parties 45 Section 11.13 Successor Is Deemed Included in All References to Predecessor 45 Section 11.14 Execution in Several Counterparts 45 Section 11.15 Governing Law 45 EXHIBIT A - FORM OF BOND A-1 EXHIBIT B - DESCRIPTION OF PROJECT .............................................................................B-1 -iii- ATTACHMENT 5 Draft of 5/3/10 PRELIMINARY OFFICIAL STATEMENT DATED , 2010 NEW ISSUE - BOOK ENTRY ONLY RATINGS: (See "RATINGS" herein. In the opinion of Best Best & Krieger LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See "TAX MATTERS" herein. ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REVENUE REFUNDING BONDS SERIES A (PARK PROJECT) Dated: Date of Delivery Due: April 1, as shown on inside cover The 2010 Lease Revenue Refunding Bonds, Series A (Park Project) (the "Bonds") of the Encinitas Public Financing Authority (the "Authority") will be issued as fully registered bonds in book-entry form only, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. Purchasers will not receive certificates representing their interest in the Bonds. Individual purchases will be in principal amounts of $5,000 or in any integral multiple of $5,000. Interest payable on the Bonds will be payable on October 1 and April 1 of each year, commencing October 1, 2010, and principal payable on the Bonds will be paid by Union Bank, N.A., Los Angeles, California, as trustee for the Bonds (the "Trustee"), to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. The Bonds are being issued by the Authority for the purpose of (i) refinancing the Authority's 2001 Lease Revenue Bonds, Series A (the "Prior Bonds"), (ii) paying the costs of issuing the Bonds, and (iii) funding a reserve fund for the Bonds, all as further described herein. The Bonds are limited obligations of the Authority payable primarily from and secured by certain revenues (the "Revenues") consisting of certain Lease Payments with respect to the Leased Premises (as described herein) by the City of Encinitas (the "City") pursuant to an Amended and Restated Lease Agreement, dated as of 1, 2010 (the "Lease Agreement") between the City and the Authority. The Lease Payments are structured to produce Revenues sufficient to pay principal of and interest on the Bonds when due. The City has covenanted in the Lease Agreement to make all Lease Payments provided for therein, to Preliminary, subject to change. 298138_1.DOC ATTACHMENT 5 Draft of 5/3/10 include all such payments in its annual budgets, and to make the necessary annual appropriations for such rental payments. The City's obligations to make Lease Payments is subject to abatement in the event of damage to, destruction or condemnation of, or title defects relating to, the Leased Premises described herein. See "SECURITY FOR THE BONDS" and "RISK FACTORS" herein. The City has the right to incur other obligations payable from its general revenues without the consent of the Owners of the Bonds. The Revenues are to be received by the Authority and deposited pursuant to an Indenture of Trust, dated as of _ 1, 2010 (the "Indenture") between the City and the Trustee. The Bonds are subject to redemption prior to maturity as described herein. See "THE BONDS Redemption" herein. This cover page contains information for general reference only. It is not a summary of the security or terms of this issue. Investors must read the entire Official Statement, including the section entitled "RISK FACTORS," for a discussion of special factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds. Capitalized terms used on this cover page and not otherwise defined shall have the meanings set forth herein. THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES AND OTHER FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT A DEBT, OBLIGATION OR LIABILITY OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY), NOR DO THEY CONSTITUTE A PLEDGE OF THE FAITH AND CREDIT OR THE TAXING POWER OF ANY OF THE FOREGOING (INCLUDING THE AUTHOFITY AND THE CITY). THE AUTHORITY DOES NOT HAVE ANY TAXING POWER. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE CITY'S OBLIGATION TO MAKE LEASE PAYMENTS IS AN OBLIGATION PAYABLE FROM THE CITY'S GENERAL FUND OR ANY OTHER SOURCE OF FUNDS LEGALLY AVAILABLE TO THE CITY TO MAKE LEASE PAYMENTS. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION OR ANY OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION, OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The Bonds are offered, when, as and if issued and received by the Underwriter, subject to the approval of legality by Best Best & Krieger LLP, Riverside, California, Bond Counsel. Certain legal matters will be passed upon for the Authority and the City by the City Attorney and Nossaman LLP, Disclosure Counsel. It is expected that the Bonds, in book-entry form, will be available through the facilities of DTC in New York, New York for delivery on or about 2010. Dated: 298138_1. DOC ATTACHMENT 5 Draft of 5/3/10 MATURITY SCHEDULE* $ Serial Bonds Maturity Date Principal Interest Price or (April 1Amount Rate Yield $ % Term Bonds Due April 1, 20, Price or Yield CUSIP® % (CUSIP°: ) Preliminary, subject to change. A registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard & Poor's, CUSIP Services Bureau, a division of The McGraw-Hill Companies, Inc. 298138_1. DOC ATTACHMENT 5 Draft of 5/3/10 No dealer, broker, salesperson or other person has been authorized by the Encinitas Public Financing Authority, the City of Encinitas or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the City or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the Authority, the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities under federal securities laws, as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no changes in the affairs of the Authority or the City since the date hereof. All summaries of the Indenture or other documents are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE INSIDE COVER PAGE HEREOF. THE PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. 298138_1. DOC ATTACHMENT 5 Draft of 5/3/10 CITY OF ENCINITAS/ ENCINITAS PUBLIC FINANCING AUTHORITY AUTHORITY BOARD OF DIRECTORS Dan Dalager, Board President Maggie Houlihan, Vice President James Bond, Member Jerome Stocks, Member Teresa Barth, Member CITY COUNCIL Dan Dalager, Mayor Maggie Houlihan, Deputy Mayor Jerome Stocks, Council Member James Bond, Council Member Teresa Barth, Council Member AUTHORITY/CITY STAFF P.E. Cotton, Executive Director/City Manager Jennifer Smith, Finance Director Jay Lembach, Treasurer/Finance Manager Deborah Cervone, Secretary/City Clerk Glenn Sabine, Authority Counsel/City Attorney SPECIAL SERVICES Bond Counsel Financial Advisor Best Best & Krieger LLP Northcross, Hill & Ach Riverside, California San Rafael, California Trustee Union Bank, N.A. Los Angeles, California Disclosure Counsel Nossaman LLP Irvine, California 2981381.130C ATTACHMENT 5 Draft: of 5/3/10 TABLE OF CONTENTS Page INTRODUCTION .............1 General .............1 The Authority and the City .............2 Security for the Bonds .............2 Abatement 3 Redemption .............3 Continuing Disclosure .............3 Forward-Looking Statements .............3 Summary of Terms .............3 THE AUTHORITY .............4 THE CITY .............4 THE REFUNDING PLAN .............4 THE LEASED PREMISES .............5 The Leased Premises .............5 Environmental Compliance .............5 Substitution of Leased Premises ..............6 THE BONDS ..............7 Description of the Bonds .............7 Redemption .............7 Book-Entry System ..............9 SECURITY FOR THE BONDS ............10 General ............10 Limited Obligations ............10 Lease Payments ............11 Additional Bonds ............11 Appropriation; Use of Leased Premises ............12 Abatement ............12 Action on Default ............13 Miscellaneous Rent ............13 Insurance ............13 Reserve Account ............14 ESTIMATED SOURCES AND USES OF FUNDS ............15 DEBT SERVICE SCHEDULE ............16 RISK FACTORS ............16 No Tax Pledge ............16 Appropriation ............17 No Limit on Additional General Fund Obligations ............17 Abatement and Eminent Domain ............17 Sufficiency of Lease Payments ............18 Limitation on Enforcement of Remedies; No Acceleration ............18 Seismic, Topographic and Climatic Conditions ............18 Hazardous Substances ............19 California Housing Market ............20 Public Debt Burden on Leased Premises ............20 Risk of Uninsured Loss ............20 Impact of State Budget ............21 Bankruptcy and Foreclosure ............22 ATTACHMENT S Draft of 5/3/10 Federal Tax-Exempt Status of the Bonds 23 Secondary Market Risk 23 Substitution and Removal of Leased Premises 23 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS. 23 Article XIIIA of the State Constitution 23 Article XIIIB of the State Constitution 24 Proposition 218 25 Unitary Property 25 Proposition 62 26 Proposition 1 A 26 Future Initiatives 27 TAX MATTERS 27 CERTAIN LEGAL MATTERS 29 LITIGATION 29 FINANCIAL ADVISOR 29 PROFESSIONAL FEES 29 FINANCIAL STATEMENTS 30 [RATINGS 30 UNDERWRITING 30 MISCELLANEOUS 31 APPENDIX A-- CITY FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION A-1 APPENDIX B CITY'S AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR 2008/09 B-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .....................................C-1 APPENDIX D FORM OF OPINION OF BOND COUNSEL D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT E-1 APPENDIX F BOOK ENTRY PROVISIONS F-1 ATTACHMENT 5 Draft of 5/3/10 OFFICIAL STATEMENT ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REVENUE REFUNDING BONDS SERIES A (PARK PROJECT) INTRODUCTION General This Official Statement, including the cover page and appendices, is provided to furnish information in connection with the sale by the Encinitas Public Financing Authority (the "Authority") of $ . aggregate principal amount of 2010 Lease Revenue Refunding Bonds, Series A (Park Project) (the "Bonds"). The Bonds are being issued pursuant to the Constitution and laws of the State of California (the "State"), including Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "JPA Law"). The Bonds are issued pursuant to an Indenture of Trust, dated as of 1, 2010 (the "Indenture"), between the Authority and Union Bank, N.A. (the "Trustee"). Proceeds of the Bonds will be used to (i) refinance the Authority's 2001 Lease Revenue Bonds, Series A (the "Prior Bonds"), (ii) pay the costs of issuing the Bonds, and (iii) fund a reserve fund for the Bonds. See "THE REFUNDING PLAN," "THE LEASED PREMISES" and "ESTIMATED SOURCES AND USES OF FUNDS" herein. The Bonds are limited obligations of the Authority payable, on a parity basis, primarily from and secured by certain revenues (the "Revenues") consisting of certain Lease Payments to be paid by the City pursuant to an Amended and Restated Lease Agreement (the "Lease Agreement"), dated as of 1, 2010, between the City and the Authority, for certain real property and the improvements thereon (the "Leased Premises"). See "THE LEASED PREMISES" herein. The City is also required to pay any taxes, assessment charges, utility charges, maintenance and repair costs of the Leased Premises. The Lease Payments are structured to produce Revenues sufficient to pay principal of and interest on the Bonds when due. The City has covenanted in the Lease Agreement to make all Lease Payments provided for therein, to include all such payments in its annual budgets, and to make the necessary annual appropriations for such rental payments. The City's obligations to make Lease Payments is subject to abatement in the event of damage to, destruction or condemnation of, or title defects relating to, the Leased Premises, as described herein. (See "SECURITY FOR THE BONDS" herein). The Revenues are to be received by the Authority and deposited pursuant to the Indenture. Terms used in this Official Statement and not otherwise defined shall have the meaning given to them in APPENDIX C attached hereto. Preliminary, subject to change. ATTACHMENT 5 Draft of 5/3/10 The Authority and the City The City is located in the northern coastal area of San Diego County (the "County") overlooking the Pacific Ocean. The City encompasses approximately 21.4 square miles and is located 30 miles north of the City of San Diego and immediately north of the City of Solana Beach. The California Department of Finance has estimated that the City presently has a population of approximately . For other selected information concerning the City, see "THE CITY" herein and "APPENDIX A - CITY FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION" and "APPENDIX B - AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR 2008/09" attached hereto. The Authority was established pursuant to a Joint Exercise of Powers Agreement dated November 6, 1991, between the City, the Encinitas Fire Protection District, the Encinitas Sanitary District (both of which have since been absorbed into the City), the Cardiff Sanitation District and the San Dieguito Water District (the "Members"). The Authority was created for the purpose of providing financing for public capital improvements for the Members, including by issuing its obligations and making loans to the Members. See "THE CITY" herein Security for the Bonds The Bonds are payable solely from, and are secured by, the Revenues (as defined under "SECURITY FOR THE BONDS" herein), which primarily consist of the Lease Payments. The Lease Payments are payable for the use of the Leased Premises, together with the capital improvements located thereon, leased to the City pursuant to the Lease Agreement, from any legally available funds of the City. The City has covenanted in the Lease Agreement to include the Lease Payments in its annual budgets. The City has further covenanted to make the necessary annual appropriations for all such Lease Payments, and said covenants have been deemed to be duties imposed by law. Any legislative enactment or State constitutional amendment having the effect of reducing the property tax rate would necessarily reduce the amount of general revenues available to the City to pay the Lease Payments. Likewise, broadened property tax exemptions could have a similar effect. See "RISK FACTORS" and "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" herein for discussion of certain other matters which may affect the collection of Revenues. The Authority does not have any power to levy and collect taxes. The City has the right to incur other obligations payable from its general revenues without the consent of the Owners of the Bonds. In addition, the Indenture allows the Authority to issue certain additional obligations secured by the Revenues, and the Lease Agreement allows the City to incur other obligations secured by excess value of the Leased Premises. See "SECURITY FOR THE BONDS" herein. See "SECURITY FOR THE BONDS" herein. THE BONDS ARE NOT A DEBT OF THE CITY, THE STATE OR ANY OF THEIR POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY). THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY AND ARE NOT OBLIGATIONS OF THE CITY. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OR ANY OTHER POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. 2 ATTACHMENT 5 Draft of 5/3/10 Abatement Except to the extent of amounts on deposit in the Bond Fund and the Reserve Account, or otherwise available from an insurance or eminent domain award, the Lease Payments due under the Lease Agreement and, correspondingly, the amount available to pay the principal of and interest on the Bonds, will be subject to abatement during any period in which, by reason of damage or destruction or eminent domain, there is substantial interference with the use and possession by the City of the Leased Premises. See "RISK FACTORS Abatement and Eminent Domain" herein. Amounts on deposit in the Bond Fund and the Reserve Account constitute a special fund for payment of Lease Payments, and shall be available for such Lease Payments in the event there is substantial interference with the use and possession of the Leased Premises. Redemption The Bonds are subject to redemption as described herein. Continuing Disclosure The City has covenanted for the benefit of owners of the Bonds, on behalf of itself and the Authority, to provide certain financial information and operating data relating to the City and the Authority by not later than January 1 of each year, commencing with the report for the 2009/10 Fiscal Year (the "Annual Report") and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of material events will be filed by the City with the Municipal Securities Rulemaking Board (the "MSRB") These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the "Rule"). The specific nature of the information to be contained in the Annual Report or the notices of material events by the City is summarized in "APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE." The City and the Authority have complied in all material respects with previous undertakings with respect to the Rule during the past five years. Forward-Looking Statements This Official Statement (including the appendices hereto) contains certain forward-looking statements (collectively, the "Forward-Looking Statements"). All statements other than statements of historical facts included in this Official Statement, are Forward-Looking Statements. Although the Authority and the City believe that the expectations reflected in such Forward-Looking Statements are reasonable, 'no one can be given assurance that such statements will prove to be correct. Important factors which could cause actual results to differ materially from expectations of the Authority or the City (collectively, the "Cautionary Statements") are disclosed in this Official Statement. All Forward-Looking Statements attributable to the Authority or the City are expressly qualified in their entirety by the Cautionary Statements. Summary of Terms Brief descriptions of the Bonds, the Indenture, the Lease Agreement, the Authority, the City and the Leased Premises are included in this Official Statement. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Indenture, the JPA Law and the Constitution and the laws of the State, as well as the 3 ATTACHMENT 5 Draft of 5/3/10 proceedings of the City with respect to the Leased Premises and the Bonds, are qualified in their entirety by reference to such documents. References herein to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of the documents described herein will be available at the office of the City Financial Services Manager, 505 South Vulcan Avenue, Encinitas, California 92024. THE AUTHORITY The Encinitas Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated November 6, 1991, by and among the City, the Cardiff Sanitation District, the Encinitas Fire Protection District, the Encinitas Sanitary District and the Water District in accordance with the provisions of the JPA Law. The Authority was created for the purpose of providing financing for public capital improvements for the Cify and the Water District through the acquisition by the Authority of such public capital improvements and/or the purchase by the Authority of local obligations within the meaning of the JPA Law. Under the JPA Law, the Authority has the power to issue bonds to pay the costs of any public capital improvement. The Cardiff Sanitation District, the Encinitas Fire Protection District and the Encinitas Sanitary District have since been absorbed by the City as separate accounting divisions, the current members of the Authority and the City and the Water District. THE CITY The City was incorporated in October, 1986. The City is located in the northern coastal area of San Diego County (the "County") overlooking the Pacific Ocean. The City encompasses approximately 21.4 square miles and is located 30 miles north of the City of San Diego and immediately north of the City of Solana Beach. Topography of the surrounding area varies from broad coastal plains to fertile inland valleys backed up by mountain ranges to the east. The climate is equable in the coastal and valley regions. The community has long, dry summers and mild temperatures, with mean temperatures of 70 degrees and an average annual rainfall of 10.36 inches. The City is the [eighth] largest in population in the County. Most of the land in the City is zoned residential. The City is a general law city and operates under a council- manager form of government. The City maintains a website at www.cityofencinitas.org. However, the information presented there is not part of this Official Statement, is not incorporated by reference herein and should not be relied upon in making an investment decision with respect to the Bonds. For other selected information concerning the City, see "THE CITY" herein and "APPENDIX A - CITY FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION" and "APPENDIX B - AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR 2008/09" attached hereto. THE REFUNDING PLAN The Authority is selling the Bonds, in part, to provide moneys (together with other available funds of the Authority) necessary to refund and defease the Prior Bonds in whole. A portion of the proceeds of the Bonds, along with certain remaining funds from the Prior Bonds, 4 ATTACHMENT 5 Draft of 5/3/10 will be transferred to Union Bank, N.A., the trustee for the Prior Bonds (the "Prior Trustee"). Proceeds deposited with the Prior Trustee will be used [to purchase direct obligations of the United States ("Federal Securities")]. Principal of [the Federal Securities] will be used by the Prior Trustee to pay the redemption price of the Prior Bonds, plus accrued interest, on , 2010. See "ESTIMATED SOURCES AND USES OF FUNDS" herein. Upon deposit of such proceeds and other moneys with the Prior Trustee, the Prior Bonds will no longer be deemed outstanding. The moneys and securities held by the Prior Trustee are pledged to the payment of the Prior Bonds, and are not available to pay principal of or interest on the Bonds. THE LEASED PREMISES The Leased Premises The Leased Premises consist of approximately 44 acres of land, purchased by the City in 2001 for development for recreational purposes. The Leased Premises are zoned R- 3 residential development, although the City has obtained a use permit for the park development. The City Council has approved a master plan for development of the park facilities, and has received approval of the master plan from the California Coastal Commission. The proposed improvements generally consist of athletic facilities, skate park, dog park, aquatics center and related infrastructure. The City has previously expended approximately $2.4 million on environmental review, design and site preparation costs associated with the Leased Premises. The City is currently planning on constructing the improvements in phases. Phase I generally consists of required infrastructure and the construction of playing fields, and is expected to cost between $12-16 million. Certain proceeds relating to the Prior Bonds will be transferred to the Project Fund established under the Indenture and will be used to fund improvements. In addition, the City has approximately $9 million budgeted to fund Phase I. The remaining source of funds for the improvements will be development fees. other available funds, and possibly other borrowings by the City. Construction of the first phase is currently anticipated to commence in Spring 2011. The City has determined the fair rental value of the Leased Premises to be at least $ Environmental Compliance The project is subject to the California Environmental Quality Act ("CEO X). Under CEQA, a project which may have a significant effect on the environment and which is to be carried out or approved by a public agency must comply with a comprehensive environmental review process, including the preparation of an Environmental Impact Report ("EIR"). Contents of an EIR include a detailed statement of the project's significant environmental effects; any such effects which cannot be avoided if the project is implemented; mitigation measures proposed to minimize such effects; alternatives to the proposed project; any significant irreversible environmental changes which would result from the project; the project's growth-inducing impacts; and a brief statement setting forth the agency's reasons for determining that certain effects are not significant and hence do not require discussion in an EIR. If the agency determines that the project itself will not have a significant effect on the environment, it may adopt a negative declaration to that effect and need not prepare an EIR. 5 ATTACHMENT 5 Draft of 5/3/10 The City has completed an EIR for development of the Leased Premises, and has prevailed in litigation brought with respect to the EIR. The City has completed most of the remediation associated with development of the Leased Premises, and does not anticipate any further environmental impediments to development. Substitution of Leased Premises Pursuant to the Lease Agreement, the City has the option at any time to substitute other land, facilities or improvements (the "Substitute Leased Premises") for the Leased Premises or any portion thereof (the "Former Leased Premises") or to release a portion of the Leased Premises (the "Released Leased Premises") from the lien of the Lease Agreement, provided that the City shall satisfy all of the following requirements: (a) The City shall provide written notification of such substitution or release to the Trustee and the Authority; (b) The City shall take all actions and shall execute all documents required to subject the Substitute Leased Premises to the terms and provisions of the Lease Agreement, including the filing with the Authority and the Trustee an amended Exhibit A to the Lease Agreement which adds thereto a description of the Substitute Leased Premises and deletes therefrom the description of the Former Leased Premises or the Released Leased Premises, as applicable; (c) (i) In the case of a substitution, the City shall determine and certify to the Authority and the Trustee that the fair rental value of the Substitute Leased Premises is at least equal to the fair rental value of the Former Leased Premises and that the Substitute Leased Premises is essential to the governmental functions of the City; (ii) In the case of a release, the City shall determine and certify to the Authority and the Trustee that the fair rental value of the remaining Leased Premises after removal of the Released Leased Premises is at least equal to the then remaining Lease Payments; (d) In the case of a substitution, the City shall certify in writing to the Authority and the Trustee that the Substitute Leased Premises serve the public purposes of the City and constitute property which the City is permitted to lease under the laws of the State; (e) In the case of a substitution, the City shall certify in writing to the Authority and the Trustee that the estimated useful life of the Substitute Leased Premises at least extends to the date on which the final Lease Payment becomes due and payable; (f) In the case of a substitution, the City shall obtain a CLTA policy of title insurance with respect to any real property portion of the Substitute Leased Premises; (g) In the case of a substitution, the substitution of the Substitute Leased Premises shall not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement; and (h) The City shall obtain and cause to be filed with the Trustee and the Authority an opinion of Bond Counsel stating that such substitution or release is permitted 6 ATTACHMENT 5 Draft of 5/3/10 and does not cause interest on the Bonds to become includable in the gross income of the Bond Owners for federal income tax purposes. From and after the date on which all of the foregoing conditions precedent to such substitution or release are satisfied, the Lease Agreement shall cease with respect to the Former Leased Premises or Released Leased Premises, as applicable, and shall be continued with respect to the Substitute Leased Premises and the remaining Leased Premises. The City shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution or release. In addition, the Lease Agreement may be amended to allow the City to pay additional rental payments for the purpose of securing additional obligations of the Authority, to the extent of excess value of the Leased Premises. See "SECURITY FOR THE BONDS" herein. THE BONDS Description of the Bonds The Bonds will be issued only in the form of fully registered Bonds without coupons, in denominations of $5,000 or any integral multiple thereof. The Bonds will be dated the date of delivery to the Underwriter, will mature on April 1 in the years and in the respective principal amounts, and will bear interest at the respective rates per annum, all as set forth on the inside front cover hereof. Interest on the Bonds will be paid on April 1 and October 1 of each year, commencing October 1, 2010, by check mailed on the Interest Payment Date to the registered owners of the Bonds as of the applicable Record Date (the fifteenth day of the month preceding each Interest Payment Date); provided however, that payment of interest may be by wire transfer in immediately available funds to an account in the United States of America to any Owner of Bonds in the aggregate principal amount of $1,000,000 or more who shall furnish written wire instructions to the Trustee at least five (5) days before the applicable Record Date. The principal of each Bond will be payable upon the surrender of such Bond, at maturity or upon redemption prior to maturity, at the principal corporate trust office of the Trustee in Los Angeles, California. Redemption* Optional Redemption. The Bonds maturing on or before April 1, 2008 shall not be subject to redemption prior to their respective stated maturities. The Bonds maturing on or after April 1, 2009, shall be subject to redemption at the option of the Authority as a whole or in part, on any date on or after April 1, 2008, from any available source of funds, at the following respective redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed), together with accrued interest thereon to the date fixed for redemption. Redemption Period Redemption Price April 1, 20 through March 31, 20 April 1, 20 through March 31, 20 Preliminary, subject to change. 7 ATTACHMENT 5 Draft of 5/3/10 April 1, 20 and thereafter Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds shall also be subject to redemption as a whole or in part on any date, from Net Proceeds required to be used for such purpose as provided in the Indenture, at a redemption price equal to the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. Mandatory Sinking Fund Redemption. The Term Bonds are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedules on April 1, with respect to Term Bonds maturing April 1, , and on April 1, with respect to Term Bonds maturing April 1, , and on April 1 in each year thereafter to and including April 1, and April 1, , respectively, at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been redeemed pursuant to optional or special mandatory redemption, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed pursuant by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Authority with the Trustee. 20 Term Bonds Mandatory Sinking Fund Redemption Date (April 1) 20 Term Bonds Mandatory Sinking Fund Redemption Date (April 1) Mandatory Sinking Fund Redemption Amount Mandatory Sinking Fund Redemption Amount In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Authority prior to the selection of Bonds for redemption, except that the purchase price (exclusive of accrued interest) may riot exceed 8 ATTACHMENT 5 Draft of 5/3/10 the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Authority. Selection of Bonds for Redemption. Except for Sinking Account Redemption, whenever provision is made for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds or such given portion thereof not previously called for redemption from such maturities as shall be set forth in a Written Request of the Authority filed with the Trustee, or in the absence of such designation of maturities by the Authority, then on a pro rata basis among maturities, and in any case, by lot within a maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. Notice of Redemption. Notice of redemption shall be mailed by first class mail, postage prepaid, not less than thirty (30) nor more than sixty (60) days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books. Each notice of redemption shall state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and, if less than all of the Bonds of a maturity are to be redeemed, Bond numbers of the Bonds to be redeemed, the maturity or maturities of the Bonds to be redeemed and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither the failure to receive any notice nor any defect therein shall affect the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. See "Book-Entry System" below. Effect of Redemption. Notice of redemption having been duly given, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Book-Entry System So long as Cede & Co. is the registered owner of the Bonds, transfer or exchange of Certificates may only be through the facilities of DTC. See APPENDIX F with respect to DTC procedures for transfer and exchange of ownership interests in the Bonds. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co., (DTC's partnership nominee). One fully- registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See "APPENDIX F - BOOK ENTRY PROVISIONS" herein. The Authority, the City and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium with respect to the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a 9 ATTACHMENT 5 Draft of 5/3/10 timely basis or will serve and act in the manner described in this Official Statement. The Authority, the City and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto. SECURITY FOR THE BONDS General The Indenture provides that, subject to certain rights of the Trustee, the Bonds are secured by a first lien on and pledge of all Revenues and a pledge of all of the moneys held in the Interest Account and the Principal Account, including all amounts derived from the investment of such moneys. "Revenues," as defined in the Indenture, generally means (a) all amounts received by the Authority or the Trustee pursuant to or with respect to the Lease Agreement, including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding any amounts payable under Section 4.8(d) of the Lease Agreement; and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Indenture. The principal payable with respect to the Lease Payments is $ The City is obligated to pay Lease Payments under the Lease Agreement from any legally available moneys, including its General Fund. Under California law, the obligation of the City to make Lease Payments is contingent upon the availability of the Leased Premises for use and occupancy by the City. See "Abatement" below. See "THE LEASED PREMISES" herein. Under the Indenture, the Authority is authorized under certain conditions to issue additional obligations secured by the Revenues. See "Additional Bonds" below. Under the Lease Agreement, the City is allowed to incur other obligations secured by excess value of the Leased Premises. The Revenues and other funds pledged under the Indenture are the sole security for the Bonds, and the Authority has no other source of funds, other than the Lease Payments, to pay debt service on the Bonds. See APPENDIX C hereto for a summary of the terms of the Indenture and the Lease Agreement. Limited Obligations The Bonds are not a debt of the City, the State or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions, other than the Authority, is liable therefor. The principal of, premium, if any, and interest on the Bonds are payable solely from the Revenues. The City's obligations under the Lease Agreement are unsecured obligations payable from any legally available funds of the City. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limit or restriction. Preliminary, subject to change. 10 ATTACHMENT 5 Draft of 5/3/10 Lease Payments The City has covenanted under the Lease Agreement to make Lease Payments for the use and possession of the Leased Premises. So long as the Leased Premises is available for the City's use, the City has covenanted to take such action each year as may be necessary to include all Lease Payments in its annual budget and annually to appropriate an amount necessary to make such Lease Payments (see "Abatement" below). The amounts payable to the Trustee as Lease Payments are to be used to make the payments of principal and interest on the Bonds. The obligation of the City to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Bond Fund or Reserve Account or otherwise available from an insurance or eminent domain award) may be abated in whole or in part if the City does not have use and possession of the Leased Premises. Lease Payments are required to be made by the City under the Lease Agreement at least fifteen (15) days prior to each Interest Payment Date (individually, a "Lease Payment Date"), for use and possession of the Leased Premises to the next occurring Lease Payment Date. The amount of such Lease Payment shall be credited with amounts on deposit in the Bond Fund on such Lease Payment Date. Lease Payments due on each Lease Payment Date shall also be reduced by the amount of earnings received by the Trustee as of such Lease Payment Date from the investment of certain funds held by the Trustee. Lease Payments are required to be deposited in the Bond Fund maintained by the Trustee. Pursuant to the Indenture, on each Interest Payment Date the Trustee will withdraw from the Bond Fund amounts to make principal and interest payments on the Bonds. The Lease Payments are structured to produce Revenues sufficient to pay principal of and interest on the Bonds when due. While the Lease Payments are subject to optional prepayment, Revenues resulting from such action will be used to redeem a corresponding amount of the Bonds, so that the remaining Lease Payments will be sufficient to pay the scheduled principal and interest payments on the Bonds. Additional Bonds The Authority is authorized, without the consent of the Bondholders, in the Indenture to issue additional obligations secured by a pledge of the Revenues on a parity to the pledge securing the outstanding Bonds, provided the Lease Agreement is amended to obligate the City to pay additional amounts of rental thereunder for the use and occupancy of the Leased Premises, provided that (A) no Event of Default has occurred and is continuing under the Lease Agreement, (B) such additional amounts of rental do not cause the total rental payments made by the City thereunder to exceed the fair rental value of the Leased Premises, as set forth in a certificate of a City Representative filed with the Trustee and the Authority, (C) the City shall have obtained and filed with the Trustee and the Authority a Written Certificate of an Authorized Representative of the City showing that the fair rental value of the Leased Premises is not less than the sum of the aggregate unpaid principal components of the Lease Payments and the aggregate principal components of such additional amounts of rental, (D) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which shall be applied to finance the construction or acquisition of land, facilities or other improvements which are authorized pursuant to the laws of the State, and (E) such additional rental is not at variable rates. 11 ATTACHMENT 5 Draft of 5/3/10 Appropriation; Use of Leased Premises The City has covenanted to take such action as may be necessary to include all Lease Payments due under the Lease Agreement in each of its proposed annual budgets and its final adopted annual budgets and to make the necessary appropriations for such Lease Payments and Additional Payments, except to the extent such payments are abated (see "Abatement" below). The foregoing covenant on the part of the City shall be deemed to be and shall be construed to be a duty imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform its covenants and agreements in the Lease Agreement. The obligation of the City to pay Lease Payments shall constitute a current expense of the City and shall not in any way be construed to be a debt of the City, or the State, or any political subdivision thereof, in contravention of any applicable constitutional or statutory limitation or requirements concerning the creation of indebtedness by the City, the State, or any political subdivision thereof, nor shall such obligations constitute a pledge of general revenues, funds or moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Lease Payments or an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Abatement Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments shall be abated during any period in which there is substantial interference with the use or possession of all or a portion of the Leased Premises by the City by condemnation, damage, destruction or title defect. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value for the use and possession of the portion of the Leased Premises for which no substantial interference has occurred. Such abatement shall continue for the period of the substantial interference with the use or possession of the Leased Premises. Except as provided in the Lease Agreement, in the event of any such interference with use or possession, the Lease Agreement shall continue in full force and effect and the City waives any right to terminate the Lease Agreement by virtue of any such interference. See "Insurance" below for a discussion of rental interruption insurance to be provided by, or on behalf of, the City. Notwithstanding a substantial interference with the use or possession of all or a portion of the Leased Premises, the City shall remain obligated to make Lease Payments (i) in an amount not to exceed the fair rental value during each Fiscal Year for the portion of the Leased Premises not damaged, destroyed, interfered with or taken; (ii) to the extent that moneys derived from any source as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; or (iii) to the extent that moneys are available in the Bond Fund or the Reserve Account to pay the amount which would otherwise be abated, in which event the Lease Payments shall be payable from such amounts as an obligation of the City payable from a special fund. Notwithstanding these efforts, the moneys legally available to the Trustee following the occurrence of an event which gives rise to an abatement of Lease Payments, including moneys from the Reserve Account or proceeds of rental interruption insurance, if any, 12 ATTACHMENT 5 Draft of 5/3/10 may not be sufficient to pay principal of and interest on the Bonds in the amounts and at the rates set forth thereon. In such event, all Bondowners would forfeit interest attributable to abated Lease Payments payable during the period of abatement and, to the extent Bonds mature or are to be subject to mandatory redemption during a period of abatement, the Bondowners would forfeit principal attributable to such abated Lease Payments. The failure to make such payments of principal and interest would not under such circumstances constitute a default under the Indenture, the Lease Agreement or the Bonds. Action on Default Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement may exercise any and all remedies available pursuant to law. However, the Trustee may not accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable or terminate the Lease or cause the leasehold interest of the Authority or the subleasehold interest of the City in the Leased Premises to be sold, assigned or otherwise alienated. The City expressly agrees that in the event of any default it will remain liable for the payment of all Lease Payments and the performance of all conditions contained in the Lease Agreement and will reimburse the Authority for any deficiency arising out of the re-leasing of the Leased Premises or, in the event the Authority is unable to re-lease the Leased Premises, then for the full amount of all Lease Payments to the end of the term of the Lease Agreement. See "RISK FACTORS" herein. For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see "APPENDIX C" hereto. Miscellaneous Rent For the right to the use and occupancy of the Leased Premises, the Lease Agreement requires the City to pay, in addition to the Lease Payments, the reasonable expenses of the Authority, and any reimbursement of amounts advanced and owing in connection with the Lease Agreement and the Indenture or in connection with the issuance of the Bonds. Insurance The Lease Agreement contain the insurance covenants described below. No assurance can be given that insurance proceeds will be available or, if available, adequate in an amount sufficient to avoid an interruption of Lease Payments. Under such a situation, an abatement of Lease Payments is likely to occur. See "Abatement" above. The Lease Agreement requires the City to obtain a standard comprehensive general liability insurance policy or policies in protection of the Authority and the City, including their respective members, officers, agents, employees and assigns. Said policy or policies must provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $25,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 (subject to a deductible clause of not to exceed $25,000) covering all such risks. 13 ATTACHMENT 5 Draft of 5/3/10 The Lease Agreement also requires the City to maintain, or cause to be maintained, casualty insurance insuring the facilities on the Leased Premises against loss or damage by fire and lightning, with extended coverage and vandalism and malicious mischief insurance and all other risks in an amount equal to the lesser of 100% of the replacement cost of the facilities or the aggregate unpaid principal components of the Lease Payments allocable to the facilities. Such insurance may be subject to such deductibles as the City deems prudent. The Lease Agreement further requires the City to cause to be maintained, throughout the term of the Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the Leased Premises as a result of any of the hazards covered by the insurance in an amount at least equal to the maximum Leased Payments allocable to the facilities coming due and payable during any future 24 month period. The Lease Agreement allows the City to maintain any such insurance as part of or in conjunction with any other insurance coverage carried by the City or, in whole or in part, in the form of self-insurance by the City or through participation by the City in a joint powers agency or other program providing pooled insurance. The Lease Agreement also requires the City to obtain an CLTA policy of title insurance insuring the City's leasehold estate, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Bonds. See "APPENDIX C - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Lease Agreement - Insurance." Insurance proceeds are required to be applied to the repair of the Leased Premises; or if the proceeds are insufficient to repair or replace the Leased Premises, the City may prepay the related Lease Payments and thereby cause the redemption of outstanding Bonds. The Lease Agreement permits the City to satisfy certain of its insurance requirements through a self-insurance program. Reserve Account Pursuant to the Indenture, the Trustee has established a Reserve Account for the Bonds, and deposited proceeds in an amount equal to the Reserve Requirement. See "ESTIMATED SOURCES AND USED OF FUNDS" herein. All amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying principal of or interest on the Bonds, including the principal amount of any Term Bonds subject to mandatory Sinking Account redemption, when due and payable to the extent that moneys deposited in the Interest Account, Principal Account or Sinking Account are not sufficient for such purpose, and (ii) making the final payments of principal of and interest on the Bonds. On the date on which all Bonds shall be retired or provision made therefor pursuant to the Indenture, all moneys then on deposit in the Reserve Account shall be withdrawn by the Trustee and paid to the City as a refund of overpaid Additional Lease Payments. If, on any date, moneys on deposit in the Reserve Account, together with amounts then on deposit in the Bond Fund, are sufficient to pay all Outstanding Bonds, including all principal thereof and interest thereon, at the Written Request of the Authority the Trustee shall transfer all amounts then on deposit in the Reserve Account, together with such amounts in the Bond Fund, to the Redemption Fund to be applied to the redemption of the Bonds. Any amounts on deposit in the Reserve Account on or before each Interest Payment 14 ATTACHMENT 5 Draft of 5/3/10 Date in excess of the Reserve Requirement shall be transferred to the Bond Fund. See APPENDIX C hereto for a discussion of the conditions under which the Authority may substitute a credit instrument for cash on deposit in the Reserve Account. ESTIMATED SOURCES AND USES OF FUNDS The sources and uses of funds are estimated as follows: Sources of Funds: Principal Amount of Bonds Net Original Issue [Discount] [Premium] Amounts Relating to Prior Bonds TOTAL SOURCES Uses of Funds: Transfer to Project Fund'' Deposit to Reserve Account Transfer to the Escrow Agent(') Costs of Issuance (3) TOTAL USES (1) Reflects certain remaining proceeds of the Prior Bonds to be used to fund improvements to the Leased Premises (see "THE LEASED PREMISES" above). (2) See "THE REFUNDING PLAN" above. (3) Includes fees and expenses of Bond Counsel and Disclosure Counsel, the Financial Advisor, Trustee and the rating agencies, Underwriter's discount, printing costs of the Official Statement and other costs of issuing the Bonds. 15 ATTACHMENT 5 Draft of 5/3/10 DEBT SERVICE SCHEDULE The following table sets forth the amount of debt service with respect to the Bonds for each twelve-month Fiscal Year of the Agency ending on April 1: Year Total Debt (April l Principal Interest Service TOTALS RISK FACTORS The following factors, along with other information in this Official Statement, should be considered by potential investors in evaluating the risks in the purchase of the Bonds. However, the following does not purport to be an exhaustive listing of risk factors and other considerations which may be relevant to an investment in the Bonds. Additionally, there can be no assurance that other risk factors will not become evident at any future time. No Tax Pledge The obligation of the City to pay the Lease Payments does not constitute an obligation of the City for which the City has levied or pledged any form of taxation. The obligation of the City to pay Lease Payments does not constitute a debt or indebtedness of the City, the City, the State of California or any of its political subdivisions, within the meaning of any constitutional or statutory debt limit or restriction. 16 ATTACHMENT 5 Draft of 5/3/10 Appropriation Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement, so long as the Leased Premises is available for its use and possession, to pay Lease Payments from any source of legally available funds (subject to certain exceptions) and has covenanted in the Lease Agreement that, for so long as the Leased Premises is available for its use, it will make the necessary annual appropriations within its budget for all Lease Payments. However, the City is currently liable on other obligations payable from general revenues which may have a priority over the Lease Payments (for example, tax revenue anticipation notes periodically issed by the City), and the Lease Agreement does not prohibit the City from incurring additional obligations payable from general revenues. See "APPENDIX A CITY FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION" herein and the financial statements included in APPENDIX B hereto. In the event the City's revenue sources are less than its total obligations, the City could choose to fund other municipal services before making Lease Payments and other payments due under the Lease Agreement, except from amounts on deposit in the Bond Fund. The City's ability to collect, budget and appropriate various revenues is subject to current and future State laws and constitutional provisions, and it is possible that the interpretation and application of these provisions could result in an inability of the City to pay Lease Payments when due. (see "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" below). No Limit on Additional General Fund Obligations The City has the ability to enter into other obligations which may constitute additional charges against its general revenues. To the extent that such additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased. See also "SECURITY FOR THE BONDS - Additional Bonds" herein. Abatement and Eminent Domain Lease Payments are to be paid by the City in each rental period for and in consideration of the right to use and occupy the Leased Premises during each such period. The obligation of the City to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Bond Fund and the Reserve Account created under the Indenture) may be abated in whole or in part if the City does not have use and possession of the Leased Premises. The amount of Lease Payments due under the Lease Agreement will be adjusted or abated during any period in which by reason of damage or destruction or eminent domain there is interference with the use and occupancy by the City of the Leased Premises. Such adjustment or abatement will end with the substantial completion or replacement, repair or reconstruction of the Leased Premises. The Reserve Account will be funded by Bond proceeds in the amount set forth in "ESTIMATED SOURCES AND USES OF FUNDS" herein and will be available, along with amounts on deposit in the Bond Fund, in the event amounts received by the Trustee are insufficient to pay principal and interest on the Bonds as such amounts become due. If damage or destruction or eminent domain proceedings with respect to the Leased Premises result in abatement of Lease Payments and the resulting Lease Payments, together with moneys in the above-described amounts, are insufficient to make all payments of principal and interest due on the Bonds during the period that the Leased Premises is being replaced, repaired or reconstructed, then such payments of principal and interest may not be made and 17 ATTACHMENT 5 Draft of 5/3/10 no remedy is available to the Trustee or the Owners of the Bonds, under the Lease Agreement or Indenture, for nonpayment under such circumstances. Sufficiency of Lease Payments The Lease Payments are structured to produce Revenues sufficient to pay principal of, and interest on, the Bonds when due. While the Lease Payments are subject to optional prepayment, Revenues resulting from such actions will be sufficient to redeem a corresponding amount of the Bonds, so that the remaining Lease Payments will be sufficient to pay remaining debt service on the Bonds. The Authority has no other source of funds available to pay principal of and interest on the Bonds. The City's obligation to make Lease Payments is not conditioned on its receipt of reimbursement from the Members pursuant to the JPA Agreement. Limitation on Enforcement of Remedies; No Acceleration The enforcement of any remedies provided in the Lease Agreement and Indenture could prove both expensive and time consuming. Although the Lease Agreement provides that the Trustee may take possession of the Leased Premises and lease it if there is a default by the City, and the Lease Agreement provides that the Trustee may have such rights of access to the Leased Premises as may be necessary to exercise any remedies, portions of such Leased Premises may not be easily subject to reletting and could be of little value to others. Furthermore, it is not certain whether a court would permit the exercise of the remedies of repossession and leasing with respect thereto. IN THE EVENT OF A DEFAULT UNDER THE LEASE AGREEMENT, THERE IS NO AVAILABLE REMEDY OF ACCELERATION OF THE TOTAL LEASE PAYMENTS DUE OVER THE TERM OF THE LEASE AGREEMENT. THE CITY WILL ONLY BE LIABLE FOR LEASE PAYMENTS ON AN ANNUAL BASIS AS THEY COME DUE, AND THE TRUSTEE WOULD BE REQUIRED TO SEEK SEPARATE JUDGMENTS FOR THE LEASE PAYMENTS AS THEY COME DUE. IN ADDITION, ANY SUCH SUIT FOR MONEY DAMAGES COULD BE SUBJECT TO LIMITATIONS ON LEGAL REMEDIES AGAINST PUBLIC AGENCIES IN CALIFORNIA, INCLUDING A LIMITATION ON ENFORCEMENT OF JUDGMENTS AGAINST FUNDS NEEDED TO SERVE THE PUBLIC WELFARE AND INTEREST AND A LIMITATION ON ENFORCEMENT OF JUDGMENTS AGAINST FUNDS OF A FISCAL YEAR OTHER THAN THE FISCAL YEAR IN WHICH THE LEASE PAYMENTS WERE DUE. Seismic, Topographic and Climatic Conditions The value of the Leased Premises, and the financial stability of the City, can be adversely affected by a variety of factors, particularly those which may affect infrastructure and other public improvements and private improvements and the continued habitability and enjoyment of such improvements. Such additional factors include, without limitation, geologic conditions (such as earthquakes), topographic conditions (such as earth movements and floods) and climatic conditions (such as droughts and tornadoes). The Leased Premises is not within a designated 100-year flood plain, although it is subject to runoff during large storm events. The area encompassed by the City, like that in much, of California, may be subject to unpredictable seismic activity. The City is located within an alluvial plain and liquefaction area. There are no special study zones within the City. Although the City believes 18 ATTACHMENT 5 Draft of 5/3/10 that no active or inactive fault lines pass through the City, if there were to be an occurrence of severe seismic activity in the City, there could be an abatement or adverse impact on the City's ability to pay the Lease Payments. While the City is not obligated to maintain earthquake insurance with respect to the Leased Premises, many of the improvements to the Leased premises will not constitute structures (see "THE PROJECT" herein). Building codes require that some of these factors be taken into account, to a limited extent, in the design of improvements, including improvements of the Leased Premises. Some of these factors may also be taken into account, to a limited extent, in the design of other infrastructure and public improvements neither designed nor subject to design approval by the City. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change, leaving previously-designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria reflect a balance at the time of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Conditions may occur and may result in damage to improvements of varying seriousness, such that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the actual value of the Leased Premises, as well as public and private improvements within the City in general, may well depreciate or disappear, notwithstanding the establishment of design criteria for any such condition. See "Abatement and Eminent Domain" above. The City is exposed to a variety of wildfire hazard conditions ranging from very low levels of risk along the coastal portions of the City, to more severe hazards in the inland areas. The Project is located on the western, or coastal, side of Interstate 5, and is not considered at significant risk. Currently, fire hazard severity is a function of fuel conditions, historic climate, wind conditions, and topography. Population density or the number of structures in a particular region are not currently used to determine the fire hazard severity for a particular region. The fact that an area is in a low to moderate hazard area does not mean it cannot experience a damaging fire; it means only that the probability is reduced, generally because the number of days a year that the area has "fire weather" is less. Hazardous Substances An environmental condition that may result in the reduction in the assessed value of parcels would be the discovery of any hazardous substance that would limit the beneficial use of a property within the City, or the value of the Leased Premises. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act" is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should the Leased Premises or any substantial amount of property within the City be affected by a hazardous substance, would be to reduce the marketability and value of the property by the costs of, and any liability incurred by, remedying the condition, since the purchaser, upon becoming an owner, will become obligated to remedy the condition just as is the seller. Such reduction could 19 ATTACHMENT 5 Draft of 5/3/10 adversely impact the property tax revenues received by the City and deposited in the General Fund, which could significantly and adversely affect the operations and finances of the City. The City and the Authority do not believe that the use of any of such substances has adversely affected the value of the Leased Premises. California Housing Market The housing market in southern California and the City, like that in the country generally, has deteriorated significantly over during the past few years. In general, factors indicative of or contributing to the weakening new home market reported by those homebuilders include: (i) generally lower demand for new homes, (ii) significant increases in cancellation rates, (iii) speculators exiting the new home market, (iv) increases in the supply of new and existing homes available to be purchased, (v) increases in competition for new home orders, (vi) the greater difficulty faced by prospective home buyers in selling their existing homes in the more competitive environment, (vii) higher incentives required to stimulate new home orders and maintain homes under contract and (vii) reduced availability of mortgage loans. The weakening housing market conditions could adversely affect the value of property in the City. Based on information from MDA DataQuick, existing home sales in the City increased from 472 in 2008 to 532 in 2009, although the existing median home sale price declined from $660,000 in 2008 to $575,000 in 2009 (although year-to-date they have increased to $585,000). foreclosures have increased from 35 in 2007, to 75 in 2008 and 94 in 2009. Any material decline in home values in the City could result in further property owner unwillingness or inability to pay mortgage payments, as well as ad valorem taxes, when due. Under such circumstances, bankruptcies are likely to increase. Bankruptcy by homeowners would delay the commencement and completion of foreclosure proceedings to collect delinquent property taxes. See "RISK FACTORS - Bankruptcy and Foreclosure" below. All of these factors could result in the City receiving less property tax revenue in future years, which is a significant source of revenue for the City. See APPENDIX A hereto. Public Debt Burden on Leased Premises The ability of land owners within the City to pay property tax installments as they come due could be affected by the existence of other taxes and assessments, imposed upon the land. In addition, other public agencies whose boundaries overlap those of the City could, without consent of the City, and in certain cases without the consent of the owners of the land within the City, impose additional taxes or assessment liens on the property within the City to finance public improvements to be located inside of or outside of the City. See APPENDIX A hereto for a statement of direct and overlapping debt on property within the City. Risk of Uninsured Loss The City covenants under the Lease Agreement to cause to be maintained certain insurance policies on the Leased Premises. These insurance policies do not cover all types of risk. For instance, the City does not covenant to maintain earthquake insurance. The City may self-insure in certain circumstances. Moreover, the insurance maintained by the City may provide for deductible amounts. The Leased Premises could be damaged or destroyed due to earthquake or other casualty for which the Leased Premises are uninsured. Under these circumstances, an abatement of Lease Payments could occur and could continue indefinitely. There can be no assurance that the providers of the City's liability and rental interruption insurance will in all events be able or willing to make payments under the respective 20 ATTACHMENT 5 Draft of 5/3/10 policies for such loss should a claim be made under such policies. Further, there can be no assurances that amounts received as proceeds from insurance or from condemnation of the Leased Premises will be sufficient to prepay the Lease Payments which secure the Bonds. Impact of State Budget The State is facing significant financial stress, which could result in future reductions or deferrals in amounts payable to the County. In the proposed State budget for Fiscal Year 2010/11, released by Governor Schwarzenegger on January 8, 2010, the State projected a current fiscal year budget shortfall of approximately $6.6 billion and a projected Fiscal Year 2010/11 budget shortfall of approximately $12.3 billion. In the past fiscal year the State deferred certain payments owed to vendors and local governments, including the City. Although the State ultimately made the required payments to the City, the State continues to face financial stress, and there can be no assurances that such financial stress will not result in further deferrals of amounts owed to the City, or reductions in amounts that the City receives from the State. There can be no assurances that, as a result of the current State financial stress, it will not significantly reduce or delay revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address the State financial difficulties. For example, in Fiscal Years 2008/09 and 2009/10 the State either deferred payments or issued IOU's which could not immediately be cashed. No prediction can be made by the City as to what measures the State will adopt to respond to the current or potential future financial difficulties. The City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on the City's finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. There can be no assurances that State actions to respond to State financial difficulties will not adversely affect the financial condition of the City. Information concerning the State's budget has been obtained frorn publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State budget is regularly available at various state- maintained Web sites. Text of the state budget may be found at the State Department of Finance Web site, www.govbud.dof.ca.gov under the heading "California Budget." An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City takes no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Two measures intended to address the existing cumulative budget deficit and to implement structural reform were both approved at the March 2, 2004 statewide primary election. The California Economic Recovery Bond Act (Proposition 57) authorized the issuance of up to $15 billion of economic recovery bonds to finance the State general fund deficit as of June 30, 2004 and other general fund obligations undertaken prior to June 30, 2004. The first two series of economic recovery bonds were issued in May 2004, and provided approximately $8.339 billion of net proceeds to the State's general fund. A third series of economic recovery 21 ATTACHMENT 5 Draft of 5/3/10 bonds in the principal amount of $2.974 billion was issued in June 2004. The economic recovery bonds are general obligations of the State and are secured by a pledge of revenues from an increase in the State's share of the sales and use tax of one-quarter cent, starting July 1, 2004. Such tax proceeds will revert to their prior allocation when the bonds are repaid. The portion of sales and use tax that otherwise would have been allocated to local governments, including the City, would be decreased by a commensurate amount. Commencing in Fiscal Year 2004/05, local government's share of local property tax revenues were restored by an amount equal to the one-quarter cent reduction in the local sales and use tax, creating a revenue neutral effect on local agencies. The Balanced Budget Amendment (Proposition 58) requires the State to adopt and maintain a balanced budget and establish a reserve, and restricts future long-term deficit-related borrowing. It should be noted that certain features and consequences of the Proposition 57 redirection could impact the availability of revenues to pay Lease Payments. First, there may be a timing issue associated with the "backfill" of redirected sales and use taxes with property tax revenue. This timing issue would not only impact the City's cash flow, but would cause the City to lose investment earnings on the sales and use taxes it otherwise would have received on a monthly basis. Second, it is possible that the fees charged by the County for property tax administration, which are subtracted from property tax revenue collected by the County before it is allocated to the City, could increase as a result of the various tasks required of the County by the redirection. Third, the redirection of sales and use taxes by the State reflects the vulnerability of local government to the State budget process. If, in the future, the State elects to further reallocate sales and use taxes or property tax revenue, or any other source of revenue used by the City to make Lease Payments, the City may not know the exact amount of revenue available to pay Lease Payments. See "CONSTITUTION AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 1A" below for a discussion of actions the State took in the current fiscal year to shift certain property tax revenues from local governments (including the City). Bankruptcy and Foreclosure The enforceability of the rights and remedies of the Owners and the obligations of the Authority and the City may become subject to the following: the federal 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 equitable 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 exercising of powers by the federal or state government, if initiated, could subject the Owners 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. Additionally, failure by major property owners to pay property taxes when due, will have an adverse impact on revenues of the City available to pay Lease Payments, and would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability of 22 ATTACHMENT 5 Draft of 5/3/10 the various legal instruments, by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Federal Tax-Exempt Status of the Bonds Tax-Exempt Status of Interest on the Bonds. The Internal Revenue Code of 1986, as amended (the "Code") imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of Bond proceeds, limitations on the investment earnings on Bonds proceeds prior to expenditure, a requirement that certain investment earnings on the Bond proceeds be paid periodically to the United States and a requirement that the issuers file an information report with the Internal Revenue Service (the "IRS"). The Authority and the City have covenanted in certain of the documents referred to herein that they will comply with such requirements. Failure to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance of such Bonds. Audit. As a part of a larger reorganization of the IRS, the IRS commenced operation of its Tax Exempt and Government Entities Division (the "TE/GE Division"), as the successor to its Employee Plans and Exempt Organizations division. The TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations is expected to increase significantly under the TE/GE Division. There is no assurance that an IRS examination of the Bonds, if one is undertaken, will not adversely affect the tax-exempt status or market value of such Bonds. Secondary Market Risk There can be no assurance that there will be a secondary market for purchase or sale of the Bonds, and from time to time there may be no market for them, depending upon prevailing market conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the City. Substitution and Removal of Leased Premises The Authority and the City may, under the terms of the Lease Agreement, substitute alternate real property for any portion of the Leased Premises or release a portion of the Leased Premises from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement. After a substitution or release, the portion of the Leased Premises for which the substitution or release has been effected shall be released from the leasehold encumbrance of the Lease Agreement. See "THE LEASED PREMISES - Substitution of Leased Premises" herein. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the State Constitution Article XIIIA of the State Constitution, known as Proposition 13, except under certain circumstances limits the maximum ad valorem tax on real property to 1 % of "full cash 23 ATTACHMENT 5 Draft of 5/3/10 value," and provides that such tax shall be collected by the counties and apportioned according to State statutes. Section 2 of Article XIIIA defines "full cash value" to mean the county assessor's valuation of real property as shown on the 1975/76 Fiscal Year tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation implementing Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. Such legislation further provides that each county will levy the maximum tax permitted by Article XIIIA, which is $1.00 per $100 of assessed market value. Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirements that property be reassessed when it is purchased, newly constructed or undergoes a change in ownership. These amendments have resulted in marginal reductions in the property tax revenues of the City. Both the State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA. Article XIIIB of the State Constitution In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual "appropriations limit" imposed by Article XIIIB which effectively limits the amount of such revenues those entities are permitted to spend. Article XIIIB, approved by the voters in July 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service." "Proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt services on bonds existing or authorizing by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government. The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. 24 ATTACHMENT 5 Draft of 5/3/10 Proposition 111 requires that each agency's actual appropriations be tested against its limit every two years. If the aggregate "proceeds of taxes" for the preceding two- year period exceeds the aggregate limit, the excess must be returned to the agency's taxpayers through tax rate or fee reductions over the following two years. For Fiscal Year 2008/09 the City's appropriations limit was approximately $82.6 million, and its actual appropriations in Fiscal Year 2008/09 subject to this limit were approximately $50.4 million. For Fiscal Year 2009/10 the City's appropriations limit is approximately $86.9 million, and its budgeted expenditures subject to this limit are approximately $49.5 million. The City is subject to and is operating in conformity with Article XIIIB. Proposition 218 On November 5, 1996, California voters approved Proposition 218, which added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. The voter approval requirements of Proposition 218 reduce the City Council's flexibility to deal with fiscal problems by raising revenue, and no assurances can be given that the City will be able to raise taxes in the future to meet increased expenditure requirements. City management is not aware of any challenge or claim that any current fee, tax or assessment is not in compliance with Proposition 218. Proposition 218 also extends the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees or charges. The assessments subject to the provisions of Proposition 218 include maintenance assessments imposed in City service areas and special districts. The annual amount of revenues that are received by the City and deposited into the City's General Fund which may be considered to be property related fees and charges under Article XIIID is not material to the ability to pay the Lease Payments. The City is unable to predict whether and to what extent Proposition 218 may be further interpreted and applied by the courts. Proposition 218 could substantially restrict the City's ability to raise future revenues and could subject certain existing sources of revenue to reduction or repeal, and increase the City's costs to hold elections, calculate fees and assessments, notify the public and defend its fees and assessments in court. Further, Proposition 218 provides for broad initiative powers to reduce or repeal assessments, fees and charges. No assurance can be given that the voters of the City will not, in the future, approve initiatives that repeal, reduce or prohibit the future imposition or increase of local taxes, assessments, fees or charges. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988/89 fiscal year, are allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State-assessed revenue; and (ii) if county-wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 25 ATTACHMENT 5 Draft of 5/3/10 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed property nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Proposition 62 On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a Citywide sales tax of one-half of one percent was a special tax that, under Section 53722 of the Government Code, required a two-thirds voter approval. Because the tax received an affirmative vote of only 54.1%, this special tax was found to be invalid. The decision did not address the question of whether or not it should be applied retroactively. Following the California Supreme Court's decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62, which was passed in November 1986. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ("La Habra"). In this case, the court held that public agency's continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The City does not believe that it collects (or has collected) any taxes that would be subject to challenge under Proposition 62. Proposition 1 A In connection with the shift of $2.6 billion of local agency revenues to school funding, the Legislature and the Governor agreed to place Proposition 1A, entitled "Protection of Local Government Revenues," on the ballot ("Proposition 1 A" The initiative was approved by the voters on November 2, 2004. Proposition 1 A amended the California Constitution to (i) prohibit the shift of property tax revenues from cities, counties and special districts, except to address a "severe state financial hardship" (approved by a two-thirds vote of both houses of the Legislature), and only then if (a) such amounts were agreed to be repaid with interest within three years, (b) the State had repaid any other borrowed amounts, including the current amount owed to repay the vehicle license fee shift, and (c) such borrowing could not occur more often than twice in ten years; (ii) protect the property tax backfill of sales tax revenues diverted to pay the economic recovery bonds, and the reinstatement of the sales tax revenues once such bonds are repaid; and (iii) protect local agency vehicle license fee revenue (or a comparable amount of backfill payments from the State). 26 ATTACHMENT 5 Draft of 5/3/10 Through the adoption of the Fiscal Year 2009-2010 State budget, the State Legislature determined to exercise its rights under Proposition 1A and the City had approximately 8% of its real property tax revenues (approximately $2.9 million), received in Fiscal Year 2008/09, shifted to schools and other services. As part of the State budget package, local governments were given the opportunity to receive the monies being borrowed by the State upfront through a securitization financing offered by California Communities, a joint powers authority sponsored by the League of California Cities and California State Association of Counties. California Communities issued bonds securitizing the future payments by the State and remitted the proceeds of the bonds to the local governments which opted to participate in the securitization. The State is responsible for repaying the bondholders. Proceeds were to be mailed or wired to participating agencies on January 15, 2010 (50% of proceeds) and May 3, 2010 (50% of proceeds). The City participated in the Proposition 1A Securitization Program, and has received both installments. Future Initiatives Article XIIIA, Article XIIIB, Proposition 62 and Proposition 218 were each adopted as measures that qualified for the ballot through California's initiative process. From time to time other initiative measures could be adopted, further affecting the City's revenues. TAX MATTERS In the opinion of Best Best & Krieger LLP, bond counsel to the Authority ("Bond Counsel"), based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX D hereto. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. 27 ATTACHMENT 5 Draft of 5/3/10 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner's basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Certain requirements and procedures contained or referred to in the Agreement, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Best Best & Krieger LLP. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a beneficial owner's federal, state or local tax liability. The nature and extent of these other tax consequences depend upon the particular tax status of the beneficial owner or the beneficial owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Future legislation, if enacted into law, or clarification of the Code may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the courts. Furthermore, Bond Counsel cannot give and 28 ATTACHMENT 5 Draft of 5/3/10 has not given any opinion or assurance about the future activities of the Authority, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the beneficial owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority or its appointed counsel, including the beneficial owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Authority or the beneficial owners to incur significant expense. CERTAIN LEGAL MATTERS Best Best & Krieger LLP, Riverside, California, Bond Counsel, will render an opinion with respect to the validity and enforceability of the Indenture and the Lease Agreement, and as to the validity of the Bonds. Certain matters will be passed upon for the Authority and the City by the City Attorney, and by Nossaman LLP, Disclosure Counsel. LITIGATION There is no action, suit or proceeding pending or, to the knowledge of City or Authority officials, threatened, restraining or enjoining the execution or delivery of the Bonds, the Lease Agreement, or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority or the City taken with respect to any of the foregoing. FINANCIAL ADVISOR The Authority has retained Northcross Hill & Ach LLC, San Rafael, California, as Financial Advisor (the "Financial Advisor") for the sale of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal or other public securities. PROFESSIONAL FEES In connection with the execution of the Bonds, fees payable to Best Best & Krieger LLP, as Bond Counsel, Northcross Hill & Ach LLC, as Financial Advisor, Nossaman LLP, as Disclosure Counsel, and Union Bank, N.A., as Trustee, are contingent upon the execution and delivery of the Bonds. 29 ATTACHMENT 5 Draft of 5/3/10 FINANCIAL STATEMENTS The general purpose financial statements of the City for the Fiscal Year ending June 30, 2009, pertinent sections of which are included in APPENDIX B to this Official Statement, have been audited by Macias Gini & O'Connell LLP, independent certified public accountants, as stated in their report appearing in APPENDIX B. The City has not requested, and the auditor has not provided, any consent to the inclusion of its report herein or any update or review of its report in connection with its inclusion in this Official Statement. See APPENDIX B hereto. (RATINGS Standard & Poor's Credit Market Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Fitch Ratings ("Fitch") and Moody's Investors Service ("Moody's") have assigned their municipal bond ratings of " 11 19 and respectively, to the Bonds. The ratings reflect only the views of such organizations, and an explanation of the significance of such ratings may be obtained from Moody's, Fitch and S&P. There is no assurance that any rating will continue for any given period of time for the Bonds or that it will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. The Authority undertakes no responsibility to oppose any downward revision or withdrawal of any rating obtained. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds.] UNDERWRITING The Authority has agreed to sell the Bonds to (the "Underwriter"), and the Underwriter has agreed, subject to certain conditions, to purchase the Bonds. The purchase price of the Bonds is $ (the principal amount of the Bonds, less an Underwriter's discount of $ , and [less net original issue discount] [plus net original issue premium] of $ The obligations of the Underwriter are subject to certain conditions precedent, and it will be obligated to purchase all such Bonds if any such Bonds are purchased. The public offering prices of the Bonds may be changed from time to time by the Underwriter. The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. 30 ATTACHMENT 5 Draft of 5/3/10 MISCELLANEOUS References are made herein to certain documents and reports which are brief summaries and do not purport to be complete or definitive. Prospective purchasers of the Bonds are advised to refer to such documents and reports for full and complete statements of their contents. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the Bonds. The execution of this Official Statement and its use in connection with the offering of the Bonds for sale have been authorized by the Authority and the City. ENCINITAS PUBLIC FINANCING AUTHORITY By: President CITY OF ENCINITAS By: City Manager 31 ATTACHMENT 5 Draft of 5/3/10 APPENDIX A CITY FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION A-1 298138_1. DOC ATTACHMENT 5 Draft of 5/3/10 APPENDIX B CITY'S AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR 2008/09 ATTACHMENT 5 Draft of 5/3/10 APPENDIX C SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS ATTACHMENT 5 Draft of 5/3/10 APPENDIX D FORM OF OPINION OF BOND COUNSEL ATTACHMENT 5 Draft of 5/3/10 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT ATTACHMENT 5 Draft of 5/3/10 APPENDIX F BOOK ENTRY PROVISIONS The information concerning DTC set forth herein has been supplied by DTC, and the Authority assumes no responsibility for the accuracy thereof. Unless a successor securities depository is designated pursuant to the Indenture, DTC will act as Securities Depository for the Bonds. The Bonds will be issued as fully-registered securities, registered in the name of Cede & Co., DTC's partnership nominee, or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC and Its Participants. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfer and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Federal Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC) as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as securities brokers and dealers, banks and trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly, ("Indirect Participants"). DTC has Standard & Poor's highest rating of "AAA." The DTC Rules applicable to its Participants are on file with the Securities Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchase of Ownership Interests. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates ATTACHMENT 5 Draft of 5/3/10 representing their ownership interests in the Bonds, except in the event that use of the book- entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Notices and Other Communications. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. THE AUTHORITY AND THE TRUSTEE WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE BONDS. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Voting Rights. Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to an issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption Proceeds. Payments of principal and interest with respect to the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts on interest payment dates in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the interest payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal and interest to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. THE TRUSTEE AND THE AUTHORITY SHALL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, ANY BENEFICIAL OWNER OR ANY OTHER PERSON CLAIMING A BENEFICIAL OWNERSHIP INTEREST IN THE BONDS UNDER OR THROUGH DTC OR ANY DTC PARTICIPANT, OR ANY OTHER PERSON WHICH IS NOT SHOWN ON THE REGISTRATION BOOKS OF THE TRUSTEE AS BEING AN OWNER OF ATTACHMENT 5 Draft of 5/3/10 BONDS, WITH RESPECT TO THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF ANY AMOUNT IN RESPECT OF THE PRINCIPAL OF, AND PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE BONDS; ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO OWNER OF THE BONDS UNDER THE INDENTURE; THE SELECTION BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; ANY CONSENT OR OTHER ACTION TAKEN BY DTC AS OWNER OF THE BONDS; OR ANY OTHER PROCEDURES OR OBLIGATIONS OF DTC UNDER THE BOOK-ENTRY SYSTEM. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE REGISTERED OWNERS OF THE BONDS SHALL MEAN CEDE & CO., AS AFORESAID, AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS (EXCEPT FOR THE MATTERS UNDER THE CAPTION "TAX MATTERS" HEREIN) The foregoing description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal and interest with respect to the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial owner interest in such Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owner is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters, and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Discontinuance of Book-Entry System. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered as described in the Indenture and payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Bonds may be made to such Owner by wire transfer to such wire address within the United States that such Owner may request in writing for all Interest Payment Dates following the 15th day after the Trustee's receipt of such request. ATTACHMENT 5 Draft of 5/3/10 APPENDIX A CITY FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION The information herein is subject to change without notice, and neither delivery of this Official Statement nor any sale thereafter of the Bonds shall under any circumstances imply that there has not been any change in the affairs of the City or in any other information contained herein since the date of the Official Statement. The Bonds are payable solely from the sources described herein (see "SECURITY FOR THE BONDS'). The taxing power of the City of Encinitas, the County of San Diego, the State of California or any political subdivision thereof is not pledged to the payment of the Bonds. See the information under the caption "THE BONDS." General The City was incorporated in October 1986. The City's incorporation involved a reorganization consisting primarily of the incorporation of the City of Encinitas; the detachment of territory from the Cardiff Sanitation District and annexation of the same territory to the Solana Beach Sanitation District; and the establishment of the Encinitas Fire Protection District, the San Dieguito Water District (the "Water District") and the Encinitas Sanitary District as subsidiary districts of the City. Currently, all of the subsidiary districts, excluding the Water District, have been absorbed by the City as separate accounting divisions. The City is located in the northern coastal area of San Diego County (the "County") overlooking the Pacific Ocean. The City encompasses approximately 21.4 square miles and is located approximately 25 miles north of the City of San Diego and immediately north of the City of Solana Beach. Topography of the surrounding area varies from broad coastal plains to fertile inland valleys backed up by mountain ranges to the east. The climate is equable in the coastal and valley regions. The City maintains a website at www.cityofencinitas.org. However, the information presented there is not part of this Official Statement, is not incorporated by reference herein and should not be relied upon in making an investment decision with respect to the Bonds. City Government The City is a general law city and operates under a council-manager form of government. The City Council consists of five members elected at large, who also serve as the Board of Directors of the three subsidiary districts of the City. Council members serve four-year terms, with elections every two years for either two or three seats. The Mayor is selected by a majority vote of the City Council and serves a one year term. The City Manager is appointed by the City Council and serves as the City Council's administrative head of the City. All other city employees are appointed by and are responsible to the City Manager, except the City Attorney and the City Clerk, who are appointed by the City Council. The City supplies portions of its residents with water and sewer service through its subsidiary districts. The northern portion of the City is provided with sewer service by the independent Leucadia County Wastewater District. The eastern half of the City receives potable water from the Olivenhain Municipal Water District. Power is supplied by San Diego A-1 ATTACHMENT 5 Draft of 5/3/10 Electric and Gas, and telephone service by Pacific Bell. The City has its own parks and community services departments, but contracts for police service from the County. The current contract with the County for law enforcement services expires June 30, 2012. Population The population of the City has remained stable with a moderate rate of growth since its incorporation in 1986. The 2009 population is estimated at approximately 64,145, an increase of 10.7% from 2000. In the same period, population growth for San Diego County was 12.8% and for the State of California, the population growth was 13.0%. Population growth in the City is shown on the following chart. TABLE A-1 CITY OF ENCINITAS ANNUAL POPULATION ESTIMATES (As of January 1) City of Percent Year Encinitas Change 1999 56,500 2000 57,955 2.57% 2001 59,128 2.02 2002 59,981 1.44 2003 61,421 2.40 2004 62,480 1.72 2005 62,650 0.27 2006 62,825 0.28 2007 63,127 0.48 2008 63,615 0.77 2009 64,145 0.83 Source: State Department of Finance, Demographic Research Unit. A-2 ATTACHMENTS Draft of 5/3/10 Employees and Labor Relations The City currently employs 241 full-time equivalent employees, including 49 fire safety personnel. The following table presents the number of full-time City employees for the Fiscal Years 2004/05 through 2009/10. TABLE A-2 CITY OF ENCINITAS FULL-TIME CITY EMPLOYEES (Fiscal Years 2004/05 through 2009/2010) Fiscal Number of Year Full-Time Employees 2004/05 234 2005/06 236 2006/07 237 2007/08 241 2008/09 241 2009/10(') 241 Source: City of Encinitas Finance Department. (1) Budgeted. Approximately 67% of regular City employees are represented by various associations, and labor relations have been generally amicable. There has not been any recent major strikes, work stoppages, or other similar incidents. The following table provides a list of employee organizations in the City and the number of employees they represent as of January 1, 2010. TABLE A-3 CITY OF ENCINITAS EMPLOYEE ORGANIZATIONS (As of January 1, 2010) Organization Service Employees International Union (Local 2028) Encinitas Firefighters Assoc. Fire Chief Officers Assoc. Source: City of Encinitas. Accounting Policies and Financial Reporting Employees Expiration of Represented Contract 114 December 2011 45 December 2012 3 June 2010 The City's accounting records are organized and operated on a "fund" basis, which is the basic fiscal and accounting unit in governmental accounting. The operations of the different funds are accounted for with separate sets of self-balancing accounts showing assets, liabilities, fund balance or equity, and revenues and expenses. The basis of accounting for all funds is more fully explained in the "Notes to the City of Encinitas General Purpose Financial Statements" contained in APPENDIX B hereto. A-3 ATTACHMENT 5 Draft of 5/3/10 The City, all its funds and the Encinitas Public Financing Authority are audited annually by a certified public accounting firm. The firm of Macias Gini & O'Connell, LLP, Newport Beach, California, is the City's current auditor. The audited financial statements of the City for Fiscal Year 2008/09 are attached hereto as APPENDIX B. The auditor has not been requested to review such audited financial statements prior to inclusion in this Official Statement. Audited financial statements for prior fiscal years are available upon request from the Finance Department of the City or on its website at www.cityofencinitas.org. The City General Fund finances the legally authorized activities of the City not provided for in other restricted funds. General fund revenues are derived from such sources as taxes; licenses and permits, fines, forfeits and penalties; use of money and property; aid from other governmental agencies; charges for current services; and other revenue. General Fund expenditures and encumbrances are classified by the functions of general government, planning and building, public safety, public works, engineering and parks and recreation. Amounts on deposit in the Bond Fund held by the Trustee are pledged to payment of Lease Payments and are not available for other uses by the City. Budgetary Process and Current Budget The City develops a two-year operating budget for planning purposes and appropriates funds annually for operations and to fund the capital improvement program prior to the start of each fiscal year. The Council conducts a public hearing (workshop) prior to adopting the budget. Supplemental appropriations, where required during the fiscal year, are also approved by the Council. The authority for budgetary control is at the department level. A department head may transfer appropriations within the department. Expenditures may exceed appropriations to the extent that departmental revenues are sufficient to offset the excess. Expenditures in excess of departmental revenues must be approved by the Council. The Council, by the affirmative vote of three members, may amend the budget to add or delete appropriations, transfer between appropriations within a fund or change appropriations transfers between funds. An item of Required Supplementary Information, pursuant to GASB 34, is a Budgetary Comparison Schedule of the Original Adopted Budget and the Final Budget for the General Fund and all major Special Revenue Funds with explanations of the major changes. That schedule is included in the financial report in APPENDIX B for Fiscal Year 2008/09. The proposed Fiscal Year 2010/11 budget is balanced, and reflects an approximately 3.6% reduction in revenues and 7.1% reduction in expenses over the adjusted Fiscal year 2009/10 budget. The City Council in expected to begin considering the proposed budget by the end of April. A-4 ATTACHMENT 5 Draft of 5/3/10 The following table summarizes the Fiscal Year 2009/10 City Budget as adjusted. TABLE A-4 CITY OF ENCINITAS GENERAL FUND BUDGET (Fiscal Year 2009/10) 2009/10 Mid-Year Final Adjusted ITEM Budget Adjustments 2009/10 Budget Revenues: Taxes $44,916,898 ($425,916) $44,490,982 Licenses and Permits 195,400 28,685 224,085 Intergovernmental 301,200 202,448 503,648 Charges for services 4,699,380 (139,266) 4,560,114 Fines and Penalties 780,150 (114,000) 666,150 Use of money and property 854,020 (90,000) 764,020 Other 908,896 0 908,896 Total Revenues 52,665,944 (538,049) 52,117,895 Expenditures Current: General Government 11,112,302 0 11,112,302 Planning and building 3,255,627 285,650 3,541,277 Public Safety 22,962,111 (389,088) 22,573,023 Public Works 2,516,058 0 2,516,058 Engineering Services 3,894,215 0 3,894,215 Parks and recreation 5,823,384 (149,854) 5,673,530 Total Expenditures 49,563,697 (253,292) 49,310,405 Excess (Deficiency) of Rev. Over Exp. 2 247 2 4 7 7 2 7 4 Source: City of Encinitas Historic General Fund Revenues Taxes received by the City include property taxes, sales taxes, franchise fees, property transfer taxes and transient occupancy taxes. Of such taxes, Property Taxes and Sales Taxes constitute the major sources of revenues. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 62" and - Proposition 218" herein for a discussion of certain general taxes imposed by the City that may be affected by initiatives approved by the California voters. See also "RISK FACTORS - Impact of State Budget." A significant revenue source of the City is State of California payments and other payments in-lieu of taxes. The City receives a portion of Department of Motor Vehicles fees collected statewide. Payment of State assistance depends on the adoption by the State of its budget, including the appropriations therein providing for local assistance. These revenues are shown in the accompanying financial statements as "intergovernmental revenues." The State 2004/05 budget included a permanent reduction of vehicle license rate from 2% to 0.65%. Backfill dollars for this reduction have been eliminated and replaced with a like amount of property taxes (property taxes in-lieu of VLF). A-5 ATTACHMENT 5 Draft of 5/3/10 The following table illustrates the property tax revenues, sales tax revenues and other revenue sources of the City's General Fund for Fiscal Years 2000/01 through 2009/10. 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RS N Q O Z 0 N co N CO M M CO M Cl) co x V O N r`r-- co 00~ONr- OOO co CQ r-- LO Ot rl- MTMr- O • L - i (U ' r O O (D 0 00 CD U) co U O O U) = O CD CD M LO rl CO CO CO L0 ~ 5, O C U) 2 rnrncm r OOON Co LO (A-,t -,tr-- CDOOco N't cm po _ _ N OO rn O O Cb C6 OO 00 P- 1- DLO Efl T T a N U E O O O x N N U_ Cn R~ MM C)NMNNr- N OT O N NT'It CO LO ~t MM CDT O U) U } >CU It (DTOLO OLOOOMO ~ M't CD(DLO C)"' CO - 0) C OOOCD It LO 000000 M - QN NL000CD00r- u ) N cm Cn V ~ O " (DI T - N N CO CO CO CO r - > (D U 41) O N w L - ~O _0 n te CD M o a . O m m aT CM CO ~LO CDI~00CD 0 U CN a N = 0 0 0 0 0 0 0 0 0 T :3 O 0000000000 N N N N N N N N N N tz-O U C E - U) ) m > - M O 0 vN M Q ATTACHMENT 5 Draft of 5/3/10 State Legislative Shift of Property Tax Allocation Beginning in 1992/93, the State has required that local agencies remit a portion of property taxes received to augment school funding. This payment continues in future fiscal years, but is partially offset by a restricted increase in sales tax made permanent by voters in November 1993. See "RISK FACTORS - Impact of State Budget" herein for a discussion of circumstances which may adversely impact certain of the City's tax receipts. Through the adoption of the Fiscal Year 2009-2010 State budget, the State Legislature determined to exercise its rights under Proposition 1A and the City had approximately 8% of its real property tax revenues (approximately $2.9 million), received in Fiscal Year 2008/09, shifted to schools and other services. As part of the State budget package, local governments were given the opportunity to receive the monies being borrowed by the State upfront through a securitization financing offered by California Communities, a joint powers authority sponsored by the League of California Cities and California State Association of Counties. California Communities issued bonds securitizing the future payments by the State and remitted the proceeds of the bonds to the local governments which opted to participate in the securitization. The State is responsible for repaying the bondholders. Proceeds were to be mailed or wired to participating agencies on January 15, 2010 (50% of proceeds) and May 3, 2010 (50% of proceeds). The City participated in the Proposition 1A Securitization Program, and has received both installments. Other Taxes and Fees Franchise Fees. The City levies a franchise fee on its cable television, trash collection and utility franchises. Transient Occupancy Taxes. The City levies a 10%, voter-approved transient occupancy tax on hotel and motel bills, and short-term residential vacation rentals. Property Transfer Taxes. A documentary stamp tax is assessed for recordation of real property transfers. A-8 ATTACHMENT 5 Draft of 5/3/10 General Fund Reserves The following chart illustrates the general fund reserves of the City for Fiscal Years 2000/01 through 2009/10. TABLE A-6 CITY OF ENCINITAS GENERAL FUND RESERVES (As of June 30) Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(') Source: City of Encinitas. (1) Budgeted. City Investment Policy Endinq Fund Balance Percent Chanae $38,708,172 6.1% 35,236,028 (9.0) 35,097,578 (0.4) 35,454,696 (1.9) 40,035,360 16.2 40,959,317 2.3 51,685,689 26.2 51,127,133 (1.1) 47,535,284 (7.1) 46,731,938 (1.7) The City may invest public funds until such time as the funds are needed to pay the obligations of the City. The City maintains an Investment Policy which sets forth guidelines of the City Treasurer's investment of such funds. The Treasurer is a trustee and therefore a fiduciary subject to the prudent investor standards, and the primary objective shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet liquidity needs, and the third objective shall be to achieve a market rate of return. The City matches its investments with anticipated cash flow requirements. Pursuant to the California Government Code, maximum maturities shall not exceed five (5) years, without specific approval of the City Council. The City's investment policy limits the investment of the City's funds by specifying term, diversification and credit quality. The requirements of the City's policy regarding these investments are either the same as or more restrictive than the requirements of State law. The City has elected not to permit other types of investments which are permitted by State law. A-9 ATTACHMENT 5 Draft of 5/3/10 The City's investment portfolio had a market value as of March 31, 2010 of $91,685,406.95. The following table presents a breakdown of the City's investment portfolio by type of security as of that date. Market % of Total Investments Value Market Value Cash $ 724,263.79 0.80% Banking Facilities 30,098,870.32 32.83 LAI F 25,508,112.03 27.82 Managed Pool Accounts 4,974,435.17 5.42 Money Market Funds 389,495.64 0.43 U.S. Treasury Bills 9,996,100.00 10.90 Federal Agency Coupon Securities 2,015,940.00 2.20 Federal Agency Callable Securities 11,950,620.00 13.03 Variable Rate Agency Coupon Securities 6,027,570.00 6.57 TOTALS $91,685,406.95 100.00% Source: City Finance Department. As of March 31, 2010, the average life of the City's investment portfolio was 218 days, compared to 71 days as of March 31, 2009. Risk Management The City is self-insured for liability claims and losses up to $150,000 per occurrence, and is covered for covered losses between $150,000 and $2,000,000 by the San Diego Pooled Insurance Program Authority ("SANDPIPA") reserve pool. The members share the risk of claims in excess of reserves. Excess liability insurance coverage is provided for losses between $2,000,000 and $35,000,000 via third-party insurers, and losses in excess of $35,000,000 are not covered and are the responsibility of the City. The City is self-insured for workers compensation claims and losses up to $350,000 per occurrence. The City is covered for claims between $350,000 and $5,000,000 as a member of the California Joint Powers Insurance Authority LACWX. CSAC, EIA also provides excess workers compensation and commercial coverage between $5,000,000 and $45,000,000 through reinsurance arrangements. The City has stated that settled claims have not exceeded commercial coverage in any of the past four fiscal years. The claims liability of $1,207,928 (for both workers compensation and liability) reported in Long-Term Debt as of June 30, 2009 is based on the requirements of GASB Statement No. 30, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The City has designated in the General Fund net assets of $2,862,894 for estimated self-insurance. Retirement Program The City and the Water District have entered into a total of four (4) separate defined benefit pension plans covering miscellaneous and safety employees. As of June 30, 2003, the Water Miscellaneous Plan, the City Fire Safety Plan and the City Lifeguard Plan were placed into cost sharing pools. The City's Miscellaneous plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and A-10 ATTACHMENT 5 Draft of 5/3/10 beneficiaries. The Plans are part of the Public Agency portion of the California Public Employees Retirement System ("PERS"), a multiple-employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with PERS and adopts those benefits through local ordinance. PERS issues a separate comprehensive annual financial report. Copies.of the PERS annual financial report may be obtained from the PERS Executive Office, 4000 P Street, Sacramento, CA 95814. Participants in the City are required to contribute 8% (9% for safety employees) of their annual covered salary. The City pays 3.3% while employees meet the other 4.7% of the PERS contribution for miscellaneous employees. The City is required to contribute at an actuarially determined rate. The rate for Fiscal Year 2000/01 was 7% for non-safety employees, 9% for police employees and 9% for fire employees, of annual covered payroll. The contribution requirements of plan members and the City are established and may be amended by PERS. The system is funded by a combination of employer and employee contributions. The City pays employer and a portion of employee costs for all full-time and regular part-time employees. The City's share of the cost of the Miscellaneous and Safety plans was $2,864,467 for Fiscal Year 2006/07, $2,891,341 for Fiscal Year 2007/08, $3,021,544 for Fiscal Year 2008/09, and is budgeted to be $3,128,000 for Fiscal Year 2009/10. As of June 30, 2008 (the most recent information available from PERS), the City's Miscellaneous Plan reflected an unfunded liability of approximately $11.2 million. Post Retirement Health Benefits During the year ended June 30, 2009, the City implemented GASB Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which changed the accounting and financial reporting used by local government employers for other post-employment benefits ("OPEB"). Previously, the costs of such benefits were generally recognized on a "pay-as-you-go" basis. The City provides postretirement health care benefits through the PERS healthcare program ("PEMHCA") to eligible employees who retire directly from the City. The City pays the cost for lifetime retiree and dependent medical benefits (average premium for PERS health plans available in the County) for former Encinitas Fire Protection District employees hired before March 16, 1995. Other retirees receive the PEMHCA minimum benefit. There currently are 35 former Fire Protection District and 39 former City employees currently receiving benefits. The City has elected to join the California Employers' Retiree Benefit Trust (the "Trust") in accordance with GASB No.43, which provides a means to fund the Annual Required Contribution (ARC) OPEB obligations. The City makes an annual contribution to the Trust, pays benefits either directly to retirees or through PEMHCA during the year, and then seeks reimbursement for these pay-as-you-go expenses from the Trust. The contributions of the City to the Trust are established by City Council action. The contribution requirements are established via an actuarial valuation of the City's Retiree Healthcare Plan as of June 30, 2007, performed in conformance with the GASB 43 and GASB 45 requirements. The required contribution is measured on an accrual basis rather than on a pay-as-you-go. The City contributed $857,000 at June 30, 2009. The actuarial cost method used for determine the benefit obligations is the entry age cost method. The valuation is determined using a discount A-11 ATTACHMENT 5 Draft of 5/3/10 rate of 7.75%. The actuary used the following assumptions: medical premiums would increase by 10% to 11 % depending on type of plan; assumed the average retirement for City employees to be 60 years of age. The unfunded actuarial accrued liability is being amortized over a closed thirty year period. The City will fund the full annual required contribution during each fiscal year and will deposit the funds with the California Employer's Retiree Benefit Trust Fund. The annual OPEB cost is referred to as the Annual Required Contribution (ARC). The ARC represents a level of funding that, if paid on an on-going basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liability over a maximum of 30 years. For fiscal year 2008-2009, the City's annual OPEB contribution to the trust of $857,000 was equal to the ARC. The ARC equaled the City's contributions which resulted in a zero OPEB obligation at the end of the year. As of June 30, 2007 (the most recent information available from PERS), the City's OPEB unfunded liability was approximately $10 million. Outstanding Lease Debt The City has executed a number of capital lease and other obligations payable from the City General Fund (see APPENDIX B hereto). See "DEBT SERVICE SCHEDULE" above for the annual debt service requirements of the Bonds. The following table shows the City's debt service requirements to maturity for prior certificates of participation and capital lease obligations payable from the City General Fund (including payment on the Prior Bonds). TABLE A-7 CITY OF ENCINITAS CURRENT OUTSTANDING DEBT SERVICE REQUIREMENTS TO MATURITY (GENERAL FUND) Fiscal Year General Fund Ending June 30 Payments 2010 $4,278,232 2011 4,226,871 2012 4,159,197 2013 3,927,144 2014 3,827,201 2015 & Beyond 57,638,111 TOTAL $78,056,756 Source: City Finance Department. City Financial Data The following tables provide a three-year history of the City's Comparative Balance Sheets, and summarize General Fund revenues, expenditures, transfers, and ending fund balances for the City for Fiscal Years 2006/07 through 2008/09. See also "Budgetary Process and Current Budget" above for estimated revenues and expenses for the current Fiscal Year. TABLE A-8 CITY OF ENCINITAS A-12 ATTACHMENTS Draft of 5/3/10 GENERAL FUND COMPARATIVE BALANCE SHEET (As of June 30) 2006/07 2007/08 2008/09 Assets: Cash and investments $40,285,331 $48,960,926 $46,070,220 Receivables 3,464,798 3,702,931 3,427,700 Due from other funds 701,675 696,036 511,951 Other assets 3,325,189 2,992,670 2,660,151 Sales tax receivable 837,848 828,239 760,710 Cash and investments with fiscal agent 10,242,397 1,326,660 626,348 Total Assets $58,857,238 $58,507,462 $54,057,080 Liabilities and Fund Equity: Liabilities: Accounts payable & accrued liabilities $3,181,432 $3,285,193 $2,387,429 Deferred revenue 1,163,395 817,151 1,534,931 Deposits and other liabilities 2,826,722 3,277,985 2,599,436 Total Liabilities $7,171,549 $7,380,329 $6,521,796 Fund Equity: Reserved $15,196,796 $6,210,167 $5,255,137 Unreserved Designated 29,514,308 35,790,162 38,413,388 Undesignated 6,974,585 9,126.804 3.866.759 Total Fund Equity $51,685,689 $51,127,133 $47,535,284 Total Liabilities and Fund Equity $58,857,238 $58,507,462 $54,047,080 A-13 ATTACHMENT 5 Draft of 5/3/10 TABLE A-9 CITY OF ENCINITAS STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND BALANCES (Fiscal Year Ending June 30) Revenues: Taxes and assessments Intergovernmental Charges for service Fines, forfeitures and penalties Use of money and property Other Total Revenues Expenditures: Current: General government Public safety Public works Planning and building Engineering services Parks and recreation Total Expenditures Excess (Deficiency) of Rev. Over Exp. Other Financial Sources (Uses): Proceeds of debt Bond discounts Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances, Beginning Fund Balances, Ending 2006/07 2007/08 2008/09 $43,813,376 $45,283,528 $45,544,779 782,139 1,393,590 1,465,883 6,973,457 7,189,773 5,888,231 949,606 884,446 746,023 3,092,149 2,890,895 1,593,369 515,038 570.856 535,285 56,125,765 58,213,088 55,773,570 9,558,367 11,858,720 12,970„108 20,537,807 20,758,533 21,533,344 1,178,304 2,083,459 2,511,731 3,826,565 4,020,288 3,589,360 3,078,645 3,972,242 3,986,859 5,318,816 5,585.446 5.811.778 43,498,504 48,278,688 50,403,180 12,627,261 9,934,400 5,370,390 20,000,000 2,100,000 0 (300,000) 0 0 441,529 1,192,243 466,283 (22,042,418) 113,785.1991 (9,428.522) (1,900,889) (10,492,956) (8,962,239) 10,726,372 (558,556) (3,591,849) 40.959.317 51685,689 51.127.133 $47 535.2$4 Source: City Audited Financial Statements. A-14 ATTACHMENT 5 Draft of 5/3/10 Direct and Overlapping Debt Contained within the City are numerous overlapping local agencies providing public services. These local agencies have outstanding obligations issued in the form of general obligation, lease, revenue and special assessment bonds. The following is a listing of direct and overlapping bonded debt on property in the City together with lease obligation debt of agencies in the area, as of April 1, 2010. DIRECT AND OVERLAPPING DEBT CITY OF ENCINITAS 2009-10 Assessed Valuation: $11,338,887,373 OVERLAPPING TAX AND ASSESSMENT DEBT: %Applicable Debt 411/10 Metropolitan Water District 0.627% $ 1,656,659 Cardiff School District 100. 8,31198 Encinitas Union School District 67.981 10,607,651 San Dieguito Union High School District Community Facilities 1.920-100. 15,249,877 Districts City of Encinitas Community Facilities District No. 1 100. 37,830,000 City of Encinitas 1915 Act Bonds 100. 510,000 Olivenhain Municipal Water District, Assessment District No. 25.142 4,231,399 96-1 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $78,400,784 DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations 3.257% $13,731,838 San Diego County Pension Obligations 3.257 27,798,975 San Diego County Superintendent of Schools Obligations 3.257 690,077 Mira Costa Community College District Certificates of 14.675 539,306 Participation Encinitas Union School District Certificates of Participation 67.981 421,482 City of Encinitas Certificates of Participation 100. 44,440,000(') TOTAL DIRECT AND OVERLAPPING GENERAL FUND $87,621,678 DEBT COMBINED TOTAL DEBT $166,022,462(2) (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2009-10 Assessed Valuation: Combined Direct Debt ($44,440,000) .............0.39% Total Overlapping Tax and Assessment Debt 0.69% Combined Total Debt ..................................1.46% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/09: $0 Source: California Municipal Statistics, Inc. A-15 ATTACHMENT 5 Draft of 5/3/10 GENERAL DEMOGRAPHIC INFORMATION Assessed Valuations In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the County assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over other liens (except certain federal claims) on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against the taxes on unsecured property, but may become a lien on certain other property owned by the taxpayer. While the County of San Diego has adopted a Teeter Plan relating to property tax disbursements, the City has elected not to participate. Property taxes on the secured roll are due in two installments, on November 1 and March 1. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. If such taxes remain unpaid as of June 30 of the fiscal year in which the taxes are levied, the property securing the taxes may only be redeemed by a payment of the delinquent taxes and the delinquency penalty, plus costs and a redemption penalty of 1-1/2% per month from the original June 30th date to the time of redemption. If taxes are unpaid for a period of five years or more, the tax-defaulted properties are thereafter subject to sale by the county tax collector as provided by law. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent if unpaid by August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1-1/2% per month begins to accrue on November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing of a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) secure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. A-16 ATTACHMENT 5 Draft of 5/3/10 The following table shows the assessed valuation of the City from Fiscal Year 1996/97 through Fiscal Year 2009/10. TABLE A-10 CITY OF ENCINITAS SCHEDULE OF ASSESSED PROPERTY (As of June 30) Year Secured Util i1) Unsecured Total 1997 $4,145,250,236 $2,028,780 $77,026,252 $4,224,305,268 1998 4,282,179,976 2,235,497 81,601,812 4,366,017,285 1999 4,598,429,761 3,248,989 107,869,719 4,709,548,469 2000 5,029,321,477 3,539,663 120,050,833 5,152,911,973 2001 5,555,651,747 3,615,230 124,132,927 5,683,399,904 2002 6,094,943,187 3,687,679 121,710,903 6,220,341,7139 2003 6,671,155,770 3,321,931 122,276,356 6,796,754,057 2004 7,380,752,536 2,870,543 129,666,206 7,513,289,285 2005 8,166,719,411 2,732,083 130,170,382 8,299,621,876 2006 9,012,953,568 2,785,704 137,229,829 9,152,959,101 2007 9,874,321,949 2,609,179 142,971,280 10,019,902,408 2008 10,539,452,529 0 149,460,274 10,688,912,803 2009 11,097,895,097 0 160,815,739 11,258,710,836 2010 11,175,029,435 0 163,857,938 11,338,887,373 Source: California Municipal Statistics, Inc. (1) Change in 2008 reflects legislative alteration of how certain rail property is allocated A-17 ATTACHMENT 5 Draft of 5/3/10 The following table shows assessed valuation and parcel by Land Use in Fiscal Year 2009/10. TABLE A-11 CITY OF ENCINITAS ASSESSED VALUE BY LAND USE Non-Residential: Agricultural Commercial Vacant Commercial Industrial Vacant Industrial Recreational/Open Space Government/Social/Institutional Miscellaneous Subtotal Non-Residential Residential: Single Family Residence Condominium/Townhouse Mobile Home Mobile Home Park 2-4 Residential Units 5+ Residential Units/Apartments Miscellaneous Residential Vacant Residential Subtotal Residential TOTAL 2009/10 Assessed % of No. of % of Valuation(') Total Parcels Total $ 50,811,328 0.45% 110 0.51% 1,041,209,209 9.32 640 2.97 96,923,65 0.87 70 0.32 36,254,548 0.32 19 0.09 353,090 0.00 3 0.01 4,400,999 0.04 10 0.05 14,745,882 0.13 13 0.06 8,127,278 0.07 22 0.10 1,252,825,987 11.21 887 4.11 7,560,328,093 67.65 14,618 67.74 1,054,803,165 9.44 3,508 16.26 28,753,734 0.26 255 1.18 20,244,807 0.18 11 0.05 797,018,750 7.13 1,460 6.77 325,876,555 2.92 119 0.55 8,983,469 0.08 56 0.26 126,194,875 1.13 665 3.08 9,922,203,448 88.79 20,692 95.89 $11,175,029,435 100.00% 21,579 100.00% Source: California Municipal Statistics, Inc. (1) Local Secured Assessed Valuation; excluding tax-exempt property. A-18 ATTACHMENT 5 Draft of 5/3/10 Largest Taxpayers A list of the principal property taxpayers in the City is set forth below: TABLE A-12 CITY OF ENCINITAS PRINCIPAL SECURED PROPERTY TAXPAYERS(') (Fiscal Year 2009/10) Property Owner Assessed Valuation % of Total(') Collwood Pines Apartments LP $ 70,979,046 0.64% PK III Encinitas Marketplace LP 39,717,270 0.36 Encinitas Town Center Associates I LLC 33,832,180 0.30 Belmont Village Cardiff LP 33,546,200 030 North Coast Health Center LLC 32,011,781 029 WRI El Camino LP 31,813,910 0.28 Lofts at Moonlight Beach LLC 31,155,758 0.28 Urschel Laboratories Inc. 22,402,164 0.20 ASN Encinitas LLC 22,347,830 0.20 SDCC Properties LLC 21,848,400 0.20 KSL Encinitas Resort Corp. 21,536,280 0.19 Vons Companies Inc. 21,392,678 0.19 Keith B. & Sara S. Harrison 20,106,585 0.18 Quail Pointe Apartments LP 18,566,995 0.17 Pacific Station Property LLC 18,117,684 0.16 Encinitas Plaza LP 17,278,863 0.15 Sterling Family Trust 17,102,759 0.15 PLENC El Camino LLC 16,802,557 0.15 Home Depot USA Inc. 16,475,907 0.15 Hughes & Encinitas Ltd. 16,348.444 0.15 TOTALS $523,383,291 4.69% Source: California Municipal Statistics, Inc. (1) 2009/10 Local Secured Assessed Valuation: $11,175,029,435 A-19 ATTACHMENT 5 Draft of 5/3/10 Employment The following table lists the major employers in northern San Diego County (information specific to the City is not available) as of June 30, 2009. TABLE A-13 CITY OF ENCINITAS LARGEST EMPLOYERS (As of June 30, 2009) Company Marine Corp. Base, Camp Pendleton General Atomics Northrop Grumman Poway Unified School District Pomerado Hospital Palomar College Palomar Pomerado Health Callaway Golf Co. Sony Electronics Inc. Oceanside Unified School District Business Category Employees Military 60,000 Defense/Technology 4,200 Manufacturing 4,165 Public School District 3,404 Hospital 3,200 Public College 3,070 Medical Center 3,000 Manufacturing 2,500 N/A 2,500 Public School District 2,300 Source: The Daily Transcript Source Book-2009. Commercial Activity A summary of retail sales occurring in the City from 2000 through the first quarter of 2009 are shown below. TABLE A-14 CITY OF ENCINITAS TAXABLE TRANSACTIONS (000's Omitted) Calendar Total Percentage Year Taxable Sales Change 2000 $797,643 2001 834,410 4.61% 2002 902,474 8.16 2003 952,439 5.54 2004 1,012,199 6.27 2005 1,027,460 1.51 2006 1,023,800 (0.36) 2007 996,299 (2.69) 2008 955,823 (4.06) 2009(' 204,490 N/A Source: State Board of Equalization (1) First Quarter only. A-20 ATTACHMENT 5 Draft of 5/3/10 Building Activity The following table summarizes the number of residential building permits issued in the City from Fiscal Year 2005/06 through 2009/10. TABLE A-15 CITY OF ENCINITAS NEW BUILDING PERMITS (As of June 30) Fiscal Year Single Family June 30 Residential Permits 2002 373 2003 311 2004 186 2005 159 2006 145 2007 107 2008 98 2009 86 2010(" 29 Source: City of Encinitas. (1) Through March 31, 2010. A-21 ATTACHMENT 6 OFFICIAL NOTICE OF SALE [$20,000,000] ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REFUNDING REVENUE BONDS, SERIES A (PARK PROJECT) Date of Sale , May , 2010 on the MumAuction website at website address www.MuniAuction.com Between 9:00 a.m. and 9:30 a.m. Pacific Standard Time For further information, please contact: Northcross Hill & Ach, LLC One Post Street, Suite 2525 San Francisco, CA 94104 Phone: 415-506-3400 Fax: 415-506-3401 Attn: Mark Northcross or G. Craig Hill Preliminary, subject to change ATTACHMENT 6 OFFICIAL NOTICE OF SALE [$20,000,0001 ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REFUNDING REVENUE BONDS, SERIES A (PARK PROJECT) NOTICE IS HEREBY GIVEN that all-or-none bids will be received by the Encinitas Public Financing Authority (the "Authority") for the purchase of [$20,000,0001 aggregate principal amount designated "Encinitas Public Financing Authority 2010 Lease Refunding Revenue Bonds, Series A (Park Project)" (the "Bonds"). All bids must be submitted on the MuniAuction website ("MuniAuctiort") at website address www.MuniAuction.com between 9:00 a.m. and 9:30 a.m. (PST) on May 2010. To bid, bidders must have (1) completed the registration form on the MuniAuction website, and (2) requested and received admission to the Authority's auction (as described under "Registration and Admission to Bid via MuniAuction" below). Bids for the purchase of the Bonds will be received and considered subject to the terms and conditions described herein. Right to Change Timing and Terms of Sale. The Authority reserves the right to amend this Official Notice of Sale at any time prior to the date and time for receipt of bids by publishing the amendments on the Amendments Page of MumAuction or via The Thomson Municipal News Service andlor Bloomberg wire service. Issue. [$20,000,00012010 Lease Refunding Revenue Bonds, Series A, bearing interest from the Date of Delivery, which is anticipated to be on or about , 2010, in full book-entry only form in denominations of $5,000 and any integral multiple thereof, maturing serially through April 1, . The Bonds are subject to optional redemption prior to maturity. Prospective bidders should note that the terms of sale permit adjustment of individual maturities. See "Terms of Sale" herein. Interest Rate. Interest will be calculated on the basis of a 360-day year composed of twelve (12) 30-day months. The Bonds shall bear interest from their date at a rate or rates to be determined at the sale thereof Interest on the Bonds shall be payable semiannually on October I and April 1 of each year (the "Interest Payment Dates") commencing October 1, 2010. Bidders may specify any number of separate interest rates, and any rate may be repeated as often as desired; provided, however: (1) An interest rate on any single maturity may not exceed six percent (6.00%) per annum; (ii) Each interest rate specified must be in a multiple of 1/20 or 1/8 of 1 percent; (iii) the true interest cost to maturity on the Bonds shall not exceed (iv) A zero rate of interest cannot be specified; (v) Each Bond shall bear interest from its date to its stated maturity date at the interest rate specified in the bid; (vi) All Bonds of the same maturity shall bear the same rate of interest; ATTACHMENT 6 (vi) The interest rate on any maturity shall not be less than the interest rate on any prior maturity; and (vii) No bid will be accepted which provides for the cancellation and surrender of any interest payment or for the waiver of interest or other concession by the bidder as a substitute for payment in full of the purchase price of the Bonds. Bids which do not conform to the terms of this paragraph will be rejected Payment. Principal of and interest on the Bonds will be payable through Union Bank of California, Los Angeles, California, as Trustee (the "Trustee"), in lawful money through the facilities of The Depository Trust Company, or its nominee. Purpose of Issue. The proceeds of the sale of the Bonds will be used to (i) provide funds to acquire real property in the City of Encinitas to be used for municipal purposes, (ii) fund a Reserve Account for the Bonds, (iii) pay capitalized interest on the Bonds, and (iv) to pay certain costs of issuing the Bonds. Denomination. The Bonds will be executed and delivered in fully registered form without coupons, in the denominations of $5,000 each or any integral multiple thereof within a maturity, and numbered consecutively upward in order of authentication. Date of Bonds. The Bonds will be dated the Date of Delivery, which is anticipated to be on or about June , 2010. Maturities'. The Bonds will mature on the dates and in the amounts shown below subject to adjustments as described under the caption "Adjustment of Principal Amounts." Maturity Principal April 1 Amount(2) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maturity Principal Amount Amount(2) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Adjustment of Principal Amounts. The principal amounts set forth in this Official Notice of Sale reflect certain estimates of the Authority and its financial advisor with respect to the likely interest rates of the winning bid and the premium/discount contained in the winning bid. The total principal amount of the Bonds and the principal amounts payable in each of the years set forth above are subject to adjustment in $5,000 increments to reflect the actual interest rates and any (1) Preliminary, subject to change. See also "Adjustment of Principal Amounts" herein. (2) These maturities may be combined into one or two term bonds at the option of the successful bidder. ATTACHMENT 6 premium/discount contained in the winning bid, and to maintain substantially level annual debt service payments on the Bonds. The successful bidder will be notified of any adjustment in principal amounts prior to the time the Bonds are awarded. A successful bidder may not withdraw its bid as a result of any changes made within these limits. Optional Redemption. Bonds maturing on or before April 1, are not subject to optional redemption prior maturity. The Bonds maturing on April 1, and thereafter are subject to redemption prior to their stated maturity at the option of the Authority, as a whole or in part on any date, by such maturities as are selected by the Authority from any available source of funds on or after April 1, at the following redemption prices (expressed as a percentage of the principal amount of the Bonds to be redeemed), together with accrued interest thereon to the date fixed for redemption. Redemption Periods Redemption Price April 1, through March 31, April 1, through March 31, April 1, and thereafter If the successful bidder (the "Purchaser") designates principal amounts of the Bonds to be combined into one or more term bonds, each such term bond shall be subject to mandatory redemption prior to maturity in part by lot from monies required to be deposited by the Authority in the Sinking Account established for the Bonds at a redemption price equal to the principal amount thereof plus accrued interest to the date fixed for redemption, without premium. Book-Entry Only. The Bonds when issued will be registered in the name of CEDE & CO., as nominee of The Depository Trust Company, New York, New York, and will be initially issued as one bond for each of the maturities of the Bonds. Payments of principal and interest will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Bonds. Security. The Bonds are payable from Revenues received by the Authority, consisting principally of Lease Payments made by the City pursuant to a Lease Agreement, dated as of May 1, 2010, between the Authority and the City. The City has covenanted in the Lease Agreement to make all Lease Payments provided for therein, to include all such payments in its annual budgets, and to make the necessary annual appropriations for such rental payment. The City's obligations to make Lease Payments is subject to abatement in the event of damage to, destruction or condemnation of, or title defects relating to, the Site subject to the Lease Agreement. See the Preliminary Official Statementfor a description ofRevenues and the security, for the Bonds. THE BONDS ARE NOT A DEBT, OBLIGATION OR LIABILITY OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY), NOR DO THEY CONSTITUTE A PLEDGE OF THE FAITH AND CREDIT OR THE TAXING POWER OF ANY OF THE FOREGOING (INCLUDING THE AUTHORITY AND THE CITY). THE AUTHORITY DOES NOT HAVE ANY TAXING POWER. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR -STATUTORY DEBT LIMITATION OR RESTRICTION. THE CITY'S OBLIGATION TO MAKE LEASE PAYMENTS IS AN OBLIGATION PAYABLE FROM THE CITY'S GENERAL FUND OR ANY OTHER SOURCE OF FUNDS LEGALLY AVAILABLE TO THE CITY TO MAKE LEASE PAYMENTS. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION OR ANY OBLIGATION FOR WHICH THE CITY IS ATTACHMENT 6 OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION, OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. Reserve Fund. The Authority as agreed to establish and maintain so long as any Bonds are outstanding a Reserve Account, in an amount equal to the Reserve Requirement, which is an amount equal to the least of (i) 10% of the principal amount of the Bonds (less original issue discount if in excess of two percent of the stated redemption amount at maturity) (ii) the maximum annual Debt Service, or (iii) one hundred twenty-five percent (125%) of the average annual debt service on the Bonds. Ratings. Standard & Poor's and Moody's Investors Service have assigned their municipal bond rating of and respectively, to the Bonds notwithstanding the delivery of the insurance policy. The ratings reflect only the views of the respective rating organization, and an explanation of the significance of such ratings may be obtained from such organizations. There is no assurance that the ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies that issued them, if, in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. Legal Opinion. The legal opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, approving the validity of the Bonds and stating that interest with respect to the Bonds is excludable from gross income under Section 103 of the Code (as defined in the Official Statement) and such interest is also exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the Purchaser at the time of delivery of the Bonds at the expense of the Authority. A copy of such opinion, certified by an officer of the Authority at the time of delivery by his facsimile signature, will be printed on the back of or delivered with each Bond. No charge will be made to the Purchaser for such opinion, printing or certification. Delivery of Securities. Delivery of the Bonds will be made to the Purchaser at The Depository Trust Company in New York, New York (or at any other mutually agreeable location) on or about 2010. Payment must be made in cash, Federal Reserve Bank funds, or other immediately available funds. CUSIP Numbers. It is anticipated that CUSIP identification numbers will be assigned to the Bonds. It shall be the responsibility of the Purchaser to obtain CUSIP numbers. Neither the failure to print such numbers on any Bond nor any error with respect thereto shall constitute cause for failure or refusal by the Purchaser to accept delivery of and pay for the Bonds in accordance with the terms of this Official Notice of Sale. The CUSIP Service Bureau charge for the assignment of said numbers shall be the responsibility of and shall be paid for by the Purchaser. California Debt and Investment Advisory Commission Fee. Bidders are advised that, pursuant to Section 8856 of the California Government Code, it will be the responsibility of the Purchaser to pay the statutory fee to the California Debt and Investment Advisory Commission. No Litigation Certificate. At the time of delivery of the Bonds, the Purchaser will receive a certificate of the Authority to the effect that there is no litigation pending or, to the best of such officer's knowledge, threatened against the Authority affecting the validity of the Bonds. Continuing Disclosure. In order to assist bidders in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), the Districts will undertake, pursuant to a Continuing Disclosure Agreement, to provide annual reports and notices of certain events by not later than March 1 after the end of their fiscal year (presently June 30) in each year, commencing with the report for the 2000/01 fiscal 4 ATTACHMENT 6 year. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the final Official Statement. Purchaser's Closing Certificate. The Purchaser must deliver such certificates to the Authority as may be required by Bond Counsel dated the date of execution and delivery of the Bonds, indicating (among other matters): (i) receipt of the Bonds; (ii) the initial offering price at which not less than ten percent (10%) of the Bonds were sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers), (iii) the "yield" on the Bonds as calculated in accordance with the Internal Revenue Code of 1986, as amended, and (iv) such other information as may be required to assist the Authority in filing the required Internal Revenue Service Form 8038-G for the Bonds. Preliminary Official Statement and Final Official Statement. The Preliminary Official Statement, dated , 2010 distributed in connection with the sale of the Bonds, as the same may be supplemented on or prior to the bid date (the "Preliminary Official Statement"), has been deemed final by the Authority for purposes of Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"), but is subject to revision, amendment and completion in a final Official Statement (the "Official Statement") as provided in the Rule. Within seven (7) business days after the award of the bid, the Authority will furnish to the Purchaser, at no charge, up to 150 copies of the Official Statement. Additional copies will be available at the expense of the Purchaser. The Preliminary Official Statement may also be viewed on MuniAuction. Any questions concerning MumAuction should be directed to MuniAuction, Inc. at (412) 391-7686. TERMS OF SALE Form of Bid. Bids may be submitted electronically only, through the MuniAuction website between 9:00 a.m. and 9:30 a.m., Pacific time on Tuesday, , 2010 (or at such other time and date as may be specified on the MuniAuction website or via Bloomberg Financial Markets or Thomas Municipal Services). To bid via the MuniAuction website, bidders must have both (1) completed the registration form on Grant Street Group's MuniAuction website and (2) requested and received admission to this particular auction, as described below. The use of MuniAuction is at the bidder's risk and expense, and neither the Authority, the Financial Advisor nor Bond Counsel has any liability with respect thereto. Bidders will be notified prior to the scheduled bidding time of their eligibility to bid. Only NASD registered broker-dealers and dealer banks with DTC clearing arrangements will be eligible to bid. Bidders who have previously registered with MuniAuction may call MuniAuction at (412) 319-7686 for their ID Number or password. Rules of MuniAuction. "Rules of MumAuction" can be viewed on MuniAuction and, as amended and supplemented from time to time, are incorporated herein by reference. Bidders will be required to verify that they have read the "Rules of MumAuction" prior to submitting bids. In the event of a conflict between the Rules of MuniAuction and this Official Notice of Sale, the provisions of this Official Notice of Sale are controlling. Bidding Details. All bids must be unconditional and submitted on the MuniAuction website at "http://www.MuniAuction.com". No facsimile, personal delivery bids or bids delivered by any other method will be accepted. Bidders are permitted to submit bids for the Bonds only in the all-or-none format. Bids submitted in the maturity-by-maturity format will not be entertained. 5 ATTACHMENT 6 Rank-Order - Bidders may change and submit bids as many times as they like during the auction, so long as each submitted bid, when compared to the immediately preceding bid of the bidder, results in a lower true interest cost. The last bid submitted before the end of the auction will be compared to all other final bids to determine the winning bidder(s). During the bidding, no bidder will see any other bidder's bid, but each bidder will be able to see the rank order of its bid (e.g., Leader, cover, 3`d, 4`" etc.). During the auction, bidders will be able to see on the Auction Page whether any bid has been submitted for the Certificates. Two-Minute Rule - If a bid becomes a leading bid two (2) minutes prior to the scheduled end of the auction, the time period for submission of bids will be automatically extended by two (2) minutes from the time such new leading bid was received by MuniAuction (the "Two-Minute Rule"). The auction end time will continue to be extended, indefinitely, until a single leading bid remains the leading bid for at least two minutes. Cancellation or Postponement of Sale: The Authority reserves the right, in its sole discretion, at any time to cancel or postpone the public sale of the Bonds. In such event, the Authority will cause notice of cancellation or postponement to be communicated through the Amendments Page of the MuniAuction website and through Bloomberg Financial Markets or Thomson Municipal Services as promptly as practicable. However, no failure to publish such notice or any defect or omission therein will affect the cancellation or postponement of the public sale of the Bonds. In the event of postponement, any alternative sale date will be announced through the Amendments Page of the MuniAuction website and through Bloomberg Financial Markets or Thomson Municipal Services at least 24 hours prior to such alternative sale date. On any such alternative sale date, any bidder may submit a bid for the purchase of the Bonds in conformity in all respects with the provisions of this Official Notice of Sale, except of the date of sale and except for the changes announced through the Amendments Page of the MuniAuction website and through Bloomberg Financial Markets or Thomson Municipal Services at the time the sale date and time are announced. Verification. Bidders bidding through MuniAuction should verify the accuracy of their final bids and compare them to the winning bids reported on the MumAuction Observation Page immediately after the auction. Determination of Best Bid: The Bonds will be awarded to the bidder whose proposal produces the lowest true interest rate, determined as hereinafter described. The true interest rate specified in any bid will be that rate which, when used in computing the present worth of all payments of principal and interest to be paid on all Bonds from the date of original delivery thereof (assumed for computational purposes to be June 1, 2010), to their respective maturity dates or mandatory sinking fund prepayment dates, produces an amount equal to the purchase price specified in such bid. For purposes of computing the true interest rate represented by any proposal, the purchase price specified in such proposal will be equal to the par amount of the Bonds less any discount or plus any premium specified in such proposal, and the true interest rate will be calculated by the use of a semiannual interval of compounding interest based on the Interest Payment Dates for the Bonds. Prices. Bidders must specify a purchase price of not less than ninety-eight and one-half percent (98.50%) of the aggregate principal amount of the Bonds. Right of Rejection. The Authority reserves the right, in its discretion, to reject any and all bids and to waive any irregularity or informality in any bid. 6 ATTACHMENT 6 Prompt Award. The Authority will take action awarding the Bonds or rejecting all bids not later than 24 hours after the hour designated above for the opening of bids, unless such time of award is waived by the Purchaser. Delivery and Payment. It is estimated that delivery of the Bonds will be made to the Purchaser on or about , 2010. Payment of the purchase price (less the amount of the bid check mentioned below) must be made in fluids immediately available to the Authority. Right of Cancellation. The Purchaser will have the right at its option to withdraw its bid if the Bonds are not executed and tendered for delivery within sixty (60) days from the date of sale thereof, and in such event, the Purchaser will be entitled to the return of the good faith deposit accompanying its bid. Good Faith Deposit. A good faith deposit (the "Deposit") in the form of a certified or cashier's check or a financial surety bond in the amount of Two Hundred Twenty Thousand Dollars ($200,000), payable to the order of the Authority, is required for each bid to be considered. If a financial surety bond is used, it must be from an insurance company licensed to issue such a bond in the State of California, and such bond must be submitted to the Authority (in care of Northcross, Hill & Ach LLC) prior to the opening of the bids. The financial surety bond must identify each bidder whose Deposit is guaranteed by such financial surety bond. If the Bonds are awarded to a bidder utilizing a financial surety bond, then that Purchaser is required to submit its Deposit to the Authority in the form of a cashier's check (meeting the requirements set forth above) or by wire transfer not later than 3:30 p.m. Pacific Standard Time, on the next business day following the award of the Bonds. If such Deposit is not received by that time, the financial surety bond shall be drawn by the Authority to satisfy the Deposit requirement. No interest on the Deposit will accrue to the Purchaser. The Deposit will be applied to the purchase price of the Bonds. In the event the Purchaser fails to honor its accepted bid, the Deposit will be applied by the Authority as described in the following paragraph. If a check is utilized as the Deposit, the check must accompany each accepted bid and such check may be cashed after the award of Bonds and applied to the purchase price or, if such bid is accepted but the Purchaser fails to perform (unless such failure of performance is caused by any act or omission of the Authority), then the Authority shall retain such deposit and it will be applied by the Authority in partial satisfaction of whatever actual damages the Authority may suffer by reason of the Purchaser's failure to perform hereunder in accordance with the terms of the sale. In such instances, should the Authority's actual damages be determined to be less than said amount, thirty (30) days after any such determination by a court having jurisdiction thereof becomes final, the balance of this amount shall be returned to the Purchaser without interest. Should the Purchaser fail to perform hereunder, the Authority may also recover all costs relating thereto, including attorney's fees. Checks accompanying unaccepted bids will be returned promptly to each unsuccessful bidder via U.S. mail to the address indicated on such bidder's bid form unless other arrangements have been made with Northcross, Hill & Ach LLC. Certificate Regarding Reoffering. The Purchaser shall advise the Authority no later than one hour after award of the bid of such information regarding the reoffering price or prices at which the Bonds are reoffered to the general public as shall enable the Authority to comply with the Internal Revenue Code of 1986 and to make any adjustments in the principal amount of the Bonds as described under "Adjustments of Principal Amounts." Underwriting Group. Each bidder is requested to furnish the names of all joint managers participating in the bid on the official Bid Form. The Purchaser will be required to submit a list of all syndicate members in addition to the managers not later than 24 hours after receiving a verbal award. 7 ATTACHMENT 6 Additional Information Available. Requests for copies of the Official Statement pertaining to the Bonds, the Official Notice of Sale and Bid Form, or for other information concerning the Authority or the Bonds should be addressed to the Authority's financial advisor: Northcross, Hill & Ach, LLC, One Post Street, Suite 2525, San Francisco, CA 94104, Phone (415) 506-3400, Fax (415) 506-3401. ENCINITAS PUBLIC FINANCING AUTHORITY By: /s/ Phil Cotton Executive Director ATTACHMENT 7 NOTICE OF INTENTION TO SELL APPROXIMATELY $20,000,000 ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REFUNDING REVENUE BONDS, SERIES A (PARK PROJECT) NOTICE IS HEREBY GIVEN that the Encinitas Public Financing Authority (the "Authority") intends to offer for public sale on , at the hour of 9:30 a.m., California time, at the office of Northcross, Hill & Ach LLC, One Post Street., Suite 2525, San Francisco, CA 94102, approximately [$20,000,000] principal amount of its bonds designated "Encinitas Public Financing Authority 2010 Lease Refunding Revenue Bonds, Series A (Park Project)" (the `Bonds"). The Authority reserves the right to postpone to a later date said public sale date by announcing such postponement through MuniAuction Website, Bloomberg Financial Markets or Thomas Municipal Services (the "News Servicer") as soon as practicable following such postponement and prior to the time bids are to be received. If the sale is postponed, bids will be received at the place set forth above on the date and at the; time as the Authority shall determine. Notice of the new date for receipt of bids shall be given by the Agency's Financial Advisor, Northcross, Hill & Ach, LLC through the News Services prior to the new time bids are to be received. NOTICE IS HEREBY FURTHER GIVEN that the Bonds will be offered for public sale subject to the terms and conditions of the Official Notice of Sale for the Bonds, and copies of the Official Notice of Sale and of a Preliminary Official Statement relating to the Bonds will be furnished upon request made to the Authority's Financial Advisors, Northcross, Hill & Ach, LLC, telephone number (415) 506-3400, telecopy number (415) 560-3401. Dated: May , 2010 /s/ Phil Cotton Executive Director, Encinitas Public Financing Authority 1 ATTACHMENT 8 ENCINITAS PUBLIC FINANCING AUTHORITY 2010 LEASE REVENUE REFUNDING BONDS SERIES A (PARK PROJECT) PURCHASE CONTRACT , 2010 Encinitas Public Financing Authority 505 South Vulcan Ave. Encinitas, CA 92024-3633 City of Encinitas 505 South Vulcan Ave. Encinitas, CA 92024-3633 Ladies and Gentlemen: The undersigned (the "Underwriter") hereby offers to enter into this Purchase Contract with you, the City of Encinitas (the "City") and the Encinitas Public Financing Authority (the "Authority"), for the purchase by the Underwriter and the delivery by you of the Bonds specified below. The Bonds are being issued by the Authority for the purpose of (i) refinancing the Authority's 2001 Lease Revenue Bonds, Series A (the "Prior Bonds"), (ii) paying the costs of issuing the Bonds, and (iii) funding a reserve fund for the Bonds. This offer is made subject to acceptance by you prior to 11:59 p.m., Los Angeles time, on the date hereof. Upon such acceptance, this Purchase Contract shall be in full force and effect in accordance with its terms and shall be binding upon you and the Underwriter. All terms not defined herein shall have the meanings set forth in the Indenture (defined below). 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, the Underwriter agrees to purchase from the Authority, and the Authority agrees to sell to the Underwriter, all (but not less than all) of the $ aggregate principal amount of the Authority's 2010 Lease Revenue Refunding Bonds, Series A (Park Project) (the "Bonds"), at the purchase price of $ (being the principal amount of the Bonds, less an Underwriter's discount in the amount of $ , and [less net original issue discount] [plus net original issue premium] of $ J The Bonds will have the maturities and bear interest at the rates set forth on Exhibit A hereto. The Bonds will be subject to redemption as set forth in the Official Statement herein described. The Bonds will be dated as described in the Official Statement. The Bonds will be issued in book-entry form only. ATTACHMENT 8 2. Authorizing Instruments and Law. The Bonds shall be issued pursuant to the provisions of a resolution (the "Resolution") adopted by the Authority authorizing the issuance of the Bonds and the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code (the "JPA Act"). The Bonds are issued pursuant to an Indenture of Trust, dated as of 1, 2010 (the "Indenture"), between the authority and Union Bank, N.A. (the "Trustee"), and shall be as described in the Indenture. The Bonds are limited obligations of the Authority payable, on a parity basis, primarily from and secured by certain revenues (the "Revenues") consisting of certain Lease Payments to be paid by the City pursuant to an Amended and Restated Lease Agreement (the "Lease Agreement"), dated as of 1, 2010, between the City and the Authority, for certain real property and the improvements thereon (the "Leased Premises"). 3. Offering the Bonds. The Underwriter agrees to offer all the Bonds to the public initially at the prices (or yields) set forth on the cover pages of the Official Statement of the Authority pertaining to the Bonds, dated , 2010 (the Official Statement, together with all appendices thereto, and with such changes therein and supplements thereto as are consented to in writing by the Underwriter, are herein called the "Official Statement"). Subsequent to the initial public offering of the Bonds, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. "Public Offering" shall include an offering to a representative number of institutional investors or registered investment companies, regardless of the number of such investors to which the Bonds are sold. 4. Delivery of Official Statement on the Date Hereof. The Authority shall deliver to the Underwriter two (2) copies of the Official Statement manually executed on behalf of the Authority by the President, and on behalf of the City by an authorized representative. The Authority shall also deliver a sufficient number of copies of the Official Statement to enable the Underwriter to distribute a single copy of each Official Statement to any potential customer of the Underwriter requesting an Official Statement during the time period beginning when the Official Statement becomes available and ending on the End Date (defined below). The Authority shall deliver these copies to the Underwriter within seven (7) business days after the execution of this Purchase Contract and in sufficient time to accompany or precede any sales confirmation that requests payment from any customer of the Underwriter. The Underwriter shall inform the Authority in writing of the End Date, and covenants to file the Official Statement with the Municipal Securities Rulemaking Board (the "MSRB") on a timely basis. "End Date" as used herein is that date which is the earlier of: (a) ninety (90) days after the end of the underwriting period, as defined in SEC Rule 15c2-12 adopted by the Securities and Exchange Commission on June 28, 1989 ("Rule 15c2-12"); or 2 ATTACHMENT 8 (b) the time when the Official Statement becomes available from the MSRB, but in no event less than twenty-five (25) days after the underwriting period (as defined in Rule 15c2-12) ends. The Authority and the City have authorized the use of the Official Statement in connection with the public offering of the Bonds. The Authority and the City also have consented to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement dated , 2010, relating to the Bonds in connection with the public offering of the Bonds (which, together with all appendices thereto, is herein called the "Preliminary Official Statement"). Authorized officers of the City and the Authority have certified to the Underwriter that such Preliminary Official Statement was deemed to be final as of its date for purposes of Rule 15c2-12, with the exception of certain final pricing and related information referred to in Rule 15c2-12. The Underwriter has distributed a copy of each Preliminary Official Statement to potential customers on request. 5. The Closing. At 9:00 A.M., California time, on , 2010, or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the Authority, the City and the Underwriter, the Authority will deliver (i) the Bonds in book-entry form through the facilities of The Depository Trust Company ("DTC") in New York., New York, and (ii) the closing documents hereinafter mentioned at the offices of Best Best & Krieger LLP, Riverside, California, or another place to be mutually agreed upon by the Authority, the City and the Underwriter. The Underwriter will accept such delivery from the Authority. The Underwriter will pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer of immediately available funds. This payment and delivery, together with the delivery of the aforementioned documents, is herein called the "Closing." 6. City Representations, Warranties and Covenants. The City represents, warrants and covenants to the Underwriter that: (a) The City is a political subdivision of the State of California (the "State"), duly organized and validly existing pursuant to the Constitution and laws of the State, and has all necessary power and authority to enter into and perform its duties under the Lease Agreement, the Continuing Disclosure Agreement, dated as of the Closing (the "Continuing Disclosure Agreement") between the City and the Trustee, the Escrow Deposit and Trust agreement, dated as of 1, 2010 (the "Escrow Agreement"), between the City and the Trustee, as escrow agent for the Prior Bonds, the Official Statement and this Purchase Contract (collectively, the "City Documents"). (b) To the best knowledge of the City, neither the execution and delivery of the City Documents, or the approval and execution of the Official Statement or this Purchase Contract, and compliance with the provisions on the City's part contained therein, nor the consummation of any other of the transactions herein and therein contemplated, nor the fulfillment of the terms hereof and thereof, materially conflicts with or constitutes a material breach of or default under nor materially contravenes any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other 3 ATTACHMENT 8 instrument to which the City is a party or is otherwise subject, nor does any such execution, delivery, adoption or compliance result in the security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the City under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the City Documents. (c) The City Documents have been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding agreements of the City enforceable in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if sought and by the limitations on legal remedies imposed on actions against cities in the State of California. (d) Except as may be required under blue sky or other securities laws of any state, there is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory agency having jurisdiction over the City required for the execution and delivery of the Bonds or the consummation by the City of the other transactions contemplated by the Official Statement and this Purchase Contract. (e) To the best of the knowledge of the City, there is, and on the Closing (as hereinafter defined) there will be, no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or threatened against the City to restrain or enjoin the delivery of any of the Bonds, or the payments to be made pursuant to the Lease Agreement, or in any way contesting or affecting the validity of the City Documents or the Bonds or the authority of the City to approve this Purchase Contract, or enter into the City Documents or contesting the powers of the City to enter into or perform its obligations under any of the foregoing or in any way contesting the powers of the City in connection with any action contemplated by this Purchase Contract or to restrain or enjoin the execution, sale and delivery of the Bonds or, except as described in the Preliminary Official Statement and the Official Statement, the payment of Lease Payments, nor is there any basis for any such action, suit, proceeding or investigation. (0 The Preliminary Official Statement provided to the Underwriter has been deemed final by the City, as required by Rule 15c2-12. As of the date thereof and at all times subsequent thereto up to and including the End Date, the information relating to the City, the Bonds, the Leased Premises and the City Documents contained in the Official Statement was and will be materially complete for its intended purposes. The information relating to the City, the Bonds, the Leased Premises and the City Documents contained in the Official Statement is true and correct in all material respects and such information does not contain any untrue or misleading statement of a material fact or omit to*state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect. 4 ATTACHMENT 8 (g) The City agrees to cooperate with the Underwriter in endeavoring to qualify the Bonds for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that the City will not be required to execute a special or general consent to service of process in any jurisdiction in which it is not now so subject or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified. (h) By official action of the City prior to or concurrently with the execution hereof, the City has duly approved the distribution of the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in the City Documents and the consummation by it of all other transactions contemplated by the Official Statement and this Purchase Contract. (i) To the best knowledge of the City, it is not in breach of or default under any material applicable law or administrative regulation of the State of California or the United States or any material applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject and in connection with which the City is obligated to make payments from its own finds, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument the consequence of which could be the materially and adversely affect the performance of the City under the City Documents. 0) If between the date of this Purchase Contract and the End Date an event occurs, of which the City has knowledge, which might or would cause the information relating to the City, the Leased Premises, or the City's functions, duties and responsibilities contained in the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading in any material respect, the City will notify the Underwriter, and if, in the opinion of the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will cooperate with the Underwriter in the preparation of an amendment or supplement to the Official Statement in a form and in a manner approved by the Underwriter, provided all expenses thereby incurred will be paid for by the City. (k) If the information relating to the Leased Premises, the City, its functions, duties and responsibilities contained in the Official Statement is amended or supplemented pursuant to the immediately preceding subparagraph, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date of the Closing, the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading in any material respect. 5 ATTACHMENT 8 (1) The City covenants that it will comply with all tax covenants relating to it in the City Documents, the Tax Certificate of the City and this Purchase Contract. (m) Substantially all the proceeds from the sale of the Bonds (after deducting the expenses of issuance and sale of the Bonds paid for from such proceeds) will be used to finance the Leased Premises, and to fund, in whole or in part, the Reserve Account, and the City will not take or omit to take any action which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner contrary to that provided in the Indenture and the Lease Agreement, as amended from time to time. (n) The City will deliver all opinions, certificates, letters and other instruments and documents reasonably required by the Underwriter and this Purchase; Contract. (o) Any certificate of the City delivered to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the statements made therein. (p) As of the time of acceptance hereof and as of the Closing the City does not and will not have outstanding any indebtedness which is secured by a lien on the City's general fund except as disclosed in the Official Statement. (q) Between the date of this Purchase Contract and the date of Closing, the City will not, without the prior written consent of the Underwriter, and except as disclosed in the Official Statement, offer or issue any certificates, notes or other obligations for borrowed money, or incur any material liabilities, direct or contingent, secured by a lien on the City's general fund. 7. Authority Representations, Warranties and Covenants. The Authority represents, warrants and covenants to the City and the Underwriter that: (a) The Authority is a joint powers authority, duly organized and existing under the Constitution (the "Constitution") and laws of the State, including the JPA Act, with full right, power and authority to enter into, execute and deliver the Authority Documents (defined below) and to perform its obligations hereunder. (b) By all necessary official action, the Authority has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations on its part contained in the Purchase Contract, the Bonds, the Indenture and the Least: Agreement (collectively, the "Authority Documents") and has approved the use by the Underwriter of the Preliminary Official Statement, and the Official Statement and, as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered by the parties hereto, the Authority Documents will constitute the legally valid and binding obligations of the Authority enforceable upon the Authority in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles 6 ATTACHMENT 8 relating to or affecting creditors rights generally. The Authority has complied, and will at the Closing be in compliance in all respects, with the terms of the Authority Documents. (c) The Bonds, when issued in accordance with the Indenture, will be legally valid and binding special obligations of the Authority, entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally. (d) As of the time of acceptance hereof and as of the time of the Closing, except as otherwise disclosed in the Official Statement, the Authority is not and will not be in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Authority is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument which breach, default or event could have an adverse effect on the Authority's ability to perform its obligations under the Authority Documents; and, as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the Authority Documents and compliance by the Authority with the provisions thereof do not and will not conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Authority (or any of its officers in their respective, capacities as such) is subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument except as provided in the Authority Documents. (e) As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending, or to the best knowledge of the Authority threatened against the Authority: (i) in any way questioning the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Authority Documents or the consummation of the transactions on the part of the Authority contemplated thereby, or contesting the exclusion of the interest on the Bonds from federal or state taxation, as applicable, or contesting the powers of the Authority or 7 ATTACHMENT 8 its authority to enter into the Lease Agreement and to pledge the Revenues for repayment of the Bonds; (iii) which may result in any material adverse change relating to the financial condition of the Authority; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of all the circumstances under which they were made, not misleading. (f) All authorizations, approvals, licenses, permits, consents and orders of or filings with any governmental authority, legislative body, board, agency or commission having jurisdiction in the matters which are required for the due authorization of, which would constitute a condition precedent to or the absence of which would adversely affect the due performance by the Authority of its obligations in connection with, the Authority Documents have been duly obtained or made, except as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds. (g) Any certificate signed by any authorized officer of the Authority and delivered to the Underwriter shall be deemed to be a representation and warranty by the Authority to the Underwriter as to the statements made therein. (h) As of the time of acceptance hereof and as of the date of Closing, except as otherwise disclosed in the Official Statement, the Authority has complied with the filing requirements of the JPA Act. (i) The Authority has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that either the City, the Authority or the City is a bond issuer whose arbitrage certifications may not be relied upon. 0) The Authority will undertake, or cause the City to undertake., pursuant to the Indenture and the Continuing Disclosure Agreement, to provide or cause to be provided annual financial reports and notices of certain events; a description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth as an appendix to the Official Statement. (k) The Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement from the delivery of the Official Statement to the End Date, and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any 8 ATTACHMENT 8 governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (1) For a period beginning on the date hereof and continuing until the End Date, (a) the Authority will not adopt any amendment of, or supplement to, the Official Statement to which the Underwriter shall object in writing or which shall be disapproved by the Underwriter's counsel and (b) if any event relating to or affecting the Authority shall occur as a result of which it is necessary, in the opinion of Underwriter's Counsel, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser of the Bonds, the Authority will forthwith cause the Authority to prepare and furnish to the Underwriter a reasonable number of copies of an amendment of, or supplement to, the Official Statement (in form and substance satisfactory to Underwriter's Counsel) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser of the Bonds, not misleading. 8. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties and covenants herein and the performance by the Authority and the City of their respective obligations hereunder, both as of the date hereof and as of the date of the Closing. The Underwriter's obligations hereunder are and shall be subject to the following additional conditions: (a) Bring-Down Representation The representations, warranties and covenants of the Authority and the City contained herein shall be true and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing. (b) Executed Agreements and Performance Thereunder. At the time of the Closing: (i) the City Documents and the Authority Documents shall be in full force and effect, and shall not have been amended, modified or supplemented except with the written consent of the Underwriter; (ii) there shall be in full force and effect such resolutions (the "Authorizing Resolutions") as, in the opinion of Best Best & Krieger LLP (`Bond Counsel"), shall be necessary in connection with the transactions on the part of the Authority and the City contemplated by this Purchase Contract, the Official Statement, the City Documents and the Authority Documents; (iii) the Authority shall perform or have performed its obligations required or specified in the Authority Documents to be performed at or prior to Closing; (iv) the City shall perform or have performed its obligations required as specified in the City Documents to be performed at or prior to Closing; and 9 ATTACHMENT 8 (v) the Official Statement shall not have been supplemented or amended, except pursuant to Paragraph 60) or 7(k), or as otherwise may have been agreed to in writing by the Underwriter. (c) No Default. At the time of the Closing, no default shall have occurred or be existing under the Authority Documents or the City Documents and neither the Authority nor the City shall be in default in the payment of principal or interest on any of its bonded indebtedness which default shall adversely impact the ability of the Authority to make payments on the Bonds or the City to make payments pursuant to the Lease Agreement. (d) Termination Events. The Underwriter shall have the right to terminate this Purchase Contract, without liability therefor, by written notification to the Authority and the City if at any time at or prior to the Closing: (i) any event shall occur which causes any statement contained in the Official Statement to be materially misleading or results in a failure of the Official Statement to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading; or (ii) the marketability of the Bonds or the market price thereof, in the opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of the Authority Documents or the City Documents in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the President or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any Federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other Federal or State authority materially adversely affecting the Federal or State tax status of the Authority or the City, or the interest on bonds or notes or obligations of the general character of the Bonds; or (iii) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the States or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or 10 ATTACHMENT 8 (iv) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, or that the Indenture needs to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (v) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter's ability to market the Bonds; or (vi) a general banking moratorium shall have been established by federal or State authorities; or (vii) the United States has become engaged in hostilities which have resulted in a declaration of war or a national emergency or there has occurred any other outbreak of hostilities or a national or international calamity or crisis, financial or otherwise, the effect of such outbreak, calamity or crisis on the financial markets of the United States, being such as, in the reasonable opinion of the Underwriter, would affect materially and adversely the ability of the Underwriter to market the Bond (it being acknowledged by the Underwriter that as of the date hereof no such event is occurring)s; or (viii) the commencement of any action, suit or proceeding described in Paragraphs 6(e) or 7(e) hereof which, in the judgment of the Underwriter, materially adversely affects the market price of the Bonds; or (ix) there shall be in force a general suspension of trading on the New York Stock Exchange; or (x) an event described in paragraph 0) of Section 6 or paragraph (1) of Section 7 hereof shall have occurred which, in the reasonable professional judgment of the Underwriter, requires the preparation and publication of a supplement or amendment to the Official Statement; or (xi) any rating or credit outlook of the Bonds or other obligations of the City by a national rating agency shall have been withdrawn or downgraded. 11 ATTACHMENT 8 (e) Closing Documents. At or prior to the Closing, the Underwriter shall receive with respect to the Bonds (unless the context otherwise indicates) the following documents: (1) Bond Opinion. The approving opinion of Bond Counsel dated the date of the Closing and substantially in the form included as APPENDIX D to the Official Statement, together with a letter from such counsel, dated the date of the Closing and addressed to the Underwriter to the effect that the foregoing opinion may be relied upon by the Underwriter to the same extent as if such opinion was addressed to them. (2) Supplemental Opinion. A supplemental opinion or opinions of Bond Counsel addressed to the Underwriter, in substantially the form and to the following effect: (a) The statements and information contained in the Official Statement on the cover page and under the captions "INTRODUCTION," "THE BONDS" (except for the information under the captions "The Book Entry System"), "SECURITY FOR THE BONDS" and "TAX MATTERS," and in APPENDICES C and D, are true and accurate in all material respects; and (b) The Bonds are exempt from registration under the Securities Act of 1933, as amended (the "1933 Act"), and the Indenture is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended; (c) upon issuance of the Bonds and the deposit of proceeds in the escrow fund established under the Escrow Agreement, that the prior Bonds have been defeased and are no longer outstanding. (3) City Counsel Opinion. An opinion of the City Counsel, dated as of the Closing and addressed to Bond Counsel and the Underwriter, in form and substance acceptable to Bond Counsel and counsel for the Underwriter, to the following effect: (i) the City is a political subdivision and municipal corporation, duly organized and validly existing under the Constitution and the laws of the State of California; (ii) the preparation and distribution of the Preliminary Official Statement and the Official Statement and this Purchase Contract have been duly approved by the City; (iii) the resolution of the City approving and authorizing the execution and delivery of the Official Statement and the City Documents has been duly adopted at a meeting of the governing body of the City which was called and held pursuant: to law and with all public notice required by law and at which a quorum was present and acting; throughout and such resolution is in full force and effect and has not been amended, modified or rescinded; 12 ATTACHMENT 8 (iv) there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending or, to the best knowledge of such counsel, threatened against or affecting the City, which would adversely impact the City's ability to complete the transactions described in and contemplated by the Official Statement, to restrain or enjoin the payments under the Lease Agreement, or in any way contesting or affecting the validity of the City Documents, or the transactions described in the Official Statement wherein an unfavorable decision, ruling or finding would adversely affect the validity and enforceability of the City Documents; (v) the execution and delivery of the City Documents and the approval of the Official Statement, and compliance with the provisions thereof and hereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject; (vi) the City Documents have been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding agreements of the City enforceable in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if sought and by the limitations on legal remedies imposed on actions against cities in the State of California; (vii) no authorization, approval, consent, or other order of the State of California or any other governmental authority or agency within the State of California is required for the valid authorization, execution and delivery of the City Documents and the approval of the Official Statement; and (viii) nothing has come to his attention which would lead him to believe that the information relating to the City or the Leased Premises contained in the Official Statement contains an untrue statement or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (4) Authority Counsel Opinion An opinion of Counsel to the Authority, dated the date of the Closing and addressed to Bond Counsel and the Underwriter, in form and substance acceptable to counsel for the Underwriter substantially to the following effect: (1) The Authority is a joint powers authority, duly created and lawfully existing under the laws and the Constitution of the State; (ii) The Authority has full legal power and lawful authority to enter into the Authority Documents; 13 ATTACHMENT 8 (iii) The resolution ("Authority Resolution") of the Authority approving and authorizing the execution and delivery of the Authority Documents has been duly adopted at a meeting of the governing board of the Authority, which was called and held pursuant to the law and with all public notice required by law and at which a quorum was present and acting throughout and the Authority Resolution is in full force and effect and has not been modified, amended or rescinded; (iv) The Authority Documents have been duly authorized, executed and delivered by the Authority and constitute the valid, legal and binding obligation of the Authority enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting enforcement of creditors rights and by the application of equitable principles if equitable remedies are sought; (v) The Official Statement has been duly authorized by the governing body of the Authority and executed on its behalf by an authorized officer of the Authority. (vi) Except as otherwise disclosed in the Official Statement, to the best of such counsel's knowledge, there is no litigation, action, suit, proceeding or investigation at law or in equity before or by any court, governmental agency or body, pending or threatened against the Authority, challenging the creation, organization or existence of the Authority, or the validity of the Authority Documents or seeking to restrain or enjoin any of the transactions referred to herein or contemplated hereby or contesting the authority of the Authority to enter into or perform its obligations under the Authority Documents, or which, in any manner, questions the right of the Authority to issue and sell the Bonds. (5) Trustee Counsel Opinion. The opinion of counsel to the Trustee, dated the date of the Closing, addressed to Bond Counsel and the Underwriter, in form and substance acceptable to counsel for the Underwriter substantially to the following effect: (i) The Trustee is a national banking association duly organized and validly existing under the laws of the United States. (ii) The Trustee has duly authorized the execution and delivery of the Indenture. (iii) The Indenture and the Continuing Disclosure Agreement have been duly entered into and delivered by the Trustee and assuming due, valid and binding authorization, execution and delivery by the other parties thereto, constitute the legal, valid and binding obligations of the Trustee enforceable against the Trustee in accordance with their respective terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally, or by general principles of equity. 14 ATTACHMENT 8 (iv) acceptance by the Trustee of the duties and obligations under the Indenture and the Continuing Disclosure Agreement and compliance with provisions thereof will not conflict with or constitute a breach of or default under any law or administrative regulation to which the Trustee is subject. (v) All approvals, consents and orders of any governmental authority or agency having jurisdiction in the matter which would constitute a condition precedent to the performance by the Trustee of its duties and obligations under the Indenture and the Continuing Disclosure Agreement have been obtained and are in full force and effect. (6) Disclosure Counsel Opinion. An opinion, dated the date of the Closing addressed to the Authority and the Underwriter, of Nossaman LLP, disclosure counsel, to the effect that based upon their participation in the preparation of the Official Statement as Disclosure Counsel to the Authority and without having undertaken to determine independently the accuracy or completeness of the contents in the Official Statement, such counsel has no reason to believe that the Official Statement, as of its date and as of the Closing Date (except for the financial statements and the other financial and statistical data included therein and the information included therein relating to The Depository Trust Company and the book-entry system (as such terms are defined in the Official Statement), and in the Appendices thereto as to all of which no opinion or belief need be expressed) contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (7) City Certificate. A certificate, dated the date of Closing, signed by a duly authorized official of the City satisfactory in form and substance to the Underwriter, (a) confirming as of such date the representations and warranties of the City contained in this Purchase Contract; (b) certifying that the City has complied with all agreements, covenants and conditions to be complied with by the City at or prior to the Closing under the City Documents; (c) certifying that to the best of such official's knowledge, no event affecting the City has occurred since the date of the Official Statement which either makes untrue or incorrect in any material respect as of the Closing the statements or information contained in the Official Statement or is not reflected in the Official Statement but should be reflected therein in order to make the statements and information therein not misleading in any material respect; and (d) certifying that the City has authorized and consented to the inclusion in the Official Statement of the City's financial report and accountant's opinion for the year ended June 30, 2009, and no further consent of any party is required for such inclusion. (8) Authority Certificate. A certificate of the AyrtD.ority, dated the date of the Closing, signed on behalf of the Authority by the President or othorduly`,uthorized officer of the Authority to the effect that: , (i) The representations, warranties and covenants of the Authority contained herein and in the Authority Documents are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the Authority has 15 ATTACHMENT 8 complied with all of the terms and conditions of the Authority Documents required to be complied with by the Authority at or prior to the date of Closing; and (ii) No event affecting the Authority has occurred since the date of the Official Statement which has not been disclosed therein or in any supplement or amendment thereto which event should be disclosed in the Official Statement in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (9) Trustee's Certificate. A Certificate of the Trustee, dated the date of Closing, addressed to the Authority, the City and the Underwriter, in form and substance acceptable to counsel for the Underwriter to the following effect: (i) The Trustee is duly organized and existing as a national banking association in good standing under the laws of the United States, having the full power and authority to accept and perform its duties under the Indenture and the Continuing Disclosure Agreement; (ii) Subject to the provisions of the Indenture, the Trustee will apply the proceeds from the Bonds to the purposes specified in the Indenture; and (iii) The Trustee has duly authorized and executed the Indenture and the Continuing Disclosure Agreement. (10) Title Policy. A copy of a CLTA title insurance policy in an amount equal to the principal amount of the Certificates, insuring the City's leasehold interest in the Leased Premises, subject only to permitted encumbrances or such other encumbrances approved in writing by the Underwriter. (11) Transcripts. Two transcripts of all proceedings relating to the authorization and issuance of the Bonds. (12) Official Statement. The Official Statement and each supplement or amendment, if any, thereto, executed on behalf of the City and the Authority by a duly authorized officer of each. (13) Documents. An original executed copy of each of the Authority Documents and the City Documents. (14) City Resolution. Two copies certified by the Clerk or Assistant Clerk of the City, of each resolution of the City relating to the City Documents, the actions contemplated thereby, provided that such resolutions may be contained in the transcripts provided pursuant to Paragraph 8(e)(11) above. 16 ATTACHMENT 8 (15) Authority Resolution. Two copies certified by the Secretary or Assistant Secretary of the Authority, of each resolution of the Authority relating to the Authority Documents, the Bonds and the transactions contemplated thereby, provided that such resolutions may be contained in the transcripts provided pursuant to Paragraph 8(e)(11) above. (16) IRS Form 8038-G. Evidence that the federal tax information form 8038-G has been prepared for filing. (17) Nonarbitrage Certificate. A tax and nonarbitrage certificate in form satisfactory to Bond Counsel. (18) Ratings. Evidence as of the Closing satisfactory to the Underwriter that the Bonds have received, at a minimum, a rating of from Moody's Investors Service ("Moody's"), a rating of " " from Fitch Ratings ("Fitch") and a rating of from Standard & Poor's Rating Group ("S&P"), and that such ratings have not been. revoked or downgraded. [(19) Verification Report. The verification report of relating to the defeasance of the Prior Bonds, in form satisfactory to Bond Counsel and the Underwriter.] (20) CDIAC Statement. A copy of the Notice of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the Government Code and Section 8855(g) of the Government Code. (21) Additional Documents. Such additional certificates, instruments and other documents as the Underwriter may reasonably deem necessary. If the Authority or the City shall be unable to satisfy the conditions contained in this Purchase Contract, or if the obligations of the Underwriter shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract may be terminated by the Underwriter, and none of the Underwriter, the Authority or the City shall be under further obligation hereunder. 9. [Reserved]. 10. Expenses. The Underwriter shall be under no obligation to pay, and the Authority shall pay or cause to be paid, the expenses incident to the performance of the obligations of the Authority and the City hereunder including but not limited to: (a) the costs of the preparation and printing, or other reproduction (for distribution on or prior to the date hereof) of the City Documents and the Authority Documents and the cost of preparing, printing, issuing and delivering the Bonds; 17 ATTACHMENT 8 (b) the fees and disbursements of any counsel, financial advisors, accountants or other experts or consultants retained by the Authority or the City; (c) the fees and disbursements of Bond Counsel and Disclosure Counsel; (d) the cost of preparation and printing the Preliminary Official Statement and any supplements and amendments thereto and the cost of preparation and printing of the Official Statement, including a reasonable number of copies thereof for distribution by the Underwriter; (e) charges of rating agencies for the rating of the Bonds; (f) the cost of preparation and printing of Blue Sky and legal investment memoranda, if any, to be used by it and the cost of printing of the Authority Documents and the City Documents; and (g) the expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds, including any advertising expenses. 11. Notice. Any notice or other communication to be given to the Underwriter may be given by delivering the same to , . Any notice or other communication to be given to the Authority or the City pursuant to this Purchase Contract may be given by delivering the same in writing to such entity, at the addresses set forth on the cover page hereof. 12. Entire Agreement. This Purchase Contract, when accepted by the Authority and the City, shall constitute the entire agreement among the Authority, the City and the Underwriter and is made solely for the benefit of the Authority, the City and the Underwriter (including the successors or assigns of any Underwriter). No other person shall acquire or have any right hereunder by virtue hereof, except as provided herein. All the Authority's and the City's representations, warranties and agreements in this Purchase Contract shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, until the earlier of (a) delivery of and payment for the Bonds hereunder, and (b) any termination of this Purchase Contract. 13. Counterparts. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 14. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. 15. State of California Law Governs. The validity, interpretation and performance of the Authority Documents shall be governed by the laws of the State. 18 ATTACHMENT 8 16. No Assignment. The rights and obligations created by this Purchase Contract shall not be subject to assignment by the Underwriter, the Authority or the City without the prior written consent of the other parties hereto. 17. Definitions. Terms not otherwise defined herein shall have the same meaning an when used in the Indenture. [UNDERWRITER] By: Title: Accepted as of the date first stated above: ENCINITAS PUBLIC FINANCING AUTHORITY By: _ Title: CITY OF ENCINITAS By: _ Title: 19 ATTACHMENT 8 EXHIBIT A Maturity Date Principal Interest (April 1 oft Amount Rate Price or Yield A-1