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HomeMy WebLinkAboutS16 - 2010 Civic Center Financing DocumentsCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. s 16 November 9, 2010 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Tracy McCraner, Administrative Services Director (949) 644 -3123 or tmccraneranewportbeachca.gov Dan Matusiewicz, Deputy Administrative Services Director (949) 644 -3126 or danm(a)newportbeachca.gov SUBJECT: RESOLUTION 2010 -_; Authorization for 2010 Civic Center Financing Documents ISSUE: Authorize the execution and delivery of all legal documents necessary for the sale of Certificates of Participation (COPS) to finance the Civic Center Project and refinance the 1998 Central Library COPs (the "2010 COPs "). RECOMMENDATION: 1. Adopt Resolution No. 2010 authorizing the preparation, execution and delivery of the 2010 Certificates of Participation (COPS) in an amount not to exceed $128 million and authorizing the execution and delivery of certain documents and directing certain actions in connection with the issuance, sale and delivery of said COPs. 2. Approve Budget Amendment appropriating funds necessary for the first principal and interest installments due through July 1, 2011, and additional funds estimated for the underwriter's discount and cost of issuance. 3. Approve the attached two Mutual Understandings and the Amendment of Declaration of Special Land Use Restrictions with The Irvine Company. DISCUSSION: Background: In conjunction with the City's Facilities Replacement Plan, the City Council has directed staff to take certain steps toward the preparation and construction of the Civic Center Authorization for Civic Center Financing Documents November 9, 2010 Page 2 project site. Grading of the site is nearly complete and various construction contracts are currently in progress. Build America Bonds Currently, the City has the option to utilize taxable federal Build America Bonds (BABs) with a 35% federal interest rate subsidy to achieve a significantly lower financing cost than would be otherwise available through the sole use of traditional tax exempt municipal bonds. In the current market, it is estimated that the use of the BABs program would save the City approximately $310,000 per year for thirty years for a net present value savings of approximately $5.2 million. These savings are inclusive of all issuance costs The BAB subsidy program is scheduled to expire on December 31, 2010. While there have been several legislative proposals introduced to extend the program beyond 2010, none have passed to date. Further, proposals to extend the program have been at a reduced subsidy rate, making the program less economically beneficial to the City. In order to position the City to take advantage of historically low interest rates, a favorable construction bidding environment and the current BAB interest rate subsidy of 35% (due to expire by the end of the calendar year), staff is proposing that Council authorize staff to take all the steps necessary to issue COPS at this time. Delaying the financing any further could jeopardize the significant savings offered from the BAB program and expose the City to potential market risk versus the favorable financing rates available at this time. As currently contemplated, the City proposes to issue a combination of traditional tax exempt municipal COPS (Series A) for those COPS maturing in the first ten years and taxable BAB COPS (Series B) for those COPS maturing beyond 10 years. The precise combination of traditional tax exempt versus taxable BAB COPS will be driven by market conditions and will continue to be analyzed up until the day of issue in order to determine the combination that achieves the lowest overall interest cost to the City. Based on current project estimates, staff is proposing that Council authorize an amount not to exceed $128 million for the uses approximated as follows: Current Civic Center Project Estimate $123,000,000 Refinancing of 1998 COPS 3,525,000 Cost of Issuance 625,000 Underwriter's Discount 715,000 TOTAL $127,865,000 The Legal Structure Certificates of Participation are similar to bonds but a COP investor receives fractional interest lease revenues as opposed to receiving a simple pledge of interest and principal payments secured by a bond. Therefore, integral to the COP structure is a lease - leaseback of public facilities. Accordingly, included with this transaction are several required lease agreements reflecting the City's intent to lease- leaseback several public Authorization for Civic Center Financing Documents November 9, 2010 Page 3 facilities between the City and the City's non - profit Newport Beach Public Facilities Corporation. Avoiding Capitalized Interest - In order to make lease payments on a facility, the City must have the ability to occupy a facility. Because the Civic Center will not be completed for another two years, the City would be required to pre fund or borrow the lease payments to compensate investors during the construction phase of the project. Instead, the City opted to offer ten City -owned facilities to serve as interim collateral for the lease payments thus avoiding the need to fund capitalized interest on the COPs. Collectively the pledged interim collateral needs to meet or exceed the expected principal amount of COPS issued approximating fair rental value of the project lease. The proposed interim collateral consists of the following Properties: List of City Assets Securing 2010 COP Lease Asset Year Constructed Asset Values $1000 Newport Coast Community Center 2007 17,600 Mariner's Library 2006 10,100 Fire Station 7 (Santa Ana Heights) 2007 11,300 Fire Station 8 (Newport Coast) 1995 5,500 Central Library 1997 28,700 OASIS Senior Center 2010 29,800 Fire Station 3 (Newport Center) 1971 8,100 Fire Station 4 (Balboa Island) 1994 3,900 Police Station 1973 19,400 Civic Center Site N/A Undetermined TOTAL ASSET VALUE $ 134,400 Upon completion of the Civic Center, the encumbrance on the above properties can be released at which time the encumbrance will be solely the Civic Center itself (including the Central Library), which will serve as the basis for the lease collateral until the COPs are paid off. By utilizing the "Asset- transfer" form of lease financing, the City was able to avoid capitalizing interest costs with a present value savings of approximately $409,000. One of the above listed properties, the Central Library, had an existing encumbrance related to the 1998 COP financing of the Central Library and a deed restriction originating when the property was acquired from The Irvine Company. At the October 26th Council meeting the City authorized and directed staff to defease the 1998 COPs thereby releasing the encumbrance on this property. As part of this transaction, the City has also confirmed with The Irvine Company that the financing and construction of the Civic Authorization for Civic Center Financing Documents November 9, 2010 Page 4 Center project is consistent with the terms under which the City acquired the Civic Center and Central Library parcel. No Debt Service Reserve - Because of the City's conservative fiscal policies and fiscal strength, the City was also able to structure this financing without a required debt service reserve. This is rather unique and is only feasible for issuers with the highest credit ratings. A typical debt service reserve for a COP issue of this size and term would be approximately $8.6 million. By not funding this reserve, the City was able to reduce the total borrowing to achieve approximately $845,000 in net present value savings avoiding negative arbitrage on the debt service reserve. RATINGS In October, the top three rating agencies reviewed the finances and management policies of the City along with the proposed financing structure described above. The City and the proposed bond issue received the highest achievable ratings as follows: Underlying COP City Rating Rating Moody's Aaa Aa2 Standard and Poor's AAA AA+ Fitch AAA AA+ With these ratings the City became the first Orange County city to receive an AAA by all three rating agencies and only the fifth city in California to receive an AAA rating by all three agencies. These high ratings are important to the City because the investor relies heavily on these ratings to assess the risk of a given investment. The high ratings translate to lower perceived credit risk and ultimately lower interest rates for the City. TIMING With the above credit ratings in mind, current market conditions and a federal BAB subsidy of 35 %, the all -in true interest cost is expected to be approximately 4.20 %. This produces an average annual net debt service payment of approximately $7.5 million ($8.8 million before subsidy). This debt service payment is consistent, in both amount and timing, with those estimated throughout the Facilities Replacement Plan and is within policy constraints of Council Policy F- 28. The combination of the strong credit ratings, historically low interest rates (including the BAB subsidy) and the advantageous construction bidding environment create an excellent opportunity to enter into this debt issue and construction project. If approved, the interest rates will be determined by market orders and pricing on November 18th and is expected to close on November 30`h Adoption of Resolution No. 2010- approves the form of the documents on file with the City Clerk and authorizes the Mayor, City Manager, Administrative Service Director and City Clerk to execute the documents and to take all actions necessary to complete the Authorization for Civic Center Financing Documents November 9, 2010 Page 5 financing. In particular, adoption of this resolution approves the form of the Preliminary Official Statement (POS) the Site Lease, the Lease /Purchase Agreement, Trust Agreement, Certificate Purchase Agreement, the Agency Agreement and Continuing Disclosure Agreement. Among these documents, the POS is of particular importance because it represents the offering document or prospectus pursuant to which the Certificates are offered to investors. The POS contains certain financial and operating information related to the City and is drafted to comply with federal securities law. Other documents that are submitted for approval include a Budget Amendment for initial principal and interest installments due through July 1, 2011, and additional appropriations necessary to fund the estimated underwriters discount and additional cost of issuance of the COPS. The MOUs with The Irvine Company are also submitted for approval documenting that both parties concur that the intended use of the Civic Center and Central Library properties are consistent with previous acquisition and development agreements. Environmental Review: This action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Public Notice The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Funding Availability: Initial funding is provided by the General Fund and the facilities replacement reserve but it is anticipated that project advances will be reimbursed by the proposed COPs. Alternatives: City Council could direct staff to seek alternative means to finance the Civic Center project. Prepared by: ez Dan Matusiewicz Deputy Director Submitted by: e Tracy Mc ner Administr a Services Director Authorization for Civic Center Financing Documents November 9, 2010 Page 6 Attachments: Site Lease Lease /Purchase Agreement Resolution Authorizing Sale of Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) and related documents Trust Agreement Agency Agreement Preliminary Official Statement Continuing Disclosure Agreement Bond Purchase Agreement Budget Amendment Mutual Understanding for Library Site Mutual Understanding for Civic Center Site Amendment to Declaration of Special Land Use Restrictions F \! FO RQI� City Council Meeting 11/09/2010 2010 Civic Center Financing Overview and Related Documents CITY OF Newport Beach Presentation Outline • Project Estimate Update • Introduce Financing Team • Financing Overview • "What is a Certificate of Participation (COP) ?" • Financing Structure & Legal Documents • Credit Strengths, Market Conditions & Affordability • Next Steps • Summary ,:� rEVV�Rr O R, u i C�Qvp6N�t G Project Phase All -In Estimates All- In Estimates Concept Design Phase Schematic Design Phase Design Development Phase Construction Document Phase � aa6�'"ORT O �nn J C�QFppN�t S CITY OF Newport Beach $14030009000 $13430003000 $13030003000 $12330005000 3 CITY OF Newport Beach All -In Construction Document Phase All -In Estimate - Construction Document Phase City Hall Office Building $56,000,000 Parking Structure (450 Spaces) *$7,400,000 Grading, Export, & Shoring wall *$7,500,000 Central Library Expansion $101100,000 Civic Center Park (North Park, Central, and Civic Green) $189000,000 Construction Contingency (< 3 %) $2,9009000 Project Design (time & material at a cost not to exceed) $12,0001000 Project Management ( time & material at a cost not to exceed) $79000,000 Furniture, fixtures and Equipment $2,000,000 Total Construction Document Project cost = $123,000,000 Cost of Issuance $1,343,715 Library Bond Refinancing $3,525,858 Total Bond financing = $127,869,573 *actual bid numbers 4 � aa6�'"ORT O �nn U S C�QFppN,r CITY OF Newport Beach Civic Center Component Costs Project Estimate - $123 Million Project FF &E $2M Management, $7M I Project Design, $1 Construction Contingency, $3M Parks, $1 Library Addition, $1OM Grading, Export, Wall, $8M Parking Structure, $7M City Hall, Council Chambers, Community Room $56M 5 CITY OF Newport Beach Civic Center Financing Team • City of NgmTort Beach • Dave Kiff, City Manager • Tracy McCraner, Director of Administrative Services • Dan Matusiewicz, Deputy Director of Administrative Services • Steve Badum, Public Works Director • Leonie Mulvihill, Assistant City Attorney • Financial Advisor - Heldman, Kola pp &Associates: The role of the financial advisor is to work with the issuer, financing team and the underwriter to determine the structure and timing of the issue, to review bond documents and ensure the issuer receives the lowest cost of financing the market will bear. • Tom DeMars • Robert Porr • Paul Pender • Bond Counsel — Stradling Yocca, Carlson & Rauth: Primary role is to certify as to the validity of the securities and that the securities qualify for federal tax exemption. They also assist in drafting financing documents, ordinances and resolutions. ■ Dave McEwen Brian Forbath G CITY OF Newport Beach Civic Center Financing Team (continued) • Disclosure Counsel — Hawkins Delafield & Wlood T J.P: Responsible for the preparation of the Official Statement (OS), Preliminary Official Statement (POS) and the purchase agreement. Advise the City regarding compliance with securities regulations and SEC disclosure issues. The POS is an important document as it summarizes the proposed issue, security pledge, and relevant information concerning the creditworthiness of the City. • Arto Becker • John McNally • Diane Quan • Lead Underwriter Stone & Youngberg.• The primary function of the underwriter is to market and sell securities issued by the City to investors. The goal of the underwriter is to create as much demand as possible, causing competition between buyers, and to achieve the lowest cost of funds for the City's financing that the market will bear. Stone and Youngberg is the senior underwriter and will handle the affairs of the team of underwriting firms on behalf of the City. • Bill Huck • Ken Holman ®STONE & Bank of America��I a DE LARosA &Co. YO U N G B E RG Merrill Lynch ' ` ' I N V E S 7 M E N T K A N K E R S O u i C�[wOPN.t 7 CITY OF Newport Beach Financing Overview • City anticipates issuing up to $128,000,000 in Certificates of Participation (COPs), secured by lease payments subject to annual appropriations from its General Fund ¢d�W °pRT O A� G c�G /cOMN,' a ■ New Civic Center Complex — Project includes a City Hall building City Parks, a 450- spaceparking structure, expansion of the Newport Beach Central Library and a disasterpreparedness center — COPs will be secured by lease payments relating to several existing and essential, City assets ■ Refunding — A portion of the proceeds will be used to refund the remaining 1998 Central Library COPs — $3.99 million outstanding — Estimated savings $115,000 peryear over the next 9years for a total savings of $1,035,000 Source: City of NeVortBeach Design for New Civic Center ■ CITY OF Newport Beach Certificates of Participation (COPs) COPs are one of the most commonly used financing instruments by local governments in California. Structured as lease obligations, COPs are like bonds, but are not general obligations of the City and do not involve any increases in local taxes. � aa6�'"ORT O �nn U S C1QFppN.r • Lessor (Newport Beach Public Facilities Corporation) and Lessee (City) enter into a lease /purchase agreement related to the "Leased Premises ". • City promises to make semi- annual lease payments for use of the "Leased Premises ". • Corporation assigns its right to receive lease payments to the Trustee. • COPs represent the right of the investor to "participate" in receiving the stream of lease payments. • COPs are sold to investors through the underwriters. o Proceeds will be used to construct the Civic Center Complex and refinance the outstanding 1998 Library COPs to achieve annual savings. Source: City of Neu*ort Beach Design for New Civic Center CITY OF Newport Facilities Included in "Leased Premises" Eliminates need to finance Capitalized Interest of $12.9 million OASIS Senior Center ** Central Library ** Police Station ** Newport Coast Community Center ** Fire Station 7 — Santa Ana Heights ** Mariner's Library ** Fire Station 3 — Newport Center ** Fire Station 8 — Newport Coast ** Fire Station 4 ** 2010 1997 1973 2007 2007 2006 1971 1995 1994 169,884 174,240 118,152 133,548 91,912 64,355 49,380 47,350 4,482 36,467 50,930 47,964 16,865 11,027 15,305 13,605 6,975 4,400 $14,700,000 12,500,000 9,100,000 9,600,000 4,700,000 3,900,000 3,300,000 2,900,000 2,200,000 Beach $ 15,100,000 $ 29,800,000 16,200,000 28,700,000 10,300,000 19,400,000 8,000,000 17,600,000 6,600,000 11,300,000 6,200,000 10,100,000 4,800,000 2,600,000 1,700,000 8,100,000 5,500,000 3,900,000 Civic Center Site N/A 698,331 N/A Undetermined N/A Undetermined 66 S 62,900,000 S 71,500,000 S 134,400,000 *All values as of September 1, 2010 as determined by third party MAI appraisal. �a�EW°�RT ** The City will release all liens on "Leased Premises" upon the completion of the Civic Center complex. Source: Source: City of NenpoiY Beach 10 C�QFpp„,r CITY OF Newport Beach Financing Structure Contemplates both Tax - Exempt Series A and Taxable Series B ' Series A — Traditional Tax - Exempt Municipal Bonds (COPs) - interest payments are NOT subject to Federal income tax. • Series B — Taxable COPs sponsored by the federal Build America Bonds (BABs) program — interest payments are subject to federal income tax BUT, the federal government pays the issuer a subsidy = 35% of the interest rate. BABs program expires December 31, 2010. ¢d�W °pRT O A� G c�G /cOMN,' a ■ the economic benefit of utilizing BABs, as compared to issuing only tax- exempt bonds, is estimated to be approximately $306,000 /year or $9.2 million in cumulative savings over the life of the COPS (based on 11 / 1 /2010 market conditions.) Source: City of NeVortBeach Design for New Civic Center 11 Financing Estimates Dated /Delivery: First Interest Payment: First Principal Payment 11/30/2010 01/01/2011 07/01/2011 Series CITY OF Newport Beach 2010 -A 2010 -B :es (Tax- Exempt) (Taxable BABs) Total Par 531,525,000 $93,415,000 $124,940,000 Premium 2,929,573 $2,929,573 Total Sources $34,454,573 $93,415,000 $127,869,573 Project Fund $30,372,136 $92,627,864 $123,000,000 Escrow for 1998 COPS 3,525,858 - $3,525,858 Costs of Issuance 556,579 $787,136 $1,340,845 Total Sources $34,454,573 $93,415,000 $127,869,573 *Preliminary draft, subject to change. Build America Bond series 0 0 � allocation dependent on market conditions. u Source: Stone & Youngberg �<IFOQ� CITY OF Newport Beach COP Legal Documents • Preliminary Official Statement (POS) similar to a "prospectus" in the corporate context, is the disclosure document prepared by the City for use by the underwriters in offering the COPs for sale to the public. The POS contains the terms of the Certificates, the security pledged, the financial condition of the City, and other important data which investors will rely upon before purchasing the 2010 Certificates. The offering of the CON pursuant to the POS is subject to federal securities laws. • Management is responsible for ensuring the accuracy and content disclosed in the POS. • Bond Counsel, Disclosure Counsel, Financial Advisors and Underwriters all provide professional advice to management, based on their experience and knowledge of the financing. � aa6�'"ORT O �nn U C�QFppN.r S Source: City of Neu*ort Beach 13 CITY OF Newport Beach COP Legal Documents • Site Lease between the City and the Corporation wherein the City will lease the "Leased Premises" to the Corporation. • Lease /Purchase Agreement between the City and the Corporation where the Corporation agrees to lease the Leased Premises back to the City. The lease purchase agreement sets forth the City's obligation to make lease payments and other covenants protecting the security interests of investors. The purpose of the lease arrangement is to provide security for the City's pledge that it will provide a revenue stream sufficient to pay the principal and interest of the COPS to the investors. Once the Civic Center construction is complete, the liens against all other "Leased Premises" will be removed. � aa6�'"ORT O �nn U C�QFppN.r S Source: City of Neu*ort Beach 14 CITY OF Newport Beach COP Legal Documents • Trust Agreement among the City, the Corporation and the Trustee (BNYM) sets forth the responsibilities of the Trustee, flow of funds, certificate covenants and other provisions to protect the investors. • Assignment Agreement between the Corporation and the Trustee whereby the Corporation assigns all of its rights to receive lease payments from the City to the Trustee for the benefit of the investors. • Agency Agreement between the Corporation and the City whereby the Corporation appoints the City to construct the Civic Center project. � aa6�'"ORT O �nn U C�QFppN.r S Source: City of Neu*ort Beach 15 CITY OF Newport Beach COP Legal Documents • Continuing Disclosure Agreement establishes the terms and conditions pursuant to which the City will file an Annual Report of operations and finances related to the status of the COPs. The underwriters are required by SEC Rule 15c2 -12 to obtain such agreement from the City. • Purchase Contract outlines the terms, prices and conditions by which the underwriters agree to purchase the COPs from the City and by which the City agrees to sell the CON to the underwriters. � aa6�'"ORT O �nn U S C�QFppN�r Source: City of Neu*ort Beach 16 CITY OF Newport Beach Other Notable Financing Terms • No Reserve Fund- due to our strong financial health the City will not be required to finance a reserve fund, saving the City approximately $90,000 in cost of issuance (COI) and $58,500 /year in debt service payments for a total savings of $1,845,000 over the life of the COPs. • The Asset Transfer structure eliminated need to finance capitalized interest of approximately $12,900,000. Saving the City approximately $37,000 in COI and $24,000 /year in debt service payments for a total savings of $757,000 over the life of the COPs. • Refunding the Library COPS will save the City approximately $115,000 /year in debt service payments, or $1,035,000 over the next 9 years(based on market conditions as of 11/1/2010). Source: City of Neu*ort Beach 17 CITY OF Newport Beach 10 - YR TREASURY YIELDS CURRENTLY NEAR HISTORIC LOWS 16 is 12 10 M a 6 a 2 0 Nm,62 10 -Year U.S. Treasury • 10 -Yr yields are slightly above December 2008 all -time lows. Rates have been lower than current 2.60% approximately I% of the time since November 1962. lover a span of -48 yearn U�S CQvppN r W CITY OF Newport Beach 30 -YR TREASURY YIELDS CURRENTLY NEAR HISTORIC LOWS 30 -Year U.S. Treasury 16 14 12 10 ( %) 8 6 4 2 0 Nov-77 Nov-80 Max = 15.21% Min = 2.531% Current = 4.12% (11/8/10) Nov-83 Nov-86 Nov-89 Nov-92 Nov-95 Nov-98 Nov-01 Nov-04 Nov-07 Nov-10 • 30 -Yr yields are above December 2008 all -time lows. Rates have been lower than current ?EW�RT 4.12% approximately 2% of the time since November 1977. (overa span of -33 years) O� u i C[aOPNr 19 CITY OF Newport Beach Build America Bond (BAB) Opportunity • Currently the City has the option to utilize the federal Build America Bond (BAB) program where the could issue taxable bonds that would be eligible for interest subsidy of 35% of the interest cost. However, this program is due to expire December 31, 2010. While there have been several legislative proposals to introduced to extend beyond 2010 none have passed to date. • Including BABs within a portion of the financing structure is anticipated to save the City approximately $306,000 /year in debt payments, or $9.2 million over the life of the COPS (based on market conditions of 11/1/2010.) • The City's Financial Advisor and Underwriting Team will continue to monitor the BAB savings through the pricing date to ensure the best possible structure to the City. � aa6�'"ORT O �nn U C�QFppN.r S Source: City of Neu*ort Beach Design for New Civic Center 20 CITY OF Newport Beach Facilities Replacement Plan • Before embarking on the Project, the City Council and management reviewed a comprehensive plan to replace all critical facilities through the creation of Facilities Financing Plan. • City estimated the cost of replacing all facilities over thirty year period and created a sinking fund to amortize and level fund the replacement considering cash set - asides, developer contributions and private fundraising. To date, the City has set -aside $31.3 million to cash fund the construction expenditures or debt service. Per Council Policy F- 28, the City has set a maximum threshold for annual General Fund contributions to the Facilities Replacement Program at no more than 5% of total General Fund Operating Budget. • Facilities Financing Plan, awarded the Helen Putnam Award for Excellence in Internal Administration, ensures prudent financial management, that the City can afford this issue at this time, and projected over the next 30 years that the COPs remain outstanding. � aab�'°ORT O �nn U S 4�,roaMr Source: City of Neu*ort Beach 21 CITY OF Newport Beach Independent Ratings • After considering the Financial Strength of the City including governance, financial management, demographics, proposed legal and financing structure, the top three rating agencies were asked to provide an underlying rating of the City and the COP credit. • Newport Beach received an underlying AAA rating from all 3 rating agencies, becoming the 151 Orange County city and only the 5th California city to earn a AAA from all three. � aa6�'"ORT O �nn U S C�QFppN.r The COP ratings of Aa2 and AA+ are the highest attainable ratings offered by each agency for COPs. For more information visit: www.newl2ortbeachca.gov /bonds 22 CITY OF Newport Beach What's next ■ November 11, 2010 - target for plan completion and building permit issuance. • November 17 -18, 2010 - pricing of COPs • November 30, 2010 - COP Closing, proceeds available for Project • December 1, 2010 - "1998 Library COPS" redeemed. • Mid - December - bids returned for various trade packages. • January 23, 2011 - final construction GMP amendment to be considered by City Council. • February 2011 - begin construction of City Hall office building, Parking Structure, Council Chambers, Community Room, Library addition, Central Park and North Park 23 CITY OF Newport Beach Summary • Part of 30 year master facilities replacement plan (also known as the Facilities Financing Plan) • Good Construction Bidding Environment • Efficient Legal & Financing Structure • Historically Low Interest Rates ■ Opportunity to utilize Build America Bonds (BAB) for potential additional savings • Independent rating agencies assigned by the City and COP structure the highest attainable rating signifying strong financial position, strong governance & financial management, good credit structure and affordability. • Paid from existing revenue sources — Not an additional tax levy. � aa6�'"ORT O �nn U C�QFppN�r S 24 CITY OF Newport Beach Recommendations ■ Adopt Resolution No. 2010 - Authorizing the preparation, execution and delivery of the 2010 COPs in an amount not to exceed $128 million and authorizing the execution and delivery of certain documents and directing certain actions in connection with the issuance, sale and delivery of COPs. ■ Approve Budget Amendment appropriating funds necessary for the first principal and interest installments due through July 1, 2011, and additional funds estimated for the underwriter's discount and cost of issuance. ■ Approve two Mutual Understandings and the amendment of Declaration of Special Land Use Restrictions with the Irvine Company. aa6'"ORT O �nn U S � ee cGicOPY 25 CITY OF traoa�`* Newport Calendar Subscribe to News & Alerts FAOs Beach Welcome to the City of Newport Beach Webpage Related to thf Upcoming Issuance and Sale of its 2010 Certificates of Participati (2010 Certificates) The City of Newport Beach, in conjunction with the City of Newport Beach Public Facilities Financing Corporation, plan to issue Certificates of Participation to refinance the City's outstanding 1998 Library CODs and finance the acquisition, improvements and equipping of the Civic Center Project. City Press Release — October 19, 2010 City of Newport Beach Underlying Ratings: Moody's Investor Service, Standard & Poor's and Fitch Ratings have a assigned the City of Newport Beach an AAA credit rating, the highest possible underlying rating. 2010 Certificates of Participation Ratings: Standard & Poor's and Fitch have both assigned a AA+ rating to the COPS. (Generally, and in this instance, Standard & Poor's and Fitch assign COPS a rating which is one step lower than an agency's underlying rating) Moody's has assigned an Aa2 rating. CGenerally, and in this instance, Moody': assigns COPS a rating which is two steps lower than an agency's underlying rating) A link to the three rating reports is below: • Fitch Report • Moody's Report • Standard & Poor's Report Via the five links to the left, you are invited to learn more about the City's 2010 Certificates and how to inquire about being an investor. CITY OF Newport Beach Affordability - COPs Lease Payment Compared to General Fund Expenditures Total Projected COP Lease Payment Compared to Total GF Expenditures ■ Total General Fund Expenditures ■ Total COP Debt Service � aa6�'"ORT O �nn U S C�QFppN�r 4.70% Newport Beach Median Household Income compared to Mortgage Expense ■ Income After Mortgage ■ Annual Mortgage Payment 27 Site Lease RECORDING REQUESTED BY: City of Newport Beach AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: David R. McEwen, Esq. Stradling Yocca Carlson & Rauth Draft of 10127/10 use. This document is recorded for the benefit of the City of Newport Beach and recording is fee - exempt under §27383 of the Government Code. SITE LEASE by and between CITY OF NEWPORT BEACH and NEWPORT BEACH PUBLIC FACILITIES CORPORATION Dated as of November 1, 2010 Relating to CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOC/ 1423572v5/022459 -0014 SITE LEASE This SITE LEASE, dated as of November 1, 2010, by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), and the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation"); WITNESSETH: WHEREAS, the Corporation has agreed to enter into this Site Lease (the "Site Lease ") with the City wherein the City will lease the real property described in Exhibit A hereto and the existing improvements thereon (the "Leased Premises ") to the Corporation; and WHEREAS, the Corporation intends to lease back to the City the Leased Premises pursuant to a Lease/Purchase Agreement to be executed and entered into as of the date hereof (the "Lease "); and WHEREAS, by resolutions the City and the Corporation have agreed to execute this Site Lease, and to deliver it upon performance and compliance by each party with all terms or conditions of this Site Lease to be performed concurrently herewith, including, without limitation, the delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates ") executed and delivered pursuant to a Trust Agreement, dated as of the date hereof (the "Trust Agreement'), by and among the City, the Corporation, and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "); and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Site Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into the Site Lease. NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: Section 1. Definitions. All terms not otherwise defined herein shall have the definitions given such terms in the Trust Agreement or the Lease. Section 2. The Leased Premises. The City hereby leases to the Corporation and the Corporation hereby leases from the City, on the terms and conditions hereinafter set forth, the Leased Premises; provided that the Lease is duly executed and delivered by the parties hereto simultaneously herewith. DOCSOC/ 1423572v5/022459 -0014 Section 3. Term. The term of this Site Lease shall commence as of the date of execution hereof and shall remain in effect until the later of July 1, 2040 or the Term, as defined in the Lease, expires as provided therein, unless such term is sooner terminated as hereinafter provided; provided, however, that in the event of a default by the City under the Lease and the Corporation's election to terminate the Lease under Section 9.2(b) thereof, the term of this Site Lease shall not terminate until such time as all amounts payable by the City under the Lease and the Trust Agreement have been paid in full. Section 4. Rental. The Corporation, and any assignee or successor in interest of the Corporation under this Site Lease, shall pay to the City a single rental payment of $ , from proceeds of sale of the Certificates, by causing such amount to be deposited to the Project Fund and the Lease Payment Fund under the Trust Agreement. Section 5. P=ose. The Corporation shall use the Leased Premises solely for the purpose of leasing back such Leased Premises to the City pursuant to the Lease and for such purposes as may be incidental thereto; provided, that in the event of default by the City under the Lease or termination pursuant thereto, the Corporation may exercise the remedies of repossession of the Leased Premises, as provided in the Lease. Section 6. Interest in Leased Premises. The City warrants and covenants that it has sufficient interest in the Leased Premises to lease it hereunder. hi the event of a title defect in the Leased Premises that impairs the right to use and occupy the Leased Premises, the City covenants that it will exercise its power, including but not limited to, its condemnation powers to the extent permitted by law, to obtain the necessary rights in the Leased Premises and to cure such defect and limitation of the right to use and occupancy. Section 7. Assignments and Subleases. The City acknowledges and affirms the assignment by the Corporation of certain of its rights under this Site Lease to the Trustee, under the terms of the Assignment Agreement dated as of the date hereof, for the benefit of the Owners of the Certificates. This Site Lease may also be assigned and the Leased Premises subleased, as a whole or in part, by the Corporation without necessity of obtaining the consent of the City, if any event of default occurs under the Lease. Section 8. Termination. The Corporation agrees, upon the termination of this Site Lease, to quit and surrender the Leased Premises in the same good order and condition as the same was in at the time of commencement of the term hereunder, reasonable wear and tear excepted, and agrees that any permanent improvements and structures existing upon the Leased Premises at the time of the termination of this Site Lease shall remain thereon and title thereto shall vest in the City. Upon the exercise by the City of its option to purchase a portion of the Leased Premises, as set forth in Section 7.3 of the Lease and upon payment therefor, a corresponding portion of the Leased Premises may be released from this Site Lease. Upon payment by the City of all Lease Payments and all Additional Payments due during the term of the Lease, as provided for in Article IV thereof, the term of this Site Lease shall terminate. Under no circumstances may the City terminate this Site Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation hereunder. 2 DOCSOC/ 1423572v5/022459 -0014 Section 9. Ouiet Eniovment. The Corporation at all times during the term of this Site Lease shall peaceably and quietly have, hold and enjoy all of the Leased Premises; provided, however, that the City shall have the right to replace or renovate some or all of the existing improvements to the Leased Premises with new improvements of equivalent or greater value. Section 10. Default. In the event the Corporation shall be in default in the performance of any obligation on its part to be performed under the terms of this Site Lease, which default continues for 30 days following written notice and demand for correction thereto by the City, the City may exercise any and all remedies granted by law; provided, however, that no merger of this Site Lease and the Lease shall be deemed to occur as a result thereof and, so long as any Certificates and Additional Certificates are outstanding, this Site Lease shall not be terminated except as provided in Section 8 hereof. Section 11. Taxes. Subject to the provisions of Section 7.7 of the Lease, the City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Premises. Section 12. Eminent Domain. In the event the whole or any part of the Leased Premises is taken by eminent domain proceedings, the interest of the Corporation shall be recognized and is hereby determined to be the amount of unpaid Lease Payments and all Additional Payments due the Corporation under the Lease. Section 13. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Site Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Site Lease shall be affected thereby, and each provision of this Site Lease shall be valid and enforceable to the fullest extent permitted by law. Section 14. Applicable Law. This Site Lease shall be governed by and construed in accordance with the laws of the State of California. Section 15. Representatives. Whenever under the provisions of this Site Lease the approval of the Corporation or the City is required, or the Corporation or the City is required to take some action at the request of the other, such approval or such request shall be given for the City by the City Manager or the Assistant City Manager, or their written designees, as representative, and for the Corporation by its President, Vice - President, Secretary, Assistant Secretary or Treasurer, or their written designees, as representative, and any parry hereto shall be authorized to rely upon any such approval or request. Section 16. Captions. The captions or headings in this Site Lease are for convenience only and in no way define, limit or describe the scope of intent of any provision or Section of this Site Lease. Section 17. Execution in Counterparts. This Site Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute but one and the same instrument. DOCSOC/ 1423572v5/022459 -0014 Section 18. Amendments. This Site Lease may be amended in writing as may be mutually agreed by the City and the Corporation; provided, however, that no such amendment which materially adversely affects the rights of the Owners of the Certificates and any Additional Certificates shall be effective unless it shall have been consented to by the Trustee and the Owners of a majority in aggregate principal amount of the Certificates then Outstanding. Section 19. Incorporation. This Site Lease shall be subject to all the terms and conditions of the Lease. Section 20. Warranties of the City as to the Leased Premises. The City covenants and warrants to the Corporation that: (a) except for Permitted Encumbrances, the Leased Premises is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the financing as contemplated by the Lease; (b) all taxes, assessments, or impositions of any kind with respect to the Leased Premises, except current taxes, have been paid in full; (c) the Leased Premises is properly zoned for its intended purposes; and (d) the Leased Premises is necessary to the City in order for the City to perform its governmental functions. [REMAINDER OFPAGE INTENTIONALLYLEFT BLANK.] DOCSOC/ 1423572v5/022459 -0014 IN WITNESS WHEREOF, the parties have caused this Site Lease to be executed by their duly authorized officers as of the date and year first above written. [SEAL] ATTEST: City Clerk ATTEST: Secretary CITY OF NEWPORT BEACH By: Its: Mayor NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: President S -1 DOCSOC/ 1423572v5/022459 -0014 APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: ! David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: 52 Stradling Yocca Carlson & Rauth, a Professional Corporation S -2 DOCSOC/ 1423572v5/022459 -0014 CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the Leased Premises conveyed under the foregoing to the Newport Beach Public Facilities Corporation (the "Corporation'), a 501(c)4 nonprofit public benefit corporation duly organized under the laws of the State of California, is hereby accepted by the undersigned officer or agent on behalf of the Corporation, pursuant to authority conferred by resolution of the said Corporation adopted on 2010, and the grantee consents to recordation thereof by its duly authorized officer. Dated: November, 2010 NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: [SEAL] ATTEST: Secretary DOCS00 1423572v5/022459 -0014 President EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property and improvements thereon in the City of Newport Beach, County of Orange, State of California, described as follows: Newport Coast Community Center: Mariner's Library: Fire Station 7 (Santa Ana Heights): Fire Station 8 (Newport Coast): Central Library: Oasis Senior Center: Fire Station 3 (Newport Center): Fire Station 4 (Balboa Island): Police Station: Civic Center: A -1 DOCSOC/ 1423572v5/022459 -0014 STATE OF CALIFORNIA COUNTY OF ORANGE On ' 2010, before me, the undersigned, personally appeared personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacities, and that by his signature(s) on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. [SEAL] , City Clerk of the City of Newport Beach DOCSOC/ 1423572x5/022459 -0014 STATE OF CALIFORNIA COUNTY OF ORANGE On 2010, before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal [SEAL] SIGNATURE OF NOTARY PUBLIC DOCSOC/ 1423572x5/022459 -0014 Lease /Purchase Agreement Stradling Yocca Carlson & Routh Draft of 10127/10 LEASE/PURCHASE AGREEMENT by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION, as Lessor and CITY OF NEWPORT BEACH, as Lessee Dated as of November 1, 2010 Relating to CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOC/1423553v6/022459 -0014 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1. Definitions and Rules of Construction ........................................ ..............................2 Section1.2. Exhibits ........................................................................................ ..............................3 ` ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the City ............. ..............................3 Section 2.2. Representations, Covenants and Warranties of the Corporat ion . ..............................6 ARTICLE III ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT Section 3.1. Deposit of Certificate Proceeds ................................................... ..............................8 Section 3.2. Completion of the Project ............................................................ ..............................8 Section 3.3. Payment of Project and Delivery Costs ....................................... ..............................8 Section 3.4. Completion Certification ............................................................. ..............................8 Section 3.5. Substitution of or Addition to the Project .................................... ..............................9 Section 3.6. Compliance with Law .................................................................. ..............................9 Section 3.7. Further Assurances and Corrective Instruments .......................... ..............................9 ARTICLE IV AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS Section4.1. Lease ..................................................... ............................... Section4.2. Term ..................................................... ............................... Section 4.3. Extension of Lease Term ...................... ............................... Section 4.4. Lease Payments .................................... ............................... Section 4.5. No Withholding .................................... ............................... Section 4.6. Fair Rental Value .................................. ............................... Section 4.7. Budget and Appropriation .................... ............................... Section 4.8. Assignment of Lease Payments ............ ............................... Section 4.9. Use and Possession ............................... ............................... Section 4.10. Abatement of Lease Payments and Additional Payments... Section 4.11. Additional Payments ............................ ............................... Section 4.12. Net - Net -Net Lease ................................ ............................... DOCSOC/ 1423553 v6/022459 -0014 ................10 ................10 ................10 ................10 ................11 ................ 1 l ................12 ................12 ................12 ................12 ................13 ................14 TABLE OF CONTENTS (continued) ARTICLE V INSURANCE Section 5.1. Public Liability and Leased Premises Damage ................ Section 5.2. Workers' Compensation .................... ............................... Section 5.3. Casualty and Theft Insurance ............ ............................... Section 5.4. Rental Interruption hnsurance ........................................... Section 5.5. Title Insurance ................................... ............................... Section 5.6. General Insurance Provisions ............ ............................... Section 5.7. Cooperation ....................................... ............................... ARTICLE VI Page .............14 .............14 .............14 .............15 .............15 .............16 .............17 DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Application of Net Proceeds ....................................................... .............................17 ARTICLE VII COVENANTS WITH RESPECT TO THE LEASED PREMISES Section 7.1. Use of the Leased Premises ........................................................ .............................18 Section 7.2. Interest in the Leased Premises and the Lease ........................... .............................18 Section7.3. Option to Purchase ..................................................................... .............................19 Section 7.4. Quiet Enjoyment ......................................................................... .............................19 Section 7.5. Installation of the City's Personal Property ................................ .............................19 Section 7.6. Access to the Leased Premises ................................................... .............................19 Section 7.7. Maintenance, Utilities, Taxes and Assessments ......................... .............................20 Section 7.8. Modification of the Leased Premises ......................................... .............................20 Section 7.9. Encumbrances; Alternative Financing Methods ......................... .............................22 Section 7.10. Corporation's Disclaimer of Warranties .................................... .............................22 Section 7.11. The City's Right to Enforce Warranties of Vendors or Contractors .......................22 Section 7.12. Substitution or Release of the Leased Premises ......................... .............................23 Section 7.13. Compliance with Law, Regulations, Etc .................................... .............................24 Section 7.14. Environmental Compliance ........................................................ .............................24 Section 7.15. Condemnation of Leased Premises ............................................ .............................26 ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Corporation .................................................. .............................26 Section 8.2. Assignment and Subleasing by the City ..................................... .............................26 ii DOCSOC/ 1423553 v6 /022459 -0014 TABLE OF CONTENTS (continued) Page Section 8.3. Amendments and Modifications ................................................. .............................27 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined .......................................................... .............................27 Section 9.2. Remedies on Default .................................................................. .............................27 Section 9.3. No Remedy Exclusive ................................................................ .............................29 Section 9.4. Agreement to Pay Attorneys' Fees and Expenses ...................... .............................30 Section 9.5. No Additional Waiver Implied by One Waiver .......................... .............................30 Section 9.6. Application of the Proceeds from the Re -Lease of the Leased Premises ................30 S -1 Section 9.7. Trustee and Owners to Exercise RiQhts ...................................... .............................30 -1 ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1. Security Deposit ......................................................................... .............................30 Section 10.2. Extraordinary Prepayment .......................................................... .............................31 Section 10.3. Optional Prepayment .................................................................. .............................31 ARTICLE XI MISCELLANEOUS Section11.1. Notices ...............:........................................................................ .............................31 Section 11.2. Binding Effect ............................................................................ .............................31 Section11.3. Severability ................................................................................. .............................31 Section 11.4. Execution in Counterparts .......................................................... .............................31 Section 11.5. Applicable Law .......................................................................... .............................31 Signatures................................................................................................ ............................... S -1 EXHIBIT A SCHEDULE OF LEASE PAYMENTS ..................................... ............................A -1 EXHIBIT B DESCRIPTION OF THE LEASED PREMISES ....................... ............................B -1 EXHIBIT C DESCRIPTION OF THE PROJECT ......................................... ............................0 -1 EXHIBIT D LEASE SUPPLEMENT FORM ................................................ ............................D -1 EXHIBIT E FORM OF CERTIFICATE OF SUBSTITUTION OR ADDITION OF PROJECT COMPONENT ...................................................... ............................... E -1 DOCSOC/ 1423553v6/022459 -0014 LEASE/PURCHASE AGREEMENT THIS LEASE /PURCHASE AGREEMENT, dated as of November 1, 2010, by and between the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California, as lessor (the "Corporation "), and the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of said State, as lessee (the "City"); WITNESSETH: WHEREAS, the City may enter into leases and agreements relating to real property and buildings to be used by the City; and WHEREAS, the City and the Corporation have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project"); and WHEREAS, the Corporation and the City wish to provide financing for the acquisition, improving and equipping of a new City Hall, all as described in Exhibit C hereto (the "Civic Center Project" and together with the Central Library Project the "Project ") and to provide for the refinancing of the Central Library Project by entering into this Lease /Purchase Agreement (the "Lease ") and authorizing and directing the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project) (the "2010A Certificates ") evidencing fractional interests in 2010A Lease Payments (as defined in the Trust Agreement) to be made by the City under this Lease and the City of Newport Beach Certificates of Participation 2010B (Taxable) (Civic Center Project) (the "201013 Certificates" and together with the 2010A Certificates, the "Certificates ") evidencing fractional interests in 2010B Lease Payments (as defined in the Trust Agreement) to be made by the City under this Lease; and WHEREAS, the City has entered into a Site Lease of even date herewith (the "Site Lease ") with the Corporation under which the City has agreed to lease the real property described in Exhibit B hereto, including the existing improvements thereon (the "Leased Premises "), to the Corporation, which Site Lease provides that the title to the Leased Premises shall vest in the City at the expiration of the Site Lease (as provided in Section 8 thereof), and contains other terms and conditions as the governing board of the City deems to be in the best interest of the City; and WHEREAS, in consideration of the Lease Payments to be paid by the City to the Corporation hereunder, the Corporation will cause the Project to be constructed, and will grant to the City a right to purchase the Corporation's interest in the Leased Premises; and WHEREAS, the Corporation is authorized pursuant to the laws of the State of California and its formation documents to provide financial assistance to the City by acquiring, constructing and financing and refinancing various public facilities, land and equipment and the leasing of facilities, land and equipment for the use, benefit and enjoyment of the public; DOCSOC/ 1423553v6/022459 -0014 WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease; NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section I. I. Definitions and Rules of Construction. Unless the context otherwise requires, the capitalized terms used herein shall, for all purposes of this Lease, have the meanings specified in the Trust Agreement related to the Certificates (the "Trust Agreement "), dated as of the date hereof, by and among The Bank of New York Mellon Trust Company, N.A., as Trustee thereunder, the Corporation, and the City, together with any amendments thereof or supplements thereto permitted to be made thereunder; and the additional terms defined in this Section shall, for all purposes of this Lease, have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this Lease, refer to this Lease as a whole. "Central Library Site" means the portion of the Leased Premises identified as such on Exhibit B hereto. "Civic Center Site" means the portion of the Leased Premises identified as such on Exhibit B hereto. "Completion Certificate" means the certificate of the City filed with the Trustee and signed by a City Representative, as prescribed by Section 3.4 hereof. "Environmental Regulations" shall mean all Laws and Regulations, now or hereafter in effect, with respect to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (42 U.S.C. Section 9601, et sue.) (together with the regulations promulgated thereunder, "CERCLA "), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et sue.) (together with the regulations promulgated thereunder, "RCRA "), the Emergency Planning and Community Right -to- Know Act, as amended (42 U.S.C. Section 11001, et sM.) (together with the regulations promulgated thereunder, "Title III "), the Clean Water Act, as amended (33 U.S.C. Section 1321 et S�Mc.) (together with the regulations promulgated thereunder, "CWA "), the Clean Air Act, as amended (42 U.S.C. Section 7401, et seg.) (together with the regulations promulgated thereunder, "CAA ") and the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et sue.) (together with the regulations promulgated thereunder, "TSCA" ), and any state or local similar laws and regulations and any so- called local, state or federal "superfund" or "superlien" law. "Interest Component" means the portion of each Lease Payment designated in Exhibit A hereto as the Interest Component. DOCSOC/ 1423553 v6/022459 -0014 i "Leased Premises" means the real property described in Exhibit B hereto and the existing improvements thereon being leased to the City by the Corporation. "Permitted Encumbrances" means, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of Section 7.7 hereof, permit to remain unpaid; (ii) the Assignment Agreement; (iii) this Lease; (iv) the Site Lease; (v) any contested right or claim of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by law to the extent permitted under Section 7.8(b) hereof; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Closing Date, which the City hereby certifies will not materially impair the use of the Leased Premises by the City; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of this Lease and to which the Corporation and the City consent in writing. "Principal Component" means the portion of the Lease Payments designated in Exhibit A hereto as the Principal Component. "Project" means the improvements described in Exhibit C hereto, and any and all additions or substitutions thereto made as provided in Section 3.5 hereof, and any additional improvements financed with the proceeds of Additional Certificates. "Term" means the term of this Lease as set forth in Section 4.2 hereof. "Vendors" or "Contractors" means the persons with whom the Corporation, or the City as agent of the Corporation, has contracted for completion of the Project. Section 1.2. Exhibits. The following Exhibits are attached to, and by reference made a part of, this Lease: Exhibit A: Schedule of Lease Payments to be paid by the City to the Corporation, showing the Lease Payment Date and amount of each Lease Payment. Exhibit B: Legal Description of the Leased Premises. Exhibit C: General Description of the Project. Exhibit D: Lease Supplement Form. Exhibit E: Form of Certificate of Substitution or Addition of Project Component. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the City. The City represents, covenants and warrants to the Corporation as follows: (a) Due Organization and Existence. The City is a municipal corporation and a chartered city duly organized and existing under the Constitution and laws of the State. DOCSOC/ 1423553v6/022459 -0014 (b) Authorization; Enforceability. The Constitution and laws of the State authorize the City to enter into this Lease, the Site Lease, the Trust Agreement, the Agency Agreement and the Continuing Disclosure Agreement, and to enter into the transactions contemplated by and to carry out its obligations under all of the aforesaid leases and agreements; the City has duly authorized and executed all of the aforesaid leases and agreements. This Lease, the Site Lease, the Trust Agreement, the Agency Agreement and the Continuing Disclosure Agreement constitute the legal, valid and binding obligations of the City enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (c) No Conflicts or Default; No Liens or Encumbrances. Neither the execution and delivery of this Lease, the Site Lease, the Continuing Disclosure Agreement, the Agency Agreement or the Trust Agreement, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the City is now a party or by which the City is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the City, or upon the Leased Premises except for Permitted Encumbrances and the pledges contained in the Trust Agreement. (d) Execution and Delivery. The City has duly authorized and executed this Lease in accordance with the Constitution and laws of the State. (e) Indemnification of Corporation. The City covenants to defend, indemnify and hold harmless the Corporation and its directors, officers, employees and assigns (collectively, the "Indemnified Party ") against any and all losses, claims, damages or liabilities, joint or several, including fees and expenses incurred in connection therewith, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise in connection with the transactions contemplated by this Lease, and shall reimburse any such Indemnified Party for any legal or other expenses incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of the transactions contemplated by this Lease. In particular, without limitation, the City shall and hereby agrees to indemnify and save the Indemnified Party harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on the Leased Premises by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under this Lease, (iii) any act of negligence of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (iv) any act of negligence of any assignee or sublessee of the City with respect to the Leased Premises, or (v) the completion of the Project or the authorization of payment of the Project Costs by the City. No indemnification is made under this Section or elsewhere in this Lease for claims, losses or damages, including legal fees and expenses, arising out of the willful misconduct or negligence under this Lease by the Corporation, its directors, officers, agents, employees, successors or assigns. (f) General Tax and Arbitrage Covenant. The City hereby covenants that, notwithstanding any other provision of this Lease, it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 201 OA Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) under DOCSOC/ 1423553v6/022459 -0014 Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). The City shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates). The City shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) are outstanding, the City, with respect to the proceeds thereof, the portion of the Leased Premises and the Project intended for public use and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall not, directly or indirectly, use or permit the use of any proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or of the Leased Premises, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). The City shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (g) The City hereby makes an irrevocable election to receive a refundable credit under Section 54AA(g)(2)(B) of the Code in cash with respect to the City's obligations to make 2010B Lease Payments and covenants to cause such amounts to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments. The City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any DOC SOC/ 1423553v6/022459 -0014 other action that would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under this Lease as evidenced by the 2010B Certificates. (h) Flood Plain. The City hereby represents that the Leased Premises is not in a 100 year flood plain. (i) Essentiality of the Leased Premises. The City hereby represents that the Leased Premises are essential for the City's performance of its governmental functions. 0) Zoning Environmental and Safety Ordinance Compliance. The City hereby represents that the Leased Premises complies in all respects with applicable zoning, environmental and safety ordinances. (k) Title Insurance. The City hereby represents that the Leased Premises is the same property which is the subject of the ALTA title insurance policy (with western regional exceptions) issued by First American Title Insurance Company pursuant to Section 5.5 hereof. Section 2.2. Representations, Covenants and Warranties of the Corporation. The Corporation represents, covenants and warrants to the City as follows: (a) Due Organization and Existence; Enforceability. The Corporation is a 501(c)(4) nonprofit public benefit corporation duly organized, existing and in good standing under the laws of the State, has the power to enter into this Lease, the Assignment Agreement, the Site Lease, the Agency Agreement and the Trust Agreement; is possessed of full power to own and hold real and personal property, and to lease and sell the same; and has duly authorized the execution and delivery of all of the aforesaid leases and agreements. This Lease, the Assignment Agreement, the Site Lease, the Agency Agreement and the Trust Agreement constitute the legal, valid and binding obligations of the Corporation, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (b) No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution and delivery of this Lease, the Assignment Agreement, the Site Lease, the Agency Agreement or the Trust Agreement, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the joint powers agreement of the Corporation or any restriction or any agreement or instrument to which the Corporation is now a parry or by which the Corporation is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Corporation, or upon the Leased Premises except by Permitted Encumbrances and by the pledge contained in the Trust Agreement. (c) Execution and Delivery. The Corporation has duly authorized and executed this Lease in accordance with the laws of the State. (d) Maintenance of Existence. To the extent permitted by law, the Corporation agrees that during the term hereof it will maintain its existence as a 501(c)(4) nonprofit public benefit DOCSOC/ 1423553 v6/022459 -0014 corporation, will not combine or consolidate with or merge into any other entity or permit one or more other entities to consolidate with or merge into it. (e) General Tax and Arbitrage Covenant. The Corporation covenants that, notwithstanding any other provision of this Lease, it shall not take any action if any such action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates intended for public use under Section 103 of the Code (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). The Corporation shall not take any action if any such action would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) are outstanding, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation, with respect to the proceeds thereof, the portion of the Leased Premises intended for public use, the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), or of the Leased Premises, or other funds available to it, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States DOCSOC/ 1423553v6/022459 -0014 Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax - exempt Certificates). To the extent that the Corporation may control the proceeds of the Certificates or any Additional Certificates, the Corporation shall not make any use of the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax - exempt Certificates) or any other of its funds, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax - exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. To the extent that the Corporation may have control over the proceeds of the 2010B Certificates, the Corporation shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under this Lease as evidenced by the 2010B Certificates. ARTICLE III ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT Section 3.1. Deposit of Certificate Proceeds. On the Closing Date for the Certificates and on the Closing Date for any Additional Certificates, the Corporation agrees to pay or cause to be paid to'the Trustee the proceeds of the sale of the Certificates and Additional Certificates, which moneys, in the case of the Certificates, shall be deposited with the Trustee as provided in Section 2.05 of the Trust Agreement, or in the case of Additional Certificates as provided in any Supplemental Trust Agreement which relates to such Additional Certificates. Section 3.2. Completion of the Project. The Corporation and the City agree to execute and deliver the Agency Agreement pursuant to which the City, as the agent of the Corporation, will acquire, construct, deliver and install the Project. The City and the Corporation each covenants and agrees to comply with the terms of the Agency Agreement. Section 3.3. Payment of Project and Delivery Costs. Payment of the Project Costs and Delivery Costs shall be made from the moneys deposited with the Trustee in the Project Fund as provided in Section 3.1 hereof and Section 2.05 of the Trust Agreement, which shall be disbursed in accordance and upon compliance with Article III of the Trust Agreement. Section 3.4. Completion Certification. The City and the Corporation expect that the Project will be substantially completed in accordance with plans and specifications described in the Agency Agreement on or prior to the dates specified in Section 3 to the Agency Agreement. Upon the completion of acquisition, construction, delivery and installation of the portion of the Project to be financed with the proceeds of the Certificates, and upon the completion of the improvements to be financed with each series of Additional Certificates, the City shall deliver to the Trustee a Completion Certificate with respect thereto. A separate Completion Certificate will be filed with respect to the portion of the Project to be financed from the Certificates and the portion to be financed with each series of Additional Certificates. 8 DOCSOC/ 1423553v6/022459 -0014 If the Corporation, for any reason whatsoever, cannot deliver possession of the portion of the Leased Premises comprising the Project by the dates specified in Section 3 to the Agency Agreement, and as a result of which non - delivery the City is deprived of the use and occupancy of a substantial portion of the Leased Premises, this Lease shall not be void or voidable, nor shall the Corporation be liable to the City for any loss or damage resulting therefrom. In such event, however, Lease Payments and Additional Payments, with respect to the period between the dates specified in Section 3 to the Agency Agreement for the completion of a component of the Project and the time when the portion of the Leased Premises comprising a component of the Project is substantially completed, shall be payable solely to the extent and from the sources of payment identified in Section 4.10(a) hereof. On the date of filing a Completion Certificate, all excess moneys remaining in the Project Fund for the Certificates or issue of Additional Certificates for which such Completion Certificate is delivered shall be applied in accordance with the provisions of Section 3.04 of the Trust Agreement. Section 3.5. Substitution of or Addition to the Project. The City shall have the right to substitute alternate items for any portion of the Project listed in Exhibit C hereto or provide for additional components of the Project by providing the Trustee with a written certificate in the form contained in Exhibit E hereto, so long as such substitution or addition does not cause, in and of itself, the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause the City to lose the subsidy payments from the ,United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments or result in a reduction in the fair rental value of the Leased Premises. Section 3.6. Compliance with Law. (a) Public Bidding. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all applicable provisions for bids and contracts prescribed by law, including, without limitation, the Public Contract Code and the Government Code of the State. (b) Wage Rates and Working Hours. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all provisions relating to prevailing wage rates and working hours applicable to it under the laws of the State. (c) Plans and Specifications. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall prepare and adopt plans and specifications for the acquisition, construction and installation of the Project pursuant to the Government Code and Public Contracts Code of the State. Section 3.7. Further Assurances and Corrective Instruments. The Corporation and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Premises hereby leased or intended so to be or for carrying out the expressed intention of this Lease. DOCSOC/ 1423553v6/022459 -0014 ARTICLE IV AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS Section 4.1. Lease. The Corporation hereby leases the Leased Premises to the City, and the City hereby leases the Leased Premises from the Corporation, upon the terms and conditions set forth herein. This Lease shall not operate as a merger of the City's leasehold estate in the Leased Premises pursuant to this Lease and its fee estate in the Leased Premises and shall not cause the extinguishment of the leasehold interest granted to the Corporation under the Site Lease. Section 4.2. Tenn. The Term of this Lease shall commence on the date of execution hereof and shall end on July 1, 2040, unless extended pursuant to Section 4.3 hereof, or unless terminated prior thereto upon the earliest of any of the following events: (a) Default and Termination. A default by the City and the Corporation's election to terminate this Lease under Section 9.2(b) hereof, (b) Payment of All Lease Payments. The payment by the City of all Lease Payments required under Section 4.4 hereof and any Additional Payments required under Section 4.11 hereof; (c) Prepayment. The deposit of funds or Government Obligations with the Trustee in amounts sufficient to pay all Lease Payments as the same shall become due, as provided in Section 10.1 hereof and in Section 14.01 of the Trust Agreement; or (d) Purchase. Upon the exercise by the City of its option to purchase all of the Corporation's interest in the Leased Premises as provided in Section 7.3 hereof, provided, however, that upon exercise by the City of its option to purchase the Corporation's interest in a portion of the Leased Premises, as provided in Section 7.3, the Lease shall be terminated only with respect to the portion of the Leased Premises purchased. Section 4.3. Extension of Lease Term. The Term of this Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all Interest Components and Principal Components represented thereby shall not be fully paid by the City as a result of a default in the payment of Lease Payments, or because the Lease Payments hereunder shall have been abated at any time as permitted by the terms hereof, then the Term shall be extended until all Certificates and Additional Certificates shall be fully paid, except that the Term shall in no event be extended beyond the tenth anniversary of the final scheduled maturity of any Certificate or Additional Certificate. Section 4.4. Lease Payments. (a) Time and Amount. Subject to the provisions of Section 4.10 (regarding abatement in event of loss of use of any portion of the Leased Premises), Section 7.3 (regarding option to purchase) and Article X (regarding prepayment of Lease Payments), the City agrees to pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the 2010A Lease Payments and the 2010B Lease Payments (denominated into components of principal and interest, the Interest Component of such Lease Payment being paid semiannually) in the amounts specified in Exhibit A, to be due and payable in arrears on the fifteenth 10 DOCSOC/ 1423553v6/022459 -0014 i (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) specified in Exhibit A (the "Lease Payment Date ") which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. In the event that any Additional Certificates are executed and delivered pursuant to the Trust Agreement, the City and the Trustee shall execute an amendment to Exhibit A to state the Lease Payments due hereunder as a result of the execution and delivery of such Additional Certificates. The obligation of the City to pay Lease Payments shall commence on the Closing Date for the Certificates. In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the Trustee shall provide prompt written notice to the City of such failure to pay; provided, however, that failure to give such notice shall not excuse any event of default under Section 9.1 hereof. The City's obligation to make 2010B Lease Payments are hereby designated as federally taxable `Build America Bonds" pursuant to the American Recovery Reinvestment Tax Act of 2009 and the provisions of Section 54AA of the Code. (b) Credits. Any amount held in the 2010A Account of the Lease Payment Fund or the 2010B Account of the Lease Payment Fund on any Lease Payment Date (other than capitalized interest, which shall be credited in accordance with Section 5.03 of the Trust Agreement, and other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to Section 10.2 hereof and other amounts required for payment of principal with respect to any Certificates or Additional Certificates that have matured or been called for payment and have not been presented for payment or interest) shall be credited towards the applicable Lease Payment then due and payable. The City need not transfer additional cash to the Trustee on any Lease Payment Date if the amounts then held in the Lease Payment Fund (other than those amounts excluded under the prior sentence) are at least equal to the Lease Payment then required to be paid. (c) Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments required in this Section, the Lease Payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the original interest rate payable with respect to each Certificate or Additional Certificate, as applicable, represented by such delinquent Lease Payment. Section 4.5. No Withholdine. Notwithstanding any dispute between the Corporation and the City, including a dispute as to the failure of any portion of the Leased Premises in use by or possession of the City to perform the task for which it is leased, the City shall make all Lease Payments and Additional Payments when due and shall not withhold any Lease Payments pending the final resolution of such dispute. Section 4.6. Fair Rental Value. The Lease Payments and Additional Payments shall be paid by the City in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Leased Premises during each such period for which said Lease Payments are to be paid. The parties hereto have agreed and determined that such total rental represents the fair rental value of the Leased Premises. In making such determination, consideration has been given to the fair market value and replacement cost of the Leased Premises, other obligations of the parties under this Lease (including but not limited to costs of maintenance, taxes and insurance), the uses and purposes which may be served by the Leased Premises and the benefits therefrom which will accrue to the 11 DOCSOC/ I423553v6/022459 -0014 City and the general public, and the transfer of the Corporation's leasehold interest in the Leased Premises at the end of the Term. Section 4.7. Budget and Appropriation. The City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due hereunder in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of the annual budget, such amounts shall be included and maintained in such budget as amended. During the Term, the City will furnish annually, on or before August 1 of each year, to the Trustee a certificate of the City Representative stating that all Lease Payments and Additional Payments due hereunder for the applicable Fiscal Year have been included in its annual budget and the amount so included. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease agreed to be carried out and performed by the City. The obligation of the City to pay Lease Payments and Additional Payments hereunder shall constitute a current expense of the City and shall not in any way be construed to be a debt of the City, or the State, or any political subdivision thereof, in contravention of any applicable constitutional or statutory limitation or requirements concerning the creation of indebtedness by the City, the State, or any political subdivision thereof, nor shall anything contained herein constitute a pledge of general revenues, funds or moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Lease Payments and Additional Payments hereunder or an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Section 4.8. Assignment of Lease Payments. Certain of the Corporation's rights under this Lease, including the right to receive and enforce payment of the Lease Payments, Additional Payments and Prepayments, to be made by the City hereunder, have been assigned absolutely to the Trustee, subject to certain exceptions, pursuant to the Assignment Agreement, to which assignment the City hereby consents. The Corporation hereby directs the City, and the City hereby agrees, to pay to the Trustee at the Trustee's corporate trust office designated in the Trust Agreement, or to the Trustee at such other place as the Trustee shall direct in writing, all Lease Payments, Additional Payments or Prepayments thereof payable by the City hereunder. The Corporation will not assign or pledge the Lease Payments or other amounts derived from the Leased Premises and from its other rights under this Lease except as provided under the terms of this Lease, the Assignment Agreement and the Trust Agreement, or its duties and obligations except as provided under this Lease. Section 4.9. Use and Possession. The total Lease Payments due in any Fiscal Year shall be in consideration for the City's right to use and possession of the Leased Premises for such Fiscal Year. During the Term of this Lease, the City shall be entitled to the exclusive use and possession of the Leased Premises, subject only to the Permitted Encumbrances. Section 4.10. Abatement of Lease Payments and Additional Payments. (a) [Reserved]. 12 DOCSOC/ 1423553v6/022459 -0014 (b) In the Event of Damage. Destruction, Condemnation or Title Defect. Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, this Lease shall continue in full force and effect and the City waives any right to terminate this Lease by virtue of any such damage, destruction, interference or taking. Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased Premises, the City shall remain obligated to make Lease Payments which would otherwise be abated (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. The Lease Payments shall be payable from such amounts paid under (i) and (ii) above as an obligation of the City payable from a special fund. (c) Repair or Replacement. In the event of such abatement, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds pursuant to Section 6.1(c), the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Section 4.11. Additional Payments. In addition to the Lease Payments, the City shall also pay such amounts ( "Additional Payments ") as shall be required for the payment of all administrative costs of the Corporation relating to the Leased Premises, the Certificates and any Additional Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its interest in the Leased Premises or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to comply with the terms of the Certificates and any Additional Certificates or of the Trust Agreement, including premiums or insurance maintained pursuant to Article V hereof or to indemnify the Corporation and its employees, officers and directors and the Trustee. All such Additional Payments to be paid hereunder shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing. 13 DOCSOC/ 1423553 v6/022459 -0014 Section 4.12. Net - Net -Net Lease. This Lease shall be deemed and construed to be a "net - net -net lease" and the City hereby agrees that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, reserve deposits, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided herein. ARTICLE V INSURANCE Section 5.1. Public Liability and Leased Premises Damage. (a) Coverage. The City shall maintain or cause to be maintained, throughout the Term hereof, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of any City property or portion thereof. (b) Limits. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $500,000 for damage to property resulting from each accident or event (in each case subject to a deductible clause of not to exceed $500,000). Such public liability and property damage insurance may, however, be in the form of a single limit policy covering all such risks in an amount equal to the liability limits set forth herein. (c) Joint or Self- hisurance. Such liability insurance, including the deductible, may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and, subject to compliance with Section 5.6(e) hereof, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid. Section 5.2. Workers' Compensation. The City shall also maintain workers' compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers' Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto (with provision for self - insurance). Section 5.3. Casualty and Theft Insurance. (a) Casualty and Theft Insurance; Coverage. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease, insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious mischief insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, 14 DOCSOC/ 1423553 v6 /022459 -0014 vehicle damage, smoke and such other hazards as are normally covered by such insurance, excluding flood and earthquake; notwithstanding the foregoing, the City shall not be required to maintain such insurance on the portion of the Leased Premises located on the Civic Center Site until a Completion Certificate has been filed with the Trustee. The City shall not be required to purchase or maintain earthquake insurance with respect to the Leased Premises. (b) Amount. Such insurance shall be in an amount not less than the replacement cost of the Leased Premises, subject to a "deductible clause" not to exceed two hundred fifty thousand dollars ($250,000) for any one loss or, in the case of a flood and earthquake rider, ten percent (10 %) of the coverage obtained. The term "full replacement value" as used in this Section 5.3 shall mean the actual replacement cost of the improvements constituting the Leased Premises. (c) Joint or Self- Insurance. Such insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with Section 5.6(e) hereof, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Net Proceeds Fund and applied as provided in Section 6.1. Section 5.4. Rental Interruption Insurance (a) Coverage and Amount. Upon delivery of the Leased Premises to it for occupancy, the City shall maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24 -month period, to insure against loss of rental income from the Leased Premises caused by perils covered by the insurance required to be maintained as provided in Section 5.3 hereof. Such rental interruption insurance shall name the Trustee and the Corporation as additionally insured parties and the Trustee as the loss payee. (b) Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental income or use and occupancy insurance carried by the City but may not be maintained in the form of self - insurance by the City. (c) Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable and proportionately between 2010A Lease Payments and 2010B Lease Payments if there are insufficient Net Proceeds to pay all Lease Payments due in any such Certificate Year. Section 5.5. Title Insurance. The City shall obtain and, throughout the Term of this Lease, maintain or cause to be maintained title insurance on the Leased Premises, in the form of an ALTA title policy (with western regional exceptions) or in the form of a CLTA title policy, in an amount equal to the aggregate principal amount of the Certificates and Additional Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same, payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or policies shall insure the City's leasehold estate hereunder in the Leased Premises, subject only to Permitted Encumbrances. All Net Proceeds received under said policy or policies shall be deposited with the Trustee and applied as provided in Section 7.01 of the Trust Agreement. So long as any of the Certificates and Additional Certificates remain Outstanding, each policy of the title insurance 15 DOCSOC/ 1423553 v6/022459 -0014 obtained pursuant hereto or required hereby shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Certificate Owners and the owners of any Additional Certificates. The Net Proceeds of such insurance shall be applied as provided in Section 6.1. Section 5.6. General Insurance Provisions. (a) Form of Policies. All policies of insurance required to be procured and maintained pursuant to this Lease and any statements of self - insurance shall be in a form certified by the City Representative or an insurance agent, broker or consultant to the City to comply with the provisions hereof. All such policies shall provide that the insured parties shall be given thirty (30) days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be procured and maintained pursuant to Section 5.3 (regarding casualty and theft insurance), Section 5.4 (regarding rental interruption insurance) and Section 5.5 (regarding title insurance) shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Owners. All required insurance policies must be provided by a commercial insurer rated A by Best or A- and A3 by S &P and Moody's, respectively. All policies shall name the City, the Corporation and the Trustee as insureds and the Trustee as a loss payee. (b) Payment of Premiums. The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease, and shall promptly furnish or cause to be furnished to the Trustee a certificate to such effect, as described in paragraph (d) below. (c) Protection of the Trustee. The Trustee shall not be responsible for the sufficiency or adequacy of any insurance herein required and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. (d) Evidence of Insurance. The City shall cause to be delivered to the Trustee annually on or before August 1 a certificate stating that the insurance policies required by this Lease are in full force and effect. (e) Self Insurance, The City may only elect to self insure pursuant to Sections 5.1, 5.2 and 5.3(c) hereof if and to the extent such self - insurance method or plan of protection shall afford reasonable protection to the Corporation and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by other cities in the State other than the City. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance shall not be deemed to be self - insurance for purposes hereof. Any self - insurance maintained by the City pursuant to this Article V shall comply with the following terms: (i) The self - insurance program shall be approved in writing by the City's City Manager or Assistant City Manager and an independent insurance consultant in accordance with the California Labor Code and the California Government Code; (ii) The self - insurance program shall include an actuarially sound claims reserve fund out of which each self - insured claim shall be paid; the adequacy of such fund shall be evaluated on a biannual basis by the City Representative in a certified statement delivered to the Trustee; and any deficiencies in any self - insured claims reserve fund shall be remedied in accordance with the recommendation of the City Representative; and EEO DOCSOG 1423553 v6/022459 -0014 (iii) In the event the self - insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City Representative, shall be maintained. Section 5.7. Cooperation. The Corporation shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any portion thereof. ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Application of Net Proceeds. (a) Deposit in Net Proceeds Fund. The City shall remit promptly to the Trustee any Net Proceeds received by the City and the Trustee as provided in Section 5.3 (regarding casualty and theft insurance) and Section 5.5 (regarding title insurance) promptly upon receipt thereof, and pursuant to Section 7.01 of the Trust Agreement, the Trustee shall deposit such Net Proceeds of insurance in the Net Proceeds Fund. The City and/or the Corporation shall transfer to the Trustee any other Net Proceeds (other than Net Proceeds paid under Sections 5.1, 5.2 and 5.4 hereof which shall be applied as described in such sections) received by the City and/or Corporation in the event of any accident, destruction, theft or taking by eminent domain or condemnation with respect to the Project, for deposit in the Net Proceeds Fund. (b) Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph (ii) below, the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as provided in paragraph (ii) below. (i) Certification. The City Representative must certify to the Corporation and the Trustee that: (x) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose, together with any other funds supplied by the City to the Trustee in a subaccount of the Net Proceeds Fund for such purpose, are expected to equal at least 100% of the projected costs of replacement or repair, as demonstrated in an attached reconstruction budget, and (y) Timely Completion. In the event that damage, destruction or taking results, or is expected to result, in an abatement of Lease Payments, such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds, as described in Section 5.4 together with other identified available moneys, will be available to pay in full all Lease Payments coming due during such period as demonstrated in an attached reconstruction schedule. (ii) Requisition. The City Representative must deliver to the Trustee a requisition stating with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the 17 DOCSOC/ 1423553 v6 /022459 -0014 Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation. Each such cost requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any balance of the Net Proceeds remaining after such replacement or repair has been completed and after payment or provision for payment of all Certificates as provided in Section 7.01 of the Trust Agreement and all Additional Certificates as provided in any Supplemental Trust Agreement pursuant to which such Additional Certificates are executed and delivered shall be paid to the City after payment of amounts due the Trustee pursuant to Sections 9.6 and 9.7 of the Trust Agreement. (c) Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City's determination that the certification provided in Section 6.1(b)(i) cannot be made or that replacement or repair of any portion of the Leased Premises is not economically feasible or in the best interest of the City, then the Trustee shall promptly transfer the Net Proceeds to the Prepayment Fund as provided in Section 7.01 of the Trust Agreement and apply them to prepayment of the Certificates as provided in Section 4.02 of the Trust Agreement and Additional Certificates as provided in a Supplemental Trust Agreement and prepayment of Lease Payments as provided in Section 10.2 hereof, provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net Proceeds, together with funds then on hand in the Lease Payment Fund are not sufficient to prepay all the Certificates and Additional Certificates then Outstanding, then the City shall not be permitted to certify that repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best interest of the City. In such event, the City shall proceed to repair, replace or improve the Leased Premises as described herein from legally available funds in the then - current Fiscal Year and shall make the required notification to the Trustee pursuant to Section 7.01 of the Trust Agreement and the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm, or corporation named in the requisition as provided therein. ARTICLE VII COVENANTS WITH RESPECT TO THE LEASED PREMISES Section 7.1. Use of the Leased Premises. The City represents and warrants that it has an immediate need for, and expects to make immediate use of, all of the Leased Premises, which need is not temporary or expected to diminish in the foreseeable future. Section 7.2. Interest in the Leased Premises and the Lease. (a) Corporation Holds Leasehold Interest During Term. During the Term of this Lease, the Corporation does and shall hold a leasehold interest in the Leased Premises pursuant to the Site Lease. The City shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents reasonably required, to maintain and evidence such title and interest at all times during the Term of this Lease. (b) Title Transferred to the City at End of Term. Upon expiration of the Term as provided in Section 4.2(b) or 4.2(c) hereof, all right, title and interest of the Corporation in and to all of the Leased Premises shall be transferred to and vest in the City, without the necessity of any additional document of transfer. 18 DOCSOC/ 1423553v6/022459 -0014 Section 7.3. Option to Purchase. The City may exercise an option to purchase the Corporation's interest under the Site Lease and this Lease in the Leased Premises by depositing with the Trustee cash and/or Government Obligations as provided in Section 14.01 of the Trust Agreement. In such event, all or a portion of the obligations of the City under this Lease, and the security provided by this Lease for said obligations or said portion of the obligations, shall cease and terminate as provided in Section 4.2 hereof, excepting in the case all of the Corporation's interest has been purchased, only the obligation of the City to make, or cause to be made, such Lease Payments from such deposit. In the event Lease Payments and Additional Payments under this Lease have been paid in full, on the date of said deposit, the Corporation's interest in the Leased Premises shall revert and transfer to the City automatically and without further action by the City or the Corporation, and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of the Corporation's interests in the Leased Premises. In the event Lease Payments under this Lease have been paid in part only, on the date of said deposit, the City shall specify a discrete portion of the Corporation's interest in the Leased Premises for reversion and transfer to the City and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of such portion of the Corporation's interest in the Leased Premises; provided, that such portion shall revert and transfer to the City only if the reduction in the fair rental value of the Leased Premises resulting from such reversion and transfer at the time of such reversion and transfer (as determined by an independent appraisal acceptable to the Corporation) is proportionately less than or equal to the reduction in the maximum annual Lease Payments under this Lease resulting from such purchase. Any such deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with Section 4.4 hereof. Section 7.4. Quiet Enjoyment. During the Term, the Corporation shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall during such Term peaceably and quietly have and hold and enjoy the Leased Premises, without suit, trouble or hindrance from the Corporation, or any person or entity claiming under or through the Corporation except as expressly set forth in this Lease. The Corporation will, at the request of the City, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect the Leased Premises as provided in Section 7.6 hereof. Section 7.5. Installation of the City's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other property in or upon any portion of the Leased Premises. All such items shall remain the sole property of the City, regardless of the manner in which the same may be affixed to such portion of the Leased Premises, in which neither the Corporation nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to such portion of the Leased Premises resulting from the installation, modification or removal of any such items of equipment. Nothing in this Lease shall prevent the City from purchasing items to be installed pursuant to this Section, provided that no lien or security interest shall attach to any part of the Leased Premises. Section 7.6. Access to the Leased Premises. The City agrees that the Corporation, any Corporation Representative and the Corporation's successors, assigns or designees shall have the right at all reasonable times to enter upon the Leased Premises or any portion thereof to examine and inspect the Leased Premises. The City further agrees that the Corporation, any such Corporation 19 DOCSOC/ 1423553 v6/022459 -0014 Representative, and the Corporation's successors, assigns or designees shall have such rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the Leased Premises in the event of failure by the City to perform its obligations hereunder. Section 7.7. Maintenance, Utilities, Taxes and Assessments. (a) Maintenance; Repair and Replacement. Throughout the Term of this Lease, as part of the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased Premises shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. In exchange for the Lease Payments herein provided, the Corporation agrees to provide only the Leased Premises, as hereinbefore more specifically set forth. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of this Lease. (b) Tax and Assessments; Utility Charges. The City shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Corporation or the City or levied, assessed or charged against any portion of the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of this Lease as and when the same become due. (c) Contests. The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Corporation and the Trustee with the opinion of an Independent Counsel acceptable to the Corporation, to the effect that, by nonpayment of any such items, the interest of the Corporation in such portion of the Leased Premises will not be materially endangered and that the Leased Premises will not be subject to loss or forfeiture. Otherwise, the City shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Corporation. The Corporation will cooperate fully in such contest, upon the request and at the expense of the City. Section 7.8. Modification of the Leased Premises. (a) Additions. Modifications and Improvements. The City shall, at its own expense, have the right to make additions, modifications, and improvements to any portion of the Leased Premises if such improvements are necessary or beneficial for the use of such portion of the Leased Premises. All such additions, modifications and improvements shall thereafter comprise part of the Leased Premises and be subject to the provisions of this Lease. Such additions, modifications and improvements shall not in any way cause an abatement of Lease Payments with respect to the Leased Premises or cause it to be used for purposes other than those authorized under the provisions of State and federal law or in any way which would impair the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates); and the Leased Premises, upon completion of any 20 DOC SOC/ 1423553v6/022459 -0014 additions, modifications and improvements made pursuant to this Section, shall have an annual fair rental value which is not less than the annual Lease Payments. (b) No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any additions, modifications or improvements made by the City pursuant to this Section; provided that if any such lien is established and the City shall first notify or cause to be notified the Corporation of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Trustee (as assignee of the Corporation). The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City. (c) Replacements, Redevelopment and Renovation. The City shall, at its own expense, or with the proceeds of Additional Certificates, have the right to make replacements, redevelopment or renovation of all or a portion of the Leased Premises if the following conditions precedent are satisfied: (i) The City receives an opinion of Special Counsel, a copy of which the City shall furnish to the Corporation and the Trustee, that (1) such replacement does not adversely affect the federal income tax exclusion or the State tax- exempt status of the Interest Component evidenced by the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates) or would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments, and (2) the Lease will remain the legal, valid, binding and enforceable obligation of the City; (ii) In the event such replacement, redevelopment or renovation would result in the temporary abatement of Lease Payments as provided in Section 4.10 hereof the City shall have notified any rating agency then providing a rating on the Certificates and shall deposit moneys with the Trustee in advance for payment of Lease Payments from the proceeds of Additional Certificates or from special funds of the City or other moneys, the application of which would not, in the opinion of Special Counsel (a copy of which shall have been delivered to the Trustee), result in such Lease Payments constituting indebtedness of the City in contravention of the Constitution and laws of the State; (iii) The City shall certify to the Trustee that it has sufficient funds to complete such replacement, redevelopment or renovation; and (iv) In the case of replacement(s), redevelopment or renovation other than from the proceeds of Additional Certificates, the City and the Trustee receive an independent appraisal from a California certified general appraiser that the annual fair rental value of Leased Premises following the replacement, redevelopment or renovation will be at least equal to the annual Lease Payments immediately prior to such replacement, redevelopment or renovation. 21 DOCSOC/ 1423553v6/022459 -0014 Section 7.9. Encumbrances; Alternative Financing Methods. (a) Encumbrances. Except as provided in this Article VII (including without limitation Section 7.8 hereof and this Section 7.9), the City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of the Corporation and the City as herein provided. Except as expressly provided in this Article VII, the City shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that the City may contest such liens if it desires to do so. The City shall reimburse the Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. (b) Alternative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims shall at any time while any of the Certificates or Additional Certificates remain Outstanding be and remain subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the benefit of the Owners and (2) the City shall have first delivered to the Trustee an opinion of Special Counsel substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result in the inclusion of the interest with respect to the 2010A Certificates and the Additional Certificates (to extent such Additional Certificates are executed and delivered as tax exempt Certificates) in the gross income of the owners thereof for purposes of federal income taxation or impair the State tax - exempt status of such interest payments and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Section 7.10. Corporation's Disclaimer of Warranties. THE CORPORATION MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Corporation be liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease, the Site Lease, the Assignment Agreement, the Agency Agreement or the Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. Section 7.11. The City's Right to Enforce Warranties of Vendors or Contractors. The Corporation hereby irrevocably appoints the City its agent and attorney -in -fact during the Term of this Lease, so long as the City shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, respecting the Leased Premises which the Corporation may have against any vendor or contractor. The City's sole remedy for the breach of any such warranty, indemnification or representation shall be against the vendor or contractor with respect thereto, and not against the Corporation, nor shall such matter have any effect whatsoever on the rights and obligations of the Corporation with respect to this Lease, including the right to receive full and timely Lease Payments and all other payments due hereunder. The City shall be entitled to retain any and 22 DOC S OC/ 1423553 v6/022459 -0014 all amounts recovered as a result of the assertion of any such claims and rights. The Corporation shall, upon the City's request and at the City's expense, do all things and take all such actions as the City may request in connection with the assertion of any such claims and rights. Section 7.12. Substitution or Release of the Leased Premises. The City shall have the right to substitute alternate real property for any portion of the Leased Premises described in Exhibit B hereto or to release a portion of the Leased Premises from the lien of this Lease by providing the Trustee with a supplement to this Lease substantially in the form attached as Exhibit D hereto and by satisfying the conditions set forth in paragraphs (i) through (vi) of this Section 7.12. All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution pursuant to this Section, there shall be no reduction in or abatement of the Lease Payments due from the City hereunder as a result of such substitution. No substitution or release shall be permitted hereunder unless: (a) In the case of a substitution, the City provides the Trustee with a certificate that the substituted real property has an equivalent or greater useful life as the Leased Premises to be released and that the useful life of the substituted Leased Premises exceeds the remaining term of the Lease Payments hereunder; (b) an independent California Certified General or equivalent certified real estate appraiser selected by the City finds (and delivers a certificate to the City and the Trustee setting forth its findings) that the Leased Premises following any release or substitution has an annual fair rental value greater than or equal to the corresponding Lease Payments due hereunder so that the Lease Payments payable by the City pursuant to the Lease will not be abated. Notwithstanding the foregoing, upon the filing by the City of the Completion Certificate, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site, provided that the City certifies to the Trustee that [at least 95% of] the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. (c) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) or CLTA title insurance policy with respect to any substituted property, with an endorsement so as to be payable to the Trustee for the benefit of the Owners, showing no prior liens thereon other than Permitted Encumbrances. Such policy shall comply with Section 5.5 hereof, shall be in the amount equal to the principal component of Lease Payments attributable to the substituted property, and shall insure the leasehold interest or the fee simple interest of the Corporation or the City, as applicable, to the substituted property; (d) the City provides the Corporation and the Trustee with an opinion of Special Counsel that such substitution or release does not cause, in and of itself, the interest evidenced and represented by the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause a loss of the cash subsidy payments from the United States Treasury with respect to the 2010B Certificates; (e) the City shall give, or cause to be given, any notice of the occurrence of such substitution or release required to be given pursuant to the Continuing Disclosure Agreement; and 23 DOCSOC/ 1423553v6/022459 -0014 (f) upon the substitution of any real property and improvements thereon for all or a portion of the Leased Premises then existing, or the release of any portion of the Leased Premises, the City, the Corporation and the Trustee shall execute and the City shall record with the office of the County Recorder, County of Orange, California, any document necessary to reconvey to the City the portion of the Leased Premises being released and to include any substituted real property and/or improvements as all or a portion of the Leased Premises. Section 7.13. Compliance with Law, Regulations, Etc. (a) Except as described in subsection (b) below, the City has, after due inquiry, no knowledge and has not given or received any written notice indicating that the past or present use of the Leased Premises or any practice, procedure or policy employed by it in the conduct of its business materially violates any applicable (including federal, state, county and local) law, regulation, code, order, rule, judgment or consent agreement, including, without limitation, those relating to zoning, building, use and occupancy, fire safety, health, sanitation, air pollution, ecological matters, environmental protection, hazardous or toxic materials, substances or wastes, conservation, parking, architectural barriers to the handicapped, or restrictive covenants or other agreements affecting title to the Leased Premises (collectively, "Laws and Regulations "). Without limiting the generality of the foregoing, to the best of its knowledge, after due inquiry, neither the City nor any prior or present owner, tenant or subtenant of the Leased Premises has, other than as set forth in subsections (a) and (b) of this Section or as may have been remediated in accordance with Laws and Regulations, (i) used, treated, stored, transported or disposed of any material amount of flammable explosives, polychlorinated biphenyl compounds, heavy metals, chlorinated solvents, cyanide, radon, petroleum products, asbestos, methane, radioactive materials, pollutants, hazardous materials, hazardous wastes, hazardous, toxic, or regulated substances or related materials, as defined in CERCLA, RCRA, CWA, CAA, TSCA and Title III, and the regulations promulgated pursuant thereto, and in all other Environmental Regulations applicable to the City, the Leased Premises or the business operations conducted by the City thereon (collectively, "Hazardous Materials ") on, from or beneath the Leased Premises, (ii) pumped, spilled, leaked, disposed of, emptied, discharged or released (hereinafter collectively referred to as "Release ") any material amount of Hazardous Materials on, from or beneath the Leased Premises, or stored any material amount of petroleum products at the Leased Premises in underground storage tanks. (b) Excluded from the representations and warranties in subsection (a) hereof with respect to Hazardous Materials are those Hazardous Materials in the amounts ordinarily found in the inventory of, or used in the maintenance of the City's City Hall or related buildings, the use, treatment, storage, transportation and disposal of which has been and shall be in compliance with all Laws and Regulations (the "Permitted Use "). (c) No portion of the Leased Premises located in an area of high potential incidence of radon has an unventilated basement or subsurface portion which is occupied or used for any purpose other than the foundation or support of the improvements to the Leased Premises. Section 7.14. Environmental Compliance. (a) Other than the Permitted Use, the City shall not use or permit the Leased Premises or any part thereof to be used to generate, manufacture, refine, treat, store, handle, transport or dispose of, transfer, produce or process Hazardous Materials, except, and only to the extent, if necessary to maintain the improvements on the Leased Premises and then, only in compliance with 24 DOCSOC/ 1423553 v6/022459 -0014 all Environmental Regulations, and any state equivalent laws and regulations, nor shall it permit, as a result of any intentional or unintentional act or omission on its part or by any tenant, subtenant, licensee, guest, invitee, contractor, employee and agent, the storage, transportation, disposal or use of Hazardous Materials or the Release or threat of Release of Hazardous Materials on, from or beneath the Leased Premises or onto any other Leased Premises excluding, however, those Hazardous Materials in those amounts ordinarily found in the inventory of a municipal corporation, the use, storage, treatment, transportation and disposal of which shall be in compliance with all Environmental Regulations. Upon the occurrence of any Release or threat of Release of Hazardous Materials other than the Permitted Use, the City shall promptly commence and perform, or cause to be commenced and performed promptly, without cost to the Trustee, all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials so released, on, from or beneath the Leased Premises, in compliance with all Environmental Regulations. Notwithstanding anything to the contrary contained herein, underground storage tanks shall only be permitted subject to compliance with subsection (d) and only to the extent necessary to maintain the improvements on the Leased Premises. (b) The City shall comply with, and shall cause all tenants, subtenants, licensees, guests, invitees, contractors, employees and agents on the Leased Premises to comply with, all Environmental Regulations, and shall keep the Leased Premises free and clear of any liens imposed pursuant thereto; provided, however, that notwithstanding that a portion of this covenant is limited to the City's use of its best efforts, the City shall remain solely responsible for ensuring such compliance and such limitation shall not diminish or affect in any way the City's obligations contained in subsection (c) hereof as provided in subsection (c) hereof. Upon receipt of any notice from any person with regard to the Release of Hazardous Materials other than the Permitted Use on, from or beneath the Leased Premises, the City shall give prompt written notice thereof to the Trustee prior to the expiration of any period in which to respond to such notice under any Environmental Regulation. (c) Irrespective of whether any representation or warranty contained in Section 7.13 is not true or correct, the City shall, to the extent permitted by law, defend, indemnify and hold harmless the Trustee, the Owners, the Corporation and each of their respective employees, agents, officers, directors, trustees, successors and assigns, from and against any claims, demands, penalties, fines, attorneys' fees (including, without limitation, attorneys' fees and expenses incurred to enforce the indemnification contained in this Section 7.14, consultants' fees and expenses, investigation and laboratory fees and expenses, liabilities, settlements (five Business Days' prior notice of which the Trustee shall have delivered to the City) court costs, damages, losses, costs or expenses of whatever kind or nature, known or unknown, contingent or otherwise, occurring in whole or in part, arising out of, or in any way related to, (i) the presence, disposal, Release, threat of Release, removal, discharge, storage or transportation of any Hazardous Materials on, from or beneath the Leased Premises, (ii) any personal injury (including wrongful death) or Leased Premises damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any lawsuit brought or threatened, settlement reached (five Business Days' prior notice of which the Trustee shall have delivered to the City), or governmental order relating to Hazardous Materials on, from or beneath the Leased Premises, (iv) any violation of Environmental Regulations or subsection (a) or (b) hereof by it or any of its agents, tenants, employees, contractors, licensees, guests, subtenants or invitees, and (v) the imposition of any governmental lien for the recovery of environmental cleanup or removal costs. To the extent that the City is strictly liable under any Environmental Regulation, its obligation under the foregoing indemnification shall likewise be without regard to fault on its part with respect to the violation of any Environmental Regulation which results in liability to any 25 DOCSOC/ 1423553 v6/022459 -0014 indemnitee. The obligations and liabilities under this Section 7.14(c) shall survive the payment and satisfaction of all Certificates and Additional Certificates or resignation or removal of the Trustee. (d) The City shall conform to and carry out a reasonable program of maintenance and inspection of all underground storage tanks, and shall maintain, repair, and replace such tanks only in accordance with Laws and Regulations, including but not limited to Environmental Regulations. Section 7.15. Condemnation of Leased Premises. The City hereby covenants and agrees, to the extent it may lawfully do so, that, except as described in Section 6 of the Site Lease, so long as any of the Certificates or Additional Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Leased Premises. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City shall fail or refuse to abide by such covenant and condemns the Leased Premises, then the appraised value of the Leased Premises shall not be less than the sum of (i) as to Certificates and Additional Certificates then subject to optional prepayment, the principal and interest components of such Certificates and Additional Certificates outstanding through the date of their prepayment, and (ii) as to Certificates and Additional Certificates not then subject to optional prepayment, the amount necessary to defease such Certificates and Additional Certificates to the first available prepayment date in accordance with the Trust Agreement. ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Corporation. Except as provided herein, in the Trust Agreement and the Assignment Agreement, the Corporation will not assign this Lease to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in Section 2.2 hereof. Section 8.2. Assignment and Subleasing by the Citv. (a) Assignment. This Lease may be assigned by the City, so long as such assignment does not, in the opinion of Special Counsel, adversely affect the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds or affect the validity of this Lease. In the event that this Lease is assigned by the City, the obligation to make Lease Payments hereunder shall remain the obligation of the City. (b) Sublease. The City may sublease all or any portion of the Leased Premises subject to all of the following conditions: (i) This Lease and the obligation of the City to make Lease Payments and Additional Payments hereunder shall remain obligations of the City; 26 DOCSOC/ 1423553x6/022459 -0014 (ii) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Corporation and the Trustee, a true and complete copy of such sublease; and (iii) The City shall furnish to the Corporation and the Trustee, an opinion of Special Counsel to the effect that the sublease will not cause the interest due with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal, income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Section 8.3. Amendments and Modifications. This Lease may be amended or any of its terms modified with the written consent of the City, the Corporation and the Trustee in accordance with Article X of the Trust Agreement. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined. The following shall be "events of default" under this Lease and the terms "events of default" and "default" shall mean, whenever they are used in this Lease, any one or more of the following events: (a) Payment Default. Failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; and (b) Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed hereunder or otherwise with respect hereto or in the Trust Agreement or in the Site Lease, other than as referred to in clause (a) of this Section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation, the Trustee, or the Owners of not less than twenty percent (20 %) in aggregate principal amount of Certificates and Additional Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Corporation, such Owners, as the case may be, shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected. (c) Bankruptcy or Insolvency. The filing by the City of a case in bankruptcy, or the subjection of any right or interest of the City under this Lease to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. Section 9.2. Remedies on Default. Whenever any event of default referred to in Section 9.1 hereof shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to this Lease. 27 DOCSOC/ 1423553v6/022459 -0014 Notwithstanding anything herein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default hereunder, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. (a) No Termination; Repossession and Re -Lease on Behalf of The City. In the event the Corporation does not elect to terminate this Lease in the manner hereinafter provided for in subparagraph (b) hereof, the Corporation may, with the consent of the City, which consent is hereby irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with this Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of this Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City hereby irrevocably appoints the Corporation as the agent and attorney -in -fact of the City to repossess and re -lease the Leased Premises in the event of default by the City in the performance of any covenants contained herein to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in the County of Orange, for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re- leasing of the Leased Premises. The City hereby waives any and all claims for damage caused or which may be caused by the Corporation in repossessing the Leased Premises as provided herein and all claims for damages that may result from the destruction of or the injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that may be in or upon the Leased Premises. The City agrees that the terms of this Lease constitute full and sufficient notice of the right of the Corporation to re -lease the Leased Premises in the event of such repossession without effecting a surrender of this Lease, and further agrees that no acts of the Corporation in effecting such re- leasing shall constitute a surrender or termination of this Lease irrespective of the term for which such re- leasing is made or the terms and conditions of such re- leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease shall vest in the Corporation to be effected in the sole and exclusive manner provided for in subparagraph (b) below. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and M DOCSOC/ 1423553v6/022459 -0014 costs of the Trustee of re- leasing the Leased Premises, and all amounts payable by the City under this Lease and the Trust Agreement. In the event that the liability of the City under this subsection (a) is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies provided in this subsection (a). (b) Termination; Repossession and Re- Lease. In the event of the termination of this Lease by the Corporation at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of Section 5.04 of the Trust Agreement. Any surplus received by the Trustee, as assignee of the Corporation, from such re- leasing over total Lease Payments shall be remitted to the City. Additional Payments that would have been due hereunder and the fees, expenses and costs of the Trustee as assignee of the Corporation on re- leasing the Leased Premises shall be remitted to the City. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate this Lease, and no termination of this Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate this Lease. The City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of this Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. (c) Opinion of Special Counsel. The re- leasing of the Leased Premises as provided herein shall be subject to the opinion of Special Counsel that such re- leasing will not cause the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax - exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments with respect to the 2010B Certificates which have been designated as Build America Bonds. (d) No Termination by The City. Under no circumstances may the City terminate this Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation hereunder. Section 9.3. No Remedy Exclusive. No remedy conferred herein upon or reserved to the Corporation is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power 29 DOCSOC/ 1423553v6/022459 -0014 may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Corporation to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. Section 9.4. Agreement to Pay Attorneys' Fees and Expenses. In the event either party to this Lease (except for the Trustee, as assignee of the Corporation) should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. Section 9.5. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease should be breached by either party and thereafter waived by the other party; such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 9.6. Application of the Proceeds from the Re -Lease of the Leased Premises. All amounts received by the Corporation under this Article IX shall, subject to Section 13.03 of the Trust Agreement, be deposited by the Trustee in the Lease Payment Fund and credited towards the Lease Payments in order of Lease Payment Dates, and proportionally among 2010A Lease Payments and 2010B Lease Payments. Section 9.7. Trustee and Owners to Exercise Rights. Such rights and remedies as are given to the Corporation under this Article IX have been assigned by the Corporation to the Trustee under the Assignment Agreement, to which assignment the City hereby consents. Such rights and remedies shall be exercised by the Trustee and the Owners as provided in the Trust Agreement. In addition to the rights and remedies assigned by the Corporation to the Trustee, to the extent that the Trust Agreement and this Lease confer upon or gives or grant to the Trustee any right, remedy or claim under or by reason of the Trust Agreement or this Lease, the Trustee is hereby explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred given or granted. ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1. Security Deposit. Notwithstanding any other provision of this Lease, the City may, on any date, secure the payment of Lease Payments and Additional Payments by a deposit by it with the Trustee of cash and/or Government Obligations as provided in Section 14.01 of the Trust Agreement. In such event, and provided that the City has paid any other amounts due and owing under this Lease and the Trust Agreement, all obligations of the City under this Lease, and all security provided by this Lease for said obligations, shall cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such deposit. On the date of said deposit, title to the Leased Premises shall vest in the City automatically and without further action by the City or the Corporation (except as provided herein). Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of this Lease. The Corporation shall execute and deliver 30 DOCSOC/ 1423553v6/022459 -0014 such further instruments and take such further action as may reasonably be requested by the City for carrying out the title transfer of the Leased Premises. Section 10.2. Extraordinary PrepaMent. The City shall be obligated to prepay the Lease Payments in whole or in part on any date, from and to the extent of any Net Proceeds or other moneys theretofore deposited in the Prepayment Fund (at least 45 days prior to the date fixed for prepayment of the Certificates and any Additional Certificates) pursuant to Section 4.02 of the Trust Agreement. The City and the Corporation hereby agree that such Net Proceeds or other moneys shall be credited towards the City's obligations hereunder (except in the case of such Prepayment of the Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual Lease Payments will be proportional to the initial annual Lease Payments. Section 10.3. Optional Prepayment. Subject to the terms and conditions of this Section, the Corporation hereby grants an option to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment prices set forth in Section 4.03 of the Trust Agreement and in any Supplemental Agreement. The City shall provide notice to the Trustee at least 45 days prior to the date fixed for prepayment of the Certificates (or on such later date as shall be consented to by the Trustee). The City and the Corporation agree that such prepayments shall be credited toward the City's obligations hereunder corresponding to the resulting prepayment of the Certificates and Additional Certificates in accordance with Section 4.03 of the Trust Agreement and any Supplemental Agreement on the dates and at the prepayment prices provided therein. ARTICLE XI MISCELLANEOUS Section 11.1. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received on the earlier of the day of actual receipt or five Business Days after deposit in the United States mail in first -class or certified form, postage prepaid, to the City or the Corporation, as the case may be, at the addresses indicated in Section 14.05 of the Trust Agreement. The Corporation, the City, and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Section 11.2. Binding Effect. This Lease shall inure to the benefit of and shall be binding upon the Corporation and the City and their respective successors and assigns. Section 11.3. Severability. In the event any provision of this Lease shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 11.4. Execution in Counternart s. This Lease may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 11.5. Applicable Law. This Lease shall be governed by and construed in accordance with the laws of the State. 31 DOCSOC/1423553v6/022459 -0014 IN WITNESS WHEREOF, the Corporation has caused this Lease to be executed in its name by its duly authorized officer, and the City has caused this Lease to be executed in its name by its duly authorized officer, as of the date first above written. NEWPORT BEACH PUBLIC FACILITIES CORPORATION, as Lessor By: Its: President Attest: Secretary CITY OF NEWPORT BEACH, as Lessee By: Its: Attest: City Clerk S -1 DOCSOC/ 1423553v6/022459 -0014 Mayor CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the Leased Premises conveyed under the foregoing to the City of Newport Beach, a chartered city duly organized under the Constitution and the laws of the State of California, is hereby accepted by the undersigned officer or agent on behalf of the City Council of the City of Newport Beach, pursuant to authority conferred by resolution of the said City Council adopted on November 9, 2010, and the grantee consents to recordation thereof by its duly authorized officer. Dated: 2010 CITY OF NEWPORT BEACH By: Its: ATTEST: By: Its: City Clerk APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: M David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: In , Stradling Yocca Carlson & Rauth, a Professional Corporation DOCSOC/ 1423553v6/022459 -0014 Mayor EXHIBIT A SCHEDULE OF LEASE PAYMENTS 201" LEASE PAYMENTS 2010B LEASE PAYMENTS Principal Interest Principal Interest Lease Date Component Component Lease Payments Component Component Lease Payments Payments A -1 DOCSOC/ 1423553v6/022459 -0014 Annual Combined Lease Payments EXHIBIT B DESCRIPTION OF THE LEASED PREMISES Real property and improvements located thereon in the City of Newport Beach, County of Orange, State of California, described as follows; Newport Coast Community Center: Mariner's Library: Fire Station 7 (Santa Ana Heights): Fire Station 8 (Newport Coast): Central Library: Oasis Senior Center: Fire Station 3 (Newport Center): Fire Station 4 (Balboa Island): Police Station: Civic Center: B -1 DOCSOC/ 1423553v6/022459 -0014 EXHIBIT C DESCRIPTION OF THE PROJECT The Civic Center Project consists of the design, construction and development or expansion of various public buildings and spaces on two parcels inland of the Newport Beach Central Library and bordered by Avocado Avenue and MacArthur Boulevard. In particular, the Civic Center Project includes: • Design and development of a park on 16 -acres of land, which will include a dog park, a civic lawn for outdoor events, places for art, a restored wetlands, 1.23 miles of walking and viewing trails, a belvedere and other view opportunities, and restrooms. • Design and expansion of the Central Library by 17,000 square feet and effectively linking the Central Library and Civic Center. The expansion of the Central Library will include improvements to the children's programs room, reading rooms, a sound and video room, expansion of the restrooms and the addition of a caf6 and credit union. • Design and construction 450 -space parking structure to accommodate up to 350 cars associated with the City office building and 100 cars associated with use for the Central Library. • Design and construction of an emergency readiness center to serve as the permanent home of the City's emergency response team. • Design and construction of a new community room that seats up to 150 persons and opens to an outside covered area. This new community room will be made available for lectures, arts programs, and other community events. • Design and construction of new City Council Chambers that seat up to 150 persons and double as community meeting space when not being used by the City Council or its commissions. • Design and construction of a new City office building that will house approximately 240 employees who work at City Hall • If construction costs permit, design and construction of a pedestrian bridge that would allow walkers to safely cross over San Miguel Avenue without impacting vehicular traffic. The City will seek to attain at least a Leadership in Energy and Environmental Design Silver designation for the Civic Center Project. To attain such designation, design of the Civic Center Project must include passive heating and cooling systems in the City office building, including a raised floor system and advanced lighting technologies, California - friendly landscaping in the main portion of the park, adjacent transit facilities and other means to increase C -1 DOCSOC/ 1423553 v6/022459 -0014 the number of City workers who carpool, bike to work, or use alternative fuel vehicles and a building orientation that maximizes the ability for natural ventilation and natural light. C -2 DOCSOC/ 1423553 v6/022459 -0014 EXHIBIT D LEASE SUPPLEMENT FORM There is hereby subjected to the terms of that certain Lease /Purchase Agreement, dated as of November 1, 2010, by and between the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") the following items which shall comprise a portion of the Leased Premises, as defined therein: Description of Substituted Leased Premises [Insert Description] Cost I, the City Representative, hereby certify that: (1) the fair rental value (based on the attached appraisal by an independent real estate appraiser) and the useful life of the above - described portion of the Leased Premises, as substituted, at least equals the fair rental value and the useful life of the portion of the Leased Premises for which it was substituted; (2) the above - described portion of the Leased Premises will be used by the City for authorized public purposes and can be leased under the provisions of the Lease and the Government Code; (3) the above - described portion of the Leased Premises is currently owned by the City; and (4) the above - described portion of the Leased Premises is of approximately the same degree of essentiality to the City as the portion of the Leased Premises being replaced. I, the City Representative, hereby certify that the portion of the Leased Premises being substituted is free and clear of all liens or claims of others, except for Permitted Encumbrances referred to in the Lease. CITY OF NEWPORT BEACH By: [signature] City Representative D -1 DOCSOC/ 1423553v6/022459 -0014 EXHIBIT E FORM OF CERTIFICATE OF SUBSTITUTION OR ADDITION OF PROJECT COMPONENT I, of the City of Newport Beach (the "City ") hereby certify that project is to become a part of the Project as defined under the Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Newport Beach Public Facilities Corporation (the "Corporation ") [in addition to the components of the Project as defined in the Lease or in substitution for component of the Project as defined in the Lease]. This Certificate shall be filed with the Trustee under the Trust Agreement, dated as of November 1, 2010, by and among the City, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder, until such time as the Lease is terminated. City Representative E -1 DOCS00 1423553v6/022459 -0014 Resolution Authorizing Sale of Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) and related documents RESOLUTION NO. 2010- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE PREPARATION, SALE AND DELIVERY OF NOT TO EXCEED $128 MILLION PRINCIPAL AMOUNT OF CERTIFICATES OF PARTICIPATION, SERIES 2010 (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) AND APPROVING CERTAIN DOCUMENTS AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City of Newport Beach (the "City: ") and the Newport Beach Public Facilities Corporation (the "Corporation ") have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project "); and WHEREAS, the City and the Corporation desire to enter into a Site Lease dated as of November 1, 2010 (the "Site Lease ") and a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the City, as agent of the Corporation, shall cause the acquisition, improvement and equipping of a new Civic Center, as described therein (collectively, the "Civic Center Project" and together with the Central Library Project, the "Project ") and whereby the City shall refinance the Central Library Project, and the City has agreed to lease the Leased Premises (defined below) from the Corporation, the forms of which have been presented to this City Council at the meeting of which the Resolution has been adopted; and WHEREAS, in order to finance the Project, the City and the Corporation desire to authorize the sale of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") evidencing fractional interests in the 2010A Lease Payments made by the City under the Lease, and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "201013 Certificates" and together with the Series 2010A Certificates, the "Certificates ") each evidencing fractional interests in the 2010B Lease Payments made by the City under the Lease; and WHEREAS, Section 5450 et seq. of the California Government Code (the "Government Code ") provides statutory authority for pledging collateral for the payment of principal or prepayment price of, and interest on, any agreement, including certificates of participation, and the Govemment Code creates a continuing perfected security interest which shall attach immediately to such collateral irrespective of whether the parties to the pledge document have notice of the pledge and without the need for any physical delivery, recordation, filing or further act, and, therefore, the City and the Corporation hereby warrant and represent that pursuant to the Lease, the Trust Agreement, to be dated as of November 1, 2010, by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the City and the Corporation (the "Trust Agreement"), -1- DOCSOC / 1110296v4/022459 -0014 and the Government Code, the Trustee will have a first priority perfected security interest in the Lease Payments described in the Lease represented by the Certificates pursuant to the Government Code. WHEREAS, the City Council desires to consent to the assignment of certain of the Corporation's rights, title and interest in and to the Site Lease and the Lease Agreement, including the right to receive such lease payments from the City, to the Trustee pursuant to an Assignment Agreement, between the Corporation and the Trustee, to be dated as of November 1, 2010 (the "Assignment Agreement "), the form of which together with the form of the Trust Agreement have been presented to this City Council at the meeting at which this Resolution has been adopted; and WHEREAS, the City Council desires to approve the form of a Purchase Agreement (the "Purchase Agreement "), by and between the City and Stone & Youngberg LLC as representative of itself and E.J. Del Rosa & Co., Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Raymond James (collectively, the "Purchaser "), pursuant to which the Purchaser will agree to buy the Certificates on the terms and conditions set forth therein, the form of which has been presented to this City Council at the meeting at which this Resolution has been adopted; WHEREAS, the City Council desires to approve the form of a Preliminary Official Statement relating to the Certificates (the "Preliminary Official Statement ") to be distributed to potential investors, for the purposes of facilitating the sale of the Certificates at the lowest feasible interest rate, the form of which has been presented to this City Council at the meeting at which this Resolution has been adopted; and WHEREAS, the City Council desires to approve the form of a Continuing Disclosure Agreement (the "Disclosure Agreement ") between the City and Digital Assurance Certificates, L.L.C., the form of which has been presented to this City Council at the meeting at which the Resolution has been adopted; and WHEREAS, the City Council desires to approve the form of an Agency Agreement between the City and the Corporation, the form of which has been presented to this City Council at the meeting at which the Resolution has been adopted. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach that: Section 1. Each of the foregoing recitals is true and correct. The City Council hereby finds and determines that the total rental to be paid under the Lease Agreement does not exceed the fair rental value of the leased property identified in Exhibit A to the Lease (collectively, the "Leased Property"). -2- DOCSOC/ 1110296v4/022459 -0014 Section 2. This City Council hereby consents to the preparation, sale and delivery of the Certificates in an aggregate amount of not to exceed $128 million in accordance with the terms and provisions of the Trust Agreement, with the exact principal amount of each series of Certificates to be that determined necessary by the City Manager or the Director of Administrative Services to refund and defease the Prior Certificates, to pay the costs of the Civic Center Project and to pay all associated costs in connection therewith. The proceeds of the Certificates shall be expended to finance the costs of the Project and to refund and defease the Prior Certificates and to provide for a reserve fund, if any, and the costs of the preparation, sale and delivery of the Certificates. Section 3. The Bank of New York Mellon Trust Company, N.A. is hereby appointed as Trustee on behalf of the owners of the Certificates, with the duties and powers of such Trustee as set forth in the Trust Agreement. Section 4. The forms of the Site Lease, the Lease Agreement, the Trust Agreement, the Disclosure Agreement, the Agency Agreement and the Assignment Agreement presented at this meeting are hereby approved. Each of the Mayor, the City Manager, the Director of Administrative Services and the City Clerk is hereby authorized for and in the name of the City to execute the Site Lease, the Lease Agreement, the Disclosure Agreement, the Agency Agreement and the Trust Agreement in substantially the forms hereby approved, with such additions thereto and changes therein as are recommended or approved by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Special Counsel to the City ( "Special Counsel "), or the City Attorney and the officer or officers executing the same, including all changes necessary to reflect the purchase of bond insurance as described in Section 5 below. Approval of such changes shall be conclusively evidenced by the execution and delivery of the foregoing documents by one or more of the authorized officers. The Mayor, the City Manager, the Director of Administrative Services and the City Clerk each is hereby authorized to execute, acknowledge and deliver any and all documents required to consummate the transactions contemplated by the Site Lease, the Lease Agreement, the Disclosure Agreement, the Trust Agreement, the Agency Agreement and the Assignment Agreement. Section 5. The form of the Purchase Agreement presented at this meeting and the sale of the Certificates pursuant thereto are hereby approved, and each of the Mayor, the City Manager and the Director of Administrative Services is hereby authorized to evidence the City's acceptance of the terms and provisions of the Purchase Agreement by executing and delivering the Purchase Agreement in the form presented to the City at this meeting, with such additions thereto and changes therein as are recommended or approved by Special Counsel or the City Attorney and the officers executing the same. Approval of such additions and changes shall be conclusively evidenced by the execution and delivery of the Purchase Agreement; provided, however, that the Purchase Agreement shall be signed only if the aggregate principal amount of the Certificates does not exceed $128 million and the Purchaser's discount (exclusive of original issue discount and any bond insurance premium) with respect to the Certificates does not exceed 0.70% of the aggregate principal amount of the Certificates. The City Manager or the Director of Administrative Services, or their designees, are authorized to reject any terms presented by the Purchaser if determined not to be in the best interest of the City. Section 6. The form of the Certificates as set forth in the Trust Agreement (as the Trust Agreement may be modified pursuant to Section 4 hereof) are hereby approved. -3- DOCSOC/1110296v4/022459 -0014 Section 7. The form of the Preliminary Official Statement presented at this meeting is hereby approved, and the Preliminary Official Statement may be distributed to prospective purchasers in the form so approved, together with such additions thereto and changes therein as are determined necessary by the Director of Administrative Services, or his designee, to make such Preliminary Official Statement final as of its date for purposes of Rule 15c2 -12 of the Securities and Exchange Commission. Each of the Mayor and the City Manager is hereby authorized to execute a final Official Statement in the form of the Preliminary Official Statement, together with such changes as are determined necessary by the Director of Administrative Services, or his designee, and the officer executing the same to make such Official Statement complete and accurate as of its date. The Purchaser is further authorized to distribute the final Official Statement for the Certificates to the purchasers thereof upon its execution by an officer of the City as described above. The City Manager, the Director of Administrative Services and their written designees are hereby authorized and directed to take whatever steps are necessary to comply with the requirements of Rule 15c2 -12 applicable to the Certificates following their execution and delivery. Section 8. The Mayor, the City Manager, the Director of Administrative Services and the City Clerk are hereby authorized, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary and advisable in order to consummate the sale and delivery of the Certificates and otherwise effectuate the purposes of this Resolution (including but not limited to the execution and delivery of a Calculation Agent Agreement with the Trustee, any consents or agreements to remove encumbrances to title with respect to the Leased Property and to substitute, remove or add property to the Leased Property that is determined by the City Manager to be in the best interests of the City), including the refunding and defeasance of the Prior Certificates, and such actions previously taken by such officers are hereby ratified and confirmed. In the event the Mayor is unavailable or unable to execute and deliver any of the above- referenced documents, any other member of the City Council may validly execute and deliver such document, and, in the event the City Clerk is unavailable or unable to execute and deliver any of the above - referenced documents, any deputy clerk may validly execute and deliver such document in her place. -4- DOCSOC/I t 10296x4/022459 -0014 Section 9. This Resolution shall take effect from and after its date of adoption. ADOPTED, SIGNED AND APPROVED this 9th day of November, 2010. Mayor of the City of Newport Beach ATTEST: City Clerk of the City of Newport Beach APPROVED AS TO FORM: SPECIAL COUNSEL: LN Brian Forbath, Stradling Yocca Carlson & Rauth, a Professional Corporation -5- DOCSOC/ 1110296v4/022459 -0014 STATE OF CALIFORNIA ) ss. COUNTY OF ORANGE I hereby certify that the foregoing Resolution was duly and regularly adopted by the City Council of the City of Newport Beach at a regular meeting thereof held on the 9th day of November, 2010, by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: ABSTAIN: COUNCIL MEMBERS: City Clerk of the City of Newport Beach -6- DOCSOC/ 1110296v4/022459 -0014 Trust Agreement Stradling Yocca Carlson & Rauth Draft of 10/27/10 TRUST AGREEMENT Dated as of November 1, 2010 by and among THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee and NEWPORT BEACH PUBLIC FACILITIES CORPORATION and CITY OF NEWPORT BEACH Relating to the CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOC/ 1423520v6/022459 -0014 Section 1.01. Section 1.02. Section 1.03. Section 2.01. Section 2.02. Section 2.03. Section 2.04. Section 2.05. Section 2.06. Section 2.07. Section 2.08. Section 2.09. Section 2.10. Section 2.11. Section 2.12. TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Definitions and Rules of Construction ........................................ ..............................2 Authorization.............................................................................. .............................13 EqualSecurity ............................................................................ .............................13 ARTICLE II THE 2010 CERTIFICATES OF PARTICIPATION Authorization...................................... ............................... Description of Certificates .................. ............................... Form of Certificates ............................ ............................... Execution............................................ ............................... Application of Proceeds and Other Amounts .................... Transfer and Exchange ....................... ............................... Certificates Mutilated, Lost, Destroyed or Stolen ............. Execution of Documents and Proof of Ownership............ Certificate Register ............................. ............................... Book -Entry System ............................ ............................... Destruction of Cancelled Certificates . ............................... Additional Certificates ........................ ............................... ARTICLE III PROJECT FUND Section 3.01. Establishment of Project Fund .................................................... .............................22 Section3.02. Purpose ....................................................................................... .............................22 Section 3.03. Deposit of Moneys; Payment of Project Costs and Delivery Costs ........................ 23 Section 3.04. Transfers of Unexpended Proceeds ............................................ .............................23 ARTICLE IV I9NX17\` /kyj10,10 8 1810 C Section 4.01. Establishment of Prepayment Fund ............................................ .............................23 Section 4.02. Extraordinary Prepayment .......................................................... .............................24 Section4.03. Prepayment ................................................................................. .............................24 Section 4.04. Selection of Certificates for Prepayment .................................... .............................26 Section 4.05. Notice of Prepayment ................................................................. .............................27 Section 4.06. Partial Prepayment of Certificates .............................................. .............................27 i DOCSOC/ 1423520x6/022459 -0014 TABLE OF CONTENTS (continued) Section 4.07. Effect of Notice of Prepayment ....... ............................... Section4.08. Surplus ............................................. ............................... ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND Section 5.01. Security Provisions ............................... Section 5.02. Establishment of Lease Payment Fund. Section 5.03. Deposits ................. ............................... Section 5.04. Application of Moneys ......................... Section 5.05. Surplus ................... ............................... Section 7.01. Section 7.02. Section 8.01. Section 8.02. Section 8.03. Section 8.04. Section 8.05. Section 8.06. Section 8.07. Section 8.08. Section 9.01. Section 9.02. Section 9.03. ARTICLE VI [RESERVED] ARTICLE VII NET PROCEEDS FUND Establishment of Net Proceeds Fund: Deposits ....... ............................... Cooperation............................................................. ............................... ARTICLE VIII MONEYS IN FUNDS; INVESTMENT Held in Trust ................. ............................... Investments Authorized ............................... Crediting of Investments ............................. Accounting ................... ............................... Valuation and Disposition of Investments. . Commingling of Moneys in Funds .............. Tax Covenants .............. ............................... RebateFund .................. ............................... ARTICLE IX THE TRUSTEE Appointment of Trustee ........................ Merger or Consolidation ....................... Protection of the Trustee ...................... ii DOCSOC/ 1423520v6/022459 -0014 Page ....27 ....28 .......31 .......31 .................... 37 .................... 37 TABLE OF CONTENTS (continued) Section 9.04. Rights of the Trustee ...................... ............................... Section 9.05. Standard of Care ............................. ............................... Section 9.06. Compensation of the Trustee .......... ............................... Section 9.07. Indemnification of Trustee ............. ............................... Section 9.08. Trustee's Disclaimer of Warranties ............................... ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS Page 91 : c t� Section 10.01. Amendments Permitted .............................................................. .............................41 Section 10.02. Procedure for Amendment with Written Consent of the Owners ...........................43 Section 10.03. Disqualified Certificates ............................................................. .............................43 Section 10.04. Effect of Supplemental Agreement ............................................ .............................44 Section 10.05. Endorsement or Replacement of Certificates Delivered After Amendments .......... 44 Section 10.06. Amendatory Endorsement of Certificates .................................. .............................44 Section 10.07. Copies of Amendments Delivered to Rating Agencies .............. .............................44 ARTICLE XI COVENANTS; NOTICES Section 11.01. Compliance With and Enforcement of the Lease ....................... .............................44 Section 11.02. Payment of Taxes ....................................................................... .............................45 Section 11.03. Observance of Laws and Regulations ........................................ .............................45 Section 11.04. Prosecution and Defense of Suits ............................................... .............................45 Section11.05. City Budgets ............................................................................... .............................45 Section 11.06. Further Assurances ..................................................................... .............................45 Section 11.07. Continuing Disclosure ................................................................ .............................45 ARTICLE XII LIMITATION OF LIABILITY Section 12.01. Limited Liability of the City ............................... ............................... Section 12.02. , No Liability of the City or Corporation for Trustee Performance..... Section 12.03. Limitation of Rights to Parties and Certificate Owners .................... Section 12.04. No Liability of Corporation to the Owners ........ ............................... ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS Section 13.01. Assignment of Rights .......... Section 13.02. Events of Default ................. DOCSOC/ 1423520v6/022459 -0014 Bill 47 47 TABLE OF CONTENTS (continued) Page Section 13.03. Application of Funds .................................................................. .............................47 Section 13.04. Institution of Legal Proceedings ................................................. .............................48 Section13.05. Non - Waiver ................................................................................ .............................48 Section 13.06. Remedies Not Exclusive ............................................................. .............................48 Section 13.07. Power of Trustee to Control Proceedings ................................... .............................48 Section 13.08. Limitation on Certificate Owners' Right to Sue ......................... .............................49 ARTICLE XIV MISCELLANEOUS Section14.01. Defeasance .................................................................................. .............................49 Section 14.02. Non - Presentment of Certificates ................................................ .............................50 Section 14.03. Acquisition of Certificates by City ............................................. .............................51 Section14.04. Records ....................................................................................... .............................51 Section14.05. Notices ........................................................................................ .............................51 Section 14.06. Governing Law ........................................................................... .............................52 Section 14.07. Binding Effect: Successors ........................................................ .............................52 Section 14.08. Execution in Counterparts .......................................................... .............................52 Section14.09. Headings ..................................................................................... .............................52 Section 14.10. Waiver of Notice ........................................................................ .............................52 Section 14.11. Separability of Invalid Provisions .............................................. .............................52 Signatures................................................................................................ ............................... S -1 EXHIBIT A -1 FORM OF 2010A CERTIFICATE .................................... ............................... A -1 -1 EXHIBIT A -2 FORM OF 2010B CERTIFICATE .................................... ............................... A -2 -1 EXHIBIT B -1 FORM OF WRITTEN DELIVERY COST REQUISITION ............................ B -1 -1 EXHIBIT B -2 FORM OF WRITTEN PROJECT COST REQUISITION ............................... B -2 -1 iv DOCSOC/ 1423520v6/022459 -0014 TRUST AGREEMENT THIS TRUST AGREEMENT, dated as of November 1, 2010, by and among THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized under the laws of the United States, as trustee (the "Trustee "), the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California, as lessor under the Lease hereinafter referred to (the "Corporation "), and the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California, as lessee under the Lease (the "City"); WITNESSETH: WHEREAS, the City and the Corporation have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project "); and WHEREAS, the City and the Corporation have entered into a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the City, as agent of the Corporation, shall cause the acquisition, improvement and equipping of a new City Hall, as described therein (collectively, the "Civic Center Project" and together with the Central Library Project, the "Project ") and whereby the City shall refinance the Central Library Project, and the City has agreed to lease the Leased Premises (defined below) from the Corporation; and WHEREAS, in order to finance the Project, the City and the Corporation have authorized the sale of the $ City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") evidencing fractional interests in the 2010A Lease Payments made by the City under the Lease, and the $ City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the Series 2010A Certificates, the "Certificates ") each evidencing fractional interests in the 2010B Lease Payments made by the City under the Lease; and WHEREAS, as security for the Certificates, the Corporation has assigned the rights to receive all Lease Payments described in the Lease, and the Corporation and the City have granted a security interest in all moneys held by the Trustee hereunder (other than the Rebate Fund as described herein) to the extent described herein to the Trustee for the benefit of the Owners of Certificates and any Additional Certificates executed and delivered hereunder; and WHEREAS, Section 5420 et seq. of the California Government Code (the "Government Code ") provides statutory authority for pledging collateral for the payment of principal or prepayment price of, and interest on, any agreement, including certificates of participation, and the Government Code creates a continuing perfected security interest which shall attach immediately to such collateral irrespective of whether the parties to the pledge document have notice of the pledge and without the need for any physical delivery, recordation, filing or further act, and, therefore, the DOCSOC/ 1423520v6/022459 -0014 City and the Corporation hereby warrant and represent that pursuant to the Lease, this Trust Agreement and the Government Code, the Trustee has a first priority perfected security interest in the Lease Payments described in the Lease represented by the Certificates pursuant to the Government Code. WHEREAS, the Trustee has agreed to apply the proceeds of the Certificates deposited in the Project Fund to pay certain Project Costs and Delivery Costs (as such terms are defined herein) and to refinance the 1998 Certificates. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions and Rules of Construction. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Trust Agreement, have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this Trust Agreement, refer to this Trust Agreement as a whole. "Additional Certificates" means certificates of participation authorized by a Supplemental Agreement that are executed and delivered by the Trustee under and pursuant to Section 2.12. "Additional Payments" means all amounts payable by the City as Additional Payments as defined in Section 4.11 of the Lease. " Assimment Agreement' ' means the Assignment Agreement, dated as of the date hereof, by and between the Trustee and the Corporation, and any duly authorized and executed amendments thereto. "Beneficial Owner" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. "Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York or the State of California are authorized or required by law or executive order to remain closed. "Certificates" means collectively, the 2010A Certificates and the 2010B Certificates. "Certificate of Completion" means a certificate of the City Representative delivered pursuant to Section 3.4 of the Lease stating that all components of the Project have been completed or concluded in conformity with the requirements of the Lease. DOCSOC/ 1423520v6/022459 -0014 "Certificate Year" means the period extending from July 2 each year to July 1 of the subsequent calendar year, provided that the first Certificate Year shall commence on the Closing Date and end on July 1, 2011. "City" means the City of Newport Beach, a chartered city organized and existing under the laws and Constitution of the State, and its successors and assigns. "City Representative" means the City Manager of the City, the Assistant City Manager or any other person authorized by the City Manager of the City to act on behalf of the City with respect to the Lease or this Trust Agreement. "Closing Date" means the date on which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof. "Code" means the Internal Revenue Code of 1986, and the regulations issued thereunder, as the same may be amended from time to time, and any successor provisions of law. Reference to a particular section of the Code shall be deemed to be a reference to any successor to any such section. "Comparable Treasury Issue" means, with respect to any prepayment date for a particular 2010B Certificate evidencing a 2010B Lease Payment, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid. "Comparable Treasury Price" means, with respect to any prepayment date for a particular 2010B Certificate, either (a) the average of five Reference Treasury Dealer quotations for the date fixed for prepayment, after excluding the highest and lowest such quotations, and (b) if the Independent Banking Institution is unable to obtain five such quotations, the average of the quotations that are obtained. The quotations will be the average, as determined by the Independent Banking Institution, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of principal amount) quoted in writing to the Independent Banking Institution, at 5:00 p.m. New York City time on any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. "Comparable Treasury Yield" means the yield which represents the weekly average yield to maturity for the preceding week appearing in the most recently published statistical release designated "H.15(519) Selected Interest Rates" under the heading "Treasury Constant Maturities," or any successor publication selected by the Independent Banking Institution that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity, for the maturity corresponding to the remaining term to maturity of the 2010B Certificate being prepaid. The Comparable Treasury Yield will be determined as of any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. If the H.15(519) statistical release sets forth a weekly average yield for United States Treasury securities that have a constant maturity that is the same as the remaining term to maturity of the 2010B Certificate being prepaid, then the Comparable Treasury Yield will be equal to such weekly average 3 DOCSOC/ 1423520v6/022459 -0014 yield. In all other cases, the Comparable Treasury Yield will be calculated by interpolation on a straight -line basis, between the weekly average yields on the United States Treasury securities that have a constant maturity (i) closest to and greater than the remaining term to maturity of the 2010B Certificate being prepaid; and (ii) closest to and less than the remaining term to maturity of the 2010B Certificate being prepaid. Any weekly average yields calculated by interpolation will be rounded to the nearest 1 /100th of 1 %, with any figure of 1 /200th of 1% or above being rounded upward. If, and only if, weekly average yields for United States Treasury securities for the preceding week are not available in the H.15(519) statistical release or any successor publication, then the Comparable Treasury Yield will be the rate of interest per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) at the Comparable Treasury Price as of the date fixed for prepayment. "Continuine Disclosure Agreement" means that certain Continuing Disclosure Agreement dated as of November 1, 2010, by and between the City and the Trustee, as Dissemination Agent, as it may be amended from time to time in accordance with the terms thereof. "Corporati on' means the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation organized under the laws of the State, its successors and assigns. "Corporation Representative" means the President, Vice President, Secretary, Treasurer of the Corporation, or any other person authorized to act on behalf of the Corporation under or with respect to the Lease. "Delivery Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B -1. "Delivery Costs" means and includes all items of expense directly or indirectly payable by or reimbursable to the City or the Corporation relating to the financing of the Project from the proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the Original Purchaser, filing and recording costs, settlement costs, printing costs, word processing costs, reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies, any computer and other expenses incurred in connection with the Certificates, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing. "Delivery Date" means the date on which any Series of Certificates or Additional Certificates are delivered to the Original Purchaser. "Depository" means the securities depository acting as depository pursuant to Section 2.10 hereof. "DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates. "Escrow Agent' means U.S. Bank National Association or any successor or assigns. DOCSOC/ 1423520v6/022459 -0014 "Escrow Agreement" means the Escrow Agreement dated as of November 1, 2010, by and between the City and the Escrow Agent relating to the 1998 Certificates. "Escrow Fund" means that fund established pursuant to the Escrow Agreement and held by the Escrow Agent. thereof. "Event of Default" means an event of default under the Lease, as defined in Section 9.1 "Extraordinary Event" means: (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such Sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the 2010B Tax Certificate, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. "Fiscal Year" means the fiscal year of the City commencing July 1 and ending June 30 of the next year. "Fitch" means Fitch Ratings Group or any successors or assigns thereto. "Government Obligations" means Permitted Investments of the type described in paragraphs (A) or (B) of the definition thereof. "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the City. If the City fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for prepayment, or if the Independent Banking Institution appointed by the City is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee. "Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the City. "Interest Payment Date" means July 1 and January 1 of each year commencing January 1, 2011. 5 DOC SOC/1423520v6/022459 -0014 "Lease" means the Lease/Purchase Agreement related to the Certificates, dated as of the date hereof, by and between the City and the Corporation, and any duly authorized and executed amendments thereto. "Lease Payment" means any of the 2010A Lease Payments, the 2010B Lease Payments or lease payments relating to Additional Certificates required to be paid by the City to the Corporation pursuant to Section 4.4 of the Lease. "Lease Payment Date" means the Lease Payment Date defined in Section 4.4(a) of the Lease,. which shall be each December 15 and June 15 commencing December 15, 2011. "Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to Article V hereof. "Leased Premises" has the meaning set forth in the Lease. "Letter of Representations" means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the Certificates as book -entry certificates making reference to the DTC Operational Arrangements memorandum, as it may be amended from time to time, setting forth the basis on which the Depository serves as depository for such book -entry certificates, as such letters were originally executed or as they may be supplemented or revised or replaced by letters from the City and the Trustee delivered to and accepted by the Depository. "Make -Whole Premium" means, with respect to any 2010B Certificate to be prepaid, an amount calculated by an Independent Banking Institution equal to the positive difference, if any, between: (a) the sum of the present values, calculated as of the date fixed for prepayment of (i) each Interest Component that, but for the prepayment, would have been payable with respect to the 2010B Lease Payment or portion thereof being prepaid on each regularly scheduled Lease Payment Date occurring after the date fixed for prepayment through the maturity date of the corresponding 2010B Certificate (excluding any accrued interest for the period prior to the date fixed for prepayment); plus (ii) the Principal Component that, but for such prepayment, would have been payable on the maturity date (or applicable mandatory sinking fund prepayment date or dates) with respect to the 2010B Certificate or portion thereof being prepaid; minus (b) the principal amount of the 2010B Lease Payment or portion thereof being prepaid The present values of the Interest Components and Principal Components referred to in (a) above will be determined by discounting the amount of each such Interest Components and Principal Components from the date that each such payment would have been payable but for the prepayment to the date fixed for prepayment on a semiannual basis (assuming a 360 -day year consisting of twelve (12) 30- day months) at a discount rate equal to the Comparable Treasury Yield, plus (1) with respect to a 2010B Certificate prepaid as described in Section 4.03(c), _basis points, or (2) with respect to a 2010B Certificate prepaid as described in Section 4.03(d), basis points. DOCSOC/ 1423520v6/022459 -0014 "Make -Whole Prepayment Price" means the greater of (1) the original issue price (but not less than 100 %) of such Principal Component of the 2010B Lease Payments to be prepaid; or (2) the Principal Component of the 2010B Lease Payment to be prepaid plus the Make -Whole Premium, together, in each case, with accrued interest, if any, to the date fixed for prepayment of the 2010B Certificates. " Moody's" means Moody's Investors Service or any successors or assigns thereto. "Net Proceeds" means any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof. "Net Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to Article VII hereof. "1998 Certificates" means the $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project). "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.10 hereof. "Original Purchaser" means Stone & Youngberg LLC, as representative of original purchasers of the Certificates on the Closing Date, or the original purchaser of any Series of Additional Certificates. "Outstanding" when used as of any particular time with respect to Certificates, means (subject to the provisions of Section 10.03 hereof) all Certificates or Additional Certificates theretofore executed and delivered by the Trustee under this Trust Agreement except: (1) Certificates or Additional Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates or Additional Certificates for the payment or prepayment of which funds or Government Obligations, together with interest earned thereon, in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates or Additional Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in Section 4.05 hereof or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (3) Certificates or Additional Certificates in lieu of or in exchange for which other Certificates or Additional Certificates shall have been executed and delivered by the Trustee pursuant to Sections 2.06 and 2.07 hereof. "Owner" or "Certificate Owner" or "Owner of a Certificate ", or any similar term, when used with respect to a Certificate means the person in whose name such Certificate is registered on the registration books maintained by the Trustee. "Participants" means those broker - dealers, banks and other financial institutions from time to time for which the Depository holds book -entry certificates as securities depository. 7 DOCSOC/ 1423520v6/022459 -0014 "Permitted Investments" means, if and to the extent permitted by law and by any policy guidelines promulgated by the City: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury) or obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. Farmers Home Administration (FmHA) Certificates of beneficial ownership 2. Federal Housing Administration Debentures (FHA) 3. General Services Administration Participation certificates 4. Government National Mortgage Association (GNMA or "Ginnie Mae ") GNMA - guaranteed mortgage- backed bonds GNMA - guaranteed pass - through obligations 5. U.S. Maritime Administration Guaranteed Title XI financing (qualified under the Ship Financing Act of 1972) 6. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Corporation Bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mad') Participation certificates Senior debt obligations 8 DOCSOC/ 1423520v6/022459 -0014 3. Federal National Mortgage Association (FNMA or "Fannie Mae ") Mortgage- backed securities and senior debt obligations (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal) 4. Student Loan Marketing Association (SLMA or "Sallie Mae ") Senior debt obligations 5. Resolution Funding Corp ( REFCORP) The interest only component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York 6. Farm Credit System Corp_ - Consolidated system -wide bonds and notes D. Money market mutual funds registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm -G," "AAAm" or "AAm" and by Moody's of "Aaa," "Aal" or "Aa2," including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services or serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to this Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to this Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee. E. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City) secured at all times by collateral described in (A) and/or (B) above and having a maturity of one year or less. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated "A -1 +" by Standard & Poor's and "Prime -1" by Moody's, which may include the Trustee and its affiliates. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City), savings accounts, deposit accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest bearing deposits, interest bearing money market accounts, bankers' acceptances or money market deposits which are fully insured by FDIC or are rated in the AA long term rating by Moody's or Standard & Poor's (including those of the Trustee and its affiliates). G. Commercial paper rated at the time of investment "Prime - 1" by Moody's and "A -1 +" or better by Standard & Poor's. H. Investment agreements, including guaranteed investment agreements, acceptable to the Trustee. 9 DOCSOC/ 1423520v6/022459 -0014 I. Bonds or notes issued by any state or municipality which are rated by Moody's and Standard & Poor's in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A- l +" or better by Standard & Poor's, including those of the Trustee and its affiliates. K. Repurchase or reverse repurchase agreements rated "AA" or better by Standard and Poor's (including those of the Trustee or any of its affiliates) and that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer /lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee, in exchange for the securities at a specified date or dates. L. Any guaranteed investment contract, including forward delivery agreements ( "FDAs ") and forward purchase agreements ( "FPAs "), with a financial institution or insurance company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims - paying ability rated within the two highest rating categories of Standard & Poor's and Moody's. Only Permitted Investments described in clauses A, B or C above and having maturities equal to or less than 30 years from their date of delivery will be considered eligible for any collateralization/delivery purposes for guaranteed investment contracts, FDAs or FPAs; M. Pre - refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's. If, however, the issue is only rated by Standard & Poor's (i.e., there is no Moody's rating), then the pre - refunded bonds must have been pre - refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre- refimded municipals to satisfy this condition. N. The Local Agency Investment Fund of the State, provided that the Trustee may deposit and withdraw monies in its own name. O. Any other investments permitted by Government Code section 53601 (including investment agreements and forward delivery or forward purchase agreements). "Value" of the above investments shall be determined by the manner currently employed by the Trustee or any other manner consistent with industry standard.- "Prepayment' means any payment made by the City pursuant to Article X of the Lease as a prepayment of Lease Payments. " Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to Article IV hereof. "Principal Office or Corporate Trust Office" means the corporate trust office of the Trustee at 700 South Flower Street, Suite 600, Los Angeles, California 90017, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee; provided, however, 10 DOCSOC/ 1423520v6/022459 -0014 that for the purposes of payment, transfer or exchange of Certificates such term means the office or agency of the Trustee at which, at any particular time its corporate trust agency business shall be conducted. "Proiect" has the meaning set forth in the Lease "Project Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B -2. "Project Costs" means, with respect to any item or portion of the Project, the contract price paid or to be paid therefor upon acquisition, construction, procurement or improvement thereof, in accordance with a purchase order or contract therefor. Project Costs include, but are not limited to, the administrative, engineering, interior decorating, legal, financial and other costs incurred by the City and the Corporation in connection with the acquisition, construction, procurement, remodeling or improvement of the Project, all applicable sales taxes and other charges resulting from such construction, procurement, remodeling or improvement of the Project and the costs associated with making rebate calculations required by the Code. Project Costs shall not include any costs of the City or the Corporation to enforce remedies hereunder or under the Lease. "Proiect Fund" means the fund by that name established and held by the Trustee pursuant to Article III hereof. "Record Date" means the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day. "Reference Treasury Dealer" means any firm, specified by the City from time to time, that are primary United States Government securities dealers in the City of New York (each a "Primary Treasury Dealer "); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010A Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. "Series" means either the 2O1OA Certificates and such Additional Certificates which are secured by 2010A Lease Payments or the 2O1OB Certificates and such Additional Certificates which are secured by the 2010B Lease Payments as the context may suggest. "S &P" or "Standard & Poor's" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc., or any successors or assigns thereto. "Site Lease" means the Site Lease related to the Certificates, dated the date hereof, by and between the Corporation and the City. "Special Counsel" means Stradling Yocca Carlson & Rauth, a Professional Corporation, or any other attorney or firm of attorneys of nationally recognized standing in matters pertaining to the 11 DOC SOC/ 1423520v6/022459 -0014 tax - exempt status of interest on obligations issued by states and their political subdivisions and acceptable to the City. "State" means the State of California. "Supplemental Agreement" means a supplement to this Trust Agreement providing for the execution and delivery of Additional Certificates pursuant to Section 2.12. "Tax Certificate" means the Tax Certificates, each dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and delivered to the City on the date of execution and delivery of the 2010A Certificates and the 2010B Certificates, including any and all exhibits attached thereto. "Term" means the time during which the Lease is in effect, as provided in Section 4.2 of the Lease. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Trustee" means The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States, and any successor trustee. "Trust Agreement" or "Agreement' means this Trust Agreement, together with any amendments hereof or supplements hereto permitted to be made hereunder. "2010A Certificates" means the $ aggregate principal amount of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project) to be executed and delivered by the Trustee pursuant to this Trust Agreement. "2010B Certificates" means the $ aggregate principal amount of the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project/Central Library Refunding) to be executed and delivered by the Trustee pursuant to this Trust Agreement. "2010A Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to Section 4.4 of the Lease as set forth in Exhibit A thereto and deposited in the 2010A Account of the Lease Payment Fund. "2010B Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to Section 4.4 of the Lease as set forth in Exhibit A thereto and deposited in the 2010B Account of the Lease Payment Fund. "2010A Prenavment" means any payment made by the City pursuant to Article X of the Lease as a prepayment of the 2010A Lease Payments. 12 DOCSOC/ 1423520v6/022459 -0014 "201013 Prepayment" means any payment made by the City pursuant to Article X of the Lease as a prepayment of the 2010B Lease Payments. Section 1.02. Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Trust Agreement, and has taken all actions necessary to authorize the execution of this Trust Agreement by the officers and persons signing it. Section 1.03. Equal Securi ty. In consideration of the acceptance of the Certificates by the Owners, this Trust Agreement shall be deemed to be and shall constitute a contract between the Trustee and the Owners to secure the full and final payment of the interest, if any, and principal represented by the Certificates and any Additional Certificates which may be executed and delivered hereunder, subject to each of the agreements, conditions, covenants and terms contained herein; and all agreements, conditions, covenants and terms contained herein required to be observed or performed by or on behalf of the Trustee shall be for the equal and proportionate benefit, protection and security of all Owners without distinction, preference or priority as to security or otherwise of any Certificates or Additional Certificates of a Series over any other Certificates or Additional Certificates of a Series by reason of the number or date thereof or the time of execution or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. All of the Certificates and any Additional Certificates of a Series are equally secured as provided in this Section 1.03, except as may be otherwise expressly provided in this Trust Agreement, provided that the 2010A Lease Payments and the 2010A Prepayments shall provide security only for the 2010A Certificates and any Additional Certificates secured by the 2010A Lease Payments and the 2010B Lease Payments and the 2010B Prepayments shall provide security only for the 2010B Certificates and any Additional Certificates secured by the 2010B Lease Payments. Any cash subsidy payments received by the City and deposited into the 2010B Account of the Lease Payment Fund are hereby pledged and secure only the 2010B Certificates or any Additional Certificates secured by the 2010B Lease Payments. ARTICLE 1I THE 2010 CERTIFICATES OF PARTICIPATION Section 2.01. Authorization. Upon written request of the City Representative, the Trustee will execute and deliver to the Original Purchaser 2010A Certificates in an aggregate principal amount of $ representing fractional and undivided ownership interests in the 2010A Lease Payments and the 2010A Prepayments and 2010B Certificates in an aggregate principal amount of $ representing fractional and undivided ownership interests in the 2010B Lease Payments and the 2010B Prepayments. The Certificates shall be initially executed and delivered as book -entry certificates. The Certificates are not, and shall in no event be deemed to be, a debt or obligation of the Trustee. The payments on the Certificates shall be made from funds, provided on or behalf of the City, for such purposes to the Trustee. 13 DOCSOC/ 1423520x6/022459 -0014 Section 2.02. Description of Certificates. (a) Each 2010A Certificate shall be dated the Delivery Date and shall mature on July 1 in each of the years and in the amounts, and shall bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates, as follows: Maturity Principal Interest (July 1) Amount Rate (b) Each 2010B Certificate shall be dated the Delivery Date and shall mature on July 1 in each of the years and in the amounts, and shall bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates, as follows: Maturity Principal Interest (July 1) Amount Rate $ The Certificates shall be delivered in fully registered form, numbered from one upwards in consecutive numerical order (with such alphabetical prefix as the Trustee shall determine). The Certificates shall be executed and delivered in the denominations of $5,000 and any integral multiple thereof. 14 DOCSOC/ 1423520v6/022459 -0014 Each Certificate and any Additional Certificates shall bear interest from the Interest Payment Date next preceding the date of execution thereof, unless (i) it is executed during the period from the day after the Record Date for an Interest Payment Date to and including such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is executed on or prior to the Record Date for the first Interest Payment Date, in which event interest shall be payable from the Delivery Date; provided, however, that if, at the time of execution of any Certificate or any Additional Certificates interest with respect to such Certificate or Additional Certificate is in default, such Certificate or Additional Certificate shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Certificate or Additional Certificate. (b) Payment Provisions. Interest with respect to any Certificate shall be payable in lawful money of the United States of America by check or draft of the Trustee, mailed no later than the Interest Payment Date to the Owner at his address as it appears, on the Record Date, on the registration books maintained by the Trustee or at such other address as has been furnished to the Trustee in writing by the Owner on or prior to such Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Certificates or Additional Certificates filed with the Trustee prior to any Record Date, interest with respect to such Certificates shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing) by wire transfer of immediately available funds to an account in the continental United States designated in such written request. Payments of defaulted interest with respect to the Certificates or Additional Certificates shall be paid by check or draft to the registered Owners of the Certificates or Additional Certificates as of a special record date to be fixed by the Trustee, notice of which special record date shall be given to the registered Owners of the Certificates or any Additional Certificates no less than ten days prior thereto. The principal of and premium, if any, on the Certificates or Additional Certificates is payable when due upon surrender thereof at the Principal Office in lawful money of the United States of America. Section 2.03. Form of Certificates. The Certificates and the assignment to appear thereon shall be substantially in the forms set forth in Exhibit A attached hereto and by this reference incorporated herein with such appropriate additions, modifications, and insertions as are permitted or required by this Trust Agreement. Pending the preparation of definitive Certificates the Certificates may be executed and delivered in temporary form exchangeable for definitive Certificates when ready for delivery. If the Trustee delivers temporary Certificates, it shall execute and deliver definitive Certificates in an equal aggregate principal amount of authorized denominations, when available, without additional charge, and thereupon the temporary Certificates shall be surrendered to the Trustee at its Principal Office. Until so exchanged, the temporary Certificates shall be entitled to the same benefits under this Trust Agreement as definitive Certificates. The form of any Additional Certificates shall be as set forth in the Supplemental Agreement relating to such Additional Certificates. Section 2.04. Execution. The Certificates shall be executed by and in the name of the Trustee by the manual signature of any authorized signatory of the Trustee. The Trustee shall insert the date of execution of each Certificate in the place provided thereon. Section 2.05. Application of Proceeds and Other Amounts. (a) The proceeds from the sale of the 2010A Certificates in the amount of $ (representing the par amount of the Certificates of $ , plus net original premium of 15 DOCSOC/ 1423520x6/022459 -0014 $ less Original Purchaser's discount of $ ) shall be deposited with the Trustee as follows: $ shall be deposited to the Delivery Costs Subaccount of the 2010A Account of the Project Fund for the payment of Delivery Costs, and $ to the 2010A Account of the Project Fund. Additionally $ shall be transferred to the Escrow Agent for deposit in the Escrow Fund. (b) The proceeds from the sale of the 2010B Certificates in the amount of $ (representing the par amount of the Certificates of $ , less Original Purchaser's discount of $ shall be deposited with the Trustee as follows: $ shall be deposited to the Delivery Costs Subaccount of the 2010B Account of the Project Fund for the payment of Delivery Costs, and $ to the 2010B Account of the Project Fund. The Trustee may, in its discretion, establish a temporary fund or account in its books or records to facilitate such deposits and transfers. Section 2.06. Transfer and Exchange. (a) Transfer of Certificates. Any Certificate may, in accordance with its terms, be transferred upon the books required to be kept pursuant to the provisions of Section 2.09 by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate principal amount in authorized denominations. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the City. The Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer, and there shall be no other charge to any Owner for any such transfer. (b) Exchange of Certificates. Certificates may be exchanged at the Principal Office for a like aggregate principal amount of Certificates of other authorized denominations of the same tenor and maturity. The Trustee may require the payment by the Certificate Owner requesting such exchange of any tax or other govemmental charge required to be paid with respect to such exchange. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the City. All Certificates surrendered pursuant to the provisions of this Section shall be cancelled and destroyed by the Trustee and shall not be redelivered. (c) Time for Transfer or Exchange. The Trustee shall not be obligated to transfer or exchange any Certificate after a Record Date and before the following Interest Payment Date, or during the period in which it is selecting Certificates for prepayment, or after notice of prepayment has been given as provided in Section 4.05. Section 2.07. Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate shall become mutilated, the Trustee, at the expense of the Owner of said Certificate, shall execute and deliver a new Certificate of like tenor, maturity and principal amount in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated and indemnification of the Trustee to its satisfaction. Every mutilated Certificate so surrendered to 16 DOCSOC/ 1423520v6/022459 -0014 the Trustee shall be cancelled by it. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and, if an indemnity, satisfactory to the Trustee indemnifying the Trustee, the Corporation and the City, shall be given, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor, maturity and principal amount and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of an appropriate fee for each new Certificate delivered under this Section and of the expenses which may be incurred by the Trustee in carrying out the duties under this Section. Any Certificate executed under the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of this Trust Agreement with all other Certificates secured by this Trust Agreement. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate in place of one which has been mutilated, lost, destroyed or stolen, and which has matured, or has been called for prepayment, the Trustee may make payment with respect to such Certificate upon receipt of the above - mentioned indemnity. Section 2.08. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by this Trust Agreement to be signed or executed by Certificate Owners may be in any number of concurrent instruments of similar tenor, and may be signed or executed by such Owners in person or by their attorneys or agents appointed by an instrument in writing for that purpose, or by any bank, trust company or other depository for such Certificates. Proof of the execution of any such instrument, or of any instrument appointing any such attorney or agent, and of the ownership of Certificates shall be sufficient for any purpose of this Trust Agreement (except as otherwise herein provided), if made in the following manner: (a) The fact and date of the execution by any Owner or his attorney or agent of any such instrument and of any instrument appointing any such attorney or agent, may be proved by a certificate, which need not be acknowledged or verified, of an officer of any bank or trust company located within the United States of America, or of any notary public, or other officer authorized to take acknowledgments of deeds to be recorded in such jurisdictions, that the persons signing such instruments acknowledged before him the execution thereof. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such certificate shall also constitute sufficient proof of his authority. (b) The fact of the ownership of Certificates by any person, the amount and numbers of such Certificates and the date of execution shall be proved by the registration books maintained pursuant to Section 2.09 hereof. Nothing contained in this Article II shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which the Trustee may deem sufficient in its sole discretion. Any request or consent of the Owner of any Certificate shall bind every future Owner of the same Certificate in respect of anything done or to be done by the Trustee in pursuance of such request or consent. Section 2.09. Certificate Register. The Trustee will keep or cause to be kept at its Principal Office or another office designated by the Trustee sufficient books for the registration and transfer of the Certificates which shall, during normal working hours and upon reasonable prior notice, be open 17 DOC SOC/1423520v6/022459 -0014 to inspection by the City and the Corporation; 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 said books, Certificates as hereinbefore provided. The City, the Corporation and the Trustee shall be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate shall be overdue and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. Section 2.10. Book -Entry System. (a) Election of Book -Entry System. Prior to the execution and delivery of the Certificates, the City may provide that such Certificates shall be initially executed and delivered as book -entry Certificates. If the City shall elect to deliver any Certificates in book -entry, then the City shall cause the delivery of a separate single fully registered Certificate (which may be typewritten) for each maturity date of such Certificates in an authorized denomination corresponding to that total principal amount of the Certificates designated to mature on such date. Upon initial execution and delivery, the ownership of each such Certificate shall be registered in the Certificate register in the name of the Nominee, as nominee of the Depository, and ownership of the Certificates, or any portion thereof, may not thereafter be transferred except as provided in Section 2.10(d). With respect to book -entry Certificates, the City and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book -entry Certificates. Without limiting the immediately preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book -entry Certificates, (ii) the delivery to any Participant or any other person, other than an Owner as shown in the Certificate register, of any notice with respect to book -entry Certificates, including any notice of prepayment, (iii) the selection by the Depository and its Participants of the beneficial interests in book -entry Certificates to be prepaid in the event the City prepays the Certificates in part, or (iv) the payment by the Depository or any Participant or any other person, of any amount with respect to principal, premium, if any, or interest evidenced and represented by book -entry Certificates. The City and the Trustee may treat and consider the person in whose name each book - entry Certificate is registered in the Certificate register as the absolute Owner of such book -entry Certificate for the purpose of payment of principal, premium and interest with respect to such Certificate, for the purpose of giving notices of prepayment and other matters with respect to such Certificate, for the purpose of registering transfers with respect to such Certificate, and for all other purposes whatsoever. The Trustee shall pay all principal, premium, if any, and interest evidenced and represented by the Certificates only to or upon the order of the respective Owner, as shown in the Certificate register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal, premium, if any, and interest evidenced and represented by the Certificates to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Certificate register, shall receive a Certificate evidencing the obligation to make payments of principal, premium, if any, and interest evidenced and represented by the Certificates. Upon delivery by the Depository to the Owner and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word "Nominee" in this Trust Agreement shall refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book -entry Certificates for the Depository's book -entry system, the City shall execute and deliver to the Depository a Letter 18 DOCSOC/ 1423520v6/022459 -0014 of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the City any obligation whatsoever with respect to persons having interests in such book -entry Certificates other than the Owners, as shown on the Certificate register. In addition to the execution and delivery of a Letter of Representations, the City shall take such other actions, not inconsistent with this Trust Agreement, as are reasonably necessary to qualify book -entry Certificates for the Depository's book -entry program. (c) Selection of Depository. In the event (i) the Depository determines not to continue to act as securities depository for book -entry Certificates, or (ii) the City determines that continuation of the book -entry system is not in the best interest of the beneficial owners of the Certificates or the City, then the City will discontinue the book -entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate, fully registered Certificate for each of the maturity dates of such book -entry Certificates, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (d) hereof. If the City fails to identify another qualified securities depository to replace the Depository, then the Certificates shall no longer be restricted to being registered in such Certificate register in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Certificates shall designate, in accordance with the provisions of Section 2.06 hereof. (d) Payments to Depository. Notwithstanding any other provision of this Trust Agreement to the contrary, so long as all Outstanding Certificates are held in book -entry and registered in the name of the Nominee, all payments with respect to principal, prepayment premium, if any, and interest evidenced and represented by such Certificate and all notices with respect to such Certificate shall be made and given, respectively to the Nominees, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (i) The Certificates shall be initially executed and delivered as provided in Section 2.01 hereof. If such Certificates are initially registered in the name of the Nominee, then registered ownership of such Certificates, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.10(d) ( "Substitute Depository"); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. 19 DOCSOC/ 1423520v6/022459 -0014 (ii) In the case of any transfer pursuant to clause (A) or clause (B) of subsection (i) of this Section 2.10(d), upon receipt of all Outstanding Certificates by the Trustee, together with a written request of the City to the Trustee designating the Substitute Depository, a single new Certificate, which the City shall prepare or cause to be prepared, shall be executed and delivered for each maturity of Certificates then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such written request of the City. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.10(d), upon receipt of all Outstanding Certificates by the Trustee, together with a written request of the City to the Trustee, new Certificates, which the City shall prepare or cause to be prepared, shall be executed and delivered in such denominations and registered in the names of such persons as are requested in such written request of the City, subject to the limitations of Section 2.01 hereof, provided that the Trustee shall not be required to deliver such new Certificates within a period of less than sixty (60) days from the date of receipt of such written request from the City. (iii) In the case of a partial prepayment or an advance refunding of any Certificates evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such Certificates indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository's failure to make such notations or errors in making such notations. (iv) The City and the Trustee shall be entitled to treat the person in whose name any Certificate is registered as the Owner thereof for all purposes of this Trust Agreement and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the Certificates. Neither the City nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any Certificates, and the Trustee may rely conclusively on its records as to the identity of the Owners of the Certificates. Section 2.11. Destruction of Cancelled Certificates. Whenever in this Trust Agreement provision is made for the surrender or cancellation by the Trustee and the delivery to the City of any Certificates, the Trustee will cancel and destroy such Certificates and deliver a certificate of such destruction to the City upon its request. Section 2.12. Additional Certificates. Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the following conditions, which are hereby made conditions precedent to the preparation, execution and delivery of such Additional Certificates: (a) The parties to this Trust Agreement shall have executed a Supplemental Agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established hereunder for the Certificates, as shall be necessary or appropriate, and 20 DOCSOC/ 1423520v6/022459 -0014 (ii) specifies whether such Certificates are payable from 2010A Lease Payments or 2010B Lease Payments; (b) The scheduled principal and interest payable with respect to such Additional Certificates shall be payable only on Interest Payment Dates applicable to the Certificates; (c) The Lease and Site Lease shall have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates as and when the same mature or become due and payable, (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of this Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such Additional Certificates, and (iii) make such other revisions to the Lease and Site Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions shall not materially prejudice the rights of the Owners of Outstanding Certificates as granted them under the terms of this Trust Agreement as may be evidenced by the opinion of counsel described under Section 10.01(b) hereof); (d) There shall have been delivered to the Trustee a counterpart of the amendments required by subsection 2.12(c) hereof; (e) The Trustee shall have received a certificate of the Corporation Representative that there exists on the part of the Corporation no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default); (f) The Trustee shall have received a certificate of the City Representative that (i) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease); (g) The Trustee shall have received an opinion of Special Counsel substantially to the effect that (i) said Supplemental Agreement and said amendments to the Lease comply in all respects with the requirements of this Section 2.12, (ii) said Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable) have been duly authorized, executed and delivered by the City and the Corporation, as applicable, (provided that said opinion of Special Counsel, in rendering the opinions set forth in this clause (ii), shall be entitled to rely upon one or more other opinions of counsel, including counsel to any of the respective parties to said Supplemental Agreement or said amendments to the Lease and Site Lease (if applicable)), (iii) assuming that no Event of Default has occurred and is continuing, this Trust Agreement, as amended by said Supplemental Agreement, and the Lease and Site Lease (if applicable), as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the City and Corporation, as applicable, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors' rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding) and (iv) the execution of such Supplemental Agreement and said amendments 21 DOCSOC/ 1423520v6/022459 -0014 to the Lease and Site Lease (if applicable), and performance by the parties thereunder, will not result in the inclusion of the Interest Component of any 2010A Lease Payments payable with respect to any 2010A Certificates, including Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), theretofore prepared, executed and delivered, in the gross income of the Owners of the 2010A Certificates or the owners of any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) for purposes of federal income taxation or the loss of the subsidy payments from the United States Treasury relating to the District's obligation to pay the Interest Component of the 2010B Lease Payments as evidenced by the 2010B Certificates; (h) There shall have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under Section 5.5 of the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates; and (i) Such other conditions shall have been satisfied, and such other instruments shall have been duly executed and delivered to the Trustee, as the City or the Corporation shall have reasonably requested. Upon delivery to the Trustee of the foregoing instruments, the Trustee shall cause to be executed and delivered Additional Certificates of a Series representing the aggregate principal amount specified in such Supplemental Agreement, and such Additional Certificates shall be equally and ratably secured with all Certificates of like Series, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate of a Series, including Additional Certificates, over any other; provided, however, that no provision of this Trust Agreement shall require the City to consent to or otherwise permit the preparation, execution and delivery of Additional Certificates, it being understood and agreed that any such consent or other action of the City to permit the preparation, execution and delivery of Additional Certificates, or lack thereof, shall be in the sole discretion of the City. ARTICLE III PROJECT FUND Section 3.01. Establishment of Project Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Project Fund," referred to herein as the "Project Fund" and shall establish a 2010A Account and a 2010B Account therein. Within each of the 2010A Account and the 2010B Account, there shall be established Delivery Costs Subaccounts therein; shall keep the Project Fund separate and apart from all other funds and moneys held by it; and shall administer such fund as herein provided. The Project Fund shall be held and applied by the Trustee in accordance herewith. Section 3.02. Purpose. Moneys in the Project Fund shall be expended for Project Costs and Delivery Costs. 22 DOCSOC/ 1423520v6/022459 -0014 Section 3.03. Deposit of Monevs: Pavment of Proiect Costs and Delivery Costs (a) Deposits. There shall be credited to the 2010A Account of the Project Fund the following amounts: (1) the proceeds of sale of the 201OA Certificates required to be deposited therein pursuant to Section 2.05 hereof; (2) all investment earnings on moneys held in the 2010A Account of the Project Fund, which shall remain in the 2010A Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2O10A Certificates, as described in Section 3.04 below; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. There shall be credited to the 2010B Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010B Certificates required to be deposited therein pursuant to Section 2.05 hereof, (2) all investment earnings on moneys held in the 2010B Account of the Project Fund, which shall remain in the 2O10B Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2O10B Certificates, as described in Section 3.04 below; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. (b) Disbursements. The Trustee shall disburse moneys in the Project Fund from time to time to pay Project Costs directly or to reimburse the City for payment of Project Costs, upon receipt by the Trustee of a Project Cost Requisition signed by the City Representative. The Trustee shall have no duty or liability to monitor the application of any moneys disbursed hereunder. The Trustee shall disburse moneys from the Delivery Costs Subaccounts to pay Delivery Costs or to reimburse the City for payment of such Delivery Costs upon receipt by the Trustee of a Delivery Cost Requisition signed by the City Representative. The Trustee shall be absolutely protected in making any disbursement from the Project Fund in reliance upon a Project Cost Requisition or Delivery Cost Requisition signed by the City Representative. Each such Project Cost Requisition and Delivery Cost Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to cent= the accuracy of such facts. Any remaining balance in a Delivery Costs Subaccount after June 15, 2011 shall be transferred by the Trustee to the applicable account of the Project Fund as directed in writing by City Representative. Section 3.04. Transfers of Unexpended Proceeds. Upon the filing with the Trustee of the Certificate of Completion pursuant to Section 3.4 of the Lease, the Trustee shall withdraw all remaining moneys in the Project Fund (other than any moneys retained therein to pay Project Costs not then due and payable and certified by the City Representative) and shall transfer such moneys to the applicable account of the Lease Payment Fund to be applied to the payment of principal and interest with respect to the applicable Series of Certificates as prescribed in Section 5.04 hereof or, at the written election of the City Representative delivered to the Trustee, together with an opinion of Special Counsel that such transfer will not cause interest due with respect to the 2O1OA Certificates to be included in gross income for federal income tax purposes, shall transfer such moneys to the City for the purpose of capital expenditures of the City, and following such transfer, the Project Fund shall be closed. ARTICLE IV IW3117Vaiyj1ON8a$0C Section 4.01. Establishment of PrepaMent Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Prepayment Fund," referred to 23 DOCSOC/ 1423520v6/022459 -0014 herein as the "Prepayment Fund'; shall keep such fund separate and apart from all other funds and moneys held by it; and shall administer such fund as herein provided. Within the Prepayment Fund, the Trustee shall establish a "2010A Account' into which any 2010A Prepayments shall be deposited and a "2010B Account' into which any 2010B Prepayments shall be deposited. Moneys to be used for prepayment of the Certificates and Additional Certificates shall be deposited into the applicable account of the Prepayment Fund established for such Series and used solely for the purpose of prepaying the applicable Certificates or Additional Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates or Additional Certificates to the Trustee. Section 4.02. Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from Net Proceeds which the Trustee shall deposit in the Prepayment Fund as provided in Section 6.1(c) of the Lease at least 45 days prior to the date fixed for prepayment and credited towards the prepayment made by the City pursuant to Section 10.2(a) of the Lease, at a prepayment price equal to the principal amount thereof together with accrued interest to the date fixed for prepayment, without premium. Section 4.03. Prepayment (a) Optional Prepayment 2010A Certificates. The 2010A Certificates maturing on or after July 1, 20 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 20 at the option of the City, in the event the City exercises its option under Section 10.3 of the Lease to prepay all or a portion of the principal component of the 2010A Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. In the event the City gives notice to the Trustee of its intention to exercise such option, but fails to deposit with the Trustee on or prior to the prepayment date an amount equal to the prepayment price, the City will continue to pay the Lease Payments as if no such notice had been given. (b) Optional Prepayment 2010B Certificates. The 2010B Certificates maturing on or after July 1, 20 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 20. at the option of the City, in the event the City exercises its option under Section 10.3 of the Lease to prepay all or a portion of the principal component of the 2010B Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. In the event the City gives notice to the Trustee of its intention to exercise such option, but fails to deposit with the Trustee on or prior to the prepayment date an amount equal to the prepayment price, the City will continue to pay the Lease Payments as if no such notice had been given. (c) Extraordinary Optional Prepayment of 2010B Certificates. The 2010B Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event, as a whole or in part, on any date, and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. The City shall give the Trustee written notice of its intention to prepay the Certificates under this Section and the amount of the prepayment premium thereon in sufficient time to enable the Trustee to give notice of such prepayment. (d) Optional Prepayment of 2010B Certificates with Make -Whole Payment. Before July 1, 20, the 2010B Certificates will be subject to prepayment prior to maturity at the option of 24 DOCSOC/1423520v6/022459 -0014 the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the Make -Whole Prepayment Price. The City shall give the Trustee written notice of its intention to prepay the Certificates under this Section and the amount of the prepayment premium thereon in sufficient time to enable the Trustee to give notice of such prepayment. (e) Mandatory Sinking Account Payment. (i) The 201OA Certificates maturing July 1, 20_ (the "20 Term 2O10A Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20 Term 2010A Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20 Term 2010A Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20_ Term 2010A Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions hereof. Mandatory Prepayment Date Sinking Account (July 1) Payment * Final Maturity (ii) The 2010A Certificates maturing July 1, 20 (the "20_Term 2O1OA Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2039 Term 2010A Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20 Term 2010A Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20_ Term 2O10A Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions hereof. Mandatory Prepayment Sinking Account Date (July 1) Payment * Final Maturity 25 DOCSOC/ 1423520v6/022459 -0014 (iii) The 2010B Certificates maturing July 1, 20 (the "20 Term 2010B Certificates ") are subject to prepayment in part, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20 Term 2010B Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20 Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions hereof. Mandatory Prepayment Sinking Account Date (July 1) Payment * Final Maturity If prior to one of the mandatory prepayment dates specified above the City purchases any 20 Term 2010A Certificates, 20 Term 2010A Certificates or 20 Term 2010B Certificates, then at least 45 days prior to the prepayment date the City shall notify the Trustee as to the principal amount purchased, and the amount of Certificates so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce the upcoming sinking account payment for the applicable maturity of the Certificates so purchased. All Certificates purchased pursuant to this subsection shall be cancelled pursuant to Section 14.03 hereof. Section 4.04. Selection of Certificates for Prepayment. Whenever provision is made in the Trust Agreement for the prepayment of less than all of the 2010 Certificates, the Trustee shall select the 2010 Certificates to be prepaid from all Certificates not previously called for prepayment (a) with respect to any prepayment described pursuant to Section 4.02, among maturities of all 2010 Certificates and Additional Certificates on a pro rata basis as nearly as practicable, (b) with respect to any optional prepayment of 2010 Certificates, among maturities as directed by the City, (c) with respect to 2010A Certificates with the same maturity, by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair, and (d) with respect to 2010B Certificates with the same maturity, (i) if the 2010B Certificates are not book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid among the Owners of such 2010B Certificates on a pro rata basis as nearly as practicable, and (ii) if the 2010B Certificates are book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid on a pro rata pass - through distribution of principal basis in accordance with DTC procedures, provided that, so long as the 2010B Certificates are held in book -entry form, the selection for prepayment of such 2010B Certificates shall be made in accordance with the operational arrangements of DTC then in effect, and, if the DTC operational arrangements do not allow for prepayment on a pro rata pass - through distribution of principal basis, the 2010B Certificates will be selected for prepayment, in accordance with DTC procedures, by lot. The Trustee shall promptly notify the City and the Corporation in writing of the Certificates so selected for prepayment by mailing to the City and the Corporation 26 DOCSOC/1423520v6/022459 -0014 I copies of the notice of prepayment provided for in Section 4.05. The City shall provide the Trustee with a revised sinking fund schedule upon any prepayments. Section 4.05. Notice of Prepayment. (a) Content. When prepayment is authorized or required pursuant to this Article W, the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstanding Certificates of a maturity are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, and (f) the original date of execution and delivery of the Certificates. Such notice shall further state that on the specified date there shall become due and payable upon each Certificate to be prepaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto shall cease to accrue and be payable. Such notice may specify that the prepayment of the Certificates to be prepaid is conditioned upon the timely receipt of funds required for such prepayment. (b) Recipients; Timing. Notice of such prepayment shall be sent by first class mail or delivery service postage prepaid, or by telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class mail, postage prepaid, to the Corporation and the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Under no circumstances shall the Trustee have any liability to any party for any inaccurate CUSIP number. In addition, notice of such prepayment shall also be sent by certified mail, overnight delivery service, facsimile transmission or other secure means, postage prepaid, to all municipal registered securities depositories and to at least two of the national information services that disseminate securities prepayment notices, when possible, at least two (2) days prior to the mailing of notices required by the first paragraph above, and in any event no later than simultaneously with the mailing of notices required by the first paragraph above; provided, that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Section 4.06. Partial Prepayment of Certificates. Upon surrender by the Owner of a Certificate for partial prepayment at the Principal Office, payment of such partial prepayment of the principal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal in principal amount to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment shall be valid upon payment of the amount thereby required to be paid to such Owner, and the City, the Corporation and the Trustee shall be released and discharged from all liability to the extent of such payment. Section 4.07. Effect of Notice of Prepayment. Notice having been given to the Owners of the Certificates as set forth in Section 4.05 hereof, and the moneys for the prepayment (including, the interest to the applicable date of prepayment), having, been set aside in the Prepayment Fund, the 27 DOCSOC/ 1423520v6/022459 -0014 Certificates shall become due and payable on said date of prepayment, and, upon presentation and surrender thereof at the Principal Office, said Certificates shall be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to said date of prepayment. If, on the date of a prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as set forth in Section 4.05 hereof, then, from and after said date of prepayment, interest with respect to the Certificates to be prepaid shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of this Article shall be cancelled upon surrender thereof and destroyed. Section 4.08. Su lus. Any funds remaining in the Prepayment Fund after prepayment and payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees and expenses to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments payable under the Lease or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to Sections 8.07 and 8.08 hereof, shall be withdrawn by the Trustee and remitted to the City. ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND Section 5.01. Security Provisions. (a) Assignment of Rights in Lease. The Corporation has, pursuant to the Assignment Agreement, absolutely assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Corporation's rights to receive and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease or pursuant hereto. All Lease Payments, Prepayments and such other amounts to which the Corporation may at any time be entitled (other than amounts due to the Corporation under Section 4.11 of the Lease) shall be paid directly to the Trustee, and all of the Lease Payments and Prepayments collected or received by the Corporation shall be deemed to be held and to have been collected or received by the Corporation as the agent of the Trustee and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within five (5) Business Days after the receipt thereof, and all such Lease Payments shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund, all such Prepayments shall be forthwith deposited by the Trustee upon the receipt thereof in the Prepayment Fund. (b) Security Interest in Moneys and Funds. The Corporation and the City, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under this Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified herein and in the Lease. 28 DOC SOC/ 1423520v6/022459 -0014 In addition to the Trustee, only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. In addition to the Trustee, only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 2010B Account of the Prepayment Fund. (c) Pledge of Lease Payments and Proceeds. The 2010A Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010A Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). The 2010B Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to Article IX of the Lease (the "Lease Proceeds ") are hereby irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under Section 2.12 hereof with respect to Additional Certificates, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the terms hereof, subject to Section 13.03 hereof and subject to Section 2.12 hereof. Section 5.02. Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Lease Payment Fund" and shall establish a 2010A Account and a 2010B Account therein. [Within each of the 2010A Account and the 2010B Account, there shall be established an Interest Subaccount therein.] All moneys at any time deposited by the Trustee in an account of the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the applicable Certificates of such Series. So long as any Certificates are Outstanding, neither the City nor the Corporation shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in this Trust Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set forth. Section 5.03. Deposits. There shall be deposited in the 2010A Account of the Lease Payment Fund all 2010A Lease Payments and in the 2010A Account of the Prepayment Fund all 2010A Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to Section 2.05 hereof and Section 4.4 of the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation Section 5.4(c) of the Lease (regarding proceeds of rental interruption insurance) or pursuant to this Trust Agreement, which moneys shall be applied as a credit towards any 2010A Lease Payment then due. There shall be deposited in the 2010B Account of the Lease Payment Fund all 2010B Lease Payments and in the 2010B Prepayment Fund all 2010B Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to Section 2.05 hereof and Section 4.4 of the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation Section 5.4(c) of the Lease (regarding proceeds of rental 29 DOCSOC/ 1423520v6/022459 -0014 interruption insurance) or pursuant to this Trust Agreement, which moneys shall be applied as a credit towards any 201 OB Lease Payment then due. The Trustee, in accordance with the Calculation Agency Agreement, dated as of November 1, 2010, by and between the City and the Trustee, shall at least 45 days but not more than 90 days prior to each Certificate Payment Date, submit to the United States Treasury a subsidy reimbursement request with respect to the 2010B Certificates in accordance with applicable Federal regulations. Upon receipt of such subsidy, the City shall deposit such cash subsidy payment into the 2010B Account of the Lease Payment Fund and use any such cash subsidy payments to offset its obligations to pay the Interest Component of the 201OB Lease Payments under the Lease. Section 5.04. Application of Moneys. Except as provided in this Section 5.04 and Section 5.05, all amounts in the 2010A Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2010A Certificates as the same shall become due and payable, in accordance with the provisions of Article II and Article IV hereof, subject to the requirement that certain investment earnings may be transferred to the Rebate Fund, as provided in Section 8.08 hereof. Except as provided in this Section 5.04 and Section 5.05, all amounts in the 201 OB Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2010B Certificates as the same shall become due and payable, in accordance with the provisions of Article II and Article IV hereof. On or before each Interest Payment Date, the Trustee shall set aside an amount sufficient to pay the interest becoming due and payable on such Interest Payment Date on all Outstanding Certificates. Moneys so set aside shall be used and withdrawn by the Trustee solely for the purpose of paying the interest with respect to the Certificates as it shall become due and payable (including, accrued interest with respect to any Certificates prepaid prior to maturity). On or before each Interest Payment Date on which the principal of the Certificates shall be payable, the Trustee shall set aside an amount equal to (i) the principal amount of the Certificates coming due and payable on such Interest Payment Date pursuant to Section 2.02, and (ii) the prepayment price of the Certificates (consisting of the principal amount thereof and any applicable premiums) required to be prepaid on such Interest Payment Date pursuant to any of the provisions of Article IV hereof. Moneys so set aside shall be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of the Certificates at the maturity thereof, or (ii) paying the principal of and premium (if any) on any Certificates upon the prepayment thereof pursuant to Section 4.03 hereof. Section 5.05. Surplus. Any funds remaining in the Lease Payment Fund after payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease, or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to Section 8.08 hereof, shall be withdrawn by the Trustee and remitted to the City. 30 DOCSOC/ 1423520x6/022459 -0014 ARTICLE VI [RESERVED] ARTICLE VII NETPROCEEDSFUND Section 7.01. Establishment of Net Proceeds Fund: Deposits. The Trustee shall establish when required a special fund designated as the "City of Newport Beach (Civic Center Project) Net Proceeds Fund," referred to herein as the "Net Proceeds Fund," to be maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided herein. The Trustee shall deposit Net Proceeds in the Net Proceeds Fund as provided in Section 6.1(a) of the Lease. (a) Casualty Insurance. The Trustee shall disburse Net Proceeds for replacement or repair of the Leased Premises as provided in Section 6.1(b) of the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the City Representative as provided in Section 6.1(c) of the Lease. Pending such application, such Net Proceeds may be invested by the Trustee as directed by the City Representative in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to be transferred to the Rebate Fund pursuant to Section 8.08 hereof, the Trustee shall pay any remaining moneys in the Net Proceeds Fund to the City after payment of any amounts due to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease. (b) Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the Leased Premises shall be applied and disbursed by the Trustee upon the Written Request of the City as follows: (i) If the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Premises and will not result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease (such determination to be certified by the City in writing), such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (ii) If the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Premises and will result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease; then the Trustee shall immediately deposit such proceeds in the Prepayment Fund and such proceeds shall be applied to the prepayment of Certificates in the manner provided in Section 4.02 hereof. Section 7.02. Cooperation. The Corporation and the Trustee shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to Article V of the Lease and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any item or portion thereof; provided, however, the Trustee shall not be obligated to take any action hereunder if it is not indemnified to its satisfaction from and against any liability or expense arising therefrom. 31 DOCSOC/ 1423 520v6/022459 -0014 ARTICLE VIII MONEYS IN FUNDS; INVESTMENT Section 8.01. Held in Trust. The moneys and investments held by the Trustee under this Trust Agreement, other than in the Rebate Fund, are irrevocably held in trust for the benefit of the respective Owners and, in the case of the Rebate Fund, for payment as required to the United States Treasury, and for the purposes herein specified, and such moneys, and any income or interest eamed thereon, shall be expended only as provided in this Trust Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of the Corporation, the Trustee or the City, or any of them. Section 8.02. Investments Authorized. (a) By Trustee. Subject to the further provisions of this Article VIII, moneys held by the Trustee hereunder shall be invested and reinvested on maturity thereof by the Trustee pursuant to Section 8.02(b). The Trustee will report any such investments to the City on a monthly basis in its regular statements. (b) Upon Direction of the City. The City Representative shall direct by facsimile, to the designated trust officer responsible for the administration of this Trust Agreement, followed by distribution by U.S. Mail or overnight courier service of such notice, such investment in specific Permitted Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect. Such investments and reinvestments shall be made giving full consideration for the time at which funds are required to be available based among other things, scheduled completion of the various components of the Project. In the event that the City Representative does not so direct the Trustee, the Trustee shall invest in the Permitted Investments described in paragraph (D) of the definition thereof contained in Section 1.01. Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund shall mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding the investment. Investments instructed by the City Representative to be purchased with funds on deposit in the Project Fund shall mature not later than the dates upon which such funds shall be needed to be expended for the payment of Project Costs. Investments to the later of the final maturity of the Certificates or any Additional Certificates so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with Article VI hereof. The Trustee may conclusively rely upon the written instructions of the City Representative as to both the suitability and legality of the directed investments. (c) Registration. Such investments, if registrable, shall be registered in the name of the Trustee for the benefit of the Owners and held by the Trustee or its nominee. (d) Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by this Section. The Trustee may act as purchaser or agent in the making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an advisor to any provider of, Permitted Investments hereunder. The City and Corporation acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City and the Corporation the right to receive brokerage confirmations of security transactions as they occur, at no additional costs, the City and Corporation 32 DOCSOC/ 1423520v6/022459 -0014 specifically waives\ receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. (e) Trustee Standard of Care. Except as otherwise provided in Section 9.05, the Trustee shall not be responsible or liable for any consequences of any investment of funds or sale of such investment made by it in accordance with this Section or disposition made by it in accordance with Section 8.05(b). Section 8.03. Crediting of Investments. Except as otherwise provided in this Trust Agreement, any income, profit or loss on the investment of moneys held by the Trustee hereunder shall be credited to the respective fund for which it is held. Section 8.04. Accounting. The Trustee shall furnish to the City, not less than monthly, an accounting (which may be in the form of its regular statements) of all investments made by the Trustee and all funds and amounts held by the Trustee; provided, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. Section 8.05. Valuation and Disposition of Investments. (a) Valuation. Subject to the provisions of Section 8.08 hereof, for the purpose of determining the amount in any fund, all Permitted Investments (except investment agreements) credited to such fund shall be valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all funds and accounts, investments shall be valued by the Trustee not less often than annually nor more often than monthly. In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as may be available to the Trustee, including those within its regular accounting system and brokers and dealers in securities. (b) Disposition. Subject to the provisions of Section 8.08 hereof, the Trustee shall sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited. Section 8.06. Commingling of Moneys in Funds. The Trustee may, and upon the written request of the City Representative shall, commingle any of the funds held by it pursuant to this Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by, the Trustee. The City shall ensure that any such commingling complies with Section 1.148 -4 of the Treasury Regulations, and shall provide written direction to the Trustee accordingly. In no event shall the Trustee have any duty or obligation, at any time and in any manner to monitor compliance with any governmental regulations relating to commingling of accounts. Section 8.07. Tax Covenants. (a) General. The City and the Corporation hereby covenant with the holders of the 2O10A Certificates that, notwithstanding any other provisions of this Trust Agreement, (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) they shall 33 DOCSOC/ 1423520v6/022459 -0014 not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest with respect to the 2010A Certificates under Section 103 of the Code. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of proceeds of the 201 OA Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest due with respect to the 2010A Certificates. (b) Use of Proceeds. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates or the Project, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2O1OA Certificates are outstanding, the City and the Corporation, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall establish reasonable procedures necessary to ensure continued compliance with Section 141 of the Code and the continued qualification of the 201 OA Certificates as "governmental bonds." (c) Arbitrage. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City and the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 201OA Certificates. (d) Federal Guarantee. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the Certificates) shall not make any use of the proceeds of the Certificates or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (e) Covenant Regarding Build America Bonds. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the 2010B Certificates) shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the cash subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. (f) Compliance with Tax Certificate. In furtherance of the foregoing tax covenants of this Section, the City covenants that it will comply with the provisions of the Tax Certificate, which is incorporated herein as if fully set forth herein. These covenants shall survive payment in full or defeasance of the 201OA Certificates and the 2010B Certificates. 34 DOCSOC/ 1423520v6/022459 -0014 Section 8.08. Rebate Fund. (a) General. The Trustee shall establish a special fund designated the "City of Newport Beach (Civic Center Project) Rebate Fund" (the "Rebate Fund "). All amounts at any time on deposit in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States (the "Rebate Requirement ") pursuant to Section 148 of the Code and the Treasury Regulations promulgated thereunder (the "Treasury Regulations "). Such amounts shall be free and clear of any lien under this Trust Agreement and shall be governed by this Section and Section 8.07 of this Trust Agreement and by the Tax Certificate executed by the City. The Trustee shall be deemed conclusively to have complied with the Rebate Requirement if it follows the directions of the City, and shall have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the City with the Rebate Requirement. (b) Deposits. (i) Within 45 days of the end of the fifth Certificate Year and each fifth Certificate Year thereafter, (1) the City shall calculate or cause to be calculated with respect to the 20 1OA Certificates the amount that would be considered the "rebate amount" within the meaning of Section 1.148 -3 of the Treasury Regulations, and (2) the City shall make an Additional Payment under Section 4.11 of the Lease and transfer to the Trustee for deposit in the Rebate Fund, if and to the extent required, amounts sufficient to cause the balance in the Rebate Fund to be equal to the "rebate amount" so calculated. (ii) The City shall not be required to deposit any amount to the Rebate Fund in accordance with preceding sentence if the amount on deposit in the Rebate Fund prior to the deposit required to be made under this subsection (a) equals or exceeds the "rebate amount" calculated in accordance with the preceding sentence. Such excess may be withdrawn from the Rebate Fund to the extent permitted under subsection (f) of this Section. (iii) The City shall not be required to calculate the `rebate amount," and shall not be required to deposit any amount to the Rebate Fund in accordance with this subsection (a), with respect to all or a portion of the proceeds of the 2O1OB Certificates (including amounts treated as proceeds of the Certificates) (1) to the extent such proceeds satisfy the expenditure requirements of Section 148(f)(4)(B) or Section 148(f)(4)(C) of the Code or Section 1.148 -7(d) of the Treasury Regulations, whichever is applicable, and otherwise qualify for the exception to the Rebate Requirement pursuant to whichever of said sections is applicable, (2) to the extent such proceeds are subject to an election by the City under Section 148(f)(4)(C)(vii) of the Code to pay a 1 -1/2% penalty in lieu of arbitrage rebate in the event any of the percentage expenditure requirements of Section 148(f)(4)(C) are not satisfied, or (3) to the extent such proceeds qualify for the exception to arbitrage rebate under Section 148(f)(4)(A)(ii) of the Code for amounts in a "bona fide debt service fund." (c) Withdrawal Following Payment of 2O1OA Certificates. Any funds remaining in the Rebate Fund after prepayment of all the 20 1OA Certificates and any amounts described in paragraph (ii) of subsection (c) of this Section, or provision made therefor satisfactory to the Trustee, including accrued interest and payment of any applicable fees to the Trustee, shall be withdrawn by the Trustee and remitted to the City. (d) Withdrawal for Payment of Rebate. Upon the City's written direction, but subject to the exceptions contained in subsection (a) of this Section to the requirement to calculate the "rebate 35 DOCSOC/ 1423520x6/022459 -0014 amount" and make deposits to the Rebate Fund, the Trustee shall pay to the United States, from amounts on deposit in the Rebate Fund, (i) not later than 60 days after the end of (1) the fifth Certificate Year, and (2) each fifth Certificate Year thereafter, an amount that, together with all previous rebate payments, is equal to at least 90% of the `rebate amount" calculated as of the end of such Certificate Year in accordance with Section 1.148 -3 of the Treasury Regulations; and (ii) not later than 60 days after the payment of all 2010A Certificates, an amount equal to 100% of the "rebate amount" calculated as of the date of such payment (and any income attributable to the "rebate amount" determined to be due and payable) in accordance with Section 1.148 -3 of the Treasury Regulations. (e) Rebate Payments. Each payment required to be made pursuant to subsection (c) of this Section shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038 -T, which shall be completed by the arbitrage rebate consultant for execution by the City and provided to the Trustee. (f) Deficiencies in the Rebate Fund. In the event that, prior to the time any payment is required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City shall calculate the amount of such deficiency and direct the Trustee to deposit an amount received from the City equal to such deficiency into the Rebate Fund prior to the time such payment is due. (g) Withdrawals of Excess Amounts. In the event that immediately following the calculation required by subsection (a) of this Section, but prior to any deposit made under said subsection, the amount on deposit in the Rebate Fund exceeds the "rebate amount" calculated in accordance with said subsection, upon written instructions from the City, the Trustee shall withdraw the excess from the Rebate Fund and credit such excess to the Lease Payment Fund. (h) Record Keenine. The City shall retain records of all determinations made hereunder until six years after the complete retirement of the Certificates. (i) Survival after Defeasance. Notwithstanding anything in this Trust Agreement to the contrary, the Rebate Requirement shall survive the payment in full or defeasance of the Certificates. ARTICLE IX THE TRUSTEE Section 9.01. Annointment of Trustee (a) Appointment. Trustee, a national banking association organized under the laws of the United States, is hereby appointed Trustee by the Corporation and the City. (b) Qualifications. The Corporation and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, California, Santa Ana, California, or Los Angeles, California capable of exercising trust powers in the State of California, with a combined capital (exclusive of borrowed capital) and a surplus of at least Seventy-Five 36 DOCSOC/ 1423520v6/022459 -0014 Million Dollars ($75,000,000), or be a member of a bank holding company system, which shall have a combined capital and surplus of at least Seventy -Five Million Dollars ($75,000,000), and subject to supervision or examination by federal or state authority, so long as any Certificates are Outstanding. If such bank, corporation or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to then for the purpose of this Section the combined capital and surplus of such bank, corporation 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. (c) Removal. So long as there is no Event of Default, the City may remove the Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto. (d) Resi ng ation. The Trustee may, upon written notice to the City and the Corporation, resign; provided that such resignation shall not take effect until the successor Trustee is appointed as provided in this Section 9.01. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee. In the event the City does not name a successor Trustee within thirty (30) days of receipt of notice of the Trustee's resignation, then the Trustee may petition a federal or state court to seek the immediate appointment of a successor Trustee and be reimbursed by the City for all costs incurred in connection therewith. (e) Successor. Any successor Trustee shall be a bank, corporation or trust company meeting the qualifications as set forth in Subsection (b) above. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Owners at their respective addresses set forth on the Certificate registration books maintained pursuant to Section 2.12. Section 9.02. Merger or Consolidation. Any company or banking association into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a parry or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such company shall be eligible under Section 9.01, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. Section 9.03. Protection of the Trustee. (a) Reliance Upon Pavers or Documents. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, facsimile, request, consent, direction, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of this Trust Agreement, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may, in the absence of bad faith on its part, accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. In the event the Trustee shall make any investigation into the content of any such certifications, the Trustee shall not thereby be deemed to have expanded the scope of its duties. 37 DOCSOC/ 1423520v6/022459 -0014 (b) Reliance Upon Opinions of Counsel. The Trustee may consult with its counsel or counsel 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 in accordance therewith. Before being required to take any action, the Trustee may require an opinion of Independent Counsel acceptable to the Trustee which opinion shall be made available to the other parties hereto upon request, which counsel may be counsel to any of the parties hereto, or a verified certificate of any party hereto, or both, concerning the proposed action and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken by the Trustee in reliance thereon and the City shall promptly reimburse the Trustee for such costs. (c) Reliance Upon Requested Certificates. Whenever in the administration of its duties under this Trust Agreement, 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), in the absence of bad faith on its part, shall be deemed to be conclusively proved and established by the certificate of the City Representative or the Corporation Representative and such certificate shall be full warranty to the Trustee for any action taken or suffered under the provisions of this Trust Agreement in reliance thereon, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable, provided however that the duties and obligations of the Trustee shall not be deemed expanded thereby. Section 9.04. Rights of the Trustee. (a) Ownership of Certificates. The Trustee may become an Owner with the same rights it would have if it were not Trustee; may acquire and dispose of other bonds or evidence of indebtedness of the City with the same rights it would have if it were not the Trustee; and may act as a 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 Owners, whether or not such committee shall represent the Owners of the majority in principal amount of the Certificates then Outstanding. (b) Attorneys, Agents, Receivers. The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, or receivers, shall not be responsible for the actions or omissions of such attorneys, agents or receivers if appointed by it with reasonable care, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. (c) Funds and Accounts. In addition to the funds and accounts established or required to be established pursuant to this Trust Agreement, the Trustee may establish such additional funds and accounts as it deems necessary or appropriate to perform its duties hereunder, and shall have the right to close such accounts in its discretion. Section 9.05. Standard of Care. 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 only perform those duties specifically set forth herein and no implied duties, covenants or obligations whatsoever shall be read into this Trust Agreement. In the event of and during the continuance of an Event of Default, the Trustee shall exercise such care in performing its duties hereunder as a prudent person would exercise under the circumstances in the conduct of its own 38 DOCSOC/142352Ov6/022459 -0014 affairs. No action by the Trustee shall be construed or deemed to expand the limitations on the scope of the Trustee's duties. The Trustee shall not be considered in breach of or in default in its obligations hereunder in the event of enforced delay ( "unavoidable delay ") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other govermnental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. Section 9.06. Compensation of the Trustee. As an Additional Payment under Section 4.11 of the Lease, the City shall, from time to time, pay such amounts and reimburse such expenses (including, without limitation, legal fees and expenses) as are specified in any written agreement with the City and, on demand, pay to the Trustee to the extent not covered by such agreement reasonable compensation for its services and the services of any accountants, consultants, attorneys and other experts as may be engaged by the Trustee to provide services under this Trust Agreement pursuant to a written agreement between the City and the Trustee. Further, in the event of a default hereunder, the City agrees that the Trustee's fees and costs shall be deemed to be a substantial contribution to the trust and bankruptcy estate and/or administrative expenses in a bankruptcy, if applicable. The City's obligation hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates or resignation and removal of the Trustee. Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, interest on any Certificate, upon the trust estate for the foregoing fees, charges and expenses incurred by it. Section 9.07. Indemnification of Trustee. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors, agents, and employees harmless from and against (whether or not litigated) all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Premises by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under this Trust Agreement and any other agreement made and entered into for purposes of the Leased Premises, (iii) any act of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (iv) any act of any assignee of, or purchaser from, the City or of any of its or their agents, contractors, servants, employees or licensees with respect to the Leased Premises, (v) the construction or acquisition of the Project or the expenditure of Project Costs, (vi) the exercise and performance by the Trustee of its powers and duties hereunder, the Lease, the Site Lease, the Assignment Agreement or any related document hereto or thereto, (vii) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates or this Trust Agreement, or (viii) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made in light of the circumstances in which they were made, not misleading in any official statement or other disclosure document utilized in connection with the sale of the Certificates. The indemnification set forth in this Section 9.07 shall extend to the Trustee's officers, agents, employees, successors and assigns. No indemnification will be made under this Section or elsewhere in this Trust Agreement or other agreements for willful misconduct or negligence by the Trustee, its officers, agents, employees, 39 DOCSOC/ 1423520v6/022459 -0014 successors or assigns. The City's obligations hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates, or the resignation or removal of the Trustee. In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity, and all persons, including, without limitation, the Owners, Corporation and the City, having any claim against the Trustee arising from the Trust Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment, except as otherwise provided herein or where the Trustee has breached its standard of care as described in Section 9.05 hereof. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates. No provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder or in the exercise of any of its rights or powers. 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 Certificates at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or in the exercise of any right hereunder. In the event of conflicting instructions hereunder, the Trustee shall have the right to decide the appropriate course of action, or shall follow the direction of the group of Owners holding the largest aggregate principal amounts of Certificates, and be protected in following either course of action. The Trustee is authorized and directed to execute, in its capacity as Trustee, the Assignment Agreement. Every provision of this Trust Agreement, the Lease, the Site Lease and the Assignment Agreement relating to the conduct or liability of the Trustee shall be subject to the provisions of this Trust Agreement, including without limitation, this Article IX. The Trustee shall have no responsibility or liability with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed in any respect relating to the Certificates. The Trustee shall not to be deemed to have knowledge of any Event of Default hereunder or under the Lease unless it has actual knowledge thereof at its Principal Office. Before taking any action under Article XIII or this Article at the request of the Owners, the Trustee may require that a satisfactory indemnity bond be furnished by the Owners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken. The permissive right of the Trustee to do things enumerated in this Trust Agreement shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful default. The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. The Trustee shall not be 40 DOCSOC/ 1423520v6/022459 -0014 accountable for the use or application by the City of any of the Certificates or the proceeds thereof or for the use or application of any money paid over by the Trustee in accordance with the provisions of this Trust Agreement. The Trustee agrees to accept and act upon instructions or directions pursuant to this Trust Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City or the Corporation elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City and the Corporation agree to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. Section 9.08. Trustee's Disclaimer of Warranties. THE TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages, in connection with or arising out of the Lease, the Site Lease, the Assignment Agreement or this Trust Agreement for the existence, funtishing, functioning or the City's use and possession of the Leased Premises. ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS Section 10.01. Amendments Permitted. (a) With Consent. This Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time, with notice to any rating agency then rating the Certificates by a Supplemental Agreement or amendment thereto which shall become effective when the written consents of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in Section 10.03 hereof, shall have been filed with the Trustee. No such modification or amendment shall: (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificates being affected, or 41 DOCSOG 1423520x6/022459 -0014 (ii) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (iii) modify any of the rights or obligations of the Trustee without its written assent thereto, or (iv) amend this Section 10.01 without the prior written consent of the Owners of all Certificates then outstanding. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest evidenced by the Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in Section 10.02 hereof. (b) Without Consent. This Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a Supplemental Agreement or amendments thereto or a supplement or amendment to the Lease, without the consent of any such Owners, but only to the extent permitted by law and only: (i) to add to the covenants and agreements of the City hereunder, (ii) to cure, correct or supplement any ambiguous or defective provision contained herein or therein, (iii) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable (which may be based upon opinions as provided in Section 9.03(b)), shall not materially adversely affect the interest of the Owners, (iv) to substitute the Leased Premises, or a portion thereof, in accordance with Sections 3.5 and 7.12 of the Lease, (v) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest component of 2010A Lease Payments and the interest payable with respect to the 2010A Certificates and to maintain the federal subsidy with respect to the City's obligations to pay the Interest Component with respect to the 2010B Lease Payments under the Lease, (vi) to add to the rights of the Trustee, (vii) to maintain the rating or ratings assigned to the Certificates, or (viii) to provide for the execution and delivery of Additional Certificates in accordance with the provisions of Section 2.12 hereof. No such modification or amendment, however, shall modify any of the rights or obligations of the Trustee without its written assent thereto. Any such Supplemental Agreement shall become effective upon execution and delivery by the parties hereto or thereto as the case may be. 42 DOCSOC/ 1423520v6/022459 -0014 The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest with respect to the 2010A Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in Section 10.02 hereof. Section 10.02. Procedure for Amendment with Written Consent of the Owners. This Trust Agreement or the Lease may be amended by Supplemental Agreement as provided in this Section 10.02 in the event the consent of the Owners is required pursuant to Section 10.01(a) hereof. A copy of the form of such Supplemental Agreement, together with a request to the Owners for their consent thereto, shall be mailed by the Trustee to each Owner of a Certificate at his address as set forth in the Certificate registration books maintained pursuant to Section 2.09 hereof, but failure to receive copies of such Supplemental Agreement and request so mailed shall not affect the validity of the Supplemental Agreement when assented to as in this Section provided. Such Supplemental Agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in Section 10.03 hereof) and notices shall have been mailed as hereinafter in this Section provided. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Certificates shall have filed their consent to such Supplemental Agreement, the Trustee shall mail a notice to the Owners of the Certificates in the manner hereinbefore provided in this Section for the mailing of such Supplemental Agreement, stating in substance that such Supplemental Agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in this Section (but failure to mail copies of said notice shall not affect the validity of such Supplemental Agreement or consents thereto). A record, consisting of the papers required by this Section to be filed with the Trustee, shall be proof of the matters therein stated until the contrary is proved. The Trustee may obtain and conclusively rely on an opinion of counsel with regard to such matters. Section 10.03. Disqualified Certificates. Certificates or Additional Certificates owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action or any calculation of Outstanding Certificates or Additional Certificates provided for in this Trust Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Trust Agreement; except that in determining whether the Trustee shall be protected in relying upon any such approval or consent of an Owner, only Certificates that the Trustee actually knows to be owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall be disregarded unless all Certificates are so owned, held by or for the account of in which case such Certificates shall be considered Outstanding for the purpose of such determination. 43 DOCSOC/ 1423520v6/022459 -0014 The City or the Trustee may adopt appropriate regulations to require each Owner, before his consent provided for in this Article X shall be deemed effective, to reveal if the Certificates or Additional Certificates as to which such consent is given are disqualified as provided in this Section 10.03 hereof. Upon request of the Trustee, the City and Corporation shall specify to the Trustee those Certificates and Additional Certificates disqualified pursuant to this Section and the Trustee may conclusively rely on such certificate. Section 10.04. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective pursuant to this Article X, this Trust Agreement or the Lease, as the case may be, shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties hereto or thereto and all Owners of Certificates Outstanding, as the case may be, 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 Supplemental Agreement shall be deemed to be part of the terms and conditions of this Trust Agreement or the Lease, as the case may be, for any and all purposes. Section 10.05. Endorsement or Replacement of Certificates Delivered After Amendments. The City may determine that Certificates delivered after the effective date of any action taken as provided in this Article X shall bear a notation, by endorsement, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Outstanding Certificate at such effective date and presentation of his Certificate for such purpose at the Principal Office, a suitable notation shall be made on such Certificate. The City may determine that new Certificates, so modified as in the opinion of the Trustee is necessary to conform to such Owner's action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Certificate then Outstanding, such new Certificate shall be exchanged in the Principal Office without cost to such Owner, for a Certificate of the same character then Outstanding, upon surrender of such Certificate. Section 10.06. Amendatory Endorsement of Certificates. Subject to Section 10.01 hereof, the provisions of this Article X shall not prevent an Owner from accepting any amendment as to the particular Certificates held by him, provided that due notification thereof is made on such Certificates. Section 10.07. Copies of Amendments Delivered to Rating Agencies. Copies of any modifications or amendments to this Agreement, the Lease, the Site Lease or the Assignment Agreement shall be delivered by the City to any rating agency then rating the Certificates at least 10 days prior to the effective date thereof. ARTICLE XI COVENANTS; NOTICES Section 11.01. Compliance With and Enforcement of the Lease. The City covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The Corporation covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Corporation 44 DOCSOC/ 1423520v6/022459 -0014 thereunder. The Corporation and the City, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Leased Premises, which may or can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee. Section 11.02. Payment of Taxes. The City shall pay all taxes as provided in Section 7.7(b) of the Lease. Section 11.03. Observance of Laws and Regulations. The City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the City, including its right to exist and carry on business as a municipal corporation, to the end that such rights, privileges and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. Section 11.04. Prosecution and Defense of Suits. The City shall promptly, and also upon request of the Trustee or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Premises, whether now existing or hereafter developing and shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose. Section 11.05. City Budgets. In accordance with Section 4.7 of the Lease, the City Representative shall certify to the Trustee on or before August 1 of each year that the City has included all Lease Payments (other than Lease Payments of advance rental), Additional Payments due under the Lease in the Fiscal Year covered by its annual budget and the amount so included. If the City fails to certify that it has included all such Lease Payments and Additional Payments in such annual budget, the Trustee shall promptly provide the City written notice specifying that the City has failed to observe and perform its covenant and agreement in such Section 4.7 and requesting that such failure be remedied within 30 days, or such failure shall constitute an Event of Default under Section 9.1(b) of the Lease. The Trustee shall forward a copy of such notice to the Corporation. Upon receipt of such notice, the City shall notify the Trustee in writing of the proceedings proposed to be taken by the City, and shall keep the Trustee advised in writing of all proceedings thereafter taken by the City. Section 11.06. Further Assurances. The Corporation and the City will make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confirming unto the Owners the rights and benefits provided herein. Section 11.07. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Trust Agreement, failure of the City to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section and the Continuing Disclosure Agreement. 45 DOCSOC/ 1423520v6/022459 -0014 ARTICLE XII LIMITATION OF LIABILITY Section 12.01. Limited Liability of the Citv. Except for the payment of Lease Payments, Additional Payments and Prepayments when due in accordance with the Lease and the performance of the other covenants and agreements of the City contained herein and in the Lease, the City shall have no obligation or liability to any of the other parties hereto or to the Owners with respect to this Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee. Section 12.02. No Liability of the City or Corporation for Trustee Performance. Except as expressly provided herein, neither the City nor the Corporation shall have any obligation or liability to any other parties hereto or to the Owners with respect to the performance by the Trustee of any duty imposed upon it under this Trust Agreement. (a) No Investment Advice. The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates. (b) Sufficiency of this Trust Agreement or Lease Payments. The Trustee makes no representations as to the validity or sufficiency of the Certificates, shall incur no responsibility or liability in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall not be responsible or liable for the sufficiency or enforceability of the Lease, the Site Lease or the Assignment Agreement. The Trustee shall not be liable for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in this Trust Agreement), its right to receive moneys pursuant to said Lease, or the value of or title to the Leased Premises. (c) Actions of Corporation and Citv. The Trustee shall have no obligation or liability to any of the other parties or the Owners with respect to this Trust Agreement or failure or refusal of any other party to perform any covenant or agreement made by any of them under this Trust Agreement or the Lease, but shall be responsible solely for the performance of the duties and obligations expressly imposed upon it hereunder as provided in Section 9.05. (d) Recitals and Agreements of Corporation and Citv. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, covenants and agreements of the City or the Corporation (as the case may be), and the Trustee assumes no responsibility for the correctness of the same. Section 12.03. Limitation of Rights to Parties and Certificate Owners. Nothing in this Trust Agreement or in the Certificates expressed or implied is intended or shall be construed to give any person other than the City, the Corporation, the Trustee and the Owners, any legal or equitable right, remedy or claim under or in respect of this Trust Agreement or any covenant, condition or provision hereof, and all such covenants, conditions and provisions are and shall be for the sole and exclusive benefit of the City, the Corporation, the Trustee and the Owners. Section 12.04. No Liability of Corporation to the Owners. Except as expressly provided herein, the Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect to the observance or 46 DOCSOC/ 1423520v6/022459 -0014 performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by this Trust Agreement. ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS Section 13.01. Assignment of Rights. The parties hereto acknowledge that pursuant to the Assignment Agreement the Corporation has transferred, assigned and set over to the Trustee for the benefit of the Owners, certain of the Corporation's rights under the Lease. Section 13.02. Events of Default. (a) Remedies. If an Event of Default shall happen, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything herein or in the Lease to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. Section 9.2 of the Lease is hereby incorporated by reference. (b) Actual Knowledge. The Trustee shall not be deemed to have knowledge of any Event of Default unless and until the trust officer responsible for the administration of this Trust Agreement shall have actual knowledge thereof, or shall have received written notice thereof at the Principal Office. Section 13.03. Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article XIII or of Article IX of the Lease, shall be deposited into the Lease Payment Fund and be applied by the Trustee after payment of all amounts due and payable under Sections 9.06 and 9.07 hereof and Section 4.11 of the Lease in the following order upon presentation of the Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid - First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties and obligations hereunder, including reasonable compensation to its agents, attorneys and counsel and then to any such amounts incurred by the Owners; Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installment, 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 Third, Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be 47 DOCSOC/ 1423520v6/022459 -0014 sufficient to pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference. Section 13.04. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or in the Lease, or in aid of the execution of any power herein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties hereunder; provided that such written request shall not be otherwise than in accordance with provisions of law and this Trust Agreement and that the Trustee shall have the right to decline to follow any such written request if the Trustee shall be advised by counsel that the action or proceeding so requested may not be taken lawfully or if the Trustee in good faith shall determine that the action or proceeding so requested would be unjustly prejudicial to the Certificate Owners not a party to such written request or expose the Trustee to liability. In no event shall counsel to the Trustee be deemed counsel to the Owners, and any communications between the Trustee and its counsel shall be deemed confidential and privileged. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Certificates or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners of the Certificates so affected. Section 13.05. Non - Waiver. Nothing in this Article XIII or in any other provision of this Trust Agreement or in the Certificates shall affect or impair the obligation of the City to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by this Article XIII to the Trustee or to the Owners may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners. Section 13.06. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise. Section 13.07. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it shall have full power, in the exercise of its discretion for the best interest of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the EF DOCSOC/ 1423520x6/022459 -0014 Owners of at least a majority in principal amount of the Outstanding Certificates hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Section 13.08. Limitation on Certificate Owners' Right to Sue. No Owner of any Certificate executed hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have 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; and (e) there shall have been a default in the payment of such Owner's proportionate interest in the Lease Payments as the same become due. Such notification, request, tender of indemnity, refusal or omission, and default are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under this Trust Agreement, except in the manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this Section or any other provision of this Trust Agreement. ARTICLE XIV MISCELLANEOUS Section 14.01. Defeasance. (a) Methods. If and when any Outstanding Certificates shall be paid and discharged in any one or more of the following ways: (i) Payment or Prepayment: by well and truly paying or causing to be paid the principal, interest and prepayment premiums (if any) with respect to such Certificates Outstanding, as and when the same become due and payable; (ii) Cash: if prior to maturity and having given at least thirty (30) days prior written notice of prepayment by depositing with the Trustee, in trust, concurrent with the giving of such notice, an amount of cash which (together with cash then on deposit in the Lease Payment Fund together with the interest to accrue thereon, in the event of payment or provision for payment of all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including all principal and interest and premium, if any; or (iii) Government Obligations: by irrevocably depositing with the Trustee, in trust, Government Obligations together with cash, if required, in such amount as will, in the opinion of an 49 DOCSOC/ 1423520v6/022459 -0014 independent certified public accountant, together with interest to accrue thereon (and, in the event of payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease Payment Fund together with the interest to accrue thereon), be fully sufficient to pay and discharge such Certificates (including all principal and interest represented thereby and prepayment premiums if any) at or before their maturity or prepayment date; and all other amounts due hereunder have been paid in full, then, notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Corporation, the Trustee and the City with respect to such Certificates shall cease and terminate, except only the rights of the Trustee under Sections 9.06 and 9.07 hereof, and the obligation of the City and the Corporation to comply with the provisions of Sections 8.07 and 8.08 hereof and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City from funds deposited pursuant to paragraphs (ii) and (iii) of this Section, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to paragraphs (ii) and (iii) of this Section, the Certificates shall continue to represent direct and proportionate interests of the Owners thereof in applicable Lease Payments under the Lease. (b) Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to one of the procedures described in paragraphs (a)(i) through (a)(iii) of this Section, which are not required for the payment to be made to the Owners, shall be paid over to the City, after the payment of any amounts due to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease. (c) Surviving Provisions. Notwithstanding the satisfaction and discharge hereof, the Trustee shall retain such rights, powers and privileges hereunder as may be necessary or convenient for the payment of the principal, interest and prepayment premium, if any, on the Certificates and for the registration, transfer and exchange of the Certificates. (d) Opinions and Report s. Prior to any defeasance becoming effective under this Section, the City shall cause to be delivered (i) an executed copy of a report, addressed to the Trustee, the City, in form and substance acceptable to the City of a nationally recognized fern of certified public accountants, verifying that the Government Obligations and cash, if any, satisfy the requirements of Section 14.01(a) above, (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, and (iii) a copy of an opinion of Special Counsel, dated the date of such defeasance and addressed to the Trustee, the City, in form and substance acceptable to the City, to the effect that such Certificates are no longer Outstanding under the Trust Agreement. Section 14.02. Non - Presentment of Certificates. In the event any Certificate shall not be presented for payment when the principal with respect thereto becomes due, either at maturity, or at the date fixed for prepayment thereof, if moneys sufficient to pay such Certificate shall have been deposited in the Prepayment Fund or Lease Payment Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such Certificate shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such Certificate who shall thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his or her part under this Trust Agreement or on, or with respect to, said Certificate. Any moneys so deposited with and held by the Trustee not so applied to the payment of Certificates within two (2) years after the date on which the same shall have become due shall be 50 DOCSOC/ 1423520v6/022459 -0014 paid by the Trustee to the City, free from the trusts created by this Trust Agreement. Prior to forwarding any such moneys to the City, the Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial newspaper of general circulation in New York, New York. In addition, Trustee shall be indemnified from and against any and all liabilities to third parties resulting from its actions under this Section. Thereafter, Owners shall be entitled to look only to the City for payment, and then only to the extent of the amount so repaid by the Trustee. The City shall not be liable for any interest on the sums paid to it pursuant to this section and shall not be regarded as a trustee or trustees of such money. Section 14.03. Acquisition of Certificates by Citv. All Certificates acquired by the City, whether by purchase, gift or otherwise, shall be surrendered by the City to the Trustee for cancellation. Section 14.04. Records. The Trustee shall keep complete and accurate records of all moneys received and disbursed by it under this Trust Agreement until four years after no Certificate is Outstanding (or such longer period as required by the Trustee's policies and procedures, or by applicable law), which shall be available for inspection by the City, the Corporation and any Owner, or the agent of any of them, at any time during regular business hours upon reasonable prior notice. Section 14.05. Notices. Except as specifically provided otherwise in this Trust Agreement, all written notices to be given under this Trust Agreement shall be given by mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice shall be deemed to have been received upon the earlier of actual receipt or five Business Days after deposit in the United States mail, in certified form, postage prepaid or, in the case of personal delivery, upon delivery to the address set forth below: If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: City Manager If to the Corporation: Newport Beach Public Facilities Corporation 3300 Newport Boulevard Newport Beach, California 92663 Attention: Treasurer If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 700 S. Flower St., Ste. 500 Los Angeles, CA 90017 Attention: Corporate Trust Department 51 DOCSOC/ 1423520v6/022459 -0014 If to S &P: Standard & Poor's Ratings Services 55 Water Street New York, New York 10004 Attention: Public Finance Department If to Moody's Moody's Investors Service 7 World Trade Center 250 Greenwich Street New York, NY 10007 Attention: Structured Finance Group - Fully Supported If to Fitch: Fitch Ratings, Inc. One State Street Plaza New York, New York 10004 Attention: Public Finance Department, Municipal Structured Finance Group Section 14.06. Governing Law. This Trust Agreement shall be construed and governed in accordance with the laws of the State. Section 14.07. Binding Effect: Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Whenever in this Trust Agreement either the Corporation, 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 Trust Agreement contained by or on behalf of the Corporation, 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 14.08. Execution in Counterparts. This Trust 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 agreement. Section 14.09. Headings. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Trust Agreement. All references herein to "Articles ", "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Trust Agreement; and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or subdivision hereof. Section 14.10. Waiver of Notice. Whenever in this Trust Agreement 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 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. Section 14.11. Separability of Invalid Provisions. In case any one or more of the provisions contained in this Trust Agreement or in the Certificates shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability shall not affect any other provision of this Trust Agreement, and this Trust Agreement shall be construed as if 52 DOCSOC/ 1423520v6/022459 -0014 such invalid or illegal or unenforceable provision had never been contained herein. The parties hereto hereby declare that they would have entered into this Trust Agreement and each and every other section, paragraph, sentence, clause or phrase hereof and authorized the delivery of the Certificate's pursuant thereto irrespective of the fact that any one or more sections, paragraphs, sentences, clauses or phrases of this Trust Agreement may be held illegal, invalid or unenforceable. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK.J 53 DOCSOC/ 1423520v6/022459 -0014 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: Authorized Officer NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: President ATTEST: Secretary CITY OF NEWPORT BEACH By: Its: Mayor ATTEST: City Clerk S -1 DOCSOC/ 1423520v6/022459 -0014 APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: Lm , Stradling Yocca Carlson & Rauth, a Professional Corporation S -2 DOCSOC/ 1423520v6/022459 -0014 0 EXHIBIT A -1 FORM OF 2010A CERTIFICATE UNLESS THIS CERTIFICATE IS PRESENTED BY ANA UTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE TRUST AGREEMENT) TO THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY ANA UTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTERESTHEREIN UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH CERTIFICATE OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Evidencing the Fractional Interest of the Owner Hereof In 2010A Lease Payments to be Made by the CITY OF NEWPORT BEACH As Rental for Certain Leased Premises Pursuant to a Lease/Purchase Agreement With the NEWPORT BEACH PUBLIC FACILITIES CORPORATION INTEREST RATE REGISTERED OWNER: 11114-10412411 W4\ UT Col 81,01 i MATURITY DATE CEDE & CO. DELIVERY DATE CUSIP NO /100 DOLLARS THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns, as the Registered Owner of this Certificate of Participation (the "Certificate ") is the owner of a fractional and undivided interest in the right to receive certain 2010A Lease Payments thereof under and as defined in that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation') and the City of Newport Beach, a chartered city organized and existing under and by virtue of the laws and Constitution of the State of California (the "City"), which 2010A Lease A -1 -1 DOCS00 1423520v6/022459 -0014 Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "). The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the 2010A Lease Payments designated as principal coming due during the preceding twelve months, and to receive on July 1 and January 1 of each year (the "Payment Dates ") until payment in full of said portion of principal, the Registered Owner's portion of the 2010A Lease Payments designated as interest coming due during the six months immediately preceding each of the Payment Dates provided that interest with respect hereto shall be payable from the Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is executed during the period from the day after the fifteenth day of the month preceding a Payment Date (the "Record Date ") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (ii) unless this Certificate is executed on or prior to June 15, 2011, in which event interest shall be payable from the Dated Date hereof. The portion of the Lease Payments designated as interest is computed on the basis of a 360 -day year of twelve 30 -day months and is the result of the multiplication of the aforesaid portion of the Lease Payments designated as principal by the rate per annum identified above. Said amounts are payable in lawful money of the United States of America. The amount representing principal payable at maturity or upon prepayment in whole or in part is payable to the Registered Owner upon presentation and surrender of this Certificate at the Principal Office. The amounts representing interest are payable by check mailed by the Trustee by first class mail to the Registered Owner hereof as of the Record Date preceding the Payment Date at his address as it appears on the registration books of the Trustee. Interest with respect to any Certificates may, at the option of any Owner of Certificates in an aggregate principal amount of $1,000,000 or more evidenced by the written request of such Owner to the Trustee, be paid to such Owner by wire transfer to the bank and account number on file with the Trustee as of the Record Date. This Certificate is one of the $ aggregate principal amount of Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Certificates ") which have been executed and delivered by the Trustee pursuant to the terms of a Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among the Trustee, the Corporation and the City. Concurrently, with the execution and delivery of the Certificates, the Trustee will execute the $ aggregate principal amount of the Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates ") pursuant to the terms of the Trust Agreement. The City is authorized to enter into the Lease and the Trust Agreement under the Constitution and laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the City under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The City is obligated to pay 2010A Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The obligation of the City to pay the 2010A Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay 2010A Lease Payments does not constitute a debt of the City, the State of California or any of its political A -1 -2 DOC SOC/ 1423520v6/022459 -0014 subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. The City's obligation to pay 2010A Lease Payments may be completely or partially abated during any period in which, by reason of noncompletion of the Project by the date specified in the Lease or material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use and right of possession by the City of the Leased Premises. Failure of the City to pay 2010A Lease Payments during any such period shall not constitute a default under the Lease, the Trust Agreement or this Certificate. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least a majority in aggregate principal amount of the Certificates and the 2010B Certificates then Outstanding, and may be amended, without such consent of the Registered Owners under certain circumstances. No such modification or amendment shall (i) extend or have the effect of extending the maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates and 2010B Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, (iii) modify any of the rights or obligations of the Trustee without its written assent thereto, or (iv) amend the section of the Trust Agreement dealing with permitted amendments thereof without the prior written consent of the owners of all Certificates and 2010B Certificates. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a new Certificate or Certificates, of an authorized denomination or denominations, for the same aggregate principal amount, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate principal amount of Certificates of other authorized denominations as prescribed in the Trust Agreement. The City, the Corporation, and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to transfer any Certificate selected for prepayment or be required to transfer any Certificate during the period in which the Trustee is selecting Certificates for prepayment or after notice of prepayment has been given in accordance with the Trust Agreement. The Certificates are subject to prepayment, on any date, in whole or in part, from Net Proceeds deposited by the Trustee in the Prepayment Fund established under the Trust Agreement at least forty-five (45) days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the dated fixed for prepayment, without premium. In the event that Net Proceeds are to be applied to the prepayment of Certificates when Certificates, 2010B Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of Certificates, 2010B Certificates and Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment. A -1 -3 DOCSOC/1423520v6/022.459 -0014 The Certificates maturing on or after July 1, 20 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 20_, at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the 2010A Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. The Certificates maturing July 1, 20_ (the "20_ Term Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20_ Term Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20_ Term Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Sinking Account Date (July 1) Payment * Final Maturity The Certificates maturing July 1, 20_ (the "20 Term Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20_ Term Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20_ Term Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Sinking Account Date (July 1) Payment * Final Maturity A -1 -4 DOCSOC/ 1423520v6/022459 -0014 As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owner of this Certificate, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest shall cease to accrue with respect hereto from and after the date fixed for prepayment. The City has certified that all acts, conditions and things required by the statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. Terms used herein which are not otherwise defined shall have the respective meanings assigned thereto in the Trust Agreement. The Trustee has no obligation or liability to the Registered Owners to make payments of principal or interest with respect to this Certificate except from 2010A Lease Payments paid to the Trustee and from the various funds and accounts established under the Trust Agreement. The Trust Agreement provides that the recitals of facts, covenants and agreements in this Certificate shall be taken as statements, covenants and agreements of the City, and the Trustee assumes no responsibility for the correctness of the same. The Trustee has executed this Certificate solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. A -1 -5 DOCSOC/ 1423520v6/022459 -0014 IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement. Date of Execution: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: Authorized Officer [FORM OF ASSIGNMENT] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (print or typewrite name, address, including postal zip code, and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed NOTICE: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or such other guarantee program acceptable to the Trustee. DOCSOC/ 1423520v6/022459 -0014 NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. A -1 -6 EXHIBIT A -2 FORM OF 2010B CERTIFICATE UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED I7V THE TRUST AGREEMENT) TO THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH CERTIFICATE OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Evidencing the Fractional Interest of the Owner Hereof In 2010B Lease Payments to be Made by the CITY OF NEWPORT BEACH As Rental for Certain Leased Premises Pursuant to a Lease/Purchase Agreement With the NEWPORT BEACH PUBLIC FACILITIES CORPORATION INTEREST RATE REGISTERED OWNER PRINCIPAL AMOUNT: MATURITY DATE CEDE & CO. DELIVERY DATE CUSIP NO /100 DOLLARS THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns, as the Registered Owner of this Certificate of Participation (the "Certificate ") is the owner of a fractional and undivided interest in the right to receive certain 2010B Lease Payments thereof under and as defined in that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation ") and the City of Newport Beach, a chartered city organized and existing under and by A -2 -1 DOCSOC/ 1423520v6/022459 -0014 virtue of the laws and Constitution of the State of California (the "City "), which 2010B Lease Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "). The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the 2010B Lease Payments designated as principal coming due during the preceding twelve months, and to receive on January 1 and July 1 of each year (the "Payment Dates ") until payment in full of said portion of principal, the Registered Owner's portion of the 2010B Lease Payments designated as interest coming due during the six months immediately preceding each of the Payment Dates provided that interest with respect hereto shall be payable from the Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is executed during the period from the day after the fifteenth day of the month preceding a Payment Date (the "Record Date ") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (ii) unless this Certificate is executed on or prior to June 15, 2011, in which event interest shall be payable from the Dated Date hereof. The portion of the 2010B Lease Payments designated as interest is computed on the basis of a 360 -day year of twelve 30 -day months and is the result of the multiplication of the aforesaid portion of the 2010B Lease Payments designated as principal by the rate per annum identified above. Said amounts are payable in lawful money of the United States of America. The amount representing principal payable at maturity or upon prepayment in whole or in part is payable to the Registered Owner upon presentation and surrender of this Certificate at the Principal Office. The amounts representing interest are payable by check mailed by the Trustee by first class mail to the Registered Owner hereof as of the Record Date preceding the Payment Date at his address as it appears on the registration books of the Trustee. Interest with respect to any Certificate may, at the option of any Owner of Certificates in an aggregate principal amount of $1,000,000 or more evidenced by the written request of such Owner to the Trustee, be paid to such Owner by wire transfer to the bank and account number on file with the Trustee as of the Record Date. This Certificate is one of the $ aggregate principal amount of Certificate of Participation 2010B (Taxable) (Civic Center Project) (the "Certificates ") which have been executed and delivered by the Trustee pursuant to the terms of a Trust Agreement dated as of October 1, 2010 (the "Trust Agreement "), by and among the Trustee, the Corporation and the City. Concurrently, with the execution and delivery of the Certificates, the Trustee will execute the $ aggregate principal amount of the Certificate of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") pursuant to the terms of the Trust Agreement. The City is authorized to enter into the Lease and the Trust Agreement under the Constitution and laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the City under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The City is obligated to pay 2010B Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The obligation of the City to pay the 2010B Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay 2010B A -2 -2 DOCSOC/ 1423520v6/022459 -0014 Lease Payments does not constitute a debt of the City, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. The City's obligation to pay 2010B Lease Payments may be completely or partially abated during any period in which, by reason of noncompletion of the Project by the date specified in the Lease or material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use and right of possession by the City of the Leased Premises. Failure of the City to pay 2010B Lease Payments during any such period shall not constitute a default under the Lease, the Trust Agreement or this Certificate. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least a majority in aggregate principal amount of the Certificates and the 2010A Certificates then Outstanding, and may be amended, without such consent of the Registered Owners under certain circumstances. No such modification or amendment shall (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates and 2010A Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (iii) modify any of the rights or obligations of the Trustee without its written assent thereto or (iv) amend the section of the Trust Agreement dealing with permitted amendments thereof without the prior written consent of the owners of all Certificates and 2010A Certificates. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a new Certificate or Certificates, of an authorized denomination or denominations, for the same aggregate principal amount, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate principal amount of Certificate of other authorized denominations as prescribed in the Trust Agreement. The City, the Corporation, and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to transfer any Certificate selected for prepayment or be required to transfer any Certificate during the period in which the Trustee is selecting Certificates for prepayment or after notice of prepayment has been given in accordance with the Trust Agreement. The Certificates are subject to prepayment, on any date, in whole or in part, from Net Proceeds deposited by the Trustee in the Prepayment Fund established under the Trust Agreement at least forty -five (45) days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the dated fixed for prepayment, without premium. In the event that Net Proceeds are to be applied to the prepayment of Certificates when 2010A Certificates, Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of 2010A Certificates, Certificates and A -2 -3 DOCSOC/ 1423520v6/022459 -0014 Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment. The Certificates maturing on or after July 1, 20 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 20_, at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the 2010B Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. Extraordinary Optional Prepayment. The 2010B Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event (as defined in the Trust Agreement), as a whole or in part, on any Business Day and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price (as defined in the Trust Agreement). Optional Prepayment with Make -Whole Payment. Before July 1, 2020, the 2010B Certificates will be subject to prepayment prior to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price (as defined in the Trust Agreement). The Certificates maturing July 1, 20_ (the "20 Term Certificates ") are subject to prepayment in part pro rata among Owners, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20 Term Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20_ Term Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Sinking Account Date (July 1) Payment * Final Maturity As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owner of this Certificate, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest shall cease to accrue with respect hereto from and after the date fixed for prepayment. A -2 -4 DOCSOC/ I423520v6/022459 -0014 The City has certified that all acts, conditions and things required by the statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. Terms used herein which are not otherwise defined shall have the respective meanings assigned thereto in the Trust Agreement. The Trustee has no obligation or liability to the Registered Owners to make payments of principal or interest with respect to this Certificate except from 2010B Lease Payments paid to the Trustee and from the various funds and accounts established under the Trust Agreement. The Trust Agreement provides that the recitals of facts, covenants and agreements in this Certificate shall be taken as statements, covenants and agreements of the City, and the Trustee assumes no responsibility for the correctness of the same. The Trustee has executed this Certificate solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement. Date of Execution: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: A -2 -5 DOCSOC/ 1423520v6/022459 -0014 Authorized Officer [FORM OF ASSIGNMENT] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (print or typewrite name, address, including postal zip code, and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed NOTICE: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or such other guarantee program acceptable to the Trustee. DOCSOC/ 1423520x6/022459 -0014 NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. i i EXHIBIT B -1 f j FORM OF WRITTEN DELIVERY COST REQUISITION Trustee, as Trustee RE: Disbursement from the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City of Newport Beach Certificates of Participation, 2010A and 2010B (Civic Center Project), dated as of November 1, 2010 (the "Agreement"), by and among you, as trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") REQUISITION NO. You are hereby instructed to pay to the City, or to at $ as a Delivery Cost from the Project Fund as provided in Section 3.03 of the Agreement. This Delivery Cost has been properly incurred, is a proper charge against the Project Fund and has not been the basis of any previous disbursements. The amount remaining in the Project Fund, together with interest earnings on the Project Fund plus investment earnings on other funds that will be transferred into the Project Fund, will, after payment of the amount set forth in this requisition, be sufficient to pay all remaining Delivery Costs and Project Costs as presently estimated. Very truly yours, City Representative B -1 -1 DOCSOC/ 1423520v6/022459 -0014 Im►�:11lYllba FORM OF WRITTEN PROJECT COST REQUISITION Trustee, as Trustee RE: Disbursement from the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City of Newport Beach Certificates of Participation, 2010A and 2010B (Civic Center Project), dated as of November 1, 2010 (the "Agreement'), by and among you as trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") REQUISITION NO. You are hereby instructed to pay to the City, or to at $ as a Project Cost from the Project Fund as provided in Section 3.03 of the Agreement. This Project Cost has been properly incurred, is a proper charge against the Project Fund and has not been the basis of any previous disbursements. The amount remaining in the Project Fund, together with other moneys available to the City and together with interest earnings on the Project Fund plus investment earnings on other funds that will be transferred into the Project Fund, will, after payment of the amount set forth in this requisition, be sufficient to pay all remaining Delivery Costs and Project Costs as presently estimated. Very truly yours, City Representative B -2 -1 DOCSOC/ 1423520x6/022459 -0014 Agency Agreement Stradling Yocca Carlson & Rauth Draft of 10/27/10 AGENCY AGREEMENT by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION and CITY OF NEWPORT BEACH Relating to CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Dated as of November 1, 2010 DOCSOC/1423567v4/022459 -0014 AGENCY AGREEMENT THIS AGENCY AGREEMENT (the "Agency Agreement "), dated as of November 1, 2010, is entered into by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "Corporation "), and the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"); WITNESSETH: WHEREAS, the Corporation and the City have entered into a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the Corporation has leased to the City certain real property and the existing improvements thereon (the "Leased Premises ") in connection with the execution and delivery of the $ City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the $ City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "); and WHEREAS, the Corporation desires to appoint the City as its agent for the purposes of the acquisition, construction, delivery and installation of the improvements to be constructed with the proceeds of the Certificates (collectively, the "Project "); and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Agency Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Agency Agreement; NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: Section 1. City to Act as Agent for the Comoration. The Corporation hereby appoints the City as its agent in connection with the acquisition, construction, delivery and installation of the Project. The City, as the agent of the Corporation for the foregoing purpose, shall cause the acquisition, construction, delivery and installation of the Project to be completed on or before the dates set forth in Section 3 of this Agency Agreement and otherwise in accordance with the Lease and all other laws applicable to the Project. The appointment by the Corporation of the City as its agent as provided in this Section and the acceptance by the City of such appointment results in the assumption by the City of duties, responsibilities and liabilities which are separate and apart from its duties, responsibilities and liabilities under the Lease, and such assignment does not include or transfer to the City any of the rights of the Corporation under the Lease which have been assigned by the Corporation to the Trustee pursuant to the Assignment Agreement. It is recognized by the parties that the Corporation has appointed the City for the purposes specified in this Agency Agreement, rather than appoint DOCSOC/1423567v4/022459 -0014 another firm or entity for said purposes, based upon the Corporation's and the City's determination that the City is suitable to perform the duties, responsibilities and liabilities delegated to and assumed by it pursuant to this Agreement due to the expertise, knowledge and ability of the City's personnel with respect to similar undertakings. Section 2. Acceptance. The City, for one dollar ($1.00) and other good and valuable consideration in hand received, does hereby accept the foregoing appointment as agent of the Corporation for the purposes set forth in Section 1 hereof. Section 3. Time of Completion. The construction and equipping of the Project shall be completed on or prior to [December 1, 2013]. Each construction contractor hired by the City shall be required to provide payment and performance bonds in amounts equal to the maximum price under its contract. Section 4. Construction and Acquisition of the Project. The City agrees to oversee the construction, acquisition, delivery and installation of the Project in accordance with the following terms: (a) Construction and Completion. The City agrees to proceed with all due diligence to complete the construction, acquisition, delivery and installation of the Project. The City shall comply with all statutes and laws applicable to the performance of its obligations hereunder, including all public laws applicable thereto and all laws regarding the approval, acquisition and construction of public projects by cities in the State of California. The City shall make certain that each contract relating to the Project is awarded in accordance with applicable law and contains a scheduled completion date which requires completion on or before the scheduled completion date referred to in Section 3 above; (b) Change Orders. Subject to any other restrictions imposed upon the City, the City may approve any changes to the Project so long as any change does not, and all such changes as a whole do not, (i) substantially alter the nature of the Project, (ii) delay the completion of the Project beyond its scheduled completion date, or (iii) increase the total Project Costs to an amount in excess of the amount in the 2010A Account or the 2010B Account of the Project Fund unless the City has sufficient reserves in an amount equal to such excess or unless there has been deposited with the City a certificate of a City Representative, together with a revised construction budget demonstrating that the total amount on deposit to pay for the Project is adequate to allow the completion of the Project as planned; (c) Payment of Project Costs. Payment of the portion of the Project Costs being financed by the City shall be made from moneys deposited in the 2010A Certificates Account or in the 2010B Certificates Account of the Project Fund and from moneys on deposit in certain City reserves, and shall be disbursed for such purpose in accordance and upon compliance with the Trust Agreement. Neither the Corporation nor the City shall be liable for the payment of Costs of the Project other than from amounts on deposit in the 2010A Certificates Account or the 2010B Certificates Account of the Project Fund; (d) Unexpended Monies. The City agrees that unexpended moneys remaining in the 2010A Certificates Account or in the 2010B Certificates Account of the Project Fund shall, upon DOCSOC/ 1423567v4/022459 -0014 payment in full of all Costs of the Project, be applied solely in accordance with the provisions of the Trust Agreement; and (e) Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Agency Agreement shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Agency Agreement shall be affected thereby, and each provision of this Agency Agreement shall be valid and enforceable to the fullest extent permitted by law. Section 5. Applicable Law. This Agency Agreement shall be governed by and construed in accordance with the laws of the State. Section 6. Representatives. Whenever under the provisions of this Agency Agreement the approval of the Corporation or the City is required, or the Corporation or the City is required to take some action at the request of the other, such approval or such request shall be given for the Corporation by an Authorized Representative of the Corporation and for the City by an Authorized Representative of the City and any party hereto shall be authorized to rely upon any such approval or request. Section 7. Notices. All notices or other communications hereunder shall be sufficiently given and shall be deemed to have been received five days after deposit in the United States mail in registered or certified form, postage prepaid: If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: City Manager If to the Corporation: Newport Beach Public Facilities Corporation c/o City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: President If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attention: Corporate Trust Department The Corporation, the City and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices or other communications will be sent. Section 8. Captions. The captions or headings in this Agency Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provision or section of this Agency Agreement. DOCSOC/ 1423567v4/022459 -0014 Section 9. Execution in Counterpart s. This Agency Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all together shall constitute but one and the same instrument. Section 10. Amendment. The terms of this Agency Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever, except by written instrument signed by the Corporation and the City, with the prior written consent of the Trustee for the Certificates. The City hereby irrevocably appoints the Authorized Representative of the City to act as its attorney -in -fact for purposes of providing the foregoing consent. Section 11. Definitions. Capitalized terms not otherwise defined herein shall have the definitions set forth in the Trust Agreement or the Lease. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK.J 4 DOCSOC/1423567v4/022459 -0014 IN WITNESS WHEREOF, the parties hereto have executed this Agency Agreement as of the day and year first written above. ATTEST: 0 City Clerk CITY OF NEWPORT BEACH LE City Manager NEWPORT BEACH PUBLIC FACILITIES CORPORATION in President ATTEST: Lo Secretary S -1 DOCSOC/ 1423567v4/022459 -0014 APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: M David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: Um , Stradling Yocca Carlson & Rauth, a Professional Corporation S -2 DOCSOC/ 1423567v4/022459 -0014 Preliminary Official Statement Ao aw 7 o � c o G= 0 h � A m w 8 O o c p' - 3 a U m � .c c " 3 �v �y E ° v o o� .. o V ,L r U o � a v F L •- 3 3 a ,o c b r= ro �_ p _T F R O O F .0 o C V � O � U V v u a y w, ° o C y O T y C � m c F � c = i o - .. m ^° S �O _ W T 5 .°o s ° o A O � c q 3 o � a o y v' - o m � h aw $ O m a c o � _ y y U P: o y v F o 7 HD &W LLP — 11 /01 /10 Draft PRELIMINARY OFFICIAL STATEMENT DATED 12010 RATINGS: Moody's: "Aa2" S &P: "AA +" Fitch: "AA-P' See "Ratings" herein. NEW ISSUES - BOOK -ENTRY ONLY In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( "Special Counsel'), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) evidenced by the 2010A Certificates is excluded from gross income for federal income fax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) evidenced by the 2010A Certificates and 2010B Certificates is exempt from State of California personal income tax. See "TAXMATTERS" herein. CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION [City Seal] $[2010A Preliminary Principal Amount]' $[2010B Preliminary Principal Amount]{ 2010A (TAX EXEMPT) 2010B (FEDERALLY TAXABLE DIRECT (CIVIC CENTER PROJECT /CENTRAL PAY BUILD AMERICA BONDS) LIBRARY REFUNDING) (CIVIC CENTER PROJECT) Dated: Date of Delivery Due: July 1, as shown below The City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) in the aggregate principal amount of $[2010A Preliminary Principal Amount] (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $[2010B Preliminary Principal Amount]' (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among the City of Newport Beach (the "City"), the Newport Beach Public Facilities Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee" ). The 2010A Certificates evidence fractional and undivided interests in the right to receive certain lease payments (the "2010A Lease Paymems") to be made by the City pursuant to a Lease/Purchase Agreement, dated as of November 1, 2010, by and between the City and the Corporation, pursuant to which the City will sublease from the Corporation certain real property and all the improvements thereon, as more particularly described herein. The 2010B Certificates evidence fractional and undivided interests in the right to receive certain other lease payments (the "2010B Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to the Lease. See "Security and Sources of Payment for the Certificates - Lease Payments" herein. The proceeds of the 2010A Certificates will be applied to prepay certain outstanding certificates of participation and finance a portion of the costs of the acquisition, improvement and equipping of a new Civic Center (the "Civic Center Project "), as described herein. The proceeds of the 2010B Certificates will be applied to provide additional financing for the Civic Center Project, as described herein. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. See "Plan of Financing" and "Estimated Sources and Uses of Funds" herein. The City has designated the 2010B Certificates as `Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive periodic payments from the United States Treasury equal to 35% of the interest payable on the 20106 Certificates. See "The Certificates - Designation of the 2010B Certificates as Build America Bonds" herein. Interest represented by the Certificates is payable on January I and July 1 of each year, commencing on January 1, 2011. Principal installments due with respect to the Certificates are payable annually on July l of each year commencing July 1, 2011. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only, in denominations of $5,000, or any integral multiple thereof. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in tam distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D - "Book -Entry System" attached hereto. The Certificates are subject to prepayment, as described herein. See "The Certificates - Optional Prepayment" and "Me Certificates - Mandatory Prepayment" herein. Preliminary, subject to change. 786877.14 034288 OS MATURITY SCHEDULE (See inside cover) THE CITY IS OBLIGATED TO PAY LEASE PAYMENTS FROM ANY SOURCE OF LEGALLY AVAILABLE FUNDS, AND THE CITY HAS COVENANTED IN THE LEASE TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Certificates will be offered when, as and if executed, delivered, and received by the Underwriters, subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Certain legal matters will be passed upon for the City and the Corporation by David Hunt, City Attorney, and Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, and for the Underwriters by their counsel, Jones Hall, A Professional Law Corporation, San Francisco, California. It is anticipated that the Certificates in definitive form will be available for delivery to DTC in New York, New York, on or about November 30, 2010. Stone & Youngberg De La Rosa & Co. BofA Merrill Lynch Raymond James Dated: November , 2010. 786877.14 034288 OS MATURITY SCHEDULE* $[2010A Preliminary Principal Amount]' CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Maturity Date Principal Interest Price or (July 1) Amount Rate Yield CUSIPt $ % 2010A Tenn Certificates due July 1, 20_ — Priced to Yield: %— CUSIPr: $ % 2010A Tenn Certificates due July 1, 20_ — Priced to Yield: %— CUSIPr: $[2010B Preliminary Principal Amount] CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Maturity Date Principal Interest Price or (July 1) Amount Rate Yield CUSIPr $ % 2010B Term Certificates due July 1, 20_ —Priced to Yield: %— CUSIPr: $ % 2010B Term Certificates due July 1, 20 — Priced to Yield: % — CUSIPt: ` Preliminary, subject to change. t Copyright, American Bankers Association. CUSIP data is provided by Standard & Poor's CUSIP Service Bureau, a Division of the McGraw -Hill Companies, Inc., and is set forth herein for convenience of reference only. The City, the Corporation and the Underwriter do not assume responsibility for the accuracy of such data. 786877.14 034288 OS CITY OF NEWPORT BEACH ORANGE COUNTY, CALIFORNIA MAYOR AND CITY COUNCIL Keith D. Curry, Mayor, District 7 Michael F. Henn, Mayor Pro Tem, District 1 Steven Rosansky, Council Member, District 2 Don Webb, Council Member, District 3 Leslie Daigle, Council Member, District 4 Edward D. Selich, Council Member, District 5 Nancy Gardner, Council Member, District 6 CITY STAFF Dave Kiff, City Manager David R. Hunt, City Attorney Leilani I. Brown, City Clerk Tracy McCraner, Director of Administrative Services/Treasurer Dan Matusiewiz, Deputy Director of Administrative Services/Treasurer Stephen Badum, Public Works Director David Webb, City Engineer NEWPORT BEACH PUBLIC FACILITIES CORPORATION Board of Directors Keith D. Curry, Chairman Michael F. Henn, Vice Chairman Leslie Daigle Nancy Gardner Steven Rosansky Edward D. Selich Don Webb Dave Kiff, Secretary Tracy McCraner, [Treasurer] Special Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Disclosure Counsel Hawkins Delafield & Wood LLP Los Angeles, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Trustee The Bank of New York Mellon Trust Company, N.A. Los Angeles, California 786877.14 034288 OS No dealer, broker, salesperson or other person has been authorized by the City or the Corporation to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Corporation. 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 Certificates by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale. This Official Statement is not a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been furnished by the City and by other sources which are believed to be reliable. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, the Corporation or any other parties described herein since the date hereof. All summaries of the Certificates, the Trust Agreement, the Lease, the Site Lease and the Assignment Agreement (each as described herein) and other documents summarized herein, 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. The City maintains a website at http: / /www.newportbeachca.gov. However, the information presented on such website is not part of this Official Statement, is not incorporated by reference herein and should not be relied upon in making an investment decision with respect to the Certificates. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. 786877.14 034288 OS TABLE OF CONTENTS Page INTRODUCTION............................................................................................................. ..............................1 General....................................................................................................................... ............................... l Security and Source of Payment for the Certificates .................................................. ..............................2 TheCity ..................................................................................................................... ............................... 3 TheCertificates ........................................................................................................... ..............................3 TaxMatters ................................................................................................................. ..............................4 ContinuingDisclosure ................................................................................................ ..............................4 Forward - Looking Statements ...................................................................................... ..............................4 Miscellaneous............................................................................................................. ..............................4 THE LEASED PREMISES ............................................................................................... ..............................5 PLANOF FINANCING .................................................................................................... ..............................7 General....................................................................................................................... ............................... 7 TheCivic Center Project ............................................................................................. ..............................7 Prepayment of the 1998 Certificates ........................................................................... ..............................8 ESTIMATED SOURCES AND USES OF FUNDS ......................................................... ..............................9 THECERTIFICATES ...................................................................................................... ............................... 9 General....................................................................................................................... ............................... 9 Designation of the 201013 Certificates as `Build America Bonds" ............................ ..............................9 Book -Entry System .................................................................................................... .............................10 OptionalPrepayment ................................................................................................. .............................10 MandatoryPrepayment .............................................................................................. .............................12 Selection of Certificates for Prepayment ................................................................... .............................13 Partial Prepayment of Certificates ............................................................................. .............................14 Noticeof Prepayment ................................................................................................ .............................14 SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT ................. .............................15 Pledgeand Security .................................................................................................... .............................15 Pledge of Refundable Credits to 2010B Certificates ................................................. .............................16 Assignment of Lease; Sublease of Leased Premises .................................................. .............................17 LeasePayments .......................................................................................................... .............................17 NoReserve Fund ........................................................................................................ .............................18 Insurance.................................................................................................................... .............................18 Abatement.................................................................................................................. .............................19 Substitution or Release of the Leased Premises ......................................................... .............................19 AdditionalCertificates ............................................................................................... .............................19 Remedieson Default .................................................................................................. .............................20 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS........................................................................................................ .............................21 ArticleXIII A ........................................................................................................... ............................... 21 ArticleXIII B ............................................................................................................. .............................22 Proposition46 ............................................................................................................ .............................23 Proposition62 ............................................................................................................ .............................23 Proposition218 .......................................................................................................... .............................24 PropositionlA ........................................................................................................... .............................26 FutureInitiatives ........................................................................................................ .............................26 RISKFACTORS ............................................................................................................ ............................... 27 Nota Pledge of Taxes ................................................................................................ .............................27 Additional Obligations of the City ............................................................................. .............................27 (i) 786877.14 034288 OS Default; Remedies Upon Default ............................................................................... .............................28 Limitationson Remedies ........................................................................................... .............................29 Abatement................................................................................................................ ............................... 29 Risk of Nonpayment of Refundable Credits .............................................................. .............................30 SeismicEvents ........................................................................................................... .............................30 THECORPORATION ................................................................................................... ............................... 30 TAXMATTERS ............................................................................................................ ............................... 31 CERTAINLEGAL MATTERS ....................................................................................... .............................34 FINANCIAL STATEMENTS .......................................................................................... .............................34 LITIGATION................................................................................................................... .............................34 UNDERWRITING......................................................................................................... ............................... 35 FINANCIAL ADVISOR .................................................................................................. .............................35 CONTINUINGDISCLOSURE ..................................................................................... ............................... 35 RATINGS....................................................................................................................... ............................... 35 MISCELLANEOUS....................................................................................................... ............................... 36 APPENDICES APPENDIX A CITY OF NEWPORT BEACH FINANCIAL INFORMATION AND REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMAITON..... APPENDIX B CITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDEE JUNE30, 2009 ............................................................ ............................... APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ............................ APPENDIX D BOOK -ENTRY SYSTEM .......................................... ............................... APPENDIX E FORM OF SPECIAL COUNSEL OPINION ............. ............................... APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT ..................... ............... A -1 ............................ B-1 ............................ C -1 ........................... D -1 ............................ E -I ............................ F -1 786877.14 034288 OS CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION $[2010A Preliminary Principal Amount] $[2010B Preliminary Principal Amount] 2010A (TAX EXEMPT) 2010B (FEDERALLY TAXABLE DIRECT PAY (CIVIC CENTER PROJECT /CENTRAL BUILD AMERICA BONDS) LIBRARY REFUNDING) (CIVIC CENTER PROJECT) INTRODUCTION This introduction contains only a brief summary of certain terms of the Certificates being offered, and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of provisions of the Constitution and laws of the State of California and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Trust Agreement and the Lease (herein defined). See Appendix C — "Summary of Principal Legal Documents — Definitions" attached hereto. General This Official Statement, including the cover page, the inside cover page and the Appendices attached hereto (the "Official Statement'), provides certain information concerning the sale and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) in the aggregate principal amount of $[2010A Preliminary Principal Amount]k (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $[2010B Preliminary Principal Amount]* (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among the City of Newport Beach (the "City "), the Newport Beach Public Facilities Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). The proceeds of the 2010A Certificates will be applied to prepay the outstanding City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), and finance a portion of the costs of the acquisition, improvement and equipping of a new Civic Center (the "Civic Center Project'), as described herein. The proceeds of the 201 OB Certificates will be applied to provide additional financing for the Civic Center Project, as described herein. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. See "Plan of Financing" and "Estimated Sources and Uses of Funds" herein. In connection with the prepayment of the 1998 Certificates and the financing of the Civic Center Project, the City will lease certain real property and all improvements thereon, as more particularly described herein (the "Leased Premises "), to the Corporation pursuant to a Site Lease, dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Corporation. The City will sublease the Leased Premises from the Corporation pursuant to a Lease/Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Corporation. The 2010A Certificates evidence the ' Preliminary, subject to change. 786877.14 034288 OS right to receive certain fractional and undivided interests in the right to receive certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. The 201013 Certificates evidence fractional and undivided interests in the right to receive certain other lease payments (the "201013 Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. Security and Source of Payment for the Certificates Under the Lease, in consideration for the use and occupancy of the Leased Premises, the City has agreed to make certain payments designated as Lease Payments and certain other payments designated as Prepayments with respect to the Leased Premises (the "Prepayments "), in the amounts, at the times and in the manner set forth in the Lease. Lease Payments are scheduled to be sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. The City has covenanted in the Lease to take such action as may be necessary to include all Lease Payments and such amounts as shall be required for the payment of all administrative costs and charges (the "Additional Payments ") (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. Pursuant to an Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Trustee and the Corporation, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates all of the Corporation's rights, title, and interest under the Site Lease and all of the Corporation's rights, title and interest under the Lease (excepting only the Corporation's rights to indemnity, the payment of its fees and expenses and certain consents and approvals), including the right to receive Lease Payments, Prepayments and Additional Payments from the City under the Lease or the Trust Agreement, as applicable. See Appendix C — "Summary of Principal Legal Documents" attached hereto. THE CITY IS OBLIGATED TO PAY LEASE PAYMENTS FROM ANY SOURCE OF LEGALLY AVAILABLE FUNDS, AND THE CITY HAS COVENANTED IN THE LEASE TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The City's obligation to pay Lease Payments is, however, subject to abatement in the event of damage, destruction, condemnation or title defect that causes a substantial interference with the use and possession of all or a portion of the Leased Premises by the City. During periods of abatement, the City shall remain obligated to make Lease Payments and Additional Payments under the Lease, as an obligation of the City payable from a special fund, (i) to the extent that moneys derived from any person as a result of 786877.14 034288 OS any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. See "Security and Sources of Payment for the Certificates — Lease Payments" and "— Abatement" herein. The City The City was incorporated under the general laws of the State on September 1, 1906. The City is located in the coastal center of the County of Orange (the "County "), approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. As of 2010, the City had a permanent population of 86,738, which typically grows to over 100,000 during the summer months, including 20,000 to 100,000 tourists daily. The City's adopted budget for Fiscal Year 2010 -11 (the "Fiscal Year 2010 -I1 Adopted Budget ") is approximately $226.7 million, approximately $149.3 million of which relates to the City's General Fund. See Appendix A — "City of Newport Beach Financial Information and Regional Economic and Demographic Information" and Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached hereto. The Certificates The Certificates will be executed and delivered in the form of fully registered certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be dated their date of delivery (the "Delivery Date ") and mature on the dates set forth on the inside cover page hereof. The interest represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and 2010B Lease Payments, respectively, designated as interest components coming due on the Interest Payment Dates in each year (each an "Interest Component "). The principal represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and the 2010B Lease Payments, respectively, designated as principal components coming due on the applicable Interest Payment Dates in each year (each a "Principal Component "). Interest represented by the Certificates is payable on January 1 and July 1 of each year, commencing on January 1, 2011 (each, an "Interest Payment Date "). The City has designated the 2010B Certificates as `Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive periodic payments ( "Refundable Credits ") from the United States Treasury equal to 35% of the interest payable on the 2010B Certificates. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D — "Book -Entry System" attached hereto. The Certificates are subject to prepayment, as described herein. See "The Certificates — Optional Prepayment" and "The Certificates — Mandatory Prepayment" herein. 786877.14 034288 OS Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( "Special Counsel "), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) evidenced by the 2010A Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) evidenced by the 2010A Certificates and 2010B Certificates is exempt from State of California personal income tax. See "TAX MATTERS" herein. Continuing Disclosure The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System (the "Repository") for purposes of Rule 15c2- 12(b)(5) (the "Rule ") adopted by the Securities and Exchange Commission certain annual financial information and operating data and, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriters in complying with the Rule. See "Continuing Disclosure" herein for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement pursuant to which such reports are to be made. The City has complied in all material respects in the last five years with each of its previous undertakings with regard to the Rule to provide annual reports and notices of material events. Forward - Looking Statements Certain statements included or incorporated by reference in the Official Statement constitute "forward- looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. The achievement of certain results or other expectations contained in such forward - looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. Although such expectations reflected in such forward - looking statements are believed to be reasonable, there can be no assurance that such expectations will prove to be correct. Neither the City nor the Corporation is obligated to issue any updates or revisions to the forward - looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur, whether or not they prove to be correct. Miscellaneous The Certificates will be offered when, as and if issued, and received by the Underwriters, subject to the approval as to their legality by Special Counsel and certain other conditions. The description herein of the Trust Agreement, the Site Lease, the Lease and the Assignment Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and the information with respect thereto included in the aforementioned documents. See Appendix C — "Summary of Principal Legal Documents" attached hereto. Copies of the documents are on file and available for inspection at the Corporate Trust Office of the Trustee at The Bank of New York Mellon Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017. 786877.14 034288 OS The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Corporation since the date hereof. THE LEASED PREMISES Pursuant to the Site Lease, the City will lease to the Corporation the Leased Premises. Pursuant to the Lease, the Corporation will lease the Leased Premises back to the City, and the City will make Lease Payments in consideration for the use and occupancy of the Leased Premises. The Leased Premises will initially consist of 10 separate properties with an estimated aggregate value of $_ million. Each of these Leased Premises is described below: Newport Coast Community Center. The Newport Coast Community Center (the "Community Center ") is a 16,865 square -foot facility located at 6401 San Joaquin Hills Road in Newport Coast. The Community Center includes two conference rooms, a banquet room, warming kitchen, gymnasium, library book drop, indoor /outdoor stage and large outdoor patio, and is situated on 133,548 square feet of land. Constructed in 2007, the Community Center is valued at approximately $17.6 million. OASIS Senior Center. The OASIS Senior Center (the "Senior Center ") consists of three single - story buildings connected by covered walkways. The wood framed, 36,467 square -foot facility is located at 800 Marguerite Avenue in Corona Del Mar, at the intersection of Marguerite Avenue and Fifth Avenue, on 169,884 square feet of land. This state -of -the -art facility was designed by Robert R. Coffee, Architect & Associates of Newport Beach and will house educational classrooms, art and crafts programs, health and fitness activities, social and assembly functions, and administrative offices. The Senior Center also includes meeting and services rooms, family rooms, a library, a computer room, an activities/banquet hall, walkways through the outdoor areas, various active and passive park amenities and a parking area. The Senior Center is valued at approximately $29.8 million. Central Library. The Central Library (the "Central Library") is a two -story, 50,930 square -foot facility located at 1000 Avocado Avenue in Newport Beach, near the intersection of MacArthur Boulevard and Pacific Coast Highway, on 174,240 square feet of land (the "Central Library Site "). The Central Library was designed by Simon Martin -Vegue Winkelstein Moris of San Francisco in association with James L. Pirdy of Newport Beach and includes a children's room, a young adult area, a public meeting room and exhibit space for highlighting works of community artists. The Central Library houses current books, magazines, newspapers, sound and video recordings and various reference collections. The Central Library was constructed in 1997 with proceeds of the 1998 Certificates, all of which will be prepaid with a portion of the proceeds of the 2010A Certificates, as further described below. See "Plan of Financing — Prepayment of the 1998 Certificates" herein. The Central Library is valued at approximately $28.7 million, prior to the improvements to be financed with a portion of the proceeds of the Certificates. See "Plan of Financing - The Civic Center Project" herein. Mariners Library. The Donna and John Crean Mariners Branch Library (the "Mariners Library") is a one -story, 15,305 square -foot linear design built facility located at 1300 Irvine Avenue in Newport Beach on 64,355 square feet of land. The Mariners Library was designed by Thirtieth Street Architects of Newport Beach and serves as a public library for local residents and the school library for Mariners Elementary School. The Mariners Library features high ceilings and many windows to allow natural lighting in the main reading areas, which look out on Mariners Park. Highlights of the Mariners Library include the Friends Children's Room, the Teen Corner, separate computer centers for adults, teens, and children, self -serve checkout machines as well as a fully- staffed customer service desk, wireless Internet access throughout facility, and the Vincent Jorgensen Room, with a student study center for after - school 786877.14 034288 OS and community programs. Constructed in 2006, the Mariners Library is valued at approximately $10.1 million. Fire Station 3. Fashion Island Fire Station 3 ( "Fire Station 3 ") is a 13,605 square -foot facility located at 868 Santa Barbara Drive in Newport Beach. Fire Station 3 is a two -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room, a conference room, a communications room and dormitories on 49,380 square feet of land. Constructed in 1971, Fire Station 3 is valued at approximately $8.1 million. Fire Station 4. Balboa Island Fire Station 4 ( "Fire Station 4 ") is a 4,400 square -foot facility located at 124 Marine Avenue in Newport Beach. Fire Station 4 is a two -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room and a dormitory on 4,482 square feet of land. Constructed in 1994, Fire Station 4 is valued at approximately $3.9 million. Fire Station 7. Santa Ana Heights Fire Station 7 ( "Fire Station 7 ") is an 11,027 square -foot facility located at 20401 Acacia Avenue in Newport Beach. Fire Station 7 is primarily a single -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room, dormitories and a training room on 91,912 square feet of land. Constructed in 2007, Fire Station 7 is valued at approximately $11.3 million. Fire Station 8. Newport Coast Fire Station 8 ( "Fire Station 8 ") is a 6,975 square -foot facility located at 6502 Ridge Park Road in Newport Beach. Fire Station 8 is a single -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room and a dormitory on 47,350 square feet of land. Constructed in 1995, Fire Station 8 is valued at approximately $5.5 million. Police Station. The Newport Beach Police Station (the "Police Station ") is a 47,964 square -foot facility located at 870 Santa Barbara Drive in Newport Beach, at the intersection of Jamboree Road and Santa Barbara Drive, on 118,152 square feet of land. The Police Station houses the Newport Beach Police Department and includes conference rooms, meeting and interrogation rooms, a training room, a kitchen, offices, a reference room, evidence and property rooms, a communications center, a command center, holding cells, a juvenile detention area, a fitness center, a shop a garage, an on -site fueling station and a roof -top helipad. Constructed in 1973, the Police Station is valued at approximately $19.4 million. Civic Center Site. The site for the Civic Center Project is located at in Newport Beach and consists of square feet of land. The Civic Center Site is valued at approximately $ million. See "Plan of Financing — The Civic Center Project" herein for a description of the improvements to be financed with a portion of the proceeds of the Certificates. Upon completion of the Civic Center Project, the City expects to exercise its option to release the Community Center, the Senior Center, the Mariners Library, Fire Station 3, Fire Station 4, Fire Station 7, Fire Station 8 and the Police Station from the lien of the Lease such that only Civic Center Project (consisting of the Central Library and the Civic Center Site, each as improved as described under "Plan of Financing — The Civic Center Project ") will constitute the Leased Premises See "Plan of Financing — The Civic Center Project" herein. The City is permitted to substitute other real property for all or a part of the Leased Premises upon compliance with all of the conditions set forth in the Lease and the Trust Agreement. See Appendix C — "Summary of Principal Legal Documents — The Lease — Substitution or Release of the Leased Premises" attached hereto. 786877.14 034288 OS PLAN OF FINANCING General The 2010A Certificates are being executed and delivered to prepay the 1998 Certificates currently outstanding in the principal amount of $3,990,000 and finance the acquisition, improvement and equipping of the Civic Center Project. The 2010B Certificates are being executed and delivered to provide additional financing for Civic Center Project. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. The Civic Center Project Project Components. The Civic Center Project consists of the design, construction and development or expansion of various public buildings and spaces on two parcels inland of the Newport Beach Central Library and bordered by Avocado Avenue and MacArthur Boulevard. In particular, the Civic Center Project includes: • Design and development of the City's fifth largest park on 16 -acres of land, which will include a dog park, a civic lawn for outdoor events, places for art, a restored wetlands, 1.23 miles of walking and viewing trails, a belvedere and other view opportunities, and restrooms. • Design and expansion of the Central Library by 17,000 square feet and effectively linking the Central Library and Civic Center. The expansion of the Central Library will include improvements to the children's programs room, reading rooms, a sound and video room, expansion of the restrooms and the addition of a cafd and credit union. • Design and construction 450 -space parking structure to accommodate up to 350 cars associated with the City office building and 100 cars associated with use for the Central Library. • Design and construction of an emergency readiness center to serve as the permanent home of the City's emergency response team. • Design and construction of a new community room that seats up to 150 persons and opens to an outside covered area. This new community room will be made available for lectures, arts programs, and other community events. • Design and construction of new City Council Chambers that seat up to 150 persons and double as community meeting space when not being used by the City Council or its commissions. • Design and construction of a new City office building that will house approximately 240 employees who work at City Hall and include a large "One Stop Shop" to improve customer service for persons seeking parking permits or getting planning or building approvals. The office building will replace the "old" City Hall, now located at 3300 Newport Boulevard on the Balboa Peninsula. The City Charter has been amended to direct that City Hall be moved to the location at 1100 Avocado Avenue. The City Council is exploring potential uses for the "old" City Hall site. 786877.14 034288 OS • If construction costs permit, design and construction of a pedestrian bridge that would allow walkers to safely cross over San Miguel Avenue without impacting vehicular traffic. The City will seek to attain at least a Leadership in Energy and Environmental Design Silver designation for the Civic Center Project. To attain such designation, design of the Civic Center Project must include passive heating and cooling systems in the City office building, including a raised floor system and advanced lighting technologies, California - friendly landscaping in the main portion of the park, adjacent transit facilities and other means to increase the number of City workers who carpool, bike to work, or use alternative fuel vehicles and a building orientation that maximizes the ability for natural ventilation and natural light. Project Schedule. Design development has been completed. Construction documentation, site excavation and mass grading of over 280,000 cubic yards of dirt began in spring of 2010 and are expected to be completed by late 2010. The extensive earth removal is intended to assure that the parking structure and City office building stay below an approved "view plane" that protects the public's view of the harbor and ocean from MacArthur Boulevard. Construction of the parking structure is scheduled to begin in late 2010 and conclude by fall of 2011. Bidding and contact award for the park and building construction is expected to occur in late 2010, with construction scheduled to commence in early 2011 and project completion, park opening and City office building occupation scheduled for late 2012. Project Professionals. The City's design and engineering team will consist of Bohlin Cywinski Jackson, an architecture, planning and interior design firm, Peter Walker & Partners, landscape architects, and Arup, a firm of designers, planners, engineers, consultants and technical specialists. The City retained C.W. Driver to serve as the City's construction manager and LSA Associates to complete the environmental work for the Civic Center Project. Prepayment of the 1998 Certificates The 1998 Certificates were executed and delivered to prepay the City of Newport Beach Certificates of Participation, Series 1992, the proceeds of which were applied to the acquisition and construction of the Central Library. The City has deposited moneys into the Escrow Fund established under the Escrow Agreement, dated as of October 29, 2010 (the "Escrow Agreement "), by and between the City and U.S. Bank National Association (the "Escrow Agent "), as escrow agent thereunder in an amount, together with other moneys on deposit in the funds and accounts for the 1998 Certificates, is sufficient to prepay the 1998 Certificates on December 1, 2010 (the "Prepayment Date") at the prepayment price of 100% (expressed as a percentage of the principal amount to be prepaid), plus accrued interest thereon to the Prepayment Date. Accordingly, the 1998 Certificates have been defeased pursuant to the defeasance provisions of the 1998 Trust Agreement. Upon execution and delivery of the 2010A Certificates and in accordance with the provisions of the Escrow Agreement, the City will replace $3,525,828 of the amounts heretofore deposited in the Escrow Fund with $3,525,828 of the proceeds of the 2010A Certificates and cause such proceeds to be used to defease the 1998 Certificates on the Prepayment Date. 8 786877.14 034288 OS ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Certificates, together with other moneys available therefor, are expected to be applied approximately as follows: Sources: Principal Amount of Certificates Original Issue Premium Total Sources Uses: Project Fund Escrow Fund Costs of Issuanceltl Total Uses 2010A Certificates 2010B Certificates Includes underwriting discount, rating agencies fees, financial advisor fees and expenses, title insurance fees, legal fees and expenses, trustee fees and expenses, printing costs and other costs of issuance. THE CERTIFICATES General The Certificates will be dated their Delivery Date and principal with respect to the Certificates will be payable on the dates set forth on the inside cover page of this Official Statement. The interest represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and 2010B Lease Payments, respectively, designated as the Interest Components coming due on the Interest Payment Dates in each year. The principal represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and the 2010B Lease Payments, respectively, designated as Principal Components coming due on the applicable Interest Payment Dates in each year. Interest with respect to the Certificates will be payable semiannually on each January 1 and July 1 of each year, commencing on January 1, 2011 and will be calculated on the basis of a 360 -day year of twelve 30 -day months. Each Certificate shall bear interest from the Interest Payment Date next preceding the date of execution thereof, unless (i) it is executed during the period from the day after the "Record Date" (being the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day) for an Interest Payment Date to and including such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is executed on or prior to the Record Date for the first Interest Payment Date, in which event interest shall be payable from the Delivery Date; provided, however, that if, at the time of execution of any Certificate interest with respect to such Certificate is in default, such Certificate shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Certificate. Designation of the 2010B Certificates as "Build America Bonds" The City has designated the 2010B Certificates as `Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive Refundable Credits from the United States Treasury 786877.14 034288 OS equal to 35% of the interest payable on the 2010B Certificates. Pursuant to the Lease, all of the Refundable Credits received by the City are to be deposited to the 2010B Account of the Lease Payment Fund as a credit against the City's obligation to pay the Interest Component of the 2010B Lease Payments, and are pledged to the payment of the 2010B Certificates. The City is obligated to pay 2010B Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor, which applies regardless of receipt of the Refundable Credits. Book -Entry System The Certificates will be executed and delivered in the form of fully registered certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be delivered in fully registered form only, and, when issued, will be registered in the name of Cede & Co., as nominee of DTC, which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D — "Book -Entry System" attached hereto. Optional Prepayment* Optional Prepayment. The 2010A Certificates maturing on or after are subject to prepayment prior to maturity in whole or in part on any date on or after at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the 2010A Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. The 2010B Certificates maturing on or after July 1, 20 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 20_, at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the 2010B Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. In the event the City gives notice to the Trustee of its intention to exercise such optional prepayment, but fails to deposit with the Trustee on or prior to the prepayment date an amount equal to the prepayment price, the City is obligated to continue to pay the Lease Payments as if no such notice had been given. Extraordinary Optional Prepayment of 2010E Certificates. The 2010B Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event, as a whole or in part, on any date, and in the event the City exercises its option under the Lease to prepay the 201013 Lease Payments at the Extraordinary Optional Prepayment Price. "Extraordinary Event" means (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect Preliminary, subject to obange. 10 786877.14 034288 OS to such Sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the tax certificate for the 2010B Certificates, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. "Extraordinary Optional Prepayment Price" means the greater of (1) 100% of the Principal Component of the 2010B Lease Payments evidenced by the 2010B Certificates to be prepaid; or (2) the sum of the present value of the remaining scheduled payments of Principal Components and Interest Components of 2010B Lease Payments to be prepaid, not including any portion of those payments of interest accrued and unpaid as of the date on which the 2010B Lease Payments are to be prepaid, discounted to the date on which the 2010B Lease Payments are to be prepaid on a semi - annual basis, assuming a 360 -day year consisting of twelve 30 -day months, at the Treasury Rate, plus 100 basis points; plus, in each case, accrued interest evidenced by the 2010B Lease Payments to be prepaid on the prepayment date. Optional Prepayment of 2010B Certificates with Make -Whole Payment. Before 20 , the 2010B Certificates will be subject to prepayment prior to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the Make -Whole Prepayment Price. "Make -Whole Prepayment Price" means the greater of (1) 100% of the Principal Component of the 2010B Lease Payments evidenced by 2010B Certificates to be prepaid or (2) the sum of the present value of the remaining scheduled payments of Principal Component and Interest Component of the 2010B Lease Payments to be prepaid, not including any portion of those payments of interest accrued and unpaid as of the date on which the 2010B Lease Payments are to be prepaid, discounted to the date on which the 2010B Lease Payments are to be prepaid on a semi - annual basis, assuming a 360 -day year consisting of twelve 30- day months, at the Treasury Rate plus 100 basis points, plus, in each case, accrued and unpaid interest on the 2010B Lease Payments to be prepaid on the prepayment date. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Comparable Treasury Issue" means, with respect to any prepayment date for a particular 2010B Certificate evidencing a 2010B Lease Payment, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid. "Comparable Treasury Price" means, with respect to any prepayment date for a particular 2010B Lease Payment: (i) the most recent yield data for the applicable U.S. Treasury maturity index from the Federal Reserve Statistical Release H.15 Daily Update (or any comparable or successor publication) reported, as of 11:00 a.m., New York City time, on the valuation date; or (ii) if the yield described in (i) above is not reported as of such time or the yield reported as of such time is not ascertainable, the average 11 786877.14 034288 OS of four Reference Treasury Dealer Quotations for that prepayment date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or if the Designated Investment Banker obtains fewer than four Reference Treasury Dealer Quotations, the average of all quotations obtained by the Designated Investment Banker. "Designated Investment Banker" means one of the Reference Treasury Dealers appointed by the City. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010B Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. "Reference Treasury Dealer" means any firm, specified by the City from time to time, that is a primary United States Government securities dealer in the City of New York (a "Primary Treasury Dealer "); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. Mandatory Prepayment Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof (the "Net Proceeds "), which the Trustee shall deposit in the Prepayment Fund at least 45 days prior to the date fixed for prepayment and credited towards the prepayment made by the City pursuant to the Lease, at a prepayment price equal to the principal amount thereof together with accrued interest to the date fixed for prepayment, without premium. Mandatory Sinking Account Payment. The 2010A Certificates maturing July 1, 20 (the "20_ Term 2010A Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20_ Term 2010A Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20_ Term 2010A Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term 2010A Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Preliminary, subject to change. 12 786877.14 034288 OS Mandatory Prepayment Date Sinking (July 1) Account Payment Final Maturity The 2010B Certificates maturing July 1, 20 (the "20 Term 2010B Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20_ Term 2010B Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20_ Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Date Sinking (July 1) Account Payment Final Maturity If prior to one of the mandatory prepayment dates specified above the City purchases any 20 Term 2010A Certificates or 20_ Term 2010B Certificates, then at least 45 days prior to the prepayment date the City shall notify the Trustee as to the principal amount purchased, and the amount of Certificates so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce the upcoming sinking account payment for the applicable maturity of the Certificates so purchased. Selection of Certificates for Prepayment If less than all of the 2010 Certificates are prepaid, the Trustee shall select the 2010 Certificates to be prepaid from all Certificates not previously called for prepayment (a) with respect to any extraordinary prepayment, among maturities of all 2010 Certificates and Additional Certificates on a pro rata basis as nearly as practicable, (b) with respect to any optional prepayment of 2010 Certificates, among maturities as directed by the City, (c) with respect to 2010A Certificates with the same maturity, by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair, and (d) with respect to 2010B Certificates with the same maturity, (i) if the 2010B Certificates are not book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid among the Owners of such 2010B Certificates on a pro rata basis as nearly as practicable, and (ii) if the 2010B Certificates are book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid on a pro rata pass - through distribution of principal basis in accordance with DTC procedures, provided that, so long as the 2010E Certificates are held in book -entry form, the selection for prepayment of such 2010B Certificates shall be made in accordance with the operational arrangements of DTC then in effect, and, if the DTC operational arrangements do not allow for prepayment on a pro rata pass - through distribution of principal basis, the 2010B Certificates will be selected for prepayment, in accordance with DTC procedures, by lot. 13 786877.14 034288 OS It is the City's intent that the redemption allocations described herein with respect to the 2010B Certificates be made on a pro rata pass - through distribution of principal basis. However, the City can provide no assurance that DTC, the DTC Participants or any other intermediaries will allocate redemptions among Beneficial Owners on such basis. See Appendix D — "Book -Entry System" attached hereto. Partial Prepayment of Certificates Upon surrender by the Owner of a Certificate for partial prepayment at the principal office of the Trustee, payment of such partial prepayment of the principal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal in principal amount to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment shall be valid upon payment of the amount required to be paid to such Owner, and the City, the Corporation and the Trustee shall be released and discharged from all liability to the extent of such payment. Notice of Prepayment When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstanding Certificates of a maturity are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, and (f) the original date of execution and delivery of the Certificates. Such notice shall further state that on the specified date there shall become due and payable upon each Certificate to be prepaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto shall cease to accrue and be payable. Such notice may specify that the prepayment of the Certificates to be prepaid is conditioned upon the timely receipt of funds required for such prepayment. Notice of such prepayment shall be sent by first class mail or delivery service postage prepaid, or by telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class mail, postage prepaid, to the Corporation and the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Notice having been given to the Owners of the Certificates as set forth above, and the moneys for the prepayment (including, the interest to the applicable date of prepayment), having, been set aside in the Prepayment Fund, the Certificates shall become due and payable on said date of prepayment, and, upon presentation and surrender thereof at the Principal Office, said Certificates shall be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to said date of prepayment. If, on the date of a prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as set forth above, then, from and after said date of prepayment, interest with respect to the Certificates to be prepaid shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of the Trust Agreement shall be cancelled upon surrender thereof and destroyed. 14 786877.14 034288 OS SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT Pledge and Security Pursuant to the Trust Agreement, the Corporation and the City grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposess specified in the Trust Agreement and in the Lease. Only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. Only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 201013 Account of the Prepayment Fund. Pursuant to the Trust Agreement, the 2010A Lease Payments and the 2010B Lease Payments are irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010A Certificates and 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement), respectively. Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to the Lease (the "Lease Proceeds ") are irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under the Trust Agreement, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. The pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with and subject to the terms of the Trust Agreement. The 2010A Certificates represent the aggregate principal components of the 2010A Lease Payments under the Lease and the 2010B Certificates represent the aggregate principal components of the 2010B Lease Payments under the Lease. The 2010A Certificates evidence the right to receive certain fractional and undivided interests in 2010A Lease Payments to be made by the City pursuant to the Lease and the 2010B Certificates evidence the right to receive certain fractional and undivided interests in 2010B Lease Payments to be made by the City pursuant to the Lease. The City is required under the Lease to make Lease Payments subject to the provisions of the Lease related to abatement. The City has covenanted in the Lease to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. Lease Payments are scheduled to be paid as set forth herein. See "— Lease Payments Schedule" herein. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN 15 786877.14 034288 OS OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The Trustee, pursuant to the Trust Agreement and the Assignment Agreement, will receive Lease Payments for the benefit of the Owners. Except as expressly provided in the Trust Agreement, the Trustee will not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City or the Corporation of the other agreements and covenants required to be performed by them, respectively contained in the Site Lease, the Lease or the Trust Agreement. Additional amounts payable by the City under the Lease include, among others, amounts sufficient to pay certain taxes, assessments, utility and other charges on the Leased Premises. The Lease shall be deemed and construed to be a "net- net -net lease" and the City has agreed pursuant to the Lease that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided in the Lease. The Lease provides that the covenants on the part of the City contained therein shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the City. See Appendix C — "Summary of Principal Legal Documents — Lease" herein. Pledge of Refundable Credits to 2010B Certificates The Refundable Credits constitute amounts payable by the Federal government under Section 6431 of the Code, and which, in the case of the 201013 Certificates, the City has elected to receive under Section 54AA(g)(1) of the Code. Pursuant to the Lease, all of the Refundable Credits received by the City are to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments, and are pledged to the payment of the 2010B Certificates. The Lease provides that the City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any other action that would cause the City to lose the subsidy payments from the U.S. Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. Refundable Credits do not constitute a full faith and credit guarantee of the United States with respect to the 2010B Certificates, but are required to be paid by the U.S. Treasury under the American Recovery and Reinvestment Act of 2009 upon proper application by the City. Under the American Recovery and Reinvestment Act of 2009, the U.S. Treasury may offset any Refundable Credit to which the City is otherwise entitled against any other tax liability of the City payable to the U.S. Treasury, such as withholding or payroll taxes, or other penalties or interest that may be owed at any time to the U.S. Treasury. The American Recovery and Reinvestment Act of 2009 contains broad legislative regulatory authority to prescribe such regulations and other guidance as may be necessary or appropriate to carry out the provisions relating to the Build America Bonds and the Refundable Credits. The Internal Revenue Service and the U.S. Treasury will continue to consider the need to develop any special rules to adapt or tailor the procedural framework implementing provisions of the American Recovery and Reinvestment Act of 2009, and may promulgate further regulations. No assurance is given that the U.S. Treasury will make payment of the Refundable Credits in the amounts to which the City believes it is entitled, nor that such 16 786877.14 034288 OS payments will be made in a timely manner. No assurance can be given that Congress will not amend or repeal provisions of the American Recovery and Reinvestment Act of 2009, which amendments could affect the payment of Refundable Credits. Assignment of Lease; Sublease of Leased Premises The Lease may be assigned by the City and all or a portion of the Leased Premises may be subleased by the City subject to the conditions set forth in the Lease, including the delivery of an opinion of Special Counsel to the effect that such assignment or sublease, as applicable, does not adversely affect the State tax- exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. For purposes of an assignment of the Lease, Special Counsel shall also opine that the assignment does not affect the validity of the Lease. If the Lease is assigned by the City or all or any portion of the Leased Premises is subleased by the City, the obligation to make Lease Payments under the Lease shall remain the obligation of the City. See Appendix C — "Summary of Principal Legal Documents Lease — Assignment and Subleasing" herein. Lease Payments The Lease requires the City to make Lease Payments on January 1 and July 1 of each year, beginning on January 1, 2011, and continuing until the end of the term of the Lease. Each Lease Payment shall be payable by the City to the Trustee, as assignee of the Corporation. The interest components of the Lease Payments payable by the City under the Lease shall be paid by the City as, and shall constitute interest paid on, the principal components of the Lease Payments payable by the City under the Lease. Lease Payments have been calculated to be at least sufficient to pay principal and interest components of the Certificates when due on each Interest Payment Date. 17 786877.14 034288 OS A table of annual Lease Payments under the Lease is set forth below. LEASE PAYMENTS 2010A Certificates 2010B Certificates 2010A Lease Payments 2010B Lease Payments Total Base Fiscal Year Principal Interest Principal Interest Rental Ending Component Component Component Component Payments(l) Amounts reflect the aggregate amount of scheduled Lease Payments under the Lease due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates, except the Lease Payments due through 20 shall be prepaid with a deposit into the Lease Payment Fund on the Closing Date. No Reserve Fund There is no reserve fund for the Certificates. Insurance The Lease provides that the City shall maintain or cause to be maintained, throughout the tern of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees, and insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious mischief insurance. Pursuant to the Lease, the City shall also maintain workers' compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers' Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto (with provision for self - insurance). The Lease also provides that the City shall maintain or cause to be maintained on the Leased Premises rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24- month period, to insure against loss of rental income from the Leased Premises caused by perils covered by casualty and theft insurance. The City is not required to purchase or maintain earthquake insurance with respect to the Leased Premises. Pursuant to the Lease, the insurance for public liability and property damage insurance, worker's compensation and casualty and theft insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self - insurance by the City. See Appendix C — "Summary of Principal Legal Documents — Lease Agreement — Insurance" attached hereto. 18 786877.14 034288 OS Abatement Except (i) to the extent that moneys derived from any person, including proceeds of rental interruption insurance, as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. In the event of abatement as described above, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds pursuant to the Lease, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Substitution or Release of the Leased Premises Pursuant to the Lease, the City shall have the right to substitute alternate real property for any portion of the Leased Premises or to release a portion of the Leased Premises from the lien of the Lease upon compliance with all of the conditions set forth in the Lease. Notwithstanding any substitution pursuant to the Lease, there shall be no reduction in or abatement of the Lease Payments due from the City hereunder as a result of such substitution. After a substitution or release, the part of the Leased Premises for which the substitution or release has been effected shall be released from the leasehold under the Lease. The Lease further provides that, subject to certain conditions precedent, upon the filing by the City of a completion certificate with respect to the Project, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site (each as defined in the Lease), provided that the City certifies to the Trustee that [at least 95% ofj the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. See Appendix C — "Summary of Principal Legal Documents — The Lease Agreement — Covenants with Respect to the Leased Premises — Substitution or Release of the Leased Premises" attached hereto. Additional Certificates In addition to the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more 19 786877.14 034288 OS series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the conditions set forth in the Trust Agreement, which are made conditions precedent to the preparation, execution and delivery of such Additional Certificates, including, but not limited to, (i) the parties to the Trust Agreement shall have executed a Supplemental Agreement setting forth the terms and provisions of such Additional Certificates and specification of whether such Additional Certificates are payable from the 2010A Lease Payments or 2010B Lease Payments and (ii) the Trustee shall have received a certificate of the City Representative that (1) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (2) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease). See Appendix C — "Summary of Principal Legal Documents — The Trust Agreement — The 2010 Certificates of Participation — Additional Certificates" attached hereto. Remedies on Default Events of Default. Pursuant to the Lease, any one or more of the following shall be "events of default" thereunder: (a) failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; (b) failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed under the Lease or otherwise with respect thereto or in the Trust Agreement or in the Site Lease, subject to certain exceptions, and (c) the filing by the City of a case in bankruptcy or certain related events set forth in the Lease. Whenever any event of default under the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. No Termination; Repossession and Re -Lease on Behalf of the City. Pursuant to the Lease, in the event the Corporation does not elect to terminate the Lease in the manner described under "— Termination; Repossession and Re- Lease" herein, the Corporation may, with the consent of the City, which consent is irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the 20 786877.14 034288 OS Trustee of re- leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement. In the event that the liability of the City under this caption "— No Termination; Repossession and Re -Lease on Behalf of the City" is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies described under this caption '— No Termination; Repossession and Re -Lease on Behalf of the City ". Termination; Repossession and Re- Lease. Pursuant to the Lease, in the event of the termination of the Lease by the Corporation at its option and in the manner described in this paragraph on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. Pursuant to the Lease, the City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIII A On June 6, 1978, California voters approved Proposition 13, adding Article XIII A to the California Constitution. Article XIII A, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975 -76 tax bill under `full cash value,' or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two - thirds of the votes cast by the voters voting on the proposition. Legislation enacted by the State Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness are also applied to 100% of assessed value. 21 786877.14 034288 OS Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation the following year. The City is unable to predict the nature or magnitude of fixture revenue sources which may be provided by the State to replace lost property tax revenues. Article XIII A effectively prohibits the levying of any other ad valorem property tax above the I% limit except for taxes to support indebtedness approved by the voters as described above. Article XIII B On November 6, 1979, California voters approved Proposition 4, which added Article XIII B to the California Constitution. In May 1990, the voters through their approval of Proposition 111 amended Article XIII B. Article XIII B of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the 1978 -79 Fiscal Year. Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to a governmental entity, or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues and (iii) certain State subventions received by local governments. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years. As amended in May 1990, the appropriations limit for the County in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the County's option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ( "K -14 ") districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two -year periods. Any excess of the aggregate "proceeds of taxes" received by the County over such two -year period 22 786877.14 034288 OS above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Article XIII B permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter - approved change can only be effective for a maximum of four years. The City Council adopted the annual appropriation limit for the Fiscal Year 2010 -11 of approximately $140.6 million. The limitation applies only to proceeds of taxes and therefore does not apply to service fees and charges, investment earnings on non - proceeds of taxes, fines, and revenue from the sale of property and taxes received from the State and federal governments that are tied to special programs. Based on the Fiscal Year 2010 -11 Adopted Budget, the funds subject to limitation total approximately $111.3 million (total General Fund budget minus non - proceeds of taxes and debt service) and are approximately $29.3 million below the Article XIII B limit. Proposition 46 On June 3, 1986, California voters approved Proposition 46, which added an additional exemption to the 1% tax limitation imposed by Article XIH A. Under this amendment to Article XIII A, local governments and school districts may increase the property tax rate above 1% for the period necessary to retire new general obligation bonds, if two - thirds of those voting in a local election approve the issuance of such bonds and the money raised through the sale of the bonds is used exclusively to purchase or improve real property. Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election which (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two - thirds vote of the 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 for 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 XIII A 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 August 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, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a county -wide sales tax of one -half of one percent was a special tax that, under Section 53722 of the Government Code, required a two - thirds voter approval. Because the tax received an affirmative vote of only 54.1 %, this special tax was found to be invalid. Following the California Supreme Court's decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ( "La Habra "). In this case, the court held that public agency's continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations 23 786877.14 034288 OS period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The City does not believe any of the taxes constituting City revenues are levied in violation of Proposition 62. Proposition 218 On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the "Right to Vote on Taxes Act" ( "Proposition 218 "). Proposition 218 added Articles XIII C and XIII D to the California Constitution and contained a number of interrelated provisions affecting the ability of local governments, including the City, to levy and collect both existing and future taxes, assessments, fees and charges. The City is unable to predict whether and to what extent Proposition 218 may be held to be constitutional or how its terms will be interpreted and applied by the courts. Proposition 218 could substantially restrict the City's ability to raise future revenues and could subject certain existing sources of revenue to reduction or repeal, and increase the City's costs to hold elections, calculate fees and assessments, notify the public and defend its fees and assessments in court. However, the City does not presently believe that the potential financial impact on the City as a result of the provisions of Proposition 218 will adversely affect the City's ability to pay its debt obligations and perform its other obligations payable from the General Fund as and when due. Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City's General Fund, require a two- thirds vote. Further, any general purpose tax that the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election held within two years of November 5, 1996. The City has not enacted, imposed, extended or increased any tax without voter approval since January 1, 1995. These voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues through General Fund taxes, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure requirements. Article XIII C also expressly extends to voters the power to reduce or repeal local taxes, assessments, fees and charges through the initiative process, regardless of the date such taxes, assessments, fees or charges were imposed. This extension of the initiative power is not limited by the terms of Proposition 218 to fees imposed after November 6, 1996 and absent other legal authority could result in retroactive reduction in any existing taxes, assessments or fees and charges. SB 919 provides that the initiative powers extended to voters under Article XIII C likely excludes actions construed as impairment of contracts under the contract clause of the United States Constitution. SB 919 provides that the initiative power provided for in Proposition 218 "shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after November 6, 1998, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights" protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City's General Fund. Further, "fees" and "charges" are not defined in Article XIII C or SB 919, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIII C as they do in Article XIII D. Accordingly, the scope of the initiative power under Article XIII C could include all sources of General 24 786877.14 034288 OS Fund monies not received from or imposed by the federal or State government or derived from investment income. The initiative power granted under Article XIII C of Proposition 218, by its terms, applies to all local taxes, assessments, fees and charges. The City is unable to predict whether the courts will ultimately interpret the initiative provision to be limited to property related local taxes, assessments, fees and charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges which are deposited into the City's General Fund. The City believes that in the event that the initiative power was exercised so that all local taxes, assessments, fees and charges which may be subject to the provisions of Proposition 218 are reduced or substantially reduced, the financial condition of the City, including its General Fund, would be materially adversely affected. As a result, there can be no assurances that the City would be able to pay the Certificates as and when due or any of its other obligations payable from the General Fund. Article XIII D of Proposition 218 adds several new requirements to make it more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. "Assessment" is defined in Proposition 218 and SB 919 as any levy or charge upon real property for a special benefit conferred upon the real property. This includes maintenance assessments imposed in County service areas and in special districts. In most instances, in the event that the City is unable to collect assessment revenues relating to specific programs as a consequence of Proposition 218, the City will curtail such services rather than use amounts in the General Fund to finance such programs. Accordingly, the City anticipates that any impact Proposition 218 may have on existing or future taxes, fees, and assessments will not adversely affect the ability of the City to pay the Certificates as and when due. However, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the assessments that presently finance them are reduced or repealed. Article XIII D also adds several provisions, including notice requirements and restrictions on use, affecting "fees" and "charges" which are defined as "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service." The annual amount of revenues that are received by the City and deposited into its General Fund which may be considered to be property related fees and charges under Article XIII D of Proposition 218 is not substantial. Accordingly, presently the City does not anticipate that any impact Proposition 218 may have on future fees and charges will not adversely affect the ability of the City to pay the principal and interest with respect to the Certificates as and when due. However, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. Further, the fees and charges of the County's enterprise funds, including those which are not property related for purposes of Article XIII D of Proposition 218, may be determined to be fees and charges subject to the initiative power as provided in Article XIII C of Proposition 218, as described above. In the event that fees and charges cannot be appropriately increased or are reduced pursuant to the exercise of the initiative power, the City may have to choose whether to reduce or eliminate the service financed by such fees or charges or finance such service from its General Fund. Further, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. Additional implementing legislation respecting Proposition 218 may be introduced in the State legislature from time to time that would supplement and add provisions to California statutory law. No assurance may be given as to the terms of such legislation or its potential impact on the City. 25 786877.14 034288 OS Proposition 1A Proposition IA (2004), proposed by the State Legislature in connection with the 2004 -OS Budget Act and approved by the voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition IA (2004) generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two - thirds of both houses of the State Legislature. Proposition IA (2004) provides, however, that beginning in Fiscal Year 2008 -09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two - thirds of both houses of the State Legislature and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1 A (2004) also provides that if the State reduces the VLF rate below 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition IA (2004) requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. In Fiscal Year 2009 -10, the State borrowed approximately 8.0% of property tax revenues from counties, cities and special districts, totaling approximately $1.9 billion, which amount will be repaid within three years of the borrowing pursuant to Proposition IA (2004). The City's share of the borrowing was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. Future Initiatives Article XIII A, Article XIII B, Article XIII C, Article XIII D and Propositions 62 and 1 were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time, other initiative measures could be adopted, further affecting revenues of the City or the City's ability to expend revenues. The nature and impact of these measures cannot be predicted by the City. The November 2010 statewide ballot includes several measures that, if approved by the voters, could impact local revenues, including revenues of the City. In particular, Proposition 26 proposes to amend the State Constitution to expand the definition of a tax so that certain fees and charges currently imposed by government will be subject to approval by two thirds of each house of the State Legislature or approval by local voters, as applicable. In addition, Proposition 26 proposes to require a two - thirds approval by each of house the State Legislature to approve laws that increase taxes on any taxpayer, even if the law's overall fiscal effect does not increase State revenues. Proposition 26 also proposes to repeal recent State laws that conflict with the measure, unless approved again by two - thirds of each house of the State Legislature within one year of approval of Proposition 26. The State Legislative Analyst's Office ( "LAO ") states that Proposition 26 would make it more difficult for State and local governments to pass new laws that raise revenues and could reduce government revenues and spending statewide by up to billions of dollars annually compared to what otherwise would have occurred, particularly if the proposed voting requirements results in some proposes not being approved. There are several uncertainties regarding the terms of Proposition 26. Accordingly, the City can not presently estimate the potential impact it could have on the City's finances. However, the City believes that, if approved, Proposition 26 would not 26 786877.14 034288 OS adversely affect the ability of the City to pay the principal and interest with respect to the Certificates as and when due. The November 2010 statewide ballot also includes Proposition 22, pursuant to which the State would be prohibited from shifting, taking, borrowing or restricting the use of tax revenues dedicated by law to, among other things, fund local government services. The LAO states that Proposition 22, if approved, could result in higher and more stable local resources with commensurate reductions in State resources, resulting in major decreases in State spending. However, the City cannot predict the impact of Proposition 22, if approved, on the City's finances. [To be revised to reflect outcome of election results, when available.] Text of the qualified statewide ballot measures may be found at the Secretary of State website, www.sos.ca.gov under the heading "Elections." An impartial analysis of the ballot measures is posted by the LAO at www.lao.ca.gov. The referenced information is prepared by the respective State agency maintaining the web site and not by the City, and the City can take no responsibility for the continued accuracy of the interact addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. RISK FACTORS The ability of the City to pay principal of and interest with respect to the Certificates depends primarily upon the receipt by the City of sufficient General Fund revenues. Some of the events which could prevent the City from receiving sufficient General Fund revenues to enable it to pay the principal of and interest on the Certificates are summarized below. The following description of risks is not intended to be an exhaustive list of the risks associated with the purchase of the Certificates and the order of the risks set forth below does not necessarily reflect the relative importance of the various risks. Not a Pledge of Taxes The obligation of the City to pay Lease Payments and Additional Payments under the Lease shall constitute a current expense of the City and shall not in any way be construed to be a debt of the City, or the State, or any political subdivision thereof, in contravention of any applicable constitutional or statutory limitation or requirements concerning the creation of indebtedness by the City, the State, or any political subdivision thereof, nor shall anything contained in the Lease constitute a pledge of general revenues, funds or moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Lease Payments and Additional Payments under the Lease or an obligation of the City for which the city is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The City is currently liable on and may accrue other obligations payable from its general revenues. Such obligations, together with the Certificates, are payable from general revenues of the City without priority. Additional Obligations of the City The City has the capability to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased. The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Premises, taxes and other governmental charges levied against the Leased 27 786877.14 034288 OS Premises) are payable from funds lawfully available to the City. In the event that the amounts which the City is obligated to pay in a fiscal year exceed the City's revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. Default; Remedies Upon Default Whenever any event of default under the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. Pursuant to the Lease, in the event the Corporation does not elect to terminate the Lease, the Corporation may, with the consent of the City, which consent is irrevocably given, repossess the Leased Premises and re -lease it, subject to the limitations set forth below with respect to the Central Library Site, for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The Lease provides that the obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. Pursuant to the Lease, the City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained in the Lease and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments under the Lease, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. Alternatively, pursuant to the Lease, in the event of the termination of the Lease by the Corporation at its option (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises, subject to the limitations set forth below with respect to the Central Library Site), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re- lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. Pursuant to the Lease, the City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or 28 786877.14 034288 OS accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner in the Lease expressly provided. Limitations on Remedies The rights of the Owners of the Certificates are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, 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 creditors' 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 counties in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates 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. In addition, the portion of the Leased Premises consisting of the Central Library Site is subject to the conditions and restrictions set forth in that certain Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase (the "Declaration "), dated as of March 11, 1992, by and between the Irvine Company, as grantor (the "Declarant "), and the City, as grantee, pursuant to which the City was granted the Central Library Site. Pursuant to the Declaration, no portion of the Central Library Site or any improvements thereon shall be used for retail, commercial, quasi - retail or quasi - commercial facilities that materially compete with the retail and commercial facilities in the Newport Center, including the shopping center known as Fashion Island, or otherwise improved, developed, used, operated or maintained with any facilities or for any purpose whatsoever except as a public library with related parking unless expressly approved by the Declarant, which approval may be granted or withheld by the Declarant in its sole discretion. The Declaration also provides that, except for certain permitted transfers to a governmental entity whose primary purpose is the maintenance and operation of public libraries and transfers in connection with the sale of public obligations, the Declarant has a right of first refusal with respect to all or any part of the Central Library Site determined to be transferred by the City. The Declaration further provides that upon any proposed, attempted or actual transfer in violation of the provisions of the Declaration and upon any violation of the restrictions set forth therein, the Declarant in its sole option and discretion shall be entitled to repurchase the Central Library Site. Abatement Except (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, 29 786877.14 034288 OS interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided in the Lease, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. Risk of Nonpayment of Refundable Credits No assurance is given that the U.S. Treasury will make payment of the Refundable Credits in the amounts to which the City believes it is entitled, nor that such payments will be made in a timely manner. The U.S. Treasury may offset any Refundable Credit to which the City is otherwise entitled against any other tax liability of the City payable to the U.S. Treasury. No assurance can be given that Congress will not amend or repeal provisions of the American Recovery and Reinvestment Act of 2009, which amendments could affect the payment of Refundable Credits. See "Security for the Certificates and Sources of Payment — Pledge of Refundable Credits to 2010B Certificates" herein. Seismic Events The Leased Premises is located within a seismically active area, and damage from an earthquake could be substantial. The City is not obligated under the Lease to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Premises and no assurance can be made that the City will procure and maintain, or cause to be procured and maintained, such insurance. There can be no assurance that earthquake insurance on the Leased Premises, if any, can be renewed or will be maintained by the City in the future, or will be available for payments in respect of the Certificates. If there is no earthquake insurance on the Leased Premises and if it c Leased Premises is damaged in an earthquake, the Lease Payments would be subject to abatement. See " "" sk Factors — Abatement" herein. The Leased Premises may also be at risk from other events of force majeure, such as damaging storms, floods, fires and explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional information regarding the City's risk management programs, see Appendix A — "City of Newport Beach Financial Information and Regional Economic and Demographic Information — City of Newport Beach Financial Information — Risk Management" and Appendix C — "Summary of Principal Legal Documents — The Lease — Insurance" attached hereto. THE CORPORATION The Corporation was incorporated on March 9, 1992, and is a nonprofit public benefit corporation duly organized and existing under the California Nonprofit Public Benefit Corporation Law for the purpose, among other things, of rendering financial assistance to the City by financing, acquiring, constructing, improving, leasing and selling buildings, building improvements, equipment, electrical, water, sewer, road and other public improvements, lands and any other real or personal property, tangible and intangible, for the benefit of residents of the City and surrounding areas. The Corporation has no taxing authority. The Corporation has no liability to the Owners of the Certificates and has pledged none of its moneys, funds or assets toward the Lease Payments or Prepayments under the Lease, or toward the payment of any amount due in connection with the Certificates. 30 786877.14 034288 OS The Corporation is a separate legal entity from the City. It is governed by a seven member Board of Directors (the "Board of Directors ") appointed by the City Council. The Corporation has no employees. All staff work is performed by employees of the City. The members of the Corporation's Board of Directors are the members of the City Council in their ex officio capacity. The Corporation has not entered into any material financing arrangements with respect to the Certificates other than those referred to in this Official Statement. Further information concerning the Corporation may be obtained from the Corporation's office at 3300 Newport Boulevard, Newport Beach, California, 92659 -1768. TAX MATTERS 201" Certificates. In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with respect to the 2010A Certificates is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, interest with respect to the 2010A Certificates is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, 2010A Certificate Owners should consult their tax advisors regarding whether interest with respect to the 2010A Certificates is included as an adjustment in the calculation of alternative minimum taxable income. The difference between the issue price of a 2010A Certificate (the first price at which a substantial amount of the 2010A Certificates of the same 2010And maturity is to be sold to the public) and the stated prepayment price at maturity with respect to the 2010A Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to an Owner of a 2010A Certificate (the "2010A Certificate Owner ") before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2010A Certificate Owner will increase the 2010A Certificate Owner's basis in the applicable 2010A Certificate. In the opinion of Special Counsel, original issue discount that accrues to a 2010A Certificate Owner is excluded from gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Special Counsel's opinion as to the exclusion from gross income of interest (and original issue discount) with respect to the 2010A Certificates is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City complies with all requirements of the Code, that must be satisfied subsequent to the execution and delivery of the 2010A Certificates to assure that the interest (and original issue discount) with respect to the 2010A Certificates will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) with respect to the 2010A Certificates to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the 2010A Certificates. The City has covenanted to comply with all such requirements. The amount by which a 2010A Certificate Owner's original basis for determining loss on sale or exchange in the applicable 2010A Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable 2010A Certificate premium, which must be amortized under Section 171 of the Code; such amortizable 2010A Certificate premium reduces the 2010A Certificate Owner's basis in the applicable 2010A Certificate (and the amount of tax- exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the 31 786877.14 034288 OS amortization of 2010A Certificate premium may result in a 2010A Certificate Owner realizing a taxable gain when a 2010A Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2010A Certificate to the Owner. Purchasers of the 2010A Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable 2010A Certificate premium. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of tax - exempt bond issues, including both random and targeted audits. It is possible that the 2010A Certificates will be selected for audit by the IRS. It is also possible that the market value of the 2010A Certificates might be affected as a result of such an audit of the 2010A Certificates (or by an audit of similar bonds). Special Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax Certificate relating to the 2010A Certificates permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) with respect to the 2010A Certificates for federal income tax purposes if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Special Counsel has rendered an opinion that interest (and original issue discount) with respect to the 2010A Certificates is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2010A Certificates and the accrual or receipt of interest (and original issue discount) with respect to the 2010A Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2010A Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2010A Certificates. A copy of the proposed form of opinion of Special Counsel with respect to the 2010A Certificates is set forth in Appendix _ herein. 2010E Certificates. The 2010B Lease Payments evidenced by the 2010B Certificates have been designated as Build America Bonds for purposes of Section 54AA of the Code for which the City is allowed a refundable credit which, with respect to any interest payment date for the 2010B Certificates, is equal to 35 percent of the amount of interest evidenced by the 2010B Certificates on such date. The City will elect to receive a cash subsidy payment from the United States Treasury equal to thirty -five percent (35 %) of the interest payable by the City evidenced by the 2010B Certificates. UNDER NO CIRCUMSTANCES WILL THE OWNERS OF THE 2010B CERTIFICATES RECEIVE OR BE ENTITLED AT ANY TIME TO A CREDIT AGAINST THE TAX IMPOSED BY THE CODE. The City cannot ensure that it will receive such a refundable credit at any time and in any given amount. The cash subsidy payment with respect to the 2010B Certificates to which the City is entitled is treated by the Internal Revenue Service as a refund of a tax credit and such refund may be offset by the Department of the Treasury by any liability of the City payable to the Federal government, including in respect of any internal revenue tax (including any interest and penalties), past due child support, past due and legally enforceable debt due federal agencies, unemployment compensation debts, and past due legally enforceable state income tax debts. The payment of the cash subsidy payments do not represent a full faith and credit obligation or guarantee of the federal government and there can be no assurance that the subsidy payments will be timely received in any particular amount. 32 786877.14 034288 OS In the opinion of Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest evidenced by the 2010B Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Code but is exempt from State of California personal income tax. Except for certain exceptions, the difference between the issue price of a 2010B Certificate (the first price at which a substantial amount of the 2010B Certificate of the same 2010And maturity is to be sold to the public) and the stated prepayment price at maturity with respect to such 2010B Certificate (to the extent the prepayment price at maturity is bigger than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method. The amount of original issue discount deemed received by the 2010B Certificate Owner will increase the 2010B Certificate Owner's basis in the 2010B Certificate. 2010B Certificate holders should consult their own tax advisors with respect to taking into account any original issue discount on the 2010B Certificates. 2010B Certificate holders that have a basis in the 2010B Certificates that is greater than the principal amount of such 2010B Certificates should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under Section 171 of the Code. The qualification of the 2010B Certificates and receipt of the refundable credit for purposes of Section 54AA of the Code is subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2010B Certificates to assure that the 2010B Lease Payments evidenced by 2010B Certificates qualify as Build America Bonds under Section 54AA for which the City has made an irrevocable election to receive a refundable credit. Failure to comply with such requirements of the Code might result in the City not receiving such a refundable credit, possibly retroactive to the date of issue of the 2010B Certificates. The City has covenanted to comply with all such requirements. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of bond issues, including both random and targeted audits. It is possible that the 2010B Certificates will be selected for audit by the IRS. It is also possible that the market value of the 2010B Certificates might be affected as a result of such an audit of the 2010B Certificates (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, that Congress or the IRS might change the Code (or interpretation thereof) subsequent to the issuance of the 2010B Certificates to the extent that it adversely affects the status of the 2010B Lease Payments evidenced by 2010B Certificates as Build America Bonds for purposes of Section 54AA of the Code for which the Board is entitled to a refundable credit or the 2010B Certificate market value. It is possible that subsequent to the issuance of the 2010B Certificates there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state or local law) that affect the federal, state, or local tax treatment of the 2010B Certificates or the market value of the 2010B Certificates. No assurance can be given that subsequent to the issuance of the 2010B Certificates such changes or interpretations will not occur. The federal tax and State of California personal income tax discussion set forth above is included for general information only and may not be applicable depending upon an Owner's particular situation. The ownership and disposal of a 2010B Certificate and the accrual or receipt of interest with respect to a 2010B Certificate may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. ANY FEDERAL TAX ADVICE CONTAINED HEREIN WITH RESPECT TO THE 2010B CERTIFICATES IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE CODE. THE FEDERAL TAX ADVICE CONTAINED HEREIN WITH RESPECT 33 786877.14 034288 OS TO THE 2010B CERTIFICATES WAS WRITTEN TO SUPPORT THE PROMOTING AND MARKETING OF THE 2010B CERTIFICATES. BEFORE PURCHASING ANY OF THE 2010B CERTIFICATES, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES RELATING TO THE 2010B CERTIFICATES AND THE TAXPAYER'S PARTICULAR CIRCUMSTANCES. A copy of the proposed form of opinion of Special Counsel with respect to the 2010B Certificates is set forth in Appendix E hereto. CERTAIN LEGAL MATTERS The validity of the Certificates and certain other legal matters are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. A complete copy of the proposed form of opinion of Special Counsel is contained in Appendix E hereto. Special Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City and the Corporation by David Hunt, City Attorney, and Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, and for the Underwriters by their counsel, Jones Hall, A Professional Law Corporation, San Francisco, California. Payment of the fees of Special Counsel, Disclosure Counsel and the Underwriter's counsel is contingent upon execution and delivery of the Certificates. Special Counsel and Disclosure Counsel represent the Underwriters on matters unrelated to the Certificates. FINANCIAL STATEMENTS The general purpose financial statements of the City, pertinent sections of which are included in Appendix B to this Official Statement, have been audited by Mayer Hoffman McCann P.C. (the "Independent Auditors "), certified public accountants and management consultants, as stated in their report appearing in Appendix A. Independent Auditors has not consented to the inclusion of its report as Appendix B and has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Independent Auditors with respect to any event subsequent to its report dated December 18, 2009. LITIGATION No litigation is pending or, to the best knowledge of the City, threatened against the City or the Corporation concerning the validity of the Certificates. The City is not aware of any litigation pending or threatened questioning the political existence of the City or the Corporation or contesting the City's ability to cause the execution and delivery of the Certificates or pay the Lease Payments pursuant to the Lease. There are a number of lawsuits and claims pending against the City. Other than as described in Appendix A, the City does not believe that any of these proceedings could have a material adverse impact upon the financial condition of the City. 34 786877.14 034288 OS INell]ll ir:I YY1►C!! The Certificates are being purchased by the underwriters named on the cover page hereof (the "Underwriters "). Pursuant to the Purchase Contract for the Certificates the Underwriters have agreed, subject to certain conditions, to purchase the 2010A Certificates at a price of $ (representing the principal amount of the 2010A Certificates, plus an original issue premium of $ 1 less an underwriting discount of $ and the 2010B Certificates at a price of $ (representing the principal amount of the 2010B Certificates, less an underwriting discount of The Purchase Contract for the Certificates provides that the Underwriters will purchase all of the Certificates, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell the Certificates to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriters. FINANCIAL ADVISOR Fieldman, Rolapp & Associates, Irvine, California served as Financial Advisor to the City (the "Financial Advisor ") in connection with the issuance of the Certificates. The Financial Advisor is an independent financial advisory firm and is not engaged in the business of underwriting municipal bonds or other securities. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement (the "Disclosure Undertaking ") with Digital Assurance Certification, L.L.C., the City has agreed to provide, or cause to be provided, with respect to each fiscal year of the City, commencing with Fiscal Year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the Repository the audited financial statements, if available, or unaudited financial statements, and the annual financial information and operating data with respect to the City, for each fiscal year of the City, as described in Appendix A — "City of Newport Beach Information" attached hereto and specified in the Disclosure Undertaking. In addition, the City has agreed to provide, or cause to be provided, to the Repository in a timely manner notice of the following "Listed Events" if determined by the City to be material: (1) principal and interest payment delinquencies; (2) non - payment related defaults; (3) unscheduled draws on the debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax - exempt status of the security; (7) modifications to rights of security holders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities; and (11) rating changes. These covenants have been made in order to assist the Underwriters in complying with the Rule. The City has complied in all material respects in the last five years with each of its previous undertakings with regard to the Rule to provide annual reports and notices of material events. RATINGS Moody's Investors Service, Inc. ( "Moody's "), S &P and Fitch Ratings ( "Fitch ") have assigned ratings of "Aa2," "AA +" and "AA +," respectively, to the Certificates. Moody's, S &P and Fitch have also assigned issuer ratings of "Aaa, ", "AAA" and "AAA," respectively, to the City. Such ratings reflect only 35 786877.14 034288 OS the views of such organizations and explanations of the significance of such ratings may be obtained only from the organizations at: Moody's Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007 -2796, telephone number (212) 553 -0317; Standard and Poor's Ratings Services, 55 Water Street, New York, New York 10041, telephone number (212) 438 -2000; and Fitch Ratings, One State Street Plaza, New York, New York 10004, telephone number (212) 908 -0500. 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 the rating agencies, if in the judgment of such rating agencies circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. MISCELLANEOUS The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF NEWPORT BEACH M City Manager 36 786877.14 034288 OS APPENDIX A CITY OF NEWPORT BEACH FINANCIAL INFORMATION AND REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION CITY OF NEWPORT BEACH FINANCIAL INFORMATION ................................... ............................A -1 General.................................................................................................................. ............................... A -1 Government............................................................................................................. ............................A -1 Accounting and Financial Reporting ..................................................................... ............................A -2 BudgetProcess ........................................................................................................ ............................A -2 FinancialStatements ................................................................................................. ............................A -3 Recent Budget Results; Fiscal Year 2010 -11 Budget ........................................... ............................A -5 MajorRevenues .................................................................................................. ............................... A -1 I OtherFunds ............................................................................................................. ...........................A -17 Reserves.............................................................................................................. ............................... A -18 CapitalProjects ....................................................................................................... ...........................A -19 LaborRelations ................................................................................................... ............................... A -20 PensionBenefits ..................................................................................................... ...........................A -20 Other Post Employment Benefits .......................................................................... ...........................A -25 RiskManagement ................................................................................................... ...........................A -28 Indebtedness........................................................................................................ ............................... A -29 CityInvestment Policy ........................................................................................... ...........................A -32 Litigation............................................................................................................. ............................... A -33 STATE OF CALIFORNIA BUDGET INFORMATION .......................................... ...........................A -33 General................................................................................................................. ............................... A-33 Fiscal Year 2010 -11 State Budget ....................................................................... ............................... A -34 Current and Future State Budgets ........................................................................ ............................... A -35 REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION ................... ...........................A -35 Population............................................................................................................... ...........................A -35 Employment........................................................................................................ ............................... A -37 Median Household Income .................................................................................... ...........................A -39 PersonalIncome ..................................................................................................... ...........................A -39 MajorEmployers .................................................................................................... ...........................A -40 ConstructionActivity ............................................................................................. ...........................A -42 TaxableSales .......................................................................................................... ...........................A -43 ForeclosureActivity ............................................................................................... ...........................A -45 A -(i) 786877.14 034288 OS CITY OF NEWPORT BEACH FINANCIAL INFORMATION General The City of Newport Beach (the "City ") was incorporated under the general laws of the State of California (the "State ") on September 1, 1906. The City is located in the coastal center of the County of Orange (the "County "), approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. As of 2010, the City had a permanent population of 86,738, which typically grows to over 100,000 during the summer months, including 20,000 to 100,000 tourists daily. The City's adopted budget for Fiscal Year 2010 -11 (the "Fiscal Year 2010 -11 Adopted Budget ") is approximately $226.7 million, approximately $149.3 million of which relates to the City's General Fund. Government The City operates pursuant to a City Charter adopted in 1954. The City has a Council -Mayor form of government. City Council members are elected by district but voted on by the population as a whole, and serve four -year staggered terms. The City Council consists of the Mayor and six other members and is responsible for, among other things, policy- making, passing local ordinances, adopting the budget, appointing committees and hiring the City Manager, the City Attorney, and the City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day to day operations of the City and for appointing directors of departments. The City is a full service city providing its residents and visitors with the following services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check and code enforcement services; libraries and cultural and arts services; recreation and senior services; and water, wastewater, rubbish disposal, and street light utilities services. The City provides water and sewer service to most areas within City limits, but it does not provide gas, electrical, or other utility service. Public elementary and secondary education is provided by school districts, which are separate government entities. [To be revised to reflect election results.] Various City Charter amendments will be submitted to the voters of the City on November 2, 2010. The proposed amendments will, among other things, modify existing provisions of the City Charter relating to additional taxes, restrict oil operations, amend legal document publication requirements and franchise processes, increase formal bidding thresholds, adjust misdemeanor penalties, require redistricting appointments every ten years, amend the City's civil service system, repeal the Chamber of Commerce contribution limit, remove City contract term limitations, require voter approval for the sale of City -owned waterfront property and effect administrative changes to comply with State and federal law. The proposed City Charter amendments, if approved by the qualified voters of the City, will not adversely affect the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (collectively, the "Certificates ") and the transactions described in the forepart of this Official Statement. A -1 786877.14 034288 OS Accounting and Financial Reporting The City maintains its accounting records in accordance with generally accepted accounting principles applicable to governmental entities ( "GAAP ") and the standards established by the Governmental Accounting Standards Board ( "GASB "). At least quarterly, a report is prepared for the City Council to review fiscal performance to date against the budget. A comprehensive annual financial report ( "CAFR "), including the audited financial statements, is prepared annually in conformance with GAAP, as promulgated by the GASB. The City's financial statements are audited by an independent certified public accountant. The City's most recent financial statements for the Fiscal Year ended June 30, 2009 were audited by Mayer Hoffman McCann P.C. The City's audited financial statements, together with accompanying notes and opinions from the City's Independent Auditor, for the Fiscal Year ended June 30, 2009, are set forth in Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. The City's governmental funds, including the General Fund, use the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when both available and measurable. The City's enterprise and internal service funds are proprietary funds that use the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related goods or services are delivered. Budget Process The City prepares and adopts an annual budget as required by the City Charter. The budget is the operating and capital expenditure plan for the City for the fiscal year beginning on July 1 and ending on June 30 of the following year (the "Fiscal Year ") and serves as the foundation for the City's financial planning and control. The budget process commences in December when the Administrative Services Department prepares preliminary fund balance estimates for the current year and preliminary revenue estimates for the next fiscal year. In January, the Administrative Services Department prepares a budget calendar and issues budget instructions, including budget guidelines approved by the City Manager and appropriation limits, and expenditure detail to each department for use in preparation of the next year's City budget. The departments then submit revenue and expenditure appropriation requests that are summarized by the Administrative Services Department and presented to the City Manager for review. The City Manager then meets with each department and, together with the Administrative Services Department, prepares and submits to the City Council a proposed budget for the next fiscal year. Subsequent to City Council review, including as many budget study sessions as the City Council deems necessary, and prior to the budget's final adoption, the City Manager provides each City Council Member with an itemized list of all proposed changes to permit a roll call vote by the City Council on each item during the budget hearing at the regular City Council meeting. The City Council holds the budget hearing and adopts the budget on or before June 30 of each year, as required by the City Charter. The budget is prepared on a modified accrual basis with all appropriations lapsing at the close of the fiscal year. Any revisions that increase the total appropriations of any fund over $10,000 must be approved by the City Council. In the event of any shortfall in projected revenue, immediate steps are taken to mitigate the shortfall through the identification of alternative funding sources or freezing appropriations. Similarly, if expenditures are projected to exceed appropriations, steps are taken to freeze expenditures in other accounts within the affected department or to transfer available resources to offset the added expenditure requirement. A -2 786877.14 034288 OS Financial Statements Table A -1 below sets forth the audited General Fund Balance Sheet for Fiscal Years 2005 -06 through 2008 -09 and the unaudited General Fund Balance Sheet for Fiscal Year 2009 -10. ASSETS Cash and Investments Receivables Accounts Notes Interest Intergovernmental Receivables Due from Other Funds Due from Agency Fund Prepaid Items Inventory Total Assets LIABILITIES, EQUITY AND FUND BALANCES Liabilities: Accounts Payable Accrued Payroll Deposits Payable Unearned Revenue Unavailable Revenue Deferred Revenues Total liabilities Fund balances: Reserved: Unreserved: Designated!'! Total Fund Balances Total Liabilities and Fund Balances TABLE A -1 CITY OF NEWPORT BEACH GENERAL FUND BALANCE SHEETS FIVE YEAR COMPARISON Fiscal Years 2005 -06 through 2009 -10 Fiscal Year Ended June 30, 2006 2007 2008 2009 2010 Audited Audited Audited Audited Unaudited $ 51,002,231 $ 63,551,764 $ 75,278,961 $ 76,435,099 $ 70,382,742 Pursuant to City practice, unreserved General Fund amounts are designated for contingencies, capital projects, appropriations and other special purposes. Such amounts are available to fund current obligations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B —"City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -3 786877.14 034288 OS 3,620,532 4,636,290 6,291,724 5,138,168 4,138,978 50,000 50,000 50,000 -- 471,250 1,497,197 1,592,648 1,827,739 1,457,076 981,924 6,366,265 5,857,894 5,552,883 4,798,249 4,948,641 3,309,485 7,351,061 3,297,073 3,686,684 11,940,685 -- 436,484 -- -- 865,350 492,032 127,836 526,444 932,148 211,746 220,864 229,546 219,698 238,274 $ 66,922,806 $ 84,189,037 $ 92,655,762 $92,261,418 $ 94,034,642 $ 5,164,274 $ 6,314,060 $ 5,054,805 $ 3,478,489 $ 3,403,362 2,055,909 2,358,540 3,688,974 4,083,477 4,204,908 3,277,731 3,741,959 2,913,141 2,992,328 2,339,224 1,590,815 1,725,326 1,911,171 1,907,895 1,904,552 247,016 135,950 28,532 188,265 25,000 $ 12,335,745 $ 14,275,835 $ 13,596,623 $ 12,650,454 $ 11,877,046 $ 9,374,722 $ 7,487,498 $ 6,807,094 $ 5,907,205 $ 5,472,481 $ 45,212,339 $ 62,425,704 $ 72,252,045 $ 73,703,759 $ 76,685,115 $ 54,587,061 $ 69,913,202 $ 79,059,139 $ 79,610,964 $ 82,157,596 $ 66,922,806 $ 84,189,037 $ 92,655,762 $ 92,261,418 $ 94,034,642 Pursuant to City practice, unreserved General Fund amounts are designated for contingencies, capital projects, appropriations and other special purposes. Such amounts are available to fund current obligations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B —"City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -3 786877.14 034288 OS Table A -2 below sets forth the audited General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for Fiscal Years 2005 -06 through 2009 -10 and the unaudited General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for Fiscal Year 2009 -10. TABLE A -2 CITY OF NEWPORT BEACH GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE FIVE YEAR COMPARISON Fiscal Years 2005 -06 through 2009 -10 Revenue: Taxes and Assessments Property Sales Sales Tax in -lieu Transient Occupancy Other Taxes Intergovernmental Licenses and Permits Charges for Services Fines and Forfeitures Investment Income Net increase (decrease) in fair value of investments Property Income Donations Other Total Revenue Expenditures: Current General Government Public Safetylll Public Works Community Development Community Services Capital Outlay Debt Service: Principal Interest and fiscal changes Total Expenditures Excess of revenue over expenditures (Table continued on next page.) Fiscal Year Ended June 2006 2007 2008 2009 2010 Audited Audited Audited Audited Unaudited $ 57,888,545 $ 63,003,057 $ 67,388,838 $ 70,126,680 $ 71,999,679 21,465,557 21,088,118 21,855,242 17,925,956 17,440,736 5,720,028 7,348,253 8,017,539 7,503,113 4,539,946 9,832,729 12,059,008 12,751,518 11,170,956 11,400,710 7,377,811 8,309,012 8,288,855 8,486,937 7,976,309 3,935,193 3,811,671 3,083,152 2,597,108 2,693,785 3,295,057 3,108,651 4,994,304 4,396,034 2,603,348 13,098,106 14,368,652 14,935,333 14,374,139 15,210,962 3,839,925 3,706,150 3,957,864 3,711,087 3,739,303 1,939,941 3,175,582 3,655,314 1,697,103 706,855 (715,615) (545,533) 508,485 1,096,848 707,200 6,224,093 6,471,129 6,603,973 6,552,603 6,080,577 605,271 1,323,550 1,202,474 261,357 124,703 1,040,158 1,967,465 1,458,770 234,573 1,690,499 $ 135,546,799 $ 149,194,765 $ 158,701,661 $ 150,134,494 $ 146,914,612 $ 12,457,334 $ 13,624,189 $ 14,425,553 $ 15,478,258 $ 15,086,125 47,971,940 50,424,717 53,650,324 57,285,811 56,108,046 22,446,976 24,403,360 25,454,281 26,220,846 25,681,411 7,299,573 7,223,202 7,769,980 8,302,214 8,097,847 10,950,588 11,749,016 12,639,243 13,281,963 13,109,514 6,510,325 10,368,748 10,455,571 5,910,047 8,627,010 -- 2,000,000 1,500,000 1,500,000 -- -- -- 142,500 71,250 -- $ 107,636,736 $ t 19,793,232 126,037,452 $ 128,050,389 $ 26,709,953 $ 27,910,063 $ 29,401,533 $ 32,664,209 $ 22,084,105 $ 20,204,659 A -4 786877.14 034288 OS (Table continued from prior page.) Fiscal Year Ended June 30, 2006 2007 2008 2009 2010 Audited Audited Audited Audited Unaudited Other Financing Sources (Uses): Transfers In $ 787,393 $ 1,027,127 $ 5,521,342 $ 690,013 $ 1,519,725 Transfers OuOh (28,597,790) (20,102,519) (29,039,614) (22,222,293) (20,677,752) Issuance of debt -- 5,000,000 -- -- 1,500,000 Total Other Financing Sources (Uses) $ (27,810,397) $ (14,075,392) $ (23,518,272) $ (21,532,280) $ (17,658,027) Net Change in Fund Balance 99,666 15,326,141 9,145,937 551,825 2,546,632 Fund Balances, Beginning $ 54,487,395 $ 54,587,051 $ 69,913,202 $ 79,059,139 $ 79,610,964 Fund Balance, Ending $ 54,587,061 $ 69,913,202 $ 79,059,139 $ 79,610,964 $ 82,157,596 O/ Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to the Police Department and the Fire Department. In addition, a portion of the Public Safety expenditures relates to police, fire and beach maintenance services utilized in support of operations of the Tide and Submerged Land Fund a special revenue fund used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas (the "Tide Fund"). (1) Includes in each of the respective years a transfer from the General Fund to finance in part the maintenance and operations of the Tide Fund, which were $15.2 million, $17.0 million, $17.4 million, $20.3 million and $20.1 million from Fiscal Years 2005 -06 through 2009 -10, respectively. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. Recent Budget Results; Fiscal Year 2010 -11 Budget Long -Term Financial Planning. The City undertakes financial planning with a long -term approach and has developed several master replacement plans for its critical assets and infrastructure, including major facilities, street pavement, water and sewer infrastructure, and City vehicles and heavy equipment. The City retains the services of actuaries to predict and fund long- term liabilities, including workers compensation, general claim liabilities, pension liabilities and post employment health care liabilities. Reserve levels and annual required funding contributions are set by City Council policy. See "City of Newport Beach Financial Information — Reserves" herein. Annual contribution rates for workers compensation and general liability are targeted to facilitate the accumulation of cash reserves to achieve at least a 75% "confidence funding level ", meaning that there is a 75% probability that the respective funds will have enough money to cover all benefits and claims that have been incurred in connection therewith. Except for the implied subsidy component of the City's post employment health care plan ( "OPEB liability "), the City's policy is to fund the cash subsidy of its OPEB liability and pension liabilities at 100% of the actuarially determined annual required contribution ( "ARC "). Because the City pays the entire ARC each year, its net pension and net OPEB obligation at the end of each year is $0 (except for the implied subsidy component of OPEB which is funded on a pay -as- you -go basis). See "City of Newport Beach Financial Information — Pension Benefits" and "City of Newport Beach Financial Information — Post - Employment Benefits" herein. To mitigate the rising cost of pension plans, the City has negotiated pension cost sharing agreements with certain employee associations and is reviewing the potential for additional contributions and the creation of a second tier of pension benefits for new employees. A -5 786877.14 034288 OS Fiscal Year 2008 -09 Results. As of the end of the Fiscal Year 2008 -09, the City's Governmental Funds reflected combined fund balances of $121 million, an increase of $4.1 million from the prior year. The General Fund represented $79.6 million or 65.7% of the combined fund balances of the Governmental Funds. The General Fund reflected an increase of $0.6 million in fund balance relative to the prior fiscal year, after a transfer of $22.2 million to other funds, which consisted of $20.3 million in routine transfers to subsidize the operations of the Tide Fund, a $0.5 million transfer to the Contributions Fund and $1.4 million in various nonrecurring transfers to other funds. At the end of Fiscal Year 2008 -09, unreserved fund balance for the General Fund was $73.7 million, or 57.6% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. Fiscal Year 2009 -10 Results. As of the end of the Fiscal Year 2009 -10, the City's Governmental Funds reflected combined fund balances of $110.2 million, a decrease of $10.9 million from the prior year. The General Fund represented $82.2 million or 74.6% of the combined fund balances of the Governmental Funds. The General Fund balance continued its trend of gradual increase, reflecting an increase of $2.5 million in fund balance relative to the prior fiscal year, after a transfer of $20.7 million to other funds, which consisted of $20.1 million in routine transfers to subsidize the operations of the Tide Fund and a $0.5 million routine transfer to the Debt Service Fund. At the end of Fiscal Year 2009 -10, unreserved fund balance for the General Fund was $76.7 million or 61% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. To address an $8 million projected revenue shortfalls in Fiscal Year 2009 -10, the City Council took a series of corrective actions, including adopting its Fiscal Sustainability Plan, organizing a review to identify operation savings, deferring certain capital projects, renegotiating contracts and contracting for additional services and returning surplus reserves. The City also approved an Early Retirement Incentive Plan (`GRIP "), which operates through the Public Agency Retirement Systems ( "PARS ") Supplemental Retirement Plan ( "SRP "). See "City of Newport Beach Financial Information — Pension Benefits — Public Agency Retirement System — Supplemental Retirement Plan" herein. The SRP offered through PARS allowed the City to set the payment, eligibility, and refilling based on the City's needs, and allowed the associated expense to be known and quantifiable. The benefit to the participating employee is paid through a 15 -year annuity of 7% of "final pay up" to $75,000 and 6% of amount of "final pay" over $75,000, and it complements and is in addition to an employee's Ca1PERS retirement benefit. The total estimated cost to fund the ERIP benefit is approximately $950,000 for the first five years. After accounting for the costs of implementing the ERIP plan and the estimated reduction to the City payroll, the net savings are expected to reach nearly $3.1 million annually. Fiscal Year 2010 -11 Budget. The Fiscal Year 2010 -11 Adopted Budget was adopted by the City Council on June 22, 2010. Total City revenues, excluding internal premiums, are expected to decrease approximately 2.1% relative to Fiscal Year 2009 -10 actual revenues, from $206 million to $201.6 million. Total City expenditures, excluding internal charges but including debt service and capital projects, are $226.7 million. The General Fund portion included revenues of approximately $145.1 million and expenditures of approximately $149.3 million. In accordance with the normal practice of the City, the Fiscal Year 2010 -11 Adopted Budget has been adjusted to reflect carry -over appropriations from the prior fiscal year and program needs not included in the Fiscal Year 2010 -11 Proposed Budget. See Table A -3 herein. A -6 786877.14 034288 OS The City projects that Fiscal Year 2010 -I1 General Fund revenues will decrease approximately $1.8 million from Fiscal Year 2009 -10 actual revenues. Property tax revenues, which account for approximately 49% of total General Fund revenues, are budgeted to decrease by approximately $1.4 million in Fiscal Year 2010 -11. However, updated assessed valuation information from the County Assessor's Office reflects a projected 0.27% increase in net taxable value in the City. See "City of Newport Beach Financial Information — Major Revenues" herein. Sales tax and uniform transient occupancy tax ( "TOT ") are the next largest components of the City's General Fund. The Fiscal Year 2010 -11 sales tax estimate is $17.4 million, a decrease of 3.8% over Fiscal Year 2009 -10 actual sales tax receipts and approximately 2.7% lower than Fiscal Year 2008- 09 actual sales tax receipts. TOT revenues are estimated to be $11.6 million, an increase of 1.4% over the Fiscal Year 2009 -10 actual TOT receipts. The General Fund contains expenditures for all operating City departments, except for the Harbor Resources Division within the City Manager Department and the Oil and Gas Division of the Utilities Department, which are funded through the Tide Fund and the Water and Wastewater Divisions within the Utilities Department respectively. In Fiscal Year 2010 -11, the General Fund expenditures, net of the Tide Fund, including General Fund capital improvements, total $126.6 million, a decrease of $0.1million,or 0.1% from Fiscal Year 2009 -10 General Fund actual expenditures. Excluding internal service premiums charged to fund insurance reserves, equipment maintenance and replacement, and post employment medical benefits, total expenditures are proposed to be approximately $226.7 million. The budget shortfall between total external revenues and expenditures is due to the timing of Capital Improvement Project ( "CIP ") revenues and expenditures. CIP projects often span one or more fiscal years and it is estimated that $29 million projects will be re- budgeted from a prior fiscal year because such projects were delayed or were only partially completed. These funds are reserved in a Capital Appropriations reserve, but when the appropriation is carried forward to the following year, this re- appropriation causes expenditures to exceed current year revenues. Funding for the Project. The City's Fiscal Year 2010 -11 Adopted Budget includes a set -aside of $31.3 million as part of its Facilities Replacement Program (the "Facilities Replacement Program ") to fund construction expenditures for the Civic Center Project, including a parking structure and library additions, which amount will be reimbursed from proceeds of the Certificates described in the forepart of this Official Statement. See "Reserves — Facilities Replacement Program" for a description of the City's Facilities Replacement Program. The Civic Center project has been reviewed in context of all critical City facility replacement plans. The City's facilities replacement policy limits General Fund annual contributions to debt service to not more that 5% of total General Fund operating budget in any one year. See "Plan of Financing — The Civic Center Project" in the forepart of this Official Statement. Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010- 11 Budget. On October 8, 2010, the Governor signed the 2010 Budget Act (the "2010 -11 State Budget Act ") to address a then - projected $19.3 billion shortfall in revenues. See "State of California Budget Information - Fiscal Year 2010 -11 State Budget" herein. The funding provisions included in the 2010 -11 State Budget Act are expected to have [negative] impacts on City operations. Also, the Governor exercised his line -item veto authority to eliminate $963 million General Fund expenditures included in the legislative spending plan. The details of these reductions are unclear at this time and certain of such reductions may negatively impact the City. A -7 786877.14 034288 OS [The City has reviewed the 2010 -11 Budget Act and reflected the reductions included therein in its Fiscal Year 2010 -11 Adopted Budget. The primary impacts to the City from the 2010 -11 Budget Act include delays in the receipt of gas tax revenues.] Given the current state of the State's economy and the projected imbalance in the State's budget, the City cannot fully anticipate the impact of State's continuing budget challenges on the revenues or expenditures of the City. The City cannot predict the extent of any additional fiscal problems that will be encountered in this or in any future fiscal years, and, it is not clear what measures will be taken by the State or federal government to address the continuing economic downturn. Future State budgets could be affected by national economic conditions and the factors over which the City will have no control. Also, the City cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State's current and future budget deficits or the impact that such actions will have on the City's finances and operations. To the extent that the State budget process results in reduced revenues or increased expenses to the City, the City will be required to make adjustments to its budget. See "State of California Budget Information" herein. Future Budget Impacts. For Fiscal Year 2010 -11, the ERIP is expected to continue to provide operating savings. Notwithstanding the 13% investment earnings realized on pension investments for Fiscal Year 2009 -10, the City is anticipating a significant increase in expenditures in Fiscal Year 2011 -12 as that is when the Fiscal Year 2008 -09 investment losses of 24% (approximately $119.8 million of the market value of assets and $102.9 million of the actuarial value of assets) in connection with pension are factored into the City's pension contribution rates. The City's total pension cost is expected to increase from a budgeted $19.8 million in Fiscal Year 2010 -11 to $21.6 million in Fiscal Year 2011 -12, $25.8 in Fiscal Year 2012 -13 and $28.8 million in Fiscal Year 2013 -14. The City currently has $5 million in its Reserve for PERS Rate Changes to help offset rate increases. See "City of Newport Beach Financial Information — Pension Benefits" herein. A -8 786877.14034288 OS Table A -3 below sets forth the City's original, adopted budget and actual budget results for Fiscal Years 2008 -09 and 2009 -10 and the adopted budget for Fiscal Year 2010 -11. Revenues Taxes and Assessments: Property Sales Sales Tax In -Lieu Transient Occupancy Other taxes Intergovernmental Licenses and Permits Charges for Services Fines and Forfeitures Investment Income Net increase in Fair Value of Investments Property income Donations Other Total Revenues Expenditures: General Government: City Council City Clerk City Attorney City Manager Administrative Services Human Resources Total General Government Public Safety: (2) Police Fire Total Public Safety TABLE A -3 CITY OF NEWPORT BEACH GENERAL FUND BUDGETS") Fiscal Years 2008 -09 through 2010 -11 Fiscal Year 2008 -09 Fiscal Year 2009 -10 Fiscal Year 2010 -11 Original Original Estimated Original Budget Actual Budget Actual Budget $ 68,834,854 $ 70,126,680 $ 71,119,504 $ 71,999,679 $ 70,642,840 22,635,634 17,925,956 19,656,428 17,440,736 17,374,734 8,258,065 7,503,113 7,690,691 4,539,946 6,392,273 13,014,079 11,170,956 13,000,000 11,400,710 11,555,034 8,018,514 8,486,937 7,634,000 7,976,309 8,410,800 2,407,991 2,597,108 2,051,200 2,693,785 1,840,272 5,968,653 4,396,034 2,947,790 2,603,348 2,663,975 15,280,400 14,374,139 14,380,989 15,210,962 13,878,895 3,560,256 3,711,087 3,645,000 3,739,303 3,651,000 2,268,000 1,697,103 1,400,000 706,855 1,050,000 6,117,202 112,500 564,715 $ 157,040,863 $ 1,196,180 524,193 1,542,595 1,810,465 8,390,086 2,155,636 $ 15,619,155 $ 37,936,468 19,540,265 $ 57,476,733 (Table continued on next page.) 1,096,848 6,552,603 261,357 234,573 $150,134,494 $ 1,188,990 469,507 2,097,159 1,779,540 7,889,562 2,053,500 $ 15,478,258 $ 36,646,654 20,639,157 $ 57,285,811 6,018,404 100,000 495,600 $ 150,139,606 $ 1,279,250 381,140 2,403,871 1,619,706 8,156,605 2,357,506 $ 16,198,078 $ 36,886,066 21,077,491 $ 57,963,557 707,200 6,080,577 124,703 1,690,499 $ 146,914,612 $ 1,163,486 382,393 2,688,217 1,163,956 7,356,232 2,331,841 $ 15,086,125 $ 35,374,156 20,733,889 $ 56,108,045 7,232,797 50,000 383,050 $ 145,125,670 $ 1,047,612 500,270 2,379,426 1,809,249 7,824,501 2,321,792 $ 15,882,850 $ 35,599,103 21,536,261 $ 57,135,364 A -9 786877.14 034288 OS (Table continued from prior page) o) Net of year -end allocations of certain General Fund revenues to the Tide Fond for maintenance services. ar Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to each of the Police Department and the Fire Department. In addition, a portion of the Public Safety expenditures relates to police, fire and beach maintenance services utilized in support of operations of the Tide Fund. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09; Adopted Budgets of the City for Fiscal Years 2009 -10 and 2010-11; City for actual revenues and expenditures for Fiscal Y= 2009-10. A -10 786877.14 034288 OS Fiscal Year 2008 -09 Fiscal Year 2009 -10 Fiscal Year 2010 -11 Original Original Estimated Original Budget Actual Budget Actual Budget Public Works: General Services $ 20,801,443 $ 19,690,353 $ 21,098,141 $ 19,445,196 $ 19,550,813 Public Works 5,250,308 5,075,801 5,180,773 5,077,222 4,973,274 Utilities 1,465,258 1,454,692 1,462,862 1,158,994 1,317,935 Total Public Works $ 27,517,008 $ 26,220,846 _ $ 27,741,776 $ 25,681,412 $ 25,842,022 Community Development: Planning $ 4,060,682 $ 4,713,078 $ 3,119,410 $ 3,126,089 $ 3,066,495 Building 4,947,609 3,324,759 4,858,614 4,408,216 4,332,481 Code and Water Quality Enforcement 439,401 264,377 430,204 563,542 266,882 Total Community Development $ 9,447,693 $ 8,302,214 $ 8,408,228 $ 8,097,847 $ 7,665,858 Community Services: Library Services $ 6,966,096 $ 6,521,718 $ 6,629,814 $ 6,554,183 $ 6,562,723 Recreation and Senior Services 7,243,013 6,760,245 7,161,164 6,555,331 7,652,175 Total Community Services $ 14,209,109 $ 13,281,963 $ 13,790,978 $ 13,109,514 $ 14,214,898 Capital Outlay 14,270,981 5,910,047 8,636,613 8,627,010 5,054,497 Debt Service: Principal $ 1,500,000 $ 1,500,000 $ -- $ -- $ 750,000 Interest and Fiscal Charges 71,250 71,250 -- -- 30,000 Total Debt Service $ 1,571,250 $ 1,571,250 $ -- $ -- $ _ 780,000 Total Expenditures $ 140,111,929 $128,050,389 $ 132,739,230 $ 126,709,953 $ 126,575,489 Excess (Deficiency) of Revenues Over Expenditures $ 16,928,934 $ 22,084,105 $ 17,400,376 $ 20,204,659 $ 18,550,181 Other Financing Sources (Uses) Transfers In $ 440,000 $ 690,013 $ 440,000 $ 1,519,725 $ 440,000 Transfers Out (20,884,284) (22,222,293) (20,701,193) (20,677,752) (51,728,627) Issuance of Debt -- -- -- 1,500,000 -- Total Other Financing Sources (Uses) $ (20,444,284) $(21,532,280) $ (20,261,193) $ (17,658,027) _$_288,627 Net Change In Fund Balance $ (3,515,350) $ 551,825 $( 2,860,817) $ 2,546,632 $ (32,738,446) Fund Balance, Beginning $ 79,059,139 $ 79,059,139 $ 79,610,964 $ 79,610,964 $ 82,157,596 Fund Balance, Ending $ 75,543,789 $ 79,610,964 $ 76,750,147 $ 82,157,596 $ 49,419,150 o) Net of year -end allocations of certain General Fund revenues to the Tide Fond for maintenance services. ar Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to each of the Police Department and the Fire Department. In addition, a portion of the Public Safety expenditures relates to police, fire and beach maintenance services utilized in support of operations of the Tide Fund. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09; Adopted Budgets of the City for Fiscal Years 2009 -10 and 2010-11; City for actual revenues and expenditures for Fiscal Y= 2009-10. A -10 786877.14 034288 OS Major Revenues General. The City's General Fund and its activities are primarily supported by ad valorem property, sales and use taxes, and transient occupancy taxes, which account for approximately 73% of total General Fund revenues. Other revenue sources supporting General Fund activities include licenses, fees and permits, intergovernmental revenues, charges for services, fines, forfeitures and penalties, revenues from the use of money and property, contributions, and other miscellaneous revenues. Table A -4 below sets forth the City's total General Fund revenues for selected major revenue sources from Fiscal Years 2006 -07 through 2010 -11. TABLE A -4 CITY OF NEWPORT BEACH SELECTED MAJOR REVENUE SOURCES Fiscal Years 2006 -07 through 2010 -11 Property Taxes. Property tax receipts provide the largest tax revenue source of the City, contributing approximately $70.1 million and $72 million (or 47% and 49% of General Fund revenues) during Fiscal Years 2008 -09 and 2009-10, respectively. Property tax receipts are expected to provide approximately $70.6 million (inclusive of property transfer taxes) or 49% of General Fund revenues for Fiscal Year 2010 -11. Ad valorem property taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date "). For assessment and collection purposes, property is classified either as "secured" or `unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State A -11 786877.14 034288 OS 2006 -07 2007-08 2008 -09 2009 -10 2010 -11 Actual Actual Actual Estimated Budgeted Taxes and Assessments Revenue Category Property Tax $63,003,057 $67,388,838 $70,126,680 $71,999,679 $70,642,840 Sales Tax 21,088,118 21,855,242 17,925,956 17,440,736 17,374,734 Sales Tax in -lieu 7,348,253 8,017,539 7,503,113 4,539,946 6,392,273 Transient Occupancy 12,059,008 12,751,518 11,170,956 11,400,710 11,555,034 Other 8,309,012 8,288,855 8,486,937 7,976,309 8,410,800 Intergovernmental 3,811,671 3,083,152 2,597,108 2,693,785 1,840,272 Licenses and Permits 3,108,651 4,994,304 4,396,034 2,603,348 2,663,975 Charges for Services 14,368,652 14,935,333 14,374,139 15,210,962 13,878,895 Fines and Forfeitures 3,706,150 3,957,864 3,711,087 3,739,303 3,651,000 Investment Income 3,175,582 3,655,314 1,697,103 706,855 1,050,000 Net Increase (Decrease) in fair value of investments (545,533) 508,485 1,096,848 707,200 Property Income 6,471,129 6,603,973 6,552,603 6,080,5777 7,232,797 Donations 1,323,550 1,202,474 261,357 124,703 50,000 Other 1,967,465 1,458,770 234,573 1,690,499 383,050 Total $149,194,765 $158,701,661 $150,134,494 $146,914,612 $145,125,670 Source: City of Newport Beach. Property Taxes. Property tax receipts provide the largest tax revenue source of the City, contributing approximately $70.1 million and $72 million (or 47% and 49% of General Fund revenues) during Fiscal Years 2008 -09 and 2009-10, respectively. Property tax receipts are expected to provide approximately $70.6 million (inclusive of property transfer taxes) or 49% of General Fund revenues for Fiscal Year 2010 -11. Ad valorem property taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date "). For assessment and collection purposes, property is classified either as "secured" or `unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State A -11 786877.14 034288 OS assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." One type of ad valorem property tax is the 1 percent ad valorem property tax levied by the County on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of "situs" growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county -wide or less than city -wide special and school districts. Another type of ad valorem property tax is the ad valorem property levied by the County to pay debt service on voter - approved general obligation bonds. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one -half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax defaulted property is subject to sale by the Office of the County Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one -half percent per month begins to accrue on November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. The County employs an alternate method of property tax apportionment known as the "Teeter Plan ", pursuant to which the County apportions taxing agencies 100% of their levy (adjusted for roll changes) and retains all delinquent receivables. However, the City is not a participant in the Teeter Plan. Accordingly, the City receives its property tax receipts as described above and retains all delinquent receivables relating thereto. Property taxes allocated to the City include an amount to compensate cities for the loss of motor vehicle license fees. Motor Vehicle License Fees ( "VLF ") are levied as a percentage of an automobile's purchase price, subject to depreciation, and are paid annually to the California Department of Motor Vehicles at the time of registration. The fees are then forwarded to the State Controller's Office, which allocates the funds to local governments per capita on a monthly basis. Beginning in 1999, the VLF underwent a series of offsets that ultimately resulted in a 67.0% reduction in the effective VLF rate, from 2.0% of a vehicle's value to 0.65 %. To compensate cities and counties for the tax offset, the State began providing State General Fund revenue to cities and counties on a dollar- for - dollar basis, otherwise known as the VLF backfill. As part of the Fiscal Year 2005 State Budget agreement, the VLF rate was statutorily reduced to 0.65 %, eliminating the VLF backfill. Cities were compensated for the loss in VLF revenue with increased property tax A -12 786877.14 034288 OS revenues. Although the VLF rate has subsequently increased, the City does not share in this increase. The Fiscal Year 2010 -11 Adopted Budget includes $69.4 million in projected property tax revenues, excluding property tax transfer of $1.2 million, consisting of $62.6 million of 1% property tax levy and $6.8 million of "in -lieu of VLF" property tax revenue. Although the City has historically experienced steady growth in assessed valuation of 4% or more, the City assumed for purposes of the Fiscal Year 2010 -11 Adopted Budget that there would be a 0.25% decline in secured property taxes from the prior year, with contingencies for a decline of assessed valuation. According to updated assessed valuation information provided by the County Assessor's Office, the City experienced a year -to -year increase in net taxable value of $38.8 billion, an increase of 0.27% over Fiscal Year 2009 -10 values. A number of factors contributed to the slower growth in assessed valuation for the last several years, such as falling residential real estate prices and increased foreclosures. In addition, the increased number of reassessment applications to the Assessor's Office has contributed to increased refunds to homeowners and less revenue to the City. The 1.0% property tax levy is placed on the total assessed valuation of all commercial, residential, and industrial properties in the City. Due to the downturn on the real estate market, the average median home price decreased nearly 29.6 percent since 2007 through July 2010. In Fiscal Year 2009 -10, the State borrowed approximately 8.0% of property tax revenues from counties, cities and special districts, totaling approximately $1.9 billion, which amount will be repaid within three years, all in accordance with Proposition lA (2004) approved by voters in 2004. The City's share of the borrowing was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. See "Constitutional and Statutory Limitations on Taxes, Revenues and Appropriations — Proposition IA," in the forepart of this Official Statement. A -13 786877.14 034288 OS Table A -5 below sets forth the property tax rates for the City for the Fiscal Years 2005 -06 j through 2010 -11. TABLE A -5 CITY OF NEWPORT BEACH PROPERTY TAX RATES Fiscal Years 2005 -06 through 2009 -2010 Fiscal Years 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 City Direct Rates:0) City Basic Rates $1.000 $1.000 $1.000 $1.000 $1.000 Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water Districts 0.005 0.005 0.004 0.004 0.004 School Districts 0.0349 0.0315 0.0308 0.0302 0.0340 Total Direct Rate $1.040 $1.036 $1.035 $1.034 $1.038 1p In 1978, California voters passed proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: County of Orange Auditor Controller's Office. A -14 786877.14 034288 OS Table A -6 below sets forth the secured and unsecured assessed valuations for property in the City for the Fiscal Years 2006 -07 through 2010 -11. TABLE A -6 CITY OF NEWPORT BEACH ASSESSED VALUATION Fiscal Years 2006 -07 through 2010 -11 Fiscal Locally State Year(i) Assessed Assessed Total Securedl21131 Unsecured Values (4) Total Values (2) 2006 -07 $31,423,419,732 $ 53,310 $31,423,473,042 $1,569,867,249 $32,993,340,291 2007 -08 34,188,515,273 53,310 34,188,568,583 1,668,015,342 35,856,583,925 2008 -09 36,435,406,840 699,230 36,436,106,070 1,538,539,482 37,974,645,552 2009 -10 37,077,896,580 699,230 37,078,595,810 1,564,808,312 38,643,404,122 2010 -11 37,079,578,045 699,230 37,080,217,275 1,626,947,910 38,707,165,185 Ol As of January 1. 2007 -08 69,315,117 68,242,326 (2) Totals do not equal sum of component parts due to independent rounding. 846,904 2008 -09 (n Represents Proposition 13 increases and decreases in taxable value of locally assessed real estate, excluding exempt properties such as churches, hospitals and schools. (294,366) 2009 -10") 68,412,731 (4) Consists of business personal property assessments, plus marine and aircraft assessments. 91.88 Source: County of Orange Auditor Controller's Office. Table A -7 below sets forth property tax collections and delinquencies in the City as of June 30 for Fiscal Years 2005 -06 through 2009 -10. TABLE A -7 CITY OF NEWPORT BEACH PROPERTY TAX LEVIES AND COLLECTIONS Fiscal Years 2006 through 2010 Source: County of Orange Auditor Controller's Office. (D Negative numbers reflect property tax refunds allocated to the referenced year. 121 Net of amount property tax revenues borrowed by the State from the City, which was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. A -15 786877.14 034288 OS Tax Percent of Delinquent Total Collections as of Levy Tax Fiscal Year Tax Levy June 30 Collected Collections(l) 2005 -06 $47,286,816 $45,558,039 96.34% $728,365 2006 -07 70,194,492 68,820,402 98.04 808,765 2007 -08 69,315,117 68,242,326 98.45 846,904 2008 -09 71,006,357 70,879,909 99.82 (294,366) 2009 -10") 68,412,731 62,858,261 91.88 (1,227,109) Source: County of Orange Auditor Controller's Office. (D Negative numbers reflect property tax refunds allocated to the referenced year. 121 Net of amount property tax revenues borrowed by the State from the City, which was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. A -15 786877.14 034288 OS Table A -8 below sets forth the 10 largest taxpayers in the City as shown on the Fiscal Year 2009- 10 secured tax roll and the land use, the assessed valuation and the percentage of the City's total property tax revenues attributable to each such taxpayer. TABLE A -8 CITY OF NEWPORT BEACH TEN LARGEST TAXPAYERS Fiscal Year 2009 -10 Property Owner 1. The Irvine Company 2. MacArthur Rockwell Semiconductor 3. Newport Bluffs LLC 4. Balboa Bay Club Inc. 5. 100 Bayview LLC 6. UDR Newport Beach North LP 7. Coronado South Apartments LP 8. Newport Healthcare Center 9. Jazz Semiconductor Inc. 10. HHR Newport Beach LLP "' 2009 -10 Total City Assessed Valuation of $38,643,404,122. Source: County of Orange Assessor's Office. Taxable Assessed Percentage of Valuation Total.. $1,845,922,190 4.78% 145,017,612 0.38 138,143,707 0.36 128,568,741 0.33 124,169,842 0.32 117,788,896 0.30 114,618,841 0.30 103,942,105 0.27 103,174,333 0.27 86,937,294 0.22 Sales Taxes. Sales tax receipts provided the second largest tax revenue source of the City, contributing approximately $17.9 million and $17.4 million (or 11.9% and 11.8% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. Sales tax receipts are expected to provide approximately 17.4 million or 12.0% of General Fund revenues for Fiscal Year 2010 -11. Collected at the point of sale, sales tax receipts are remitted to the State Board of Equalization, which allocates tax revenue owed to the City in the form of monthly payments. According to the Bradley - Burns Sales and Use Tax law, cities are to receive one cent of the total 8.25 cent statewide sales tax levied on each dollar of taxable sales. Sales tax also includes a half -cent tax approved by California voters in 1993 pursuant to Proposition 172 for the purpose of funding local public safety expenditures. Beginning in Fiscal Year 2004 -05, the City's sales tax revenues have included a reimbursement from property taxes that the City will receive as a result of the "triple flip ", the shift enacted by the State in Fiscal Year 2004 -05 pursuant to which local governments shift one - quarter of a cent of their Bradley - Burns Sales and Use Tax to the State in exchange for an equivalent amount of property tax. Once the State's Economic Recovery Bonds are repaid in full, local governments are expected to lose the property tax reimbursement, but will instead regain the one - quarter -cent sales tax that was diverted to the State by the triple -flip. This shift is different from the MVLF property tax swap which is considered to be a permanent shift of revenues from MVLF to property tax. The State may elect to repay its Economic Recovery Bonds prior to their expected payment date if sales tax revenues are sufficient to support such repayment. The timing of such repayment and the associated cessation of the property tax reimbursement and one - quarter -cent sales tax diversion are not expected to affect amounts available to repay the principal and interest with respect to the Certificates. A -16 786877.14 034288 OS The Fiscal Year 2010 -11 Adopted Budget includes $17.4 million in projected sales tax revenues, which excludes $6.4 million in triple flip reimbursements. Such amounts are in addition to $0.7 million in Proposition 172 safety sales tax revenue derived from a half -cent sales tax resulting from the passage statewide of Proposition 172 in November 1993, which must be used solely for local public safety purposes. Sales tax revenues are dependent on consumer behavior, which has been negatively affected by the current economic recession, falling home prices and tightening credit policies. Sales revenues have decreased from $21.9 million in Fiscal Year 2007 -08 to $17.4 million in Fiscal Year 2009 -10 and are projected to be $17.4 million in Fiscal Year 2010 -11 . Sales tax revenues are expected to increase as employment conditions improve and consumer confidence is restored. Safety sales tax receipts typically follow the same economic trends as sales tax receipts, but are distributed to cities based on a different allocation formula than the distribution of sales tax. The City can provide no assurance that actual sales tax receipts will not be materially less than projected. Transient Occupancy Tax. TOT receipts provided the third largest tax revenue source of the City, contributing approximately $11.2 million and $11.4 million (or 7.4% and 7.8% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. TOT receipts are expected to provide approximately $11.6 million or 8.0% of General Fund revenues for Fiscal Year 2010 -11. The TOT accrues to the City at a rate of 10% of room charges (with 18% of this collection going to the local CVB. The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of approximately twenty inns, motels, hotels and resorts and accounted for 91.3% of TOT revenues in Fiscal Year 2009 -10. The residential category is made up of approximately 700 vacation rentals represented 8.7% of TOT revenue in Fiscal Year 2009 -10. The Fiscal Year 2010 -11 Adopted Budget includes $11.6 million in projected TOT revenues, which reflects a $0.2 million increase over Fiscal Year 2009 -10 actual TOT receipts. Transient occupancy tax collections generally follow a similar trend as sales taxes. The recent hotel expansions and the addition of a new luxury resort within the City have mitigated some of the effects of negative economic conditions the last few years. Other Funds In addition to the City's General Fund, there are numerous other funds whose amounts are used to finance City expenditures, including capital improvements. The City's Special Revenue Funds are used to account for the proceeds of special revenue sources, which are legally restricted to expenditures for specific purposes. One such Special Revenue Fund is the City's Gas Tax Fund, which is funded by the State Gasoline Tax and can only be expended for street repair, construction, and maintenance. The City has many other special revenue funds that are included in its budget. The City employs Internal Service Funds to account for vehicle maintenance and replacement, as well as all compensated absences, general liability, workers' compensation, and other insurance payments. These internal service funds are funded by charging each of the operating departments a rate computed to support these activities. Further, the City's budget includes Enterprise Funds, which are used to account for City operations that are financed and operated in a manner similar to private business enterprises. The objective of segregating activities of this type is to identify the costs of providing the services, and to finance them through user charges. The two main City enterprise funds are the City's Water Fund and the Wastewater Fund. Both of these funds are financed by user charges to the customers (residents and businesses of Newport Beach). A -17 786877.14034288 OS None of the amounts in the City's Special Revenue Funds, Internal Service Funds or Enterprise Funds are pledged to repayment of the principal and interest with respect to the Certificates. Reserves Reserves/Designations of Fund Balance. The City has established a Reserves/Designations of Fund Balance policy, as amended through November 12, 2008 (the "Reserves Policy "), for the administration of financial reserves and fund balances. Reserves are to be funded at the levels specified in the Reserves Policy as part of the annual budget process. If operational or other considerations require the City Council to temporarily override the Reserve Policy during any fiscal year, the City Manager will recommend to the City Council a plan to restore any reserves falling below required minimum levels and reserve levels will be restored as soon as practical. If the reserve requirements set forth in the Reserves Policy are unmet in any fiscal year, the City Manager will recommend funding prioritization to the City Council as part of the Budget. The City Council decides whether to appropriate funds from reserve accounts. Reserve amounts will not be spent for any function other than the specific purpose of the reserve account from which they are drawn without specific direction in the annual budget resolution or by a separate City Council resolution approving that specific action. Each of the City's funds, including the General Fund, contains accounting reserves (non discretionary), contingency reserves, designated reserves (strategic savings) and stabilization reserves. Accounting reserves are established pursuant to GAAP and represent the unspendable portions of fund balance, such as inventories and long -term receivables, as well as funds that are legally restricted by some external source, such as debt service reserves and encumbrances. Contingency reserves represent funds for unexpected financial emergencies, such as the adverse impact of natural disasters. Designated reserves or strategic savings are designated for known or anticipated events that events require large, non - recurring financial outlay, such as the replacement of systems and equipment or major capital improvements. Stabilization reserves facilitate the orderly management of the operating budget by stabilizing revenues and expenditures within the context of large market fluctuations. The City's General Fund contains a contingency reserve with a target balance of not less than 12% of annual General Fund expenditures. Funds in this reserve cannot be used without the specific authorization of City Council. The General Fund contingency reserve is currently at the target balance set forth in the Reserves Policy. The City's General Fund also contains three stabilization reserves: an appropriations reserve that serves as a temporary repository for funds not yet fully appropriated in the annual budget; a reserve for capital projects, and a PERS rate reserve to help smooth (for internal budgeting purposes) the year -to -year fluctuations in PERS rates, which is accomplished by budgeting the normal cost of PERS rates and setting aside excess amounts when actual PERS rates are below budgeted levels and drawing on such amounts when actual PERS rates are above budgeted levels. Further, the City's General Fund includes a number of accounting reserves, such as those for debt service, long -term receivables and encumbrances, and a number of designated reserves, such as those for off - street parking, affordable housing, neighborhood enhancement and capital improvements See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Funding for the Project" herein. Facilities Replacement Program. The City has established a Facilities Replacement Program, as amended through August 11, 2009 (the "Facilities Replacement Policy "), to address the replacement or major renovation of existing physical infrastructure and the addition of new facilities. Funding for the program is derived from development fees, contributions from individuals and organizations within the community, annual budget appropriations from the General Fund, net A -18 786877.14 034288 OS proceeds of financings and investment earnings on temporarily idle funds. Program funds are used for actual site acquisition, design, construction, directly related costs and debt service expenses. Pursuant to the Facilities Replacement Policy, General Fund contributions to the Facilities Replacement Program should be in the range of 3.0% to 4.5% of the General Fund operating budget each year (exclusive of periodic year- end -close contributions of unexpended appropriations originally budgeted for other purposes or contributions of unexpected one -time revenues not specified for another purpose), but not in excess of 5.0% of the total General Fund operating budget, subject to certain limited exceptions. The Facilities Replacement Policy also provides that the final maturity for any borrowed funds shall not exceed 30 years or the projected life of the new facility, whichever is earlier. The City's Fiscal Year 2010 -11 budget appropriates $31.3 million as part of its Facilities Replacement Program to fund construction expenditures for the Civic Center Project, including a parking structure and library additions, which amount will be reimbursed from proceeds of the Certificates described in the forepart of this Official Statement. The projected General Fund Balance of $49.40 million, as set forth in the Fiscal Year 2010 -11 budget, is net of the foregoing set - aside. The City intends to reimburse itself for Civic Center Project expenditures from the proceeds of the Certificates. Other Reserves. The City has also established a number of other reserves pursuant to its reserves and funding policies, including reserves for the Tide Fund, the Permanent Endowment Fund (Robinson Skinner Annuity) for Newport Bay Dredging, the Water Fund, the Wastewater Fund and the Internal Service Fund (the "Internal Service Fund "). See "City of Newport Beach Financial Information — Risk Management" herein. In addition, the Reserves Policy sets forth the City's funding policies with respect pension benefits and OPEB. The City currently has $5 million in its Reserve for PERS Rate Changes to help offset rate increases. See "City of Newport Beach Financial Information — Pension Benefits" and "City of Newport Beach Financial Information — Other Post Employment Benefits" herein. The amounts in such funds, including the reserves therein, are not pledged for payment of the principal and interest with respect to the Certificates. Capital Projects The City's CIP serves as a plan for the provision of public improvements, special projects, on- going maintenance programs, and the implementation of the City's master plans. Projects in the CIP include improvements and major maintenance on arterial highways, local streets, and alleys; storm drain and water quality improvements; bay, pier, and beach improvements; park and facility improvements; water and wastewater system improvements; transportation safety and traffic signal improvements; and planning programs and studies. The proposed Fiscal Year 2010 -11 CIP consists of 51 projects representing nearly $24 million in new appropriations and more than $29 million in re- budgeted funds for a total CIP budget of $52,916,797. Major funding initiatives include Rhine Channel dredging, Big Canyon restoration, Jamboree Road Bridge widening and Jamboree Road improvements. Significant work continues on major facilities projects such as the Civic Center, Marina Park, and Sunset Ridge Park. Given the current fiscal climate, the development of the proposed CIP was limited to meeting Council priorities and master plan requirements. As a result, the Fiscal Year 2010 -11 CIP represents a 12.9% decrease in total funding compared to the adopted Fiscal Year 2009 -10 CIP. Essential projects were prioritized and summarized by available funds and presented to the City Council for consideration. Funding of capital projects is derived from multiple funding sources. A -19 786877.14 034288 OS Labor Relations As of July 1, 2010, the City employs approximately 808 full -time and 135 full -time equivalent employees. The 135 full -time equivalent employee hours are staffed by approximately 479 part-time employees. The City has ten labor organizations which represent an aggregate 1,004 classified employees. The labor organizations are the Firefighters Association, the Fire Management Association, the Lifeguard Management Association, Police Association, Police Management Association, Association of Newport Beach Ocean Lifeguards, Newport Beach City Employees Association, Newport Beach Employees League, Professional and Technical Association, and Part- Time Unit (UPEC Local 777). The City has never experienced a strike or other work stoppage. Table A -9 below sets forth the City's employee labor organizations and their respective contract expiration dates. TABLE A -9 CITY OF NEWPORT BEACH EMPLOYEE LABOR ORGANIZATIONS As of September 7, 2010 ") Terms of expired contracts remain in effect until new contracts are executed Source: City of Newport Beach. Pension Benefits California Public Employees' Retirement System. The City contracts with, and contributes to, the California Public Employees' Retirement System ( "PERS "), an agent multiple - employer public employee defined benefit pension plan, for certain defined pension benefits. PERS provides retirement and disability benefits, annual cost -of- living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Such information is not incorporated herein by reference. City safety employees and City non - safety employees participating in PERS are required to contribute 9% and 8 %, respectively, of their annual covered salary. Pursuant to the terms of labor contracts with safety employees, the City historically made the entire contribution required of City safety employees on their behalf and for their account. Effective December 19, 2009, February 27, 2010 and A -20 786877.14 034288 OS Approximate Number of Employees Contract Labor Organizations In Organization Expiration Date Newport Beach Firefighters Association 119 December 31, 2011 Fire Management Association 6 December 31, 2010 Lifeguard Management Association 17 December 31, 2011 Police Association 206 December 31, 2011 Police Management Association 33 December 31, 2011 Association of Newport Beach Ocean Lifeguards 197 April 30, 2011 Newport Beach City Employees Association 103 June 30, 2010 "I Newport Beach Employees League 156 June 30, 2010([) Professional & Technical Association 91 June 30,2010 11I Part-Time Unit (UPEC Local 777) 76 June 30, 2010"1 ") Terms of expired contracts remain in effect until new contracts are executed Source: City of Newport Beach. Pension Benefits California Public Employees' Retirement System. The City contracts with, and contributes to, the California Public Employees' Retirement System ( "PERS "), an agent multiple - employer public employee defined benefit pension plan, for certain defined pension benefits. PERS provides retirement and disability benefits, annual cost -of- living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Such information is not incorporated herein by reference. City safety employees and City non - safety employees participating in PERS are required to contribute 9% and 8 %, respectively, of their annual covered salary. Pursuant to the terms of labor contracts with safety employees, the City historically made the entire contribution required of City safety employees on their behalf and for their account. Effective December 19, 2009, February 27, 2010 and A -20 786877.14 034288 OS July 3, 2010, members of the Newport Beach Firefighters Association, Newport Beach Lifeguard Management Association and Police Association and Police Management Association, respectively, will contribute 3.5% of base pay to offset the 9% PERS member contribution made by the City. Safety employees have also agreed to a PERS contract amendment that requires all new safety employees to pay 5.5% of the 9% PERS member contribution for their first five years of uninterrupted service. Since January 2008, pursuant to agreements with non - safety employees, the City has contributed 7% and non- safety employees have contributed 1% of the 8% non- safety employee required contribution. Non - safety employees also contribute 2.42% of the City's employer contribution. Benefit provisions and all other requirements are established by State statutes and City contracts with employee bargaining groups. The City's contributions to the PERS plan include the employer -paid member contribution described above and the actuarially determined annual required contribution ( "ARC "), which fluctuates each year based on an annual actuarial plan valuation. The ARC is calculated using the entry age actuarial cost method and consists of two components: the "normal cost ", which represents the portion of the actuarial present value of the benefits that the City and its employees will be expected to fund that are attributable to a current year's employment, and the amortized amount of the unfunded actuarial accrued liability ( "UAAL "). The amortization of the UAAL represents the current year's portion of the unfunded accrued costs (i.e., the UAAL) attributable to past years' employment. The UAAL is an estimate based on a series of assumptions that operate on economic and demographic data of the PERS plan membership and may increase or decrease as result of changes in actuarial assumptions (such as the assumed investment rate of return of 7.75 %, net of administrative expenses), benefit improvements and other experience that differ from that anticipated by the actuarial assumptions. This process is used to determine, as of the date of the calculation, how sufficient the assets in the PERS plan are to fund, as of the date of calculation, the accrued costs attributable to PERS plan participants. The funding sufficiency is typically expressed as the ratio of the valuation assets to the actuarial accrued liabilities. If the actuarially calculated funding level of a plan is less than 100 %, the plan has a UAAL. For a summary of principal assumptions and methods used to determine the ARC for the City's PERS plan for safety and non - safety employees, see Note 10 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". When measuring assets for determining the UAAL, many pension plans, including the City's PERS plan, "smooth" gains and losses to reduce volatility. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Pursuant to the Employer Rate Stability Policy (herein defined) adopted by PERS and the "fresh start" implemented in connection therewith, gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of approximately 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. Using a rolling 30 -year amortization period for measuring the actuarial accrued liability could result in the UAAL continuing to rise indefinitely even if the City were to contribute the full ARC in each year. Under certain circumstances, the City may be unable to effectively amortize the plan's UAAL. In April 2005, the PERS Board of Administration adopted its Employer Rate Stability Policy (the "Employer Rate Stability Policy "), which provided for, among other things, calculating the annual contribution amount with regard to gains and losses as a rolling 30 -year amortization of all remaining unamortized gains and losses (as opposed to recognizing 10% of annual gains and losses pursuant to prior policy) beginning with the actuarial valuation as of June 30, 2004. Pursuant to such policy change, multiple amortization bases (including those for benefit improvement or changes in actuarial methods or A -21 786877.14 034288 OS assumptions, which are typically less than 30 years) were combined into a single base (the gain and loss bases) and amortized over a rolling 30 -year period to effect a "fresh start" as of June 30, 2004. The Employer Rate Stability Policy did not affect other existing amortization bases for benefit improvements, assumptions changes and method changes. After accounting for the investment return of 16.7% for Fiscal Year 2003 -04 and the implementation of the Employer Rate Stability Policy and the fresh start, as of June 30, 2004, the City's non - safety plan had an actuarial value of assets of $140,911,426, a market value of assets of $138,642,729 and accrued liabilities of $151,246,453 and its safety plan had an actuarial value of assets of $200,715,264, a market value of assets of $648,199 and accrued liabilities of $437,343. As of June 30, 2004, as a result of the fresh start, $ was credited to the non - safety plan and $ was credited to the safety plan. As of June 30, 2008, the date of the most recent actuarial valuation prepared by PERS, a $775,562 credit was included in the calculation of the City's required contribution for the non - safety plan (which had accrued liabilities of $217.4 million) and a $554,430 credit was included in the calculation of the City's required contribution for the safety plan (which had accrued liabilities of $336.1 million) as a result of the fresh start. Beginning with the June 30, 2009 valuation, PERS will implement a 3 -year phase -in of the 24% investment losses experienced in Fiscal Year 2008 -09. The phased -in approach entails temporarily increasing the corridor limits for establishing the actuarial value of assets from 80 -120% of market value of assets to 60 -140% of market value on June 30, 2009 (which impacts the Fiscal Year 2011 -12 contribution rate), changing the corridor limits to 70 -130% of market value on June 30, 2010 (which impacts the 2012 -13 contribution rate) and returning to the 80 -120% of market value corridor limits for the actuarial value of assets on June 30, 2011 (which impacts contribution rates for Fiscal Year 2013 -14 and thereafter). According to PERS, the Fiscal Year 2008 -09 asset loss, isolated outside of the 80 -120% corridor, will be calculated amortized using a fixed 30 -year schedule. Temporary expansion of the corridor limits for the actuarial value of assets is expected to result in lower City pension contributions in the short-term and a higher UAAL in the long -term. The amortization periods and assumptions used by PERS are subject to change from time to time. The City cannot predict the nature or effect of such changes on the City's pension costs. For Fiscal Year 2009 -10, PERS experienced 13% earnings on pension investments. There is a lag between the point in time at which the actuary completes the actuarial valuation and the date that the contribution rates calculated in the valuation go into effect. This lag is typically two years. The actuarial valuation of the plan as of June 30, 2009 [based on near -final draft; to be updated with final results], the most recent actuarial valuation provided by PERS, sets forth the employer contribution rates for Fiscal Year 2011 -12, which are 14.628% for non - safety employees (prior to application of cost - sharing arrangements) and 35.028% for safety employees (prior to application of cost - sharing arrangements) of annual covered payroll. After the application of cost - sharing arrangements, the employer contribution rates are _% and _% of annual covered payroll for non - safety employees and safety employees, respectively. The employer contribution rates for Fiscal Year 2010 -11 are 8.406% for non - safety employees (inclusive of applicable cost - sharing arrangements) and 30.202% for safety employees of annual covered payroll. Without the cost sharing agreement with non - safety employees, the contribution rate would have been 10.826% for non- safety employees. The City has included its ARC in the Fiscal Year 2010 -11 Adopted Budget. The employer contribution rate for Fiscal Year 2009 -10 was 7.734% for non - safety employees (inclusive of applicable cost - sharing arrangements) and 28.760% for safety employees of annual covered payroll. The employer contribution rate for Fiscal Year 2008 -09 was 9.055% for non - safety employees (inclusive of applicable cost - sharing arrangements) and 29.67% for safety employees of annual covered payroll. A -22 786877.14 034288 OS Under GASB 27, an employer reports an annual pension cost ( "APC ") equal to the ARC plus an adjustment for the cumulative difference between the APC and the employer's actual plan contributions for the year. The cumulative difference is called the net pension obligation ( "NPO "). Pursuant to the City's Reserves Policy, the City makes contributions to the plan equaling at least 100% of the ARC. Because the City pays the entire ARC each year, by definition, its NPO at the end of each year is $0. For more information on the City's pension plan and funding levels, see Note 10 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Table A -10 below sets forth the APC, percentage of APC contributed and NPO for Fiscal Years 2006 -07 through 2009 -10 and the estimated amounts for Fiscal Year 2010 -11. TABLE A -10 CITY OF NEWPORT BEACH PERS ANNUAL PENSION COSTS Fiscal Years 2006 -07 through 2010 -11 Annual City General % of Annual Pension Fiscal Year Pension Cost(') Fund Portion Cost Contributed 2006 -07 $16,207 $15,363 100% 2007 -08 16,454 15,613 100 2008 -09 18,405 17,526 100 2009 -10121 17,822 17,072141 100 2010 -1111 19,819 18,99911, 100 Net Pension Obligation 1 Includes City contribution and employer paid member contributions. (21 Actual; unaudited. 131 Projected; includes 0% vacancy assumption. ( <> Does not reflect 3.5% of base pay (equal to $167,428) contribution by safety members of the Newport Beach Firefighters Association. 151 Does not reflect budgeted 3.5% of base pay (equal to approximately $897,501) contribution by safety members of the Newport Beach Firefighters Association, Newport Beach Lifeguard Management Association and Police Association and Police Management Associations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2008- 09; City approved Budget for Fiscal Years 2009 -10 and 2010 -11. See Appendix B —"City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -23 786877.14 034288 OS Table A -11 below sets forth the PERS schedule of funding progress for Fiscal Years 2004 -05 through 2008 -09. TABLE A -11 CITY OF NEWPORT BEACH PERS SCHEDULE OF FUNDING PROGRESS Fiscal Years 2004 -05 through 2008 -09 ($ in thousands) The City's pension costs are expected to substantially increase due to, among other things, the PERS investment losses of 24.0% in Fiscal Year 2008 -09, the significant increase in unfunded liability as a result of such losses, the greater longevity of plan members and lower than expected actual rates of return on investments. From Fiscal Year 2010 -11 to Fiscal Year 2014 -15, absent changes to the actuarial assumptions and City pension arrangements with employees, the City's pension contribution rates (inclusive of the employer -paid member contributions described herein) as a percentage of covered payroll is projected to increase from 15.4% to 26.8% (from $6.78 million to $12.91 million) for non- safety employees and from 35.7% to 57.7% (from $11.89 million to $19.12 million) for safety employees, A -24 786877.14 034288 OS Funded Status Entry Age Unfunded Valuation Normal Actuarial Market Liability Actuarial Annual UAAL as a Date Accrued Value of Value of (Excess Value of Market Covered Percentage (June 30) Liability Assets(l) Assets Assets) Assets(l) Value Payroll of Payroll 2005 Miscellaneous $161,371 $150,730 $155,028 $10,641 93.4% 96.1% $32,218 31.098% Safety 267,192 215,965 222,326 51,227 80.8 83.2 24,303 210.785 Total $428,563 $366,695 $377,354 $61,868 85.6% 88.1% $58,521 105.719% 2006 Miscellaneous $183,637 $163,158 $173,031 $20,479 88.8% 94.2% $37,224 55.016% Safety 296,420 231,701 $246,396 64,719 78.2 83.1 26,053 248.413 Total $480,057 $394,859 $419,427 $85,198 82.3% 87.4% $63,277 134.643% 2007 Miscellaneous $192,178 $178,524 $206,931 $13,654 92.9% 107.7% $36,795 37.108% Safety 308,552 250,062 $292,102 58,490 81.0 94.7 25,035 233.633 Total $500,730 $428,586 $499,033 $72,144 85.6% 9 9.7% 361,830 116.681% 2008 Miscellaneous $217,378 $195,954 $199,722 $21,424 90.1% 91.9% $41,148 52.066% Safety 336,061 264,634 $272,104 71,427 78.7 81.0 28,056 254.587 Total $553,439 $460,588 $471,826 $92,851 83.2% 8 5.3% $69,204 134.170% 20091 21 Miscellaneous $249,666 $207,818 $152,670 $41,849 83.2% 61.1% $42,893 97.566% Safety 366,918 274,649 200,974 92,269 74.9 54.8 30,253 304.991 Total $616,584 $482,469 $353,644 $134,118 78.2% 5 7.4% $73,146 183.357% 0) Reflects the fresh start established as of June 30, 2004. 127 Decrease in market value for Fiscal Year 2008 -09 is attributable to the PERS investment loss of 24.0% in Fiscal Year 2008 -09. Does not reflect approximately $125 million of net unsmoothed losses for Fiscal Year 2008 -09. Source: California Public Employee's Retirement System Actuarial Reports for the respective Fiscal Years for market value of assets and Fiscal Year 2008 -09 data; City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09 for all other data for Fiscal Years 2004 -05 through 2007 -08. The City's pension costs are expected to substantially increase due to, among other things, the PERS investment losses of 24.0% in Fiscal Year 2008 -09, the significant increase in unfunded liability as a result of such losses, the greater longevity of plan members and lower than expected actual rates of return on investments. From Fiscal Year 2010 -11 to Fiscal Year 2014 -15, absent changes to the actuarial assumptions and City pension arrangements with employees, the City's pension contribution rates (inclusive of the employer -paid member contributions described herein) as a percentage of covered payroll is projected to increase from 15.4% to 26.8% (from $6.78 million to $12.91 million) for non- safety employees and from 35.7% to 57.7% (from $11.89 million to $19.12 million) for safety employees, A -24 786877.14 034288 OS and remain at this level for approximately 30 years. The City is exploring various options to address the projected cost increases, including the potential for negotiating additional employee contributions and the creation of a new tier of reduced pension benefits of new employees. If the City is unsuccessful in attaining such cost reductions, the City may make additional operations reductions, which may include furloughs and layoffs. For information regarding retirement plans, deferred compensation plans, defined contribution plans and post employment benefits, see "Summary Information" and Notes 9, 10 and 11 in Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. Public Agency Retirement System. Alternate Retirement Plan. The City entered into a defined contribution plan administrated by Public Agency Retirement System, a private administrator known, for all of its part -time employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part -time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75 %. The City's contributions for each employee and the interest thereon are fully vested immediately. There is no actuarial accrued liability attributable to past years' employment. For the year ended June 30, 2009, the City's covered payroll for employees participating in the plan was $2,919,260. Employees made contributions of $109,472 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,485,659 at June 30, 2009. For the year ended June 30, 2010, the City's covered payroll for employees participating in the plan was $2,963,120. Employees made contributions of $111,117 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,576,490 at June 30, 2010. The City's estimated covered payroll for employees participating in the plan during Fiscal Year 2010 -11 is $3,341,227 and employee contributions are budgeted at $125,296. Supplemental Retirement Plan. At its December 8, 2009 regular meeting, the City Council approved Resolution 2009 -90 authorizing its ERIP through PARS. The ERIP was one part of a multi - pronged approach to help close a projected deficit in the City's Fiscal Year 2009 -10 General Fund. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Fiscal Year 2009 -10 Results" herein. The ERIP provides participating employees with a supplement to their normal PERS retirement benefits through an additional payment from the City. Fifty -one employees elected to participate in the ERIP. Eligible retirees were given the option of receiving a direct lump sum payment, fixed term distribution or a lifetime benefit. To finance the ERIP, the City entered into a funding arrangement with a third party insurance company pursuant to which the City will make fixed annual payments in the amount of $819,241 per year for five years. Thereafter, the City will have no further funding obligation with respect to the ERIP. Laborer's International Union of North America. The City is the agent for employees to contribute funds to support a supplemental pension plan for some employee associations through contract with Laborer's International Union of North America ( "LIUNA "). The contract is funded at a fixed percentage of total compensation on a pay -as- you -go basis. The City is not contractually required to guarantee the level of the ultimate LIUNA benefit to retirees nor does it do so. Other Post Employment Benefits General. The City has established the City of Newport Beach Medical Expense Reimbursement Plan (the "Reimbursement Plan "). All employees and eligible retirees participate in the A -25 786877.14 034288 OS Reimbursement Plan through a Health Reimbursement Arrangement ( "HRA") that is held in trust and managed by ING pursuant to IRS Revenue Ruling 2002 -41 (June 26, 2002) and IRS Notice 2002 -45 (June 26, 2002). The City is the sole employer for the Reimbursement Plan. As of June 30, 2009, the Reimbursement Plan had a total of 1,194 participants, consisting of 521 miscellaneous employees, 273 safety employees, and 400 retirees and their beneficiaries. As of June 30, 2010, the Reimbursement Plan had a total of 1,181 participants, consisting of 462 miscellaneous employees, 271 safety employees, and 448 retirees and their beneficiaries. For a description of the benefits provided pursuant to the Reimbursement Plan, see Note 11 of the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Defined Contribution Portion. The City established a defined contribution program within the Reimbursement Plan, effective January 2006 (the "New Plan "), that requires mandatory employee and employer contributions. Benefits depend solely on amounts contributed to the plan, plus investment earnings thereon, and the City has no further funding obligation to the New Plan once the contributions are made to the applicable employee's account. Participants in the New Plan include all employees hired after January 1, 2006, certain employees hired prior to this date and certain employees hired prior to January 1, 2006 that elected to fully convert ( "Fully Converted Participants ") to the New Plan. Consistent with agreements between the City and applicable employee labor contracts, the New Plan will be 100% funded, on an ongoing basis, as part of the annual budget process. Funds to cover this expenditure will be contained within the salary section of each department's annual operating budget. Defined Benefit Portion. Employees who retired prior to January 1, 2006 receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month (the "Old Plan "). The Old Plan is closed to new participants. The cost of the Old Plan is divided among the City, current employees and retirees. Prior to 2001, the Old Plan was largely funded on a pay -as- you -go basis and the City accrued unfunded liabilities. The City began funding its accrued liabilities in 2001. In 2008, such assets were placed in a pre- funding trust. The City intends to amortize the remaining unfunded liability within 20 years. See "— Funding" below. Hybrid Portion. Certain employees hired prior to January 1, 2006 had the option to retain a hybrid of the Old Plan or to fully convert to the New Plan. Employees electing to retain a hybrid of the Old Plan ( "Hybrid Participants ") participate in a program that requires mandatory defined contributions by employees and the City, as well as a defined benefit consisting of an ongoing contribution from the City to the participant's HRA account each month after retirement. These employees are also eligible to receive health care benefits under the City's group health care plans, provided they pay the City $100 per month, up until their retirement, to offset the unfunded portion of post employment health benefits existing at the inception of the plan. Funding. Employee and City contributions to the Reimbursement Plan are based on the participant's status as Fully Converted Participant, Hybrid Participant or retired participant. See Note 11 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Historically, Reimbursement Plan expenses were funded on a pay -as- you -go basis. In 2001, the City began setting aside amounts for its accrued liability. In 2008, the City entered into an agreement with the PERS as a participating employer in the CalPERS Employers Retirement Benefits Trust ( "CERBT ") to pre -fund future OPEB expenses and placed its previously accumulated cash reserves in the amount of $8.8 million in trust, reducing the City's unfunded accrued liability to $49.8 million. In Fiscal Year 2009 -10, the City contributed $2.02 million to the CERBT. For Fiscal Year 2010 -11, the City budgeted A -26 786877.14 034288 OS approximately $2.13 million contribution to the CERBT. As of June 30, 2010, the balance in the CERBT was approximately $6.79 million. Pursuant to the City's Reserve Policy, the City will pre -fund the "explicit subsidy" or cash subsidy portion of the actuarial accrued liability of the Old Plan over a 20 -year amortization period, or less. This amount will be based on the ARC determined by a biennial actuarial review, subject to review and analysis by the City. The annual target reserve balance will be established and maintained through the same process. Because one of the two health plans offered by the City is a non - community -rated plan and retirees are offered the same premium rates as active employees, GASB 45 requires that an "implied subsidy" (the difference between expected claims and premiums paid for retirees) be valued for the life of the retiree and accrued as a cost of the retiree health care plan. The City has elected to fund the implied subsidy on a pay -as- you -go basis since employer contributions to active and retiree medical plans are fixed, and significant uncertainty exists whether additional cash flows will occur in the future as a result of the implied subsidy. Pursuant to the City's Reserve Policy, the City will not separately fund any actuarially defined liability for "implied subsidy ". However, the City plans to meet all other contributions connected with this retiree benefit pursuant to GASB 45. Costs for administering the Old Plan are included in the Human Resources Department's annual operating budget. See Note 11 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". In connection with compliance with GASB 43 and GASB 45, the City has calculated its net OPEB obligation ( "NOPEBO ") as of June 30, 2009 to be approximately $4.4 million. The NOPEBO is the cumulative difference between the City's annual OPEB cost and the City's contributions to OPEB in a particular year, including the OPEB liability or asset at transition, if any. Annual OPEB cost is equal to (i) the ARC for OPEB, (b) one year's interest on the NOPEBO from prior years (which the City determined to be $6.2 million at the beginning of Fiscal Year 2007 -08, the transition year, in accordance with GASB 45), and (c) an adjustment to the ARC for OPEB to offset the effect of actuarial amortization of past under- or over - contributions. The most recent actuarial valuation of the City's Reimbursement Plan was prepared as of June 30, 2008 (the "2008 OPEB Valuation ") for the purpose of determining the City's annual cost in accordance with GASB 45. The valuation reflected an entry age normal cost method and included a fixed 20 -year amortization period, a discount rate of 7.75% for the cash subsidy to be prefunded through the CERBT, a discount rate of 5% for the implied subsidy to be funded from the City's General Fund and projected salary increases of 3.25% per year. The 2008 OPEB Valuation also reflected the actuarial value of assets being established between 80 -120% of market value of assets and gains and losses in the actuarial value of assets being recognized over a 5 -year period. Further, the 2008 OPEB Valuation reflected the following unfunded liability amortization: the initial unfunded liability as of June 30, 2007 being amortized as a level percentage of pay over 20 years (with 17 years remaining as of June 30, 2010), benefit and assumption changes being amortized as a level percentage of pay over a fixed 20 years, gains and losses being amortized as a level percentage of pay over a rolling 15 years, experience gains and losses being amortized over a rolling 15 years. According to the 2008 OPEB Valuation, using the assumptions and methodology described above and consistent with GASB 45, the UAAL for OPEB for all retirees and participants was $40.2 million as of June 30, 2008 and projected to be $43.8 million as of June 30, 2009. The cash subsidy portion of the Reimbursement Plan had a funded status of 30.5% as of June 30, 2008. The implied subsidy portion reflected a funded status of 0% because that portion is funded on a pay -as- you -go basis. Pursuant to the 2008 OPEB Valuation, the City's ARC for Fiscal Year 2010 -11 is projected to be 6.4% of covered payroll, 0.1% higher than the City's ARC for Fiscal Year 2009 -10. The next actuarial valuation of the City's Reimbursement Plan, dated as of June 30, 2010, is expected to be available in [2011]. A -27 786877.14 034288 OS ........... Table A -12 below sets forth the City's NOPEBO for Fiscal Years 2007 -08 through 2009 -10. TABLE A -12 CITY OF NEWPORT BEACH ANNUAL OPEB COST AND NET OPEB OBLIGATION Fiscal Years 2007 -08 through 2009 -10 ($ in thousands) Prefunding Fiscal Year Net OPEB Annual Contributions Net OPEB and Obligation OPEB and Benefit Obligation Subsidy Amount (July 1) Costlt) (2) Payments (June 30) 2007 -08 Cash Subsidy Implied Subsidy Total 2008 -09 Cash Subsidy Implied Subsidy Total 2009 -10 Cash Subsidy Implied Subsidy Total $6,200131 $2,629 $(8,829)141 $ 2,648 (427)11 2,221 $6,200 $5,277 $(9,256) $2,221 $ $2,720 $(2,720) $ 2,221 2,703 (516)1 21 4,408 $2,221 $5,423 $(3,236) $4,408 $ -- $2,016 4,408 2,477 $4,408 $4,493 $(2,016) $ -- (346) 6,472 $2,362 $6,472 Equal to the ARC for the applicable year as adjusted for expected interest on the NOPEBO and an amortization of the NOPEPO. (2) Over 95% of the annual OPEB cost is attributable to the City General Fund. (31 Based on a prior period adjustment to the cash subsidy component of the NOPEBO. (al Equal to Fiscal Year 2007 -08 annual OPEB cost plus $6.2 million payment on prior period NOPEBO adjustment. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09. Risk Management The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. For general liability, the City has excess insurance coverage of $26 million per occurrence with a self - insured retention ( "SIR ") of $500,000 per occurrence. For workers' compensation and employer's liability insurance, the City has excess insurance coverage of $1,000,000 per occurrence with a $1,000,000 SIR. This coverage provides for work - related accidents and diseases. The Insurance Reserve Fund was established to account for costs associated with general liability and workers' compensation. The Insurance Reserve Fund is accounted for as an Internal Service Fund where assets are set aside for risk management, administration, claim settlements A -28 786877.14 034288 OS and benefit distribution. A premium is charged to each fund that accounts for part-time or full - time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. The total liability claims payable include $17,790,737 which represents the discounted present value at June 30, 2009; the claims were discounted using an interest rate of five percent. For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. Indebtedness General Obligation Debt. The City has no general obligation debt outstanding. Debt and Certificates of Participation. The City has no long -term or short term bonded debt outstanding. The City has entered into lease arrangements with nonprofit public benefit corporations to finance capital projects, typically through the execution and delivery of certificates of participation. As of June 30, 2010, the City had $3.99 million of certificates of participation outstanding. Lease payments which secure these certificates of participation are paid from amounts in the City's General Fund, a portion of which is reimbursed with amounts from various other revenue sources. The City has no outstanding variable rate obligations and does not have an outstanding liquidity facility. Information on the City's long -term debt is in Note (6) of the Notes to the Financial Statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009." The $1.6 million water revenue bonds reflected in Note (6) have been repaid in full and are no longer outstanding. Estimated Direct and Overlapping Bonded Debt. Table A -13 below sets forth a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics Inc. and dated as of August 1, 2010. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. The Debt Report does not include the Certificates described in the forepart of this Official Statement. The Debt Report generally includes long -term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long -term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long -term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The City periodically issues special assessment or community facilities district bonds on behalf of petitioning developers or citizens when the City determines that the public facilities to be financed are of a defined, extraordinary benefit to the City. The City also issues revenue bonds on behalf of qualified A -29 786877.14 034288 OS borrowers from time to time. Although such obligations are included in the Debt Report, they are not secured by or payable from the City's General Fund or any other fund of the City. A -30 786877.14 034288 OS TABLE A -13 CITY OF NEWPORT BEACH ESTIMATED DIRECT AND OVERLAPPING DEBT (As of August 1, 2010) 2009 -10 Assessed Valuation: $38,643,404,122 Redevelopment Incremental Valuation: 894.901,662 Adjusted Assessed Valuation: 537,748,502,460 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 8 /1 /10 Metropolitan Water District 2.086% $ 5,511,629 Coast Community College District 35.120 114,761,226 Rancho Santiago Community College District 3.908 12,257,667 Laguna Beach Unified School District 15.236 4,997,408 Laguna Beach Unified School District Community Facilities District No. 98 -1 100. 9,680,000 Newport Mesa Unified School District 71.997 115,593,689 Newport Mesa Unified School District Community Facilities District No. 90 -1 100. 13,390,000 Santa Ana Unified School District 9.117 24,168,596 Irvine Ranch Water District Improvement Districts 16.895 -100. 47,315,471 Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 98 -1 100. 41,275,000 City of Newport Beach Special Improvement District No. 95 -1 100. 8,715,000 City of Newport Beach 1915 Act Bonds 100. 17,719,652 Orange County Assessment District No. 88 -1 100. 34,718,296 Orange County Reassessment District No. 99 -1R 100. 13,835,000 Orange County Assessment District No. 0 1 -1 100. 53,769,000 Orange County Reassessment District No. 01 -IR 100. 6,505,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $524,212,634 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 10.080% $34,217,266 Orange County Pension Obligations 10.080 5,728,882 Orange County Board of Education Certificates of Participation 10.080 1,938,384 Municipal Water District of Orange County Water Facilities Corporation 11.918 1,682,822 South Orange County Community College District Certificates of Participation 3.105 539,494 Santa Ana Unified School District Certificates of Participation 9.117 4,918,963 Irvine Ranch Water District Certificates of Participation 11.436 9,737,182 City of Newport Beach Certificates of Participation 100. 3,990,000(1) TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $62,752,993 Less: MWDOC Water Facilities Corporation (100% supported) 1,682,82 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $61,070,171 GROSS COMBINED TOTAL DEBT $586,965,627(2) NET COMBINED TOTAL DEBT $585,282,805 (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. Ratios to 2009 -10 Assessed Valuation: Total Overlapping Tax and Assessment Debt .........................1.36% Ratios to Adiusted Assessed Valuation: Combined Direct Debt ($3,990,000) 0.01% Gross Combined Total Debt ......................... ..........................1.55% Net Combined Total Debt ............................. ..........................1.55% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/10: $0 Source: California Municipal Statistics Inc. A -31 786877.14 034288 OS City Investment Policy The City pools all cash and investments of all funds, except for bond or certificate of participation proceeds, which are invested pursuant to the terms of their respective issuing instruments. The City's Statement of Investment Policy, as amended through September 28, 2010 (the "Investment Policy "), provides for investment of the City's funds pursuant to City policies and codes, State statutes and Federal regulations in a manner designed to preserve security of principal, maintain sufficient liquidity and attain a benchmark rate of return commensurate with the City's investment risk constraints and the liquidity characteristics of the portfolio. The City Charter provides for investment of City funds by the Director of Finance, who is responsible for establishing and maintaining a system of internal controls designed to prevent losses of public funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets, or imprudent action by City employees and officers. Pursuant to the Investment Policy, the Director of Finance is also responsible for submitting to the City Council monthly reports on the investment earnings and performance results of the City's investment portfolio. The City's investment program is managed using the prudent investor standard set forth in Section 53600.3 of the California Government Code. Pursuant to the Investment Policy, the City may deposit and invest in U.S. Treasury issues, federal agency or federal instrumentality obligations, mortgage- backed securities and asset - backed securities, medium -term notes, municipal bonds, non - negotiable certificates of deposit, negotiable certificates of deposit, prime commercial paper, eligible banker's acceptances, repurchase agreements and reverse repurchase agreements, the State's local agency investment fund, county investment funds (excluding the Orange County Pool) and money market funds, subject to the provisions of Section 53601 of the California Government Code and the further conditions and restrictions of the Investment Policy. The Investment Policy provides that any security type or structure not specifically approved thereby is prohibited, including, but are not limited to, "exotic" derivative structures such as range notes, dual index notes, inverse floating rate notes, leveraged or de- leveraged floating rate notes, interest only strips that are derived from a pool of mortgages and any security that could result in zero interest accrual if held to maturity, or any other complex variable or structured note with an unusually high degree of volatility risk. The Investment Policy states that the portfolio shall be diversified, with investments matched with anticipated cash flow requirements and known future liabilities and no more than 5% of the City's portfolio being invested in the instruments of any one non - governmental issuer, subject to certain exceptions. To that end, the Investment Policy provides that the City will not invest in securities maturing more than five years from the date of trade settlement, unless the City Council has by resolution granted authority to make such an investment at least three months prior to the date of investment. The Investment Policy further provides that the City shall not purchase any security rated Al and / or A+ or below if that security has been placed on "credit watch" for a possible downgrade by a nationally recognized statistical rating organization. The City is not a party to any swap agreements and has not sustained losses from investment in any collateralized mortgage obligation. Table A -14 below sets forth the par value, market value, adjusted cost basis and percent of total investments for each category of the City's investments as of September 7, 2010. A -32 786877.14 034288 OS TABLE A -14 CITY OF NEWPORT BEACH SCHEDULE OF INVESTMENTS (As of September 7, 2010) Investment Type Par Value Market Value Money Market Fund $ 2,088,514 $ 2,088,514 U.S. Treasury Obligations 14,670,000 14,985,093 U.S. Agency 84,575,000 86,205,960 Mortgage Backed Securities 265,434 271,251 Local Agency Investment Fund 2,723,956 2,723,956 Corporate Note 40,900,000 42,213,405 Negotiable Certificates of Deposit 1,600,000 1,600,032 Foreign Bonds 1,985,000 2,021,480 Commercial Paper 6,415,000 6,548,099 Totals 155,222,904 158,657,790 Source: City of Newport Beach Litigation Adjusted Cost Value $ 2,120,690 14,775,864 85,526,065 266,735 2,723,956 42,180,042 1,607,226 2,042,444 6,548,098 157,791,111 % of Total Investments 1.32% 9.44 54.33 0.17 1.72 26.61 1.01 1.27 4.13 100.00% The City is a defendant in lawsuits pertaining to various matters, including claims asserted which are incidental to performing routine governmental and other functions. This litigation includes, but is not limited to, actions commenced and claims asserted against the City arising out of alleged torts, alleged breaches of contracts, alleged violations of law, and condemnation proceedings. The City does not expect the aggregate amount of the uninsured liabilities of the City which may result from an adverse ruling in any or all of such claims to have a material adverse effect on its ability to pay principal and interest with respect to the Certificates when due. STATE OF CALIFORNIA BUDGET INFORMATION General The City derives certain of its revenues, including gas tax revenues and property tax transfers, from the State. Under certain circumstances, the State has borrowed or otherwise shifted revenues from local agencies, including the City, to the State. See "City of Newport Beach Financial Information - Recent Budget Results; Fiscal Year 2010 -11 Budget - Fiscal Year 2010 -11 Budget - Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" for a description of the primary impacts anticipated by the City. The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State Budget is regularly available at various State - maintained websites. Text of the budget may be found at the Department of Finance website, www.dof ca.gov, under the heading "California Budget." An impartial analysis of the budget is posted by the LAO at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past. State budgets, may be A -33 786877.14 034288 OS found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Underwriters, and the City and the Underwriters take no responsibility for the continued accuracy of the internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. Fiscal Year 2010 -11 State Budget On October 8, 2010, the Governor signed the 2010 -11 State Budget Act to address a then - projected $19.3 billion shortfall in revenues. The 2010 -11 State Budget Act estimates Fiscal Year 2009- 10 revenues and transfers of $86.92 billion, total expenditures of $86.35 billion and a year -end deficit of $4.80 billion, which included a negative $5.38 billion prior -year State General Fund balance, $6.34 billion withdrawal from the reserve for economic uncertainties and an allocation of $1.54 billion to the reserve for the liquidation of encumbrances. The 2010 -11 State Budget Act projects 2010 -11 revenues and transfers of $94.23 billion, total expenditures of $86.55 billion and a year -end surplus of $2.87 billion (net of the $4.80 billion deficit from Fiscal Year 2009 -10), of which $1.54 billion is budgeted to be reserved for the liquidation of encumbrances and $1.34 billion is budgeted to be deposited in a reserve for economic uncertainties. The 2010 -11 State Budget approves placement of a constitutional amendment on the State's reserve funds on the March 2012 ballot. If approved, the State would increase the maximum size of its Budget Stabilization Account from five percent to ten percent of annual State General Fund revenues and provide new requirements for depositing State funds into the Budget Stabilization Account. If the ballot measure were approved, the law would further restrict the State's ability to withdraw funds from its reserves. Certain of the features of the 2010 -11 State Budget Act affecting local agencies, including the City, include the following: 1. The 2010 -11 State Budget Act includes a $187.1 million General Fund decrease in funding resulting from the enrollment of seniors and people with disabilities in managed care and deferring a managed care payment for two -plan and geographic managed care counties. 2. The 2010 -11 State Budget includes a $84.5 million General Fund funding decrease resulting from freezing daily per diem hospital inpatient rates at existing levels. 3. The 2010 -11 State Budget includes a $365.9 million funding decrease from utilization of an advance of Temporary Assistance for Needy Families Block Grant funds for the quarter ending June 30, 2011 in lieu of General Fund. 4. The 2010 -11 State Budget includes a $300 million decrease in IHSS program, consisting of (1) using IHSS provider- generated revenue to draw down additional federal funds and offset General Fund expenditures in the program ($190 million), (2) imposing a 3.6% across - the -board reduction to the hours assessed for IHSS recipients ($35 million) and (3) reflecting an updated caseload estimate based on an actual decline in recipients as compared to the previous caseload projection ($75 million). 5. The 2010 -11 State Budget includes approximately $162.4 million funding decrease as a result of maintaining the level of Child Welfare Services program funding at Fiscal Year 2009 -10 budgeted levels, eliminating State funding for the Seriously Emotionally disturbed portion of the Foster Care program and reducing the reimbursement rates for license - exempt child care providers. A -34 786877.14 034288 OS 6. The 2010 -11 State Budget includes a one -time reduction of $365 million resulting from the suspension of most mandates not related to elections, law enforcement and property taxes. On October 8, 2010, the LAO released a report entitled "Major Features of the Legislature's 2010 -11 Budget" (the "2010 -11 LAO Budget Overview "), which provides an analysis by the LAO of the 2010 -11 State Budget. The 2010 -11 LAO Budget Overview is available on the LAO website at www.lao.ca.gov. Information on the website is not incorporated herein by reference. The 2010 -11 LAO Budget Overview states that more than two- third's of the budget solutions contained State Legislature's budget for 2010 -11 are one -time or temporary in nature. Accordingly, the LAO cautions that the State will continue to face sizable annual budget problems in Fiscal Year 2011 -12 and thereafter. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" herein for a description of the State budget's impact on the City. Current and Future State Budgets The City receives a significant portion of its funding from the State. Changes in the revenues received by the State can affect the amount of funding, if any, to be received from the State by the City and other counties in the State. The City cannot predict the extent of the budgetary problems the State will encounter in this Fiscal Year or in any future fiscal years, and, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of current and future State budget negotiations, the impact that such budgets will have on its finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -1 Budget — Fiscal Year 2010 -11 Budget — Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" herein for a description of the potential impact of the State budget on the City. REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION Set forth below is certain demographic information regarding the City and the County. This information is provided for informational purposes only and general background. The Certificates are not a debt of the County, the State, or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable thereon. As set forth under "The Certificates — Security for the Certificates" in the forepart of this Official Statement, the Certificates are secured by lease payments and prepayments to be made by the City pursuant to the terms of the Trust Agreement and the Lease. See "The Certificates" in the forepart of this Official Statement. Population The City is located in the coastal center of the County, approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. Table A -15 below sets forth the population of the City, the County and the State for calendar years 2006 through 2010. A -35 786877.14 034288 OS TABLE A -15 POPULATION GROWTH CITY OF NEWPORT BEACH, THE COUNTY OF ORANGE AND THE STATE OF CALIFORNIA (Calendar Years 2006 -2010) Calendar City of County of Year") Newport Beach Orange State of California 2006 83,124 3,061,535 37,087,005 2007 83,564 3,077,656 37,463,609 2008 84,145 3,104,046 37,871,509 2009 86,145 3,134,858 38,255,508 2010 86,738 3,166,461 38,648,090 (0 As of July 1 of the year shown. Reflects revised estimates as of May 2010. Source: California State Deparhnent of Finance, EA Population Estimates for Cities, Counties and the State, 2001 -2010 with 2000 Benchmadc FEW 786877.14 034288 OS Employment Table A -16 below sets forth the wage and salary employment in the County for calendar years 2005 through 2009. Service Providing is the largest employment sector in the County. TABLE A -16 ANNUAL AVERAGE INDUSTRY EMPLOYMENT COUNTY OF ORANGE (Calendar Years 2005 -2009) Total Farm Total Nonfarm Total Private Goods Producing Natural Resources and Mining Construction Manufacturing Service Providing Trade, Transportation and Utilities Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Information Financial Activities Professional and Business Services Educational and Health Services Leisure & Hospitality Other Services Government Total, All Industries(" 2005 2006 2007 2008 2009 5,600 5,300 5,000 4,600 3,900 1,491,000 1,518,900 1,515,500 1,481,600 1,371,400 1,335,600 1,362,200 1,356,200 1,320,900 1,214,200 283,500 289,900 284,000 265,900 228,600 700 600 600 600 500 99,900 106,600 103,100 91,200 73,600 182,900 182,700 180,400 174,100 154,500 1,207,400 1,229,000 1,231,500 1,215,700 1,142,800 269,800 272,800 277,000 271,600 250,000 83,000 83,700 86,900 86,700 80,100 158,100 160,800 161,200 155,600 141,900 28,700 28,200 28,900 29,300 27,900 32,800 31,900 31,200 30,100 27,400 138,400 138,200 127,700 113,100 105,600 264,300 274,500 273,300 266,600 239,000 133,500 137,700 142,600 150,700 151,100 165,000 169,600 172,900 176,400 169,700 48,400 47,700 47,400 46,500 42,800 155,300 156,700 159,400 160,800 157,300 1,496,500 1,524,300 1,520,500 1,486,200 1,375,400 The "Total All Industries" data is not directly comparable to the employment data found herein. Employment is reported by place of work; it does not include persons involved in labor management disputes. Figures are rounded to the nearest hundred. Totals may not equal sum of component categories due to independent rounding. Source: State of California, Employment Development Department, Industry Employment and Labor Force by Annual Average, March 2009 Benchmark. A -37 786877.14 034288 OS Table A -17 below sets forth the civilian labor force, employment, and unemployment in the City, the County and the State for calendar years 2005 through 2009. TABLE A -17 CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT(') CITY OF NEWPORT BEACH, COUNTY OF ORANGE AND THE STATE OF CALIFORNIA (Annual Averages for Calendar Years 2005 -2009) Calendar Year 2005 2006 2007 2008 2009 Civilian Labor Force City of Newport Beach Employed 43,800 44,500 44,500 44,100 41,500 Unemployed 1,000 900 1,100 1,500 2,500 City 2.3% 2.1% 2.4% 3.3% 5.7% County 3.8 3.4 3.9 5.3 9.0 California 5.4 4.9 5.3 7.2 11.4 (') Data Not Seasonally Adjusted. Source: State of California, Employment Development Department, based on March 2009 benchmark. The State of California Employment Development Department, Labor Market Information Division (the "EDD "), preliminarily estimates that, on a seasonally unadjusted basis, the civilian labor force in the City in July 2010 was 44,600, of which approximately 41,800 persons were unemployed. Based on preliminary estimates of the EDD as of August 20, 2010, the City's unemployment rate in July 2010 of 6.2 %, on a seasonally unadjusted basis, was below that of the County at 9.8 %, below that of the State at 12.8% and below that of the United States at 9.5% (seasonally adjusted). A -38 786877.14 034288 OS Median Household Income Table A -18 below sets forth the median household income for the City, the County and the State for calendar years 2005 through 2009. TABLE A -18 MEDIAN HOUSEHOLD INCOME•.. CITY OF NEWPORT BEACH, COUNTY OF ORANGE, THE STATE OF CALIFORNIA AND THE UNITED STATES (Calendar Years 2005 -2009) City of Newport Year Beach County of State of United Orange California States 2006 103,068 70,232 56,645 48,451 2007 110,511 73,263 59,948 50,740 2008 123,958 75,078 61,021 52,029 2009 104,435 71,865 58,931 50,221 2010 105,657 76,412 62,401 52,795 Inflation Adjusted Dollars for each respective year. Source: U.S. Census Bureau - American Community Survey for Fiscal Years 2005 -06 through 2008 -09; Claritas for Fiscal Year 2009 -10. Personal Income Table A -19 below sets forth the per capita personal income in the County and the State for calendar years 2005 through 2009: TABLE A -19 PER CAPITA PERSONAL INCOME COUNTY OF ORANGE AND THE STATE OF CALIFORNIA •..... (Calendar Years 2005 -2009) Calendar Year County of Orange (3) State of California 2005 $47,141 $38,767 2006 50,997 41,567 2007 52,009 43,402 2008 51,894 43,852 2009.4 42,325 (0 Per capita personal income was computed using Census Bureau midyear population estimates. Estimates for 2005 -2008 reflect county population estimates available as of April 2008. (z> All state and local area dollar estimates are in current dollars (not adjusted for inflation). l3i Reflects per capita personal income for the Santa Ana - Anaheim- Irvine, California Metropolitan Division. (4) County of Orange Per Capita Personal Income for Year 2009 not yet available. Source: Bureau of Economic Analysis, U.S. Department of Commerce. A -39 786877.14 034288 OS Major Employers Table A -20 below sets forth the principal employers as of June 30, 2010 in the City: TABLE A -20 CITY OF NEWPORT BEACH PRINCIPAL EMPLOYERS[') (As of June 30, 2010) Name Hoag Memorial Hospital Conexant Systems Pacific Life Insurance Company Glidewell Laboratories City of Newport Beach US Bank B. Alan Whitson Company Newport-Mesa Unified School District Marriott Newport Beach Balboa Bay Club and Resort Fletcher Jones Motor Cars Island Hotel'2' Pimco Advisors Number Type of Business or Entity Employed Hospital and health care Semiconductor solutions Life insurance, investment Dental City government Financial Management Consulting company Education Hotel, resort Hotel, resort Automotive Hotel, resort Investment company (D Figures reflect number of employees of each employer at the time the information was collected. R) The Island Hotel was formerly the Four Seasons Hotel. Source: InfoGroup. 4,001 1,650 1,513 1,400 940 883 750 545 510 500 500 500 500 A-40 786877.14 034288 OS Table A -21 below sets forth the largest employers within Orange County reported as of December 31, 2009: Name Walt Disney Co. University of California, Irvine St. Joseph Health System Boeing Co. Yum! Brands Inc. Target Corp. Supervalu Inc. Kaiser Permanente Memorial Health Services hrc. Bank of America Corp. Home Depot Inc. California State University, Fullerton The Kroger Co. Wells Fargo & Co. AT &T Inc. Hoag Memorial Hospital Presbyterian Wal -Mart Stores Inc. Cedar Fair LP United Health Group Inc. Tenet Healthcare Corp. Costco Wholesale CVS Caremark Corp. Edison International Automobile Club of Southern California Stater Bros, Holdings Inc. TABLE A -21 COUNTY OF ORANGE LARGEST EMPLOYERS"' (As of December 31, 2009) Number Type of Business or Entity Employed Entertainment 19,800 Higher education and health care 19,279 Health care 10,929 Aerospace and communications 8,477 Fast food restaurants 7,000 Retail 6,226 Grocery retailer 5,923 Health care 5,598 Health care 5,533 Banking 5,450 Retail 5,000 Higher education 4,952 Grocery retailer 4,500 Banking 4,455 Telephone service 4,300 Hospital and health care 4,241 Retail 4,000 Entertainment 3,900 Health care 3,800 Health care 3,795 Discount retailer 3,663 Pharmacy 3,650 Utilities and investments 3,500 Information systems, insurance and automotive assistance 3,300 Grocery retailer 3,115 0 Includes corporations, hospitals and universities. Excludes government entities and school and community college districts. Franchise operations me considered separately from their corporate chains. Source: Orange County Business Journal — 2010 Book of Lists. A-41 786877.14 034288 OS Construction Activity Table A -22 below sets forth building permit valuations and new housing units in the City for calendar years 2006 through 2010. TABLE A -22 CITY OF NEWPORT BEACH BUILDING PERMIT VALUATION AND NEW HOUSING UNITS Calendar Years 2006 -2010 A -42 786877.14034288 OS 2006 2007 2008 2009 2010"° Residential Single- Family $ 82,967,310 $ 68,054,930 $ 81,504,056 $ 44,246,031 $18,300,981 Multi - Family 7,450,000 11,283,560 9,791,756 3,287,177 9,600,000 Alteration/Additions 56,805,626 58,058,723 49,507,192 38,080,919 29,585,044 Total: $147.222.936 X37397.213 140.803 004 $ 85.614.127 18.846.025 Non - Residential New Commercial $ 36,300,000 $ 57,666,475 $ 17,000,000 $ 22,177,120 $ 2,867,530 New Industry 0 2,000,000 0 0 0 Other" �1 37,093,731 29,236,976 32,513,364 9,866,091 3,817,380 Alteration/Additions 53,803,425 40,431,975 62,653,046 40,201,278 21,870,834 Total: $127,197,156 $129,335,426 $112,166,410 $ 72,244,489 $28,555,744 Total All Industry: $274.420.092 $266.732.639 $252.969.414 $157.858.616 $77.401.769 New Housing Units Single- Family Units 126 107 90 66 22 Multi- Family Units 34 40 38 6 4 Total: 160 147 128 72 26 Numbers reflect January through June 2010 only. 1 �1 Other New Nonresidential includes churches and religious buildings, medical and institutional buildings, schools and educational buildings, agricultural buildings, residential garages, utilities buildings, and miscellaneous nonresidential structures. Source: Construction Industry Research Board. A -42 786877.14034288 OS Taxable Sales Table A -23 below sets forth the taxable sales in the City for calendar years 2004 through 2008. Table A -24 below sets forth the taxable sales in the City for the first two quarters of calendar year 2009. Type of Business Retail Stores Apparel Stores General Merchandise Stores Food Stores Eating and Drinking Places Home Furnishings and Appliances Building Materials and Farm Implements Auto dealers and auto supplies Service Stationst2l Other Retail Stores (3) Retail Stores Totals All Other Outlets Totals All Outlets TABLE A -23 CITY OF NEWPORT BEACH TAXABLE SALES Calendar Years 2004 -2008 (In Thousands) 2004 2005 2006 2007[[1 2008(n $ 138,308 $ 159,346 $ 168,773 $ 172,604 $ 154,951 237,968 256,604 259,294 247,316 215,698 76,493 82,662 86,262 88,522 88,880 344,205 381,592 392,918 403,373 390,435 81,027 99,458 96,501 94,043 61,173 25,548 29,130 30,566 29,774 26,934 382,748 430,653 538,993 647,238 517,940 74,715 89,411 105,462 116,143 128,087 288,372 327,910 334,155 217,538 198,233 1,649,384 1,856,766 2,012,924 2,016,551 1,782,332 475,161 501,875 559,897 631,800 622,532 2 124 545 2 358 641 $2,572,821 52.648,351 2 404 I�1 In early 2007 the California State Board of Equalization began a process of converting business codes of sales and use tax permit holders to North American Industry Classification System Codes. As a result of the coding change process, industry data for 2007 and 2008 are not comparable with data from prior years. 1 �1 Prior to 2007, industry data for Service Stations were included in Automotive. (3) In 2007 and 2008, industry data for Specialty Stores were included in Other Retail Stores. Source: California Board of Equalization. A -43 786877.14 034288 OS TABLE A -24 CITY OF NEWPORT BEACH TAXABLESALES Calendar Year 2009, First and Second Quarter (In Thousands) Type of Business First Quarter 2009 Second Quarter 2009 Retail and Food Services: Motor Vehicle and Parts Dealers $115,984 $108,638 Home Furnishings and Appliance Stores 11,054 9,542 Building Materials and Garden Equipment and Supplies 9,481 11,412 Food and Beverage Stores 20,575 23,484 Gasoline Stations 18,718 24,313 Clothing and Clothing Accessories Stores 32,579 40,334 General Merchandise Stores 33,540 38,575 Food Services and Drinking Places 83,706 91,665 Other Retail Group 34,128 38,936 Total Retail and Food Services $359,765 $386,898 All Other Outlets 134,624 133,022 Totals All Outlets 494 388 5191 920 Source: California Board of Equalization A -44 786877.14 034288 OS Foreclosure Activity Table A -25 below sets forth foreclosure activity in the City and the County for the calendar years 2005 through 2010: TABLE A -25 CITY OF NEWPORT BEACH AND COUNTY OF ORANGE FORECLOSURE ACTIVITY Calendar Years 2005 through 2010 Calendar Total Number of % of Total Year Foreclosures Housing Units Housing Units 2005 City 1 42,143 0.00% County 152 1,013,634 0.01 2006 City 14 42,352 0.03 County 691 1,019,012 0.07 2007 City 40 42,580 0.09 County 4,223 1,025,302 0.41 2008 City 117 42,711 0.27 County 11,647 1,030,914 1.13 2009 City 141 43,477 0.32 County 8,502 1,035,536 0.82 2010"' City 84 -- 0.09 County 4,839 0.27 Source: MDA DataQuick Information Systems. t'l Reflects data from January through July, 2010 A -45 786877.14 034288 OS i i APPENDIX B CITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2009 Im 786877.14034288 OS APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS C -1 786877.14034288 OS APPENDIX D BOOK -ENTRY SYSTEM THE INFORMATION IN THIS Appendix D CONCERNING THE DEPOSITORY TRUST COMPANY, NEW YORK, NEW YORK AND ITS BOOK -ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CORPORATION, THE CITY AND THE UNDERWRITERS BELIEVE TO BE RELIABLE, BUT THE CORPORATION, THE CITY AND THE UNDERWRITERS TAKE NO RESPONSIBILITY FOR THE ACCURACY THEREOF. The Depository Trust Company ( "DTC "), New York, New York, will act as securities depository for the Certificates. The Certificates will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered bond certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository is a limited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information set forth on such websites is not incorporated by reference. Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ( "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmations from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. D -1 786877.14 034288 OS To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates: DTC records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The Corporation and the City will not have any responsibility or obligation to such Direct Participants and Indirect Participants or the persons for whom they act as nominees with respect to the Certificates. Beneficial Owners of the Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as prepayments, tenders, defaults, and proposed amendments to the Certificates. For example, Beneficial Owners of the Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Prepayment notices will be sent to DTC. If less than all of the Series of a particular maturity are being prepaid, DTC's usual practice is to determine by lot the amount of the interest of each Direct Participant in the Certificates of such maturity to be prepaid. None of the Corporation, the City or the Trustee can provide any assurance that DTC, the Direct Participants or the Indirect Participants will allocate prepayments of the Certificates of a particular maturity among Beneficial Owners on such a proportional basis. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments evidenced by the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Trustee, on payable dates in accordance with their respective holdings shown on DTC's records. 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 or the Trustee, subject to any statutory, or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. THE CORPORATION, THE CITY AND THE TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF D -2 786877.14 034288 OS DTC WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE CERTIFICATES (i) PAYMENTS OF PRINCIPAL OF AND INTEREST EVIDENCED BY THE CERTIFICATES, (ii) CONFIRMATIONS OF THEIR OWNERSHIP INTERESTS IN THE CERTIFICATES OR (iii) OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS PARTNERSHIP NOMINEE, AS THE REGISTERED OWNER OF THE CERTIFICATES, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. NONE OF THE CORPORATION, THE CITY OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OF DTC OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC; (2) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST EVIDENCED BY THE CERTIFICATES; (3) THE DELIVERY BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO OWNERS UNDER THE TERMS OF THE INDENTURE; OR (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS OWNER OF THE CERTIFICATES. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the Corporation, the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book - entry-only transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered to DTC. D -3 786877.14 034288 OS APPENDIX E FORM OF SPECIAL COUNSEL OPINION E -1 786877,14034288 OS APPENDIX F FORM OF CONTINUING DISCLOSURE UNDERTAKING F -1 786877.(4034288 OS Continuing Disclosure Agreement HD &W LLP — 10/28/10 DRAFT CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement, dated as of November 1, 2010 (the "Agreement'), by and between the City of Newport Beach (the "City ") and Digital Assurance Certification, L.L.C. (the "Dissemination Agent'), is executed and delivered in connection with the $ aggregate principal amount of City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) (the "2010A Certificates ") and the $ aggregate principal amount of City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Certificates) (Civic Center Project) (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") executed and delivered pursuant to the Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement'), by and among the City, the Newport Beach Public Facilities Financing Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). Capitalized terms used in this Agreement which are not otherwise defined in the Trust Agreement shall have the respective meanings specified above or in Article IV hereof. The City and the Dissemination Agent agree as follows: ARTICLE I The Undertaking Section 1.1. Pu ose. This Agreement is being executed and delivered solely to assist the Underwriter in complying with subsection (b)(5) of the Rule. Section 1.2. Annual Financial Information. (a) The City shall provide Annual Financial Information with respect to each fiscal year of the City, commencing with fiscal year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the MSRB. (b) The City shall provide, in a timely manner, notice of any failure of the City to provide the Annual Financial Information by the date specified in subsection (a) above to the MSRB. Section 1.3. Audited Financial Statements. If not provided as part of Annual Financial Information by the date required by Section 1.2(a) hereof, the City shall provide Audited Financial Statements, when and if available, to the MSRB. Section 1.4. Material Event Notices. (a) If a Material Event occurs, the City shall provide, in a timely manner, notice of such Material Event to (i) the MSRB and (ii) the Dissemination Agent. (b) Any notice of a defeasance of Certificates shall state whether the Certificates have been escrowed to maturity or to an earlier redemption date and the timing of such maturity or redemption. (c) The Dissemination Agent shall promptly advise the City whenever the Dissemination Agent has actual notice of an occurrence which, if material, would require the 1 791072.6 034288 AGMT City to provide notice of a Material Event hereunder; provided, however, that the failure of the Dissemination Agent so to advise the City shall not constitute a breach by the Dissemination Agent of any of its duties and responsibilities under this Agreement. Section 1.5. Additional Information. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of Material Event hereunder, in addition to that which is required by this Agreement. If the City chooses to do so, the City shall have no obligation under this Agreement to update such additional information or include it in any future Annual Financial Information or notice of a Material Event hereunder. Section 1.6. Additional Disclosure Obligations. The City acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 as amended, and Rule 10b -5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the City and that, under some circumstances, compliance with this Agreement without additional disclosures or other action may not fully discharge all duties and obligations of the City under such laws. Section 1.7. No Previous Non - Compliance. The City represents that in the previous five years it has not failed to comply in all material respects with any previous undertaking in a written contract or agreement specified in paragraph (b)(5)(i) of the Rule. ARTICLE 11 Operating Rules Section 2.1. Reference to Other Filed Documents. It shall be sufficient for purposes of Section 1.2 hereof if the City provides Annual Financial Information by specific reference to documents (i) available to the public on the MSRB Internet Web site (currently, www.emma.msrb.org) or (ii) filed with the SEC. The provisions of this Section shall not apply to notices of Material Events pursuant to Section 1.4 hereof. Section 2.2. Submission of Information. Annual Financial Information may be set forth or provided in one document or a set of documents, and at one time or in part from time to time. Section 2.3. Dissemination Agents. The City may from time to time designate an agent to act on its behalf in providing or filing notices, documents and information as required of the City under this Agreement, and revoke or modify any such designation. Digital Assurance Certification, L.L.C. is hereby appointed the initial dissemination agent hereunder. Section 2.4. Transmission of Notices, Documents and Information. (a) Unless otherwise required by the MSRB, all notices, documents and information provided to the MSRB shall be provided to the MSRB's Electronic Municipal Markets Access (EMMA) system, the current Internet Web address of which is www.emma.msrb.org. 2 791072.6 034288 AGMT (b) All notices, documents and information provided to the MSRB shall be provided in an electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 2.5. Fiscal Year. (a) The City's current fiscal year is July 1 to June 30, and the City shall promptly notify (i) the MSRB and (ii) the Dissemination Agent of each change in its fiscal year. (b) Annual Financial Information shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. ARTICLE III Effective Date, Termination, Amendment and Enforcement Section 3.1. Effective Date: Termination. (a) This Agreement shall be effective upon the issuance of the Certificates. (b) The obligations of the City and the Dissemination Agent under this Agreement shall terminate upon a legal defeasance, prior redemption or payment in full of all of the Certificates. (c) This Agreement, or any provision hereof, shall be null and void in the event that the City (1) delivers to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that those portions of the Rule which require this Agreement, or such provision, as the case may be, do not or no longer apply to the Certificates, whether because such portions of the Rule are invalid, have been repealed, or otherwise, as shall be specified in such opinion, and (2) delivers copies of such opinion to the MSRB. Section 3.2. Amendment. (a) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates (except to the extent required under clause (4)(ii) below), if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the City or the type of business conducted thereby, (2) this Agreement as so amended would have complied with the requirements of the Rule as of the date of this Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the same effect as set forth in clause (2) above, (4) either (i) the City shall have delivered to the Dissemination Agent an opinion of Counsel or a determination by an entity, in each case unaffiliated with the City (such as counsel or the Dissemination Agent), addressed to the City and the Dissemination Agent, to the effect that the amendment does not materially impair the interests of the holders of the Certificates or (ii) the holders of the Certificates consent to the amendment to this Agreement pursuant to the same procedures as are required for amendments to the Trust Agreement with consent of holders of 3 791072.6 034288 AGMT Certificates pursuant to the Trust Agreement as in effect at the time of the amendment, and (5) the City shall have delivered copies of such opinion(s) and amendment to the MSRB. (b) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) an amendment to the Rule is adopted, or a new or modified official interpretation of the Rule is issued, after the effective date of this Agreement which is applicable to this Agreement, (2) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that performance by the City and the Dissemination Agent under this Agreement as so amended will not result in a violation of the Rule and (3) the City shall have delivered copies of such opinion and amendment to the MSRB. (c) This Agreement may be amended by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that the amendment is permitted by rule, order or other official pronouncement, or is consistent with any interpretive advice or no- action positions of Staff, of the SEC, and (2) the Dissemination Agent shall have delivered copies of such opinion and amendment to the MSRB. (d) To the extent any amendment to this Agreement results in a change in the type of financial information or operating data provided pursuant to this Agreement, the first Annual Financial Information provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (e) If an amendment is made pursuant to Section 3.2(a) hereof to the accounting principles to be followed by the City in preparing its financial statements, the Annual Financial Information for the fiscal 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. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. Section 3.3. Benefit; Third -Party Beneficiaries; Enforcement. (a) The provisions of this Agreement shall constitute a contract with and inure solely to the benefit of the holders from time to time of the Certificates, except that beneficial owners of Certificates shall be third -party beneficiaries of this Agreement. The provisions of this Agreement shall create no rights in any person or entity except as provided in this subsection (a) and in subsection (b) of this Section. (b) The obligations of the City to comply with the provisions of this Agreement shall be enforceable (i) in the case of enforcement of obligations to provide financial statements, financial information, operating data and notices, by any holder of Outstanding Certificates, or by the Dissemination Agent on behalf of the holders of Outstanding Certificates, 4 791072.6 034288 AGMT or (ii) in the case of challenges to the adequacy of the financial statements, financial information and operating data so provided, by the Dissemination Agent on behalf of the holders of Outstanding Certificates; provided, however, that the Dissemination Agent shall not be required to take any enforcement action except at the direction of the holders of not less than a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided the Trust Agreement) who shall have provided the Dissemination Agent with adequate security and indemnity. The holders' and Trustee's rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the City's obligations under this Agreement. in consideration of the third -party beneficiary status of beneficial owners of Certificates pursuant to subsection (a) of this Section, beneficial owners shall be deemed to be holders of Certificates for purposes of this subsection (b). (c) Any failure by the City or the Dissemination Agent to perform in accordance with this Agreement shall not constitute a default or an Event of Default under the Trust Agreement, and the rights and remedies provided by the Trust Agreement upon the occurrence of a default or an Event of Default shall not apply to any such failure. (d) This Agreement shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Agreement shall be instituted in a court of competent jurisdiction in the State; provided, however, that to the extent this Agreement addresses matters of federal securities laws, including the Rule, this Agreement shall be construed in accordance with such federal securities laws and official interpretations thereof. ARTICLE IV Definitions Section 4.1. Definitions. The following terms used in this Agreement shall have the following respective meanings: (1) "Annual Financial Information" means, collectively, (i) updated versions of the following financial information and operating data contained in the tables with the following headings in Appendix A to the Official Statement, for each applicable fiscal year of the City, as follows: (A) City of Newport Beach General Fund Balance Sheets; (B) City of Newport Beach General Fund Statement of Revenues, Expenditures and Change in Fund Balance; (C) City of Newport Beach General Fund Budgets; (D) City of Newport Beach Selected Major Revenue Sources; (E) City of Newport Beach Property Tax Rates; (F) City of Newport Beach Assessed Valuation; 791072.6 034288 AGMT (G) City of Newport Beach Property Tax Levies and Collections; (H) City of Newport Beach Fifteen Principal Taxpayers; (I) City of Newport Beach Employee Labor Organizations; (J) City of Newport Beach PERS Annual Pension Costs; (K) City of Newport Beach PERS Schedule of Funding Progress; (L) City of Newport Beach Annual OPEB Cost and Net OPEB Obligation; (M) City of Newport Beach Long Term Debt of the City; (N) City of Newport Beach Estimated Direct and Overlapping Debt; and (0) City of Newport Beach Schedule of Investments; and (ii) the information regarding amendments to this Agreement required pursuant to Sections 3.2(d) and (e) of this Agreement. Annual Financial Information shall include Audited Financial Statements, if available, or Unaudited Financial Statements. The descriptions contained in Section 4.1(1)(i) hereof of financial information and operating data constituting Annual Financial Information are of general categories of financial information and operating data. When such descriptions include information that no longer can be generated because the operations to which it related have been materially changed or discontinued, a statement to that effect shall be provided in lieu of such information. Any Annual Financial Information containing modified financial information or operating data shall explain, in narrative form, the reasons for the modification and the impact of the modification on the type of financial information or operating data being provided. (2) "Audited Financial Statements" means the annual financial statements, if any, of the City, audited by such auditor as shall then be required or permitted by State law or the Trust Agreement. Audited Financial Statements shall be prepared in accordance with GAAP applicable to governmental entities; provided, however, that pursuant to Sections 3.2(a) and (c) hereof, the City may from time to time, if required by Federal or State legal requirements, modify the accounting principles to be followed in preparing its financial statements. The notice of any such modification required by Section 3.2(a) hereof shall include a reference to the specific Federal or State law a regulation describing such accounting principles, or other description thereof. (3) "Counsel" means nationally recognized special counsel or counsel expert in federal securities laws. (4) "GAAP" means generally accepted accounting principles as prescribed from time to time for governmental units by the Governmental Accounting Standards Board, the Financial Accounting Standards Board, or any successor to the duties and responsibilities of either of them. 791072.6 034288 AGMT (5) "Material Event" means any of the following events with respect to the Certificates, whether relating to the City or otherwise, if material: (i) principal and interest payment delinquencies; (ii) non - payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (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 Certificates; (vii) modifications to rights of Certificateholders; (viii) bond calls (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Certificates; and (xi) rating changes. (6) "MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Agreement. (7) "Official Statement' means the Official Statement dated 12010 of the City relating to the Certificates. (8) "Rule" means Rule 15c2 -12 promulgated by the SEC under the Securities Exchange Act of 1934 (17 CFR Part 240, §240.15c2 -12), as amended, as in effect on the date of this Agreement, including any official interpretations thereof issued either before or after the effective date of this Agreement which are applicable to this Agreement. (9) "SEC" means the United States Securities and Exchange Commission. (10) "Unaudited Financial Statements" means the same as Audited Financial Statements, except that they shall not have been audited. 7 791072.6 034288 AGMT ARTICLE V Miscellaneous Section 5.1. Duties, Immunities and Liabilities of the Dissemination Agent under this Agreement. The Dissemination Agent shall have only such duties under this Agreement as are specifically set forth in this 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 in the performance of its duties hereunder. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. Section 5.2. Counterparts. This 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. 8 791072.6 034288 AGMT IN WITNESS WHEREOF, the parties have each caused this Agreement to be executed by their duly authorized representatives, and the City has caused its corporate seal to be hereunto affixed and attested by an authorized representative, all as of the date first above written. [SEAL] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: M Hawkins Delafield & Wood LLP E CITY OF NEWPORT BEACH An Authorized Representative DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Dissemination Agent 0 791072.6 034288 AGMT Budget Amendment City of Newport Beach NO. BA- 11BA -017 BUDGET AMENDMENT 2010 -11 AMOUNT: $s,esa,ass.00 EFFECT ON BUDGETARY FUND BALANCE: X Increase Revenue Estimates X Increase in Budgetary Fund Balance X Increase Expenditure Appropriations AND X Decrease in Budgetary Fund Balance Transfer Budget Appropriations No effect on Budgetary Fund Balance SOURCE: from existing budget appropriations X from additional estimated revenues X from unappropriated reserves EXPLANATION: This budget amendment is requested to provide for the following: To increase expenditure appropriations for principal expenditure and interest expense associated with the 2010 Civic Center Certificates of Participation and to increase expenditure appropriations in the Debt Service Fund to cover the cost of debt issuance. ACCOUNTING ENTRY: BUDGETARYFUND BALANCE Fund Account Description 320 3605 Debt Service Fund - Fund Balance REVENUE ESTIMATES (3601) Fund/Division Account 320 489D 9320 6000 EXPENDITURE APPROPRIATIONS (3603) Description Debt Service Fund - 2010 Federal BAB Subsidy ND Debt Service: Transfers In Description Division Number 9320 NO Debt Service Account Number 9906 Principal Expenditure Division Number 9320 ND Debt Service Account Number 9905 Interest Expense Division Number 9405 NO Facilities Financing Account Number 9900 Transfers Out Division Number 9320 ND Debt Service Account Number 9901 Cost of Issuance Signed: Signed: Signed: Administrative Services Director Dr-> a_u Approval: City City Council Approval: City Clerk Amount Debit Credit $5,684,095.00 * $1,263,175.00 $4,754,095.00 $1,700,000.00 $4,317,270.00 $4,754,095.00 $930,000.00 [I•A10 Date 11131)t Date Date Mutual Understanding for Library Site RECORDED AT REQUEST OF, AND WHEN RECORDED MAIL TO: City of Newport Beach Attn: City Clerk 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 WITH A CONFORMED COPY TO: The Irvine Company LLC Attn: Legal Department 550 Newport Center Drive Newport Beach, CA 92660 (SPACE ABOVE THIS LINE FOR RECORDER'S USE) This document is exempt from filing fees per Govt. Code § 6103, recording fees per Govt. Code § 27383 and is exempt from Document Transfer Tax per Rev. & Taxation Code § 11922 Mutual Understanding Regarding Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase recorded on May 8, 1992 as Instrument No. 92- 304757 WHEREAS, The Irvine Company LLC, A Delaware Limited Liability Company ( "Declarant ") granted to City of Newport Beach, a California Municipal Corporation ( "Grantee ") via a Declaration /Exchange Agreement/Transfer Agreement (collectively, "Declaration ") recorded May 8, 1992 as Orange County Document No. 92- 304757 those certain properties identified as: (1) the southwesterly one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County; and (2) the northwesterly one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County (collectively, "Parcel 2, Parcel Map No. 90- 361" or "Property'). WHEREAS, Grantee desires to construct a new Civic Center project on or adjacent to the Property pursuant to Newport Beach Charter Section 425. WHEREAS, The Declaration places certain limitations on the Property and requires Grantee to obtain Declarant's consent for certain improvements. WHEREAS, Declarant and Grantee both desire to confirm that the Declaration allows the development of the Civic Center project. NOW THEREFORE, Declarant and Grantee agree as follows: Pursuant to the terms, restrictions, or conditions contained in the Declaration, the Grantee is authorized to develop the Property with a City Hall Office Building, Community Room, City Council Chambers, Parking Structure, Library addition and related improvements, including an approximately 600 square foot Food Service Facility which will provide deli food service and limited catering for employees, library visitors, special event visitors and receptions ('Project'), which is consistent with the use restriction in the Declaration that no portion of the Property is used for retail, commercial, quasi - retail or quasi - commercial facilities that materially compete with the retail and commercial facilities in the Newport Center development or is otherwise improved, developed, used, operated, or maintained with any facilities or for any purpose whatsoever except as set forth above unless expressly approved by Declarant, which approval may be granted or withheld by Declarant in its sole discretion. Therefore, the Grantee is authorized to take any and all actions necessary to develop, alter, and maintain the Project, including, but not limited to, entering into leases and financing agreements, including leasing the Property to the Newport Beach Public Facilities Corporation in connection with the refinancing of the Library and the financing of the Project. The loan -to -value ratio set forth in Section 2.8 of the Declaration is hereby waived in connection with such financing. The Grantee shall not materially expand or alter the use or square footage of the Food Service Facility unless expressly approved by the Declarant, which approval may be granted or withheld by Declarant in its sole discretion. IN WITNESS WHEREOF, this instrument is duly executed this 2gth day of October 2010. DECLARANT: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company By: t� Daniel H. Young Its: Executive Vice esident By: rigid D McMahon Its: Assistant Secretary GRANTEE: CITY OF NEWPORT BEACH A California Municipal Corporation 0 Its: Mayor APPROVED AS TO FORM: OFFJG OF TIJE CITY ATTORNEY David R. Hunt City Attorney City of Newport Beach ATTEST: Leilani Brown City Clerk City of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Daniel H. Young who proved to me on the basis of satisfactory evidence to be the persoqk5y wh se nam is are subscribed to the within instrument and acknowledged to me tha he he /they executed the same in his er /their authorized capacity(, and that by i her /their signature( on the instrument the persoW, or the entity upon behalf of w Ich the persop{-sy acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public JONI GROSSMAN STATE OF CALIFORNIA Commission # 1736093 -s Notary Public - California Orange County COUNTY OF ORANGE MVCommEVIresA4x30,20l 1 On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Brigid D. McMahon who proved to me on the basis of satisfactory evidence to be the person whose name COare subscribed to the 'thin instrument and acknowledged to me that h sh they executed the same in his /their authorized capacityQW, and that by hi er their signaturpkW on the instrumen the personXs�,--Or the entity upon behalf of which the perso%Wacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public JONI GROSSMAN Commission # 1736093 Notary Public - California : Orange County '- My Comm. E> phM Apr 30, 2011 Mutual Understanding for Civic Center Site RECORDED AT REQUEST OF, AND WHEN RECORDED MAIL TO: City of Newport Beach Attn: City Clerk 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 WITH A CONFORMED COPY TO: The Irvine Company LLC Attn: Legal Department 550 Newport Center Drive Newport Beach, CA 92660 (SPACE ABOVE THIS LINE FOR RECORDER'S USE) This document is exempt from filing fees per Govt. Code § 6103, recording fees per Govt. Code § 27383 and is exempt from Document Transfer Tax per Rev. & Taxation Code § 11922 Mutual Understanding Regarding Amended and Restated Grant Deed (Parcel 3, Parcel Map 90- 361 - Newport Village) recorded on June 2, 2008 as Instrument No. 2008000262433 WHEREAS, The Irvine Company LLC, A Delaware Limited Liability Company ( "Grantor ") previously granted to the City of Newport Beach, a California Municipal Corporation ( "Grantee ") via a Grant Deed recorded November 28, 2007 as Orange County Document No. 2007000704013 ( "Grant Deed ") that certain property identified as Parcel 3 of Parcel Map 90 -361, in the City of Newport Beach, County of Orange, State of California, as per Map filed in Book 270, Pages 15 to 18, inclusive, of Parcels, in the Office of the County Recorded of said County ( "Property "). WHEREAS, Grantee desires to construct a new Civic Center project on the Property pursuant to Newport Beach Charter Section 425. WHEREAS, The Grant Deed places certain limitations on the Property and requires Grantee to obtain Grantor's consent for certain improvements. WHEREAS, Grantor and Grantee both desire to confirm that the Grant Deed allows the development of the Civic Center project. NOW THEREFORE, Grantor and Grantee agree as follows: Pursuant to the terms, restrictions, and conditions contained in the Grant Deed, the Grantee is authorized to develop the Property with a City Hall Office Building, Community Room, City Council Chambers, Parking Structure, Library addition and related improvements, including an approximately 600 square foot Food Service Facility which will provide deli food service and limited catering for employees, library visitors, special event visitors and receptions (`Project'), which is consistent with the use restriction in Grant Deed Section i(a) that the Property may be used by the Grantee only for open space and public facilities uses. Therefore, Grantee is authorized to take any and all actions necessary to develop, alter, and maintain the Project, including, but not limited to, entering into leases and financing agreements. IN WITNESS WHEREOF, this instrument is duly executed this 2gth day of October, 2010. GRANTOR: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company By: L t Daniel H. Young Its: Executive Vice President By: 1 Brigid EY McMahon Its: Assistant Secretary GRANTEE: CITY OF NEWPORT BEACH A California Municipal Corporation 0 Its: Mayor APPROVED AS TO FORM: David R. Hunt City Attorney ATTEST: Leilani Brown City Clerk City of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Daniel H. Young who proved to me on the basis of satisfactory evidence to be the person,( whose named is re subscribed to the within instrument and acknowledged to me that he she /they executed the same in his her /their authorized capacity�ie;), and that by hi her /their signature(sr on the instrument the personK,, or the entity upon behalf of which the person'Wacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public JONI GROSSMAN Commission # 1736093 STATE OF CALIFORNIA < , -® Notary Public . California = Orange County MyComm,F)IresApr30.2011 COUNTY OF ORANGE On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Brigid D. McMahon who proved to me on the basis of satisfactory evidence to be the person ,(sJ whose nameare subscribed to the within instrument and acknowledged to me that h sh they executed the same in hi her their authorized capacity s�, and that by hi he their signature(W on the instrumen the persot�or the entity upon behalf of which a persory(sracted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public JONI GROSSMAN It Commission # 1736093 Notary Public • California Orange County - MyComm. EVkesApr30, 2011 Amendment to Declaration of Special Land Use Restrictions RECORDED AT REQUEST OF, AND WHEN RECORDED MAIL TO: City of Newport Beach Attn: City Clerk 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 WITH A CONFORMED COPY TO: The Irvine Company LLC Attn: Legal Department 550 Newport Center Drive Newport Beach, CA 92660 (SPACE ABOVE THIS LINE FOR RECORDER'S USE) This document is exempt from filing fees per Govt. Code § 6103, recording fees per Govt. Code § 27383 and is exempt from Document Transfer Tax per Rev. & Taxation Code § 11922 Amendment of Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase recorded on May 8, 1992 as Instrument No. 92- 304757 THIS FIRST AMENDMENT TO DECLARATION OF SPECIAL LAND USE RESTRICTIONS, RIGHT AT FIRST REFUSAL, MORTGATE LIEN AND OPTION TO REPURCHASE ( "Amendment') is made as of October 29, 2010 and shall be effective as of October 29, 2010 ( "Amendment Effective Date ") by and between The Irvine Company LLC, A Delaware Limited Liability Company ( "Declarant') and the City of Newport Beach, a California Municipal Corporation ( "Grantee "). RECITALS WHEREAS, Declarant and Grantee entered into a Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase ( "Existing Declaration ") recorded May 8, 1992 as Orange County Document No. 92- 304757 with respect to those certain properties identified as: (1) the southwesterly one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County; and (2) the northwesterly one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County (collectively, "Parcel 2, Parcel Map No. 90 -361" or "Property "). WHEREAS, Grantee desires to construct a new Civic Center project on or adjacent to the Property pursuant to Newport Beach Charter Section 425. WHEREAS, Exhibit 2 to the Existing Declaration places certain limitations on the development of the Property. WHEREAS, Declarant and Grantee both desire to amend Exhibit 2 to the Existing Declaration to allow the development of the Civic Center project. NOW THEREFORE, Declarant and Grantee hereby amend the Existing Declaration as follows: 1. Amendment to Exhibit B. Exhibit B to the Existing Declaration is hereby amended as follows: Maximum Gross Floor Area: 74,000 square feet 2. Continuing Effect. As amended hereby, the Declaration shall continue in full force and effect following the Amendment Effective Date. If there is any inconsistency between the provisions of this Amendment and the provisions of the Declaration, the provisions of this Amendment shall supercede and control. IN WITNESS WHEREOF, this instrument is duly executed this 291h day of October, 2010. DECLARANT: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company By: Daniel H. You Its: Executive Vice Osident By: tBrigicidg. McMahon Its: Assistant Secretary GRANTEE: CITY OF NEWPORT BEACH A California Municipal Corporation By: Its: Mayor APPROVED AS TO FORM: F E OF TH CITY ATTORNEY David R. Hunt City Attorney City of Newport Beach ATTEST: Leilani Brown City Clerk STATE OF CALIFORNIA COUNTY OF ORANGE On November 1, 2010 , before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Daniel H. Young who proved to me on the basis of satisfactory evidence to be the person whose name(sj is re subscribed to the within instrument and acknowledged to me that he he /they executed the same in his er /their authorized capacitypeigf and that by his er /their signature aj on the instrument the person(s� or the entity upon behalf of which the persons acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. /L�O�✓�ir� Notary Public STATE OF CALIFORNIA COUNTY OF ORANGE JONI GROSSMAN _ Commission # 1736093 i : -m Notary Public • Californla z. Orange County '- MyComm. ExpiresApr 30, 2011 On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Brigid D. McMahon who proved to me on the basis of satisfactory evidence to be the persoqjW whose name is are subscribed to the,-within instrument and acknowledged to me tha# h sh /they executed the same in hi he /their authorized capacityaasj and that by hi he their signature�Kon the instrument the persoq(sj- or the entity upon behalf of which the person(s)-acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Pub— lic JONI GROSSMAN Commission # 1736093 : -o Notary Public • California £ Orange County MyComm. E>rplresApr30, 2011