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HomeMy WebLinkAbout21 - CIOSA Special Improvement District Debt RefundingCITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES DEPARTMENT Resource Management Division July 10, 2001 Agenda Item /l 21 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dennis Danner, Administrative Services Director XJ 14 SUBJECT: CIOSA SPECIAL IMPROVEMENT DISTRICT DEBT REFUNDING RECOMMENDATION: It is recommended that the City Council approve the refunding of the CIOSA Special Improvement District No. 95 -1 Series A and B Special Tax Bonds and approve the attached: Authorizing Resolution, Bond Indenture, Escrow Agreement, Continuing Disclosure Agreement, Preliminary Official Statement, Purchase Agreement, and various contracts for services with Bond Counsel, Underwriter, Financial Advisor /Investment Advisor, Trustee, Verification Agent, and District Administrator. DISCUSSION: In 1993 the City and The Irvine Company entered into a Development Agreement entitled the CIOSA (Circulation Improvement and Open Space Agreement) Agreement, which called for the Company to meet financial obligations for the construction of public roadway improvements within the City. In 1995 and 1997, the City issued the CIOSA Special Improvement District No. 95 -1 Series A and B Special Tax Bonds, in the amounts of $7,500,000 and $9,335,000, respectively, to finance the public roadway improvements described above. At the time these Special Improvement District Special Tax Bonds were sold they received a very favorable interest rate. However, with much of the property within the District having been developed and with recent market conditions, an opportunity has arisen to refinance this debt at a more competitive interest rate and to combine the two issues into one. The net present value savings for the refunding is estimated at 3.7% and an industry rule of thumb is to refinance a debt issuance when a net present value savings of at least 3.0% can be achieved. Any savings in debt service payments achieved by this refunding will accrue to the benefit of the property owners within the CIOSA District. In order to proceed with the refunding the documents listed above must be approved. Because of the timing of this refunding, the new debt service requirements will be sent to the County Assessor's Office in August and any assessment savings will appear on property owners property tax bills beginning with the installment due November 1, 2001. RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $16,000,000 AGGREGATE PRINCIPAL AMOUNT OF CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95 -1 (CIOSA) SPECIAL TAX REFUNDING BONDS, SERIES A, APPROVING THE EXECUTION AND DELIVERY OF AN INDENTURE, AN ESCROW AGREEMENT, A PURCHASE CONTRACT AND A CONTINUING DISCLOSURE AGREEMENT AND THE PREPARATION OF AN OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO WHEREAS, the City Council (the "City Council ") of the City of Newport Beach (the "City ") has formed the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Code "); WHEREAS, the City Council is authorized under the Code to levy special taxes (the "Special Taxes ") to pay for the costs of certain public facilities and to authorize the issuance of bonds payable from the Special Taxes; WHEREAS, the City has previously issued the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, presently outstanding in the aggregate principal amount of $5,930,000 (the "Series A Prior Bonds "), and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, presently outstanding in the aggregate principal amount of $8,925,000 (the "Series B Prior Bonds" and, together with the Series A Prior Bonds, the "Prior Bonds "); WHEREAS, in order to achieve debt service savings, the City desires to refund the Prior Bonds; WHEREAS, in order to provide a portion of the moneys required to refund the Prior Bonds, the City desires to authorize the issuance of the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Series A Bonds "), in the aggregate principal amount of not to exceed $16,000,000; WHEREAS, in order to provide for the authentication and delivery of the Series A Bonds, to establish and declare the terms and conditions upon which the Series A Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City proposes to enter into an Indenture with U.S. Trust Company, National Association, as trustee (the "Trustee ") (such Indenture, in the form presented to this meeting, DOCSI.A1:382641.3 41670 -5 G1-11 with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Indenture"); WHEREAS, the funds to pay the principal of and interest on the Prior Bonds through the respective redemption dates thereof will be applied to such purpose pursuant to an Escrow Agreement by and between the City and U.S. Trust Company, National Association, as escrow bank (such Escrow Agreement, in the form presentedto this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Escrow Agreement'); WHEREAS, the City has determined that securing the timely payment of the principal of and interest on all or a portion of the Series A Bonds by obtaining a bond insurance policy with respect thereto could be economically advantageous to the City; WHEREAS, Stone & Youngberg LLC (the "Underwriter ") has presented the City with a proposal, in the form of a Purchase Contract, to purchase the Series A Bonds from the City (such Purchase Contract, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Purchase Contract'); WHEREAS, Rule 15c2 -12 promulgated under the Securities Exchange Act of 1934 ( "Rule 15c2 -12 ") requires that, in order to be able to purchase or sell the Series A Bonds, the Underwriter must have reasonably determined that the City has undertaken in a written agreement or contract for the benefit of the holders of the Series A Bonds to provide disclosure of certain financial information and certain material events on an ongoing basis; WHEREAS, in order to cause such requirement to be satisfied, the City desires to enter into a Continuing Disclosure Agreement with the Trustee (such Continuing Disclosure Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuantto this Resolution, being referredto herein as the "Continuing Disclosure Agreement'); WHEREAS, there have been prepared and submittedto this meeting forms of (a) the Indenture; (b) the Escrow Agreement; (c) the Purchase Contract; (d) the Continuing Disclosure Agreement; and (e) the Preliminary Official Statement to be used in connection with the offering and sale of the Series A Bonds (such Preliminary Official Statement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referredto herein as the "Preliminary Official Statement'); and WHEREAS, the City desires to proceed to issue and sell the Series A Bonds and to DOCSI.A1:382641.3 41670 -5 G1-11 authorize the execution of such documents and the performance of such acts as maybe necessary or desirable to effect the offering, sale and issuance of the Series A Bonds; NOW, THEREFORE, BE IT RESOLVED, by the City Council the City of Newport Beach, as follows: Section 1. Subject to the provisions of Section 2 hereof, the issuance of the Series A Bonds, in the aggregate principal amount of not to exceed $16,000,000, on the terms and conditions set forth in, and subject to the limitations specified in, the Indenture, is hereby authorized and approved. The Series A Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be issued in the form, and shall be as otherwise provided in the Indenture, as the same shall be completed as provided in this Resolution. Section 2. The Indenture, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Mayor of the City, or such other member of the City Council as the Mayor may designate, the City Manager of the City and the Director of Administrative Services of the City (the "Authorized Officers ") are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Indenture in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Indenture by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Series A Bonds in excess of $16,000,000, shall not result in a final maturity date of the Series A Bonds later than September 1, 2022 and shall not result in a true interest cost for the Series A Bonds in excess of 5.75 %. Section 3. The refunding of the Prior Bonds is hereby approved. Such refunding shall be accomplished by (a) paying the principal of and interest on the Series A Prior Bonds to and including September 1, 2005, (b) redeeming the Series A Prior Bonds on September 1, 2005 by paying the redemption price therefor, (c) paying the principal of and interest on the Series B Prior Bonds to and including September 1, 2007, and (d) redeeming the Series B Prior Bonds on September 1, 2007 by paying the redemption price therefor. Section 4. The Escrow Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Escrow Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Escrow Agreement by such Authorized Officer. Section 5. The Purchase Contract, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Purchase Contract in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require DOCSLA1:382641.3 41670.5 GH1 3 or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Contract by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwriter's discount (not including any original issue discount) from the principal amount of the Series A Bonds in excess of 1.0% of the aggregate principal amount of the Series A Bonds. Section 6. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. Section 7. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Series A Bonds is hereby authorized and approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to certify to the Underwriter that the Preliminary Official Statement has been "deemed final" for purposes of Rule 15c2 -12, Section 8. The preparation and delivery of a final Official Statement (the "Official Statement "), and its use in connection with the offering and sale of the Series A Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute the final Official Statement and any amendment or supplement thereto, for and in the name of the City. Section 9. The Authorized Officers are each hereby authorized and directed to apply for municipal bond insurance for the Series A Bonds, to obtain such insurance if the present value cost of such insurance is less than the present value of the estimated interest component savings with respect to the Series 2001 Bonds and to execute and deliver a contract for such insurance. Section 10. The Authorized Officers and the officers and employees of the City are, and each of them is, hereby authorized and directed, for and in the name of the City, to do any and all things and to execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this Resolution and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. Section 11. All actions heretofore taken by the officers and employees of the City with respect to the District or the issuance and sale of the Series A Bonds, or in connection with or DOCSLA1:382641.3 41670-5 GI 11 4 related to any of the agreements or documents referenced herein, are hereby approved, confirmed and ratified. Section 12. This Resolution shall take effect immediately upon its adoption. APPROVED AND ADOPTED by the City Council of the City of Newport Beach on July 10, 2001. Garold B. Adams, Mayor ATTEST: LaVonne M. Harkless, City Clerk nOCSLA 1:38 2641.3 416703 Cl-I1 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) I, LaVonne M. Harkless, City Clerk of the City of Newport Beach, California hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a meeting of the City Council of said City duly and regularly held at the regular meeting place thereof on July 10, 2001, of which meeting all of the members of said City Council had due notice and at which a majority thereof were present; and that at said meeting said Resolution was adopted by the following vote: AYES: COUNCILMEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCILMEMBERS: An agenda of said meeting was posted at least 72 hours before said meeting at 3300 Newport Boulevard, Newport Beach, California, a location freely accessible to members of the public, and a brief general description of said Resolution appeared on said agenda. I further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office; that the foregoing Resolution is a full, true and correct copy of the original Resolution adopted at said meeting and entered in said minutes; and that said Resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: 2001 LaVonne M. Harkless, City Clerk DOCSI.A1:362641.3 416745 GI-11 0 DOCSLA] 38 "14.4 41670 -5 GHI INDENTURE by and between CITY OF NEWPORT BEACH and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee Dated as of 1, 2001 Relating to City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds TABLE OF CONTENTS Page 0 ARTICLE I DEFINITIONS; EQUAL SECURITY Section1.01. Definitions .............................................................................. ..............................3 Section1.02. Equal Security ..................................................................... ............................... 10 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds.. Section 2.02. Terms of Series A Bonds Section 2.03. Transfer and Exchange of Bonds ........................................ ............................... 13 Section 2.04. Registration Books .............................................................. ............................... 13 Section 2.05. Execution of Bonds ............................................................. ............................... 13 Section 2.06. Authentication of Bonds ...................................................... ............................... 13 Section 2.07. Temporary Bonds ................................................................ ............................... 14 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen ....................... ............................... 14 Section2.09. Book -Entry Bonds ............................................................... 14 ............................... ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of Series A Bonds ................................................. ............................... 17 Section 3.02. Application of Proceeds of the Series A Bonds .................. ............................... 17 Section 3.03. Application of Amounts Received from Prior Fiscal Agent .............................. 17 Section 3.04. Costs of Issuance Fund ........................................................ ............................... 17 Section 3.06. Conditions for the Issuance of Additional Bonds ............... ............................... 18 Section 3.07. Procedure for the Issuance of Additional Bonds ................. ............................... 19 Section3.08. Additional Bonds ................................................................. ............................... 20 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series A Bonds ........................................... ............................... 21 Section 4.02. Notice of Redemption ......................................................... ............................... 22 Section 4.03. Selection of Bonds for Redemption .................................... ............................... 22 Section 4.04. Partial Redemption of Bonds .............................................. ............................... 23 Section 4.05. Effect of Notice of Redemption .......................................... ............................... 23 DOGSL41382214.4 -i- 41670-5 GHl TABLE OF CONTENTS (continued) • Page DOCRA1.382214.4 41670.5 GH1 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section5.01. Pledge .................................................................................... .............................24 Section 5.02. Special Tax Fund ................................................................. ............................... 24 Section5.03. Bond Fund ........................................................................... ............................... 24 Section5.04. Redemption Fund ................................................................ ............................... 25 Section5.05. Reserve Fund ......................................................................... .............................25 Section5.06. Rebate Fund ......................................................................... ............................... 26 Section 5.07. Administrative Expense Fund ............................................... .............................26 Section 5.08. Investment of Moneys ......................................................... ............................... 26 ARTICLE VI COVENANTS OF THE CITY Section 6.01. Collection of Special Tax Revenues .................................... ............................... 28 Section 6.02. Foreclosure .......................................................................... ............................... 28 Section 6.03. Punctual Payment ................................................................ ............................... 29 Section 6.04. Extension of Payment of Bonds .......................................... ............................... 29 Section 6.05. Against Encumbrances .......................................................... .............................29 Section 6.06. Power to Issue Bonds and Make Pledge and Assignment ... ............................... 29 Section 6.07. Accounting Records and Financial Statements ................... ............................... 29 Section 6.08. Tax Covenants ..................................................................... ............................... 29 Section 6.09. Continuing Disclosure to Owners ....................................... ............................... 30 Section 6.10. Further Assurances .............................................................. ............................... 30 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default ................................................................. ............................... 31 Section 7.02. Forecl osure .......................................................................... ............................... 31 Section 7.03. Other Remedies ................................................................... ............................... 31 Section 7.04. Application of Net Special Tax Revenues After Default .... ............................... 32 Section 7.05. Power of Trustee to Enforce ................................................ ............................... 32 Section 7.06. Bond Owners' Direction of Proceedings ............................. ............................... 33 . Section 7.07. Limitation on Bond Owners' Right to Sue .......................... ............................... 33 DOCRA1.382214.4 41670.5 GH1 TABLE OF CONTENTS (continued) Section 7.08. Absolute Obligation of City ..................... Section 7.09. Termination of Proceedings ..................... Section 7.10. Remedies Not Exclusive .......................... Section 7.11. No Waiver of Default ............................... ARTICLE VIII TRUSTEE Section 8.01. Section 8.02. Section 8.03. Section 8.04. Section 8.05. Section 8.06. Section 9.01. Section 9.02. Section 9.03. Section 9.04. Page ....................... 33 ....................... 33 ....................... 34 ....................... 34 Duties and Liabilities of Trustee ............................ ............................... Merger or Consolidation ........................................ ............................... Liabilityof Trustee ................................................. ............................... Right to Rely on Documents .................................. ............................... Preservation and Inspection of Documents ............ ............................... Compensation and Indemnification ........................ ............................... ARTICLE IX MODIFICATION OR AMENDMENT Amendments Permitted .......................................... ............................... Effect of Supplemental Indenture ........................... ............................... Endorsement of Bonds; Preparation of New Bonds .............................. Amendment of Particular Bonds ............................ ............................... ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ............. ............................... Section 10.02. Bonds Deemed To Have Been Paid ........................ Section 10.03. Payment of Bonds After Discharge of Indenture .... ARTICLE XI MISCELLANEOUS ............ 35 ............ 36 ............ 36 ............ 37 ............ 37 ............ 38 .......... 40 .......... 40 .......... 40 ..... 41 ..... 41 ..... 42 Section 1 1.01. Limited Obligation .............................................................. ............................... 43 Section 1 1.02. Successor Is Deemed Included in All References to Predecessor ...................... 43 Section 1 1.03. Limitation of Rights to Parties and Bond Owners ............... ............................... 43 Section 1 1.04. Waiver of Notice; Requirement of Mailed Notice .............. ............................... 43 Section 1 1.05. Destruction of Bonds ........................................................... ............................... 43 Section 1 1.06. Severability of Invalid Provisions ....................................... ............................... 43 Section1 1.07. Notices ................................................................................. ............................... 44 DOCSI.A1382214.4 -III - 41670-5 GHI r1 L...J E 1] 0 • TABLE OF CONTENTS (continued) Page Section 11.08. Evidence of Rights of Bond Owners ................................... ............................... 44 Section 11.09. Disqualified Bonds .............................................................. ............................... 45 Section 11.10: Money Held for Particular Bonds ....................................... ............................... 45 Section 11.11. Funds and Accounts ............................................................ ............................... 45 Section 11.12. Payment on Non - Business Days ......................................... ............................... 45 Section 11.13. Waiver of Personal Liability ............................................... ............................... 45 Section 11.14. Interpretation ....................................................................... ............................... 45 Section 11.15. Conflict with Act ................................................................. ............................... 46 Section 11.16. Conclusive Evidence of Regularity ..................................... ............................... 46 Section 11.17. Execution in Several Counterparts ...................................... ............................... 46 Section 11.18. Governing Laws .................................................................. ............................... 46 EXHIBIT A FORM OF SERIES A BOND .................................................. ............................A -1 DOCSL4,1:382214.4 -lv- 41670.5 GH1 INDENTURE • THIS INDENTURE (the "Indenture ") is made and entered into as of 1, 2001, by and between the CITY OF NEWPORT BEACH, a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California and its charter (the "City "), and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as trustee (the "Trustee "). WITNESSETH: WHEREAS, the City Council of the City has formed the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act ") and Resolution No. 95 -74 of the City Council adopted on June 12, 1995; WHEREAS, the City Council is authorized under the Act to levy special taxes to pay for the costs of certain facilities and to authorize the issuance of bonds secured by said special taxes under the Act; WHEREAS, in order to pay for certain of the costs of such facilities, the City has previously issued the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, presently outstanding in the aggregate principal amount of $5,930,000, and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, presently outstanding in the aggregate principal amount of $8,925,000 (collectively, the "Prior Bonds "); WHEREAS, the City has determined that debt service savings can be achieved by refunding the Prior Bonds; WHEREAS, in order to provide a portion of the moneys required to refund the Prior Bonds, the City desires to provide for the issuance of the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Series A Bonds "), in the aggregate principal amount of not to exceed $ WHEREAS, the City desires to provide for the issuance of additional bonds (the "Additional Bonds ") upon the security of the unpaid special taxes on a parity with the Series A Bonds, provided that said issuance is in accordance with the Act and this Indenture (the Series A Bonds and any such Additional Bonds being collectively referred to as the "Bonds "); WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City has authorized the execution and delivery of this Indenture; and WHEREAS, the City has determined that all acts and proceedings required by law necessary to make the Bonds, when duly executed by the City, authenticated and delivered by • the Trustee and duly issued, the valid, binding and legal special obligations of the City, and to 1XKSL Id8 ??14.4 41670 -5 G1-11 0 1J 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 has been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, premium, if any, and the interest 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 consideration, the receipt whereof is hereby acknowledged, the City does hereby covenant and agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as follows: EKKS A1392214.4 41670-5 GH1 2 ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture, of any Supplemental Indenture and of any certificate, opinion or other document herein or therein mentioned, have the meanings herein specified. "Act" means the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code. "Additional Bonds" means Bonds other than Series A Bonds issued hereunder in accordance with the provisions of Section 3.05 and 3.06. "Administrative Expense Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.07. "Administrative Expenses" means costs directly related to the administration of the District, consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under this Indenture, the costs of the City or its designee of complying with the disclosure provisions of the Continuing Disclosure Agreement and this Indenture, including those related to public inquiries regarding the Special Tax and disclosures to Owners, the costs of the City or its designee related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the City to comply with Section 6.08, an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto, costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, and the costs of foreclosure of delinquent Special Taxes. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). "Auditor" means the auditor /controller of the County of Orange. "Authorized Representative" means, with respect to the City, its City Manager or Director of Administrative Services, or any other Person designated as an Authorized Representative of the City in a Written Certificate of City filed with the Trustee. "Beneficial Owner" means, whenever used with respect to a Book -Entry Bond, the person whose name is recorded as the beneficial owner of such Book -Entry Bond or a portion of such Book -Entry Bond by a Participant on the records of such Participant or such persons subrogee. DOCSLA1a82214.4 41670 -5 GH1 3 0 "Bond Counsel" means a firm of nationally recognized bond counsel selected by the City and acceptable to the Trustee. "Bond Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.03. "Bond Year" means each twelve -month period beginning on September 2 in each year and extending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on September 1, 2001. "Bonds" means the City of Newport Beach Special Improvement District No. 95 -1 (C1OSA) Special Tax Refunding Bonds issued hereunder, and includes the Series A Bonds and any Additional Bonds. "Book -Entry Bonds" means the Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 2.09. "Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are closed. "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to a Series of Book -Entry Bonds. "CIOSA Agreement" means the Circulation Improvement and Open Space Agreement, dated June 30, 1993, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "City" means the City of Newport Beach, and any successor thereto. "Closing Date" means the date upon which the Series A Bonds are delivered to the Original Purchaser, being 2001. "Code" means the Internal Revenue Code of 1986. "Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of , 2001, by and between the City and the Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Trustee and its counsel, including the Trustee's first annual administrative fee, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds, any premium for Bond insurance and any other cost, charge or fee in connection with the original issuance of the Bonds. DO SLA 14382214.4 41670 -5 cn 1 4 "Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.04. 0 "District" means the City of Newport Beach Special Improvement District No. 95 -1 ( CIOSA), established pursuant to the Resolution of Formation. "DTC." means The Depository Trust Company, a limited - purpose trust company organized under the laws of the State of New York, and its successors as securities depository for any Series of Book -Entry Bonds, including any such successor appointed pursuant to Section 2.09. "Escrow Agreement" means the Escrow Agreement, dated as of , 2001, by and between the City and the Escrow Bank, as originally executed and as it may be amended from time to time in accordance with its terms. "Escrow Bank" means U.S. Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, as escrow bank under the Escrow Agreement, and any successor thereto. "Fair Share Fees" has the meaning ascribed thereto in CIOSA Agreement. "Federal Securities" means any of the following which at the time of investment are legal investments under the laws of the State of California for the funds proposed to be invested therein: (a) 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), and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. "Fiscal Year" means the period beginning on July I of each year and ending on the next succeeding June 30, or any other twelve -month period hereafter selected and designated as the official fiscal year period of the City designated in a Written Certificate of the City delivered to the Trustee. "Improvement Fund" means the CIOSA District Improvement Fund established, held and maintained by the City in accordance with the provisions of the Protocol Agreement. "Indenture" means this Indenture, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Indenture. "Information Services" means Bloomberg Municipal Repositories, P.O. Box 840, Princeton, New Jersey 08542 -0840, Phone: (609) 279 -3225, Fax: (609) 279 -5962, E -mail: Munis @Bloomberg.com; DPC Data Inc., One Executive Drive, Fort Lee, New Jersey 07024, Phone: (201) 346 -0701, Fax: (201) 947 -0107, E -mail: nrmsir @dpcdata.com; Muller Data, Attn: Municipal Disclosure, 395 Hudson Street, 3d Floor, New York, New York 10014, Phone: (212) 807 -5001 or (800) 689 -8466, Fax: (212) 989 -2078, E -mail: Disclosure @muller.com; Standard & Poor's J.J. Kenny Repository, 55 Water Street, 45th Floor, New York, New York 10041, Telephone: (212) 438 -4595, Facsimile: (212) 438 -3975; and, in accordance with then DOGSLA733 "14.4 41670 -5 G1 l 5 0 current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in a Written Certificate of the City delivered to the Trustee. "Interest Payment Dates" means March 1 and September 1 of each year, commencing March 1, 2002, so long as any Bonds remain Outstanding. "Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year, including the Bond Year the calculation is made. " Moody's" means Moody's Investors Service, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term " Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Net Special Tax Revenues" means Special Tax Revenues, less amounts required to pay Administrative Expenses. "Office of the Trustee" means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the City by the Trustee in writing. "Ordinance" means any ordinance of the City levying the Special Taxes. "Original Purchaser" means the original purchaser of the Series A Bonds from the City. "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 canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the City shall have been discharged in accordance with Article X; 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" means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. "Participant" means any entity which is recognized as a participant by DTC in the book - entry system of maintaining records with respect to Book -Entry Bonds. DOCSLAIJ31_ 214.4 41670 -5 GI-11 6 "Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Agreement. 0 "Permitted Investments" means the following, to the extent that such securities are otherwise eligible legal investments for the moneys held hereunder: (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export-Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage- backed bonds or pass - through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest- bearing demand or time deposits (including certificates of deposit) in federal or state chartered savings and loan associations or in federal or State of California banks (including the Trustee), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall be rated Al or better by S &P, or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-term rating category by S &P, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated in the highest short-term rating category by S &P, which mature not more than 270 days following the date of investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Code and which are rated A or better by S &P; (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S &P; (h) money market funds which are rated Am or better by S &P; (i) any investment agreement which is approved in writing by S &P prior to the time of initial investment; and 40 DOCSIA1382114.4 41670 -5 GH1 7 0) the Local Agency Investment Fund established pursuant to Section 16429.1 of the Government Code of the State of California to the extent the Trustee may deposit and withdraw funds directly, provided that the Trustee may restrict such investment if required to keep moneys available for the purposes of this Indenture. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Prior Bonds" means, collectively, the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, issued pursuant to the Prior Fiscal Agent Agreement. "Prior Fiscal Agent" means U.S. Trust Company, National Association, as successor Fiscal Agent under the Prior Fiscal Agent Agreement. "Prior Fiscal Agent Agreement" means the Fiscal Agent Agreement, dated as of December 1, 1995, by and between the City and U.S. Trust Company of California, N.A., as Fiscal Agent, as amended and supplemented by the First Supplemental Fiscal Agent Agreement, dated as of June 1, 1997, by and between the City and U.S. Trust Company of California, N.A. "Protocol Agreement" means the Protocol Agreement, dated as of December 1, 1995, • by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "Rate and Method" means the rate and method of apportionment of the Special Taxes approved by the qualified electors of the District. "Rebate Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.06. "Rebate Requirement" has the meaning ascribed thereto in the Tax Certificate. "Record Date" means the 15th calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.04. "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.04. . "Representation Letter" means the Letter of Representations from the City to DTC, or any successor securities depository for any Series of Book -Entry Bonds, in which the City makes DO(:SIA1 3$2219.9 41670 -5 GH 1 8 certain representations with respect to issues of its securities for deposit by DTC or such successor depository. 9 "Reserve Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.05. "Reserve Requirement" means, as of the date of any calculation, the least of (a) 10% of the original aggregate principal amount of the Bonds, (b) Maximum Annual Debt Service, and (c) 125% of average Annual Debt Service. "Resolution of Formation" means Resolution No. 95 -74, adopted by the City Council of the City on June 12, 1995. "S &P" means Standard & Poor's Ratings Services, a division of McGraw -Hill, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S &P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax - (516) 227 -4039 or 4190, and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Certificate of the City delivered to the Trustee. • "Series" means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to this Indenture as the Series A Bonds, and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. "Series A Bonds" means the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A, issued hereunder. "Special Tax Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.02. "Special Tax Revenues" means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, which shall be limited to the amount of said lien and interest and penalties thereon. "Special Taxes" means the special taxes levied within the District pursuant to the Act, the Ordinance and this Indenture. "Supplemental Indenture" means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is • specifically authorized hereunder. DCXSIA1381714.4 41670 -5 GH1 9 "Tax Certificate" means the Tax Certificate executed by the City at the time of issuance of the Series A Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Trustee" means U.S. Trust Company, National Association, a national banking association organized and existing under the laws of the United States, or any successor thereto as Trustee hereunder, appointed as provided herein. "Written Certificate" and "Written Request" of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any • Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. • DMI A138M4.4 41670 -5 G111 10 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds. The City hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture, the Act and other applicable laws of the State of California for the purpose of (a) with respect to the Series A Bonds, providing moneys to refund the Prior Bonds, and (b) with respect to any Series of Additional Bonds, providing moneys to refund any previously issued Bonds. The Bonds may consist of one or more Series of varying denominations, dates maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. The Bonds shall be designated generally as the "City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds ", each Series thereof to bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series of Bonds. Section 2.02. Terms of Series A Bonds. (a) The Series A Bonds shall be designated "City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A ". The aggregate principal amount of Series A Bonds that may be issued and Outstanding under this Indenture shall not exceed $ , except as may be otherwise provided in Section 2.08. (b) The Series A Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Series A Bond shall have more than one maturity date. The Series A Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $ , shall mature on September 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: TX1CSLA1381214.4 41670 -5 GHI 11 • . Maturity Date Principal Interest (September 1) Amount Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2021 2022 (c) Interest on the Series A Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series A Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a Series A Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Series A Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series A Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series A Bond which is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Series A Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. (d) The principal of the Series A Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. Payment of principal of any Series A Bond shall be made only upon presentation and surrender of such Bond at the Office of the Trustee. (e) The Series A Bonds shall be subject to redemption as provided in Article IV. DOCSLA 1. 18"14.4 41670 -5 GH1 12 (f) The Series A Bonds shall be in substantially the form set forth in Exhibit A hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by 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 acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount, in any authorized denomination. The Trustee shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations. The Trustee shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. Section 2.04. 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 be open to inspection during regular business hours and upon 24 hours notice by the City; 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 2.05. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the City with the facsimile signature of the Mayor attested by the manual or facsimile signature of the City Clerk. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have signed or attested any of the Bonds shall cease to be such officer or officers of the City before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the City, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any Bonds may be signed and attested on behalf of the City by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the City although at the nominal date of such Bonds any such Person shall not have been such officer of the City. Section 2.06. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto for the Series A Bonds, 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 or on behalf of the Trustee • DOCSIA1 8"14A 41670 -5 GI-11 13 shall be conclusive evidence that the Bonds so authenticated have been duly executed, 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 authorized denominations as may be determined by the City, 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 City and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the City 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, Destro -yed or Stolen. If any Bond shall become mutilated, the City, 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 canceled by it and delivered to, or upon the order of, the City. 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 and indemnity satisfactory to the Trustee shall be given, the City, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the City and the Trustee. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City 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. Book -Entry Bonds. (a) Prior to the issuance of a Series of Bonds, the City may provide that such Series of Bonds shall initially be issued as Book -Entry Bonds and, in such event, the Bonds of such Series for each maturity shall be in the form of a separate single fully registered Bond (which may be typewritten). The Series A Bonds shall initially be issued as Book -Entry Bonds. Except as provided in subsection (c) of this Section, the registered Owner of all of the Book -Entry Bonds shall be DTC and the Book -Entry Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Notwithstanding anything to the contrary contained in this 0 Indenture, payment of interest with respect to any Book -Entry Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same -day funds to the account DCXSLA138_214.4 41670 -5 GI-11 14 of Cede & Co. on the payment date for the Book -Entry Bonds at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter. (b) The Trustee and the City may treat DTC (or its nominee) as the sole and exclusive Owner of the Book -Entry Bonds registered in its name for the purposes of payment of the principal, premium, if any, or interest with respect to the Book -Entry Bonds, selecting the Book - Entry Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Book -Entry Bonds under this Indenture, registering the transfer of Book - Entry Bonds, obtaining any consent or other action to be taken by Owners of Book -Entry Bonds and for all other purposes whatsoever, and neither the Trustee nor the City shall be affected by any notice to the contrary. Neither the Trustee nor the City shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in the Book - Entry Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant, the payment by DTC or any Participant of any amount in respect of the principal, premium, if any, or interest with respect to the Book -Entry Bonds, any notice which is permitted or required to be given to Owners of Book -Entry Bonds under this Indenture, the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Book -Entry Bonds, or any consent given or other action taken by DTC as Owner of Book -Entry Bonds. The Trustee shall pay all principal, premium, if any and interest with respect to the Book -Entry Bonds, only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to the principal, premium, if any, and interest with respect to the Book -Entry Bonds to the extent of the sum or sums so paid. Except under the conditions of subsection (c) of this Section, no person other than DTC shall receive an executed Book -Entry Bond for each separate stated maturity. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions herein with respect to record dates, the term "Cede & Co." in this Indenture shall refer to such new nominee of DTC. (c) In the event (i) DTC, including any successor as securities depository for a Series of Bonds, determines not to continue to act as securities depository for such Series of Bonds, or (ii) the City determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Trustee to that effect, then the City will discontinue the book - entry system with the incumbent securities depository for such Series of Bonds. If the City determines to replace the incumbent securities depository for such Series of Bonds with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate fully registered Bond of such Series for the aggregate outstanding principal amount of Bonds of such Series of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the City, the Trustee and the successor securities depository for the Bonds of such Series as are not inconsistent with the terms of this Indenture. If the City fails to identify another qualified successor securities depository for such Series of Bonds to replace the incumbent securities depository, then the Bonds of such Series shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository for such Series of DOCSLA1:a82214.4 41670 -5 GH1 15 0 Bonds, or its nominee, shall designate. In such event the City shall execute, and deliver to the Trustee, a sufficient quantity of Bonds of such Series to carry out the transfers and exchanges provided in Sections 2.03, 2.07 and 2.08. All such Bonds of such Series shall be in fully registered form in denominations authorized by this Indenture. (d) Notwithstanding any other provision of this Indenture to the contrary, so long as any Book -Entry Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium, if any, and interest with respect to such Book -Entry Bond and all notices with respect to such Book -Entry Bond shall be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book -Entry Bonds pursuant to this Indenture by the City or the Trustee with respect to any consent or other action to be taken by Owners, the City or the Trustee, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. IXx;SLA1:382214.4 41670 -5 GI-11 16 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of Series A Bonds. The City may, at any time, execute the Series A Bonds and deliver the same to the Trustee. The Trustee shall authenticate the Series A Bonds and deliver the Series A Bonds to the Original Purchaser upon receipt of a Written Request of the City and upon receipt of the purchase price therefor. Section 3.02. Application of Proceeds of the Series A Bonds. On the Closing Date, the proceeds of the sale of the Series A Bonds received by the Trustee, $ , shall be deposited or transferred by the Trustee as follows: (a) The Trustee shall deposit the amount of $ in the Reserve Fund, constituting the full amount of the Reserve Requirement. (b) The Trustee shall deposit the amount of $ in the Costs of Issuance Fund. (c) The Trustee shall transfer the amount of $ to the Escrow Bank, to be applied to the redemption of the Prior Bonds in accordance with the provisions of the Escrow Agreement. Section 3.03. Application of Amounts Received from Prior Fiscal Agent. On the Closing Date, the amounts transferred by the Prior Fiscal Agent to the Trustee from the funds and accounts established under the Prior Fiscal Agent Agreement, $ shall be deposited by the Trustee as follows: (a) The Trustee shall deposit the amount of $ in the Administrative Expense Fund. (b) The Trustee shall deposit the amount of Bond Fund. in the Section 3.04. Costs of Issuance Fund. The Trustee shall establish and maintain a separate fund designated the "Costs of Issuance Fund ". On the Closing Date there shall be deposited in the Costs of Issuance Fund the amount specified in Section 3.02(b). The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund; in each case together with a statement or invoice for each amount requested thereunder. On December 1, 2001, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Bond Fund. M) S1A1:331?14.4 41670 -5 GHI 17 0 Section 3.05. Conditions for the Issuance of Additional Bonds. The City may at any time issue one or more Series of Additional Bonds (in addition to the Series A Bonds) payable from Net Special Tax Revenues as provided herein on a parity with all other Bonds theretofore issued hereunder, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and under and pursuant hereto and shall have been provided for by a Supplemental Indenture which shall specify the following: (1) The application of the proceeds of the sale of such Additional Bonds; provided, however, that such proceeds shall be applied only to the refunding of any Bonds issued hereunder, to the payment of Costs of Issuance incurred in connection with the issuance of such Additional Bonds or to making a deposit to the Reserve Fund so as to increase the amount on deposit therein to the Reserve Requirement, or any combination thereof; (2) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions are to be made, if any, for such Additional Bonds; provided, that (i) the serial Bonds of such Series of . Additional Bonds shall be payable as to principal annually on September 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on September 1, (ii) the Additional Bonds shall be payable as to interest semiannually on March 1 and September 1 of each year, except that the first installment of interest may be payable on either March 1 or September 1 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on March 1 and September 1, (iii) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; Bonds; (4) The redemption premiums and terms, if any, for such Additional (5) The form of such Additional Bonds; (6) The amount to be deposited from the proceeds of sale of such Additional Bonds in the Reserve Fund; provided, that the Reserve Fund shall be increased at the time that such Additional Bonds become Outstanding to an amount at least equal to the Reserve Requirement, and an amount at least equal to • the Reserve Requirement shall thereafter be maintained in the Reserve Fund; and MXS1.A1:332 214.4 416705 GH 1 18 (7) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof, (b) Upon the issuance of such Additional Bonds, the City shall be in compliance with all agreements, conditions, covenants and terms contained herein and in all Supplemental Indentures required to be observed or performed by it; and (c) Annual Debt Service in each Bond Year, calculated for all Bonds to be Outstanding after the issuance of such Additional Bonds, shall be less than or equal to Annual Debt Service in such Bond Year, calculated for all Bonds Outstanding immediately prior to the issuance of such Additional Bonds; Nothing contained herein shall limit the issuance of any special tax bonds payable from Special Taxes if, after the issuance and delivery of such special tax bonds, none of the Bonds theretofore issued hereunder will be Outstanding. Section 3.06. Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, such Additional Bonds shall be executed by the City for issuance hereunder and shall be delivered to the Trustee and thereupon shall be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following: (a) A certified copy hereof or of the Supplemental Indenture authorizing the issuance of such Additional Bonds; (b) A Written Request of the City as to the delivery of such Additional Bonds; (c) An opinion of Bond Counsel substantially to the effect that (i) the Indenture and all Supplemental Indentures have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of the City, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), (ii) such Additional Bonds constitute valid and binding special obligations of the City payable solely from Net Special Tax Revenues as provided herein and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and (iii) the issuance of such Additional Bonds, in and of itself, will not adversely affect the exclusion of interest on the Bonds Outstanding prior to the issuance of such Additional Bonds from gross income for federal income tax purposes; (d) The proceeds of the sale of such Additional Bonds; and 0 EK S1.Al:ss1214.4 41670 -5 c1-11 19 0 (e) Such further documents or money as are required by the provision hereof or by the provisions of the Supplemental Indenture authorizing the issuance of such Additional Bonds. Section 3.07. Additional Bonds. So long as any of the Bonds remain Outstanding, the City will not issue any Additional Bonds or obligations payable from Net Special Tax Revenues, except pursuant to Sections 3.05 and 3.06. DOCS1.A1:382214.4 41670 -5 GI-11 20 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series A Bonds. (a) Optional Redemption. The Series A Bonds shall be subject to optional redemption in whole or in part, on any Interest Payment Date on or after September I, 20_, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September I, 20 and March I, 20 102% September I, 20 and March I, 20_ 101 September 1, 20_ and thereafter 100 The City shall give the Trustee written notice of its intention to optionally redeem Series A Bonds not less than 60 days prior to the applicable redemption date, unless such notice shall be waived by the Trustee. (b) Mandatory Redemption From Special Tax Prepayments, Fair Share Fees, Improvement Fund Earnings and Excess Special Taxes. (i) The Series A Bonds maturing on September I, 2022 shall be subject to mandatory redemption, in whole or in part, on each September I, from and to the extent of (A) any prepayment of Special Taxes, (B) any Fair Share . Fees required to be applied to the redemption thereof pursuant to Section 5.04, (C) any interest, profits and other income received from the investment of moneys in the Improvement Fund required to be applied to the redemption thereof pursuant to Section 5.04, and (D) any Special Taxes required to be transferred from the Special Tax Fund to the Redemption Fund pursuant to Section 5.02 and applied to the redemption thereof pursuant to Section 5.04, at a Redemption Price equal to the principal amount of such Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. (ii) If there are no Series A Bonds maturing on September I, 2022 Outstanding, the Series A Bonds maturing on and prior to September I, 20 shall be subject to mandatory redemption, in whole or in part, on each September I, from and to the extent of (A) any prepayment of Special Taxes, (B) any Fair Share Fees required to be applied to the redemption thereof pursuant to Section 5.04, (C) any interest, profits and other income received from the investment of moneys in the Improvement Fund required to be applied to the redemption thereof pursuant to Section 5.04, and (D) any Special Taxes required to be transferred from the Special Tax Fund to the Redemption Fund pursuant to Section 5.02 and applied to the redemption thereof pursuant to Section 5.04, at a Redemption Price equal to the principal amount of such Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. (c) Mandatory Sinking Fund Redemption. The Series A Bonds maturing September I, 20_ shall be subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September I, 20_, at a Redemption Price equal to the . D0CS1.A1:;8"14.4 41670 -5 GH1 21 principal amount of the Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Principal Amount Redemption Date to be (September 1) Redeemed 20 20 20 20 20_ (maturity) If some but not all of the Series 2001 Bonds maturing on September 1, are redeemed pursuant to Section 4.01(a), the principal amount of Series 2001 Bonds maturing on September 1, to be subsequently redeemed pursuant to Section 4.01(c) shall be reduced by the aggregate principal amount of the Series 2001 Bonds maturing on September 1, so redeemed pursuant to Section 4.01(a), such reduction to be allocated among redemption dates in amounts of $5,000 or integral multiples thereof, as designated by the City in a Written Certificate of the City filed with the Trustee. If some but not all of the Series 2001 Bonds maturing on September 1, are redeemed pursuant to Section 4.01 (b), the principal amount of Series 2001 Bonds maturing on September 1, to be subsequently redeemed pursuant to Section 4.01 (c) shall be reduced by the aggregate principal amount of the Series 2001 Bonds maturing on September 1, so redeemed pursuant to Section 4.01(b), such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the City. Section 4.02. Notice of Redemption. The Trustee on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than sixty 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Section 4.03. Selection of Bonds for Redemption. 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 not previously called for redemption (a) with respect to any DOCSL IAt214.4 41670 -5 GHI 22 optional redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the City, (b) with respect to any redemption pursuant to subsection (ii) of Section 4.01(b), in inverse order of maturity, (c) with respect to any redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Section 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.05. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the redemption (including the interest to the applicable date fixed for redemption and including any applicable premium), having been set aside in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the redemption of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. 0 LX- )MA7:332 214.4 41670 -5 GH1 23 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledge. 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 Net Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund, the Reserve Fund and the Redemption Fund are hereby pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Indenture and the Act. Said pledge shall constitute a first lien on such assets. Section 5.02. Special Tax Fund. The Trustee shall establish and maintain a separate fund designated the "Special Tax Fund." As soon as practicable after the receipt by the City of any Special Tax Revenues, but in any event no later than the date ten Business Days after such receipt, the City shall transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepaid Special Taxes that are to be applied to the payment of the Redemption Price of Bonds shall be identified to the Trustee as such by the City and shall be deposited in the Redemption Fund. Upon receipt of a Written Request of the City, the Trustee shall withdraw from the Special Tax Fund and transfer to the Administrative Expense Fund the amount specified in such Written Request of the City as the amount necessary to be transferred thereto in order to have sufficient amounts available therein to pay Administrative Expenses. On the Business Day immediately preceding each Interest Payment Date, after having made any requested transfer to the Administrative Expense Fund, the Trustee shall withdraw from the Special Tax Fund and transfer, first, to the Bond Fund, Net Special Tax Revenues in the amount, if any, necessary to cause the amount on deposit in the Bond Fund to be equal to the principal and interest due on the Bonds on such Interest Payment Date, and, second, to the Reserve Fund, Net Special Tax Revenues in the amount, if any, necessary to cause the amount on deposit in the Reserve Fund to be equal to the Reserve Requirement. On September 2 of each year, after having made any requested transfer to the Administrative Expense Fund, the Trustee shall withdraw from the Special Tax Fund any amount remaining on deposit therein and shall transfer such amount to the Redemption Fund. Section 5.03. Bond Fund. The Trustee shall establish and maintain a separate fund designated the "Bond Fund ". The Trustee shall deposit in the Bond Fund the amount specified in Section 3.03(b). There shall additionally be deposited in the Bond Fund the amounts required to be deposited therein pursuant to Section 5.02. There shall additionally be deposited in the Bond Fund the portion, if any, of the proceeds of the sale of Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. In the event that, on the last Business Day preceding an Interest Payment Date, amounts in the Bond Fund are insufficient to pay the principal, if any, of and interest on the Bonds due DMLAldsl214.4 41670 -5 GI-11 24 and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds, the Trustee shall withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency, and shall transfer any amounts so withdrawn to the Bond Fund. On each Interest Payment Date, the Trustee shall withdraw from the Bond Fund for payment to the Owners of the Bonds the principal, if any, of and interest then due and payable on the Bonds, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds. Section 5.04. Redemption Fund. The Trustee shall establish and maintain a special fund designated the "Redemption Fund ". As soon as practicable after the receipt by the City of prepaid Special Taxes, but in any event not later than ten Business Days after such receipt, the City shall transfer such prepaid Special Taxes to the Trustee and, upon receipt thereof, the Trustee shall deposit the same in the Redemption Fund. On June 30 of each year through and including June 30, 2016, the City shall transfer to the Trustee Fair Share Fees received by the City during the Fiscal Year ending on such June 30 and required pursuant to paragraph (d) of Section 2 and Section 4 of the Protocol Agreement to be applied to the redemption of Bonds and, upon receipt thereof, the Trustee shall deposit the same in the Redemption Fund. On June 30 of each year through and including June 30, 2016, the City shall transfer to the Trustee all interest, profits and other income received from the investment of moneys in the Improvement Fund during the Fiscal Year ending on such June 30 and required pursuant to paragraph (e) of Section 2 and Section 4 of the Protocol Agreement to be applied to the redemption of Bonds and, upon receipt thereof, the Trustee shall deposit the same in the Redemption Fund. On September 2 of each year, the Trustee shall transfer to and deposit in the Redemption Fund any amount remaining on deposit in the Special Tax Fund on such date, in accordance with Section 5.02. Amounts deposited in the Redemption Fund pursuant to this paragraph shall be disbursed therefrom on each September 1 for the payment of the Redemption Price of Series A Bonds redeemed pursuant to Section 4.01(b). The Trustee shall deposit in the Redemption Fund amounts received from the City in connection with the City's exercise of its rights to optionally redeem Series A Bonds pursuant to Section 4.01(a) or to optionally redeem Additional Bonds pursuant to the corresponding provisions of the Supplemental Indenture pursuant to which such Additional Bonds are issued. Amounts deposited in the Redemption Fund pursuant to this paragraph shall be disbursed therefrom for the payment of the Redemption Price of Series A Bonds optionally redeemed pursuant to Section 4.01(a) and for the payment of the Redemption Price of Additional Bonds optionally redeemed pursuant to the corresponding provisions of the Supplemental Indenture pursuant to which such Additional Bonds are issued. Section 5.05. Reserve Fund. The Trustee shall establish and maintain a special fund designated the "Reserve Fund ". The Trustee shall deposit in the Reserve Fund the amount specified in Section 3.02(a). There shall additionally be deposited in the Reserve Fund, in connection with the issuance of Additional Bonds, the amount required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. DOCSLA1:A32214.4 41670 -5 G111 25 Except as otherwise provided in this Section, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds or, in accordance with the provisions of this Section, for the purpose of redeeming Bonds from the Bond Fund. Transfers shall be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund, in accordance with Section 5.03. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Trustee and shall be deposited in the Bond Fund. Notwithstanding the foregoing before any such deposit shall be made, such amount shall be available for the payment of any rebate that may be owed under the Code, as specified in a Written Request of the City delivered to the Trustee. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Trustee shall transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds. Section 5.06. Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the "Rebate Fund ". There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the City. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to Article X hereof or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is incorporated herein by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the City, and shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate. The Trustee may conclusively rely upon the City's determinations, calculations and certifications required by the Tax Certificate. (b) Any funds remaining in the Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall, upon receipt by the Trustee of a Written Request of the City, be withdrawn by the Trustee and remitted to the City. Section 5.07. Administrative Expense Fund. The Trustee shall establish and maintain a special fund designated the "Administrative Expense Fund ". The Trustee shall deposit in the Administrative Expense Fund the amount specified in Section 3.03(a). There shall [additionally] be deposited in the Administrative Expense Fund the amounts transferred from the Special Tax Fund and required to be deposited therein pursuant to Section 5.02. The moneys in the Administrative Expense Fund shall be used and withdrawn by the Trustee from time to time to pay the Administrative Expenses upon submission of a Written DOCSLAi:38M A 41670.5 GH1 26 Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Administrative Expense Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Administrative Expense Fund; in each case together with a statement or invoice for each amount requested thereunder. Section 5.08. Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture and held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in writing by the City two Business Days prior to the making of such investment. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture; provided, however, that Permitted Investments in which moneys in the Reserve Fund are so invested shall mature no later than the earlier of five years from the date of investment or the final maturity date of the Bonds; provided, further, that if such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date, any amount in the Reserve Fund may be invested in such redeemable Permitted Investments maturing on any date on or prior to the final maturity date of the Bonds. Absent timely written direction from the City, the Trustee shall invest any funds held by it in Permitted Investments described in clause (h) of the definition thereof. Subject to the provisions of Section 5.06, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Indenture and held by the Trustee shall be retained therein. Permitted Investments acquired as an investment of moneys in any fund established under this Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each February 15 and August 15. The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. DCKSLA032214.4 41670 -5 GI-11 27 ARTICLE VI COVENANTS OF THE CITY Section 6.01. Collection of Special Tax Revenues. The City shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. Prior to August I of each year, the City shall ascertain from the Auditor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August I that the Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The City shall fix and levy the amount of Special Taxes within the District in accordance with the Rate and Method, but in any event, subject to the limitations in the Rate and Method as to the maximum Special Tax that may be levied, in an amount sufficient to yield the amount required for the payment of principal of and interest on any Outstanding Bonds becoming due • and payable during the ensuing year, including any necessary replenishment of the Reserve Fund and an amount estimated to be sufficient to pay the Administrative Expenses during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation. The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property. Section 6.02. Foreclosure. Pursuant to Section 713 of the Act, the City hereby covenants with and for the benefit of the Owners of the Bonds that it will determine or cause to be determined, no later than September 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and, if such delinquencies exist, the City will order and cause to be commenced no later than November I, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due; provided, however, that the City shall not be required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5% of the total Special Tax levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the City determines that any single property owner in the District is delinquent in excess of $5,000 in the payment of the Special Tax, then it DOCSIA1332214.4 41670 -5 GI-11 28 will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. • Section 6.03. Punctual Pavment. The City shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of Net Special Tax Revenues and other assets pledged for such payment as provided in this Indenture and received by the City or the Trustee. Section 6.04. Extension of Payment of Bonds. The City 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 shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 6.05. Against Encumbrances. The City shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Special Tax Revenues and other assets pledged under this Indenture while any of the Bonds are Outstanding, except as permitted by this Indenture. Section 6.06. Power to Issue Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to the Act to issue the Bonds and to enter into this Indenture and to pledge the Net Special Tax Revenues and other assets pledged under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Trustee (subject to the provisions of Article VI 11) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge of Net Special Tax Revenues and other assets and all the rights of the Bond Owners under this Indenture against all claims and demands of all Persons whomsoever. Section 6.07. 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 trust industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds, the Special Tax Revenues and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the City, during regular business hours and upon 24 hours' notice and under reasonable circumstances as agreed to by the Trustee. The Trustee shall deliver to the City a monthly accounting of the funds and accounts it holds under this Indenture. Section 6.08. Tax Covenants. (a) The City shall not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Series A Bonds under Section 103 of the Code. Without limiting EK) SLAI 38 "14.4 41670 -5 GH1 29 E the generality of the foregoing, the City shall comply with the requirements of the Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Bonds. (b) In the event that at any time the City is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the City shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the City shall provide to the Trustee an opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Series A Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.09. ContinuinDisclosure to Owners. The City and the Trustee hereby covenant and agree that they will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of the City or the Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series A Bonds, shall) or any holder or beneficial owner of the Series A Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.10. Further Assurances. The City will make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Indenture. DOCSLA138"14.4 41670 -5 Gfil 30 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default: , (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise. (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable. (c) Failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 60 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The City shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02. Foreclosure. If any Event of Default shall occur under 7.01(a) or Section 7.01(b) then, and in each and every such case during the continuance of such Event of Default, the Trustee may, or at the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall, commence foreclosure against any parcels of land in the District with delinquent Special Taxes, as provided in Section 713 of the Act. Section 7.03. Other Remedies. If an event of Default shall have occurred under Section 7.01, the Trustee shall have the right: (a) by mandamus, suit, action or proceeding, to compel the City and its officers, agents or employees to perform each and every term, provision and covenant contained in this Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by this Indenture and the Act; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Trustee's or Bond Owners' rights; or 0 DOCSLA138"14.4 41670 -5 GH 1 31 . (c) by suit, action or proceeding in any court of competent jurisdiction, to require the City and its officers and employees to account as if it and they were the trustees of an express trust. Section 7.04. Application of Net Special Tax Revenues After Default. if an Event of Default shall occur and be continuing, all Net Special Tax Revenues and any other funds 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 with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to 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 call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, 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. (c) Any remaining funds shall be transferred by the Trustee to the Bond Fund. Section 7.05. Power of Trustee to Enforce. 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 the Owners of such Bonds, subject to the provisions of this Indenture. DOCSLA7:132114.4 41670 -5 GH1 32 Section 7.06. 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 be unjustly prejudicial to Bond Owners not parties to such direction. Section 7.07. Limitation on Bond Owners' Right to Sue. 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 Act 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 said Owners shall have tendered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of 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 Act 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 7.08. Absolute Obligation of City. Nothing in Section 7.07 or in any other provision of this Indenture or in the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest 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 Special Tax Revenues and other assets herein pledged therefor and received by the City or the Trustee, 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 7.09. 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 City, the Trustee and the Bond Owners, subject vCX LAI:38'_2144 1670 -5 ci91 33 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 City, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken. Section 7.10. 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 7.11. No Waiver of Default. 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 default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy 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. IXKSLA7:382214.4 41670 -5 GH1 34 ARTICLE VIII TRUSTEE is Section 8.01. Duties and Liabilities of Trustee. (a) Duties of Trustee Generally. The Trustee shall act as trustee hereunder in accordance with the terms hereof. 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. 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 their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Removal of Trustee. The City may upon 30 days' prior written notice remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, 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 thereupon shall appoint a successor Trustee by an instrument in writing. (c) Resignation of Trustee. The Trustee may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the City, and to the Bond Owners notice of such resignation at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing. The Trustee shall not be relieved of its duties until such successor Trustee has accepted appointment. (d) Appointment of Successor Trustee. 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 under any circumstances the successor Trustee shall be qualified as provided in subsection (e) of this Section. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bond Owner (on behalf of himself and all other Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and to the predecessor Trustee an instrument indemnifying the predecessor Trustee for any costs or claims arising during the time the successor Trustee serves as Trustee hereunder, and after payment by the City of all unpaid fees and expenses of the predecessor Trustee, the such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, is IXKSLAI:38`14A 41670 -5 GI-11 35 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 City 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 City shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the City shall mail or cause the successor Trustee to mail, by first class mail postage prepaid, a notice of the succession of such Trustee to the trusts hereunder to each rating agency which then maintains a rating on the Bonds and to the Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the City. (e) Qualifications of Trustee. The Trustee shall be a trust company or bank having the powers of a trust company, having (or if such bank or trust company is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state agency. If such bank or trust company 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 the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. Section 8.02. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or trust company shall be eligible under subsection (e) of Section 8.01 shall be the successor to such Trustee, without the execution or 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 be taken as statements of the City, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture or of the Bonds or shall incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee makes no DOCKAE18"14.4 41670 -5 GH1 36 representations as to the validity or sufficiency of the Indenture or of any Bonds, or in respect of the security afforded by the Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to: (i) the issuance of the Bonds for value, (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or (iii) the application of any moneys paid to the City or others in accordance with the Indenture. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless 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. Section 8.04. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it 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 City, 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; provided, however, the Trustee shall in no event delay any payment with respect to the Bonds in anticipation of any such opinion. Whenever in the administration of the duties 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 of the City, and such Written Certificate 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, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as 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 its possession and shall DOOSLAW82214.4 41670-5 GH 1 37 • be subject during business hours and upon 24 hours' notice to the inspection of the City, the owners and their agents and representatives duly authorized in writing. Section 8.06. Compensation and Indemnification. Subject to the provisions of Section 11.01, the City shall pay to the Trustee from time to time all reasonable compensation for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Indenture. Subject to the provisions of Section 11.0 1, the City further agrees, to the extent permitted by law, to indemnify and save the Trustee harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Trustee shall survive the termination and discharge of this Indenture. DC) SLA1:38'_ ?14.4 43670 -5 GH) 38 ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted. (a) This Indenture and the rights and obligations of the City, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which 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 the rate of interest thereon, or extend the time of payment, without the consent of the Owner of each Bond so affected, (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) permit the creation of any lien on the Net Special Tax Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture or deprive the Owners of the Bonds of the lien created by this Indenture on such Special Tax 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. 0 (b) This Indenture and the rights and obligations of the City, 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 City and the Trustee may enter into without the consent of any Bond Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the City 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 City; (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; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III; (iv) 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; • DMI A1: ?3??14.4 41670 -5 GH7 39 (v) to modify, amend or supplement this Indenture in such manner as • to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the City and the Trustee. (c) Promptly after the execution by the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, 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 City, 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. • 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 City so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of 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 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 City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the City and authenticated by the Trustee, and upon demand of 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 interest rate and maturity. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. DOCSL.A139 "14.4 41670 -i GI -11 40 ARTICLE X DEFEASANCE • Section 10.01. Discharge of Indenture. If the City shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners of such Bonds shall cease to be entitled to the pledge of the Net Special Tax Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the City to the Owners of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the City all money or securities held by it pursuant hereto which are not required for the payment of the principal of and interest and premium, if any, on such Bonds. Subject to the provisions of the above paragraph, when any of the Bonds shall have been paid and if, at the time of such payment, the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by the City or on its part on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bonds and such Bonds shall cease to be entitled to the lien of this Indenture and such lien and all covenants, agreements and other obligations of the City hereunder shall cease, terminate become void and be completely discharged as to such Bonds. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non - presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners of the Bonds and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture contained in Section 8.06 relating to the compensation of the Trustee shall remain in effect and shall be binding upon the Trustee and the City. Section 10.02. Bonds Deemed To Have Been Paid. If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bonds and the interest thereon at the maturity or redemption date thereof, such Bonds shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01. Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 if (a) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the City shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with DOCSLA 138_" 14.4 416: C -5 G1-11 41 the provisions of Section 4.04, notice of redemption of such Bonds on said redemption date, said notice to be given in accordance with Section 4.04, (b) there shall have been deposited with the Trustee either (i) money in an amount which shall be sufficient, or (ii) non - callable Federal Securities that are not subject to redemption other than at the option of the holder thereof, the interest on and principal of which when paid will provide money which, together with the money, if any deposited with the Trustee at the same time, shall be sufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bonds, and (c) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the City shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of such Bonds that the deposit required by clause (b) above has been made with the Trustee and that such Bonds, are deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bonds. In order for any Outstanding Bonds to be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 prior to the maturity date or redemption date thereof, the City shall cause to be delivered (a) a report of an independent firm of nationally recognized certified public accountants verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ( "Verification "), and (b) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding" under the Indenture; each Verification and defeasance opinion shall be acceptable in form and substance to the City, and shall be addressed to the City and the Trustee. Section 10.03. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, to the extent permitted by law, any moneys held by the Trustee in trust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys, shall be repaid to the City free from the trusts created by this Indenture, 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 City as aforesaid, the Trustee may (at the cost of the City) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective 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 City of the moneys held for the payment thereof. M>CSLAI:33_'214.4 41670 -5 GI -11 42 ARTICLE XI MISCELLANEOUS Section 11.01. Limited Obligation. All obligations of the City under this Indenture shall be special obligations of the City, payable solely from Special Tax Revenues and the other assets pledged therefor hereunder; provided, however, that all obligations of the City under the Bonds shall be special obligations of the City, payable solely from Net Special Tax Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth herein) or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights 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 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 Trustee, the City and the Owners of the Bonds. 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 of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee may, upon the Written Request of the City, in lieu of such cancellation and delivery, destroy such Bonds (in the presence of an officer of the City, if the City shall so require) as may be allowed by law, and deliver a certificate of such destruction to the City. Section 11.06. Severabilitv 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 0 been contained herein. The City hereby declares that it would have entered into this Indenture 0 1OCA.A1 IP114A 41670 -5 Gt-11 43 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. Any written notice, statement, demand, consent, approval, authorization,, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: Director of Administrative Services If to the Trustee: U.S. Trust Company, National Association 515 South Flower Street, Suite 2700 Los Angeles, California 90071 -2291 Attention: Corporate Trust Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic communication, whether by telex, telegram or telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other means, upon delivery at the address specified in this Section. 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 City if made in the manner provided in this Section. 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. 0 The ownership of Bonds shall be proved by the Registration Books. DCX5LA1382214.4 41670 -5 GI-11 44 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 City 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 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 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 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, principal or premium 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 Bonds entitled thereto, subject, however, to the provisions of Section 10.03 but without any liability for interest thereon. Section 11.11. 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 industry standards to the extent practicable, and with due regard for the requirements of Section 6.07 and for the protection of the security of the Bonds and the rights of every Owner thereof. Section 11.12. Payment on Non - Business Days. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non - Business Day. Section 11.13. Waiver of Personal Liability. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of or premium or interest 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 officer, agent or employee from the performance of any official duty provided by law or by this Indenture. Section 11.14. 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, DCCSL41 :18`14.4 41670 -s Giii 45 0 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. Section 11.15. Conflict with Act. In the event of any conflict between any provision of this Indenture and any provision of the Act, the provision of the Act shall prevail over the provision of this Indenture. Section 11.16. Conclusive Evidence of Regularity. Bonds issued pursuant to this Indenture shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.17. 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 shall together constitute but one and the same instrument. Section 11.18. Governing Laws. This Indenture shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the City has caused this Indenture to be signed in its name by its representative thereunto duly authorized, and the Trustee, 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. DCCSLA138'_ 214.4 41670-5 GI-11 46 CITY OF NEWPORT BEACH U.S. TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE go Authorized Officer No. EXHIBIT A FORM OF SERIES A BOND CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX REFUNDING BOND, SERIES A INTEREST RATE MATURITY DATE DATED DATE REGISTERED OWNER: PRINCIPAL AMOUNT: The City of Newport Beach, County of Orange, State of California (the "City "), for value received, hereby promises to pay, solely from the Special Tax (as hereinafter defined) collected in the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") or amounts in certain funds and accounts held under the Indenture (as hereinafter defined), to the Registered Owner identified above or registered assigns (the "Registered Owner "), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof payable semiannually on March I and September I in each year, commencing March 1, 2002 (the "Interest Payment Dates "), until payment of such Principal Amount in full. This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to February 15, 2002, in which event it shall bear interest from the Dated Date identified above; 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 hereon has previously been paid or made available for payment). The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the principal corporate trust office (the "Office of the Trustee ") of U.S. Trust Company, National Association, as trustee (the "Trustee "), in Los Angeles, California. Interest hereon is payable by check of the Trustee mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the Registration Books of the Trustee as of the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date. DOCSI Ai _38 "14.4 41670 -5 Gr11 A -1 . This Bond is one of a series of a duly authorized issue of bonds approved by the qualified electors of the District pursuant to the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code (the "Act'), and issued for the purpose of refunding certain bonds previously issued by the District, and is one of the series of bonds designated "Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A" (the "Series A Bonds ") in the aggregate principal amount of S . The Series A Bonds are issued pursuant to the Indenture, dated as of 1, 2001 (the "Indenture "), by and between the City and the Trustee, and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Indenture, additional bonds ( "Additional Bonds ") may be issued by the City secured by a lien on a parity with the lien securing the Series A Bonds. The Series A Bonds and any Additional Bonds are collectively referred to as the `Bonds ". The Indenture is entered into, and this Bond is issued under. the Act and the laws of the State of California. Pursuant to the Act and the Indenture, the principal of and interest on the Bonds are payable solely from the annual special tax authorized under the Act to be collected within the District to finance specified public facilities (the "Special Tax "), after the payment therefrom of certain administrative expenses, and certain funds held under the Indenture. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Net Special Tax Revenues (as defined in the Indenture) and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund, the Reserve Fund and the Redemption Fund established under the Indenture are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets. The Series A Bonds shall be subject to optional redemption, in whole or in part, on any Interest Payment Date on or after September 1, 20_, from any source of available funds, among maturities as designated by the City and by lot within each maturity, at the following respective redemption prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 20 and March 1, 20_ 102% September 1, 20_ and March 1, 20_ 101 September 1, 20_ and thereafter 100 The Series A Bonds maturing on September 1, 2022 shall be subject to mandatory redemption, in whole or in part, on each September 1, from and to the extent of (a) any prepayment of Special Taxes, (b) any Fair Share Fees required to be applied to the redemption thereof pursuant to the Indenture, (c) any interest, profits and other income received from the investment of moneys in the Improvement Fund required to be applied to the redemption thereof pursuant to the Indenture, and (d) any Special Taxes required to be transferred from the Special . Tax Fund to the Redemption Fund and applied to the redemption thereof pursuant to the DOCS1.A1_33t214.4 41670 -5 GI -11 A -2 Indenture, by lot, at a Redemption Price equal to the principal amount of such Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. If there are no Series A Bonds maturing on September 1, 2022 Outstanding, the Series A Bonds maturing on and prior to September 1, 20 shall be subject to mandatory redemption, in whole or in part, on each September 1, from and to the extent of (a) any prepayment of Special Taxes, (b) any Fair Share Fees required to be applied to the redemption thereof pursuant to the Indenture, (c) any interest, profits and other income received from the investment of moneys in the Improvement Fund required to be applied to the redemption thereof pursuant to the Indenture, and (d) any Special Taxes required to be transferred from the Special Tax Fund to the Redemption Fund and applied to the redemption thereof pursuant to the Indenture, in inverse order of maturities and by lot within each maturity, at a Redemption Price equal to the principal amount of such Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. The Series A Bonds maturing September 1, 20_ shall be subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September 1, 20_, by lot, at a redemption price equal to the principal amount of the Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Indenture. The Trustee on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective owners of any Series A Bonds designated for redemption, at their respective addresses appearing on the Registration Books maintained by the Trustee, at . least 30 but not more than 60 days prior to the redemption date; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series A Bonds or the cessation of the accrual of interest thereon. The redemption price of the Series A Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Office of the Trustee. From and after the date fixed for redemption of any Series A Bonds, interest on such Series A Bonds will cease to accrue. The Series A Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 or any integral multiple thereof. Subject to the limitations and upon payment of the charges, if any, provided in the Indenture, fully registered Series A Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series A Bonds of other authorized denominations. 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 such transfer a new fully registered Series A Bond or Series A 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. The City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Trustee shall not be affected by any notice to the contrary. tx)CSUt:381114.4 41670 -5 G1II A -3 The Indenture and the rights and obligations of the City and of the owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Indenture; provided that no such modification or amendment shall (a) extend the fixed maturity of any Bonds, or reduce the principal thereof or the rate of interest borne thereby, or extend the time of payment, without the consent of the owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, without the consent of the owners of all outstanding Bonds, or (c) permit the creation of any lien on the Special Taxes and other assets pledged under the Indenture, or deprive the Bonds owners of the lien created under the Indenture on the Special Taxes and such other assets, without the consent of the owners of all outstanding Bonds. The Indenture contains provisions permitting the City to make provision for the payment of interest on, and the principal and premium, if any, of any of the Bond so that such Bonds shall no longer be deemed to be outstanding under the terms of the Indenture. All obligations of the City under the Indenture shall be special obligations of the City, payable solely from Special Tax Revenues and the other assets pledged therefor thereunder; provided, however, that all obligations of the City under the Bonds shall be special obligations of the City, payable solely from Net Special Tax Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth herein and in the Indenture), or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Unless this certificate is presented by an authorized representative of The Depository Trust Company to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. This Bond shall not be entitled to any benefit under the Act or the Indenture, or become valid or obligatory for any purpose, until the certificate of authentication hereon shall have been dated and signed by the Trustee. txxst.A1 IS2214.a 41670 -5 GI-11 A -4 IN WITNESS WHEREOF, the City has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of its Mayor and City Clerk, all as of the Dated Date • identified above. CITY OF NEWPORT BEACH an Attest: ILN City Clerk DOC-Sl V:731114A 41670 -5 GHI A -5 Mayor E • TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Series A Bonds described in the within- mentioned Indenture and registered on the Registration Books. Date: DOCKA1 181_114.4 41670.5 GHI A -6 U.S. TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE Authorized Signatory [To Come] DGCSI.A1881214.4 41670 -5 Gill STATEMENT OF INSURANCE A -% 0 0 r� ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is , the within- mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible Note: The signature(s) on this Assignment must guarantor. 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. DCCSLA] t3 ?214.4 41670 -5 GH1 A -s ESCROW AGREEMENT by and between CITY OF NEWPORT BEACH and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, as Escrow Bank Dated as of ,2001 Relating to City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A and Series B DCCSL41:382675.3 41670 -5 GH1 r� 0 0 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement ") is executed and entered into as of 1, 2001, by and between the CITY OF NEWPORT BEACH, a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California and its charter (the "City "), and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as escrow bank (the "Escrow Bank "). WITNESSETH: WHEREAS, there are currently outstanding under the Fiscal Agent Agreement, dated as of December 1, 1995, by and between the City and U.S. Trust Company of California, N.A., as Fiscal Agent, as amended and supplemented by the First Supplemental Fiscal Agent Agreement, dated as of June 1, 1997, by and between the City and U.S. Trust Company of California, N.A. (the "Prior Fiscal Agent Agreement "), $5,930,000 aggregate principal amount of City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A (the "Outstanding Series A Prior Bonds "), and $8,925,000 aggregate principal amount of City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B (the "Outstanding Series B Prior Bonds" and, together with the Outstanding Series A Prior Bonds, the "Outstanding Prior Bonds "); WHEREAS, the Escrow Bank is the successor Fiscal Agent under and as defined in the Prior Fiscal Agent Agreement; WHEREAS, the City has received prepaid special taxes (the "Prepayments ") that, in accordance with the Prior Fiscal Agent Agreement, are to be applied to the payment of the interest on $ aggregate principal amount of the Outstanding Series A Prior Bonds and $ aggregate principal amount of the Outstanding Series B Prior Bonds (collectively, the "Prepaid Bonds ") to and including September 1, 2001 and to redeem the Prepaid Bonds on September 1, 2001 (the "Prepaid Bonds Redemption Date ") at a redemption price (the "Prepaid Bonds Redemption Price ") equal to 103% of the principal amount of the Prepaid Bonds being so redeemed; WHEREAS, the Prepaid Bonds are subject to redemption from the Prepayments on the Prepaid Bonds Redemption Date and the Fiscal Agent has given notice of such redemption; WHEREAS, the City has determined that debt service savings can be achieved by refunding the remaining $ aggregate principal amount of the Outstanding Series A Prior Bonds (the "Series A Prior Bonds ") and the remaining $ aggregate principal amount of the Outstanding Series B Prior Bonds (the "Series B Prior Bonds" and, together with the Series A Prior Bonds, the "Prior Bonds "); WHEREAS, in order to provide a portion of the moneys required to refund the Prior Bonds, the City is issuing $ aggregate principal amount of City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Bonds "), pursuant to the Indenture, dated as of 1, 2001 (the "Indenture "), by and DOCSI.A13826753, 1670 -5 GHl between the City and U.S. Trust Company, National Association, as trustee (the "Trustee'); WHEREAS, the City has determined to apply a portion of the proceeds of the Bonds for the 0 purpose of providing the funds necessary to pay (a) when due, the principal of and interest on the Series A Prior Bonds to and including September 1, 2005 and to redeem the Series A Prior Bonds on September 1, 2005 (the "Series A Redemption Date') at a redemption price (the "Series A Redemption Price') equal to 102% of the principal amount of the Series A Prior Bonds being so redeemed, and (b) when due, the principal of and interest on the Series B Prior Bonds to and including September 1, 2007 and to redeem the Series B Prior Bonds on September 1, 2007 (the "Series B Redemption Date") at a redemption price (the "Series B Redemption Price ") equal to 102% of the principal amount of the Series B Prior Bonds being so redeemed; WHEREAS, the Series A Prior Bonds are subject to redemption on the Series A Redemption Date and the City has determined to provide for the call for redemption on the Series A Redemption Date of the Series A Prior Bonds outstanding on the Series A Redemption Date; and WHEREAS, the Series B Prior Bonds are subject to redemption on the Series B Redemption Date and the City has determined to provide for the call for redemption on the Series B Redemption Date of the Series B Prior Bonds outstanding on the Series B Redemption Date; NOW, THEREFORE, for and in consideration of the mutual promises and covenants ` herein contained, the City and the Escrow Bank agree as follows: Section 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Prior Fiscal Agent Agreement. "Defeasance Securities" means non - callable Federal Securities described in clause (a) of the definition thereof in the Prior Fiscal Agent Agreement. Section 2. The Prepayment Escrow Fund. (a) There is hereby established a fund (the "Prepayment Escrow Fund ") to be held as an irrevocably pledged escrow by the Escrow Bank, which the Escrow Bank shall keep separate and apart from all other funds of the City and the Escrow Bank and which shall be applied solely as provided in this Escrow Agreement. Pending application as provided in this Escrow Agreement, amounts on deposit in the Prepayment Escrow Fund are hereby pledged and assigned solely to the payment of (i) the interest on the Prepaid Bonds coming due on the Prepaid Bonds Redemption Date, and (ii) the Prepaid Bonds Redemption Price on the Prepaid Bonds Redemption Date, which amounts shall be held in trust by the Escrow Bank for the Owners of the Prepaid Bonds. (b) Upon the transfer of the Prepayments in the amount of $ by the Trustee to the Escrow Bank, the Prepayments shall be deposited in the Prepayment Escrow Fund. (c) As reflected in the certification of a nationally recognized firm of independent certified public accountants delivered in connection herewith, upon the deposit of moneys pursuant to Section 2(b) hereof, the moneys on deposit in the Prepayment Escrow Fund will be at least equal to an amount sufficient to purchase the aggregate principal amount of Defeasance Securities set forth in Exhibit A hereto (the "Exhibit A Securities "), which principal, together DOCSLAE 7s_'675.s 41670 -5 GH1 2 with all interest due or to become due on such Exhibit A Securities, and any uninvested cash held by the Escrow Bank in the Prepayment Escrow Fund, will be sufficient to make the payments required by Section 5(a) hereof. Section 3. The Refunding Escrow Fund. (a) There is hereby established a fund (the "Refunding Escrow Fund ") to be held as an irrevocably pledged escrow by the Escrow Bank, which the Escrow Bank shall keep separate and apart from all other funds of the City and the Escrow Bank and which shall be applied solely as provided in this Escrow Agreement. Pending application as provided in this Escrow Agreement, amounts on deposit in the Refunding Escrow Fund are hereby pledged and assigned solely to the payment of (i) the principal of and interest on the Series A Prior Bonds coming due on and prior to the Series A Redemption Date, (ii) the Series A Redemption Price on the Series A Redemption Date, (iii) the principal of and interest on the Series B Prior Bonds coming due on and prior to the Series B Redemption Date, and (iv) the Series B Redemption Price on the Series B Redemption Date, which amounts shall be held in trust by the Escrow Bank for the Owners of the Prior Bonds. (b) Upon the issuance of the Bonds, there shall be deposited in the Refunding Escrow Fund $ received from the proceeds of the sale of the Bonds and $ transferred from the funds and accounts established under the Prior Fiscal Agent Agreement, for a total of $ (c) As reflected in the certification of a nationally recognized firm of independent • certified public accountants delivered in connection herewith, upon the deposit of moneys pursuant to Section 3(b) hereof, the moneys on deposit in the Refunding Escrow Fund will be at least equal to an amount sufficient to purchase the aggregate principal amount of Defeasance Securities set forth in Exhibit B hereto (the "Exhibit B Securities'), which principal, together with all interest due or to become due on such Exhibit B Securities, and any uninvested cash held by the Escrow Bank in the Refunding Escrow Fund, will be sufficient to make the payments required by Section 5(b) hereof. Section 4. Use and Investment of Moneys. (a) The Escrow Bank hereby acknowledges receipt of the moneys described in Section 2(b) hereof and agrees to invest $ of such moneys in the Exhibit A Securities upon receipt of the certification by a nationally recognized firm of independent certified public accountants, referenced in Section 2(c) hereof, that the Exhibit A Securities will mature in such principal amounts and earn interest in such amounts and, in each case, at such times, so that sufficient moneys will be available from maturing principal and interest on the Exhibit A Securities, together with any uninvested moneys then held by the Escrow Bank in the Prepayment Escrow Fund, to make all payments required by Section 5(a) hereof. Except as provided in Section 4(c) hereof or Section 4(d) hereof, the balance of the moneys described in Section 2 hereof shall be held uninvested in the Prepayment Escrow Fund. (b) The Escrow Bank hereby acknowledges receipt of the moneys described in Section 3(b) hereof and agrees to invest $ of such moneys in the Exhibit B • Securities upon receipt of the certification by a nationally recognized firm of independent certified public accountants, referenced in Section 3(c) hereof, that the Exhibit B Securities will DMI.A 1:7826753 41670 -5 GHI 3 mature in such principal amounts and earn interest in such amounts and, in each case, at such times, so that sufficient moneys will be available from maturing principal and interest on the Exhibit B Securities, together with any uninvested moneys then held by the Escrow Bank in the Refunding Escrow Fund, to make all payments required by Section 5(b) hereof. Except as provided in Section 4(c) hereof or Section 4(d) hereof, the balance of the moneys described in Section 3 hereof shall be held uninvested in the Refunding Escrow Fund. (c) Upon the written request of an Authorized Representative of the City, but subject to the conditions and limitations herein set forth, the Escrow Bank shall purchase substitute Defeasance Securities for the Defeasance Securities then held in the Prepayment Escrow Fund or the Refunding Escrow Fund (each, an "Escrow Fund ") with the proceeds derived from the sale, transfer, redemption or other disposition of Defeasance Securities then on deposit in such Escrow Fund and any uninvested money then held by the Escrow Bank hereunder in accordance with the provisions of this Section. Such sale, transfer, redemption or other disposition of Defeasance Securities then on deposit in such Escrow Fund and substitution of other Defeasance Securities shall be effected by the Escrow Bank upon the written request of an Authorized Representative of the City but only by a simultaneous transaction and only upon receipt of (i) certification by a nationally recognized firm of independent certified public accountants that the Defeasance Securities to be substituted, together with the Defeasance Securities which will continue to be held in such Escrow Fund, will mature in such principal amounts and earn interest in such amounts and, in each case, at such times so that sufficient moneys will be available from maturing principal and interest on such Defeasance Securities held in such Escrow Fund, together with any uninvested moneys, to make all payments required by Section 5 hereof which have not previously been made, and (ii) receipt by the Escrow Bank of an opinion of counsel of recognized standing in the field of law relating to municipal bonds to the effect that the sale, transfer, redemption or other disposition and substitution of Defeasance Securities will not adversely affect the exclusion of interest on any Prepaid Bonds, Prior Bonds or Bonds from gross income for purposes of federal income taxation. (d) Upon the written request of an Authorized Representative of the City, but subject to the conditions and limitations herein set forth, the Escrow Bank shall apply any moneys received from the maturing principal of or interest or other investment income on any Defeasance Securities held in an Escrow Fund, or the proceeds from any sale, transfer, redemption or other disposition of Defeasance Securities pursuant to Section 4(c) hereof not required for the purposes of said Section, as follows: (i) to the extent such moneys will not be required at any time for the purpose of making a payment required by Section 5(a) or Section 5(b) hereof, as applicable, as certified by a nationally recognized firm of independent certified public accountants delivered to the Escrow Bank, such moneys shall be transferred to the Trustee for deposit in the Special Tax Fund established under the Indenture upon the written request of an Authorized Representative of the City as received by the Escrow Bank, free and clear of any trust, lien, pledge or assignment securing the Prepaid Bonds or the Prior Bonds or otherwise existing hereunder, and (ii) to the extent such moneys will be required for such purpose at a later date, such moneys shall, to the extent practicable, be invested or reinvested in Defeasance Securities maturing at times and in amounts sufficient, as certified by a nationally recognized firm of independent certified public accountants delivered to the Escrow Bank, to make such payment required by Section 5(a) or Section 5(b) hereof, as applicable. 0 IXXS[A1331675.3 41670 -5 GHI 4 (e) All Defeasance Securities purchased pursuant to this Escrow Agreement shall be deposited in and held for the credit of the appropriate Escrow Fund. Except as provided in this Section, no moneys or Defeasance Securities deposited with the Escrow Bank pursuant to this Escrow Agreement nor principal of, or interest payments or other investment income on, any such Defeasance Securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the Prepaid Bonds or the Prior Bonds, as applicable, as provided by Section 5 hereof. (f) The Owners of the Prepaid Bonds shall have a first and exclusive lien on the moneys and Defeasance Securities in the Prepayment Escrow Fund until such moneys and Defeasance Securities are used and applied as provided in this Escrow Agreement. The Owners of the Prior Bonds shall have a first and exclusive lien on the moneys and Defeasance Securities in the Refunding Escrow Fund until such moneys and Defeasance Securities are used and applied as provided in this Escrow Agreement. (g) The Escrow Bank shall not be held liable for investment losses resulting from compliance with the provisions of this Escrow Agreement. Section 5. Payment of Prepaid Bonds and Prior Bonds. (a) From the maturing principal of the Defeasance Securities held in the Escrow Fund and the investment income and other earnings thereon and any uninvested money then held in the Prepayment Escrow Fund, the Escrow Bank shall apply such amounts, as follows: (i) on the Prepaid Bonds Redemption Date, the Escrow Bank shall pay interest on the Prepaid Bonds in accordance with the terms of the Prior Fiscal Agent Agreement; and (ii) on the Prepaid Bonds Redemption Date, the Escrow Bank shall pay the Prepaid Bonds Redemption Price in accordance with the terms of the Prior Fiscal Agent Agreement. To the extent that, after the payment on the Prepaid Bonds Redemption Date of (A) the interest on the Prepaid Bonds, and (B) the Prepaid Bonds Redemption Price, any amount remains on deposit in the Prepayment Escrow Fund, such amount shall be transferred to the Trustee for deposit in the Special Tax Fund established under the Indenture. (b) From the maturing principal of the Defeasance Securities held in the Refunding Escrow Fund and the investment income and other earnings thereon and any uninvested money then held in the Refunding Escrow Fund, the Escrow Bank shall apply such amounts, as follows: (i) on each Interest Payment Date to and including, in the case of the Series A Prior Bonds, the Series A Redemption Date and, in the case of the Series B Prior Bonds, the Series B Redemption Date, the Escrow Bank shall pay interest on the Prior Bonds in accordance with the terms of the Prior Fiscal Agent Agreement; (ii) on each principal payment date to and including, in the case of the Series • A Prior Bonds, the Series A Redemption Date and, in the case of the Series B Prior DMLAI33167535 41670 -5 GH1 5 Bonds, the Series B Redemption Date, the Escrow Bank shall pay the principal of the Prior Bonds in accordance with the terms of the Prior Fiscal Agent Agreement; • (iii) on the Series A Redemption Date, the Escrow Bank shall pay the Series A Redemption Price in accordance with the terms of the Prior Fiscal Agent Agreement; and . (iv) on the Series B Redemption Date, the Escrow Bank shall pay the Series B Redemption Price in accordance with the terms of the Prior Fiscal Agent Agreement. To the extent that, after the payment on the Series B Redemption Date of (A) the principal of, and interest on, the Series B Bonds, and (B) the Series B Redemption Price, any amount remains on deposit in the Refunding Escrow Fund, such amount shall be transferred to the Trustee for deposit in the Special Tax Fund established under the Indenture. Section 6. Irrevocable Instructions to Mail Notice; Election of City. (a) The Escrow Bank hereby affirms that, in its capacity as Fiscal Agent under the Prior Fiscal Agent Agreement, it has given notice of the redemption of the Prepaid Bonds in accordance with Section 4.02 of the Prior Fiscal Agent Agreement. (b) The City hereby irrevocably designates the Series A Prior Bonds for redemption on the Series A Redemption Date and irrevocably designates the Series B Prior Bonds for redemption on the Series B Redemption Date, as indicated in Section 5 hereof, and hereby irrevocably instructs the Escrow Bank, as Fiscal Agent under the Prior Fiscal Agent Agreement, to give notice of redemption of the Prior Bonds in accordance with Section 4.02 of the Prior Fiscal Agent Agreement. (c) In accordance with Section 10.01 of the Prior Fiscal Agent Agreement, the City hereby elects, and hereby notifies the Escrow Bank, as Fiscal Agent under the Prior Fiscal Agent Agreement, of its intention to so elect, to discharge all liability in respect of the Prepaid Bonds and the Prior Bonds and to discharge the Prior Fiscal Agent Agreement. Section 7. Transfer of Amounts Remaining Under Prior Fiscal Agent Agreement. The Escrow Bank, as Fiscal Agent under the Prior Fiscal Agent Agreement, is hereby instructed, after having made the deposit to the Prepayment Escrow Fund provided for in Section 2 hereof and the deposit to the Refunding Escrow Fund provided for in Section 3 hereof, to transfer $ remaining in the funds and accounts established under the Prior Fiscal Agent Agreement to the Trustee for deposit in the funds and accounts established under the Indenture in accordance with the provisions thereof. Section S. Escrow Bank's Authority to Make Investments. The Escrow Bank shall have no power or duty to invest any funds held under this Escrow Agreement except as provided in Section 2, Section 3 and Section 4 hereof. The Escrow Bank shall have no power or duty to transfer or otherwise dispose of the moneys held hereunder except as provided in this Escrow Agreement. Section 9. Indemnity. To the extent permitted by law, 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 keep harmless the Escrow Bank and its respective D0CSLA138267; z 41670 -5 GH1 6 successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees, expenses and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Bank at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Escrow Agreement, the establishment hereunder of the Escrow Funds, the acceptance of the funds and securities deposited therein, the purchase of any securities to be purchased pursuant thereto, the retention of such securities or the proceeds thereof and any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Escrow Agreement; provided, however, that the City shall not be required to indemnify the Escrow Bank against the Escrow Bank's own negligence or willful misconduct or the material breach by the Escrow Bank of the terms of this Escrow Agreement. In no event shall the City or the Escrow Bank be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities contained in this Section shall survive the termination of this Escrow Agreement. Section 10. Responsibilities of Escrow Bank. The Escrow Bank and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise, in connection with the execution and delivery of this Escrow Agreement, the establishment of the Escrow Funds, the acceptance of the moneys or any securities deposited therein, the purchase of the securities to be purchased pursuant hereto, the • retention of such securities or the proceeds thereof, the sufficiency of the securities or any uninvested moneys held hereunder to accomplish the redemption of the Prepaid Bonds and the Prior Bonds, or any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Escrow Agreement or by reason of any non - negligent act, non - negligent omission or non - negligent error of the Escrow Bank made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statements of the City, and the Escrow Bank shall have no responsibility for the correctness thereof. The Escrow Bank makes no representation as to the sufficiency of the securities to be purchased pursuant hereto and any uninvested moneys to accomplish the redemption of the Prepaid Bonds and the Prior Bonds pursuant to the Prior Fiscal Agent Agreement or to the validity of this Escrow Agreement as to the City and, except as otherwise provided herein, the Escrow Bank shall incur no liability in respect thereof. The Escrow Bank shall have no obligation to review the certifications of a nationally recognized firm of independent certified public accountants referenced in Section 2(c) and Section 3(c) hereof and shall have no liability in connection therewith. The Escrow Bank shall not be liable in connection with the performance of its duties under this Escrow Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Bank shall be determined by the express provisions of this Escrow Agreement. The Escrow Bank may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Bank shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Escrow Agreement, such matter (except the matters set forth herein as specifically requiring a certificate of a nationally recognized firm of DOCSLAI:382675.; 41670 -5 GI-11 7 independent certified public accountants or an opinion of counsel of recognized standing in the field of law relating to municipal bonds) may be deemed to be conclusively established by a written certification of the City. Whenever the Escrow Bank shall deem it necessary or desirable that a matter specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of counsel of recognized standing in the field of law relating to municipal bonds be proved or established prior to taking, suffering, or omitting any such action, such matter may be established only by a certificate signed by a nationally recognized firm of certified public accountants or such opinion of counsel of recognized standing in the field of law relating to municipal bonds. Section 11. Amendments. The City and the Escrow Bank may (but only with the consent of the Owners of all of the Prepaid Bonds and Prior Bonds then outstanding) amend this Escrow Agreement or enter into agreements supplemental to this Escrow Agreement. Section 12. Term. This Escrow Agreement shall commence upon its execution and delivery and shall terminate on the date upon which all of the Prepaid Bonds and all of the Prior Bonds have been paid in accordance with this Escrow Agreement. Section 13. Compensation. The City shall from time to time pay or cause to be paid to the Escrow Bank the agreed upon compensation for its services to be rendered hereunder, and reimburse the Escrow Bank for all of its reasonable advances in the exercise and performance of its duties hereunder; provided, however, that under no circumstances shall the Escrow Bank be entitled to any lien whatsoever on any moneys or obligations in either Escrow Fund for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Bank . under this Escrow Agreement or otherwise. Section 14. Severability. If any one or more of the covenants or agreements provided in this Escrow Agreement on the part of the City or the Escrow Bank to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Escrow Agreement. Section 15. Counterparts. This Escrow Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as an original but all of which shall constitute and be but one and the same instrument. • DCxSLAI:332675.3 43670-5 CHI 8 11 0 Section 16. Governing Law. This Escrow Agreement shall be construed under the laws of the State of California. DOCSLAI: 3326753 41670 -5 GHI 9 CITY OF NEWPORT BEACH 0 U.S. TRUST COMPANY, NATIONAL ASSOCIATION, AS ESCROW BANK M Authorized Officer Type EXHIBIT A DEFEASANCE SECURITIES Maturity Par Interest Date Amount Rate Price DC) SLAI :181675 41670-5 GHI A -1 Cost 0 0 l 0 0 m DOCSLA138?675.3 41670 -5 GHl EXHIBIT B DEFEASANCE SECURITIES Maturity Par Interest Date Amount Rate Price M. Cost OH &S 7/2/01 Draft PRELIMINARY OFFICIAL STATEMENT DATED JULY , 2001 Ratings: Moody's "'� Standard & Poor's ° NEW ISSUE - BOOK -ENTRY ONLY (See "Ratings') In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Series A 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 Series A Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. 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 Series A Bonds. See "CONCLUDING LNFORMA77ON- Tax Matters " herein. CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX REFUNDING BONDS, SERIES A Dated: August 1, 2001 Due: September 1, as shown below The City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District") Special Tax Refunding Bonds, Series A (the "Series A Bonds ") are being issued to provide funds (1) to refund the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, presently outstanding in the aggregate principal amount of $5,930,000 and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, presently outstanding in the aggregate principal amunt of $8,925,000 (collectively, the "Prior Bonds "), (2) to fund a Reserve Fund or pay the costs of a reserve fund surety bond for the Series A Bonds, and (3) to pay the costs of issuing the Series A Bonds. Subject to the satisfaction of certain conditions described herein, the District may issue additional parity bonds for the purpose of providing funds to refund any Bonds issued under the Indenture. The Series A Bonds and the Additional Bonds, if any, are collectively referred to herein as the "Bonds." The Series A Bonds are authorized pursuant to the City of Newport Beach Special Improvement District Financing Code (the "Act ") and are issued pursuant to the Indenture, dated as of 1, 2001, by and between the City of Newport Beach (the "City") and U.S. Trust Company, National Association, as trustee (the "Trustee "). The Bonds are payable from the proceeds of an annual Special Tax to be levied according to the Amended and Restated Rate and Method of Apportionment of Special Tax approved by the City Council of the City and by the qualified landowner elector within the District. Such Special Tax will be collected in the same manner and at the same time as ad valorem property taxes are collected by the Treasurer -Tax Collector of the County of Orange, State of California. The Series A Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "). Interest is payable semiannually on March I and September I of each year (commencing March I, 2002). Purchasers will not receive certificates representing their interests in the Series A Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest and premium, if any, on the Series A Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC participants who are obligated to remit such payments to the beneficial owners of the Series A Bonds. See "THE SERIES A BONDS" herein. The Series A Bonds are subject to redemption prior to maturity as described herein. [Insurer to come]. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth in the Indenture) or of the State of California, or any political subdivision thereof is pledged to the payment of the Bonds. MATURITY SCHEDULE $ Serial Bonds Maturity Date Principal Interest Price/ CUSIP Maturity Date Principal Interest Price/ CUSIP (September l) Amount Rate Yield No. (September l) Amount Rate Yield No. Term Bonds Due September 1, 20_ - Price: (plus accrued Interest) Investment in the Series A Bonds involves risks which may not be appropriate for some investors. See -SPECIAL RISK FACTORS" for a discussion of special risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the Investment quality of the Series A Bonds. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF ANY INVESTMENT DECISION. The Series A Bonds are offered when, as and if issued and delivered to the Underwriter Sutcliffe LLP, Los Angeles. California, Bond Counsel, and subject to certain other conditions. Preliminary, subject to change. DOCSLA1:382805.5 5-5 MKH subject to the approval as to their validity by Orrick, Herrington Certain legal matters will be passed upon for the City by the Ci OH &S 7/2/01 Draft Forney. It is anticipated that the Series A Bonds will be available for delivery in book -entry form through the facilities of DTC in New York, New York, on or about 1-2001. STONE & YOUNGBERG LLC Dated: August_, 2001 is DOCSLA1:382805.5 5 -5 MKH No dealer, broker, salesperson or other person has been authorized by the City or the • Underwriter to give any information or to make any representations with respect to the Series A Bonds other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by 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 Series A 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 Series A 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 be construed as a representation of facts. The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District and 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. Reference is hereby made to such documents on file with the City for further information in connection therewith. In accordance with its responsibilities under the federal securities laws, the Underwriter has reviewed the information in this Official Statement but does . not guarantee its accuracy or completeness. This Official Statement is submitted in connection with the sale of the Series A Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A 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 SERIES A BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. • DOCSLA1:382605.5 s -s t KH 0 0 CITY OF NEWPORT BEACH ORANGE COUNTY, CALIFORNIA CITY COUNCIL Garold (Gary) B. Adams, Mayor Tod W. Ridgeway, Mayor Pro Tem Steven Bromberg Norma J. Glover John Heffernan Dennis D. O'Neil Gary Proctor CITY STAFF Homer L. Bludau City Manager Dennis C. Danner, City Treasurer/Director of Administrative Services Don Webb, Director of Public Works Robert H. Burnham, City Attorney LaVonne M. Harkless, City Clerk Bond Counsel Orrick, Herrington & Sutcliffe LLP Los Angeles, California Special Tax Consultant NBS Government Finance Group Temecula, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Trustee U.S. Trust Company, National Association Los Angeles, California Verification Agent • Grant Tbomton LLP Minneapolis, Minnesota DOCSIA 1:382805.5 5.5 MKH TABLE OF CONTENTS INTRODUCTION Page THESERIES A BONDS ................................................................................................................ ..............................2 Description of the Series A Bonds ................................................................................... ..............................2 Redemption...................................................................................................................... ..............................3 Book -Entry Bonds ............................................................................................................ ..............................6 DEBTSERVICE SCHEDULE ...................................................................................................... ..............................7 SOURCESAND USES OF FUNDS .............................................................................................. ..............................7 PLANOF FINANCE ..................................................................................................................... ..............................8 SECURITY FOR THE SERIES A BONDS .................................................................................. ..............................8 SpecialTaxes ................................................................................................................... ..............................8 SpecialTax Fund ............................................................................................................ .............................12 ReserveFund .................................................................................................................. .............................12 MunicipalBond Insurance .............................................................................................. .............................13 Issuanceof Additional Bonds ......................................................................................... .............................13 PermittedInvestments ..................................................................................................... .............................14 Covenant for Superior Court Foreclosure ....................................................................... .............................14 Estimated Debt Service Coverage ................................................................................... .............................15 Value -to -Debt Ratio ........................................................................................................ .............................17 Directand Overlapping Debt .......................................................................................... .............................17 MUNICIPALBOND INSURANCE ............................................................................................. .............................20 THECITY ..................................................................................................................................... .............................20 THEDISTRICT ............................................................................................................................ .............................20 Introduction..................................................................................................................... .............................20 SpecialTax Collections .............................................................._................................... .............................23 DevelopmentStatus ........................................................................................................ .............................23 SPECIALRISK FACTORS .......................................................................................................... .............................24 LimitedObligation ....................................................................._................................... .............................25 Insufficiency of Special Taxes ........................................................................................ .............................25 Special Tax Not a Personal Obligation of the Owners .................................................... .............................25 PropertyValues ............................................................................................................... .............................25 Disclosures to Future Purchasers .................................................................................... .............................26 Billingof Special Taxes .................................................................................................. .............................27 City of Newport Growth Initiative .................................................................................. .............................27 Endangered and Threatened Species ............................................................................... .............................27 OverlappingIndebtedness ............................................................................................... .............................28 Potential Delay and Limitation in Foreclosure Proceedings ........................................... .............................28 Bankruptcy...................................................................................................................... .............................28 Paymentsby FDIC .......................................................................................................... .............................29 NoAcceleration .............................................................................................................. .............................30 Limitationson Remedies ................................................................................................. .............................30 Proposition62 ................................................................................................................. .............................30 Proposition218 ............................................................................................................... .............................31 BallotInitiat ives .............................................................................................................. .............................32 MaximumRates .............................................................................................................. .............................32 Recent Developments Concerning Electricity ..............................._............................... .............................32 SeismicConditions ......................................................................................................... .............................33 Lossof Tax Exemption ................................................................................................... .............................33 CONTINUING DISCLOSURE .................................................................................................... .............................34 CONCLUDINGINFORMATION ................................................................................................ .............................34 LegalOpinions ................................................................................................................ .............................34 TaxMatters ..................................................................................................................... .............................34 DOCSLA1382805.5 5-5 b1KH TABLE OF CONTENTS (continued) Page • Underwriting No Litigation Ratings ......, APPENDIX A AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX ........................................... ..............................1 APPENDIX B PROPOSED FORM OF OPINION OF BOND COUNSEL .... ..............................1 APPENDIX C SUMMARY OF THE INDENTURE ....................................... ..............................1 APPENDIX D BOOK -ENTRY ONLY SYSTEM ........................................... ..............................1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT .... ..............................1 APPENDIX F FORM OF MUNICIPAL BOND INSURANCE POLICY ....... ..............................1 0 0 DCCSIAt:382805.5 -11- 5-5 MKH 0 OFFICIAL STATEMENT $ CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95 -1 (CIOSA) SPECIAL TAX REFUNDING BONDS, SERIES A INTRODUCTION The purpose of this Official Statement is to provide certain information concerning the issuance of City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Series A Bonds ") in the aggregate principal amount of The City of Newport Beach Special Improvement District Financing Code (the "Act ") was enacted by the City Council (the "City Council') of the City of Newport Beach (the "City "), pursuant to its charter city powers to provide a method of financing certain public capital facilities in the City. Once duly established, a special improvement district is a legally constituted governmental entity within defined boundaries, with the City Council acting as its legislative body. Subject to approval by a two- thirds vote of qualified electors and compliance with the provisions of the Act, the City Council may issue bonds for a special improvement district and may levy and collect a special tax within such district to repay such indebtedness. The Bonds are payable from the proceeds of an annual Special Tax to be levied according to the Amended and Restated Rate and Method of Apportionment of Special Tax (the "Rate and Method ") approved by the City Council of the City and by the qualified landowner elector within the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District "). Such Special Tax will be collected in the same manner and at the same time as ad valorem property taxes are collected by the Treasurer -Tax Collector of the County of Orange, State of California. The District was established by the City on June 12, 1995, when it adopted the Resolution Declaring Intention to Establish a Special Improvement District and to Authorize the Levy of Special Taxes, under the provisions of the Act. Thereafter an election was held for the District, at which election authorized representatives of The Irvine Company (the "Company "), as the then sole landowner of all of the taxable property within the District, cast 100% of the ballots in favor of the proposition of approving formation of the District, authorizing the incurring of indebtedness, the levying of a special tax, and establishing an appropriations limit for the District. As a result of such proceedings, taken pursuant to the Act, authority has been conferred upon the City Council to annually levy a special tax (the "Special Tax ") against parcels of land within the District and to issue special tax bonds to finance certain costs and expenses relating to the construction and acquisition of public capital improvements. The Series A Bonds are being issued pursuant to Resolution No. adopted by the City Council on ' 2001 (the "Resolution ") and an Indenture, dated as of 1, 2001 ), (the "Indenture" by and between the City and U.S. Trust Company, National Association, as Preliminary, subject to change. DCCSLA1:18 2805.5 5 -5 MKH trustee (the "Trustee "). Pursuant to the Indenture, additional bonds ( "Additional Bonds ") may be • issued which will be payable from the Special Tax on a parity with the Series A Bonds for the purpose of providing funds to refund any Bonds issued under the Indenture. The Series A Bonds and the Additional Bonds, if any, are collectively referred to herein as the `Bonds." There will be no Additional Bonds outstanding at the time of issuance of the Series A Bonds. Neither the faith and credit nor the taxing power of the City, (except to the limited extent set forth in the Indenture) or of the State of California, or any political subdivision thereof is pledged to the payment of the Bonds. The Series A Bonds are being issued to provide funds (1) to refund the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A (the "Series A Prior Bonds "), presently outstanding in the aggregate principal amount of $5,930,000 and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B (the "Series B Prior Bonds" and, together with the Series A Prior Bonds, the "Prior Bonds "), presently outstanding in the aggregate principal amount of $8,925,000, (2) to fund a Reserve Fund or pay the costs of a reserve fund surety bond for the Series A Bonds, and (3) to pay the costs of issuing the Series A Bonds. See "SOURCES AND USES OF FUNDS" and "PLAN OF FINANCE" herein. The Prior Bonds were issued under that Fiscal Agent Agreement, dated as of December 1, 1995, by and between the City and U.S. Trust Company, National Association, as Fiscal Agent, as amended and supplemented by the First Supplemental Fiscal Agent Agreement, dated as of June 1, 1997, by and between the City and U.S. Trust Company, National Association (the "Fiscal Agent Agreement "). Brief descriptions of the Series A Bonds, the security for the Series A Bonds, the City, lei the District and the status of development within the District are included in this Official Statement, together with summaries of certain provisions of the Series A Bonds and the Indenture. Such descriptions do not purport to be comprehensive or definitive. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. All references herein to the Indenture are qualified in their entirety by reference to such document, copies of which are available for inspection at the office of the City Director of Administrative Services, 3300 Newport Boulevard, Newport Beach, California 92663. THE SERIES A BONDS Description of the Series A Bonds The Series A Bonds will be issued in fully registered book -entry only form, without coupons, in the denomination of $5,000, or any integral multiple thereof, and will be dated as set forth on the cover hereof. Interest on the Series A Bonds will be paid semiannually on September 1 and March 1 of each year, commencing March 1, 2002 (each such date, an "Interest Payment Date "). The Series A Bonds will bear interest at the rates shown on the cover hereof hiterest on the Series A Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series A Bond is authenticated on or before an Interest Payment Date and after the close of business on the 15th calendar day of the month preceding each Interest Payment Date, DOCSIAI:382805.5 5 -5 MKH -2- whether or not such day is a Business Day (the "Record Date "), in which event it shall bear interest from such Interest Payment Date, (ii) a Series A Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Series A Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date: Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series A Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series A Bond which is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Series A Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. The principal of and interest and redemption premium, if any, on the Series A Bonds will be paid by the Trustee to The Depository Trust Company ( "DTC ") for subsequent disbursement to DTC participants, who are obligated to remit such payments to the beneficial owners of the Series A Bonds. The Series A Bonds will mature as indicated on the cover hereof. Redemption Optional Redemption. The Series A Bonds are subject to optional redemption in whole or in part, on any Interest Payment Date on or after September 1, 20, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 20_ and March 1, 20_ 102% September 1, 20_ and March 1, 20_ 101 September 1, 20_ and thereafter 100 The City will give the Trustee written notice of its intention to optionally redeem Series A Bonds not less than 60 days prior to the applicable redemption date, unless such notice shall be waived by the Trustee. Mandatory Redemption From Special Tax Prepayments, Fair Share Fees, Improvement Fund Earnings and Excess Special Taxes. The Series A Bonds maturing on September 1, 2022 shall be subject to mandatory redemption, in whole or in part, on each September 1, from and to the extent of (i) any prepayment of Special Taxes, (ii) any Fair Share Fees required to be applied to the redemption thereof in accordance with the Indenture (see "SECURITY FOR THE SERIES A BONDS - Special Taxes- Fair Share Fees), (iii) any interest, profits and other income received from the investment of moneys in the Improvement Fund DOCSLA1:382805.5 s -s MM -3- required to be applied to the redemption thereof in accordance with the Indenture, and (iv) any Special Taxes required to be transferred from the Special Tax Fund to the Redemption Fund and applied to the redemption thereof in accordance with the Indenture, at a Redemption Price equal to the principal amount of the Series A Bonds maturing on September 1, 2022 to be redeemed, without premium, plus accrued interest thereon to the date of redemption. Mandatory Sinking Fund Redemption. The Series A Bonds maturing September 1, 20_ (the "Series A Term Bonds "), are subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September 1, 20_, at a Redemption Price equal to the principal amount of the Series A Term Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date Principal Amount (September I) to be Redeemed If some but not all of the Series A Bonds maturing on September 1, 2022 are optionally redeemed in accordance with the Indenture, the principal amount of Series A Bonds maturing on September 1, 2022 to be subsequently redeemed in accordance with mandatory sinking fund schedules set forth herein and in the Indenture shall be reduced by the aggregate principal amount of the Series A Bonds maturing on September 1, 2022 so optionally redeemed in accordance with the Indenture, such reduction to be allocated among redemption dates in amounts of $5,000 or integral multiples thereof, as designated by the City in a Written Certificate of the City filed with the Trustee. If some but not all of the Series A Bonds maturing on September 1, 2022 are redeemed from special tax prepayments and excess special taxes in accordance with the Indenture, the principal amount of Series A Bonds maturing on September 1, 2022 to be subsequently redeemed in accordance with mandatory sinking fund schedules set forth herein and in the Indenture shall be reduced by the aggregate principal amount of the Series A Bonds maturing on September 1, 2022 so redeemed from special tax prepayments and excess special taxes in accordance with the Indenture, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the City. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Series A Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds, among maturities of Bonds as directed in a Written Request of the City, (b) with respect to any redemption from special tax prepayments and excess special taxes in accordance with the Indenture and the corresponding provision of any Supplemental Indenture DOCSLA1:382805.5 5 -5 MKH -4- pursuant to which Additional Bonds are issued, among maturities of all Bonds on a pro rata basis as nearly as practicable, (c) with respect to any redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Notice of Redemption. The Trustee on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than sixty 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. . Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the City will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the redemption (including the interest to the applicable date fixed for redemption and including any applicable premium), having been set aside in the Redemption Fund, the Bonds will become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds will be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the redemption of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. . Transfer and Exchange of Series A Bonds. So long as the Series A Bonds remain in book -entry form, transfer and exchange of any of the Series A Bonds will be accomplished in DOCSLA1:382805.5 5 -5 MKH -5- accordance with the provisions of such book -entry system. In the event and only in the event of termination of such book -entry system with respect to the Series A Bonds, then in such event any Series A Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender thereof to the Trustee for cancellation, accompanied by a written instrument of transfer, duly executed in a form acceptable to the Trustee. Upon surrender for transfer of any Series A Bond at the Office of the Trustee, the Trustee will deliver in the name of the transferee or transferees a new authenticated and registered Series A Bond or Series A Bonds of authorized denomination of the same maturity for the aggregate principal amount which the Owner is entitled to receive. The Series A Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Series A Bonds of other authorized denominations. The Trustee will require payment by the Owner requesting such exchange or transfer of any tax or other governmental charge that may be imposed with respect to such transfer or exchange. Such taxes, fees, and charges must be paid before any such new Series A Bond will be delivered. Book -Entry Bonds Except as otherwise provided in the Indenture, the registered Owner of all of the Series A Bonds will be DTC, and the Series A Bonds will be registered in the name of Cede & Co., as nominee for DTC. Notwithstanding anything to the contrary contained in the Indenture, payment of interest with respect to any Series A Bond registered as of each Record Date in the name of Cede & Co. will be made by wire transfer of same -day funds to the account of Cede & Co. on the payment date for the Series A Bonds at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the representation letter of the City. The Series A Bonds will be initially issued in the form of separate single fully registered Series A Bonds in the amount of each separate stated maturity of the Series A Bonds. Upon initial issuance, the ownership of such Series A Bonds will be registered in the Registration Books in the name of Cede & Co., as nominee of DTC. APPENDIX D - "BOOK -ENTRY ONLY SYSTEM." DOCSIAI382805.5 5 -5 NUUi -6- DEBT SERVICE SCHEDULE Debt service schedules for the Series A Bonds is set forth below: Period Series A Series A Ending Bonds Bonds Member I Principal Interest Debt Service • TOTAL SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series A Bonds are set forth in the following table: Sources Principal Amount of Series A Bonds Amounts released from Fiscal Agent Agreement Total Sources Uses Escrow Fund Special Tax Account of the Improvement Fund') Administrative Expense Fund Costs of Issuance Fund (2) Underwriter's Discount Total Uses l An amount sufficient to pay debt service on the Series A Bonds from the date of delivery to September 1, 2001. Z) Includes insurance premium, debt service reserve fund surety and legal, financial advisory, consulting and rating agency fees, printing and other miscellaneous costs of issuance. DOCSLA1:382805.5 5 -5 MKH -7- PLAN OF FINANCE 0 The District will apply a portion of the proceeds of the sale of the Series A Bonds to pay the costs of issuing the Series A Bonds including municipal bond insurance and surety bond premiums. The balance of the proceeds of the Series A Bonds, together with certain other amounts held under the Fiscal Agent Agreement, including, but not limited to, approximately $385,000 currently on deposit in the Fund and representing prepayments of the Special Tax, will be transferred to and/or deposited in the Escrow Fund (the "Escrow Fund ") established under the Escrow Agreement, dated as of 1, 2001 (the "Escrow Agreement "), by and between the District and U.S. Trust Company, National Association, as escrow bank (the "Escrow Bank "). Amounts deposited in the Escrow Fund will be used to purchase direct, noncallable obligations of the United States of America (the "Federal Securities "). The Federal Securities, together with earnings thereon, and certain cash held in the Escrow Fund, will be sufficient to pay (a) when due, the principal of and interest on the Series A Prior Bonds to and including September 1, 2005 and to redeem the Series A Prior Bonds on September 1, 2005 (the "Series A Redemption Date ") at a redemption price (the "Series A Redemption Price ") equal to 102% of the principal amount of the Series A Prior Bonds being so redeemed, and (b) when due, the principal of and interest on the Series B Prior Bonds to and including September 1, 2007 and to redeem the Series B Prior Bonds on September 1, 2007 (the "Series B Redemption Date ") at a redemption price (the "Series B Redemption Price ") equal to 102% of the principal amount of the Series B Prior Bonds being so redeemed. Grant Thornton LLP, certified public accountants (the "Verification Agent "), will verify the mathematical accuracy of certain computations regarding the Federal Securities, and the • earnings thereon and the cash held in the Escrow Fund, and their sufficiency to pay all of the principal, interest and redemption premium with respect to Prior Bonds coming due on the redemption date described above. SECURITY FOR THE SERIES A BONDS Special Taxes Levy of Special Taxes. The levy of the Special Taxes was authorized by vote of the Company, as the then sole landowner and only qualified elector of the District, at a special election held on June 26, 1995. Pursuant to the Act, the City caused a Notice of Special Tax Lien (including a copy of the Rate and Method as an exhibit thereto) to be recorded in the Official Records of Orange County, California. The City is legally authorized under the Act, and has covenanted in the Indenture, to cause the levy of the Special Taxes in an amount determined according to the Rate and Method. The amount of Special Taxes that the City may levy in the District in any year is strictly limited by the maximum rates established by the Rate and Method. The Rate and Method apportions the total amount of Special Taxes to be collected annually among the taxable parcels in the District. See APPENDIX A — "AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." lei DCCSIA1:382805.5 5 -5 MY-1i -8- E Although the Special Tax, when levied, will constitute a lien on parcels subject to taxation within the District, it does not constitute a personal indebtedness of the owners of property within the District. There is no assurance that the owners of real property in the District will be financially able to pay the annual Special Tax or that they will pay such Special Tax even if financially able to do so. See "SPECIAL RISK FACTORS." Fair Share Fees. Development within the District has been governed by the Circulation Improvement and Open Space Agreement, dated June 30, 1993 (the " CIOSA Agreement "), by and between the City and the Company. The CIOSA Agreement provides, among other things, for the application of certain fees collected from the owners of certain properties in the City (the "Fair Share Fees "). Fair Share Fees are assessed and collected by the City based on construction and reconstruction that occurs within the City boundaries where such construction or reconstruction is expected to result in an increase in traffic circulation with the City. For a period of 20 years from the [February 1, 1996] effective date of the Protocol Agreement, by and between the City and the Company (the "Protocol Agreement "), the City has covenanted that 50 percent of all Fair Share Fees collected as a result of construction on property not within the District must be pledged (a) to the construction of additional circulation improvements until such time as the City reaches the CIOSA Limit prescribed in the CIOSA Agreement, and (b) after reaching its CIOSA Limit, to the mandatory redemption of the bonds. In accordance with the Indenture, a portion of such Fair Share Fees, as and when collected and deposited with the Trustee, will be applied to the mandatory redemption of the Series A Bonds, beginning with those maturing on September 1, 2022 and continuing in inverse order of maturity upon full redemption of the Series A Bonds maturing on September 1, 2022, on each September 1, beginning September 1, 2022. The City has determined that upon the issuance of the Series A Bonds, it will have reached the CIOSA Limit. Therefore, per the Protocol Agreement, the City will direct 50 percent of its annual Fair Share Fee collections through [February _, 20161 to the mandatory prepayment of the Series A Bonds. See "THE SERIES A BONDS — Redemption — Mandatory Redemption From Special Tax Prepayments, Fair Share Fees, Improvement Fund Earnings and Excess Special Taxes." The table below shows actual Fair Share Fee collections since 1991, as well as the amount retained by the City to be used for additional circulation improvements. The table also shows the City's projections of Fair Share Fee collections based on expected construction activity within the City and the 50 percent pledged amount through February 2016. Should construction activity exceed or fall short of expectations, actual Fair Share Fee collections could differ from projections. DOCSLA7:362505.5 5 -5 MRH -9- 50% pledge of Fair Share Fee collections initiated upon the effective date of the Protocol Agreement, [February _, 1996]. Gross Fair Share Fees includes collections from within District, which are exempted from the 50% pledge. (2) Represents estimated collections through [February _, 2016]. Source: NBS Govemment Finance Group. Rate and Method. Pursuant to the Rate and Method, the annual Special Tax obligation is apportioned, first, to Developed Property in accordance with the Maximum Special Tax for such Developed Property, and, second, if and to the extent that additional amounts are needed in order to provide for a total Special Tax levy equal to the Debt Service Requirement for such Fiscal Year, to Undeveloped Property. As set forth in the Rate and Method, the property that was initially subject to the Special Tax was divided into nine separate Zones (as defined in the Rate and Method). The Zones currently subject to the Rate and Method are the Upper Castaways Zone, the Harbor Cove Zone (previously known as Newporter North), the Bayview Landing Zone, the Corporate Plaza West Zone, the Corporate Plaza Zone and the Newport Village - PCH/MacArthur Zone. Three Zones were subsequently prepaid or otherwise released from the lien of the Special Tax. The whole of the Special Tax applicable to the San Diego Creek Zone and the Block 800 Zone was prepaid in 1996 in accordance with the prepayment provisions of the Rate and Method, and the Freeway Reservation Zone was subsequently designated an open space and therefore no longer subject to the Special Tax. As a result, properties in only six of the Zones remain subject to the Special Tax.. For purposes of the Rate and Method, aside from the Bayview Landing Zone, the properties in all Zones currently subject to the Special Tax constitute Developed Property. For Fiscal Year 2000 -01, no Special Taxes were levied on Undeveloped Property. Table - below sets forth the Special Taxes authorized to be levied in Fiscal Year 2000 -01 in the District by tax classification. 1 DMIA13828055 s -s Ntxx -10- Gross Fair Pledged Fair Gross Fair Pledged Fair Fiscal Year Share Fees Share Fees Fiscal Year Share Fees Share Fees 1991 $ 496,223 2002 $500,000 $250,000 1992 85,943 2003 500,000 250,000 1993 211,567 2004 500,000 250,000 1994 298,377 2005 500,000 250,000 1995 288,394 -- 2006 400,000 200,000 1996(l) 1,862,912 $ 46,188 2007 400,000 200,000 1997 421,025 210,513 2008 400,000 200,000 1998 1,267,854 633,927 2009 400,000 200,000 1999 630,484 315,242 2010 400,000 200,000 2000 170,967 85,484 2011 300,000 150,000 2001 49X,XXX 24X,XXX 2012 300,000 150,000 2013 300,000 150,000 2014 300,000 150,000 2015 300,000 150,000 2016 (2) 150,000 75,000 50% pledge of Fair Share Fee collections initiated upon the effective date of the Protocol Agreement, [February _, 1996]. Gross Fair Share Fees includes collections from within District, which are exempted from the 50% pledge. (2) Represents estimated collections through [February _, 2016]. Source: NBS Govemment Finance Group. Rate and Method. Pursuant to the Rate and Method, the annual Special Tax obligation is apportioned, first, to Developed Property in accordance with the Maximum Special Tax for such Developed Property, and, second, if and to the extent that additional amounts are needed in order to provide for a total Special Tax levy equal to the Debt Service Requirement for such Fiscal Year, to Undeveloped Property. As set forth in the Rate and Method, the property that was initially subject to the Special Tax was divided into nine separate Zones (as defined in the Rate and Method). The Zones currently subject to the Rate and Method are the Upper Castaways Zone, the Harbor Cove Zone (previously known as Newporter North), the Bayview Landing Zone, the Corporate Plaza West Zone, the Corporate Plaza Zone and the Newport Village - PCH/MacArthur Zone. Three Zones were subsequently prepaid or otherwise released from the lien of the Special Tax. The whole of the Special Tax applicable to the San Diego Creek Zone and the Block 800 Zone was prepaid in 1996 in accordance with the prepayment provisions of the Rate and Method, and the Freeway Reservation Zone was subsequently designated an open space and therefore no longer subject to the Special Tax. As a result, properties in only six of the Zones remain subject to the Special Tax.. For purposes of the Rate and Method, aside from the Bayview Landing Zone, the properties in all Zones currently subject to the Special Tax constitute Developed Property. For Fiscal Year 2000 -01, no Special Taxes were levied on Undeveloped Property. Table - below sets forth the Special Taxes authorized to be levied in Fiscal Year 2000 -01 in the District by tax classification. 1 DMIA13828055 s -s Ntxx -10- Table 2000 -01 Maximum Special Tax L levy by Tax Classification Fiscal Year % of Units/ Maximum 2000 -01 Maximum Tax Class Acres Special Tax Special Tax Special Tax Developed Single Family Residential 267 units $1,034,613 $ 732,468 70.80% Commercial — Developed 5 parcels / 22.19 acres 459,017 324,967 70.80 Undeveloped Commercial— Developed') 1 parcel/ 1.92 acres 41,505 29,384 70.80 Commercial — Undevelopedl') 3 parcels / 16.06 acres 7,949 0 0.00 Totals 276 Parcels $1,543,084 $1,086,819 70.43% (1) APN 442 - 014 -28 is undeveloped, but is in the Newport Village/PCH MacArthur zone, which is Developed according to the Rate and Method. (2) Represents the parcels in the Bayview Landing Zone, which is Undeveloped and thus was not levied according to the Rate and Method. Source: NBS Government Finance Group. Prepaid Special Taxes. The Rate and Method provides that the Special Tax applicable to any Assessor's Parcel may be prepaid, in whole or in part, and the Special Tax with respect thereto discharged to the extent of such prepayment. Pursuant to the Indenture, the proceeds of any such prepayment will be transferred to the Trustee, as soon as practicable after receipt by the City, and will be [deposited in either the Special Tax Account of the Improvement Fund or the Redemption Fund, as prescribed by the Protocol Agreement, dated as of December 1, 1995, by and between the City and the Company.] The Special Tax liens on the Block 800 and San Diego Creek Zones have been paid in full and thus parcels in these zones are no longer subject to the Special Tax. The Block 800 Zone Special Tax obligation was prepaid in August, 1996. The San Diego Creek Zone Special Tax obligation was prepaid prior to the sale of the Prior Bonds. The Harbor Cove Zone (previously known as Newporter North) consists of 149 single - family lots. The Special Tax has been partially prepaid on 134 lots, and fully prepaid on one lot. These prepayments were made at various times as homes were built and sold by the developer. This has resulted in reduced Special Tax obligations for these parcels. The Freeway Reservation Zone is a linear strip of approximately 7 net acres, extending south from Ford Road along the east side of MacArthur Boulevard. The site was originally zoned single family residential with a maximum of 36 units but was subsequently designated open space and no longer subject to the Special Tax. Pledge of Special Tax Revenues. Payment of the principal of the Bonds and the premium, if any, and interest thereon is secured by and payable, subject only to the provisions of the hndenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, from all of the Net Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund, the Reserve Fund and the Redemption Fund, and such funds have been pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with the provisions of the Indenture and the Act. Said pledge shall constitute a first lien on such assets. Under the Indenture, "Net Special Tax DOCSLA1382805.5 5.5 MUCH -]]- Revenues" means Special Tax Revenues, less amounts required to pay Administrative Expenses. "Special Tax Revenues" is defined under the Indenture to mean the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, limited to the amount of said lien and interest and penalties thereon. The City has covenanted in the Indenture to levy the Special Taxes in each Fiscal Year that the Bonds are Outstanding. Pursuant to the Rate and Method, the Special Taxes will be levied each year in amounts sufficient to pay debt service on the Bonds and Administrative Expenses. Special Tax Fund As soon as practicable after receipt by the City of any Special Tax Revenues (other than prepaid Special Taxes), but in any event no later than the date ten Business Days after such receipt, the City shall transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepaid Special Taxes that are to be applied to the payment of the Redemption Price of Bonds shall be identified to the Trustee as such by the City and shall be deposited in the Redemption Fund. Upon receipt of a Written Request of the City, the Trustee shall withdraw from the Special Tax Fund and transfer to the Administrative Expense Fund the amount specified in such Written Request of the City as the amount necessary to be transferred thereto in order to have sufficient amounts available therein to pay Administrative Expenses. On the Business Day immediately preceding each Interest Payment Date, after having made any requested transfer to the Administrative Expense Fund, the Trustee shall withdraw from the Special Tax Fund and transfer, first, to the Bond Fund, Net Special Tax Revenues in the amount, if any, necessary to cause the amount on deposit in the Bond Fund to be equal to the principal and interest due on the Bonds on such Interest Payment Date, and, second, to the Reserve Fund, Net Special Tax Revenues in the amount, if any, necessary to cause the amount on deposit in the Reserve Fund to be equal to the Reserve Requirement. On September 2 of each year, after having made any requested transfer to the Administrative Expense Fund, the Trustee shall withdraw from the Special Tax Fund any amount remaining on deposit therein and shall transfer such amount to the Redemption Fund and apply such amount to the redemption of Bonds pursuant to the Indenture. Reserve Fund A reserve fund (the "Reserve Fund') is established by the Indenture and is required to be funded initially from proceeds of the Series A Bonds in an amount . equal to the "Reserve Requirement, " which is defined in the Indenture to mean, as of the date of any calculation, the least of (a) 10% of the original aggregate principal amount of the Bonds, (b) the largest Annual Debt Service for any Bond Year, including the Bond Year the calculation is made ( "Maximum Annual Debt Service "), and (c) 125% of average Annual Debt Service. The City expects to make application for a line of credit, letter of credit, an insurance policy, surety bond or any 41 DOCSLAt:382805.5 5 -5 MKH -12- other comparable credit facility (each, a "Reserve Facility') or combination thereof, to secure the Reserve Fund in an amount not less than the Reserve Requirement.] Except as otherwise provided in the Indenture, all amounts deposited in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds or, in accordance with the following paragraphs, for the purpose of redeeming Bonds from the Bond Fund. Transfers will be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year will be withdrawn from the Reserve Fund by the Trustee and will be deposited in the Bond Fund. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Trustee will transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all the Outstanding Bonds. Municipal Bond Insurance [To Come] . Issuance of Additional Bonds The Indenture provides that, the City may at any time issue one or more Series of Additional Bonds (in addition to the Series A Bonds) payable from Net Special Tax Revenues as provided herein on a parity with all other Bonds theretofore issued hereunder, but only for the purpose of refunding of any Bonds issued hereunder, providing for the payment of Costs of Issuance incurred in connection with the issuance of such Additional Bonds or making a deposit to the Reserve Fund so as to increase the amount on deposit therein to the Reserve Requirement, or any combination thereof, and subject to the following conditions: (a) the issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and the Indenture and shall have been provided for by a Supplemental Indenture which shall specify, among other things, that upon the issuance of such Additional Bonds, the City shall be in compliance with all agreements, conditions, covenants and terms contained herein and in all Supplemental Indentures required to be observed or performed by it; and (b) Annual Debt Service in each Bond Year, calculated for all Bonds to be Outstanding after the issuance of such Additional Bonds, shall be less than or equal to Annual Debt Service in such Bond Year, calculated for all Bonds Outstanding immediately prior to the issuance of such Additional Bonds. Nothing contained herein shall limit the issuance of any special tax bonds payable from Special Taxes if, after the issuance and delivery of such special tax bonds, none of the Bonds theretofore issued hereunder will be Outstanding. For a more detailed statement of the provisions relating to issuance of Additional Bonds, see APPENDIX C - "SUMMARY OF THE INDENTURE." DOCSLA1:382805.5 5-5tu H -13- Permitted Investments • Moneys in any of the funds or accounts established pursuant to the Indenture will be invested by the Trustee solely in Permitted Investments, as directed in writing by the City. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Indenture; provided, however, that Permitted Investments in which moneys in the Reserve Fund are so invested shall mature no later than the earlier of five years from the date of investment or the final maturity date of the Bonds; provided, further, that if such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date, any amount in the Reserve Fund may be invested in such redeemable Permitted Investments maturing on any date on or prior to the final maturity date of the Bonds. Absent timely written direction from the City, the Trustee shall invest any funds held by it in money market funds which are rated "Am" or better by S &P. See APPENDIX C - "SUMMARY OF THE INDENTURE." Covenant for Superior Court Foreclosure In the event of the delinquency in the payment of any installment of Special Taxes, the City is authorized by the Act to order institution of a judicial foreclosure proceeding in the Orange County Superior Court to foreclose the lien therefor. In such action the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. The ability of the City to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the property owner in the event that the property is owned by any . receivership of the Federal Deposit Insurance Corporation. See "SPECIAL RISK FACTORS — Bankruptcy" and "- Potential Delay and Limitation in Foreclosure Proceedings." Such judicial foreclosure proceedings are not mandatory under the Act. However, in the Indenture, the City has covenanted that it will determine or cause to be determined, no later than September 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and, if such delinquencies exist, the City will order and cause to be commenced no later than November 1, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due; provided, however, that the City shall not be required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5% of the total Special Tax levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the City determines that any single property owner in the District is delinquent in excess of $5,000 in the payment of the Special Tax, then it will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days from the date of service of the Notice of Levy and 20 days from the subsequent notice of sale in which to redeem the property to be sold. If a judgment debtor fails to so redeem and the property is sold, the only DOCSLA1:382805.5 5 -5 him -14- remedy of such judgment debtor is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made. The constitutionality of the aforementioned legislation, which repeals the former one -year redemption period, has not been tested and there can be no assurance that, if tested, such legislation will be upheld. Any parcel subject to foreclosure sale must be sold at the minimum bid price (equal to the sum of delinquent Special Tax installments, penalties, interest attorney's fees and costs of collection and sale) unless a lesser minimum bid price is authorized by the Owners of 75% of the principal amount of Bonds Outstanding. No assurance can be given that the real property subject to sale or foreclosure will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the City or the District to purchase or otherwise acquire any lot or parcel of property offered for sale or subject to foreclosure if there is no other purchaser at such sale. The Act does specify that the Special Tax will have the same lien priority in the case of delinquency as for ad valorem property taxes. If the Reserve Fund is depleted, there could be a default or delay in payments to the Bond Owners pending prosecution of foreclosure proceedings and receipt by the City of foreclosure sale proceeds, if any. Estimated Debt Service Coverage Table below illustrates the maximum revenues that could be available to pay debt service on the—Series A Bonds, setting forth the coverage analysis on the basis of the maximum annual Special Tax being levied against all Assessor's Parcels in the District through the application of the procedures described in the Rate and Method. See "THE DISTRICT — Special Tax Collections." DCCSIA1:382805.5 5 -5 MK I 15- OD L d O U d u d � as ed y HA w 0 b 0 d x R yy7oo _7r 071007" o7ooN V1rn r1r r.1_ x- 10 1orr roo oo--- ----10 --olor 3 F z b 9 x d o F+ r1 r o r1 r rn r1 10 rn r1 � rn r1 r '+ 7 DD N 10 N rn 710 10 r r roo oo rnrn O Olo to rn 0 A _ — — — — — — _ _ _ _ _ _ _ _ _ _ N N r1 r1 z y u � _d d z cF10 rn-- rl vlroN7rrn_710 rn- �n�ornvoo w N_ rn rn OOOO -' - 'NNNN r1 r1 x177 G -1 d 0 � � a�i: 7�n vl oo oo oo oonnoon o onno 00000 Q N1oNNN1rn rn00 hhN1 N17r N1rN 07770 O 'i � U OO r N1 N 00 N N 10 N1 O 7 7 O_ 00 7 10 h 00 N .atea.. � N[ Q> r1 h b h N r ff 1 r1 b N N y v �T o0 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 0o r1 n "„' b N N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 10 � d CF- N rn� ONO 7 O U 7 o r nk rn rn rn oo " �rihro�+irNrv_oo r10 10 10 000"1 NCO r o%C ro rlr o7 o0_cp rnC r_1oo7rnrl � b n b b b oc� oc� cp� cp� O O _ N N N ] 9 WA F _ _ _ _ — — — — — — - _ N N N N N N N N lZ 69 L R O N N OGD bh 07 o rrnorvl� ornoo oo oo Dorn nhoo vv � N71or rn nvi Como N710 rn.-•n hooO L° a� 0', y Y mGO GO GO GO GO rn D, rno; D, 00000 a �•nvrn DON 6 7 0 o viN 7-01 r 10 N n1 F--�10 yvi for of cv vi 06 %o O OOr R B o. ^N" �9�nrrn. -•v�o co n�o co n�ornNV ron�o N- 77 h hh o O d q S R� ---"17 7 � o G C� U 7vp N NQ .r+ yhr r 1D to D\ 7 r- 771D OO W r y E o"0 - Nni71D000N7ronir ovo m 0 0 0 ow y Nr17 �n for Dorn -+Nrn erco o-+N 7�n �e101orrrrr o C �.- v A o��hhhhhhhee10 w° w° � Cd V y y y O U R > 0 0 o 0 Nr+l hbr 00 rnO-+N rl .7. h1D r 00rn O-+N O O O .� Op� �^,a0� G y rO°i. 00000000 O O O O O O O O O O N N N N N N N N N N N N N N N N N N N N N V 9 7 _ Value -to -Debt Ratio Based on the $13,805,000 aggregate principal amount of the Series A Bonds being issued and the $296,826,153 aggregate Fiscal Year 2000 -01 assessed value of the property, the aggregate value -to -debt ratio for the property subject to the Special Tax in the District is 21.5* to 1.0. Table _ below sets forth by property category the value to lien ratio on property based on development status as of 2001. Table _ Tiered Value -to -Debt Ratios - SID 95 -1 Series A (2001) Only E No assurance can be given that such value -to -debt ratios can or will be maintained during the period of time that the Series A Bonds are Outstanding as neither the City nor the District has control over the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See "Direct and Overlapping Debt" below. Direct and Overlapping Debt California Municipal Statistics, Inc. has prepared a Direct And Overlapping Debt Report, dated June 1, 2001 (the "Debt Report'). According to the Debt Report, the District's share of the direct and overlapping tax and assessment debt on the District property for Fiscal Year 2000 -01 is $19,752,951, including the currently outstanding principal amount of Prior Bonds. The City has not independently reviewed the Debt Report and makes no representations as to its completeness or accuracy. Preliminary, subject to change. DOCSIA1:382805.5 5 -5 MKH -17- No. of Average Tier Parcels Value % of Value Debt(') % of Debt Ratio Less than 3.00:1 0 $ 0 0.00% $ 0 0.00% 0.0 : 1 3.00:1- 5.99:1 1 179,521 0.06 46,660 0.34 3.8 : 1 6.00:1- 6.99:1 1 2,986,965 1.01 488,745 3.54 6.1 : 1 7.00:1- 9.99:1 4 3,332,445 1.12 457,269 3.31 7.3 : 1 10.00:1 - 14.99:1 6 23,326,530 7.86 1,783,531 12.92 13.1: 1 15.00:1 - 19.99:1 53 67,967,055 22.90 3,691,156 26.74 18.4: 1 20.00:1 - 24.99:1 98 70,969,936 23.91 3,196,303 23.15 22.2:1 Greater than 25.00:1( 2) 113 128,063,701 43.14 4,141,336 30.00 30.9: 1 Total 276 $ 296,826,153 100.00% $ 13,805,000 100.00% 21.5: 1 (1) Represents City of Newport Beach SID 95 -1 Series A (2001) Bonds only. Preliminary, subject to change. (2) Includes value -to -debt ratio of the Undeveloped Bayview Landing parcels (440-132-57,-58 & -59) as a combined total. Source: NBS Government Finance Group. E No assurance can be given that such value -to -debt ratios can or will be maintained during the period of time that the Series A Bonds are Outstanding as neither the City nor the District has control over the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See "Direct and Overlapping Debt" below. Direct and Overlapping Debt California Municipal Statistics, Inc. has prepared a Direct And Overlapping Debt Report, dated June 1, 2001 (the "Debt Report'). According to the Debt Report, the District's share of the direct and overlapping tax and assessment debt on the District property for Fiscal Year 2000 -01 is $19,752,951, including the currently outstanding principal amount of Prior Bonds. The City has not independently reviewed the Debt Report and makes no representations as to its completeness or accuracy. Preliminary, subject to change. DOCSIA1:382805.5 5 -5 MKH -17- Table _ Detailed Direct And Overlapping Debt CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95 -1 2000 -01 Assessed Valuation: $296,826,153 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % AppIicable Debt 6/1/01 Orange County Teeter Plan Obligations 0.144% $ 183,780 Metropolitan Water District 0.030 158,244 Newport Mesa Unified School District Community Facilities District No. 90 -1 23.209 4,555,927 City of Newport Beach Special Improvement District No. 95 -1 100. 14,855.000(') TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT 1.265 $19,752,951 OVERLAPPING GENERAL FUND OBLIGATION DEBT Orange County General Fund Obligations 0.144% $1,505,814 Orange County Pension Obligations 0.144 194,202 Orange County Transit Authority 0.144 14,544 Coast Community College District Certificates of Participation 0.591 94,796 City of Newport Beach Certificates of Participation 1.843 121,822 Orange County Sanitation District No. 5 Certificates of Participation 1.265 129,566 Orange County Sanitation District No. 6 Certificates of Participation 1.856 51.741 TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT $2,112,485 Less: Orange County Transit Authority (80% self - supporting) 11.635 TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT $2,100,850 GROSS COMBINED TOTAL DEBT $21,865,436 t �1 NET COMBINED TOTAL DEBT $21,853,801 (1) Represents the Prior Bonds outstanding as of June 1, 2001. Excludes the Series A Bonds to be sold. (2) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non- bonded capital lease obligations. Ratios to 2000 -01 Assessed Valuation Direct Debt ($14, 855, 000) .............................. ............................... 5.00% Total Direct and Overlapping Tax and Assessment Debt ............... 6.65% Gross Combined Total Debt ............................ ............................... 7.37% Net Combined Total Debt ............................... ............................... 7.36% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/00: $0 The Table below summarizes the estimated parcel -by -parcel value -to -lien, including overlapping tax and assessment debt obligations allocable to the property in the District. 0 -18- DCCSIAi:382805.5 5 -5 MKH E Table Tiered Value- to-Debt Ratios -All Direct &Overlapping Debt No. of Average Tier Parcels Value % of Value Debt(') % of Debt Ratio Less than 3.00:1 1 $ 179,521 0.06% $ 64,190 0.34% 2.8: 1 3.00:1 - 5.99:1 3 687,185 0.23 138,728 0.74 5.0: 1 6.00:1 - 6.99:1 2 3,254,906 1.10 530,608 2.84 6.1 : 1 7.00:1 - 9.99:1 3 3,665,931 1.24 498,947 2.67 7.3:1 10.00:1 - 14.99:1 139 112,359,127 37.85 8,642,897 46.21 13.0: 1 15.00:1 - 19.99:1 84 102,019,789 34.37 5,823,127 31.13 17.5: 1 20.00:1 - 24.99:1 30 41,528,341 13.99 1,846,012 9.87 22.5:1 Greater than 25.00:1(2) 14 33,131,353 11.16 1,158,442 6.19 28.6:1 Total 276 $296,826,153 100.00% $ 18,702,951 100.00% 15.9: 1 (1) Overlapping debt includes the Prior Bonds in the principal amount of $13,805,000, a portion of the Newport Mesa Unified School District Community Facilities District 90 -1 ( "CFD No. 90 -1 ") Special Tax Bonds in an outstanding principal amount of approximately $4,555,927 and other direct and overlapping debt totaling $342,024. The portion of the Series A Bonds allocable to each Zone was determined based on the Prepayment Amount for such Zone provided in the Rate and Method. The special taxes in CFD No. 90 -1 are levied in accordance with a rate and method of apportionment that, among other things, sets a minimum and a maximum special tax rate, provides that developed commercial property is not taxed and provides that undeveloped property may not be taxed without the consent of the property owner. Because of the number of variables in such rate and method, and the uncertainty of the timing and size of CFD No. 90 -1 bond issuances, the CFD No. 90 -1 debt has been allocated to the District in proportion to the Fiscal Year 2000 -01 special tax amount per parcel. All other debt spread based on assessed value. (2) Includes value -to -debt ratio of Bayview Landing parcels (440 - 132 -57, -58 & -59) as a combined total. Source: NBS Goverment Finance Group. -19- DOCSLAL382805.5 5.5 MKH The City and the District have no control over the amount of additional debt payable from taxes or assessments on all or a portion of the property within the District, that may be issued in the future by other governmental entities, including but not limited to school districts, water districts or other districts having jurisdiction over all or a portion of the land within the District. Nothing prevents the owners of land within the District from consenting to the issuance of additional debt by other public agencies which would be secured by taxes or assessments on the same property subject to the Special Taxes. To the extent such indebtedness is payable from assessments or other special taxes, such assessments or special taxes may be secured by a lien on the property within the District on a parity with the lien of the Special Taxes. Accordingly, the liens on the property within the District could greatly increase, without any corresponding increase in the value of such property, which could severely reduce the ratio that exists at the time the Series A Bonds are issued between the value of such property and the debt secured by the special taxes and assessments thereon. The issuance of such additional debt and the imposition of such additional liens could also reduce the willingness and ability of the property owners within the District to pay the Special Taxes when due. See "SPECIAL RISK FACTORS - Overlapping Indebtedness." [TO COME] MUNICIPAL BOND INSURANCE THE CITY The City of Newport Beach is located in Southern California, in Orange County, 50 miles south of downtown Los Angeles. The City has a permanent population of 70,000. During the summer months, the population grows to over 100,000 with 20,000 to 100,000 tourists daily. The City limits encompass 14 square miles of land mass and 22 square miles of Ocean/Bay area. Over the last five years, the City's assessed value has grown from $ in Fiscal Year 1996 to $ in Fiscal Year 2001. In this same period, the City has issued residential and nonresidential building permits. THE DISTRICT Introduction On May 8, 1995, the City Council began the formal proceedings to establish the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") when it adopted the Resolution Declaring Intention to Establish a Special Improvement District and to Authorize the Levy of Special Taxes, under the provisions of the Act. Following a duly noticed public hearing on June 12, 1995, the City Council adopted the Resolution of Formation of Special Improvement District No. 95 -1 (CIOSA), Authorizing the Levy of a Special Tax Within the District and Preliminarily Establishing an Appropriations Limit for the District (the "Resolution of Formation "), and the Resolution Calling Special Election for Special Improvement District No. 95 -1 (CIOSA). Thereafter an election was held for the District, at which election authorized representatives of The Irvine Company (the "Company "), as the then sole landowner of all of the taxable property within the District, cast 100% of the ballots in favor of the proposition of approving formation of the District, authorizing the incurring of indebtedness, the levying of a -20- DCCSLAI ;38Z805.5 5 -5 MKH 0 special tax, and establishing an appropriations limit for the District. Following the election, on June 26, 1995, the City Council adopted the Resolution Declaring Results of Special Election and Directing Recording of Special Tax Lien. Pursuant to such City Council direction, the Notice of Special Tax Lien was recorded in the official records of the County Recorder of the County of Orange. As a result of these proceedings, taken pursuant to the Act, authority has been conferred upon the City Council to annually levy a special tax (the "Special Tax ") against parcels of land within the District and to issue special tax bonds to finance certain costs and expenses relating to the construction and acquisition of public capital improvements. _21_ DCCSIA1:382805.5 5 -5 MKI I As set forth in the Rate and Method, the property within the District that was initially subject to the Special Tax was divided into nine separate Zones. Three Zones were subsequently prepaid or otherwise released from the lien of the Special Tax. The whole of the Special Tax applicable to the San Diego Creek Zone and the Block 800 Zone was prepaid in accordance with the prepayment provisions of the Rate and Method, and the Freeway Reservation Zone was subsequently designated an open space and therefore no longer subject to the Special Tax. As a result, properties in only six of the Zones remain subject to the Special Tax. See "SECURITY FOR THE SERIES A BONDS - Special Taxes" above. Table — below set forth the Assessed Values by Zone for Fiscal Years 1996 -97, 1997 -98, 1998 -99, 1999 -00 and 2000 -01. Table _ Assessed Value by Year Zone 1996 -97 1997 -98 1998 -99 1999 -00 2000 -01 Bayview Landing $ 1,771,681 n/a $ 1,843,255 $ 1,877,410 $ 1,877,410 Corporate Plaza 10,681,865 n/a 6,865,945 11,562,662 19,869,833 Corporate Plaza West 14,469,062 n/a 14,758,443 20,467,491 27,779,409 Newport Village — PCH MacArthur 15,049,901 n/a 13,627,977 22,439,485 23,342,985 Harbor Cove 16,278,324, n/a 87,510,559 100,234,599 98,827,541 Upper Castaways 21.171.161 n/a 63,012,337 101,523,366 124,701,739 Total 79,421,994 n/a 187,618,516 258,105,013 296,398,917 Source: NBS Government Finance Group Table _ below set forth the District's Top Taxpayers for Fiscal Year 2000 -01. Table _ Top Taxpayers % of Fiscal Year % of Fiscal Number Fiscal Year Fiscal Year 2000 -01 Year 2000 -01 Estimated All Estimated of 2000 -01 2000 -01 Assessed Assessed Overlapping Overlapping Value -to Owner Parcels Special Tax Special Tax Value Value Debt Debt a) Lien Ratio Irvine Company 9 $354,351 32.60% $73,296,873 24.69% $1,728,251 $6,624,033 11.07:1 Taylor/Woodrow 96- 20485701 4 14,051 1.29 4,253,186 1.43 100,285 291,339 14.6:1 Woodrow, Hms 96- 20485701 4 14,051 1.29 2,840,581 0.96 66,977 258,031 11.01:1 All Others 259 704.366 64.81 216.435513 72.92 5103 87 1400398 14.74:1 Totals 276 $1,086,819 100.00% 296,826,153 100.00% 6,998,801 21,853,801 13.58:1 (1) Source: Orange County Assessor (2) Overlapping debt includes the Series A Bonds in the principal amount of $ and a portion of the Newport - Mesa Unified School District Community Facilities District No. 90 -1 ( "CFD No. 90 -1 ") special tax bonds which totals $ . See "SECURITY FOR THE SERIES A BONDS - Direct and Overlapping Debt" for overlapping debt other than that of CFD No. 90-1. The portion of the Series A Bonds allocable to each Zone was determined based on the Prepayment Amount for such Zone provided in the Rate and Method. The special taxes in CFD No. 90 -1 are levied in accordance with a rate and method of apportionment that, among other things, sets a minimum and a maximum special tax rate, provides that developed commercial property is not taxed and provides that undeveloped property may not be taxed without the consent of the property owner. Because of the number of variables in such rate and method, and the uncertainty of the timing and size of CFD No. 90 -1 bond issues, the CFD No. 90-1 debt has been allocated to the District in proportion to assessed values rather than in accordance with the CFD No. 90-1 rate and method of appointment. Furthermore, the CFD No. 90-1 debt has been allocated among District residential properties in proportion to the maximum rate applicable thereto, and such debt has not been allocated to District commercial properties. Such allocations may differ significantly from the actual allocations which would result from the application of the CFD No. 90-1 rate and method at any time. -22- DOCSLA1:382805.5 5 -5 MxH • (3) Properties sold to individual homeowners on or about Source: NBS Government Finance Group. Special Tax Collections Table _ below sets forth the Special Tax collections for as of June 30 for Fiscal Years 1996 -97 through 2000 -01, and as of May 25, 2001. Table _ Special Tax Collections(i) As of June 30 of each Fiscal Year") As of May 25 2001 % of % of Total Special No. of No. of Special Amount of Special No. of Special Amount of Special FSscal Taxed Parcels Tax Special Tax Taxes Tax Special Tax Taxes 1996 -97 5 564,833.72 16 0 $ 0.00 0.00% 0 $ 0.00 0.00% 1997 -98 1,1561741.12 280 3 8,819.05 0.77 0 0.00 0.00 1998 -99 957,350.76 270 22 37,157.24 3.88 0 0.00 0.00 1999 -00 1,187,825.94 273 25 52,355.06 4.41 1 1,919.60 0.16 2000 -01 1,086,819.28 273 14 22214.19 2_04 14 22,214.19 2_04 Totals $4,953,570.82 $120,625.54 2.44% $24,133.79 0.49% (1) As of May 25, 2001 for Fiscal Year 2000 -01. Source: NBS Government Finance Group. • The County has adopted a Teeter Plan but the City has elected NOT to include the special taxes in the Teeter Plan. The Special Taxes pledged to secure the debt service on the Series A Bonds ARE NOT included in the County's Teeter Plan. • Development Status The current development status of the properties within the six Zones that remain subject to the Special Tax are summarized below. Bayview Landing is approximately 16 net acres, located on the west side of Jamboree Road, between Pacific Coast Highway and Back Bay Drive. Immediately to the north, across Back Bay Drive, is the Hyatt Newporter Resort. Permitted uses of the developable portion of the site as established by the CIOSA Agreement are a restaurant, a health club, or a 120 -unit senior residential project. The site is Undeveloped (as defined in the Rate and Method of Apportionment). In Fiscal Year 2000 -01, no Special Taxes were levied on property within the Bayview Landing Zone. The Fiscal Year 2000 -01 assessed value of the Bayview Landing Zone is $1,877,410. Corporate Plaza is approximately [ ] net acres, consisting of three parcels of land. The Zone is considered Developed (as defined in the Rate and Method of Apportionment) although only two parcels have two low -rise office buildings on them. The third parcel is the site of a parking facility. The Fiscal Year 2000 -01 assessed value of the Corporate Plaza Zone is $19,869,833. -23- DOCSLAW82805.5 S5 MKH Corporate Plaza West is approximately 9 net acres, located at the northwest comer of • Pacific Coast Highway and Newport Center Drive. The site has been developed with two low -rise office buildings, consisting with its zoning for 94,000 square feet of office and related commercial space. Two major tenants of the Corporate Plaza West Zone property are PIMCO and State Street — IMS. The Fiscal Year 2000 -01 assessed value of the Corporate Plaza West Zone is $27,779,409. Harbor Cove (previously known as Newporter North) is approximately 26 net acres, located on the west side of Jamboree Road, between San Joaquin Hills Road and Hyatt Newporter Resort, and adjacent to Upper Newport Bay. Final tract maps were recorded for 149 single - family lots. Standard Pacific was the primary homebuilder in the Harbor Cove development. The Special Tax was partially prepaid on 134 lots resulting in reduced Special Tax obligations for those parcels. One parcel pre -paid its Special Tax obligation in full. As of Fiscal Year 2000 -01, all 149 lots had been sold to homeowners. The Fiscal Year 2000 -01 assessed value of the Harbor Cove Zone is $98,827,541. Newport Village — PCH/MacArthur consists of three separate, contiguous parcels, totaling approximately 10 net acres, within the Newport Village Planned Community District, on the west side of MacArthur Boulevard extending from the Pacific Coast Highway north to San Joaquin Hills Road. The property is zoned retail and service commercial with a maximum permitted build out of 105,000 square feet. The site has been fully developed as a retail center known as Corona del Mar. Major tenants include Cowboy steakhouse. Bristol Farms grocery store and Tommy Bahama's apparel. As of Fiscal Year 2000 -01, all 149 lots had been sold to homeowners. The Fiscal Year 2000 -01 assessed value of the Newport Village — PCH/MacArthur Zone is $23,342,985. Upper Castaways site is approximately 26 net acres, located on the east side of Dover Drive, between Pacific Coast Highway and Westcliff Drive, and adjacent to Upper Newport Bay. A final tract map was recorded for 119 single - family lots and the Company sold the property to Taylor Woodrow Company, a builder of residential projects. All 119 lots have been sold to individual homeowners. As of Fiscal Year 2000 -01, all 149 lots had been sold to homeowners. The Fiscal Year 2000 -01 assessed value of the Upper Castaways Zone is $124,701,739. SPECIAL RISK FACTORS Investment in the Series A Bonds involves risks which may not be appropriate for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Series A Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the District to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the City to make full and punctual payments of debt service on the Series A Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the District. -24- DCCSLA1382805.5 5 -5 idxH Limited Obligation The Series A Bonds and interest thereon are special obligations of the District, payable solely from Net Special Tax Revenues and any other amounts held in the Bond Fund, the Reserve Fund and the Redemption Fund. Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth herein and in the Indenture), the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Series A Bonds. Insufficiency of Special Taxes Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in the District is based primarily on such parcel's land use classification, on the basis of square footage per lot for residential land use, and on a per -acre basis for commercial property and vacant land. See "SECURITY FOR THE SERIES A BONDS — Special Taxes." The collection of the Special Taxes is dependent on the willingness and ability of the owners of property to pay Special Taxes when due. See "SECURITY FOR THE SERIES A BONDS — Special Taxes." The Act provides that if any property within the District not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Taxes will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operative effect of these provisions has not been tested in the courts. If for any reason property subject to the Special Tax becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government, or another public agency, subject to the limitation of the Maximum Special Tax Rates, the Special Taxes will be reallocated to the remaining properties within the District. This would result in the owners of such properties paying a greater amount of the Special Tax and could have an adverse effect on the timely payment of the Special Tax. Moreover, if a substantial portion of land within the District becomes exempt from the Special Tax because of public ownership or otherwise, the Maximum Special Tax Rates which could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the Series A Bonds when due, the Reserve Fund could be depleted, and a default with respect to the payment of such principal and interest on the Series A Bonds could occur. Special Tax Not a Personal Obligation of the Owners An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to fully secure the Special Tax, the City has no recourse against the owner. Property Values The property values expressed herein are the assessed valuations currently utilized for both City and County taxing purposes. The valuation of property in the City is established by the -25- DCCSLA1:782805.5 5.5 MKH Orange County Assessor. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. See "SPECIAL RISK FACTORS — Property Values" and Constitutional Limitations on Taxation and Appropriations." The value of the property within the District is a critical factor in determining the investment quality of the Series A Bonds. If a property owner is delinquent in the payment of Special Taxes, the City's only remedy is to commence foreclosure proceedings in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, landslides, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See "SECURITY FOR THE SERIES A BONDS — Estimated Debt Service Coverage" herein and "THE DISTRICT — Estimated Value -to -Lien Ratios" herein. No assurance can be given that, should a parcel with delinquent Special Taxes be foreclosed upon and auctioned for the amount of the delinquency, any bid will be received for such property or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See "SECURITY FOR THE SERIES A BONDS — Special Taxes." Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax even if the value of the parcel is sufficient may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The District has recorded a Notice of Special Tax Lien in the Office of the County Recorder of the County. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective homebuyer, purchaser of commercial or industrial property or lender will consider such obligation for Special Taxes in the purchase of a home or the lending of money thereon. Failure to disclose the existence of the Special Taxes or the full amount of the pro rata share of debt on the land in the District may affect the willingness and ability of future owners of land within the District to pay the Special Taxes when due. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long -term lessor of any lot, parcel, or unit subject to a special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. 401 -26- DOCSLAI:la2s0s.s 5.5 t KH Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn can lead to problems in the collection of the special tax. hi some community facilities districts the taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by such district. Under provisions of the Act, the Special Taxes are billed to the properties within the District which were entered on the Assessment Roll of the County Assessor by January I of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non- payment, as do regular property tax installments. These Special Tax installment payments cannot, except in the case of the payment of delinquent Special Taxes, be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See "THE DISTRICT - Special Tax Collections" for a statement of collections and delinquencies regarding the special tax. Significant delinquencies in the payment of annual Special Tax installments, or delays in the prosecution of foreclosure proceedings to collect such Special Taxes, could result in depletion of the Reserve Fund and default in payment of debt service on the Series A Bonds. See "SECURITY FOR THE SERIES A BONDS— Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the City is obligated to follow under its Indenture, in the event of delinquencies in the payment of Special Taxes. See "— Bankruptcy" and "— Payments by FDIC" below, for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and assessments and limitations on the City's ability to foreclose on the lien of the Special Taxes in certain circumstances. City of Newport Growth Initiative [TO COME] Endangered and Threatened Species It is illegal to harm or disturb any animals or plants or the habitat of any animals or plants that have been listed as an endangered species by the United States Fish & Wildlife Service (the "Service ") under the Federal Endangered Species Act, or by the California Fish & Game Commission (the "Commission ") under the California Endangered Species Act, without a permit from the Service or the Commission. It is possible that plants or animals already listed as endangered may be discovered or that plants or animals which inhabit the District and its surrounding area may be considered for listing as endangered species by the Commission or the Service or otherwise protected by actions of the State of California or the federal government. Such discovery or listing could delay or restrict development of portions of property in the District. -27- DOCSI.A1382805.5 5 -5 Mffi Overlapping Indebtedness The Special Taxes and any penalties thereon will constitute a lien against the parcels of land on which they will be annually imposed until they are paid. Such lien will be on a parity with all special taxes and special assessments which may be levied by other agencies and is co- equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The City, however, has no control over the ability of other entities to issue indebtedness secured by special taxes or assessment payable from all or a portion of the property within the District. In addition, the landowners within the District may, without the consent or knowledge of the City, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes. See "SECURITY FOR THE SERIES A BONDS - Direct and Overlapping Debt." The ability of an owner of property within the District to pay the Special Taxes and the ad valorem property tax levy could be adversely affected if additional debt is issued which is payable by the owners of property within the District. The imposition of additional liens, whether public or private, may reduce the ability or willingness of the landowners to pay the Special Tax and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Taxes. Potential Delay and Limitation in Foreclosure Proceedings The payment of property owners' Special Taxes, and the ability of the City to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE SERIES A BONDS - Covenant for Superior Court Foreclosure" and "SPECIAL RISK FACTORS - Bankruptcy." In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. Delays and uncertainties in the Special Tax lien foreclosure process create significant risks for Owners of Series A Bonds. High rates of Special Tax payment delinquencies which continue during the pendency of protracted Special Tax lien foreclosure proceedings could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon foreclosure. In that event, there could be a default in payments of the principal of, and interest on the Series A Bonds. Bankruptcy The various legal opinions to be delivered concurrently with the delivery of the Series A Bonds (including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although a bankruptcy proceeding would not cause the Special Taxes to become extinguished, the amount and priority of any Special Tax lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, -2g- DOCS7.A1382805.5 5 -5 NUUi such excess amount could be treated as an unsecured claim in the bankruptcy court. In addition, bankruptcy of a property owner could result in a delay in procuring Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Series A Bonds and the possibility of delinquent tax installments not being paid in full. Payments byFDIC The ability of the City to collect interest and penalties specified by state law and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the "FDIC ") or other similar federal governmental agencies has or obtains an interest. On June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the "1991 Policy Statement "). The 1991 Policy Statement was revised and superseded by new Policy Statement effective January 9, 1997 (the "Policy Statement "). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they come due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. The Policy Statement states that the FDIC generally will not pay non ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Mello -Roos Act (which is substantially similar to the Act) and a special tax formula which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's federal immunity. With respect to property in California owned by the FDIC on January 9, 1997 and that was owned by the Resolution Trust Company ( "RTC ") on December 31, 1995, or that became the property of the FDIC through foreclosure of a security interest held by the RTC on that date, the FDIC will continue the RTC's prior practice of paying special taxes imposed pursuant to the Mello -Roos Act, or the like, if the taxes were imposed prior to the RTC's acquisition of an interest in the property. All other special taxes may be challenged by the FDIC. The City is unable to predict what effect the FDIC's application of the Policy Statement would have in the event of a delinquency on a parcel within the District in which the FDIC has -29- DOCSLA1:382805.5 5 -5 MKH an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. 191 Owners of the Series A Bonds should assume that the City will be unable to foreclose on any parcel owned by the FDIC. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment on the Series A Bonds. Based upon the most recent Orange County Assessors' roll, the FDIC does not presently have an interest in any of the property in the District. No Acceleration There is no provision in the Indenture for acceleration of the payment of principal of or interest on the Series A Bonds in the event of default by the City or in the event interest on the Series A Bonds becomes included in gross income for federal income tax purposes. Limitations on Remedies Remedies available to the Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Series A Bonds or to preserve the tax - exempt status of the Series A Bonds. Bond Counsel has limited its opinion as to the enforceability of the Series A Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditor's rights, by equitable principles and by the exercise of judicial discretion. Additionally, the Series A Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Indenture. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners. Enforceability of the rights and remedies of the owners of the Series A Bonds, and the obligations incurred by the City, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against joint powers authorities in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Series A Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election. Among other things, it (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities be approved by a two- thirds vote of the -30- DMIA1:5g2805.5 5.5 MKH governmental entity's legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local government entity be approved by a two- thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA of the California Constitution, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after October 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988. On September 28, 1996, 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 county -wide sales tax of one -half of one percent was a special tax that, under Section 53722 of the California 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. Proposition 218 An initiative measure commonly referred to as the "Right to Vote on Taxes Act" was approved by the voters of the State of California at the November 5, 1996 general election. Proposition 218 added Article XIIIC ( "Article XIIIC ") and Article XIIID to the California Constitution. According to the "Title and Summary" of the Initiative prepared by the California Attorney General, the Initiative limits "the authority of local governments to impose taxes and property - related assessments, fees and charges." The provisions of Proposition 218 have not yet been interpreted by the courts, although a number of lawsuits have been filed requesting the courts to interpret various aspects of Proposition 218. Among other things, Section 3 of Article XIIIC states that "... the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge." Proposition 218 provides for a procedure, which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, Proposition 218 prohibits a Legislative Body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to Proposition 218 unless such Legislative Body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. Although the matter is not free from doubt, it is likely that the exercise by the voters in the District of the initiative power referred to in Article XIIIC to reduce or terminate the Special Tax is subject to the same restrictions as are applicable to the District, pursuant to the Act. Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters in the District the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the Series A Bonds. -31- DCCSIA1:382805.5 5 -5 MKH The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See "SPECIAL RISK FACTORS — Limitations on Remedies." Ballot Initiatives Articles XIIIA, XIIIB, XIIIC and XIIID and Proposition 62 were each adopted pursuant to measures qualified for the ballot pursuant to California's constitutional initiative process. On March 6, 1995 in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the Legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the City, the District or local districts to increase revenues or to increase appropriations or on the ability of a developer or merchant builder to complete the development of property. Maximum Rates Within the limits of the Special Tax, the City may adjust the Special Tax levied on all property within the District to provide an amount required to pay debt service on the Bonds and other obligations of the District, and the amount, if any, necessary to replenish the Reserve Fund to an amount equal to the Reserve Requirement and to pay all annual Administrative Expenses and make rebate payments to the United States government. However, the amount of the Special Tax which may be levied against particular categories of property within the District is subject to the maximum rates provided in the Rate and Method. In the event of delinquency by the owner or owners of property subject to the Special Tax, there is no assurance that the amount of Special Tax Revenues received by the City will at all times be sufficient to pay the amounts required to be paid by the Indenture. Recent Developments Concerning Electricity The State of California has recently experienced power shortages and significant increases in the wholesale cost of power. As a result of a variety of factors, the three major private investor -owned utilities in California, Pacific Gas & Electric ( "PG &E "), Souther California Edison ( "Edison ") and San Diego Gas & Electric (collectively, "IOUs ") have accumulated approximately $14 billion in debt. On April 6, 2001, PG &E filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. PG &E or other parties to the PG &E bankruptcy may seek to have the Bankruptcy Court take actions which affect prices charged to end use customers for electricity or affect existing contracts for purchase or sale of electricity. It is unknown at this time what effect PG &E's bankruptcy filing will have on the current California energy situation. On April 9, 2001, the State and Edison entered into a Memorandum of Understanding ( "MOU') pursuant to which the State will purchase the power transmission lines of Edison for $2.76 billion in order to assist the utility in paying its debts and to avoid bankruptcy. The MOU is subject to the enactment of authorizing legislation and approval by the California Public Utilities Commission ( "CPUC "). The State is currently -32- DOCSLA13=05.5 5-5 MKH negotiating with SDG &E for the purchase of its power transmission lines. It is unknown at this time what effect the State's purchase of IOU transmission lines will have on property taxes or utility taxes due or allocable to counties or local agencies. In addition, pursuant to recent legislation, the State is utilizing General Fund revenues to purchase electricity for resale to customers of IOUs. Total General Fund appropriations since January 2001 have been approximately $6.7 billion. Retail rates for electricity have also increased significantly. In January 2001, PG &E implemented 9% increases in electricity rates pursuant to the CPUC and an additional 10% increase will be implemented in March 2002 when the prior deregulation rate reduction statute expired. On March 27, 2001, the CPUC unanimously approved an increase of $0.03 per kilowatt- hour ( "kWh ") for PG &E and Edison. The CPUC decision will increase rates by 46% for certain PG &E customers. Additional retail rate increases may be necessary to recover the State's power expenditures, the purchase of the IOUs' transmission lines (resulting in an increase in the current retail transmission line fee) and to fund a State rescue plan for IOU debt. Continued retail rate increases may have an adverse effect on the State's general economy. The State has taken several actions to mitigate the short-term and long -term effects of the power shortages on the State's economy. Electricity purchases by the Department of Water Resources, legislation passed by the California Legislature and other efforts of the State to stabilize the wholesale power market are intended to ultimately lower the wholesale cost of electricity in California. However, given current market conditions, the costs of power are expected to remain significantly in excess of current - regulated customer rates during 2001. The District is served primarily by Edison. The District has not experienced any significant power shortages to date nor has sales activity of the unsold parcels in the District decreased as a result of the recent energy crisis. No assurance, however, is made that a general economic slowdown as a result of the energy crisis will not adversely affect the ability or willingness of property owners within the District to pay the Special Taxes when due. Seismic Conditions The District is located in California, which has a general history of seismic activity. The occurrence of seismic activity in the District could result in substantial damage to properties in the District which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes when due. Loss of Tax Exemption As discussed under the caption "CONCLUDING INFORMATION - Tax Matters," the interest on the Series A Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Series A Bonds as a result of a failure of the City to comply with certain provisions of the Code. Should such an event of taxability occur, the Series A Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Indenture. -33- DOCSLA 1382805.5 5 -5 MUCH CONTINUING DISCLOSURE i The City has covenanted for the benefit of the holders and beneficial owners of the Series A Bonds to provide annually certain financial information and operating data relating to the City, the Series A Bonds, the District, ownership and development of the property in the District which is subject to the Special Tax, the occurrence of delinquencies in payment of the Special Tax, and the status of foreclosure proceedings, if any, respecting Special Tax delinquencies (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. For a complete listing of items of information which will be provided in the Annual Report, see APPENDIX E - "FORM OF CONTINUING DISCLOSURE AGREEMENT." Such information is to be provided by the City not later than eight months after the end of the City's fiscal year (which currently would be March 1), commencing with the report for the 2000 -01 Fiscal Year. The Annual Report will be filed by the Trustee, acting as Dissemination Agent, on behalf of the City with each Nationally Recognized Municipal Securities Information Repository and with each State Repository, if any. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5). The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. CONCLUDING INFORMATION Legal Opinions The validity of the Series A Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix B hereto and will accompany the Series A Bonds. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Copies of such opinion will be available at the time of delivery of the Series A Bonds. Payment of the fees and expenses of Bond Counsel is contingent upon the sale and delivery of the Series A Bonds. Certain legal matters will be passed upon for the City by the City Attorney. Tax Matters In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Series A 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 Series A Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix B hereto. To the extent the issue price of any maturity of the Series A Bonds is less than the amount to be paid at maturity of such Series A Bonds (excluding amounts stated to be interest -34- DOCSLA1:382805.5 5 -5 MM • and payable at least annually over the term of such Series A Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Series A 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 Series A Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placements agents or wholesalers). The original issue discount with respect to any maturity of the Series A Bonds accrues daily over the term to maturity of such Series A 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 Series A Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series A Bonds. Owners of the Series A Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series A Bonds with original issue discount, including the treatment of purchasers who do not purchase such Series A Bonds in the original offering to the public at the first price at which a substantial amount of such Series A Bonds is sold to the public. 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 Series A Bonds. The City has covenanted to comply with certain restrictions designed to insure that interest on the Series A Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series A Bonds being included in • gross income for federal income tax purposes, possibly from the date of original issuance of the Series A Bonds. The opinion of Bond Counsel assumes 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) after the date of issuance of the Series A Bonds may adversely affect the value of, or the tax status of interest on, the Series A Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, will not adversely affect the value of, or the tax status of interest on, the Series A Bonds. Certain requirements and procedures contained or referred to in the Indenture, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Series A 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 Series A 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 Orrick, Herrington & Sutcliffe LLP. Although Bond Counsel is of the opinion that interest on the Series A 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 Series A Bonds may otherwise affect an Owner's federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Owner or the Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. -35- DOCSLA1:382805.5 5.5 MKH Financial Advisor . i The County has retained Fieldman, Rolapp & Associates (the "Financial Advisor'), Irvine, California, as financial advisor with respect to the Series A Bonds. The Financial Advisor has assisted the City in planning and structuring the financing provided by the Series A Bonds. Payment of the fees and expenses of the Financial Advisor for such services is contingent upon the issuance and sale of the Series A Bonds. Verification of Mathematical Computations Grant Thornton LLP, certified public accountants, will verify the mathematical accuracy as of the date of the closing on the Series A Bonds of (1) the computations contained in the provided schedules to determine that the anticipated receipts from the Federal Securities, to be held in escrow, will be sufficient to pay, when due, the principal, interest and call premium payment requirements, if any, of the Prior Bonds, and (2) the computations of yield on both the securities and the Series A Bonds contained in the provided schedules used by Bond Counsel in its determination that interest on the Series A Bonds is excluded from gross income for federal income tax purposes. The report of Grant Thornton LLP will include the statement that the scope of their engagement was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. is Underwriting The Series A Bonds are being purchased for reoffering by Stone & Youngberg LLC (the "Underwriter "). Pursuant to a Purchase Contract between the Underwriter and the City (the "Purchase Contract "), the Underwriter has agreed to purchase all of the Series A Bonds for an aggregate purchase price of $ plus accrued interest, subject to certain conditions set forth in the Purchase Contract between the City and the Underwriter. The purchase price reflects an underwriter's discount of $ . The initial offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Series A Bonds to certain dealers (including dealers depositing Series A Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. No Litigation At the time of delivery of and payment for the Series A Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City affecting the existence of the City or the District or the titles of the City's officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the Series A Bonds, the application of the proceeds thereof in accordance with the Indenture, or • the collection or application of the Special Tax or the proceeds thereof pledged or to be pledged to pay the principal of and interest on the Series A Bonds, or in any way contesting or affecting -36- Docsrr,I:as2so5.s 5 -5 mm the validity or enforceability of the Series A Bonds, the Indenture, the Purchase Contract, any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the Series A Bonds, the Indenture, the Purchase Contract or any action of the City contemplated by any of said documents that would have a material adverse effect on the City's ability to perform its obligations under the Purchase Contract or the Indenture, or which would adversely affect the exemption of interest paid on the Series A Bonds from federal income taxation or California personal income tax, nor to the knowledge of the City, is there any basis therefor. Ratings Moody's Investors Service, Inc. and Standard & Poor's Ratings Services] have assigned their municipal bond ratings of " " and " 1 1 respectively, to the Series A Bonds with the understanding that, upon delivery of the Series A Bonds, the municipal bond insurance policy will be issued by the Insurer. These ratings reflect these rating agencies' views of the creditworthiness of the Insurer. Such ratings reflect only the view of such organizations, and an explanation of the significance of the ratings may be obtained by contacting them at: Moody's Investors Service, 99 Church Street, New York, New York 10007, Standard & Poor's Ratings Services, 55 Water Street, New York, New York 10041. Such ratings are not a recommendation to buy, sell or hold the Series A Bonds. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either rating agency, if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series A Bonds. Miscellaneous The quotations from, and the summaries and explanations of the Indenture and other municipal code provisions, statutes and documents contained herein do not purport to be complete, and reference is made to such documents, statutes and municipal code provisions for the full and complete statements of their respective provisions. This Official Statement is submitted only in connection with the sale of the Series A Bonds by the City. All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the City or the District. The information contained herein should not be considered as representing all conditions affecting the City, the District or the Series A Bonds. This Official Statement does not constitute a contract with the purchasers of the Series A Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement has been duly authorized by the City. CITY OF NEWPORT BEACH -37- DOCKA 382805.5 5 -5 MKH APPENDIX A AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX A Special Tax (the "Special Tax ") shall be levied and collected in Newport Beach Special Improvement District No. 95 -1 ( CIOSA) (the " CIOSA District ") each Fiscal Year in an amount determined by the City Council of the City of Newport Beach, or its designee, as described below. Commencing in Fiscal Year 1995 -96 all of the property within the CIOSA District shall be subject to the Special Tax for the purposes, to the extent and in the manner herein provided. A. Definitions The terms hereinafter set forth have the following meanings: "Administrative Expenses" means any reasonably necessary or appropriate expenses incurred by the City in the administration of the CIOSA District. "Advance Amount" means the amount of the Advance as defined in the CIOSA Agreement. "Assessor's Parcel" means a lot or parcel with an assigned Assessor's Parcel number shown in an Assessor's Parcel Map. "Assessor's Parcel Map" means an official map of the County Assessor of the County of Orange designating parcels by Assessor's Parcel numbers. hereto. "Bayview Landing" means that portion of the CIOSA District described in Exhibit A "Block 800" means that portion of the CIOSA District described in Exhibit A hereto. "Bond Year" means, with respect to each issue of Bonds, the period which commences on the date on which such Bonds are issued and, subsequent to such issuance, on each September 2, and ends on the following September 1. "Bonds" means bonds, notes or other evidences of indebtedness issued by or on behalf of the CIOSA District pursuant to the Code which are payable from Special Taxes. " CIOSA Agreement" means the Circulation Improvement and Open Space Agreement dated June 30, 1993 by and between the City and The Irvine Company as the same may be amended from time to time. " CIOSA Agreement Amount" means the sum of (a) the Fair Share Fees Amount, (b) the Frontage Improvements Amount and (c) the Advance Amount. A -1 DOCRA1082805.5 5 -5 MKH " CIOSA District" means Newport Beach Special Improvement District No. 95 -1 ( CIOSA) as formed by the City pursuant to the Code and as it may be amended from time to time. " CIOSA District Improvement Fund" means the fund established and maintained by or on behalf of the City separate and apart from its other funds and accounts into which money is to be deposited and from which money is to be expended as provided herein and as may be provided in an agreement by and between the City and The Irvine Company. " CIOSA District Improvement Fund Requirement" means, as of any date of calculation, the CIOSA Agreement Amount as of such date, less the total amount deposited in the CIOSA District Improvement Fund on or before such date from (a) proceeds from the sale of Bonds, (b) Special Taxes, (c) the prepayment of Special Taxes, (d) repayments from the City pursuant to Section 3.7 of the CIOSA Agreement and (e) earnings derived from the investment of amounts on deposit in the CIOSA District Improvement Fund. "City" means the City of Newport Beach. "City Council" means the City Council of the City of Newport Beach, acting as the legislative body of the CIOSA District, or its designee. "City Engineer" means the City Engineer of the City or such other person or firm as may from time to time be authorized and directed by the City Council to undertake the duties of the City Engineer hereunder. 9 "Code" means the City of Newport Beach Special Improvement District Financing Code. "Corporate Plaza" means that portion of the CIOSA District described in Exhibit A hereto. "Corporate Plaza West" means that portion of the CIOSA District described in Exhibit A hereto. "Debt Service Requirement" means for each Fiscal Year the sum of (a) one hundred percent (100 %) of the principal of and interest on Bonds coming due in the Bond Year which ends in the next subsequent Fiscal Year, except to the extent such principal or interest is expected to be paid from proceeds from the sale of Bonds or other amounts then available in the applicable debt service fund for such purpose, (b) the product of the amount described in clause (a) times the larger of (i) the rate of delinquency in the payment of the Special Tax during the Fiscal Year immediately preceding the Fiscal Year for which the Debt Service Requirement is being determined or (ii) ten percent (10 %), (c) the sum of all deposits then required to be made into any reserve fund established with respect to any Bonds, and (d) the reasonably estimated Administrative Expenses for the Bond Year referred to in clause (a). "Developed Property" means for any Fiscal Year all Taxable Property within a Zone in which is located an Assessor's Parcel for which a building permit (other than a building permit for a structure in a model home complex) was issued prior to May 1 of the preceding Fiscal Year. A -2 DOCSLAt:382805.5 S5 MM "Fair Share Fees Amount" means the total amount of the Fair Share Fees as defined in the CIOSA Agreement. "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Freeway Reservation" means that portion of the CIOSA District described in Exhibit A hereto "Frontage Improvements Amount" means the total cost of the Frontage Improvements as defined in the CIOSA Agreement. "Initial Final Subdivision Map" means for each Zone the first final subdivision map permitting the sale of lots for single family residential uses within the Zone. "Maximum Special Tax" means the highest Special Tax, determined in accordance with Sections C and H, that can be levied by the City Council on an Assessor's Parcel in any Fiscal Year. ,'Newport Village - PCH/MacArthur" means that portion of the CIOSA District described in Exhibit A hereto. "Newporter North" means that portion of the CIOSA District described in Exhibit A hereto. 0 "Parcel Area" means the square footage of an Assessor's Parcel determined by the City Engineer from the subdivision map or parcel map creating such Assessor's Parcel. E "Property Owner Association Property" means any Assessor's Parcel which is owned by a property owner association or which the City Engineer determines from the subdivision map or parcel map creating such Assessor's Parcel is intended to be so owned. "Proportionately" means, with respect to Developed Property, that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all Assessor's Parcels and, with respect to Undeveloped Property, means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all Assessor's Parcels. "Public Property" means any property within the boundaries of the CIOSA District owned by or dedicated to the federal government, the State of California, the City or any other public agency, provided that any leasehold or other possessory interest in such property (which leasehold or other possessory interest is not owned by a public agency) shall not be considered Public Property. "San Diego Creek" means that portion of the CIOSA District described in Exhibit A hereto. A -3 DOCRA1082805.5 5-5 mm "Share of Zone Area" shall mean: (1) in the case of an Assessor's Parcel within a Zone which contains no Single Family Residential Property, the quotient obtained by dividing the Parcel Area of the Assessor's Parcel by the Zone Area of the Zone; and (2) in the case of an Assessor's Parcel within a Zone which contains any Single Family Residential Property: (a) prior to the recordation of the Initial Final Subdivision Map, the quotient obtained by dividing the Parcel Area of the Assessor's Parcel by the Zone Area of the Zone; (b) from and after the recordation of the Initial Final Subdivision Map, but (in the case of any Assessor's Parcel within the Zone not included within the Initial Final Subdivision Map) prior to the recordation of a Subsequent Final Subdivision Map: (i) for each Assessor's Parcel included within the Initial Final Subdivision Map which is Taxable Property other than Single Family Residential Property, the quotient obtained by dividing the Parcel Area of the Assessor's Parcel by the sum of the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Taxable Property plus the aggregate area which the City Engineer estimates (pursuant to clause (iii) hereof), at the time Initial Final Subdivision Map is recorded, will be Taxable Property of all Assessor's Parcels not included within the Initial Final Subdivision Map; (ii) for each Assessor's Parcel included within the Initial Final Subdivision Map which is Single Family Residential Property, the product of a fraction the numerator of which is the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Single Family Residential Property and the denominator of which is the sum of the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Taxable Property plus the aggregate area which the City Engineer estimates (pursuant to clause (iii) hereof), at the time Initial Final Subdivision Map is recorded, will be Taxable Property of all Assessor's Parcels not included within the Initial Final Subdivision Map, times a fraction the numerator of which is one (1) and the denominator of which is the number of Assessor's Parcels included within the Initial Final Subdivision Map which are Single Family Residential Property; and (iii) for each Assessor's Parcel within the Zone not included within the Initial Final Subdivision Map, the quotient obtained by dividing the area of the portion thereof which the City Engineer estimates, at the time the Initial Final Subdivision Map is recorded, will be Taxable Property upon the subdivision thereof by the sum of the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Taxable Property plus the aggregate area which the City Engineer estimates, at the time Initial Final Subdivision Map is recorded, will be Taxable Property of all Assessor's Parcels within the Zone not included within the Initial Final Subdivision Map; and (c) subsequent to the recordation of each Subsequent Final Subdivision Map (in each case, for Assessor's Parcels within the Zone which had not theretofore A -4 DOCSIAL382805.5 5.5 MKH 0 9 0 been included within either the Initial Final Subdivision Map or a Subsequent Final Subdivision Map): (i) for each Assessor's Parcel included within such Subsequent Final Subdivision Map which is Taxable Property other than Single Family Residential Property, the product of a fraction the numerator of which is the Parcel Area of the Assessor's Parcel and the denominator of which is the actual total of the area of all the Assessor's Parcels included in such Subsequent Final Subdivision Map which are Taxable Property, times a fraction the numerator of which is the area which the City Engineer estimated would be Taxable Property pursuant to clause (b)(iii) of all the Assessor's Parcels included in such Subsequent Final Subdivision Map (as a whole, and not individually) and the denominator of which is the sum of the aggregate Parcel Area of all Assessor's Parcels described in clauses (b)(i) and (b)(ii) plus the aggregate area which the City Engineer estimated pursuant to clause (b)(iii) would be Taxable Property of all Assessor's Parcels within the Zone which were not included within the Initial Final Subdivision Map; (ii) for each Assessor's Parcel included within the Subsequent Final Subdivision Map which is Single Family Residential Property, the product of a fraction the numerator of which is the total Parcel Area of all Assessor's Parcels included within the Subsequent Final Subdivision Map which are Single Family Residential Property and the denominator of which is the actual total of the area of all the Assessor's Parcels included in such Subsequent Final Subdivision Map which are Taxable Property, times a fraction the numerator of which is the area which the City Engineer estimated would be Taxable Property pursuant to clause (b)(iii) of all the Assessor's Parcels included in such Subsequent Final Subdivision Map (as a whole, and not individually) and the denominator of which is the sum of the aggregate Parcel Area of all Assessor's Parcels described in clauses (b)(i) and (b)(ii) plus the aggregate area which the City Engineer estimated pursuant to clause (b)(iii) would be Taxable Property of all Assessor's Parcels within the Zone which were not included within the Initial Final Subdivision Map, times a fraction the numerator of which is I and the denominator of which is the number of Assessor's Parcels which are included within such Subsequent Final Subdivision Map and which are Single Family Residential Property; and (iii) for each Assessor's Parcel within the Zone which is not included within such Subsequent Final Subdivision Map, the quotient obtained by dividing the area of such Assessor's Parcel which the City Engineer estimated would be Taxable Property pursuant to clause (b)(iii) by the sum of the aggregate Parcel Area of all Assessor's Parcels described in clauses (b)(i) and (b)(ii) plus the aggregate area which the City Engineer estimated pursuant to clause (b)(iii) would be Taxable Property of all Assessor's Parcels within the Zone which were not included within the Initial Final Subdivision Map. "Single Family Residential Property" means all Assessor's Parcels which are used, or are permitted under the City's planning and zoning laws to be used, as the site of one single family dwelling unit (either detached or attached) or a condominium unit, provided that Single Family Residential Property shall not include any Assessor's Parcel which is Property Owner Association Property or Public Property. A -5 DCCSL 1:382805.5 5-5 MKH "Special Tax" means the Special Tax, if any, to be levied in each Fiscal Year on each Assessor's Parcel within the CIOSA District. "Special Tax Reduction" means the product of 0.69 times a fraction the numerator of which is $14,300,000 minus the Advance Amount and the denominator of which is $14,300,000. "Subsequent Final Subdivision Map" means for each Zone a final subdivision map permitting the sale of lots for single family residential uses within the Zone which is recorded subsequent to the Initial Final Subdivision Map. "Taxable Property" means all of the Assessor's Parcels within the boundaries of the CIOSA District which are not exempt from the Special Tax pursuant to law or Section E below. "Undeveloped Property" means for any Fiscal Year all Taxable Property which is not classified as Developed Property for such Fiscal Year. "Upper Castaways" means that portion of the CIOSA District described in Exhibit A hereto. "Zone" means Bayview Landing, Block 800, Corporate Plaza, Corporate Plaza West, Freeway Reservation, Newport Village - PCH/MacArthur, Newporter North, San Diego Creek or Upper Castaways, as the case may be. "Zone Area" means the sum of the Parcel Area of each Assessor's Parcel of Taxable . Property included in such Zone. "Zone Prepayment Amount" means the respective amount set forth in the following table minus the product of such amount times the Special Tax Reduction, if any: Zone Prepayment Amount Bayview Landing $ 95,000 Block 800 1,370,000 Corporate Plaza 1,400,000 Corporate Plaza West 1,925,000 Freeway Reservation 1,585,000 Newport Village - PCH/MacArthur 2,575,000 Harbor Cove 7,950,000 San Diego Creek 2,890,000 Upper Castaways 6,960,000 "Zone Special Tax" means, for Fiscal Year 1995 -96, the respective amount set forth in the following table and, for each Fiscal Year subsequent to Fiscal Year 1995 -96, one hundred two percent (102 %) of the amount for the preceding Fiscal Year, minus in each case the product of such amount (as increased in each Fiscal Year) times the Special Tax Reduction, if any. A -6 DCCS A1382805.5 5 -5 MKH . Zone Bayview Landing Block 800 Corporate Plaza Corporate Plaza West Freeway Reservation Newport Village - PCH/MacArthur Harbor Cove San Diego Creek Upper Castaways B. Determination as to Type of Property Special Tax $ 7,200 105,350 107,572 147,911 121,830 197,855 610,900 222,300 534,786 For each Fiscal Year, all Taxable Property within the CIOSA District shall be classified as Developed Property or Undeveloped Property and shall be subject to the Special Tax in accordance with the rate and method of apportionment determined pursuant to Sections C, D and H below. C. Maximum Special Tax Rate The Maximum Special Tax in each Fiscal Year for an Assessor's Parcel of Taxable Property shall be the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Special Tax then applicable to the Zone in which such Assessor's Parcel is located. Notwithstanding the foregoing, the Maximum Special Tax for an Assessor's Parcel shall be reduced to reflect a prepayment of the Special Tax applicable thereto as provided for in Section H. D. Method of Apportionment of Special Tax For each Fiscal Year, commencing with Fiscal Year 1995 -96 until the earlier of (i) the date on which the CIOSA District Improvement Fund Requirement has been reduced to zero and there are no Bonds outstanding, or (ii) June 30, 2036, the City Council shall levy the Special Tax as follows: First: Until the CIOSA District Improvement Fund Requirement has been reduced to zero, the Special Tax shall be levied on each Assessor's Parcel of Developed Property at a rate equal to its Maximum Special Tax; Second: To the extent additional money is needed in order to equal the Debt Service Requirement prior to the reduction of the CIOSA District Improvement Fund Requirement to zero, the Special Tax shall be levied Proportionately on all Undeveloped Property in an amount not in excess of the Maximum Special Tax; Third: After the CIOSA District Improvement Fund Requirement has been reduced to zero, the Special Tax shall be levied Proportionately on each Assessor's Parcel of Developed Property such that the total thereof will equal the Debt Service Requirement, provided, however, A -7 DOCSLA1J82805.5 5 -5 MKH that in no event shall the amount of the Special Tax so levied exceed the Maximum Special Tax; and Fourth: After the CIOSA District Improvement Fund Requirement has been reduced to zero, to the extent additional money is needed in order to equal the Debt Service Requirement, the Special Tax shall be levied Proportionately on all Undeveloped Property, provided, however, that in no event shall the amount of the Special Tax so levied exceed the Maximum Special Tax. E. Exemptions The City Council shall not levy a Special Tax on either (a) Property Owner Association Property, except the Property Owner Association Property within a Zone which was included in the estimate of Taxable Property made pursuant to clause (b)(iii) of the definition of "Share of Zone Area" and which first became Property Owner Association Property subsequent to the date of recordation of the Initial Final Subdivision Map or (b) Public Property, except the Public Property within a Zone which was included in the estimate of Taxable Property made pursuant to clause (b)(iii) of the definition of "Share of Zone Area" and which first became Public Property subsequent to the date of recordation of the Initial Final Subdivision Map as a result of acquisition through a negotiated transaction (other than the CIOSA Agreement) or by gift or devise or through eminent domain proceedings, provided that in the case of such property acquired through eminent domain proceedings the obligation to pay the Special Tax shall be treated as if it were a special annual assessment. F. Appeals 0 Any landowner or resident who feels that the amount of the Special Tax is in error may file a notice with the CIOSA District appealing the amount of the Special Tax; provided, however, that if Bonds are outstanding any appeal must be accompanied by payment in full of the actual Special Tax levied. A representative of the CIOSA District will then review the appeal and, if necessary, meet with the applicant. If the findings of the CIOSA District representative verify that the amount of the Special Tax should be modified or changed, then, as appropriate, the Special Tax levy shall be corrected, or if the amount has been paid, then it shall be refunded from available Special Taxes levied and collected in the following Fiscal Year. G. Manner of Collection The Special Tax will be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, the CIOSA District may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations and may covenant to foreclose on delinquent parcels as permitted by the Code. H. Prepayment of Special Tax 1. Prior to Issuance of Bonds - Developed Property and Undeveloped Property: Prior to the initial issuance of Bonds, the Special Tax applicable to any Assessor's Parcel may be prepaid in whole by paying to the City Treasurer seventy -seven percent (77 %) of the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located. Prior to A -8 DOCSLA1:382805.5 5.5 MKH . the initial issuance of Bonds, the Special Tax applicable to any Assessor's Parcel may be prepaid in part by paying to the City Treasurer a specific dollar amount in lieu of the amount determined pursuant to the preceding sentence; and from and after the City Treasurer's receipt of such partial prepayment, the Maximum Special Tax applicable to such Assessor's Parcel shall be the product of the Maximum Special Tax which would have otherwise been applicable thereto times a fraction the numerator of which is the specific amount paid in lieu of the amount described in the first sentence of this paragraph and the denominator of which is the amount described in said sentence. 2. After Issuance of Bonds - Undeveloped Property If Test Met: Subsequent to the initial issuance of Bonds, if the aggregate amount of the Special Taxes applicable to all Developed Property is sufficient to satisfy the Debt Service Requirement for the Bonds then outstanding in the then current Fiscal Year and each Fiscal Year thereafter (determined without any credit for capitalized interest), the Special Tax applicable to any Assessor's Parcel which is then classified as Undeveloped Property may be prepaid in whole by paying to the City Treasurer seventy -seven percent (77 %) of the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located. Under the circumstances described in the preceding sentence, the Special Tax applicable to any Assessor's Parcel may be prepaid in part by paying to the City Treasurer a specific dollar amount in lieu of the amount determined pursuant to the preceding sentence; and from and after the City Treasurer's receipt of such partial prepayment, the Maximum Special Tax applicable to such Assessor's Parcel shall be the product of the Maximum Special Tax which would have otherwise been applicable thereto times a fraction the numerator of which is the specific amount paid in lieu of the amount described in the first sentence of this paragraph and the denominator of which is the amount described in said sentence. 3. After Issuance of Bonds - Developed Property and Undeveloped Property If Test Not Met: Except as otherwise provided in the preceding two paragraphs, the Special Tax applicable to any Assessor's Parcel may be prepaid in whole by paying to the City Treasurer the sum of: (a) The remainder of (i) the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located minus (ii) the portion of said product which would have been amortized as principal through the application of the portion of the Special Taxes attributable to the principal of and interest on Bonds theretofore paid with respect to said Assessor's Parcel (as determined by the City Treasurer) assuming that said product had borne interest at an annual rate equal to the highest rate bome by any Bond (or, if no Bond is then outstanding, nine percent (9 %)) and that it had been payable in annual installments (each of which is two percent (2 %) larger than the prior year's installment) over the same number of years as the Bond with the longest maturity, measured from the date of issuance of such Bond (or, if no Bond is then outstanding, twenty -five (25) years); provided that, in the case of an Assessor's Parcel which is then classified as Developed Property, the remainder referred to in the previous clause of this subparagraph shall be reduced by twenty- -three percent (23 %) of the . product obtained by multiplying (iii) the Share of Zone Area for such Assessor's Parcel times (iv) a fraction the numerator of which is the Zone Prepayment Amount applicable to the Zone in A -9 DCICS1A1:382805.5 5.5 MKH which such Assessor's Parcel is located and the denominator of which is the aggregate Zone Prepayment Amounts for all Zones which then include Developed Property times (v) the amount, if any, by which the aggregate Zone Prepayment Amounts for all Zones which then include Developed Property exceeds the aggregate principal amount of Bonds then outstanding; and (b) The amount of any delinquent Special Taxes applicable to said Assessor's Parcel, together with penalties, interest, and Administrative Expenses incurred as a result of said delinquencies accrued to the date of prepayment; and (c) An amount equal to the product of the amount determined pursuant to paragraph (a) above times the highest redemption premium applicable to any Bond at the next call date (as defined in paragraph (e) below); and (d) A reasonable fee, fixed by the City Treasurer, for the cost of administering the prepayment and, if applicable, the advance redemption of Bonds; and (e) Interest to the next call date on the amount determined pursuant to paragraph (a) above, computed at the highest interest rate then applicable to any Bond. For purposes of this paragraph and paragraph (c) above, the next call date is the next Bond interest payment date which is not less than 90 days after the date of prepayment. A credit against the foregoing shall be given, or a refund paid, for the Special Tax applicable to said Assessor's Parcel posted to the current tax roll and actually paid. The Special Tax applicable to any Assessor's Parcel may be prepaid in part by paying to the City Treasurer a portion (in increments of five thousand dollars ($5,000)) of the amount determined pursuant to paragraph (a) above plus the respective amounts relative thereto described in paragraphs (b) through (e) above. From and after the City Treasurer's receipt of any such partial prepayment, the Maximum Special Tax applicable to such Assessor's Parcel shall be the product of the Maximum Special Tax which would have otherwise been applicable thereto times a fraction the numerator of which is the specific amount paid in lieu of the amount described in paragraph (a) above and the denominator of which is the amount described in paragraph (a) above. 9 A -10 DCCS1A1:382805.5 5 -5 MKH 0 LJ Exhibit A NEWPORT BEACH CIOSA ASSESSOR PARCELS Upper Castaways Bayview Landing Newporter North San Diego Creek Corporate Plaza West Corporate Plaza Block 800 Newport Village - PCH/MacArthur Freeway Reservation DOCSI.A1:382805.5 5 -5 MKri A -1 I 117 - 801 -12 440- 132 -06 440 - 132 -08 440 - 132 -21 440 - 132 -24 442 - 061 -09 442 - 061 -11 442 - 061 -14 442-011-54 442 - 271 -09 442 - 271 -10 442 - 271 -11 442 - 271 -12 442-271-19 442 - 271 -26 442 - 262 -04 442 - 014 -28 442- 272 -03 442 - 272 -04 458 - 142 -08 APPENDIX B PROPOSED FORM OF OPINION OF BOND COUNSEL 0 0 DOCSLA1:382805.5 5 -5 MKH 13-1 9 1 J E APPENDIX C SUMMARY OF THE INDENTURE The following is a brief summary of certain provisions of the Indenture not otherwise described in the text of this Official Statement under the headings "Introduction," "The Series A Bonds," and "Security for the Series A Bonds." Such summary is not intended to be definitive, and reference is made to the text of the Indenture for the complete terms thereof. DOCSLAI:3828055 5.5 MKH C -1 APPENDIX D BOOK -ENTRY ONLY SYSTEM DTC 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 securities that its participants (the "Participants ") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. 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 that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of the Series A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series A Bonds on DTC's records. The ownership interest of each actual purchaser of each Series A 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, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which Beneficial Owners entered into the transaction. Transfers of ownership interests in the Series A Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series A Bonds, except in the event that use of the book -entry system for the Series A Bonds is discontinued. To facilitate subsequent transfers, all Series A Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Series A Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series A Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 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. 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 which may be in effect from time to time. DOCSI.A092805.5 s•e NWH D -1 • Redemption notices will be sent to Cede & Co. 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. Neither DTC nor Cede & Co. will consent or vote with respect to the Series A Bonds. 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 Series A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, mandatory sinking fund payments and interest payments on the Series A Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on 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 date payable. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the District subject to any statutory or regulatory requirements which may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the District or 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 District, the County and the Underwriter cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium with respect to the Series A 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 timely basis or will serve and act in the manner described in this Official Statement. The District, the County and the Underwriter are not responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Series A Bonds or an error or delay relating thereto. The foregoing description of the procedures and record - keeping with respect to beneficial ownership interests in the Series A Bonds, payment of principal, interest and other payments on the Series A Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Series A Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners 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. DTC may discontinue providing its services with respect to the Series A Bonds at any time by giving notice to the Trustee and discharging its responsibilities with respect thereto under applicable law or the District may terminate participation in the system of book -entry transfers through DTC or any other securities depository at any time. In the event that the book- DOCSLA1:382805.5 5.5 MKH D -2 entry system is discontinued, replacement Series A Bond certificates will be printed and . delivered. • s DMI- AW82805.5 5 -5 MKH D -3 0 • APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT DOCSI.A1382805.5 5 -5 MKH E -1 APPENDIX F 0 FORM OF MUNICIPAL BOND INSURANCE POLICY 0 • DOCSL 1382805.5 5 -5 NIKH F -1 0 E An extra section break has been inserted above this paragraph. Do not delete this section break if you plan to add text after the Table of Contents /Authori ties. Deleting this break will cause Table of Contents /Authori ties headers and footers to appear on any pages following the Table of Contents /Authorities. DOCSLA1:782805.5 s -s MKH E-1 CONTINUING DISCLOSURE AGREEMENT by and between CITY OF NEWPORT BEACH and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee Dated as of 1,2001 Relating to City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A DOCSi.A1:382696 3 41670 -5 GH1 0 0 0 CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement ") is made and entered into as of 1, 2001, by and between U.S. TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as Trustee (the "Trustee "), and the CITY OF NEWPORT BEACH, a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of Californiaand its Charter (the "City "); WITNESSETH: WHEREAS, pursuant to the Indenture, dated as of 1, 2001 (the "Indenture "), by and between the City and the Trustee, the City has issued its Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Series A Bonds ") in the aggregate principal amount of $ ;and WHEREAS, this Disclosure Agreement is being executed and delivered by the City and the Trustee for the benefit of the holders and beneficial owners of the Series A Bonds and in order to assist the underwriters of the Series A Bonds in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. In addition, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections and 3 hereof. "Annual Report Date" means the date in each year that is eight months after the end of the City's fiscal year, which date, as of the date of this Disclosure Agreement, is March 1. "Disclosure Representative" means the Director of Administrative Services of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee from time to time. "Dissemination Agent" means the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the Trustee a written acceptance of such designation. "District" means the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA). 0 "Listed Events" means any of the events listed in Section 4(a) hereof. D0CSLAI:38?696.3 41670.5 GHI "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Official Statement" means the Official Statement, dated 2001, relating to the Series A Bonds. "Participating Underwriter" means any of the original underwriters of the Series A Bonds required to comply with the Rule in connection with offering of the Series A Bonds. "Repository" means each National Repository and each State Repository. "Rule" means Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, provide to each Repository an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2000 -01 fiscal year. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3 hereof, provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 4(f) hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the City shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the City and the Dissemination Agent to determine if the City is in compliance with the first sentence of this subsection (b). (c) If the Trustee is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Trustee shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; n005LA1382696.3 416705 GH I 2 provide any Annual Report received by it to each Repository, as provided herein; and (iii) file a report with the City and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. (e) The City shall, or if received by the Dissemination Agent, the Dissemination Agent shall, provide an Annual Report to each Participating Underwriter described on Exhibit B attached hereto at the time such Annual Report is provided to the Repositories in accordance with this Section. Section 3. Content of Annual Report s. The City's Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to that used for the City's audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) The following information: (i) The principal amount of Series A Bonds Outstanding as of the September 30 next preceding the Annual Report Date and the principal amount of any Additional Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the September 30 next preceding the Annual Report Date. (iii) The total assessed value of all parcels within the District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, and a statement of assessed value -to -lien ratios therefor by Rate and Method land use categories and land use classes substantially in the form of Table _ of the Official Statement. (iv) The Special Tax delinquency rate for all parcels within the District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the number of parcels within the District on which the Special Taxes are levied and which are delinquent in payment of Special Taxes, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, and, if the Special Tax delinquency rate for all parcels DOCSLAIc382(,96.3 41670.5 Gill 3 within the District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, is greater than 3 %, the amount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the District; provided, however, that parcels with aggregate delinquencies of $2,000 or less (excluding penalties and interest) may be grouped together and such information may be provided by category. (v) The status of foreclosure proceedings for any parcels within the District on which the Special Taxes are levied and a summary of the results of any foreclosure sales as of the September 30 next preceding the Annual Report Date. (vi) The identity of any property owner representing more than 5% of the annual Special Tax levy who is delinquent in payment of such Special Taxes, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date. (vii) A land ownership summary listing property owners responsible for more than 1% of the annual Special Tax levy, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, a summary of the Special Taxes levied on the property within the District owned by such property owners, and the assessed value of such property, as shown on such assessment roll. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 4. Reportingof Significant Events. (a)Pursuant to the provisions of this Section, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series A Bonds, if material: (i) Principal and interest payment delinquencies. Non - payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. 0 DOCSI.A1:362696.3 41670.5 GH 1 4 (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax - exempt status of the security. (vii) Modificationsto rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Ratingchanges. (b) The Trustee shall, within one business day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the City promptly notify the Trustee in writing whether or not to report the event pursuant to subsection (f). • (c) Whenever the City obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (d) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly notify the Trustee in writing. Such notice shall instruct the Trustee to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the City determines that the Listed Event would not be material under applicable Federal securities law, the City shall so notify the Trustee in writing and instruct the Trustee not to report the occurrence pursuant to subsection (f). (f) If the Trustee has been instructed by the City to report the occurrence of a Listed Event, the Trustee shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository and shall provide a copy of such notice to each Participating Underwriter described on Exhibit B attached hereto. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Series A Bonds pursuant to the Indenture. Section 5. Termination of Reporting Obligation. The City's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Series A Bonds. If such termination occurs prior to the final maturity of the Series DOCS1.A1382696.3 41670-5 GHt 5 A Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 4(f) hereof. Section 6. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Section 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the City), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to Sections 2(a), 3 or 4(a) hereof it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Series A Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Series A Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver (i) is approved by holders of the Series A Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of holders. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial statements or information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositoriesin the same manner as for a Listed Event under Section 4(f) hereof. 0 DOCSLA1:382696.3 41670-5 c111 6 Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. if the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 9. Default. In the event of a failure of the City or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series A Bonds, shall), or any holder or beneficial owner of the Series A Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performanceby court order, to cause the City or Trustee, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination Avent. • Article Vlll of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. E Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Trustee, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Series A Bonds, and shall create no rights in any other person or entity. Section 12. Counternarts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. DOCSLA1:162696.1 41670 -5 GHt 7 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. CITY OF NEWPORT BEACH 0 U.S. TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE LN DOCS V+I:3 &2696.3 416745 G H I Authorized Officer • F-4 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Newport Beach Name of Bond Issue: City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A Date of Issuance: 2001 NOTICE IS HEREBY GIVEN that the City of Newport Beach (the "City ") has not provided an Annual Report with respect to the above -named Bonds as required by Section 6.09 of the Indenture, dated as of 1, 2001, by and between the Fiscal Agent and the City. The City anticipates that the Annual Report will be filed by Dated: cc: City of Newport Beach DOCSLA 1:352695.3 4167a5 Gru A -I U.S. TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee, on behalf of the City of Newport Beach EXHIBIT B 9 PARTICIPATING UNDERWRITERS Stone & Youngberg LLC 50 California Street, 35 " Floor San Francisco, California 94111 Attention: Research Department 0 DOCSLAi:382696.3 41670 -5 G141 B -t OH &S 6/25/01 Draft CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX REFUNDING BONDS, SERIES A PURCHASE CONTRACT , 2001 City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: Director of Administrative Services Ladies and Gentlemen: The undersigned, Stone & Youngberg LLC, as underwriter (the "Underwriter "), offers to enter into this Purchase Contract (the "Purchase Contract ") with the City of Newport Beach (the "City ") which, upon acceptance by the City, will be binding upon the City and the Underwriter. This offer is made subject to the City's acceptance on the date hereof, and if not so accepted will be subject to withdrawal by the Underwriter upon written notice delivered to the City at any time prior to the acceptance hereof by the City. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Indenture (defined below). 1. Purchase, Sale and Delivery of the Series A Bonds. (a) Subject to the terms and conditions, and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase from the City, and the City hereby agrees to sell to the Underwriter, all (but not less than all) of the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Series A Bonds "), dated August 1, 2001, in the aggregate principal amount of $ , bearing interest (payable commencing March 1, 2002, and semiannually thereafter on March 1 and September 1 in each year) at the rates of interest, and maturing on the dates and in the amounts, as set forth in Exhibit A attached hereto and incorporated herein by this reference. The purchase price for the Series A Bonds shall be $ (representing the principal amount of the Series A Bonds, plus a net original issue premium of $ , less an underwriter's discount of $ plus accrued interest). The Series A Bonds shall be as described in, shall be issued and secured under the provisions of and shall be payable and subject to redemption as provided in that Indenture (the "Indenture "), dated as of 1, 2001, by and between the City and U.S. Trust Company, National Association, a national banking association organized and existing under the laws of the United States, as trustee (the "Trustee "). Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. DOCSLA1:366334.5 40484 -61 GH 1 DCXSLA1337390.1 5 -5 MKI-f OH &S 6/25/01 Draft The City Council of the City formed the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act ") and Resolution No. 95 -74 of the City Council adopted on June 12, 1995. The Series A Bonds, and interest thereon, will be payable from the proceeds of a special tax (the "Special Tax ") levied and collected in accordance with the Act, the Indenture, the Rate and Method of Apportionment of Special Tax for the District (the "District Rate and Method "), together with proceeds collected from the sale of property for the delinquency of such Special Taxes, less amounts set aside to pay Administrative Expenses (collectively, the "Net Taxes "), and other amounts in the Special Tax Fund (exclusive of the Administrative Expense Account) held by the Treasurer -Tax Collector of the County pursuant to the Indenture. Proceeds of the sale of the Series A Bonds will be used (i) to refund all of the District's outstanding Series A of 1990 Special Tax Bonds (the "Series 1990 Bonds "), (ii) to fund a reserve account for the Series A Bonds, and (iii) to pay the costs of issuing the Series A Bonds, all in accordance with and as prescribed by the Indenture and the Act. The Series 1990 Bonds were issued pursuant to the Fiscal Agent Agreement, dated as of December 1, 1995, by and between the City and U.S. Trust Company of California, N.A., as Fiscal Agent, as amended and supplemented by the First Supplemental Fiscal Agent Agreement, dated as of June 1, 1997, by and between the City and U.S. Trust Company of California, N.A. (collectively, the "Fiscal Agent Agreement'). (b) The Preliminary Official Statement, dated July _, 2001 relating to the Series A Bonds, together with the cover page and all appendices thereto, is herein referred to as the "Preliminary Official Statement." The City hereby ratifies the use by the Underwriter of the Preliminary Official Statement and authorizes the Underwriter to use and distribute the Preliminary Official Statement, the Official Statement (as defined below), the Indenture, the Continuing Disclosure Agreement (defined below) and this Purchase Agreement, and all information contained therein, in connection with the offer and sale of the Series A Bonds by the Underwriter. The term "Official Statement" shall mean the Preliminary Official Statement, as modified with the prior approval of the Underwriter and the City, for use by the Underwriter in connection with the sale of the Series A Bonds. (c) Subject to preparation of the Official Statement with the assistance of the Underwriter, the City shall deliver or cause to be delivered to the Underwriter promptly after acceptance hereof copies of the Official Statement. The City shall deliver as many copies of the Official Statement to the Underwriter as are reasonably requested by the Underwriter in order to comply with Rule 15c2 -12 promulgated under the Securities Exchange Act of 1934 ( "Rule 15c2- 12"). The City shall deliver these copies to the Underwriter within seven (7) business days after the execution of this Purchase Agreement. (d) At 8:00 A.M., California, on August , 2001, or at such other time or date as shall be agreed upon by the Underwriter and the City (such time and date being herein referred to as the "Closing Date "), the City shall deliver to the Underwriter, at a location or locations to be designated by the Underwriter, the Series A Bonds in book -entry form (all Series A Bonds being printed or typed and having had the CUSIP numbers assigned to them thereon), duly executed as provided in the Indenture, and the other documents herein mentioned; and the Underwriter will accept such delivery and pay the purchase price of the Series A Bonds as set forth in paragraph (a) of this section in immediately available funds (such delivery and payment being herein referred to as the "Closing "). The Series A Bonds shall be made available to the Underwriter, or its designee, DOCSLA 1:366334.5 40484 -61 GH I 2 DOCSLAI: 187390.1 5 -5 .MKH OH &S 6(25(01 Draft not later than two business days before the Closing Date for purposes of inspection. Upon initial issuance, the ownership of such Series A Bonds shall be registered in the registration books kept by the Trustee in the name of Cede & Co., as the nominee of The Depository Trust Company. 2. Representations, Warranties and Aereements of the City. The City hereby represents and warrants to and agrees with the Underwriter that: (a) The City is duly organized and validly existing as a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California (the "State ") and its charter; (b) The City Council of the City formed the District under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act ") and Resolution No. 95 -74 of the City Council adopted on June 12, 1995; (c) The City Council had and has the full legal right, power and authority to execute and deliver the Indenture, and the City has, and at the Closing Date will have, full legal right, power and authority (i) to execute, deliver and perform its obligations under this Purchase Agreement, the Continuing Disclosure Agreement, dated as of 1, 2001 (the "Continuing Disclosure Agreement ") , by and between the City and U.S. Trust Company, National Association, as trustee and as dissemination agent thereunder (the "Dissemination Agent ") and the Escrow Agreement, dated as of 1, 2001 (the "Escrow Agreement" and, together with this Purchase Agreement and the Continuing Disclosure Agreement, the "City Documents ") between the City and U.S. Trust Company, National Association, as escrow bank (the "Escrow Bank "), and to carry out all other transactions on its part contemplated by the Indenture and the City Documents, (ii) to issue, sell and deliver the Series A Bonds to the Underwriter pursuant to the Indenture as provided herein, (iii) to secure the Series A Bonds in the manner contemplated in the Indenture, and (iv) to carry out, give effect to and consummate the transactions on its part contemplated by the Series A Bonds, the Indenture and the City Documents, and the City and the City Council have complied with all provisions of applicable law, including the Act, in all matters relating to such transactions; (d) The City is, and at the Closing Date will be, in compliance, in all respects, with its obligations under the Indenture, the City Documents and the Act; (e) The City Council has duly authorized (i) the execution, delivery and due performance by the City of its obligations under the Series A Bonds and the City Documents, (ii) the delivery and use of the Preliminary Official Statement and the execution, delivery and use of the Official Statement, and (iii) the taking of any and all action on the part of the City as may be necessary to carry out, give effect to and consummate the transactions on the part of the City contemplated by the City Documents, the Indenture and the Official Statement; (f) At the Closing Date, the Series A Bonds, the Indenture and the City Documents (assuming due authorization, execution and delivery by the other parties thereto, where necessary) will constitute the valid, legal and binding obligations of the City, DOCSLA 1:366334.5 40484 -61 GH 1 3 DCCSLA1337390.1 5 -5 SIKH OH &S 6/25/01 Draft enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (g) The [adoption by the City Council of Resolution No. 95 -74 of the City Council adopted on June 12, 1995 did not, and the execution and delivery by the City of the Series A Bonds, the Indenture and the City Documents, and compliance by the City with the provisions hereof and thereof, will not, conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract agreement or other instrument to which the City is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the performance by the City of its obligations under the Series A Bonds, the City Documents or the Indenture; (h) All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the City of its obligations under the Series A Bonds, the City Documents or the Indenture, have been obtained and are in full force and effect; provided that no representation is made as to any necessary "blue sky" • filings; (i) The City has deemed the Preliminary Official Statement to be near final as of the date of the Preliminary Official Statement, as required by Rule 15c2 -12. As of the date hereof, the information contained in the Preliminary Official Statement does not and, on the Closing Date, the information in the Official Statement 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 the statements therein, in light of the circumstances under which they were made, not misleading; 0) If between the date of this Purchase Agreement and the date 25 days following the end of the "underwriting period" (as defined in Rule 15c2 -12) an event occurs, of which the City has knowledge, which might or would cause the information 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, 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 for such preparation will be paid for by the City; DOCSLA1:366334.5 40484 -61 GH1 4 DMI.A]:187390.1 5 -5 MKH OH &S 6/25/01 Draft (k) Except as discussed in the Preliminary Official Statement, and except as shall be discussed in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body to which the City is a party and has been served with a summons or other notice thereof is pending or to the best knowledge of the City, is threatened, in any way affecting the existence of the City or the titles of the City's officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Series A Bonds, the application of the proceeds thereof in accordance with the Indenture, or the collection or application of the Special Tax or the proceeds thereof pledged or to be pledged to pay the principal of and interest on the Series A Bonds, or in any way contesting or affecting the validity or enforceability of the Series A Bonds, the City Documents, the Indenture or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or the powers of the City or its authority with respect to the Series A Bonds, the City Documents, the Indenture or any action of the City contemplated by any of said documents that would have a material adverse effect on the City's ability to perform its obligations under the City Documents or the Indenture, or which would adversely affect the exemption of interest paid on the Series A Bonds from federal income taxation or California personal income taxation, nor to the knowledge of the City is there any basis therefor; (1) The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter to qualify the Series A Bonds for offer and sale under the "blue sky" or other securities laws and regulations of such states and other jurisdictions • of the United States as the Underwriter may designate; provided, however, the City shall not be required to register as a dealer or a broker of securities or consent to service of process or register as a foreign corporation in any such state or jurisdiction; (m) Any certificate signed by any person on behalf of the City authorized to do so and delivered by the City to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the statements made therein; (n) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon; (o) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series A Bonds to be applied in a manner other than as provided in the Indenture or which would cause the interest on the Series A Bonds to be includable in gross income for federal income tax purposes; (p) The City will undertake, pursuant to the Indenture and the Continuing Disclosure Agreement, to provide annual financial reports and notices of certain events, if material. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement, which description may take the form of the full text of the Continuing Disclosure Agreement; and DOCSLA 1:366334.5 40484 -61 GHI 5 DCKSLAI337390.1 5 5 MKH OH &S 6/25/01 Draft (q) The Bonds are payable from the Net Taxes (as defined in the Indenture) which have been duly and validly authorized pursuant to the Act and the Special Taxes will be fixed and levied in an amount which, together with other available funds, is required for the payment of the principal of, and interest on, the Bonds when due and payable, for the replenishment of the Series A of 2001 Bonds Subaccount in the Reserve Account, if required, and for the payment of the Administrative Expenses of the City, all as provided in the Indenture. The City intends to cause the Special Taxes to be levied and collected at the same time and in the same manner as ordinary ad valorem property taxes and, under the terms of the Act, the Special Taxes are currently subject to the same penalties in case of delinquency as provided for ad valorem taxes. (r) The Indenture creates a valid pledge of the Net Taxes and the moneys in the Special Tax Fund (except for the Administrative Expense Account therein), subject in all cases to the provisions of the Indenture permitting application thereof for the purposes and on the terms and conditions set forth therein. (s) Except as disclosed in the Preliminary Official Statement, there are, to the best of the City's knowledge, after reasonable and diligent investigation of records made available by the County of Orange, no entities with outstanding assessment liens against any of the properties within the City which are senior to or on a parity with the Special Taxes referred to in paragraph (q) hereof. 3. Conditions to the Obligation of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Series A Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the City contained herein, as of the date hereof and as of the Closing Date, to the accuracy in all material respects of the statements of the officers and other officials of the City and other persons and entities made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the City of its obligations to be performed hereunder at or prior to the Closing Date and to the following additional conditions (any of which may be waived by the Underwriter): (a) At the Closing Date, the Indenture shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Series A Bonds and with the transactions contemplated thereby and by this Purchase Agreement, all such actions as, in the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel for the City, shall be necessary and appropriate; (b) Between the date hereof and the Closing Date, the market price or marketability of the Series A Bonds at the initial offering prices shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the City terminating the obligation of the Underwriter to accept delivery of and pay for the Series A Bonds), by reason of any of the following: (1) legislation shall have been enacted by the United States or the State of California or shall have been reported out of committee or be pending in DOCSLA I :366334.5 40484 -61 GH I 6 DC) SLAI:i37350.1 5 -51NIKH OH &S 6/25/01 Draft committee, or a decision shall have been rendered by a court of the United States or the Tax Court of the United States, or a ruling shall have been made or a regulation or a temporary regulation shall have been proposed or made or any other release or announcement shall have been made by the Treasury Department of the United States or the Internal Revenue Service, with respect to Federal or California taxation upon interest received on obligations of the general character of the Series A Bonds, which in the reasonable opinion of the Underwriter materially adversely affects the market for the Series A Bonds; (2) the occurrence of any outbreak of hostilities or other national or international calamity or crisis, or the escalation of an existing national or international calamity or crisis, the effect of such outbreak, calamity or crises on the financial markets of the United States being such as would make it impracticable, in the reasonable opinion of the Underwriter, for the Underwriter to sell the Series A Bonds; (3) a general suspension of trading on the New York Stock Exchange or other minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on the New York Stock Exchange or any other exchange, whether by virtue of a determination by the New York Stock Exchange or such other exchange or by orders of the Securities and Exchange Commission or any other governmental authority; (4) declaration of a general banking moratorium shall have been declared by either Federal, California or New York authorities having jurisdiction and be in force; (5) establishment of any new restrictions on securities materially affecting the free market for securities (including the imposition of any limitations on interest rates) or the charge to the net capital requirements of the Underwriter established by the New York Stock Exchange, the Securities and Exchange Commission, any other Federal or state agency or the Congress of the United States, or by Executive Order; (6) legislation enacted (or resolution passed) by the Congress of the United States of America, or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Series A Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Series A Bonds, or of the Series A Bonds, including any or all DOCSLA I :366334.5 40484 -61 GH 1 7 IXXS1A7337390.1 5 -5 MKH 0 0 OH &S 6/25/01 Draft underlying arrangements, as contemplated hereby or by the Official Statement, is or would be in violation of the Federal securities laws as amended and then in effect; (7) any amendment to the federal or California Constitution or action by any federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the City, its property, income or securities (or interest thereon), the validity or enforceability of the Special Tax or the ability of the City, to issue the Series A Bonds and levy the Special Tax as contemplated by the Indenture, the Rate and Method, and the Official Statement; (8) any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Preliminary Official Statement or the Official Statement, or results in the Preliminary Official Statement or the Official Statement containing any untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (9) the entry of an order by a court of competent jurisdiction which enjoins or restrains the County of Orange or the City, as applicable, from issuing permits, licenses or entitlements within the District or which order, in the reasonable opinion of the Underwriter, otherwise materially and adversely affects the proposed development within the District; (c) On or prior to the Closing Date, the Underwriter shall have received counterpart originals, or certified copies, of the following documents, in each case satisfactory in form and substance to the Underwriter: (1) One copy certified by a duly authorized officer of the City of the Indenture, together with a certificate dated as of the Closing Date of a duly authorized officer of the City to the effect that such copy is a true, correct and complete Indenture duly adopted by the City Council and that the Indenture has not been amended, modified or rescinded since adoption and is in full force and effect as of the Closing Date; (2) Executed copies of the City Documents; (3) An approving opinion, dated the Closing Date and addressed to the City, of Orrick, Herrington & Sutcliffe LLP, Bond Counsel for the City, in form and substance as attached as Appendix B to the Official Statement; (4) A supplemental opinion, dated the Closing Date and addressed to the Underwriter, of Orrick, Herrington & Sutcliffe LLP, Bond Counsel for the City, in substantially the form attached hereto as Exhibit B; • DOCSLA1:366334.5 40484 -61 GHI 8 DOCS1A1:137390.1 5 -5 M K11 OH &S 6/25/01 Draft (5) An opinion, dated the Closing Date and addressed to the Underwriter, of the City Attorney, in form and substance acceptable to the Underwriterto the effect that: (i) the City is duly organized and validly existing as a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California (the "State ") and its charter; (ii) the City has duly organized and validly established the District in accordance with and by virtue of the Constitution and laws of the State of California (the "State ") and its charter; (ii) the City has duly and validly executed and delivered the Indenture, and the Indenture is now in full force and effect; (iii) the City has duly and validly executed and delivered the Series A Bonds and the City Documents, and the Series A Bonds, the City Documents and the Indenture each constitute the legal, valid and binding obligations of the City enforceable against the City in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (iv) except as disclosed in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body to which the City is a party and has been served with a summons or other notice thereof is pending or to the best knowledge of the City Attorney, threatened, in any way affecting the existence of the City or the titles of the City's legislative body to their respective offices, or seeking to restrain or to enjoin the issuance, sale or delivery of the Series A Bonds or the application of the proceeds thereof in accordance with the Indenture, or the collection or application of the Special Tax to pay the principal of and interest on the Series A Bonds, or in any way contesting or affecting the validity or enforceability of the Series A Bonds, the City Documents, the Indenture or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Official Statement or the powers of the City or its authority with respect to the Series A Bonds, the City Documents, the Indenture or any action on the part of the City contemplated by any of said documents, wherein an unfavorable decision, ruling, or finding would materially adversely affect the validity or enforceability of the Series A Bonds, the City Documents or the Indenture; and (v) the execution and delivery of the Series A Bonds, the Indenture and the City Documents, and compliance with the provisions of DOCSLA 1:366334.5 40484 -61 GHI ocxsi.nt_337390.1 5 -5 yxri 9 0 0 OH &S 6/25/01 Draft each, do not conflict with or constitute a material breach of or material default under any applicable law or administrative rule or regulation of the State of California, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, ordinance, resolution, indenture, contract, agreement or other instrument to which the City is a party or otherwise subject or bound, a consequence of which would be to materially and adversely affect the ability of the City to perform its obligations under the Series A Bonds, the City Documents or the Indenture; and (6) An opinion of Orrick, Herrington & Sutcliffe LLP, as Underwriter's Counsel, addressed to the Underwriter in form and substance satisfactory to the Underwriter; (7) A certificate, dated the Closing Date and signed by an authorized signatory of the City certifying that (i) the representations and warranties of the City contained herein are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and (ii) the City has complied with all the agreements and has satisfied all the conditions on its part to be performed or satisfied under the City Documents and the Indenture at and prior to the Closing; (8) A certificate dated the Closing Date from NBS Government Finance Group (the "Special Tax Consultant ") to the effect that (i) it is of the opinion that the Special Tax, when levied and collected in accordance with the terms of the Rate and Method, assuming normal and reasonable delinquency rates, will provide a yearly cash flow at least sufficient to fulfill the obligations of the City under the Indenture, including without limitation the timely payment of principal of and interest on the Bonds, and (ii) it has reviewed the Preliminary Official Statement and Official Statement and to the best of its knowledge the statements concerning the Rate and Method under the captions and and in "APPENDIX A - AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX" are true, correct and complete in all material respects and do 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 the statements therein, in light of the circumstances under which they were made, not misleading; (9) A certificate of U.S. Trust Company, National Association, dated the Closing Date, to the effect that: (i) U.S. Trust Company, National Association is duly organized and existing as a national banking association under the laws of the United States, having the full power and authority to enter into and perform its duties under the Indenture, the Continuing Disclosure Agreement and to authenticate the Bonds; DOCSLA 1:366334.5 40484 -61 GH 1 10 DOCSL (:187390.1 5 -5 M KH OH &S 6/25/01 Draft (ii) U.S. Trust Company, National Association is duly authorized to enter into the Indenture and the Continuing Disclosure Agreement, and, when the Indenture and the Continuing Disclosure Agreement are duly authorized, executed and delivered by the other respective parties thereto, to authenticate and deliver the Bonds to the Underwriter pursuant to the terms of the Indenture; (iii) the execution and delivery by the Trustee of the Indenture, and the execution and delivery by the Dissemination Agent of the Continuing Disclosure Agreement, and compliance with the terms thereof, will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which U.S. Trust Company, National Association is a party or by which it is bound, or, to its best knowledge, any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over U.S. Trust Company, National Association or any of its activities or properties (except that no representation, warranty or agreement is made by U.S. Trust Company, National Association with respect to any federal or state securities or blue sky laws or regulations); (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 of the knowledge of U.S. Trust Company, National Association, threatened against or affecting the existence of U.S. Trust Company, National Association or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture or the Continuing Disclosure Agreement, or contesting the powers of U.S. Trust Company, National Association or its authority to enter into and perform its obligations under any of the foregoing, or wherein an unfavorable decision, ruling or finding would adversely affect U.S. Trust Company, National Association or the transactions contemplated in connection with the sale and delivery of the Bonds, or which, in any way, would adversely affect the validity of the Bonds, the Indenture or the Continuing Disclosure Agreement or any agreement or instrument to which U.S. Trust Company, National Association is a party and which is used or contemplated for use in the Indenture or the Continuing Disclosure Agreement, or the consummation of the transactions contemplated in connection with the sale and delivery of the Bonds; and (v) subject to the provisions of the Indenture, the Trustee will apply the proceeds from the Bonds to the purposes specified in the Indenture; (10) An opinion of counsel to U.S. Trust Company, National Association, as Trustee and Dissemination Agent, dated the date of Closing, addressed to the Underwriter, the District and the Insurer to the effect that: DOCSLA 1:366334.5 40484 -61 GH 1 11 DOCSLAOS73W.] > -5 SIKH OH &S 6/25/01 Draft (i) U.S. Trust Company, National Association is a national banking association duly organized and validly existing under the laws of the United States, having full power and being qualified to enter, accept and administer the trust created under the Indenture, to enter, accept and perform its obligations under the Continuing Disclosure Agreement, and to authenticate the Bonds; (ii) the Indenture and the Continuing Disclosure Agreement have been duly authorized, executed and delivered by U.S. Trust Company, National Association and, assuming due authorization, execution and delivery thereof by the other respective parties thereto, each constitutes a legal, valid and binding obligation of U.S. Trust Company, National Association enforceable in accordance with its respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought; and (iii) no authorization, approval, consent or order of any governmental agency or any other person is required for the valid authorization, execution and delivery of the Indenture or the Continuing Disclosure Agreement by U.S. Trust Company, National Association or the authentication of the Bonds by the Trustee; (11) A certificate of the Escrow Bank, dated the Closing Date, in form and substance acceptable to counsel for the Underwriterto the following effect: (i) the Escrow Bank is a national banking association duly organized and validly existing under and by virtue of the laws of the United States of America, and has the full power and authority to accept and perform its duties under the Escrow Agreement; (ii) there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of its knowledge, threatened in any way affecting the existence of the Escrow Bank, or seeking to restrain or to enjoin the execution and delivery of the Escrow Agreement by the Escrow Bank, or in any way contesting or affecting the validity or enforceability, as against the Escrow Bank, of the Escrow Agreement or any action of the Escrow Bank contemplated thereby, or in which an adverse outcome would materially and adversely affect the ability of the Escrow Bank to perform its obligations under the Escrow Agreement; (iii) the Escrow Bank is not in breach of or in default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, DOCSLA I :366334.5 40484 -61 GH 1 12 DOCSLA1 337390.1 5 -5 MKH OH &S 6/25/01 Draft resolution, indenture, contract, agreement or other instrument to which the Escrow Bank is a party or is otherwise subject or bound, a consequence of which would be to materially and adversely affect the ability of the Escrow Bank to perform its obligations under the Escrow Agreement; and (iv) the execution and delivery of the Escrow Agreement by the Escrow Bank, and compliance with the provisions thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, ordinance, resolution, indenture, contract, agreement or other instrument to which the Escrow Bank is a party or is otherwise subject or bound, a consequence of which would be to materially and adversely affect the ability of the Escrow Bank to perform its obligations under the Escrow Agreement; (12) the opinion of counsel to the Escrow Bank, dated the date of Closing, addressed to the Underwriter, the District and the Insurer to the effect that: (i) the Escrow Bank is a national banking association duly organized and validly existing under the laws of the United States, having full power and being qualified to enter, accept and administer the trusts created under the respective Escrow Agreement; (ii) the Escrow Agreement has been duly authorized, executed and delivered by the Escrow Bank and, assuming due authorization, execution and delivery thereof by the other respective parties thereto, constitutes the legal, valid and binding obligations of the Escrow Bank enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought; and (iii) no authorization, approval, consent or order of any governmental agency or any other person is required for the valid authorization, execution and delivery of the Escrow Agreement by the Escrow Bank; (13) a nonarbitrage certificate of the City in form and substance acceptable to Bond Counsel and the Underwriter; (14) Evidence that the Series A Bonds have been rated "Aaa" by Moody's Investors Service and "AAA" by Standard & Poor's; DOCSLA 1:366334.5 40484 -61 GHI 13 DOCSLAI:337390.1 5 -5 SIKH OH &S 6/25/01 Draft . (15) Evidence that the policy of bond insurance (the "Insurance Policy ") issued by Financial Security Assurance Inc. (the "Insurer ") for the Series A Bonds is in full force and effect with all premiums paid; (16) An opinion addressed to the City and the Underwriter, dated the Closing Date, of counsel to the Insurer to the effect that (i) the Insurance Policy described in the Official Statement is a legal, valid and binding obligation of the Insurer enforceable in accordance with its terms, and (ii) the statements in the Official Statement under the caption "MUNICIPAL BOND INSURANCE" accurately reflect and fairly present the information purported to be shown therein; (17) A copy of the Verification Report prepared by Grant Thornton LLP regarding the refunded Series 1990 Bonds; and (18) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the statements and information contained in the Official Statement, of the City's representations and warranties contained herein and the due performance or satisfaction by the City at or prior to the Closing Date of all agreements then to be performed and all conditions then to be satisfied by the City in connection with the transactions contemplated on its part hereby and by the Indenture and the Official Statement. • If any of the conditions to the obligations of the Underwriter contained in this section or elsewhere in this Purchase Agreement shall not have been satisfied when and as required herein, all obligations of the Underwriter hereunder may be terminated by the Underwriter at, or at any time prior to, the Closing Date by written notice to the City. 4. Expenses. (a) The Underwriter shall be under no obligation to pay, and the City shall pay or cause to be paid out of the proceeds of the Series A Bonds, all expenses incident to the performance of the City's obligations hereunder, including but not limited to: the cost of photocopying and delivering the Series A Bonds to the Underwriter; the cost of preparing, printing (and/or word processing and reproducing), distributing and delivering the Indenture, the City Documents, and the cost of printing, distributing and delivering the Preliminary Official Statement and the Official Statement in such reasonable quantities as requested by the Underwriter; and the fees and disbursements of Bond Counsel and any accountants, tax rate consultants, financial advisors, verification agents or other engineers or experts or consultants the City has retained in connection with the Series A Bonds. (b) Whether or not the Series A Bonds are delivered to the Underwriter as set forth herein, the City shall be under no obligation to pay, and the Underwriter shall pay, the cost of preparation of any "blue sky" or legal investment memoranda, expenses to qualify the Series A Bonds for sale under any "blue sky" or other state securities laws and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Series A Bonds (except those specifically enumerated in paragraph (a) of this section), including fees payable to DOCSLA1:366334.5 40484 -61 GHI 14 DOCSLAI: 387390.1 5 -5 MKti OH &S 6/25/01 Draft the California Debt Investment Advisory Commission, fees payable to the CUSIP Bureau, the fees and disbursementsof its counsel and any advertising expenses. 5. Disclosure of Income. The Underwriter agrees to disclose to the City all income received, directly or indirectly, from the sale of the Series A Bonds, including underwriter's discount, associated hedging costs and other related costs. 6. Notices. Any notices, requests, directions, instruments or other communications required or permitted to be given hereunder shall be in writing and shall be given when delivered, against a receipt, or mailed certified or registered, postage prepaid, to the City and the Underwriter at their respective addresses below. If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: Director of Administrative Services If to the Underwriter: Stone & Youngberg LLC 4350 La Jolla Village Drive, Suite 140 San Diego, CA 92122 Attention: L. William Huck provided, however, that all such notices, requests or other communications may be made by telephone and promptly confirmed by writing. The City and the Underwriter may, by notice given as aforesaid, specify a different address for any such notices, requests or other communications. DOCSLA1:366334.5 40484 -61 GHI 15 DOCSLA1:137390.1 5 -5 MKI-1 • 0 • OH &S 6/25/01 Draft • 7. Parties in Interest. This Purchase Agreement is made solely for the benefit of the City and the Underwriter (including successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. 8. Survival of Representations and Warranties. The representations and warranties of the City set forth in or made pursuant to this Purchase Agreement (which are made as of the date hereof) shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Agreement and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and warranties of the City and regardless of delivery of and payment for the Series A Bonds. 9. Effective. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance. 10. Applicable Law; Nonassignability. This Purchase Agreement shall be governed by the laws of the State of California. This Purchase Agreement shall not be assigned. 11. Execution of Countemarts. This Purchase Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same. 12. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto In relation to the sale of the Series A Bonds by the City and represents the entire agreement of the parties as to the subject matter herein. DOCSLA1:366334.5 40484 -61 GH1 16 DC)CSLA1397390.1 5 -5 LIKI-I OH &S 6/25/01 Draft 13. Partial Unenforceability. Any provision of this Purchase Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Purchase Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Very truly yours, STONE & YOUNGBERG LLC 0 RKtiTw"" CITY OF NEWPORT BEACH LN Mayor DOCSLA 1:366334.5 40484 -61 GHI 17 IX )CSIAL387390.1 S5 SIKH L. William Huck, Managing Director 0 • E EXHIBIT A Maturity Schedule for the Series A Bonds Maturity Principal Interest (August 1 Amount Rate IXXSLA1:137390.1 5 -5 MKH A-1 Yield EXHIBIT B [Letterhead of Bond Counsel] • 0 Di �LAIa97390.1 5.5 M1iKH B-1 PROFESSIONAL SERVICES AGREEMENT FOR FINANCIAL ADVISOR This agreement has been entered into this day of . 2001 by and between the City of Newport Beach, California (the "City") and Fieldman, Rolapp & Associates, (herein, the "Consultant'.'). WHEREAS, the City desires independent financial advisory services to be performed in connection with Refunding of Special Improvement District No. 95 -1 (CIOSA) Series A & B (herein, the "Project "), and WHEREAS, the City desires to retain the professional and technical services of the Consultant for the purpose of providing financial advisory services in connection with any and all City financing requirements as they pertain to the financings or refinancings of Special Improvement District No. 95 -1 (CIOSA), (herein, the "Services "). WHEREAS, the Consultant is well qualified to provide professional financial advice to public entities such as the City, NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and conditions hereinafter set forth, it is agreed as follows. Section 1 Financial Advisory Services. As directed by the City, Consultant will provide services in connection with the e` Refunding of Special Improvement District No. 95 -1 (CIOSA) Series A & B as such Services are fully described in Exhibit A attached to this Agreement. Consultant is engaged in an expert financial advisory capacity to the City only. It is expressly understood that the Services rendered hereunder are rendered solely to the City of Newport Beach. Consultant does not undertake anv responsibility to review disclosure documents on behalf of owners or beneficial owners of bonds or debt which may arise from the Consultant's work hereunder. Section 2 Additional Services. Services performed for the City by Consultant, that are not other% ise specifically identified in Exhibit A to this Agreement, shall be additional services. Additional services include, but are not limited to, the following: 2.01 Assisting the City in obtaining enabling legislation or conducting referendum elections. 2.02 Extraordinary services and extensive computer analysis in the structuring or planning of any debt issue or financing program. 2.03 The repeat of any element of a service described in Exhibit A to this Agreement which is made necessary through no fault of Consultant. 2.04 Financial management services, including development of financial policies, *1 capital improvement plans, economic development planning, credit analysis or CITY OF NEWPORT BEACH/FIELDMAN. ROLAPP & ASSOCIATES Page 1 review and such other services that are not ordinarily considered within the scope of services described in Exhibit A to this Agreement. 2.05 Services rendered in connection with any undertaking of the City relating to a continuing disclosure agreement entered into in order to comply with Securities and Exchange Commission Rule I5c2 -12 or other similar rules. 2.06 Services rendered to the City in connection with calculations or determination of any arbitrage rebate liability to the United States of America arising from investment activities associated with debt issued to fund the Project. Section 3 Compensation 3.01 For Consultant's performance of Services as described in Section I of this Agreement the Consultant's compensation will be as provided in Part I of Exhibit B attached to this Agreement, plus Consultant's expenses incurred in rendering such Services. Consultant's expenses may include, but are not limited to travel, telephone /conference calls, postage, courier, database access services, and printing. 3.02 For Consultant's performance of additional services as described in Section 2 of this Agreement, the Consultant's compensation will be as provided in Part 2 of Exhibit B attached to this agreement, plus Consultant's expenses incurred in rendering such services. Consultant's expenses may include, but are not limited to travel, telephone /conference calls, postage, courier, database access services and printing. 3.03 Payment for Consultant's Services rendered pursuant to Section 1 of this Agreement shall be as provided for in Exhibit B to this Agreement, unless specified to the contrary elsewhere in this Agreement. The Consultant may submit monthly invoices for payment for services provided pursuant to Section 2 of this Agreement unless an alternate date or dates have been specifically agreed to in writing. Unless otherwise specified, payment of Consultant's compensation and expenses is due thirty (30) days after submission of Consultant's invoice for services. 3.04 In the event the Services of the Consultant are abandoned prior to completion of Consultant's work. Consultant shall be compensated for Services performed to the point of abandonment as if such Services were an additional service pursuant to Section 2 of this Agreement, subject to a maximum fee of $0.00. An act of abandonment shall be deemed to have occurred when no action has been taken by the City relative to the services of the Consultant for a period of three (3) months from the date of the initial performance of a service, or there has been a written notification to the Consultant of an abandonment of the Project by the City. 3.05 Consultant fees set forth in this Agreement and Exhibits are guaranteed by Consultant for a period of twelve (12) months from the date of this Agreement. 0 CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Page 2 Section 4 Personnel. Consultant has; or will secure, all personnel required to perform the services under this Agreement. Consultant shall make available other qualified personnel of the firm as may be required to complete Consultant's services. The City has the right to approve or disapprove any proposed changes in Consultant's staff providing service to the City. The City and Consultant agree that such personnel are employees only of Consultant and shall not be considered to be employees of the City in any way whatsoever. Section 5 Term of Agreement. This Agreement shall continue in full force and effect for a period of twelve (12) months from the date hereof unless terminated by either party by not less than thirty (30) days written notice to the other party except that the Agreement shall continue in full force and effect until completion of Consultant's services or until an abandonment shall have occurred as described in Section 3.04 hereof. This Agreement may be extended from time to time as agreed by the City and the Consrdtant. Section 6 Modification. This Agreement contains the entire agreement of the parties. It ma} be amended in whole or in part from time to time by mutual consent of the parties. This shall not prohibit the City and Consultant from entering into separate agreements for other services. Section 7 Assignment. The rights and obligations of the City under this Agreement shall inure to tine benefit of and shall be binding upon the successors and assigns of the City. This agreement may not be assigned by the Consultant without the consent of the City except for compensation due Consultant. Section 8 Disclosure. Consultant does not assume the responsibilities of the City, nor the responsibilities of the other professionals and vendors representing the City, in the provision of services and the preparation of the financing documents, including initial and secondary market disclosure, for financings undertaken by the City. Information obtained by Consultant and included in any disclosure documents is, by reason of experience, believed to be accurate, however, such information is not guaranteed by Consultant. Section 9 Confidentiality. The Consultant agrees that all financial, statistical, personal, technical and other data and information designated by the City as confidential shall be protected by the Consultant from unauthorized use or disclosure. CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Page 3 . Section 10 Indemnification. The City and Consultant shall each indemnify and hold harmless the other from and against any and all losses, claims, damages, expenses, including legal fees for defense, or liabilities. collectively. damages, to which either may be subjected by reason of the other's acts. errors or omissions, except however, neither will indemnify the other from or against damages by reason of changed events and conditions beyond the control of either or errors of judgment reasonably made. Section I I Insurance. 11.01 Consultant shall maintain workers' compensation and employers liability insurance during the term of this Agreement. 11.02 Consultant, at its own expense, shall obtain and maintain insurance at all times during the prosecution of this contract. Such insurance must be written with a Best Guide "A" -rated or higher insurance carrier admitted to write insurance in the state where the work is located. 11.03 Certificates of insurance naming the City as an additional insured shall be submitted to the City evidencing the required coverages, limits and locations of operations to which the insurance applies, and the policies of insurance shall contain a 30 day notice of cancellation or non - renewal. • 11.04 Insurance coverages shall not be less than the following: A. Workers' Compensation 1. State worker's compensation statutory benefits 2. EmploN er s Liability - police limits of not less than $1,000,000. B. Comprehensive General Liability coverage with policy limits of not less than $1,000,000 combined single limit for bodily injury and property damage and including coverage for the following: I . Premises - operations 2. Contractualliabilit_v 3. Products 4. Completed operation 5. Personal injury C. Errors and omissions with policy limits of $1,000,000. Section 12 Permits /Licenses. The Consultant shall obtain any permits or licenses, as may be required for it to complete the services required under this Agreement. CITY OF NEWPORT BEACRIFIELDMAN, ROLAPP & ASSOCIATES Page 4 Section 13 Binding Effect. 13.01 A waiver or indulgence by the City of a breach of any provision of this Agreement by the Consultant shall not operate or be construed as a waiver of any subsequent breach by the Consultant. 13.02 All agreements and covenants contained herein are severable and in the event any of them shall be held to be invalid by any competent court, this Agreement shall be interpreted as if such invalid agreements or covenants were not contained herein, and the remaining provisions of this Agreement shall not be affected by such determination and shall remain in full force and effect. This Agreement shall not fail because any part or any clause hereof shall be held indefinite or invalid. 1103 Each party hereto presents and warrants that this Agreement has been duly authorized and executed by it and constitutes its valid and binding agreement, and that any governmental approvals necessary for the performance of this Agreement have been obtained. 13.04 The validity, interpretation and construction of this Agreement and of each part hereof shall be governed by the laws of the State of California. Venue for any lawsuit concerning this agreement is Orange County, California. IN WITNESS Whereof, the parties have duly executed this Agreement as of the day and year is above set forth. CITY OF NEWPORT BEACH 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 By: Title FIELDMAN, ROLAPP & ASSOCIATES 2100 Main Street, Suite 210 Irvine, CA 92614 Q By: Title T u CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Page 5 • EXHIBIT A TO PROFESSIONAL SERVICES AGREEMENT FOR FINANCIAL ADVISOR BY AND BETWEEN THE CITY OF NEWPORT BEACH AND FIELDMAN, ROLAPP & ASSOCIATES • Scope of Services A. General Services. The Consultant shall perform all the duties and services specifically set forth herein and shall provide such other services as it deems necessary or advisable, or are reasonable and necessary to accomplish the intent of this Agreement in a manner consistent with the standards and practice of professional financial advisors prevailing at the time such services are rendered to the City. The City may, with the concurrence of Consultant, expand this Agreement to include any additional services not specifically identified within the terms of this Agreement. Any additional services may be described in an addendum to this Exhibit A and are subject to fees described in Exhibit B to this Agreement. B. Debt Issuance Services. The Consultant shall assume primary responsibility for assisting the City in coordinating the planning and execution of each debt issue relating to the Project. Insofar as the Consultant is providing Services which are rendered only to the City. the overall coordination of the financing shall be such as to minimize the costs of the transaction coincident with maximizing the City's financing flexibility and capital market access. The Consultant's proposed debt issuance Services may include, but shall not be limited to, the following: • Establish the Financing Objectives • Develop the Financing Schedule • Monitor the Transaction Process • Prepare the Official Statement, both preliminary and final (Optional, subject to additional charges) • Procure and Coordinate Additional Service Providers • Provide Financial Advice to the City Relating to Financing Documents • Compute Sizing and Design Structure of the Debt Issue • Plan and Schedule Rating Agency Presentation and Investor Briefings • Conduct Credit Enhancement Procurement and Evaluation • Conduct Market Analysis and Evaluate Timing of Market Entry • Recommend Award of Debt Issuance • Provide Pre - Closing and Closing Assistance CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page I Specifically, Consultant will: I. Establish the Financing Objectives. At the onset of the financing transaction process for the Project, the Consultant shall review the City's financing needs and in conjunction with the City's management, outline the objectives of the financing transaction to be undertaken and its proposed form. Unless previously determined, Consultant shall recommend the method of sale of debt and outline the steps required to achieve efficient market access. 2. Develop the Financing Timetable. The Consultant shall take the lead role in preparing a schedule and detailed description of the interconnected responsibilities of each team member and update this schedule, with refinements, as necessary, as the work progresses. 3. Monitor the Transaction Process. The Consultant shall have primary responsibility for the successful implementation of the financing strategy and timetable that is adopted for each debt issue relating to the Project. The Consultant shall coordinate (and assist, where appropriate) in the preparation of the legal and disclosure documents and shall monitor the progress of all activities leading to the sale of debt. The Consultant shall prepare the timetables and work schedules necessary to achieve this end in a timely, efficient and cost - effective manner and will • coordinate and monitor the activities of all parties engaged in the financing transaction. 4. Prepare the Official Statement (Optional, subject to additional charges) a. Generally, SEC, MSRB, and GFOA guidelines encourage full disclosure so that potential investors have sufficient data to analyze each proposed financing. Upon direction of the City, the Consultant shall take the lead in preparation of the official statement for each debt issue relating to the Project to insure that the City's official statement is compiled in a manner consistent with industry standards, typically including the following matters: • Legal Authority for the Financing • Security.for the Financing • Restrictions on Additional Financings • Purpose and Funds for which the Financing is Being Issued • Governmental System • Financial Management System • Revenue Sources: Historic, Current and Projected • Outstanding Financings • Planned Future Financings • Labor Relations and Retirement Systems • Economic Base • Annual Financial Statements • Legal Opinions Regarding Tax Exemption • Such Other Matters as the Context May Require. CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page 2 b. The Consultant shall maintain and update the official statement on its word processing system until such time as it is near final and suitable for transfer to the financial printer, in order to minimize the costs of revisions made by the printer. 5. Procure and Coordinate Additional Service Providers. Should the City desire, the Consultant may act as City's representative in procuring the services of financial printers for the official statement and related documents; and for the printing of any securities. In addition, the Consultant may act as the City's representative in procuring the services of trustees, paying agents, fiscal agents, feasibility consultants, redevelopment consultants, or escrow verification agents or other professionals, if the City directs. 6. Provide Financial Advice to the Citv Relating to Financing Documents. Simultaneous with assisting in the preparation of official statements for each debt issue relating to the Project, the Consultant shall assist the managing underwriters, bond counsel and/or other legal advisors in the drafting of the respective financing resolutions, notices and other legal documents. In this regard, the Consultant shall monitor document preparation for a consistent and accurate presentation of the recommended business terms and financing structure of each debt issue relating to the Project, it being specifically understood however that the Consultant's services shall in no manner be construed as the . Consultant engaging in the practice of law. 7. Compute Sizing and Design Structure of Debt Issue. The Consultant shall work with the City's staff to design a financing structure for each debt issue relating to the Project that is consistent with the City's objectives, that coordinates each transaction with outstanding issues and that reflects current conditions in the capital markets. 8. Plan and Schedule Rating Agency Presentation and Investor Briefings The Consultant shall develop a plan for presenting the financing program to the rating agencies and the investor community. The Consultant shall schedule rating agency visits, if appropriate, to assure the appropriate and most knowledgeable rating agency personnel are available for the presentation and will develop presentation materials and assist the City officials in preparing for the presentations. 9. Conduct Credit Enhancement Evaluation and Procurement Upon the City's direction, the Consultant will initiate discussions with bond insurers, letter of credit providers and vendors of other forms of credit enhancements to determine the availability of and cost benefit of securing financing credit support. CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, I0. Conduct Market Analysis and Evaluate Timing of Market Entry. 0 The Consultant shall provide regular summaries of current municipal market conditions, trends in the market and how these may favorably or unfavorably affect the City's proposed financing. a. Competitive Sales. For all types of competitive sale of debt, the Consultant shall undertake such activities as are generally required for sale of securities by competitive bid including, but not limited to the following: • Review and comment on terms of Notice of Sale Inviting Bids • Provide advice on debt sale scheduling • Provide advice on the use of electronic bidding systems • Coordinate bid opening with the City officials • Verify bids received and make recommendations for acceptance • Provide confirmation of issue sizing, based upon actual bids received, where appropriate • Coordinate closing arrangements with the successful bidder(s) b. Negotiated Sales. In the case of a negotiated sale of debt. the Consultant shall perform a thorough evaluation of market conditions preceding the negotiation of the terms of the sale of debt and will assist the City with the negotiation of final issue structure, interest rates, interest cost, reoffering terms and gross underwriting spread and provide a recommendation on acceptance or rejection of the offer to purchase the debt. This assistance and evaluation will focus on the following areas as determinants of interest cost: • Size of financing • Sources and uses of funds • Terms and maturities of the debt issue • Review of the rating in pricing of the debt issue • Investment of debt issue proceeds • Distribution mix among institutional and retail purchasers • Interest rate, reoffering terms and underwriting discount with comparable issues • Redemption provisions 11. Recommend Award of Debt Issuance Based upon activities outlined in Task 10(a) and 10(b) above, the Consultant will recommend to accept or reject offers to purchase the debt issue. If the City elects to award the debt issue, the Consultant will instruct all parties and help facilitate the actions required to formally consummate the award. CITY OF NEWPORT BEACH/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page 4 0 12. Provide Pre - Closing and Closing Activities. 0 The Consultant shall assist in arranging for the closing of each financing. The Consultant shall assist counsel in assuming responsibility for such arrangements as they are required, including arranging for or monitoring the progress of bond printing, qualification of issues for book -entry status, signing and final delivery of the securities and settlement of the costs of issuance. C. Special Financing Services. The Consultant shall assist the City, as needed, in identifying and procuring special financial related services that may be needed for any debt issue relating to the Project. Services that may be required include those listed below: • Special co- financial advisors (as defined by a scope of work provided by the City • Feasibility consultants or other consultants required to deliver services relevant to any debt issue relating to the Project • Credit providers, such as bank, insurance companies and private lenders At each point where a special service is required, the Consultant shall research and develop a set of specifications for the desired service, develop a distribution list and supervise the circulation of the request for proposals. As part of the process of procuring bank credit facilities, such as letters and lines of credit and insurance to support the City's financing programs, the Consultant shall pay particular attention to the cost - effectiveness and to the relative levels of market acceptance of bond insurers and both domestic and international banks. The Consultant shall advise the City as to how the credit rating and investor perception of the potential credit enhancement provider offering such services will affect the market for the debt issue relating to the Project. In addition, the Consultant shall evaluate the roll -over or renewal provisions that each such provider is willing to offer in its agreement with the City to determine which one offers the maximum assurance of continued availability. CITY OF NEWPORT BEACH/FIELDMAN. ROLAPP & ASSOCIATES Exhibit A, Page 5 EXHIBIT B TO FINANCIAL ADVISORY SERVICES AGREEMENT BY AND BETWEEN CITY OF NEWPORT BEACH AND FIELDMAN, ROLAPP & ASSOCIATES Fees and Expenses Part]: Fee for Services Financial Advisory Services performed pursuant to Section I of this Agreement, and as more fully described in the Scope of Services set forth in Exhibit A, will be billed for at the amounts set forth below: PAR VALUE OF THE BONDS FEES -0- to $ 2,999,999 $19,500 $ 3,000,000 to $11,999,999 $29,800 $12,000,000 to $19,999,999 $34,000 $20,000,000 to $29,999,999 $41,500 Over $30,000,000 To be negotiated Payment of fees earned by Consultant pursuant to this Part 1, shall be contingent on, and payable at the closing of the debt issue(s) undertaken to finance the Project. Part 2: Other Services 0 Unless agreed to otherwise. financial advisory services performed pursuant to Section 2 of this Agreement will be billed at the then current hourly rates. The table below reflects the rates in effect as of the date of execution of this Agreement. Personnel Hourly Rate Managing Principal $275.00 Principals........................................ ............................... $225.00 Vice Presidents ........ ............................... ........................$175.00 Assistant Vice Presidents ................. ............................... $160.00 Associates of the Firm- ............ ............. .................. $130.00 Administrative Assistants .................. ............................... $65.00 Clerical (Other) ................................. ............................... $35.00 Expenses Expenses will be billed for separately and will cover, among other things, travel, lodging, subsistence, overnight courier, computer, and fax transmission charges. Advances made on behalf of the City for costs of preparing, printing or distributing disclosure materials or related matter whether by postal services or electronic means, may also be billed through to the City upon prior authorization. Additionally, a surcharge of 6% of the net fee amount is added to verifiable out -of- pocket costs for recovery of costs such as telephone, postage, document reproduction and the like. CITY OF NEWPORT BEACHIFIELDMAN, ROLAPP & ASSOCIATES Exhibit B, Page 1 9 0 Limiting Terms and Conditions The above fee is based on completion of work orders within twelve (12) months of the City's authorization to proceed, and assumes that the City will provide all necessary information in a timely manner. CITY OF NEWPORT BEACHIFIELDMAN. ROLAPP & ASSOCIATES Exhibit B, Page 2 AGREEMENT FOR BOND COUNSEL SERVICES THIS AGREEMENT is entered into as of , 2001, by and between the CITY OF NEWPORT BEACH (the "City ") and ORRICK, HERRINGTON & SUTCLIFFE LLP ( "Bond Counsel "). WITNESSETH WHEREAS, the City Council of the City has formed the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act ") and Resolution No. 95 -74 of the City Council adopted on June 12, 1995; WHEREAS, the City Council is authorized under the Act to levy special taxes to pay for the costs of certain facilities and to authorize the issuance of bonds secured by said special taxes under the Act; WHEREAS, in order to pay for certain of the costs of such facilities, the City has previously issued the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, presently outstanding in the aggregate principal amount of $5,930,000, and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, presently outstanding in the aggregate principal amount of $8,925,000 (collectively, the "Prior Bonds "); WHEREAS, the City has determined that debt service savings can be achieved by refunding the Prior Bonds; WHEREAS, in order to provide a portion of the moneys required to refund the Prior Bonds, the City desires to provide for the issuance of the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Bonds ") in the aggregate principal amount of approximately $16,000,000; WHEREAS, the City desires to employ Bond Counsel to provide legal services incident to the issuance of the Bonds; and WHEREAS, Bond Counsel possesses the necessary professional capabilities and resources to provide the legal services required by the City as described in this Agreement; NOW, THEREFORE, it is mutually agreed by the parties hereto as follows: Section 1. Scope of Services. Bond Counsel shall perform the following legal services: (a) consultation with representatives of the City, including City Attorney, the financial advisor, the underwriter, underwriter's counsel, and others, with respect to the timing, terms and legal structure of the proposed financing; DOCSLA1:389422.1 41670.5 GHI • (b) preparation of documents to be adopted or entered into by the City required for the authorization, sale and issuance of the Bonds, including preparation of the authorizing resolution, the indenture and the escrow agreement (the "Major Legal Documents "); (c) preparation of the continuing disclosure agreement to be entered into in connection with the issuance of the Bonds (the "Continuing Disclosure Agreement ") (provided that, as Rule 15c2 -12 applies only to underwriters, compliance with such rule will be the responsibility of underwriter's counsel, and that if, as a result, the continuing disclosure agreement is prepared by underwriter's counsel all references to that document contained in this Agreement shall be deemed deleted); (d) preparation of summaries of the Major Legal Documents included in the official statement for the Bonds (the "Official Statement "); (e) attendance at such meetings of the City and working group meetings or conference calls as the City may request, and assistance to City staff in preparation of such explanations or presentations to the City as staff may request; (f) preparation of final closing papers to be executed by the City required to effect delivery of the Bonds (including the tax certificate) and coordination of the closing; and (g) rendering of Bond Counsel's customary form of final legal opinion to the City on the validity of the Bonds and the tax- exempt status of interest thereon and customary form of supplemental opinion to the underwriter on the accuracy of summaries • contained in the Official Statement of the Major Legal Documents and the tax portion of said final legal opinion and certain other matters. The City shall and will rely on City .Attorney to render day to day and ongoing general counsel legal services. Bond Counsel shall circulate documents to and coordinate its services with City Attorney to the extent requested by the City or City Attorney. Bond Counsel shall be entitled to assume that City Attorney has reN iewed all documents and matters submitted to the City for adoption or approval or to officers of the City for execution prior to such adoption, approval or execution. In rendering opinions and performing legal services under this Agreement, Bond Counsel shall be entitled to rely on the accuracy and completeness of information provided and certifications made by, and opinions provided by counsel to, the City and other parties and consultants, without independent investigation or verification. Bond Counsel services are limited to those specifically set forth above. Bond Counsel services do not include any services beyond those set forth above, including, without limitation (a) any representation of the City or any other party to the transaction in any litigation or other legal or administrative proceeding involving any of the Bonds or any related matter, (b) any responsibility for the preparation or content of the Official Statement, other than preparation of summaries of the Major Legal Documents and the portion of the opinion to be rendered by Bond Counsel concerning certain tax matters (although Bond Counsel may be available for separate engagement to provide such services pursuant to separate contract), (c) the preparation of any credit enhancement agreement or investment agreement, (d) any responsibility for compliance with federal or state securities laws, environmental, land use, real estate, any tax laws (except as required for tax exemption of the interest on the Bonds), insurance or similar laws or matters or for title to or perfection of security interests In real or personal property, or (e) any financial advice or analysis. Bond Counsel will not be responsible for the services performed or acts or DOCKA1 389422.1 41670.5 GH1 omissions of any other participant. Also, Bond Counsel services will not extend past the date of issuance of the Bonds and will not, for example, include services related to rebate compliance or continuing disclosure (although Bond Counsel may be available for separate engagement to provide either or both such services pursuant to separate contract) or otherwise related to the Bonds. Section 2. Compensation and Reimbursements. (a) In connection with the issuance, delivery and sale of the Bonds, Bond Counsel shall be paid a flat fee of $55,000. Said fee is based, in part, upon the assumption that the structure of the financing will conform to the description in the first paragraph of this Agreement, the scope of services will conform to the description thereof contained in Section l of this Agreement, the transaction will not have an extraordinary amount of problems /issues, Bond Counsel will be required to attend no more than the usual number of meetings and conference calls, Bond Counsel will not be required to generate an inordinate amount of drafts of the Major Legal Documents, the structure of the transaction will not materially change (particularly after preparation of the Major Legal Documents has commenced), the principal amount of Bonds will not vary significantly from the amount referred to in the first paragraph of this Agreement, and the Bonds will be issued not later than four months from the date initial drafts of any of the Major Legal Documents are distributed by Bond Counsel. If any part of this assumption is incorrect, or if any unusual or unforeseen circumstances arise, and occasions substantial additional work or responsibility on the part of Bond Counsel, Bond Counsel will be entitled to seek additional compensation in such amount as the City and Bond Counsel shall mutually agree to be appropriate. (b) In addition to the compensation provided above, the City will pay Bond Counsel a flat amount of $3,500 to cover costs and expenses (direct and indirect) incurred in connection with the services rendered pursuant hereto, including (without limitation) filing and publication, document reproduction and delivery, travel, long distance telephone, telecopy, word processing, computer research, secretarial overtime, final transcripts and other similar expenses. (c) Bond Counsel's fees and payment for expenses shall be payable by the City at or after issuance of the Bonds. Payment of all fees and expenses hereunder shall be made from proceeds of the Bonds and shall be entirely contingent upon issuance of the Bonds, so long as failure to execute and deliver is for reasons beyond the control of the City and not related to changes in interest rates. Section 3. Termination of Agreement and Legal Services. This Agreement and all legal services to be rendered under it may be terminated at any time by written notice from either party, with or without cause. In that event, all finished and unfinished documents prepared for adoption or execution by the City, shall, at the option of the City, become its property and shall be delivered to it or to any party it may designate: provided that Bond Counsel shall have no liability whatsoever for any subsequent use of such documents. In the event of termination by the City, Bond Counsel shall be paid for all satisfactory work at its usual hourly rates unless the termination is made for cause, in which event compensation, if any, shall be adjusted in the light of the particular facts and circumstances involved in the termination. If not sooner terminated as aforesaid, this Agreement and all legal services to be rendered under it shall terminate upon the issuance of the Bonds; provided that the City shall remain liable for any unpaid compensation or reimbursement due under Section 2 hereof. Upon termination, Bond Counsel shall have no future duty of any kind to or with respect to the Bonds or the City. For various cost and other reasons, Bond Counsel reserves the right to dispose, in any manner it chooses, of any documents or other materials retained by it after such termination. Section 4. Nature of Engagement; Relationships With Other Parties. The role of bond counsel, generally, is to prepare or review the procedures for issuance of the bonds, notes or DOCSLA1:389422.1 41670.5 GHI 0 other evidence of indebtedness and to provide an expert legal opinion with respect to the validity thereof and other subjects (usually including the tax status of interest on the bonds) addressed by the opinion. Consistent with the historical origin and unique role of bond counsel, and reliance thereon by the public finance market, Bond Counsel's role as bond counsel under this Agreement is to provide opinions and related legal services that represent an objective judgment on the matters addressed rather than the partisan position of an advocate. In performing its services as bond counsel in connection with the Bonds, Bond Counsel will act as special counsel to the City with respect to the issuance of the Bonds; that is, Bond Counsel will assist City Attorney in representing the City but only with respect to the validity of the Major Legal Documents and the tax status of interest on the Bonds, and in a manner not inconsistent with the role of bond counsel described in the first sentence of this Section. The City acknowledges that Bond Counsel regularly performs legal services for many private and public entities in connection with a wide variety of matters. For example, Bond Counsel has represented, is representing or may in the future represent other public entities, underwriters, trustees, rating agencies, insurers, credit enhancement providers, lenders, contractors, suppliers, financial and other consultants /advisors, accountants, investment providers/brokers, providers/brokers of derivative products and others who may have a role or interest in the financing or that may be involved with or adverse to the City in this or some other matter. Bond Counsel agrees not to represent any such entity in connection with the issuance of the Bonds, during the tern of this Agreement, without the consent of the City, except possibly with respect to investment or derivative products where, because Bond Counsel has assisted a number of the providers/brokers in designing and developing their products and provides general and transactional advice with respect to such products, it is not practical to seek specific consent in each case, and instead Bond Counsel agrees to separate the attorneys working on the financing • pursuant to this Agreement from the attorneys working on the investment or derivative products. Given the special, limited role of special counsel described above, the City acknowledges that no conflict of interest exists or would exist, and waives any actual or potential conflict of interest that might be deemed to arise, now or in the future, from this Agreement or any such other relationship that Bond Counsel may have had, have or enter into, and the City specifically consents to any and all such relationships. Section 5. Limitation of Rights to Parties; Successor and Assigns. Nothing in this Agreement or in any of the documents contemplated hereby, expressed or implied, is intended or shall be construed to give any person other than the City and Bond Counsel any legal or equitable right or claim under or in respect of this Agreement, and this Agreement shall inure to the sole and exclusive benefit of the City and Bond Counsel. Bond Counsel may not assign its obligations under this Agreement without written consent of the City except to a successor partnership or corporation to which all or substantially all of the assets and operations of Bond Counsel are transferred. The City may assign its rights and obligations under this Agreement to (but only to) any other public entity that issues bonds payable from special taxes levied within the District (if not the City). The City shall not otherwise assign its rights and obligations under this Agreement without written consent of Bond Counsel. All references to Bond Counsel and the City in this Agreement shall be deemed to refer to any such successor of Bond Counsel and to any such assignee of the City and shall bind and inure to the benefit of such successor and assignee whether so expressed or not. Section 6. Counterparts. This Agreement may be executed in any number of counterparts and each counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same Agreement. DOCSLA 1:389422.1 4167C,5 GH 1 4 Section 7. Notices. Any and all notices pertaining to this Agreement shall be sent by U.S. Postal Service, first class, postage prepaid to Bond Counsel at 777 South Figueroa Street, Suite 3200, Los Angeles, California 90017, Attention: Greg Harrington, and to the City at City of Newport Beach, 3300 Newport Boulevard Newport Beach, California 92663, Attention: Dennis Danner. Director of Administrative Services. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CITY OF NEWPORT BEACH 0 Dennis Danner, Director of Administrative Services ORRICK, HERRINGTON & SUTCLIFFE LLP By: Greg Harrington, Partner DOCSUM389422.1 41670-5 GHI 0 AGREEMENT FOR DISCLOSURE COUNSEL SERVICES THIS AGREEMENT is entered into as of , 2001, by and between the CITY OF NEWPORT BEACH (the "City ") and ORRICK, HERRINGTON & SUTCLIFFE LLP ( "Disclosure Counsel "). WITNESSETH WHEREAS, the City Council of the City has formed the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) (the "District ") under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act ") and Resolution No. 95 -74 of the City Council adopted on June 12, 1995; WHEREAS, the City Council is authorized under the Act to levy special taxes to pay for the costs of certain facilities and to authorize the issuance of bonds secured by said special taxes under the Act; WHEREAS, in order to pay for certain of the costs of such facilities, the City has previously issued the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, presently outstanding in the aggregate principal amount of $5,930,000, and the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, presently outstanding in the aggregate principal amount of $8,925,000 (collectively, the "Prior Bonds "); WHEREAS, the City has determined that debt service savings can be achieved by refunding the Prior Bonds; WHEREAS, in order to provide a portion of the moneys required to refund the Prior Bonds, the City desires to provide for the issuance of the City of Newport Beach Special Improvement District No. 95 -1 (CIOSA) Special Tax Refunding Bonds, Series A (the "Bonds ") in the aggregate principal amount of approximately $16,000,000; WHEREAS, the City desires to employ Disclosure Counsel to provide legal services incident to the issuance of the Bonds; and WHEREAS, Disclosure Counsel possesses the necessary professional capabilities and resources to provide the legal services required by the City as described in this Agreement; NOW, THEREFORE, it is mutually agreed by the parties hereto as follows: Section 1. Scope of Services. Disclosure Counsel shall perform the following legal services: (a) participation in conferences with representatives of the City, including City Attorney, the financial advisor, the underwriter, underwriter's counsel, and others, and compilation of information about the District, the Bonds and other pertinent information; DOCSLAI:389424.1 41670-5 GHl 11 (b) preparation of the preliminary official statement and official statement for the Bonds; (c) review and negotiation of the bond purchase agreement; (d) preparation of summaries of the authorizing resolution, the indenture, the escrow agreement and the continuing disclosure agreement for inclusion in the preliminary official statement and official statement for the Bonds; (e) review of relevant proposed and enacted legislation and case law and other considerations that could have an impact on the City, the legality of the Bonds or the security for the Bonds; and (f) rendering of Disclosure Counsel's customary form of "10b -5" opinion to the underwriter of the Bonds with respect to the official statement for the Bonds. The City shall and will rely on City Attorney to render day to day and ongoing general counsel legal services. Disclosure Counsel shall circulate documents to and coordinate its services with City Attorney to the extent requested by the City or City Attorney. Disclosure Counsel shall be entitled to assume that City Attorney has reviewed all documents and matters submitted to the City for adoption or approval or to officers of the City for execution prior to such adoption, approval or execution. In rendering opinions and performing legal services under this Agreement, Disclosure Counsel shall be entitled to rely on the accuracy and completeness of information provided and certifications made by, and opinions provided by counsel to, the City and other parties and consultants, without independent investigation or verification. Disclosure Counsel services are limited to those specifically set forth above. Disclosure Counsel services do not include any services beyond those set forth above, including, without limitation (a) any representation of the City or any other party to the transaction in any litigation or other legal or administrative proceeding involving any of the Bonds or any related matter, (b) the preparation of the bond purchase agreement or any credit enhancement agreement or investment agreement, (c) any responsibility for compliance with federal or state securities laws, environmental, land use, real estate, any tax laws, insurance or similar laws or matters or for title to or perfection of security interests in real or personal property, or (d) any financial advice or analysis. Disclosure Counsel will not be responsible for the services performed or acts or omissions of any other participant. Also, Disclosure Counsel services will not extend past the date of issuance of the Bonds and will not, for example, include services related to rebate compliance or continuing disclosure (although Disclosure Counsel may be available for separate engagement to provide either or both such services pursuant to separate contract) or otherwise related to the Bonds. Section 2. Compensation and Reimbursements. (a) For the services described in Section 1 hereof, Disclosure Counsel shall be paid a flat fee of $30,000 Said fee is based, in part, upon the assumption that the structure of the financing will conform to the description in the first paragraph of this Agreement, the scope of services will conform to the description thereof contained in Section 1 of this Agreement, the transaction will not have an extraordinary amount of problems/issues, Disclosure Counsel will be required to attend no more than the usual number of meetings and conference calls, Disclosure Counsel will not be required to generate an inordinate amount of drafts of the preliminary official statement for the Bonds, the structure of the transaction will not materially change (particularly after preparation of the preliminary official statement for the Bonds has commenced), the principal DOCSLA1:389424.1 41670.5 GHI amount of Bonds will not vary significantly from the amount referred to in the first paragraph of this Agreement, and the Bonds will be issued not later than four months from the date the initial draft of the preliminary official statement for the Bonds is distributed by Disclosure Counsel. If any part of this assumption is incorrect, or if any unusual or unforeseen circumstances arise, and occasions substantial additional work or responsibility on the part of Disclosure Counsel, Disclosure Counsel will be entitled to seek additional compensation in such amount as the City and Disclosure Counsel shall mutually agree to be appropriate. (b) In addition to the compensation provided above, the City will pay Disclosure Counsel a flat amount of $1,500 to cover costs and expenses (direct and indirect) incurred in connection with the services rendered pursuant hereto, including (without limitation) document reproduction and delivery, travel, long distance telephone, telecopy, word processing, computer research, secretarial overtime and other similar expenses. (c) Disclosure Counsel's fees and payment for expenses shall be payable by the City at or after issuance of the Bonds. Payment of all fees and expenses hereunder shall be made from proceeds of the Bonds and shall be entirely contingent upon issuance of the Bonds, so long as failure to issue is for reasons beyond the control of the City and not related to changes in interest rates. Section 3. Termination of Agreement and Legal Services. This Agreement and all legal services to be rendered under it may be terminated at any time by written notice from either party, with or without cause. In that event, all finished and unfinished documents prepared for adoption or execution by the City, shall, at the option of the City, become its property and shall be delivered to it or to any party it may designate; provided that Disclosure Counsel shall have no liability whatsoever for any subsequent use of such documents. In the event of termination by the City, Disclosure Counsel shall be paid for all satisfactory work at its usual hourly rates unless the termination is made for cause, in which event compensation, if any, shall be adjusted in the light of the particular facts and circumstances involved in the termination. If not sooner terminated as aforesaid, this Agreement and all legal services to be rendered under it shall terminate upon the issuance of the Bonds; provided that the City shall remain liable for any unpaid compensation or reimbursement due under Section 2 hereof. Upon termination, Disclosure Counsel shall have no future duty of any kind to or with respect to the Bonds or the City. For various cost and other reasons, Disclosure Counsel reserves the right to dispose, in any manner it chooses, of any documents or other materials retained by it after such termination. Section 4. Nature of Engagement; Relationships With Other Parties. In performing its services as disclosure counsel in connection with the Bonds, Disclosure Counsel will act as special counsel to the City with respect to the preparation of the preliminary official statement and official statement for the Bonds; provided, however, that the parties hereto agree and acknowledge that the preliminary official statement and official statement for the Bonds will be the City's disclosure documents and that Disclosure Counsel shall not be responsible for the truth or accuracy of the statements contained therein. The City acknowledges that Disclosure Counsel regularly performs legal services for many private and public entities in connection with a wide variety of matters. For example, Disclosure Counsel has represented, is representing or may in the future represent other public entities, underwriters, trustees, rating agencies, insurers, credit enhancement providers, lenders, contractors, suppliers, financial and other consultants /advisors, accountants, investment providersibrokers, providersibrokers of derivative products and others who may have a role or interest in the financing or that may be involved with or adverse to the City in this or some other matter. Disclosure Counsel agrees not to represent any such entity in connection with the issuance of the Bonds, during the term of this Agreement, without the consent of the City, except possibly with respect to investment or derivative products where, because Disclosure Counsel DOCSLAI 389424.1 41670-5 GHl 0 has assisted a number of the providersibrokers in designing and developing their products and provides general and transactional advice with respect to such products, it is not practical to seek specific consent in each case, and instead Disclosure Counsel agrees to separate the attorneys working on the financing pursuant to this Agreement from the attorneys working on the investment or derivative products. Given the special, limited role of Disclosure Counsel described above, the City acknowledges that no conflict of interest exists or would exist, and waives any actual or potential conflict of interest that might be deemed to arise, now or in the future, from this Agreement or any such other relationship that Disclosure Counsel may have had, have or enter into, and the City specifically consents to any and all such relationships. Section 5. Limitation of Rights to Parties; Successor and Assiens. Nothing in this Agreement or in any of the documents contemplated hereby, expressed or implied, is intended or shall be construed to give any person other than the City and Disclosure Counsel any legal or equitable right or claim under or in respect of this Agreement, and this Agreement shall inure to the sole and exclusive benefit of the City and Disclosure Counsel. Disclosure Counsel may not assign its obligations under this Agreement without written consent of the City except to a successor partnership or corporation to which all or substantially all of the assets and operations of Disclosure Counsel are transferred. The City may assign its rights and obligations under this Agreement to (but only to) any other public entity that issues bonds payable from special taxes levied within the District (if not the City). The City shall not otherwise assign its rights and obligations under this Agreement without written consent of Disclosure Counsel. All references to Disclosure Counsel and the City in this Agreement shall be deemed to refer to any such successor of Disclosure Counsel and to any such assignee of the City and shall bind and inure to the benefit of such successor and assignee whether so expressed or not. Section 6. Counterparts. This Agreement may be executed in any number of counterparts and each counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same Agreement. Section 7. Notices. Any and all notices pertaining to this Agreement shall be sent by U.S. Postal Service, first class, postage prepaid to Disclosure Counsel at 777 South Figueroa Street, Suite 3200, Los Angeles, California 90017, Attention: Greg Harrington, and to the City at City of Newport Beach, 3300 Newport Boulevard Newport Beach, California 92663, Attention: Dennis Danner, Director of Administrative Services. DOCSLA1:389424.1 41670 -5 GH 1 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CITY OF NEWPORT BEACH M Dennis Danner, Director of Administrative Services ORRICK, HERRINGTON & SUTCLIFFE LLP By: Greg Harrington, Partner DOCSLA1:389424.1 41670.5 GHI �k PROFESSIONAL AGREEMENT FOR INVESTMENT ADVISORY SERVICES • This agreement has been entered into this day of , 2001 by and between the City of Newport Beach, acting on behalf of Special Improvement District No. 95 -I (CIOSA) (the "City") and Fieldman, Rolapp Financial Services. LLC (herein, the "Advisor "). WHEREAS, the City desires to retain the Advisor for the purpose of providing services relating to the placement of certain proceeds from the sale of the City's debt issue (herein, the "Bond Issue "); and, WHEREAS, the Advisor is well qualified to provide such investment advisory services to public entities such as the City; NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and conditions hereinafter set forth, it is agreed as follows: Section 1 Financial Services. As directed by the City's designated officer, the Advisor will provide the services in connection with the Bond Issue as such services are fully described in Exhibit A attached to this Agreement. Section 2 Compensation. For Advisor's performance of services as described in Section I of this Agreement, the Advisor shall be compensated according to the schedule of fees shown in Exhibit B attached to this Agreement. 40 Section 3 Personnel. Advisor has all personnel required to perform the services under this Agreement. Advisor shall make available qualified personnel of the firm as may be required to complete Advisor's services. Section 4 Term of Agreement. This Agreement shall continue in full force and effect until completion of the Advisor's services unless terminated by either party by not less than fifteen (15) days written notice to the other party. Any fees advanced by the City at the time of the execution of this Agreement shall be refunded in full to the City in the event that this Agreement is terminated within five days of execution. Section 5 Modification. This Agreement contains the entire agreement of the parties. It may be amended in whole or in part from time to time by mutual consent in writing of the parties. This shall not prohibit the City and Advisor from entering into separate agreements for other services. Section 6 Disclosures. Tlne Advisor has disclosed to the City that it is an affiliate of Fieldman, Rolapp & Associates (herein the "City's Financial Advisor "). The City acknowledges by the execution of this Agreement that: Is I F'.\Financial Services LLC\ClienU \Newport Beach. City ol\FRFS Apeemcnt 06- 25.0l.doc . 6.01 the City has independently selected the Advisor and is aware of the professional and financial relationship between the Advisor and City's Financial Advisor, 6.02 all compensation to be received by the Advisor has been fully disclosed in We attached Exhibit B and that no other outside fees will be paid to the Advisor with respect to the services identified in Exhibit A of this Agreement; 6.03 all compensation paid to the Advisor will be paid by the provider of the investment contract; 6.04 the compensation payable to the Advisor will be disclosed in the Request For Bids document submitted to prospective providers of the investment contracts contemplated by the scope of services described in Exhibit A to this Agreement; and, 6.05 it has received Part II of Form ADV, a disclosure statement containing the equivalent information, or a disclosure statement containing at least the information required by Schedule H of Form ADV if the City is entering into a wrap fee program sponsored by the Advisor. If the appropriate disclosure statement was not delivered to the City at least 48 hours prior to the City entering into any written or oral advisory agreement with the investment Advisor then the City has the right to terminate such agreement without penalty within five business days after entering into the agreement. For the purposes of this provision, an agreement is considered entered into when all parties to the agreement have signed the agreement, or in case of an oral agreement otherwise signified their acceptance, any other provisions of this Agreement notwithstanding. Section 7 Confidentiality. The Advisor agrees that all financial, statistical, personal, technical and other data and information designated by the City as confidential shall be protected by the Advisor from unauthorized use or disclosure. Section 8 Tax Certification. The Advisor will certify to the City and bond counsel that all fees paid in conjunction with the transactions contemplated under this Agreement conform to all applicable tax and treasury regulation. Such certification shall be in a form acceptable to City's bond counsel and City's tax counsel, if applicable. Section 9 Indemnification. The City and Advisor shall each indemnify and hold harmless the other from and against any and all losses, claims, damages, expenses, including legal fees for defense, or liabilities, collectively, damages, to which either may be subjected by reason of the other's acts, errors or omissions, except however, neitherwill indemnify the otherfrom or against damages by reason of changed events and conditions beyond the control of either or errors ofjudgmentreasonably made. Section 10 Binding Effect 10.01 A waiver or indulgence by the City of a breach of any provision of this Agreement by the Advisor shall not operate or be construed as a waiver of any subsequent breach by the Advisor. MTSERVEMOMMOMFinsndar Services LL= iems\FRFS A&rt mein 0625 -Or dp 10.02 All agreements and covenants contained herein are severable and in the event any of them , shall be held to be invalid by any competent court, this Agreement shall be interpreted as if such invalid agreements or covenants were not contained herein, and the remaining provisions of this Agreement shall not be affected by such determination and shall remain in lull force and effect. This Agreement shall not fail because any part or any clause hereof shall be held indefinite or invalid. 10.03 Federal and state securities laws and regulations impose liabilities under certain circumstances on persons who act in good faith and therefore, nothing in this Agreement shall in any way constitute a waiver or limitation of any rights the City may have under such laws and regulations. 10.04 Each party hereto represents and warrants that this Agreement has been duly authorized and executed by it and constitutes its valid and binding agreement, and that any governmental approvals necessary for the performance of this Agreements have been obtained. 10.05 The validity, interpretation and construction of this Agreement and of each part hereof shall be governed by the laws of the State of California. Venue for any lawsuit concerning this agreement is [client's home county], California. Section 11 Assignment. This Agreement may not be assigned without the prior written consent of the parties. IN WITNESS Whereof, the parties have duly executed this Agreement as of the day and year first above set • forth. CITY OF NEWPORT BEACH, CALIFORNIA (on behalf of Special Improvement District No. 95 -1, CIOSA) M Title: Fieldman, Rolapp Financial Services, LLC 2100 Main Street, Suite 210 Irvine, CA 92614 By: / Title: Principal • \VJTSERVER\COMMON\Financid Scrvicm LLC\ClicnWTUS Agmcmm\ 0625- 0).doc • EXHIBIT A TO PROFESSIONAL SERVICES AGREEMENT BY AND BETWEEN THE CITY OF NEWPORT BEACH AND FIELDMAN, ROLAPP FINANCIAL SERVICES, LLC SCOPE OF SERVICES: A. General Services. The Advisor shall perform all the duties and services specifically set forth herein and shall provide such other services as it deems necessary or advisable, or are reasonable and necessary to accomplish the intent of tlds Agreement in a manner consistent with the standards and practice of professional advisors. The City may, with the concurrence of Advisor, expand this Agreement to include any additional services not specifically identified within the terms of this Agreement. Any additional services may be described in an addendum to this Exhibit A and are subject to fees described in an addendum to Exhibit B to this Agreement. B. Specific Services to be Provided. Initial Analysis and Investment Recommendation — the Advisor will analyze the City's investment requirements as set forth in the controlling documents for the Bond Issue designated by the City, and will (i) provide a capital needs analysis, cash requirements analysis and investment requirement analysis; and (ii) recommend the appropriate investment medium required to meet such investment requirements. City Control — the City may choose to follow or disregard any recommendations or advice furnished by the Advisor and may make such recommendations or advice available to others for the purpose of implementing such recommendations. Structuring the Request For Bids document — the Advisor will work with the financing team in creating an investment structure and bid document which provides the maximum flexibility while maintaining safe and sound investment practices. It is the policy of the Advisor to have the bid document reviewed by the financing team, including bond counsel and Uirstee's counsel, prior to distribution to prospective bidders. The Advisor will prepare and distribute the bid packages and interface with all of the bidders to insure the greatest response to the bid request. Conducting the bid process — the Advisor will conduct the bid process according to current Treasury Regulation and certify to the City and bond counsel the bids of each qualified provider. The City will know the exact results of each bid prior to the awarding of the investment(s). Coordinating the closing of the investment contract — the Advisor will work with the appropriate parties of the financing team in gathering all comunents and revisions to the investment contact. Ongoing follower — the Advisor will monitor and advise the City and trustee of any change in the rating of the agreement provider. The contact will also require the agreement provider to notify the City and trustee of a change or withdrawal of rating. Other Services —the Advisor provides consultations on st-uctnlred portfolios. FAFinancial Sm,c= LLC \C1icnmNcwpon Bcach. City ol\FRFS Agmemcnt 06- 25 -0I.doc EXHIBIT TO B PROFESSIONAL SERVICES AGREEMENT BY AND BETWEEN THE CITY OF NEWPORT BEACH AND FIELDMAN, ROLAPP FINANCIAL SERVICES, LLC COMPENSATION TO THE ADVISOR: Investment advisory services preformed pursuant to Section I of this Agreement, and as more fully described in the Scope of Services set forth in Exhibit A, will be compensated by payment of commissions from the providers of the investment products contemplated herein. ALL COMPENSATION RECEIVED BY THE ADVISOR WILL BE PAID BY THE PROVIDERS) OF THE INVESTMENT CONTRACTS UPON CLOSING OF THE INVESTMENT TRANSACTION. THIS EXHIBIT IS INTENDED TO BE DISCLOSURE INFORMATION TO THE CITY. THE FEES PAID TO THE ADVISOR WILL ALSO BE REFLECTED IN THE BID DOCUMENT WHICH WILL BE APPROVED BY THE CITY PRIOR TO BEING DISTRIDUTED TO PROSPECTIVE, QUALIFIED BIDDERS. FUND APPROXIM4TEDOLL-IR BASISPOINTFEE DOLLARAMOUNT "O UNT OF FU. \'D OF FEE Debt Service Reserve Approximately: $1,000.000 5 basis points $6,250 Fund (1) the fee for the Reserve Fund is calculated annualh to malurit} and present valued, paid at closing by the provider. All other fees are based upon the expected average life of the fund, paid at closing by the provider. \WTSERVFR\C01vfM0N\Financia1 ScIkcc LLC\CIicnUTRFS AWccmcm OS25- 01.doc 411 411 Accountants and Management Consultants The US Member Firm of Grant Thornton International May 16, 2001 Mr. Dennis C. Danner City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, CA 92658 -8915 Dear Mr. Danner: Grant Thornton T GRANT THORNTON LLP This letter is to confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide to the City of Newport Beach (the "City ") and Fieldman, Rolapp & Associates (the "Financial Advisor "). We will apply the following procedures, which the City and the Financial Advisor have specified to verify the mathematical accuracy of certain schedules provided to us in connection with the issuance of the City's Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A (the "Bonds ") and defeasance of the City's outstanding Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series A, dated December 1, 1995 and Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds, Series B, dated June 1, 1997 (collectively referred to as the "Refunded Bonds "): (1) We will recalculate the debt service requirements on the Refunded Bonds and the receipts from the United States Treasury Securities (the "Open- Market Securities ") delivered to the escrow account as shown in the schedules provided by the Financial Advisor. We will prepare an escrow account cash flow schedule confirming that the receipts from the Open - Market Securities will be sufficient to pay the debt service requirements of the Refunded Bonds. As part of our engagement we will read the applicable pages from the following documents to confirm the information used in our calculations: (i) Official Statements for the Refunded Bonds to obtain the principal amounts, principal maturity dates, interest payment dates, interest rates and optional redemption dates and prices on the Refunded Bonds; (ii) 500 Pillsbury Center North 200 South Sixth Street Minneapolis, MN 55402 Tel: 612 3320001 Fax: 612 3328361 Trade confirmations for the Open- Market Securities to obtain the principal amounts, interest rates and maturity dates; and 191 481 P Mr. Dennis C. Danner May 16, 2001 Page 2 (2) We will recalculate the yield on the receipts from the Open- Market Securities and the yield on the Bonds as shown in the schedules provided by the Financial Advisor. As part of our engagement we will read the applicable pages from the following documents to confirm the information used in our calculations: (i) Trade confirmations for the Open- Market Securities to obtain the principal amounts, interest rates, maturity dates and purchase prices; and (ii) Official Statement for the Bonds to obtain the principal amounts, principal and interest payment dates, interest rates and issue price to the public for the Bonds. The computations will be done on the basis of certain information and assumptions obtained from the documents provided by the City. We will not examine the information provided to us and we will not express an opinion as to the completeness, accuracy, or suitability of this information for the purposes of this calculation and the City will indemnify and hold us harmless from any liability, damages and legal or other costs we might sustain in the event such information is false. Upon completing the aforementioned procedures we will issue a report detailing our findings. We will discuss the calculations with you before the report is issued. This distribution of the report will be limited to the City, its counsel, the Financial Advisor, the underwriter and the trustee, who have represented to us that the procedures are sufficient for their purposes. We have no obligation to update this report because of events occurring, including changes in Treasury regulations, or information coming to our attention subsequent to the date of this report. Our fee for this engagement will be $3,500 which includes all expenses. This quote includes only those services outlined above and any additional services such as appearing before judicial proceedings will be billed for separately. We appreciate the opportunity to work with you on this engagement. If you have any questions about the engagement please feel free to call me at (612) 677 -5205. Sincerely, Kevin M. Stombaugh Senior Manager - Public Finance ano cc: Sara Oberlies, Stone & Youngberg LLC Larry Rolapp, Fieldman, Rolapp & Associates The foregoing letter fully describes the services required and is accepted by us. Date Signature <a E May 11, 2001 NBS Government Finance Group Mr. Dennis Danner Finance Director CITY OF NEWPORT BEACH 3300 Newport Boulevard Newport Beach, CA 92663 Subject: Agreement to Provide Services jor the Refinancing of Special Improvement District 95 -1 Dear Mr. Danner: Thank you for the opportunity for NBS Government Finance Group to submit this agreement to provide services for the refinancing of Special Improvement District No. 95 -1 (CIOSA) Special Tax Bonds for the City of Newport Beach (the "City"). We appreciate the opportunity to continue working with the City. Please find attached two (2) copies of our Executed Agreement. Upon signing, please return one copy to the undersigned and keep one copy for your records. SCOPE OF SERVICES I Special Improvement District Rerinancinz Services I KIC %OFF MEETING, PROJECT SCHEDULE. NBS/GFG will meet with City staff, bond counsel, the financial advisor and other interested parties to: ♦ Establish lines of communication. ♦ Clarify the specific project goals and criteria that will meet the City's preference. ♦ Identify and resolve any special circumstances regarding the refunding of the CFD. ♦ Develop project schedules to meet legal requirements and provide for effective interaction of all involved parties. • Establish meeting dates consistent with schedule to achieve project milestones., DATA COLLECTION. NBS /GFG will gather and review data relevant to the refunding of the Community Facilities District. Data will be obtained from various sources, including City records, Assessor's parcel maps, and County Assessor information. 41661 Enterprise Circle North, Suite 225, Temecula, CA 92590 909.296.1997 800.676.7516 Fax 909.296.1998 Temecula San Francisco 0 4f 491 PRELIMINARY DISTRICT BOUNDARIES. NBS /GFG will make preliminary determinations of the property subject to the Special Tax. ♦ Establish tentative boundaries for the Community Facilities District, giving consideration to both the project area and peripheral lands (direct and indirect benefits). ♦ Verify ownership based on last equalized tax roll. ♦ Formulate concepts with viable alternatives for spreading costs equitably within the area of benefit. PRELIMINARY COST ESTIMATE. NBS /GFG will obtain the estimate of project costs and incidental expenses and prepare a preliminary total project Cost Estimate. PRELIMINARY RATE AND METHOD OF APPORTIONMENT. NBS /GFG will meet to review and discuss the preliminary Rate and Method of Apportionment with the City, bond counsel, the financial advisor and others, as appropriate. If necessary, modify criteria and spread to more accurately distribute the cost related to specific benefit conferred and general benefit conferred, if any. MAPPING. NBS /GFG will prepare the Proposed Boundary Map and related documents and present to the City as required by the City's Special Improvement District Financing Code. PRELIMINARY SPECIAL TAX REPORT. Based on the results of the aforementioned reviews, discussions and modifications, NBS /GFG will prepare a detailed written report (Draft Preliminary Special Tax Report) including the preliminary Cost Estimate, the preliminary Rate and Method of Apportionment and the preliminary Boundary Map and present to the City, bond counsel, the financial advisor and property owners. NOTICES AND BALLOTS. NBS /GFG will prepare and mail notices and ballots to all property owners within the boundary of the proposed community facilities district listed on the last equalized County Assessor's roll in accordance with the time schedule. The notices and ballots will comply with "Proposition 218, The Right to Vote on Taxes Act" and the City's Special Improvement District Financing Code. Final form of notices and ballots will be determined by Bond Counsel and approved by the City. MAP RECORDATION. NBS /GFG will record the Proposed Boundary Map with County Recorder in compliance with the City's Special Improvement District Financing Code. SPECIAL TAX REPORT REVISIONS NBS /GFG will revise and amend the Preliminary Special Tax Report, including the Cost Estimate, Rate and Method of Apportionment and the Boundary Map as appropriate, based on direction received at the public hearing. File the Preliminary Special Tax Report for with the City Clerk. PUBLIC HEARING. NBS /GFG will present all necessary testimony and respond to public comments regarding the district refunding proceedings. Prepare a booklet for each member of the City Council and each appropriate staff member, consisting of a Special Tax Report, a listing of parcel ownership and general information. Prior to conclusion of the hearing, tabulate all ballots and file a written summary thereof with the City. FINAL SPECIAL TAX REPORT. NBS /GFG will revise and amend the Preliminary Special Tax Report, including the Cost Estimate, Rate and Method of Apportionment and the Boundary Map as appropriate, based on direction received at the public hearing. Prepare a Final Special Tax Report, • including a signed Special Tax Certificate, for submittal to the City. NBS Government page 2 w- aRa,�w_crva�-xrrccr� GFG Finance Group FILING CFD DOCUMENTS. NBS /GFG will, if revised from the Proposed Boundary Map, record . an Amended Proposed Boundary Map with County Recorder in compliance with the City's Special Improvement District Financing Code. Record the Notice of Special Tax Lien, including the Rate and Method of Apportionment, with County Recorder in compliance with the City's Special Improvement District Financing Code. PROVIDE DATA FOR BOND DOCUMENTS. NBS /GFG will provide certain disclosure data for the bond documents including the Official Statement. Such data shall include parcel data, assessed value data, value -to -lien information, Special Tax classification information and other relevant data necessary for proper disclosure to potential bond investors. REVIEW BOND DOCUMENTS. NBS /GFG will review all bond documents prepared and provided by bond or other legal council and the financial advisor including the Official Statement, the Bond Indenture and the Continuing Disclosure Agreements. TOLL -FREE PHONE NUMBER. NBS /GFG will provide a toll -free phone number for use by the City, other interested parties and all property owners. Our staff will be available to answer questions regarding the refunding and ongoing collection of special taxes for the City. Bilingual staff is available for Spanish- speaking property owners. FEE STRUCTURE Special Improvement District Refinancing The fee for the listed scope of services will be $20,000 including expenses. . ADDITIONAL INFORMATION Additional Services Following is the current hourly rate. Additional services authorized by the City will be billed at this rate or the then applicable hourly rate. Title_ Hourly Rate Director $ 135 Engineer 125 Senior Consultant/Programmer 110 Consultant 85 Analyst 65 Clerical/Support 45 NBS Government page 3 GFG Finance Group 0 E Terms Services will be invoiced quarterly at the beginning of each quarter. Fees for all other services will be invoiced upon completion of the task. Payment shall be made within 30 days of submittal of an invoice. If payment is not received within 90 days simple interest will begin to accrue at the rate of 1.5% per month. Either party can cancel administration contracts with 30 days written notice. Best regards, NBS Government Finance Group Mike Rentner Managing Director Title Date City of Newport Beach Name Title Date NBS Government Page 4 ,.V NsrpxrErc# GFD REF!•I101.RUc GFG Finance Group