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Home My WebLink AboutRDA Packet 2002/05/14 Notice is hereby given that the Chair of the Public Financing Authority has called and will convene a special joint meeting of the Public Financing Authority/City Council, Tuesday, May 14, 2002 at 6:00 p.m., immediately following the City Council meeting in the Council Chambers, located in the Public Services Building, 276 Fourth Avenue, Chula Vista, California to consider, deliberate and act upon the following: Shirley Horton, Chair ~{f? ::--:-"':; -.-..;:::- CIlY OF CHUlA VISTA TUESDAY, MAY 14, 2002 COUNCIL CHAMBERS 6:00 P.M. PUBLIC SERVICES BUILDING (immediately following the City Council meeting) JOINT SPECIAL MEETING OF THE CITY COUNCIL AND PUBLIC FINANCING AUTHORITY AND ADJOURNED MEETING OF THE REDEVELOPMENT AGENCY OF THE CITY OF CHULA VISTA CALL TO ORDER ROLL CALL Council/Authority/Agency Members Davis, Padilla, Rindone, Salas; Chair/Mayor Horton ACTION ITEMS The items listed in this section of the agenda are expected to elicit substantial discussions and deliberations by the Council, Public Financing Authority, staff, or members of the general public. The items will be considered individually by the Council and/or Public Financing Authority and staff recommendation may in certain cases be presented in the alternative. Those who wish to speak, please fill out a Request to Speak form available in the lobby and submit it to the Secretary to the Redevelopment Agency or City Clerk prior to the meeting. 1. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE GUARANTEED MAXIMUM PRICE (GMP) OF $51.710,422 FOR THE CONSTRUCTION OF THE POLICE FACILITY BY HIGHLAND PARTNERSHIP, INC. (HPII - On November 20, 2001, the City Council approved an agreement, Resolution No. 2001-399, with Highland Partnership, Inc. (HPI) for services required to design and construct the new police facility and related improvements. As a condition of that agreement, HPI was to prepare a Guaranteed Maximum Price for the successful completion of the police facility as soon as construction documents were 50% complete. With the 50% completion of construction documents being accomplished in April, HPI presented the GMP to staff for review on May 1, 2002. City staff has reviewed the $51,710,422 GMP and believe it to be an accurate evaluation of the cost to complete the police facility. [Director of Building and Park Construction] STAFF RECOMMENDATION: Council adopt the resolution. 2. a. COUNCIL RESOLUTION AUTHORIZING THE EXECUTION AND DELIVERY OF DOCUMENTS RELATING TO THE SALE AND DELIVERY OF NOT TO EXCEED $62,000,000 2002 CERTIFICATES OF PARTICIPATION, (POLICE FACILITY PROJECT). APPROPRIATING $44,734,190 TO THE POLICE HEADQUARTERS PROJECT (PS149) AND $5,205,000 AS REIMBURSEMENT TO THE GENERAL FUND FOR MONIES PREVIOUSLY SPENT ON THE PROJECT BASED ON ANTICIPATED PROCEEDS FROM THE SALE OF THE CERTIFICATES OF PARTICIPATION, AND AUTHORIZING AND DIRECTING CERTAIN ACTIONS IN CONNECTION THEREWITH - Council has previously approved a capital project to acquire property and to construct a new Police headquarters facility, and directed staff to return with recommended long-term financing. For the portion of the project that will not be funded with existing resources, staff is recommending approval of a long-term borrowing by issuing Certificates of Participation in amount not to exceed $62,000,000. [Assistant City Manager Powell] 2. b. PUBLIC FINANCING AUTHORITY APPROVING A LEASE/PURCHASE AGREEMENT WITH THE CITY OF CHULA VISTA AND CERTAIN OTHER DOCUMENTS IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THE 2002 CERTIFICATES OF PARTICIPATION, (POLICE FACILITY PROJECT) IN A PRINCIPAL AMOUNT NOT TO EXCEED $62,000,000 STAFF RECOMMENDATION: Council adopt resolution (a); Public Financing Authority adopt resolution (b). 4/5ths VOTE REQUIRED ORAL COMMUNICATIONS This is an opportunity for the general public to address the Public Financing Authority on any subject matter within the Authority's jurisdiction that is not an item on this agenda. IState law, however, generally prohibits the Public Financing Authority from taking action on any issues not included on the posted agenda.) If you wish to address the Agency/Authority on such a subject, please complete the "Request to Speak Under Oral Communications Form" available in the lobby and submit it to the City Clerk prior to the meeting. Those who wish to speak, please give your name and address for record purposes and follow up action. 3. DIRECTOR'S REPORT(S) 4. CHAIR/MAYOR REPORTlS) 5. AGENCY/COUNCIL COMMENTS ADJOURNMENT The meeting will adjourn to a closed session and thence to an adjourned meeting of the Redevelopment Agency on May 28, 2002, at 6:00 p.m., immediately following the City Council meeting in the City Council Chambers. CLOSED SESSION Unless Agency Counsel, the Executive Director, or the Redevelopment Agency/City Council states otherwise at this time, the Agency/Council will discuss and deliberate on the following itemls) of business which are permitted by law to be the subject of a closed session discussion, and which the Agency/Council is advised should be discussed in closed session to best protect the interests of the City. The Agency/Council is required by law to return to open session, issue any reports of final action taken in closed session, and the votes taken. However, due to the typical length of Redevelopment Agency, May 14, 2002 Page 2 time taken up by closed sessions, the videotaping will be terminated at this point in order to save costs so that the Agency/Council's return from closed session, reports of final action taken, and adjournment will not be videotaped. Nevertheless, announcements of actions taken in Closed Session shall be made by Noon on Wednesday following the meeting at the City Clerk's office in accordance with the Ralph Brown Act IGovt. Code § 54957. 7) 6. CONFERENCE WITH LEGAL COUNSEL REGARDING EXISTING LITIGATION n Pursuant to Government Code Section 54956.9(a) Tuchscher vs. City of Chula Vista, Superior Court, County of San Diego, San Diego Judicial District, Court Case No. GIC758620 7. CONFERENCE WITH LEGAL COUNSEL REGARDING ANTICIPATED LITIGATION -- Pursuant to Government Code Section 54956.9(b) One Case AMERICANS WITH DISABILITIES ACT The City of Chula Vista, in complying with the Americans with Disabilities Act (ADA), request individuals who require special accommodates to access, attend, and/or participate in a City meeting, activity, or service request such accommodation at least 48 hours in advance for meetings and five days for scheduled services and activities. Please contact the Secretary to the Redevelopment Agency for specific information at (619) 691-5047 or Telecommunications Devices for the Deaf ITDD) at 16191585-5647. California Relay Service is also available for the hearing impaired. Redevelopment Agency, May 14, 2002 Page 3 PAGE 1, ITEM NO.: I MEETING DATE: 05/14/02 CITY COUNCIL AGENDA STATEMENT ITEM TITLE: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE GUARANTEED MAXIMUM PRICE (GMP) OF $51,710,422 FOR THE CONSTRUCTION OF THE POLICE FACILITY BY HIGHLAND PARTNERSHIP, INC. (HPI) SUBMITTED BY: DIRECTOR OF BUILDING AND PARK CONSTRUCTION REVIEWED BY: CITY MANAGER 1.-- IV 4/5THS VOTE: YESD NO 0 RECOMMENDATION That Council approve the Guaranteed Maximum Price (GMP) of $51,710,422 for the construction of the Police Facility by Highland Partnership, Inc. (HPI). BOARDS/COMMISSIONS RECOMMENDATION Not applicable. DISCUSSION On November 20, 2001, the City Council approved an agreement, Resolution No. 2001-399 (Attachment A), with Highland Partnership, Inc. (HPI) for services required to design and construct the new police facility and related improvements. As a condition of that agreement HPI was to prepare a Guaranteed Maximum Price for the successful completion of the police facility as soon as construction documents were 50% complete. With the 50% completion of construction documents being accomplished in April, HPI presented the GMP to staff for review on May 1, 2002. City staff has reviewed the $51,710,422 GMP (Attachment B) and believe it to be an accurote evaluation of the cost to complete the police facility. The building construction cost presented to Council in November, 2001 was estimated to be $48,727,809. The GMP received per contract on May 1" from HPI is $51,710,422. Even before receiving the 50% construction drawings, staff has been involved in the on-going value- engineering task. To this date $382,203 has been identified as Value Engineering Alternatives and have been incorporated into the construction drawings. These cost savings are reflected in the Guaranteed Maximum Price being presented tonight. Hard construction costs are set at $34,276,878. At the completion of the project if the hard construction costs are lower, the City will realize those savings. 1- I PAGE 2, ITEM NO.: MEETING DATE: 5/14/02 The GMP price of $51,710,422 is calculated on 50% construction documents and is $2,982,613 above the total approved in November, 2001, this increose is driven by two foctors: 1. The insurance, Controctor's Controlled Insurance Program (CClP), a requirement by the City, wos originally estimated to be around $2 million. After the unfortunate tragedy of September 11, 2001, Insurance rates escalated dramatically driving the cost for the CCiP coverage up to $4,432,613. 2. The Council Policy Committee's recommendation to pursue energy cost decreases/avoidance measures during peak hours of operation resulted in the addition of installation of a Photovoltaic system, plus two mini-natural gas turbines for a total increase to the GMP of $500,000. These energy saving units have a 7- year payback and a projected life span of twenty years. This system supports the Council's effort in making this project as "Green" as possible. The cost of the system will be added to the GMP and does not affect the scope and therefore does not effect the contract provision providing that the first million dollars of change arders does not result in an additional fee being paid to the Design Builder. Once the approval of the GMP and the project financing is obtained, the City will issue a formal Notice to Proceed subsequent to its approval of the 100% construction drawings. The City retains the right to terminate the agreement if long term financing is not obtained. Upon receipt of Notice to Proceed, HPI will prepare bid packages, conduct (in consultation with City) selecfive competitive bidding, schedule and conduct pre-bid conferences, analyze and award bids, and proceed to construction. The overall job performance is proceeding well and appears to be ahead of schedule. Until such time as concrete and steel bids and time schedules are approved staff is reluctant ta suggest any reduction in construction time frames. However, if the job continues on its present course it appears that construction time will be reduced indicating a cost savings in return. FISCAL IMPACT Approval of the Guaranteed Maximum Price of $51,710,422 for the design/build portion of this project will allow the project to proceed once long-term financing is obtained. The total project cost is estimated at slightly less than $66 million. Long-term financing is estimated to carry a net cost of $57.7 million to be funded over a thirty-year periad by anticipated development impact fees (48.2%) and General Fund resources (51.8%). There is a related item on this same agenda to approve a specific long-term financing plan. J'IAttomeyIEHuII15-14-02 JOINT AGENDA STATEMENT.do, !-;J... COUNCIL RESOLUTION NO. 2002 - RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE GUARANTEED MAXIMUM PRICE (GMP) OF $51,710,422 FOR THE CONSTRUCTION OF THE POLICE FACILITY BY HIGHLAND PARTNERSHIP, INC. (HPI) WHEREAS, on November 20, 2001, the City Council approved an agreement, Resolution No. 2001-399 (Attachment A), with Highland Partnership, Inc. (HPI) for services required to design and construct the new police facility and related improvements; and WHEREAS, as a condition of that agreement HPI was to prepare a Guaranteed Maximum Price for the successful completion of the police facility as soon as construction documents were 50% complete; and WHEREAS, with the 50% completion of construction documents being accomplished in April, HPI presented the GMP to staff for review on May I, 2002; and WHEREAS, City staff has reviewed the $51,710,422 GMP and believe it to be an accurate evaluation of the cost to complete the police facility. NOW, THEREFORE, BE IT RESOLVED the City Council of the City of Chula Vista does hereby approve the Guaranteed Maximum Price (GMP) of $51,710,422 for the construction of the Police Facility by Highland Partnership, Inc. (HPI). Presented by Approved as to fonn by Andy Campbell Director of Building and Park Construction J:IAttorneyIRESOIGMP Police Fac. Highland.doc (-3 ATTACIIMKNT A RESOLUTION NO. 2001-399 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA ACCEPTING THE CITY MANAGER'S CERTIFICATION OF SOLE SERVICE STATUS AND APPROVING AN AGREEMENT WITH HIGHLAND PARTNERSHIP, INC., FOR THE PROVISION OF SERVICES REQUIRED TO DESIGN AND CONSTRUCT THE NEW POLICE FACILITY AND RELATED IMPROVEMENTS, AUTHORIZING THE MAYOR TO EXECUTE SAID AGREEMENT AND APPROPRIATING FUNDS THEREFOR WHEREAS, at the July 10, 2001, joint meeting of the City CouncillRedevelopment Agency, staff was authorized to begin condemnation proceedings for the property located at 362- 398 "F" Street for the construction of the City's new Police Headquarters; and WHEREAS, pursuant to Chula Vista Municipal Code §2.57.030, the City Manager must certify the sole source status of the Design Builder and the City Manager does so certify based upon the following: 1. Highland Partnership, Inc. ("HPI") and its team has specialized knowledge based on its preparation of the Police Department Master Plan, programming, and schematic design and has demonstrated expertise in this field with the design and construction of other public safety facilities. 2. Reference checks done as part of the original selection process for the CMC list resulted in favorable reports regarding the work completed by HPI. 3. Time is of the essence regarding the completion of this facility. Space is a premium commodity in the existing Police Department building and an additional 60,000 sq. ft. is needed just to meet existing space needs. 4. HPI and its team have significant history regarding the space, programming, and development needs required for the new Police Headquarters. To require an RFP for the new phase of development would be a waste of this expertise. 5. The proposed sole source agreement is consistent with the intent of the priority list established as a result of the RFQ process as approved by the City Council and from which HPI was originally selected. WHEREAS, staff recommends the award of an agreement with Highland Partnership, Inc.; and WHEREAS, staff is directed to return with a long-term financing plan for approval; and WHEREAS, an appropriation of funds is needed to cover project costs until long-term financing is obtained. (- '-I Resolution 2001-399 Page 2 NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula Vista does hereby accept the City Manager's certification of sole service status and approve an agreement with Highland Partnership, Inc. for the provision of services required to design and construct the Police Facility and associated ancillary facilities, including, but not limited to, parking structure, cogeneration facility and on and off site improvements, a copy of which shall be kept on file in the Office of the City Clerk. BE IT FURTHER RESOLVED that the fiscal year 2001/2002 budget is hereby amended by appropriating funds in the amount of $6.3 million from the available fund balance of the Public Facilities Development Impact Fee Fund, and $4.7 million from the available fund balance of the General Fund for expenditures related to the early phases of design and construction activities. BE IT FURTHER RESOLVED that staff is directed to return with a long-tenn financing plan to fund the balance of construction costs related to the new Police Headquarters, and also giving consideration to partially or fully reimbursing the General Fund Balance as appropriate. BE IT FURTHER RESOLVED that the Mayor is hereby authorized to execute said agreement on behalf of the City of ChuIa Vista. Presented by Approved as to fonn by David D. Rowlands, Jr. John M. Kaheny City Manager City Attorney j-S Resolution 2001-399 Page 3 PASSED, APPROVED, and ADOPTED by the City Council of the City of Chula Vista, California, this 20th day of November, 2001, by the following vote: AYES: Councilmembers: Davis, Padilla, Rindone, Salas and Horton NAYS: Councilmembers: None ABSENT: Councilmembers: None Shirley Horton, Mayor ATTEST: Susan Bigelow, City Clerk STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) CITY OF CHULA VISTA ) I, Susan Bigelow, City Clerk of Chula Vista, California, do hereby certify that the foregoing Resolution No. 2001-399 was duly passed, approved, and adopted by the City Council at a regular meeting of the Chula Vista City Council held on the 20th day of November, 2001. Executed this 20th day of November, 2001. Susan Bigelow, City Clerk /-~ ATTACHMENT B '" ~ ~ w ~'" ' " I' <>: !;i 1551 .. I I I ("oJ , , ,e- '" M 0 ~~ '- IW! 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Meeting Date ..5l14LO2 ITEM TITLE: Resolution of the City of Chula Vista authorizing the execution and delivery of documents relating to the sale and delivery of not to exceed $62,000,000 2002 Certificates of Participation, (Police Facility Project), appropriating $44,734,190 to the Police Headquarters project (PS149) and $5,205,000 as reimbursement to the General Fund for monies previously spent on the project based on anticipated proceeds from the sale of the Certificates of Participation, and authorizing and directing certain actions in connection therewith. Resolution of the Chula Vista Financing Authority approving a lease/purchase agreement with the City of Chula Vista and certain other documents in connection with the execution and delivery of the 2002 Certificates of Participation, (Police Facility Project) in a principal amount not to exceed $62,000,000. SUBMITTED BY: Assistant City ~anager Powell 7 REVIEWED BY: City ManagelPf D<" (4/5ths Vote: Yes X-No_) p SUMMARY: The Council has previously approved a capital project to acquire property and to construct a new Police headquarters facility, and directed staff to return with recommended long- term-financing. For the portion of the project that will not be funded with existing resources, staff is recommending approval of a long-term borrowing by issuing Certificates of Participation in an amount not to exceed $62,000,000. RECOMMENDATION: Council: Approve the resolution authorizing the execution and delivery of documents relating to the sale and delivery of not to exceed $62,000,000 2002 Certificates of Participation, (Police Facility Project), appropriating $44,734,190 to the Police Headquarters project (PS149) and $5,205,000 as reimbursement to the General Fund for monies previously spent on the project based on anticipated proceeds from the sale of the Certificates of Participation, and authorizing and directing certain actions in connection therewith. Authority: Approve the resolution approving a lease/purchase agreement with the City of Chula Vista and certain other documents in connection with the c:2-( Item Page 2, Date ..5L14lO2 execution and delivery of the 2002 Certificates of Participation, (Police Facility Project) in a principal amount not to exceed $62,000,000. BOARDS/COMMISSIONS RECOMMENDATION: Not applicable DISCUSSION: ThA PrnjAr.t This project involves the acquisition of the commercial site at the comer of Fourth Avenue and F Street, relocation of the resident tenants, demolition of the site, and construction and furnishing of a multi-story 150,000 square foot Police Headquarters facility with an adjoining multi-story parking structure. The project also includes landscaping and some off-site improvements to the adjacent property. The City has previously entered into a contract with Highland Partnership, Inc. for design/build services for the entire project. The total cost of the project, excluding financing, is anticipated to be approximately $66 million, broken down as follows: Site Acquisition & Tenant Relocation ................................... $ 7,000,000 Construction """"""""""""""""""""""""""""""""""""", 51,210,422 Project Management, Fees (City) ............................................. 3,450,000 Furniture, Fixtures, & Equipt. .................................................... 1,635,000 Relocation of Existing Equipt. ......................................................577,000 Contingency (City)................ ............... ............ ............ ....1 ,610,191 Energy .Systems....................................................................... 1>00,000 Total !tR!'i QR? R1<\ During the recent update of the Public Facility Development Impact Fee (PFDIF), it was stipulated that the portion of the cost of the new police facility (excluding financing costs) to be funded by development impact fees would be limited to $30,060,325, except for the following permissible cost increases: 1. "Extraordinary Costs," defined as costs which could not have been reasonably foreseen at the time the project cost estimates were developed. The $2.5 million increase in the project's post- September 11 insurance costs is a prime example, which will increase the development impact fee share for the project by 48.5% of the increase or $1.2 million to a total of $31 ,264,392. 2. "Applicable Building construction Index and/or Consumer Price Index Adjustments." Currently, these adjustments have been factored into the project estimates. Project costs which have no nexus to growth, such as the $500,000 added to the project for energy efficiency, or cost increases which are not related to the two factors cited above, will be borne by the City. c2-.J.... Item Page 3, Date .5l1AlO2 To date, appropriations for this project total $17,798,423, including $7,181,744 from development fees and $10,616,679 from the General Fund ($5,205,469) and the Redevelopment Agency ($5,411,210). Staff is recommending that long-term financing be obtained to provide approximately $49.9 million, which is derived as follows: Total Project Cost """"""""""""""""""""""" $65,982,613 Less In-house Staff Costs & Fees................ ..($3,450,000) Less Appropriations to date..........................($17,798,423) Add General Fund Reimbursement................ $5 ?05 000 Total Proceeds Required """""""""""""""""'" !!;4QQ:<Q1QO Staff is recommending that the General Fund portion of existing appropriations be reimbursed by borrowing additional funds due to the very low interest rates currently available and the ability to invest those funds at a higher rate of interest In addition, the Civic Center Remodel Capital Project is expected to follow on the heels of this project, and since all indications are that interest rates will trend upward in the near future, it would make sense to have these funds on hand in order to minimize the amount of the borrowing for that project Staff is not recommending that either the development fee or the Redevelopment Agency appropriations be reimbursed, since almost all of those amounts are from proceeds of either Community Facility District or Tax Allocation Bond proceeds, thereby precluding such treatment. The portion of the borrowing attributable to the development fee funding commitment is 48.2% or $24,082,648, with the remainder, 51.8% or $25,856,542 attributable to the City funding commitment. Long-Term Financing In December, 2000, the Council approved an agreement with Harrell & Co. Advisors, LLC to provide financial advisory services for determining the most appropriate borrowing structure and for executing long-term financing transactions to provide funding for both the Police Headquarters and Civic Center Remodeling projects. Harrell & Co. is recommending that the required funds for the Police Headquarters project be obtained through a standard competitively bid certificate of participation issue, which is a vehicle that the City/Agency has used in the past for financing such projects as the corporation yard, shopping center remodeling, the downtown parking structure, etc. The typical structure is such that certain assets, are leased to a separate legal entity, in this case the City's Financing Authority, which then leases the assets back to the City. The Financing Authority then borrows money through the municipal market by "selling" certificates of participation, which entitle the holder to a proportionate share of the City's lease payments (i.e. principal & interest). The lease payments from the City are established at a level sufficient to pay the debt service payments due to the certificate holders. In order to generate the almost $50 million required to complete the funding of this project, it is estimated under current market conditions that a borrowing of approximately $60.7 million will be necessary. It is estimated that for a Certificate issue of this size, with c:l-.3 Item Page 4, Date --5l1AlO.2 a 30-year final maturity, the net total debt service will amount to approximately $107.6 million, for a net financing cost of $57.7 million ($107.6 million less $49.9 million). This figure includes an estimated net interest cost of $47 million, an underwriter's discount of $545,805, an insurance premium of $562,000, and miscellaneous costs of issuance including financial advisory services, legal services, etc. of approximately $450,000. The semi-annual debt service (lease) payments that will begin in February, 2005, will vary slightly year to year, but the average annual amount due is estimated at approximately $3.9 million. It is felt that these figures are somewhat conservative and that the actual costs should be less if market conditions remain fairly stable until the date of sale for the Certificates. As indicated previously, this amount is a shared commitment, with 48.2% or $1.9 million to be funded by development fees and 51.8% or $2 million to be funded from General Fund resources. However, it must be noted that if at any time over the next 30 years, there are insufficient development fee revenues on hand to meet that portion of the debt service obligation, the unmet obligation would fall to the General Fund. Although not considered a City "debt" in the strictly legal definition of the term, the annual lease payments for such a large borrowing will increase the total annual debt service commitment of the City's General Fund by almost 60% when the first full year payment is due in fiscal year 2005-06. At that time, it is projected that the General Fund annual debt service commitment will total approximately $10.4 million, or approximately 8% of the projected General Fund operating budget. Viewed in isolation, this percentage would be considered moderately high for a local governmental entity. However, it must be noted that although this amount is truly a General Fund commitment, only $5.6 is scheduled to actually be paid from General Fund resources, with the remaining $4.8 million scheduled to be paid from various special funds, such as development fees, residential construction taxes, etc. This $5.6 million represents approximately 4.4% of the projected General Fund operating budget, which would be considered more of an average debt burden for a local governmental entity. It should also be noted that the single largest annual debt service commitment of the General Fund is the $2 million payment on the Pension Obligation Bonds, which could easily be viewed as an operational expense categorized as personnel retirement, rather than debt service, thereby further reducing the "real" debt burden on the General Fund for comparison purposes. The financing-related resolutions approve the competitive sale of Certificates in a total amount not to exceed $62 million, and also, approve the lease/Purchase Agreement, Preliminary Official Statement, Trust Agreement, and other necessary documents in the form on file, and authorize them to be executed and distributed in connection with the sale of the Certificates. In addition, the resolutions authorize the Assistant City Manager/Director of Finance to solicit and obtain insurance on the transaction if it is found to be economically advantageous. Finally, the resolutions authorize staff to take all actions as may be necessary to close the transaction, including execution of all required closing documents. FISCAL IMPACT: Adoption of these resolutions will amend the CIP budget to authorize the expenditure of ~-.¡ Item Page 5, Date .5l1AlO2 $44,734,190 in proceeds from long-term borrowing on the Police Headquarters project, the reimbursement of $5,205,000 to the General Fund for monies previously spent on the project, and recognize net long-term borrowing costs over a thirty year period of approximately $57.7 million. The projected and recommended funding sources for the total of these project and financing costs ($107.6 million) are $51.9 million (48.2%) from development impact fees and $55.7 million (51.8%) from General Fund resources. oÎ,-S' CITY COUNCIL CITY OF CHULA VISTA RESOLUTION NO. RESOLUTION AUTHORIZING THE EXECUTION AND DELIVERY OF DOCUMENTS RELATING TO THE SALE AND DELIVERY OF NOT TO EXCEED $62,000,000 2002 CERTIFICATES OF PARTICIPATION (POLICE FACILITY PROJECT), APPROPRIATING $44,734,190 TO THE POLICE HEADQUARTERS PROJECT (PSI49) AND $5,205,000 AS REIMBURSEMENT TO THE GENERAL FUND FOR MONIES PREVIOUSLY SPENT ON THE PROJECT BASED ON ANTICIPATED PROCEEDS FROM THE SALE OF THE CERTIFICATES OF PARTICIPATION, AND AUTHORIZING CERTAIN DOCUMENTS AND DIRECTING CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City of Chula Vista (the "City") is a municipal corporation and a chartered city duly organized and existing under and pursuant to the Constitution and laws of the State of California (the "State"); and WHEREAS, the City desires to acquire, construct and equip a new police facility for the City . (the "Project"); and WHEREAS, the City wishes to enter into certain leases and authorize the sale of 2002 Certificates of Participation (Police Facility Project) (the "Certificates") under the Trust Agreement described below in order to finance the Project, and WHEREAS, the City, in order to facilitate the issuance of the Certificates intends to lease to the Authority certain real property (collectively, the "Site") set forth in Exhibit A to the Site Lease (as defined below) and to lease the Site back trom the Authority pursuant to the Lease (as defined below); and WHEREAS, all acts, conditions and things required by the Constitution and laws of the State to exist, to have happened and to have been pertonned precedent to and in connection with the consummation of the financing authorized hereby do exist, have happened and have been perfonned in regular and due time, fonD and manner as required by law, and the City is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the tenDS herein provided; and WHEREAS, the City approved Resolution No. 2000-437 on December 5, 2000, regarding the City's intention to issue tax exempt obligations to finance this project and to seek reimbursement from said issuance for certain costs incurred prior to the sa1e; and DOC SOC\8460 2 8 v 3 \240 3 6.0025 02-" WHEREAS, by the time the proceeds are available it is anticipated that the City will have spent $5,205,000 from fhe General Fund on the project for which it now seeks reimbursement from the proceeds of this sale; and WHEREAS, said reimbursement is consistent with and in compliance with any and all regulations of Intemal Revenue Services relating to qualification for reimbursement of Issuer expenditures prior to the issuance of said bonds; and WHEREAS, the total cost of project, excluding financing, is anticipated to be approximately $66,000,000; and WHEREAS, StatT is requesting the CIP budget for the Project be amended to authorize the expenditure of $44,734,190 in proceeds trom the issuance to fund the Project. NOW, THEREFORE, it is resolved by the City Council of the City of Chula Vista as follows: SECTION I. Findings. The City Council hereby specifical1y finds and declares that each of the statements, findings and detenninations of the City set forth in the recitals set forth above and in the preambles of the documents approved herein are true and correct and that the tinancing of the Project will result in significant public benefits for the residents of the City. SECTION 2. Authorization of Certificates. The City Council hereby expresses its intention of financing all or a portion of the acquisition, construction, and installation of the Project through the preparation, sale and delivery of Certificates in an amount not to exceed $62,000,000. SECTION 3. Lease/Purchase Agreement. The fonn of the Lease/Purchase Agreement between the City and the Chula Vista Public Financing Authority (the "Authority"), dated as of June I, 2002 (the "Lease"), presented to this meeting and on tile with the City Clerk (the "Clerk"), is hereby approved. Each of the Mayor of the City (the "Mayor"), the City Manager of the City (the "City Manager") and the Assistant City MangerlDirector of Finance of the City (the "Assistant City Manager") or their designees (collectively, the "Authorized Officers"), is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver to the Authority the Lease in substantial1y said fonn, with such changes therein as such officer or person or persons may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof by one or more of such officers. SECTION 4. Appointment. u.S. Bank, N.A. is appointed trustee (the "Trustee") under the Trust Agreement (defined below) SECTION 5. Trust Agreement. The fonn of the Trust Agreement, dated as of June 1,2002 (the "Trust Agreement"), among the City, the Authority and the Trustee, presented to this meeting and on file with the Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver to the Authority and the Trustee the Trust Agreement in substantial1y said fonn, with such changes therein as the Authorized Officers executing the Trust Agreement may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. 2 DOCSOC\846028v3\24036.0025 c:2-7 SECTION 6. Assignment Agreement. The Assignment Agreement dated June I, 2002 between the Trustee and the Authority in the fonn on file with the Clerk is hereby approved for execution and delivery by the Authority. SECTION 7. Notice Inviting Bids. The Notice Inviting Bids is approved and the City's Financial Advisor is authorized to solicit bids for the sale of the Certificates by publishing once in a newspaper of general circulation in the State of California, not less than 15 days prior to receipt of bids, a short fonn of the Notice Inviting Bids and to mail to prospective purchasers of the Certificates the Notice Inviting Bids substantially in the fonn on file with the Clerk together with such changes thereto as the Assistant City Manager or his designee, approve. The Assistant City Manager and his designee are authorized, on behalf of the City, to accept the bid of the lowest responsible bidder for the Certificates providing that (a) the principal amount of the Certificates does not exceed $62,000,000 and (b) the true interest cost of the Certificates does not exceed 7.5% per annum. The sale may be conducted through electronic means if the Assistant City Manager of the City, or his designee, detennines that such process will assist the City in obtaining the lowest interest cost for the Project. SECTION 8. Bond Insurance. The Assistant City Manager and his designee are hereby authorized to (i) solicit bids on a municipal bond insurance policy, (ii) to negotiate the tenns of such policy, (iii) to finalize, if appropriate, the fonn of such policy with a municipal bond insurer and (iv) if it is detennined that the policy will result in interest rate savings for the City, to pay the insurance premium of such policy from the proceeds of the issuance and sale of the Certificates. SECTION 9. Preliminary Official Statement. The fonn of the Preliminary Official Statement, presented to this meeting and on file with the Clerk, is hereby approved. The Assistant City Manager and his designee are hereby authorized to make such changes to the Preliminary Official Statement as are necessary to make it final as of its date and are authorized and directed to execute and deliver a certificate deeming the Preliminary Official Statement final as of its date in accordance with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934. The Authorized Officers are hereby authorized and directed to execute, approve and deliver the final Official Statement in the fonn of the Preliminary Official Statement with such changes, insertions and omissions as the Authorized Officers executing said document may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 10. Continuing Disclosure Agreement. The fonn of the Continuing Disclosure Agreement between the City and the Trustee (the "Continuing Disclosure Agreement"), presented to this meeting and on file with the Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver to the Trustee the Continuing Disclosure Agreement in substantially said fonn, with such changes therein as such Authorized Officers executing such document may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION II. Site Lease. The fonn of the Site Lease, dated as of June 1,2002 (the "Site Lease"), between the Authority and the City, presented to this meeting and on file with the Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver to the Authority the Site Lease in substantially said fonn, with such changes therein as such Authorized Officers executing such document may 3 DOCSOC\84602 8, 3\24036.0025 c:¿-5? require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 12, Attestations. The Clerk or persons as may have been designated by the City Manager are hereby authorized and directed to attest the signature of the Authorized Officers designated herein to execute any documents described herein, and to affix and attest the seal of the City, as may be required or appropriate in connection with the execution and delivery of the Lease, the Trust Agreement, the Continuing Disclosure Agreement, the Site Lease and the Official Statement. SECTION 13. Other Actions. The Authorized Officers are each hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which each may deem necessary or advisable (including the payment of a premium for a municipal bond insurance policy, a debt service surety bond, or other form of credit enhancement) in order to consummate the sale, execution and delivery of the Certificates and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution, the Certificates, the Lease, the Trust Agreement, the Continuing Disc10sure Agreement, the Site Lease, the Preliminary Official Statement, and the Official Statement. Such actions heretofore taken by such officers or designees are hereby ratified, confirmed and approved. In the event that it is determined by the Assistant City Manager, or his designee, that there are limitations or restrictions on the ability of the City to lease any portion of the Site as contemplated by the Site Lease and the Lease, the Assistant City Manager, or his designee, may designate other real property of the City to be leased pursuant to the Site Lease and the Lease with such designation to be conclusively evidenced by the execution and delivery of the Site Lease and the Lease by one or more of the Authorized Officers. SECTION 14. Effect. This Resolution shall take effect immediate1y upon its passage. BE IT FURTHER RESOLVED that the city hereby appropriates $44,734,190 to the Police Headquarters Project (PS 149) and $5,205,000 as reimbursement to the Genera] Fund for monies previously spent on the Project from the proceeds of the sale of the Certificates of Participation. Presented by Approved as to form by ; . ]('hrn~3 Robert W. Powell Assistant City Manager Attorney 4 DOCSOC\846028,3\24036.0025 .;2-9 PASSED, APPROVED, and ADOPTED by the City Council of the City ofChula Vista, California, this 14th day of May, 2002, by the following vote: AYES: Councilmembers: NAYS: Councilmembers: ABSTENTIONS: Councilmembers: ABSENT: Councilmembers: Shirley Horton, Mayor ATTEST: Susan Bigelow, City Clerk ST ATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) CITY OF CHULA VTST A ) I hereby certify that the foregoing resolution was duly introduced, passed and adopted at the time and place and by the vote as noted above. Executed this 14th day of May, 2002. Susan Bige10w, City Clerk 5 DOCSOC\846028v3\24036 0025 02 -I 0 RESOLUTION NO. CHULA VISTA PUBLIC FINANCING AUTHORITY RESOLUTION OF THE BOARD OF DIRECTORS OF THE CHULA VISTA PUBLIC FINANCING AUTHORITY APPROVING A LEASE/PURCHASE AGREEMENT WITH THE CITY OF CHULA VISTA AND CERTAIN OTHER DOCUMENTS IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THE 2002 CERTIFICATES OF PARTICIPATION (POLICE FACILITY PROJECT) IN A PRINCIPAL AMOUNT NOT TO EXCEED $62,000,000 WHEREAS, the Chula Vista Public Financing Authority is a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority") with the authority to assist in the financing of the acquisition, construction, installation and equipping of certain capital improvements on behalf of the City ofChula Vista (the "City"); and WHEREAS, in order to finance the acquisition, construction and equipping of a new police facility for the City (the "Project"), the Authority and the City have determined that it would be in the best interests of the Authority, the City and residents of the City to authorize the preparation, sale and delivery of the 2002 Certificates of Participation (Police Facility Project) in an aggregate principal amount not to exceed $62,000,000 (the "Certificates"), which Certificates evidence fractional interests in certain lease payments to be made pursuant to the Lease (as defined below). WHEREAS, in order to facilitate the issuance of the Certificates, the City and the Authority desire to enter into a Site Lease between the City and the Authority (the "Site Lease") and a Lease/Purchase Agreement between the City and the Authority (the "Lease"), the forms of which have been presented to this Board of Directors at the meeting at which this Resolution is being adopted and pursuant to which the City will under the Site Lease lease the Property to the Authority and under the Lease will lease the Property back from the Authority and pay certain Lease Payments (as defined in the Lease), which have been pledged to the owners of the 2002 Certificates of Participation by the Authority pursuant to a Trust Agreement among u.S. Bank, N.A. (the 'Trustee"), the City and the Authority (the "Trust Agreement"), the form of which has been presented to this Board of Directors at the meeting at which this Res01ution is being adopted; and WHEREAS, the Authority desires to assign its right to receive such Lease Payments from the City to the Trustee pursuant to an Assignment Agreement between the Authority and the Trustee (the "Assignment Agreement"), the fmID of which has been presented to this Board of Directors at the meeting at which this Resolution is being adopted; NOW, THEREFORE, the Board of Directors of the Authority does hereby resolve as fol1ows: SECTION 1. Certificates. This Board of Directors hereby authorizes the preparation, sale and delivery of the Certificates in an aggregate principal amount not to exceed $62,000,000 in OOC50C\84603 I v3\24036.0025 c.2-(( accordance with the terms and provisions of the Trust Agreement. The purposes for which the proceeds of the sale of the Certificates shall be expended are to pay all or a portion of the costs the Project, to purchase a reserve fund surety bond or to fund a reserve fund, and to pay the costs of the sale and delivery of the Certificates. SECTION 2. Certificate Documents. The Site Lease, the Lease, the Trust Agreement, and the Assignment Agreement (the "Agreements") presented at this meeting are approved. Each of the Chair, Vice Chair, Executive Director, Chief Financial Officer and Secretary of the Authority, or the Chair's designee, are authorized and directed to execute and deliver the Agreements. The Agreements shal1 be executed in substantially the forms hereby approved, with such additions thereto and changes therein as are recommended or approved by counsel to the Authority and approved by the ot1ìcer or officers of the Authority executing the documents, such approval to be conc1usively evidenced by the execution and delivery thereof by one or more of the ot1ìcers listed above. SECTION 3. Notice Inviting Bids. The Notice Inviting Bids is approved and the City's Financial Advisor is authorized to solicit bids for the sale ofthe Certificates by publishing once in a newspaper of general circulation in the State of California, not less than 15 days prior to receipt of bids, a short form of the Notice Inviting Bids and to mail to prospective purchasers of the Certificates the Notice Inviting Bids substantial1y in the form on fiJe with the Secretary, together with such changes thereto as the Executive Director, the Chief Financial Officer or their designees approve. The City Manager of the City is authorized to accept the bid of the lowest responsible bidder for the Certificates providing that (a) the principal amount of the Certificates does not exceed $62,000,000 and (b) the true interest cost of the Certificates as calculated by the City's Financial Advisor does not exceed 7.5% per annum. SECTION 4. Other Actions. The Chair, Vice Chair, Executive Director, Chief Financial Ot1ìcer, Secretary and other officers of the Authority are authorized and directed, jointly and several1y, to do any and all things and to execute and deliver any and all documents which they may deem necessary or advisable in order to consummate the sale and dehvery of the Certificates, and the execution of the Agreements and otherwise effectuate the purposes ofthis Resolution, and such actions previously taken by such officers are hereby ratified and confirmed. SECTION 5. Effect. This Resolution shal1 take effect from and after its date of adoption. Presented by Approved as to form by ~ Robert w. Powel1 c7 Assistant City Manager 2 00CSOC\84603\ v3\24036 0025 ..;; -I d... PASSED, APPROVED, and ADOPTED by the City Council of the City of Chula Vista, California, this 14th day of May, 2002, by the following vote: AYES: Councilmembers: NAYS: Councilmembers: ABSTENTIONS: Councilmembers: ABSENT: Councilmembers: Shirley Horton, Mayor ATTEST: Susan Bigelow, City Clerk STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) CITY OF CHULA VISTA ) I hereby certify that the foregoing resolution was duly introduced, passed and adopted at the time and place and by the vote as noted above. Executed this 14th day of May, 2002. Susan Bigelow, City Clerk 3 DOCSOC\846031 v3\24036.0025 C} -/.3 ~ ~.~ PRELIMINARY OFFICIAL STATEMENT DATED JUNE, 2002 '§. ~ ~ NEW ISSUE - BOOK-ENTRY-ONL Y - RA TINGS: ¡ g i Moody's: Aaa ~ >, ~ S&P: AAA ~ 1: ~' (See "RATINGS" herein) 1$ ~ ~ In the opinion of Stradling Yocca Carlson & Rauth, a Corporation, Newport Beach, Califarnia ("Special ~ :1! ~ Caunsel '), under eXISting statutes, regulations, rulings ond judicial und assuming the accuracy of certain representations ond -5 ~ .§ compliance with cerfain covenants and requirements described herein, the pm.timl of each Leu.,e Payment constitutingaerest (and î':: ~ original Issue discount) is excluded from gross tax purposes and is Hat an item of tax prejerence for purposes aj ~ ~:g calculating the federal alternative mimmum tax on individuals and corporations. In the further opmian of Special Cuunsel, the ;;: .2 3 portion oj each Lease Payment constituting intere.'t issue discount) is exempt from State of California personal income tax. Jj ¡;¡ ~ See "TAX EXEMPTION" herein ~~~ $ 11 ~.¡j CITV OF CHULA VISTA 03 -: § 2002 Certificates of Par"clpa"on .: ~ .W (Police Facility Project) s: ~ ¡¡: Evidencing Undivided Propor"onatc ]ntcrests in Lease Payments to be Made by the 1$ E 03 CITV OF CHULA VISTA, CALIFORNIA '" Jj § Pursuant to a Lease wIth the ~ 'ëB CHULA VISTA PUBLIC FINANCING AUTHORITY ,;' §"" E ~ '¡j Dated: _.2002 Due: August I, as shown below :~ .~ ~ The City of Chula Vista (the "City") 2002 Certificates of Participation (Police Factiity Project) (the "Certificates") are being B §.'? cxecuted and de]ivcred to (i) provide funds to construct the City's Police Headquarters (the "Project"), (llIjnanee a reserve account for the ~ ~ ë Certificates, and (iii) pay the costs of issuance incucred in connection with the execution and delivery of the Certificates. See ~ ~.~ "DESCRIPTION OF THE PROJECT." TheCertificates represent undivided propMionate interests of the Owners in the lease payments ¡:: B~' (the "Lease Payments") to be made by the CIty to the Chula V,sta Puhlic Financing Authority (the" Authority"). under the Lease/Purchasc ... bj E Agreement, dated as of .lune I, 2002 by and hetween the City and the Authorit)(thc "Lease") pursuant to winch the CIty will lease the 5 -¿¡; .~ Project and the pmel of land on which the Project is located (collectlve]y, the "Site"). Sce "DESCRIPTION OF THE LEASED .,§'~:õ. PREMISES" hercin. olE", E 0 ';i Interest represented by the Certificatcs IS payable semIannually on February I and August I of each yeal, commencing on ~ ~ -" February 1,2003. The Certificates will be executed and delivercd in the princIpal amount of$5,000 and any integral multiple thercof See O.E § "THE CERTIFICATES Genera]" herein. The Ceruficatcs will be executed and delivered in book-entry form only and. when delivClCd, .2 .§ .i5 WIll be ICglstered In the name of Cede & Co., as nominee ofThe Depository Trust Company, New Yolk, New York ("DTC"). wbicb will j:! ~ '" act as securities depositolY for the Certificates. IndIvidual purchases of the Certificates will be made In book-entry fOlm only. Purchascrs E' ':;, ~ of the Certificates will not ICceive certificates representing their ownershIp interests in the Certificates purchascd. Principal, premium, If 3:S ~ any. and Interest payments due with respect to the Ceruficates arc payable directly to DTC by U.S. Bank, NA. as Trustee. Upon rcceipt of E ';;; :1 payments of prIncipal, plCmium, if any. and interest. DTC will in turn distribute such payments to the beneficial owners of the Ceruficates. B .;;¡ 03 See AppcndIX H - "DTC Book-EntlY System" herein ~. g .g The Certificates are suhject to extraordinary and optIonal prepayment prIor to maturIty, as descrihed hereIn. See "THE ~ f1.~ CERTIFICATES-Prepayment" hereIn. '" E.~ '5 B õ THE CERTIF]CATES DO NOT CONSTITUTE AN OBLIGATION OF THE AUTHORITY OR THE CITY FOR WHICH ~ .~: THE AUTHORITY OR THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE ::; g!ê AUTHORITY OR THE CITY HAS LEV]ED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO .6 ~ ~ MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE ¡oJ -g g CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR :3 :J .:;: PLEDGED ANY FORM OF TAXAT]ON. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE 0 E 1i LEASE PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE AUTHORITY. THE CITY. THE STATE OF CALIFORNIA OR '§ -E:: ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT '? -¿¡; .E LIMITATION OR RESTRICTION. ¿,§§ 0 -'0: Payment of the plincipa] of and Intcrcst .eplCsented by the Certificates when due wIll be insUled by a financial guaranty j¡ ;:: ~ Insurance policy to be issued by simultaneously with the delivery of the Certificates. See .;; 1)'§ "CERTIFICATE INSURANCE" herein. ~ ~ 'þ The purchase of the Certificates involves certain risks which should be considered by investors. See "RISK FACTORS" for a 5 ;'" discusSIon of certain risk factors that should be considered in addition to thc other matt", set forth herein. E." 0 1;; ~ .~ ThIs cover page contaIns InformatIon for quick referenee only. It Is not a summary of this issue. Potential purchasers ~ ~ :'§ mnst read the entIre OfficIal Statement to ohtaln information essentIal to making an Informed investment decIsIon. ;Q ~ ~ The will when as and received by the Underwriter, subject to the approval :s 3 ~ as to theil' legality Stradling Carlsoo & 0 Pmfessional Corporation. Newport Beach, California, Special Cuunsel, and ~'~ ; ] cS -1;i . Preliminary, subject to change. ct E ~ "'.~ ~ ~ ') -I t./ -_.0 ex: DOC50C\893758v5\24036.0025 cerlnin nlher cnndilions. ('eelain Ihe Cily Allorney. II is anlicipaled Ihallhe Cerli/icales will he on or aboul __ ,2002 Dated: ~,2002 DOCSOC\893758v5240J6.0025 02 -I~ Maturity Schedule' $ - Social C.cuficatcs Maturity Prillcipal Matarity Prillcipal (August 1) Amoullt luterest Rate Price (August I) Amoullt luterest Rate Price Preliminary, subject to change. DOCSOC\89375Rv5\240J6.0025 c:2-1e. CITY OF CHULA VISTA COUNTY OF SAN DIEGO, CALIFORNIA CITY COUNCIL Shirley Horton, Mayor Patty Davis Steve Padilla Jerry Rindone Mary Salas CITY OFFICIALS David D. Rowlands Jr., City Manager Sid Morris, Assistant City Manager George Krempl, Assistant City Manager Robert W. Powell, Assi'tant City Manager/Finance Director John M. Kaheny, City Attorney Robert Leiter, Director of Planning and Building John Lippitt, Director o¡Public Works Susan Bigelow, City Clerk CHULA VISTA PUBLIC FINANCING AUTHORITY GOVERNING BOARD Shirley Horton - Chair Patty Davis Steve Padilla Jerry Rindone Mary Salas David D. Rowlands Jr., Executive Director Susan Bigelow, Secretary SPECIAL COUNSEL AND DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, Califomia TRUSTEE U.S. Bank, N.A. Los Angeles, Califomia FINANCIAL ADVISOR Harrell & Company Advisors, LLC Orange, Califomia DOcSOc\89J75S,S\24036.0025 02-(7 No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any infomlation or to make any representations in connection with the offer or sale of the Certificates other than those contained herein and, if given or made, such other infonnation or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an otTer 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 such an offer, solicitation or sale. This Official Statement is not to be constmed as a contract with the purchasers or owners 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 constmed as representations of fàct. The Underwriter has provided the following sentence for inclusion in this Official Statement: "The Underwriter has reviewed the infonnation in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such infonnation." This Official Statement and the infomlation contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final fonn. This Official Statement is being submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT 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 UNDERWRITER MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS 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 UNDERWRITER. THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. DOCSOC\893758v5\240J60025 c2-/f TABLE OF CONTENTS PAGE INTRODUCTION.. ..1 General......................................................................... ........... ............. ............. ........... .............1 Security and Sources of Payment for the Certificates ...................................................................................... I Certificate Insurance ........................................................................................................................................2 The Certificates ........... ........... ........... ........ ........... ........... ........... ...... ...2 Prepayment............ ........ ........ ......... ........... ............. ........... ........... ...2 Tax Exemption........................ ........ ............ .................................................................................2 Continuing Disclosure..................,............. ............... ................ ............. ................. ................ .3 Professionals Involved in the Offering.............. ..... ........... ........ ........ .........3 Certificate Owners' Risks. ........ ............ ........... ........... .......... .............. ........3 Miscellaneous............ ........... ..................... ............ ............... ..............................,.............................3 DESCRIPTION OF THE LEASED PREMISES. ..4 Project ..................................... ..... ........ ........ .......... ............. ..............4 Design/Build Agreement......... ........ ............ ..................................................... .................4 ESTIMA TED SOURCES AND USES OF FUNDS. ..5 THE CERTIFICATES.. ..5 General........ ........ ...... ........ ........... ............. ......... .5 Prepayment..................... ........... ........... .............. ........... ................ """""" '" 5 Prepayment Procedures.. ..... ............ ........... ........... ..... ........................................................6 Partial Prepayment ....... ........ ............ ........... ............. .............. .......... 7 SECURITY AND SOURCES OF PA YMENT FOR THE CERTIFICATES. ..7 General............... ............... ........ ............... ........... ............. ........... .7 Lease Payments................... ............ ............ ..... ................. .................... .................... .8 Reserve Fund.............. .................. ............... .......................................... ................ ..................... 8 Capitalízed Interest................................ ............. .................................................................,......................... 8 Project Cost and Completion.. ......... ............ ........... ............. ........ .8 Additional Payments.. ........ ......... ........ .............. ............. ............ ..... .9 Insurance. ........... .............. ......... ........... ............. ................ .........9 CERTIFICATE PA YMENT SCHEDULE.. ..... ..9 CERTIFICATE INSURANCE.. ..10 CITY FINANCIAL INFORMATION.. ..10 Accounting and Financial Reporting........................................................ ............. . . . . . . . . . . . . ., ........... 10 Budget Procedure, Current Budget and Historical Budget Infonnation...... .................. ........... ...10 Comparative Change in Fund Balance of the City General Fund...... ............. .............. ...13 Comparative General Fund Balance Sheets of the City.. ............ ............... ........... ..........14 Major Revenues.. .............. ........ ............ ........... .................... ............ .15 Property Taxes.......... ........... ................ ............ ............ ..... ................... ............... .15 Principal Taxpayers.. ........ ............... ......... ........... ................ ................18 Indebtedness.................... ........... ........... ..... .......... ........... .. 19 City Investment Polícy .... ........... ............... .............. ............. ........... .21 LIMITATIONS ON TAX REVENUES.. ..... ..... ..23 Article XIII A of the Calífornia Constitution................ . ... ... ....... .................... ................. ........ 23 Article XIII B of the California Constitution ............................................... ............................... ..........24 Article XIIIC and Article XIIID of the State Constitution............. . ... ... ... .... ........... ..........24 D()CSOC\893758v5\240J60025 c::2-I'J TABLE OF CONTENTS PAGE Unitary Property........ ........ ............ ........... ........... ........... 25 Future Initiatives .......... ........ ..... ........... ........ ............ .. 25 RISKFACTORS.. ..25 Nol a Pledge of Taxes ........................ ........... ....... ......... ..... ................ .................. ........... .. 25 Additional Obligations of the City..... ........ ........... ............. .............. ..26 Default.............................................. ..... ......... ........ ............. ......26 Release or Substitution of Property.. ............ ........... ............. ................... .........27 Abatement..................... ........... ........... ........... ....................... ..................... .........27 Earthquakes ........................................... ......... ........... ........ """""""' " 27 Limitations on Remedies; Bankruptcy.. ........ ................... ................ ..... ........... .... 28 Economic Conditions in California.. ........... ........... ................ ..... .......... ....... 28 THE AUTHORITY.. ..29 TAX EXEMPTION.. ...... ..29 CERTAIN LEGAL MATTERS.. ..... ..30 LITIGATION.. ..30 RATINGS.. ..... ..3] UNDERWRITING .. ..3 I CONTINUING DISCLOSURE.. ..31 FINANCIAL STATEMENTS OF THE CITY.. ..... ..32 MISCELLANEOUS.. ..32 APPENDIX A ECONOMIC AND DEMOGRAPHIC ]NFORMA nON REGARDING THE CITY OF CHULA V]STA.............................,.............................................. .....A-] APPENDIX B THE CITY OF CHULA VISTA AUOlTED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2001................ ................. ...B-I APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTs... ................ ..........C-] APPENDIX D FORM OF LEGAL OPINION................................................................... ......D-] APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY...........................................E-I APPENDIX F CITY INVESTMENT POLICY...................................................... .......................F-I APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENT........... ........................... G-I APPENDIX H DTC BOOK-ENTRY SYSTEM.. ..................... ............. ........................H-I " lJOCSOC\893758v5\24036 0025 é).. ~Ö $ * CITY OF CHULA VISTA 2002 Cerfilicates of Participation (Police Facilities Projecf) Evidencing Proportionate Interests in Lease Payments to be Made by the CITY OF CHULA VISTA, CALIFORNIA Pursuant to a Lease with the CHULA VISTA PUBLIC FINANCING AUTHORITY INTRODUCTION This introduction contains only a brier summary of certain of the terms of the Certificates being offered. and a brief description or the Officia/ Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries oj; provisions of the Constitution and laws orthe 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. Capitalized terms used in this Official Statement and not defined elsewhere berein have the meanings given such terms in Appendix C - "Summary of PrincIpal Legal Documents" herein. This Official Statement speaks only as afits date, and the information contained herein is suhject to change. General This Official Statement, including the cover page and the Appendices attached hereto (the "Official Statement"), provides certain information conceming the execution and delivery of the City of Chula Vista 2002 Certificates of Participation (Police Facilities Project) (the "Certificates") in an aggregate principal amount of $ .' The Certificates will be executed and delivered pursuant to a Tmst Agreement, dated as of June 1, 2002 (the "Trust Agreement"), by and among the City of Chula Vista (the "City"), the Chula Vista Public Financing Authority (the "Authority") and U.S. Bank, N.A., as tmstee (the "Tmstee"). The Certificates represent proportionate undivided interests of the registered owners thereof (the "Owners") in a portion of the Lease Payments to be made by the City to the Authority under that certain Lease/Purchase Agreement, dated as of June I, 2002 (the "Lease"), by and between the Authority, as lessor, and the City, as lessee. See "SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES - Lease Payments." The Certificates are being delivered to (i) provide funds to constmct the City's Police Headquarters (the "Project"), (ii) finance a reserve account for the Certificates, and (iii) pay the costs of issuance incurred in connection with the execution and delivery of the Certificates. See "DESCRIPTION OF THE PROJECT" herein. The City and the Project are located in the County of San Diego (the "County"). Securify and Sources of Payment for the Certilìcates The Certificates are being executed and delivered pursuant to the Tmst Agreement. The City will lease certain real property and improvements thereon, including the Project (referred to herein as the "Site") to the Authority pursuant to a Site Lease between the City as lessor, and the Authority, as lessee, dated as of June 1, 2002 (the "Site Lease"). Under the Lease, the Authority will lease the Site back to the City together with the Project to be constructed on the Site (collectively, the "Leased Premises"). The City is required under the Lease to pay Lease Payments for the use and possession of the Leased Premises, as further described under the caption "DESCRIPTION OF THE LEASED PREMISES" herein. The City is also required to pay any taxes and assessments and the cost of maintenance and repair of the Leased Premises. Pursuant to an Assignment Agreement, dated as of June 1, 2002 (the "Assignment Agreement"), by and between the Authority and the Tmstee, the Authority will assign to the Tmstee, for the benefit of the . Preliminary, subject to change. I DOCSOC\8V3758v5\240J6.0025 c) -~, Owners, substantially all of its rights under the Lease, including its rights to receive and collect Lease Payments and prepayments from the City under the Lease and rights as may be necessary to enforce payment of Lease Payments and prepayments. All rights assigned by the Authority pursuant to the Assignment Agreement will be administered by the Tmstee in accordance with the provisions of the Tmst Agreement for the equal and proportionate benefit of all Owners. The Certificates evidence fractional and undivided interests in the right to receive Lease Payments and prepayments thereof to be made by the City to the Authority under the Lease. The Lease Payments are designed to pay, when due, the pnncipal and interest with respect to the Certificates. The City has covenanted in the Lease that it will take such action as may be necessary to include the Lease Payments and other payments due under the Lease in its annual budgets and to make the necessary annual appropriations therefor. The City's obligation to make Lease Payments is subject to abatement in the event of the taking of, damage to or loss of use and possession of the Leased Premises. See "RISK FACTORS - Abatement" herein. The obligation of the City fo make 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. Neither the Cerfificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the Authority, the City, the State of California or any of its political subdivisions within fhe meaning of any constitutional or statutory debt limitation or restriction. Certi/kate Insurance Payment of the principal of and interest represented by the Certificates when due will be insured by a financial guaranty insurance policy (the "Policy") to be issued by (the "Insurer") simultaneously with the delivery of the Certificates. See "CERTIFICATE INSURANCE" herein. The Certificates Interest represented by the Certificates is payable semiannually on Febmary 1 and August 1 of each year, commencing on Febmary 1, 2003 (each an "Interest Payment Date"). See "THE CERTIFICATES- General" herein. The Certificates will be executed and delivered in book-entry fonD only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York CDTC"), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry fon11 only. Purchasers of the Certificates will not receive cert1ficates representing their ownership interests in the Certificates purchased. The Certificates will be executed and delivered in the principal amount of $5,000 and integral multiples thereof. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by the Tmstee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in tum distribute such payments to the beneficial owners of the Certificates. See "THE CERTIFICATES- General" and Appendix H - "DTC Book-Entry System" herein. Prepayment The Certificates are subject to extraordinary and optional prepayment prior to maturity, as described herein. See "THE CERTIFICATES - Prepayment" herein. Tax Exemption In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, Califomia ("Special Counsel"), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, the interest (and original issue discount) with respect to the 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 2 00CSOC\893758v5\24036.0025 ~-;¿d-.. minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) with respect to the Certificates is exempt from State of Califomia personal income tax. See "TAX EXEMPTION" herein. Continuing Disclosure The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide, or cause to be provided, to each nationally recognized municipal securities infonnation repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2-12(b)(5) (the "Rule") adopted by the Securities and Exchange Commission (eacli, a "Repository") certain annual financial infonnation and operating data and, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriter 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 tenus of the disclosure agreement pursuant to which such reports are to be made. Professionals Involved in the Offering U.S. Bank, N.A., Los Angeles, Califomia, will act as Trustee with respect to the Certificates. Harrell & Company Advisors, LLC (the "Financial Advisor") will act as financial advisor to the City. The Certificates will be delivered subject to the approval as to their legality by Stradlmg Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, Califomia, Special Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attomey and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, Califomia, Disclosure Counsel. The City's financial statements for the fiscal year ended June 30, 2001 included as Appendix B hereto have been audited by Caporicci, Cropper & Larson, LLP, an accountancy corporatiou, Costa Mesa, Califomia (the "Auditor"). See Appendix B ~ "The City of Chula Vista Audited Financial Statements for the Fiscal Year Ended June 30,2001" herein. The City's finaucial statements are public documents and are included within this Official Statement without the prior approval the Auditor. Accordingly, the Auditor has not perfonned any post-audit of the financial condition of the City. Certilicate Owners' Risks Certain events could affect the ability of the City to make the Lease Payments when due. See "RISK FACTORS" for a discussion of certain fàctors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Certificates. Miscellaneous It is anticipated that the Certificates in book-entry fonn will be available for delivery to DTC on or about ,2002 (the "Delivery Date"). The description herein of the Trust Agreement, the Lease, the Site Lease, 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 fonn thereof and the infonnation with respect thereto included in the aforementioned documents. See Appendix C - "Summary of Principal Legal Documents" herein. Copies of the documents are on file and available for inspection at the offices of the Trustee at 550 South Hope Street, Suite 500, Los Angeles, Califomia 90071, Attention: Corporate Trust Services. All capitalized tenus used in this Official Statement and not otherwise defined herein have the meanings given such tenus in Appendix C - "Summary of Principal Legal Documents" herein. 3 DOC-SOC\S 93 7 58v5\24036.0025 c:2 - ol3 The infommtion 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 since the date hereof. The presentation of infomlation, including tables of receipt of revenues, is intended to show recent historical infon11ation and is not intended to indicate t'lture or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other infomlation, will necessarily continue or be repeated in the future. DESCRIPTION OF THE LEASED PREMISES Project The Project consists of the construction, development and equipping of a new Police Headquarters (the "Project"). The City acquired the Site, which is a 2.85-acre parcel, in at a cost of$ ~ The Project, when completed, will be comprised of 4 floors, a basement and three aboveground floors, which encompass an aggregate of 140,566 square feet served by 411 parking spaces. The Project development costs are projected to be approximately $51,710,422 of which approximately $ will be financed from proceeds of the Certificates and the remainder to be financed with other funds on deposit with the City. Construction commenced in~, 2002 and is expected to be completed by February, 2004. Pursuant to the ten11S of the Site Lease, the City intends to lease the Leased Premises to the Authority. Pursuant to the ten11S of the Lease, the Authority intends to lease the Leased Premises and the Project back to the City. Pursuant to the Lease, the City and the Authority have agreed and detennined that the Lease Payments required to be made under the Lease represent the fair rental value of the Leased Premises. Under the tenus of the Lease, the City may substitute other property for the Leased Pre1l1lses, or any portion thereof, provided that certain conditions set forth in the Lease are met. See Appendix C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - The Lease - Substitution or Release of the Site" and "RISK FACTORS - Release or Substitution of Property" herein. DesignlBuild Agreemeut The Project is being constructed pursuant to the tenus of a Design/Build Agreement dated as of November 20,2001 between the City and Highland Partnership, Inc. ("Highland"). Under the ten11S of the Design/Build Agreement, Highland has agreed to construct the Project for a guaranteed maximum price of$~ (the "GMP"). Pursuant to the tenus of the Design/Build Agreement, the Contractor is required to commence construction on the Project immediately after it receives written notice to proceed ("Notice to Proceed") tram the City. The Design/Build Agreement obligates Highland to provide a perfonnance bond in favor of the City in a principal amount equal to 100% of the GMP and a payment bond equal to 100% of the hard construction costs of the Project. The amounts payable under the perfon11ance and payment bonds are not pledged to the payment of the securities offered hereby. The Project is scheduled to be completed by February, 2004. If Highland fails to complete the Project within 30 days after the substantial completion date In the Design/Build Agreement, Highland and the City have agreed upon liquidated damages in the amount of $1,000 per day for the first 30 days thereafter, $3,000 4 c:2-d.-<I )()('SOC\893758,S24036.0025 for each calendar day in excess of 30 days and less than 60 days and $5,000 for each calendar day in excess of 60 days up to a maximum of$1.5 million. The liquidated damages amount is not sufficient to cover interest on the Lease Agreement. However, capitalized interest on the Lease Agreement will be funded with Certificate proceeds through August 1, 2004. ESTIMATED SOURCES AND USES OF FUNDS The following table summarizes the estimated sources and uses of Certificate proceeds: Sources oj Funds Par Amount of Certificates $ Accrued Interest Net Original Issue Discount Total Sources $ Uses oj Funds $ Project Fund Reserve Fund Interest Account") Costs of Issuance'2) Total Uses $ I]) Represents accrued and capitalized Interest on the Bonds to August 1,2004. '" Includes underwriting discount, Special Counsel fees, printing costs, Certificate insurance premium and other issuance costs. THE CERTIFICATES General The Certificates will be executed and delivered in the fonD of fully registered Certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be dated -' 2002 and mature on August 1 in the years set forth on the cover page hereof. Each Certificate will be payable with respect to interest on February I and August 1 of each year, commencing on February 1, 2003 af the respective rates of interest set forth on the inside front cover page hereof. The Certificates will be executed and delivered in book-entry fonD 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 fonD only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in tum distribute such payments to the beneficial owners of the Certilicates. See Appendix H - "DTC Book-Entry System" herein. Prepaymenf Extraordinary Prepayment. The Certificates are subject to prepayment, without premium, prior to their respective maturity dates on any date, in whole or in part, from Net Proceeds which the Trustee transfers to the Prepayment Fund as provided in the Lease at least 45 days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with the accrued interest to the date lixed for prepayment. 5 DOCSOC\893758v5\24036.0025 c:¿ - oJ. 'S' Optional Prepayment. The Certificates maturing on or after Angnst 1, 2°- are subject to prepayment prior to maturity in whole or in part on any date on or after Angnst 1, 2°- 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 Lease Payments (in integral multiples of $5,000 but not in a principal amount of less than $20,000), at the prepayment price (expressed as a percentage of the principal component to be prepaid), plus accrued interest to the date fixed for prepayment, as follows: Prepayment Date Prepayment Price August 1,2°- through July 31, 2°- % August 1,2°- through July 31, 2°- _% August 1, 2°- and thereafter - % Prepayment Procedures Whenever provision is made for the optional prepayment of Certificates and less than all Outstanding Certificates are called for prepayment, the Trustee shall select Certificates for optional prepayment from among maturities selected by the City and by lot within any maturity. For extraordinary prepayment of Certificates, the Trustee will select Certificates for prepayment pro rata among maturities and by lot within any maturity. Notice of prepayment will be mailed by first-class mail, postage prepaid, not less than 30 nor more than 60 days prior to the prepayment date to the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, and will be sent by first class mail or delivery service, postage prepaid, to the Municipal Securities Depositories (as defined in the Trust Agreement) and to the Infonnation Services (as defined in the Trust Agreement) which the City will designate to the Trustee. Neither failure to receive such notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates. Such notice will specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstanding Certificates 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, (t) the original date of execution and delivery of the Certificates, (g) any other descriptive infonnation regarding the Certificates needed to identify accurately the Certificates being prepaid. Such notice will further state that on the specified date there will 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 will cease to accrue and be payable. So long as DTC is the registered Owner of the Certificates, all such notices will be provided to DTC as the Owner, without respect to the beneficial ownership of the Certificates. See Appendix H - "DTC Book- Entry System" herein. Notice having been given to the Owners of any Certificates being prepaid, and the moneys for the prepayment (including the interest to the applicable date of prepayment), having been set aside in the Prepayment Fnnd, the Certificates will become due and payable on the date of prepayment, and upon presentation and surrender thereof at the Principal Office of the Trustee such Certificates will be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to the date of prepayment. If, on the date of prepayment moneys for the prepayment of all the Certificates to be prepaid, together with interest to the date of prepayment, are held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof has been given as described above, then, from and after the date of prepayment, interest with respect to the Certificates to be prepaid will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates will be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon. 6 DOCSOC\89J758v5\24036.0025 oZ-e2G, Partial Prepayment Upon surrender by the Owner of a Certitìcate 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 will execute and deliver to the registered Owner tliereof, at the expense of Ihe City, a new Certificate or Certificates which shaD be of authorized denominations equal to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment will be valid upon payment of the amount thereby required to be paid to such Owner, and the City, the Authority and the Trustee will be released and discharged from all liability to the extent of such payment. SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an obligation of the City for which the City is obligated to levy or pledge, or for which the City has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the Authority, the City, the State of Cali fomi a or any of its political subdivisions within the meaning of any constitutional limitation or violates any statutory debt limitation or restriction. General Each Certificate represents a fractional interest in the Lease Payments and prepayments to be made by the City to the Trustee under the Lease. The City is obligated to pay Lease Payments from any source of legally available funds, and has covenanted in the Lease to include all Lease Payments coming due in its annual budgets and to make the necessary annual appropriations therefor. The Authority, pursuant to the Assignment Agreement, has assigned all of its rights under the Lease (excepting certain rights as specified therein), including the right to receive Lease Payments and prepayments, to the Trustee for the benefit of the Owners. By the fifteenth day of each February and August (if such day is not a Business Day, the next succeeding Business Day), the City must pay to the Trustee a Lease Payment (to the extent required under the Lease) which is expected to equal the amount necessary to pay the principal and interest with respect to the Certificates on the next succeeding Interest Payment Date. The City's obligation to make Lease Payments will be abated in whole or in part, in the event of, and to the extent of, substantial interference with use and possession of the Leased Premises arising from damage, destruction, title defect or taking by eminent domain or condemnation of the Leased Premises. Abatement would not constitute a default under the Lease and the Trustee would not be entitled in such event to pursue remedies against the City. See "RISK FACTORS - Abatement" herein. Under the Lease, the City agrees to pay certain taxes, assessments, utility charges, and insurance premiums charged with respect to the Leased Premises and the Certificates and fees and expenses of the Trustee. The City is responsible for repair and maintenance of the Leased Premises during the tenll of the Lease. The City may at its own expense in good faith contest such taxes, assessments and utility and other charges if certain requirements set forth in the Lease are satistìed, including obtaining an opinion of counsel that the Leased Premises will not be subjected to loss or forfeiture. Should the City default under the Lease, the Trustee, as assignee of the Authority, may terminate the Lease and re-lease the Leased Premises or may retain the Lease and hold the City liable for all Lease Payments thereunder on an arumal basis. Under no circumstances will the Trustee have the right to accelerate Lease Payments. See "RISK FACTORS - Default" herein. 7 00(,50(,\893758v5\24036.0025 oÎ..-J..r Lease Payments Subject to the provisions of the Lease regarding abatement in the event of loss of use and possession of any portion of the Leased Premises (see "RISK FACTORS - Abatement" herein) and prepayment of Lease Payments (see the provisions relating to prepayment under the caption "THE CERTIFICATES" above), the City agrees to pay to the Authority, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the Lease Payments to be due and payable on January IS and July 15 of each year (each, a "Lease Payment Date"). Any monies held in the Lease Payment Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other amounts required for payment of past due principal or interest with respect to any Certificates not presented for payment) shall be credited to the payment of Lease Payments due and payable on such Lease Payment Date. The Trust Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. Pursuant to the Trust Agreement, on February 1 and August 1 of each year, commencing February I, 2003, the Trustee will apply such amounts in the Lease Payment Fund as are necessary to make interest and principal payments, respectively, with respect to the Certificates as the same shall become due and payable, in the amounts specified in the Lease. Reserve Fund A Reserve Fund is established by the Trust Agreement in an amount equal to the least of (i) maximum aggregate annual Lease Payments payable under the Lease in any Certificate Year, (ii) 125% of the average annual aggregate Lease Payments (in any Certificate Year) then payable under the Lease, or (iii) 10% of the face amount of the Certificates (less original issue discount if in excess of two percent of the stated payment amount at maturity) (the "Reserve Requirement"). The full amount available in the Reserve Fund may be used by the Trustee in the event of abatement or failure by the City to make Lease Payments when due. Interest or income received by the Trustee on investment of monies in the Reserve Fund will be retained in the Reserve Fund so long as amounts on deposit in the Reserve Fund are less than the Reserve Requirement. In the event that amounts on deposit in the Reserve Fund exceed the Reserve Requirement, subject to the requirement of transfers to the Rebate Fund, such excess shall be transferred to the Project Fund until the filing of a Certificate of Completion and thereafter to the Lease Payment Fnnd on or before January 15 and July 15 of each year. Capitalized Interest There will an initial deposit by the City to the Lease Payment Fund from proceeds of the Certificates. The amount deposited has been calculated to be sufficient to make interest payments on the Certificates through and including August 1,2004. Such amounts represent advance Lease Payments. Project Cost and Completion There can be no assurance that the Project will be completed for the costs and within the time described in the Official Statement. The City has funded a significant portion of the cost of the Project, $12 million of an estimated total $63 million, from its own funds. Project Completion. The City is not obligated to pay the Lease Payments, other than Lease Payments payable from proceeds of the Certificates (capitalized interest) deposited in the Lease Payment Fund, until the Project is delivered and installed. If the Project is not delivered and installed by August I, 2004, and if there are no amounts on deposit in the Lease Payment Fund and the Reserve Fund, the Lease remains in effect, but the Lease Payments are abated in proportion to the undelivered portion of the Project, until the Project or the 8 D()CSOC\893758v5\24036 0025 c2-~?' portion thereof is completed. If the Project or portions thereof are not delivered or installed by the date thereof, that the advance Lease Payments have been depleted, the combination of the unabated Lease Payments plus the Reserve Fund and other funds held by the Trustee will likely not be sufficient to pay the full amount of principal and interest due with respect to the Certificates. Project Costs. A delay in the completion or damage to the Project during construction could have an adverse effect on the costs of the Project. Contractor and subcontractor perfonnance and integrity, availability and cost of labor, equipment and materials, and weather conditions, among other unexpected factors, could cause such a failure of timely on-budget construction. Additional Payments Under the Lease, the City is to pay such amounts ("Additional Payments") as are required for the payment of all administrative costs of the Authority relating to the Leased Premises or the 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 Authority as a result of its leasehold interest in the Leased Premises or uudertaking of the transactions contemplated in the Lease or in the Trust Agreement, fees of auditors, accountants, attomeys or engineers, any and all amounts due to the Insurer and all other necessary administrative costs of the Authority or charges required to be paid by it in order to comply with the tenTIS of the Certificates or of the Trust Agreement, including premiums on insurance required to be maintained by the Lease or to indemnify the Authority and its officers and directors. Insurance Pursuant to the Lease, the City will obtain an ALTA leasehold title insurance policy (with Westem Regional Exceptions) on the Leased Premises 1l1 an amount equal to the aggregate principal component of unpaid Lease Payments. The Lease also requires that the City maintain rental intemlption insurance to insure against loss of Lease Payments caused by loss or damage to the Leased Premises not covered under the City's casualty insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future two-year period. The City is obligated to obtain a standard comprehensive general public liability and property damage insurance policy or policies and workers' compensation insurance. See "CITY FINANCIAL INFORMATION - Insurance" and Appendix C - "Summary of Principal Legal Documents - The Lease" herein, The proceeds of any rental interruption insurance will be deposited to (i) the Reserve Fnnd to make up any deficiency therein and (ii) in the Lease Payment Fund to be credited towards the payment of the Lease Payments in the order in which such Lease Payments become due and payable. The Lease requires the City to apply the Net Proceeds of any insurance award either to replace or repair the Leased Premises or to prepay Certificates if certain certifications with respect to the adequacy of the Net Proceeds to make repairs, and the timing thereof, cannot be made. See Appendix C - "Damage, Destruction and Eminent Domain; Use of Net Proceeds." The amount of Lease Payments will be abated and Lease Payments due under the Lease may be reduced during any period in which by reason of damage, destruction, title defect or taking by eminent domain or condemnation there is substantial interference with the City's use and possession of all or part of the Leased Premises. See "RISK FACTORS - Abatement" herein. CERTIFICATE PAYMENT SCHEDULE Lease Payments are required to be made by the City under the Lease on or before January 15 and July 15 of each year for the use and possession of the Leased Premises for the period conmlencing as of , 2002 and tem'¡nating on , -' or a later date if such date is extended as provided in the Lease. The Interest Payment Dates with respect to the Certificafes are February I and August I, commencing February 1,2003. The aggregate annual amounts of Certificate payments, comprising interest 9 DOCSOC\893758v5\24036 0025 .;;)..-c2'j and principal payable to the Owners, are set forth below for each annual period ending on August 1 of the years indicated. CERTIFICATE INSURANCE [TO COME] CITY FINANCIAL INFORMATION The following is a description of the City's budget process, current budget, historical budget infonnation, changes in fund balance, balance sheets, its major revenues and expenditures, indebtedness, investments and certain other financial information relating to the City. The City's Financial Statements along with accompanying notes and opinions from the Independent Auditor for the Fiscal Year ended June 30, 2001, are set forth in Appendix B - "The City of Chula Vista Audited Financial Statements for the Fiscal Year Ended June 30, 2001" herein. The City's financial statements are public documents and are included within this Official Statement without the prior approval the Auditor. Accordingly, the Auditor has not performed any post-audit of the financial condition of the City. Accounting and Financial Reporting The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (GAAP) and the standards established by the Govemmental Accounting Standards Board (GASB). On a quarterly basis, a report is prepared for the City Council which reviews fiscal performance to date against the budget and recommends any necessary changes. Combined financial statements are produced following the close of each Fiscal Year. The City Council employs an independent certified public accountant, who, at such time or times as specified by the City Council, at least annually, and at such other times as they determine, examines the financial statements of the City in accordance with generally accepted auditing standards, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the Fiscal Year, a final audit and report is submitted by the independent accountant to the City Council. The accounts of the City are organized on the basis of funds and accounf groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Govemment resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various govemmental funds are grouped, in the City's annual financial statements, into generic fund types, which include the General Funds, Special Revenue Funds, Debt Service Funds and Capital Project Funds. The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. It is expected that the Lease Payments will be paid for from amounts in the General Fund. Tables 1 through 4 below set forth certain historical and current fiscal year budget infoTInation for the General Fund. Information on the remaining govemmental funds of the City as of June 30, 2001 is set forth in Appendix B. Budget Procedure, Currenf Budget and Historical Budget Information The Fiscal Year of the City begins on the first day of July of each year and ends on the 30th day of June of the following year. 10 DOCSQC'\893758v5\24o36 0025 c2-3AJ At such time as the City Manager detenmines, each department head must furnish to the City Manager an estimate of revenues and expenditures for the department for the ensuing Fiscal Year, detailed in such manner as may be prescribed by the City Manager. In preparing the proposed budget, the City Manager reviews the estimates, holds conferences thereon with the respective department heads, and revises the estimates as he/she deems advisable. Prior to the beginning of each Fiscal Year, the City Manager submits to the City Council the proposed budget. The City Council detennines the time for the holding of a public hearing and causes a notice of public hearing to be publislied. Not less than ten days prior to the date of the public hearing, copies of the proposed budget are available for inspection by the public in the office of the City Clerk and at the City Library. During the public hearing and after its conclusion, the City Council further considers the proposed budget and makes any revisions thereto that it deems advisable. On or before June 30, of each year, the City Council adopts the budget with revisions, if any, by the affinmative vote of at least a majority of the total members. From the effective date of the budget, the amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes nanled, provided that the City Manager may transfer appropriations of a fund fÍ'om one object or purpose to another within the same department in any amount up to $15,000. All other transfers or amendments require City Council approval. All appropriations lapse at the end of the Fiscal Year to the extent that they have not been expended or lawfully encumbered. At a public meeting after the adoption of the budget the City Council may amend or supplement the budget by motion adopted by four votes of the City Council. 11 OOCSOC\893758v5\24036 0025 O:¿-.3t Set forth in Table 1 below are the adopted General Fund budgets for fiscal years 2000-01 and 2001-02. TABLE 1 CITY OF CHULA VISTA GENERAL FUND BUDGETS (in 000'5) Final Adopted Final Adopted 2000-01 2001-02 Badf(et Badget Revenue: Taxes $ 40,841 $ 47,299 Intergovemmcntal 14,591 15,023 Licenses and Permits 3,510 3,336 Charges for Services 11,424 13,187 Fines and Forfeitures 922 977 Interest and Rent 1,497 1,945 Other ~ ~ Tofal Revenue $ 80,029 $ 90,899 Expenditures: General Govemment $ 18,828 $ 21,273 Public Safety 34,892 40,134 Public Works 19,603 23,391 Parks and Recreation 3,837 4,715 Library 6,429 7,258 Capital Outlay ---.In -----.II Total Expenditures S 83,712 $ 96,808 Excess (deficiency) ofrevenue over expenditures (3,683) (5,909) Other Financing Sources (Uses): Operating transfers In 8,047 9,970 Operating transfers out (4,486) ~ Tofal Of her Financing Sources (Uses) S 3,561 S 5,910 Excess of Revenue and Other Financing Sources over S (122) $ I Expenditures and Other Financing Uses Source' Adopted Budgets of the City for fiscal years 2()()O-O 1 and 2001-02. 12 DOCSOC\8 93 7 5 8v 5\24036.0025 <:>2 -.3~ Comparative Change in Fund Balance of the City General Fund Table 2 below presents the City's General Fnnd Statement of Revenues, Expenditures and Change in Fund Balance for the past four fiscal years and the unaudited results for the most recent fiscal year. TABLE 2 CITY OF CHULA VISTA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE FIVE YEAR COMPARISON (in OOO's) FI"cal Yea, Ending Jane 30, 1997 1998 1999 2000 2001 Revenue: Taxes S 29,15{, S 31.328 $ 33,4{'5 $ 39.198 $ 45,711 Intcrgovemmcntal 17,{'71 17.671 18,906 12,976 14,816 Licenses and Permits 1,974 2,IOS 3,479 3,557 4.395 Charges for Services 4,295 5,071 7,172 9,331 12,148 Fines and Forfeitures 632 604 782 931 897 Interest and Rent 1,056 1,850 2.267 2,091 2.663 Other ~ 2m ~ ...lß191 ...J.Lill Tofal Revenue $ 56.390 $ 60,677 $ 69,614 S 78,275 $ 91,922 Expendifures: General Govemment $ 10,481 S 11,980 $ 15,627 S 15,783 $ 20,415 Pubhc Safety 27,185 28.361 29,877 32,560 35,937 Pubhc Works 11,572 11,051 11,914 13,470 16,396 Parks and Recreation 5,181 5,190 5.255 7,129 7,133 Library 3.6S0 3,012 3.984 4,333 6,460 Capital Outlay --i>" - --- ~ --.1Æ Tofal Expendifures $ 58,164 S 60,493 $ 6{,,{'57 $ 73,846 $ 88,694 Excess (deficiency) ofrevenue over expenditures S (1,774) $ 184 $ 2,057 $ 4,430 $ 3,228 Other Financing Sources (Uses): Proceeds from long-tenn debt S 64 $ $ $ $ Operating transfers in 5,513 5,379 5.244 7,883 8,310 Operating transfers out --.11Æ1J --.lblliJ (2,544) -.lbillJ ---'lJlQ) Total Of her Fiuaucing Sonrces (Uses) S 3,700 S 3,028 $ 2,700 $ 5,730 $ 5,140 Excess of Revenue and other Sources over Expenditures and other Uses S 1,926 $ 3,211 $ 5.656 $ 10,150 $ 8,367 Fund Balance, Beginning of Year S 14,407 $ 16,334 $ 19,653 $ 25.309 $ 35,736 Adjustment to Beginnmg Fund Balance S $ $ 108 $ 268 $ Fnnd Balance, End ol'Year S 16,334 $ 19.545 $ 25,300 $ 35.736 $ 44,104 SnW'ce Audited Financial Statement> lac I"cul yo,,', 1996-97, 1997!)8, 1998-09 190<¡DO 2000.0 I 13 DOCSOC\893758y5\24036,O025 <:>Ì. - 33 Comparative General Fund Balance Sheets ofthe City Table 3 below presents the City's General Fund Balance Sheets for the past four fiscal years and the unaudited results for the most recent fiscal year. TABLE 3 CITY OF CHULA VISTA GENERAL FUND BALANCE SHEETS FIVE YEAR COMPARISON Fiscal Year Ending June 30, 1997 1998 1999 2000 2001 ASSETS Pooled cash and Investments $ 3,050,636 $ 3,558,295 $ 9,002,899 SI6,086,148 $24,624,929 Accounts receIvable 1,548,415 3,276,408 1,513,337 2,619,799 3,186,745 Taxes receivable 2,495,554 2,767,923 2,971 ,033 3,290,303 4,565,022 Grant receIvable 11,726 50,666 155,865 16,158 518,750 Interest and other receIvables 397,919 747,387 402,670 645,510 61,357 Due from other funds 76,430 69,811 31,176 575,039 697,827 Due from other governments n 1,002,329 873.879 Loans receivable 250,000 250,000 243,750 231,250 Advances to component Unit 2,398,452 2,633,718 2.892,922 3,167,855 3,493,015 Advances to other funds 9,405,175 11.310,201 13,342,468 15,912,534 17,982,540 Restricted Cash and Investments 110.061 239,810 265,329 257,603 Prepaid Expenses ~ ~ Total assets 520,666,741 $24.933,654 $31,580,534 $44,039,474 $56,022,791 LIABILITIES, EQUITY AND OTHER CREDITS Liabilities Accounts Payable $ 463,675 $ 1,024,131 $ 828,022 $ 1,50 I ,460 S 4,622,353 Accrued LiabilIties 1,547,688 1,431,469 1.968.142 2,553,491 -- Due to other funds 3.878 1,695 26,743 -- Deposits 2,415 4,350 n Refundable DepoSIts 14,190 ]4,190 25,210 Deferred revenues 2315538 2.927,082 3434249 4234137 4,882,281 Total liabilities 54,333,194 $ 5,388,727 $ 6,271,346 5 8,303,278 $ 9,599,844 EQUITY AND OTHER CREDITS Fund balances: Reserved: Encumbrances $ 865,206 5 829,853 S 1,333,750 $ $ Long-Term Receivables 9,738,089 11,266,838 13,044,890 18,559,237 20,022,799 Assessment District Debt 572,749 572,749 572.749 Unreserved: UndeSlgnated 1,587,255 3.748.112 6,803,214 13,187,979 22,219,251 Designated 3,570,248 ~ 3554585 3,988,980 4,180,897 Total equity and other credIts SI6,333,547 $19,544,927 $25,309,188 S35,736,196 $46,422,947 Totalliabiltties, equity and credits S20,666,741 $24,933,654 $31,580,534 $44,039,474 $56,022,791 Source: Audited Financial 5tatements of the City for fiscal years 1996-97. 1997-98, 1998-99, 1999-00 and 2000-0J. 14 DOCSOCIS9375Sv5\24036 0025 c:J. - 3- .¡ Major Revenues The City derives its General Fund revenues ti-om a variety of sources including ad valorem property taxes, sales and use taxes, licenses, pennits, aid trom other governmental agencies, charges for services provided by the City and other miscellaneous revenues. For fiscal year 2000-01, approximately 49.7% of General Fund revenues were proceeds of taxes, 16.1 % intergovernmental transfers, 13.2% charges imposed by the City for services, 4.8% license and permit fees and 12.3% miscellaneous revenues, interest and rent. The City's total General Fund revenues for selected major revenue sources for the past four fiscal years and the budgeted amounts for the current fiscal year, are set forth in Table 4 below: TABLE 4 CITY OF CHULA VISTA SELECTED MAJOR REVENUE SOURCES (in 000'5) Revenue Category 1998 Actual 1999 Actual 2000 Actual 2001 Actual 2002 Budget Sales & Use Taxes $ 14,618 $ ]5,360 $ 16,952 S 18,820 $ ] 9,837 Property Taxes 8,740 9,378 10,262 11,526 12,752 Motor Vehicle License Fees 6,539 7,245 8,079 9,214 9,534 Franchise Fees 2,443 2,507 4,771 7,316 7,150 Charges for Services - 950 1,790 6,287 8,215 8,896 Development Utility Users Taxes 3,102 3,452 3,655 3,931 3.816 Federal Grants 1,665 1,838 2,883 2,541 3,599 Building Permits ---.l,ill ~ .......lJ12 ~ ~ Total $ 39,390 $ 43,634 $ 58,018 S 64,793 $ 68,678 Source: City of Chula Vista The method of levy and collection of ad valorem property taxes is described under the caption "Property Taxes" below. The sales tax received by the City results ti-om a tax imposed on retail sales and consumption of personal property. The sales tax rate is established by the State legislature. The current statewide tax rate is 7.75%. The City also collects a transient occupancy tax on all hotel, motel and lodging bills within the City, a utility users tax and various ti-anchise fees. Property Taxes In Califomia, property which is subject to ad valorem taxes is classified as "secured" or "unsecured". The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State Law, on the secured property, regardless of the time of the creation of other liens. The valuation of property is detennined as of January 1 each year, and installments of taxes levied upon secured property become delinquent on the following April 10th and December 10th. Taxes on unsecured property are due March 1, and become delinquent August 31. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of forcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes of the State for the amount of taxes that are delinquent. The taxing authority has four methods 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 15 DOCSOC\8937 58v5\24036.0025 02 -3S" record in the County Recorder's Omce in order to obtain a lien on certain property of the taxpayer, and (4) seizure and sale of personal property, improvement or possessory interest belonging or taxable to the assessee. A ten percent penalty is added to delinquent taxes which have been levied with respect to property on the secured roll, In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1 1/2% per month on the amount delinquent. Such property may thereafter be redeemed by the payment of the delinquent taxes and the ten percent penalty, plus interest at the rate of I 1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A ten percent penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of I 1/2% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date. Legislation enacted in 1984 (Section 25 et seq. of the Revenue and Taxation Code of the State of California), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new constmction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessment for up to 14 months. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current fiscal year and the full 12 months of the next fiscal year. In 1992-93 and 1993-94, in response to serious budgetary shortfalls, the State Legislature and administration pennanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts. The Legislature, however, provided some additional tùnding sources (such as sales taxes) and reduced certain mandates for local services. Local governments sued the State (Sonoma County. ct. at. v. Commission on State Mandates, et. al) over these transfers. The appeals court denied the plaintiffs' position and the subsequent appeal was not heard by the State Supreme Court. The tenn "ERAF" is often used as a shorthand reference for this shift of property taxes. ERAF actually is an acronym for the fund into which redirected property taxes are deposited in each county, the Educational Revenue Augmentation Fund. The Govemor's proposed budget for Fiscal Year 2002-03 projects a significant deficit, currently estimated at more than $20 billion. The City cannot predict the impact on its General Fund resulting from future acts of the Legislature to redirect property taxes from the City to other public agencies. Table 5 below sets for the property tax rates for the City for the fiscal years 1997-98 through 2001-02. The infonnation in Table 5 has been provided by California Municipal Statistics, Inc. The City has not independently verified the infonnation in Table 5 and does not guarantee its accuracy. 16 [)()CSOC\S93758v5\24036.0025 ..2-.3-" TABLE 5 CITY OF CHULA VISTA PROPERTY TAX RATES FISCAL YEARS 1997-98 TO 2001-02 1997-98 1998-99 1999-00 2000-01 2001-02 General Tax Rate(1) [.000000 1000000 1000000 1000000 1000000 Chula Vista Elementary School District 0.000000 0.000000 0.024790 0.025] 50 0.023960 Sweetwater Union High School District 0.000000 0.000000 0.000000 0.000000 0.025270 Southwestern Community College District O.OOOIJOO 0.000000 0.000000 0.000000 0.0[5440 San Dlego County Water Authoflty OOO[ [70 0.001070 0.001000 0.000910 0.000830 Metropolitan Water District 0.008900 0.008900 0.008900 0.008800 0.007700 Total Tax Rate 1010070 1009970 1034690 1034860 1073200 II} The passage of Proposition 13 on June 6,1978 established a maximum countywide levy of 1% of market value or $IIJO per SIOO of assessed value. Source: California Municipal StatistICs, Inc. Table 6 below sets forth the secured and unsecured assessed valuations for property in the City for the fiscal years 1997-98 through 2001-02. TABLE 6 CITY OF CHULA VISTA ASSESSED V ALUA TION FISCAL YEARS 1997-98 TO 2001-02 Year Secured Unsecured Total 1997-98 56,861,939,255 5600,615,380 $ 7,462,554,635 1998-99 7,650,510,665 351,383,739 8,00],894,404 ] 999-00 7,854,468,090 502,416,173 8,356,884,263 2000-0] 8,812,650,702 326,184,542 9,138,835,244 200]-02 9,731,461,361 396,]47,70] ]0,128,896,888 Source: City ofChula Vista Table 7 below sets forth property tax collections and delinquencies in the City for fiscal years 1995-96 through 1999-00. TABLE 7 CITY OF CHULA VISTA PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEARS 1996-1997 TO 2001-02 Delinquent Delinquent Year Ended Current Current Tax Percent of Tax Tax June 30 Tax Levy Collections Levy Collected Collections Receivables ]997 $8,632,793 58,384,985 97.13% 5212,969 $432,747 ]998 8,675,402 8,525,374 98.27% 233,881 338,404 ] 999 9,257,807 9,108,378 98.39% 243,354 280,041 2000 10,133,358 9,940,830 98.10% ]44,306 253,037 200] ] 1,254,079 ] 1,073,584 98.40% 165,73S 223,047 Source: City ofChula Vista 17 DOCSOC\89J758v5\240J6.0025 <:2.-.37 Principal Taxpayers The 20 largest taxpayers in the City as shown on the 2001-02 secured tax roll, the amounts of taxes paid by each and the percentage of the City's total properly tax revenues attributable to each are shown on Table 8 below. The infoffi1ation in Table 8 has been provided by Califomia Municipal Statistics, Inc. The City has not independently verified the infonnation in Table 8 and does not guarantee its accuracy. TABLE 8 CITY OF CHULA VISTA TWENTY PRINCIPAL T AXP AYERS 2001-02 Assessed %01 Property Owner Primary Land Use Valuation Total ] Dukc Encrgy South Bay LLC Powcr Plant S 99,988,]59 1.03% 2. Eastlake Co. LLC Residential Properties 74,270,572 0.76 3. Rohr Inc. / B.F. Goodrich Aerospacc Industrial 69,146,459 0.71 4. Rancho Del Rey LLC Apartments 62,]73,59] 0.64 5. C V Center LLC Shopping Center 60,737,739 0.62 6. Gateway Town Center LP Apartments 48,309,]60 0.50 7. OIay Project LP Residential PropertIes 46,244,795 0.48 8. Brookficld Shca Otay LLC ResIdential Propcrtics 34,680,000 0.36 9. BRE PropertIes Inc. Apartments 34,40],6SS 0.35 ]0. Pacific Bay Properties Residential Properties 3] ,059,067 0.32 II. The Price Co. Commercial Store 26,700,0]2 0.27 12. Eucalyptus Grove Holdings LLC Apartments 24,375,7S7 0.25 ]3. North Island Federal Credit Union Office Building 20,578,023 0.21 ]4. Cypress Creek Co. LP Shopping Center 20,375,545 0.2] 15. Vons Companies Inc. Grocery Stores 20,240,365 0.21 16. Price Reit Inc. Commercial Store ] 8,400,000 0.19 17. Universal Concerts Recreational - Amphitheater ] 7,788,800 0.]8 18. KMart Corporation Shopping Center 15,367,097 0.16 19. Bomta Centre LLC Shopping Center ]4,929,740 0.]5 20. Mcditrust Corp. Hotel ]4,767,971 0.15 $754,534,570 ~ Sourcc: California Municipal Statistics, Inc. 18 00(,50(,\893758v5\24036.0025 c) -3 S" Indebtedness General Obli!ation Debt. The City currently has no general obligation debt outstanding. Lon! Term Debt Table 9 below is a summary of long-tenl1 obligation transactions of the City for the year ended June 30,2001. TABLE 9 CITY OF CHULA VISTA LONG TERM DEBT OF THE CITY Balance Balance Jnly 1,2000 Additions Deductions June 30, 2001 Tax Allocation Bonds $ 27,255,000 $ 17,000,000 $ 400,000 $ 43,855,000 Pension Obligation Bonds 16,419,851 316,503 765,000 15,971,354 Certificates of Participation 13,215,000 25,255,000 1,230,000 37,240,000 Advances Payable 34,717,380 11,468,863 2,400,724 43,785,519 Notes Payable 1,424,905 667,166 757,739 Capital Leases 4,755,706 765,932 3,989,774 Claims and Judgements 3,084,068 2,361,583 1,612,979 3,832,672 Compensated Absences 2,744,642 578,762 3,323,404 Total $103,616,552 $ 56,980,711 $ 7,841,801 $152,755,462 Sourcc. City ofChula Vista. Short-Term Debt: The City currently has no short-tenl1 debt outstanding. Estimated Direct and Overlappin! Bonded Debt: The estimated direct and overlapping bonded debt of the City as of May I, 2002 is shown in Table 10 below. The infOll11ation in Table 10 has been provided by Califomia Municipal Statistics, Inc. The City has not independently verified the infOll11ation in Table 10 and does not guarantee its accuracy. 19 DOCSOC\893758v5\24036.0025 02 -3<7 TABLE 10 CITY OF CHULA VISTA ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT']) 2001-02 Assessed Valuation: $10,128,896,888 Redevelopment Incremental Valuation: 585.506,44] Adjusted Asscssed Valuation: $ 9,543,390,447 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/[102 San Diego County Water Authority 5.082% $ 163,640 Metropolitan Watcr District 0.902 4.537,737 Otay Mumclpal Watcr District, I.D. No. 27 99.959 10,955,506 Southwcstern Community Collcge District 49.109 19,643,600 Sweetwater Union High School District 59.527 22,620,260 Chula Vista City School District 83.092 42,921,173 City ofChula Vista Community Factlltlcs DIStricts 100.000 60,565,000 Sweetwater Union High School District Comrnumty Facilities Districts 42.346-100.000 83,481,271 Chula Vista City School DIStrict Community Factillies Districts 100.000 8,555,000 City ofChula Vista 1915 Act Bonds 100.000 64755 000 TOTAL OVERLAPP]NG TAX AND ASSESSMENT DEBT $318,198,]87 DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT San Diego County Gcncral Fund ObligatIOns 4.902% $ 25,931,387 San Diego County Pension Obligations 4.902 13,867,758 San Diego County Supcrlntcndent of Schools Obligations 4.902 104,045 Southwestern Community College District Certlficatcs of Participation 49.109 1,875,964 Sweetwater Union High School District Certificates of ParticIpation 59.527 15,438,327 Chula Vista City School District Cerlificates of PartIcipation 83.092 54,387,869 CIty of Chula Vista Certlficatcs of Participation 100.000 35,100,000 (I) CIty of Chula Vista Pension Obligations 100.000 13,704,108 Otay Municipal Water District Certificates of ParticIpation 54.580 14,553,757 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $174,963,215 Less: Otay Mumcipal Water District Certificates of ParticIpation 14,553,757 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $160,409,458 GROSS COMBINED TOTAL DEBT $493,16],402 (2) NET COMBINED TOTAL DEBT $478,607,645 [l) Excludes certificales of participatIon to be sold. (2) Excludcs tax and revenue anticipatIOn notes, revcnuc, mortgage revenue and tax allocation bonds and non-bonded capital Icase obligations. Ralios to 2001-02 Assessed Valuation: Total Overlapping Tax and Assessment Debt. ..3.14% Ratios to Adiusted Assessed Valuation: Combmed Direct Dcbt ($48,804,108).. ..0.51% Gross Combined Total Debt. ..5.17% Net Combined Total Debt.. .5.02% Source: California Municipal StatIStics, Inc. [2002 POPULA nON FIGURES TO CALCULATE THE PER CAPITA DEBT WILL BE AVAILABLE THE WEEK OF MAY 6,2002] Assuming the total net direct and overlapping general fund obligation debt figure for fhe City as of May 1,2002 is $160,409,458 as reported by California Municipal Statistics, Inc., and the reported population figure for 2002 of , the per capita net and direct overlapping debt for the City is $_. The total net direct and overlapping bonded debt of the City as of May I, 2002 is $478,607,645, or $ per capita. 20 DOCSOC\893758v5\24036.0025 .,;)-~O City Investment Policy General. Pursuant to the City's Investment Policy (the "Investment Policy") the City's Finance Director is responsible for investing the cash balances in all City Funds in accordance with the California Government Code, Sections 53600 et seq. and 53635 et seq. The Investment Policy does not include long tenD debt reserve funds and defen-ed compensation funds, wliich are exceptions covered by other more specific Government Code sections and the legal documents unique to each debt transaction. The Investment Policy provides that investment practices shall confoml to California's pmdent man nIle which states, in essence, that "in investing. . . property for the benefit of another, a tmstee shall exercise the judgment and care, under the circumstances then prevailing, which men of pmdence, discretion and intelligence exercise in the management of their own affairs.. " Under the Investment Policy, the Finance Director and other individuals assigned to manage the investment portfolio, acting within the intent and scope of the investment policy and other written procedures, and exercising due diligence, shall be relieved of personal responsibility and liability for an individual investment's credit risk or market price changes, provided material deviations from expectations are reported in a timely manner and appropriate action is taken to control any adverse developments. The Investment Policy states that it is the City's full intent, at the time of purchase, to hold all investments until maturity in order to ensure the retum of all invested principal. However, it is anticipated that market prices of securities purchased as investments will vary depending on economic conditions, interest rate fluctuations, or individual security credit factors. In a diversified investment portfolio, such temporary variations in market value will inevitably result in measurable losses at any specific point in time. From time to time, changes in economic or market conditions may dictate that it is in the City's best interest to sell a security prior to maturity. The three principal factors of safety, liquidity and yield are to be taken into consideration, in that order, when making investment decisions. Authorized Inve8tment In8truments. The City may invest in the following instmments under the guidelines as provided in the Investment Policy: Certificates of Deposit. Time Certificates of Deposit will be made only in FDIC or FSLIC insured accounts. For deposits in excess of the insured maximum of $100,000, approved collateral shall be required in accordance with Califomia Govemment Code section(s) 53652 and/or 53651(m)(I). No more than 25% of the investment portfolio may be invested in this investment type. Securities of the U.S. Government or its Agencies. This category includes obligations issued by Federal Home Loan Banks, Government National Mortgage Association, the Fann Credit System, the Federal Home Loan Bank, the Federal Home Loan Mortgage Association, the Federal National Mortgage Association, the Student Loan Marketing Association, or obligations or other instmments of or issued by a federal agency or a United States Government sponsored enterprise. Treasury Bills and Notes. U.S. Treasury Bills, Notes, Bonds or Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. Local Agency Investment Fund (LAIF). Investment of funds in the California LAIF which allows the State Treasurer to invest through the Pooled Money Investment Account. Maximum investment is subject to state regulation. County of San Diego Treasury Pool. Investment of funds in the County of San Diego Treasury which allows the County Treasurer-Tax Collector to invest local funds through a pooled concept. 21 DOCSOC\893758v5\240J6.0025 c::J -<.j.( Bankers Acceptance. Bills of Exchange or time Drafts drawn on and accepted by a commercial bank, otherwise known as Bankers Acceptances, both foreign and domestic, which are eligible for purchase by the Federal Reserve System. Purchases of Bankers Acceptances may not exceed 270 days maturity or total more then 40'% of the cost value of the City's investment portfolio. Commercial Paper. Paper of the highest rating as provided by Moody's Investors Service, Inc. (PI), or Standard and Poor's Ratings Service (A1+). Eligible commercial paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of $500,000,000. Purchases of eligible commercial paper may not exceed 180 days maturity, represent more than 10% of the outstanding paper of the issuer, or total more than 15% of the cost value of the City's investment portfoho. Negotiable Certificates of Deposit. Issued by a nationally or state-chartered bank of a state or federal savings and loan association or by a state-licensed branch of a foreign bank. Purchases of Negotiable Certificates of Deposit may not total more than 30'Yo of the cost value of the City's investment portfolio. Repurchase Agreements. A purchase of securities by the City pursuant to a Master Repurchase Agreement by which the seller will repurchase such securities on or before a specified date, or on demand of either party, and for a specified amount. Investments in repurchase agreements will be used solely as short tenD investments not to exceed 90 days and be collateralized by securities having a market value of at least 102% of the value of the repurchase agreement at all times during the tenD of the investment. Medium Tenn Corporate Notes. Corporate obligations rated A or better by Moody's and or Standard and Poor's rating agencies. Purchases of corporate medium tenD notes shall not total more than 30% of the cost value of the City's investment portfolio, nor for anyone corporation, when combined with any commercial paper issued by the same corporation, total more than 15% of the cost value of the City's investment portfolio. Diversification. Investments shall be diversified among institutions, types of securities and maturities to maximize safety and yield with changing market conditions. Local financial institutions will be given preferential consideration for investment of City funds consistent with the City's objective of attaining market rates of retum, and consistent with constraints imposed by its safety objectives, cash flow considerations and State laws. 22 ~ - 4- J.... DOC-SOC\S')]7 58v5\24036.0025 The par value, market value, adjusted cost basis and percent of total investments for each category of the City's investments, as of December 31, 2001, are set forth in Table II below. TABLE 11 CITY OF CHULA VISTA SCHEDULE OF INVESTMENTS Market Adjusted Cost % of Total Investment Type Par Valu/I) Valuil) Basis") Investments Pooled Investment Federal Securities $ 121,000,000 $ 123,127,170 $ 120,895,043 41.77% Local Agency Investment Fund 14,593,961 14,593,961 14,593,961 5.04 Corporate Bonds 40,750,000 41,931,045 40,968,555 liD. Subtotal $ 176,343,961 $ 179,652,176 $ 176,457,559 61.00% Cash/Investments with Fiscal Agent U.s. Government $ 12,230,030 $ 12,230,030 $ 12,230,030 4.23% Investment Agreements 44,904,527 44,904,527 44,904,527 15.51 Mutual Funds 52,598,235 52,598,235 52,598,235 18.17 Cash with Fiscal Agents 3,253,007 3,253,007 3,253,007 ill Subtotal $ 112,985,798 $ 112,985,798 $ 112,985,798 39.00% Totals $ 289,329,759 $ 292,637,974 $ 289,443,357 100.00% II} Par value IS the principal amount of the investment at maturity. (2, All market values contained herein are received from sources the City believes are reliable; however, the City docs not guarantee their accuracy. Ii) Adjusted Cost Basis is the par value of the security plus or minus any premium or discount and accrued interest that was Included In the purchase price. Source: CityofChulaVista The City is self-insured for general liability and worker's compensation up to $250,000 per claim. As a member of the San Diego Pooled Insurance Program Authority ("SANDPIPA"), the City is insured for general liability claims between $250,000 and $2 million. In addition, for general liability claims between $2 million and $15 million, the City is covered by excess insurance coverage obtained through SANDPIPA. For worker's compensation claims, the City has purchased excess insurance for claims exceeding $250,000. LIMITATIONS ON TAX REVENUES There are a number of provisions in the State Constitution that limit the ability of the City to raise and expend tax revenues. Article XIII A of the California Constitution On Jnne 6,1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the Califomia Constitution. This amendment, which added Article Xl1l A to the Califomia Constitution, 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 consfructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted 8llliually 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 one percent of 23 DOCSOC\893758v5\240J6.0025 ~-43 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 ofreal property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities). Legislation enacted by the California 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 and pension liability are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) is 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 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 future revenue sources which may be provided by the State of Califomia (the "State") in lieu of lost property tax revenues, if any. Article XUl 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 XIll A has subsequently been amended to pennit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other limited circumstances. Article XIII B of the California Constitution At the statewide special election on November 6, 1979, the voters approved an initiative entitled "Limitation on Govemment Appropriations" which added Article XIII B fo the Califomia Constitution. Under Article XIII B, state and local govemment entities have an annual "appropriations limit" which limits the ability to spend certain moneys which are called "appropriations subject to limitation" (consisting of tax revenues and certain state subventions together called "proceeds of taxes" and certain other funds) in an amount higher than the "appropriations limit" Article Xlii B does not affect the appropriation of monies which are excluded from the definition of "appropriations limit" including debt service on indebtedness existing or authorized as of October 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the "appropriations limit" is to be based on certain 1978-79 expenditures, and is to be adjusted alimally to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article Xlii B, if those entities' revenues in any year exceed the amounts permitted to be spent, the excess is to be retumed by revising tax rates or fee schedules over the subsequent two years. Article XIIIC and Article XIIID ofthe State Constitution On November 5, 1996, the voters of the State approved Proposition 218, the so called "Right to Vote on Taxes Act" Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of local agencies, including municipalities, to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a "general tax" (imposed for general governmental purposes) or a "special tax" (imposed for specific purposes); prohibits special purpose govemment agencies such as school districts from levying general taxes and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote. Article XIIIC also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIIIA and XIIIB of the Califomia Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article 24 c:¿ -44 DOCSOC\893758v5\24036.0025 XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIID deals with assessments and property-related fees and charges. Article XIllD explicitly provides that nothing in Article XIIIC or XllID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the City. The interpretation and application of Articles XIIIC and Article XIllD will be detemlined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. Although the City does not currently anticipate that the provisions of Article XllIC and XIIID will adversely affect its ability to pay the Lease Payments as and when due, no assurance can be given regarding the ultimate interpretation or effect of Article XIllC and Article XIIID on the City's finances. Unitary Property Some amount of property tax revenue of the City is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ("unitary property"). Under the State Constitution, such property is assessed by the State Board of Equalization ("SBE") as part of a "going concern" rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the City) according to statutory formula generally based on the distribution of taxes in the prior year. Future Initiatives Article XIll A, Article XIll B, XIII C and XlII D and Propositions 46, 62 and 218 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 the City's current revenues or its ability to raise and expend revenues. RISK FACTORS The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Certificates. Not a Pledge of Taxes The obligation of the City to pay the Lease Payments and Additional 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 fonll of taxation. The obligation of the City to pay Lease Payments and Additional Payments does not constitute a debt or indebtedness of the Authority, the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Although the Lease does not create a pledge, lien or encwllbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments and Additional Payments from any source of legally available funds (subject to certain exceptions) and the City has covenanted in the Lease that, for as long as the Leased Premises is available for its use and possession, it will make the necessary annual appropriations within its budget for all Lease Payments and Additional Payments. The City is currently liable on other obligations payable from general revenues, including tax and revenue anticipation notes, pension obligation bonds and various certificates of participation issued by the City. In the event of a shortfall in revenues, a court might 25 ~-</~ DOCSOC\8937 58v5\24036 0025 require that the City first set aside revenues to pay the tax and revenue anticipation notes and the pension obligation bonds. See "CITY FINANCIAL INFORMA nON - Indebtedness" herein. Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article X][]C and Article X][]D of the State Constitution. Based upon the outcome of an election by the voters, such fees, charges, assessments and taxes might no longer be pennitted to be imposed, or may be reduced or eliminated and new taxes, assessments fees and charges may not be approved. The City has assessed the potential impact on its financial condition of the provisions of Article X][]C and Article X][]D of the State Constitution respecting the imposition and increase of taxes, fees, charges and assessments and does not believe that an election by the voters to reduce or eliminate the imposition of certain existing fees, charges, assessments and taxes would substantially affect its financial condition. However, 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 Article XIIIC and Article X][]D of the State Constitution are eliminated or substantially reduced, the financial condition of the City, including its General Fund, could be materially adversely affected. Although the City does not currently anticipate that the provisions of Article XIIIC and Article XIIJD of the State Constitution would adversely affect its ability to pay the principal of and interest with respect to the Certificates as and when due and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article X][]C and Article XIIJD of the State Constitution on the City's finances. Additional Obligations of the City The City is pennitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Certificates. To the extent that additional obligations are incurred by the City, the funds available to pay 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 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 and Additional Payments, based on the perceived needs of the City. The same result could occur it~ because of California Constitutional limits on expenditures, the City is not pennitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare. Default Whenever any event of detàult referred to in the Lease happens and continues, the Trustee, as the assignee of the Authority, is authorized under the tenus of the Lease to exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything therein 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 DUE OR PAST DUE TO BE IMMEDIATELY DUE AND PAYABLE. NEITHER THE AUTHORITY NOR ITS ASSIGNEE SHALL HAVE ANY RIGHT TO REENTER OR RELET THE LEASED PREMISES EXCEPT FOLLOWING A DEFAULT UNDER THE LEASE. Following an event of default, at the direction of the Insurer, the Authority may elect either to tenninate the Lease and seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Paymeuts as they become due. The Lease further provides that so long as an event of default exists under the Lease, the Authority, or its assignee, may re-enter the Leased Premises for the purpose of taking possession of any portion of the Leased Premises and to re-let the Leased Premises and, in addition, at its optiou, with or without such entry to tem1inate the Lease as described therein. See Appendix C - "Sununary of Principal Legal Documents - Lease - Remedies On Default." 26 è2 - 4" DOCSOC\8 937 58v 5\24036.0025 No assurance can be given that the Trustee will be able to re-let the Leased Premises so as to provide rental income sufficient to pay principal and interest evidenced by the Certificates in a timely manner or that such re-letting will not adversely affect the exclusion of interest with respect thereto from gross income for federal or State income tax purposes. Furthennore, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect to the Leased Premises. In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease and the Trustee is not empowered to sell the Leased Premises and use the proceeds of such sale to prepay the Certificates or pay debt service with respect thereto. The City will be liable only for Lease Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate judgment each year for that year's defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in Califomia, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest. Release or Substitution ofProperfy The City has the right from time to time to add other real property and improvements (subject only to Permitted Encumbrances) or to substitute other real property or improvements (subject only to Permitted Encumbrances) for all or a portion of the Leased Premises or to release a portion of the real property or improvements constituting the Leased Premises, subject to the conditions precedent to such addition, substitution or release as set forth in the Lease. See Appendix C - "Summary of Principal Legal Documents - Lease - Substitution or Release of the Property." In connection with a substitution or release, all interests of the Authority, and its assignee, in the portion of the Leased Premises released shall tenninate and the Authority ' and its assignee shall execute and record with the County Recorder of the County all documents deemed necessary by the City to evidence such termination of interest. Upon satisfaction by the City of the conditions set forth in the Lease, the Trustee also will execute a Lease Supplement and will not impose on the City any further conditions or prerequisites to the requested addition, substitution or release. The City will cause the Lease Supplement, or another document substantially in the fonn of the Lease Supplement, to be recorded in the real property records of the County. All costs and expenses incurred in connection with such addition, substitution or release will be bome by the City. No addition, substitution or release under the Lease will be, by itself, the basis for any reduction in or abatement of the Lease Payments due from the City thereunder. See Appendix C - "Summary of Principal Legal Documents - Lease - Substitution or Release of the Property." Abafemenf Under certain circumstances related to damage, destruction, condemnation or title defects which cause a substantial interference with the use and occupancy of the Leased Premises, the City's obligation to make Lease Payments will be subject to full or partial abatement and could result in the Trustee having inadequate funds to pay the principal and inferest with respect to the Certificates as and when due. See "RISK FACTORS - Abatement" and Appendix C - "Summary of Principal Legal Documents - Lease - Abatement." Earthquakes Like many areas of Cali fomi a, the City is subject to seismic activity. The City is not obligated under the Lease and it does not intend to procure and maintain, or cause to be procnred and maintained, earthquake insurance on the Leased Premises. In the event that any portion of the Leased Premises is destroyed by an earthquake, an abatement could occnr and result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates as and when due. 27 ~-c/-7 DOCSOC\893758v5\240J60025 Limitations on Remedies; Bankruptcy The rights of the owners of the Certificates are subject to the limitations on legal remedies against municipalities 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 enforcement of the City's obligations under the Lease, may become subject to the federal bankruptcy code and applicable bankruptcy. insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignfy of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limifations on remedies against counties in the State. Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title II, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, 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. See "RISK FACTORS - Default" herein. Economic Conditions in California A slowing economy, a declining stock market and the tragic events of September 11, 2001 have negatively affected the revenue outlook for the State. In October, 2001, in response to the weak revenue results, the Governor announced a hiring freeze for most State positions and directed State agencies to make cuts in operating expenses totaling at least $150 million in 2001-02 expenditures. The Govemor also asked agencies to prepare for cuts of up to 15 percent in expenditures in the 2002-03 fiscal year budget. In further response to the revenue shortfalls, on November 14, 2001 the Govemor issued a letter to all State departments and agencies instituting immediate action to further reduce expenditures in the 2001-02 fiscal year. The Governor called for a special session of the Legislature to convene in January, 2002 to consider almost $2.25 billion in spending costs for the cun-ent fiscal year. Pending action by the Legislature to cut expenditures, the Governor directed agencies to immediately freeze spending on a specified list of programs and projects totaling almost $2.25 billion (including the actions he directed in October). These program cuts and reversions cover almost all areas of State spending, including State operations, aid to local govemment and capital outlay. The Govemor stated that he had excluded from spending cuts expenditures which could provide short-tenn stimulus to the State's economy. On November 14, 2001, the State Legislative Analyst released a report containing budget estimates for the period 2001-02 through 2006-07. Included in this report was an estimate that, due to the economic slowdown and a projected severe drop in capital gains and stock option activity, State general fund revenues for the 2001-02 fiscal year would be approximately $68.3 billion, or about $6.8 billion lower than the estimate on which the 2001-02 State Budget was based. On January 10, 2002, the Govemor released his proposed budget for fiscal year 2002-03 (the "Proposed Budget"). In announcing the Proposed Budget, the Governor stated thaf the sharpness of the decline in State revenues was beyond previous projections and will result in a depletion of the State's Reserve for Economic Uncertainties and a $3 billion shortfall in the cun-ent fiscal year of 2001-02. The cun-ent year shortfall, combined with a reduced revenue estimate for fiscal year 2002-03 and the need for a reserve, means that the State must close a funding gap exceeding $20 billion for fiscal year 2002-03. The Proposed Budget is based on an assumption of a mid-year recovery for the California economy. The Proposed Budget states that, if the economic recovery is delayed, thereby protracting the projected rebound in State revenues, additional measures will be needed to ensure that the State budget for fiscal year 2002-03 remains balanced. 28 DOCSOC\893758v5\240J60025 02-c/-<i The Proposed Budget includes spending reductions and other strategies to provide relief to the State's general fund of $12.5 billion. These strategies include borrowing against the State's tobacco settlement money, delaying contributions to the State retirement funds and borrowing from various special funds. The State Legislative Analyst has advised the Legislature that the Proposed Budget is overly optimistic and defers expenses to future fiscal years. She projects that the deficit for fiscal year 2002-03 is approximately $17 billion, not the $12.5 billion estimated in the Proposed Budget and projects that the Proposed Budget would result in a $4 billion operating deficit in fiscal year 2003-04. The City cannot predict what actions will be taken in the future by the State Legislature and the Govemor to address changing State revenues and expenditures. The Proposed Budget for fiscal year 2002-03 and future State bndgets will be affected by national and state economic conditions and other factors over which the City will have no control. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. THE AUTHORITY The Chula Vista Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated as of Apri14, 1995, by and between the City and the Redevelopment Agency of the City of Chula Vista. The City Council of the City is appointed as the Governing Board of the Authority. The Authority has acted as a conduit issuer for the City for a variety of financings. TAX EXEMPTION In the opinion of Stradling Yocca Carlson & Ranth, a Professional Corporation, Newport Beach, Califomia, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, the portion of each Lease Payment constituting interest 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 Bond Counsel, the portion of each Lease Payment constituting interest is exempt from State of Califomia personal income tax. Bond Counsel notes that, with respect to corporations, the portion of each Lease Payment constitnting interest may be included as an adjustment in the calculation of altel11ative minimum taxable income which may affect the alternative minimum tax liability of such corporations. The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to the owner of the Certificate before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the owner of a Certificate will increase the owner's basis in the Certificate. In the opinion of Bond Counsel original issue discount that accrues to the owner of a Certificate is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal altemative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Bond Counsel's opinion as to the exclusion from gross income of the portion of each Lease Payment constituting interest (and original issue discount) is based upon certain representations of fact and certifications made by the City and the Center and others and is subject to the condition that the City and the Center comply with all requirements of the Intemal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the execution and delivery of the Certificates to assure that the portion of each Lease Payment constituting interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the portion of each Lease Payment constituting interest (and original issue discount) to be included in gross income for federal 29 .;:)-49 00CSO(,\893758v5\24036.0025 income tax purposes retroactive to the date of execution and delivery of the Certificates. The City and fhe Center have covenanted to comply with all such requirements applicable to each, respectively. The anlOunt by which a Certificate Owner's original basis for determining loss on sale or exchange in the applicable Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Certificate premium, which must be amortized under Section 171 of the Code; such amortizable Certificate premium reduces the Certificate Owner's basis in the applicable 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 amortization of Certificate premium may result in a Certificate Owner realizing a taxable gain when a Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the Owner. Purchasers of the Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Certificate premium. Bond Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) atter the date hereof. Bond 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, the Lease, and the Tax Certificate pennit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any Certificate if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth. Although Bond Counsel has rendered an opinion that the portion of the Lease Payments constituting interest (and original issue discount) is excluded from gross income for federal income tax purposes provided that the City and the Borrower continues to comply with certain requirements of the Code, the ownership of the Certificates and the accrual or receipt of interest (and original issue discount) with respect to the Certificates may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the Certificates. The form of Special Counsel's Opinion with respect to the Certificates is attached hereto as Appendix D. CERTAIN LEGAL MATTERS Certain legal matters incident to the authorization, sale, execution and delivery of the Certificates are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. A complete copy of the proposed foHn of opinion of Special Counsel is contained in Appendix D hereto. Special Counsel has not undertaken any responsibility to the Owners for the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Certificates and expresses no opinion relating thereto, Certain legal matters will be passed upon for the City and the Authority by the City Attorney. Compensation of Special Counsel and the Financial Advisor is contingent upon the execution and delivery of the Certificates. LITIGATION To the best knowledge of the City there is no action, suit or proceeding known to be pending, or threatened, restraining or enjoining the execution or delivery of the Certificates, the Trust Agreement, the Leased Premises' Lease, the Lease, the Assignmem Agreemem or any other document relating to the Certificates, or in any way contesting or affecting the validity of the foregoing. 30 DOCSOCIR93758v5124036.0025 c:; - S7) There are a number of lawsuits and claims pending against the City. In the opinion of the City, such suits and claims as are presently pending will not have a material adverse affect on the ability of the City to make Lease Payments. RATINGS Moody's Investors Service ("Moody's") and Standard & Poor's Ratings Group ("S&P") have assigned ratings of "Aaa" and "AAA", respectively, to the Certificates, with the understanding that, upon delivery of the Certificates, a policy insuring the payment when due of principal of and interest with respect to the Certificates will be issued by the Insurer. Such ratings rellect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency ful11ishing the same, at the following addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007; Standard & Poor's Corporation, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the infonnation and materials ful11ished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, 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. UNDERWRITING The Certificates were sold to (the "Underwriter") at competitive sale. The Certificates are being purchased by the Underwriter for $ (representing the par amount of the Certificates, less original issue discount of $ , less an underwriter's discount of $ , plus accrued interest of$ ). The Underwriter is committed to purchase all of the Certificates if any are purchased. The Underwriter may offer and sell the Certificates to certain dealers (including dealers depositing Certificates into investmettt trusts) and others at prices lower than the offering prices stated on the cover of this Official Statement. After the initial public offering, the public offering prices of the Certificates may be changed from time to time by the Underwriter. CONTINUING DISCLOSURE Pursuant to a Disclosure Agreement (the "Disclosure Agreement"), the City has agreed to provide, or cause to be provided, certain annual financial and operating data, including its audited financial statements and certain of the infonnation of the type set forth in Tables I through 7, 9 and I I of this Official Stafement under the heading "CITY FINANCIAL INFORMATION", by no later than February I of each year commencing February I, 2003, to each nationally recognized municipal securities infonnation repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2-12(b )(5) (the "Rule") adopted by the Securities and Exchange Commission (each, a "Repository"). In addition, the City has agreed to provide, or cause to be provided, to each Repository in a timely manner notice of the following "Listed Events" if detennined by the City to be material: (I) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on the debt service reserves rellecting financial difficulties; (4) unscheduled draws on credit enhancements rellecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perfonn; (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 (II) rating changes. These covenants have been made in order to assist the Underwriter in complying with the Rule, The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annua1 reports or notices of material events. For a detailed description of the City's responsibilities under the Disclosure Agreement see Appendix G - "Fonn of Continuing Disclosure Agreement." 31 DOCSOC\893758v5\24036 0025 ól - :'J-¡ FINANCIAL STATEMENTS OF THE CITY Included herein as Appendix B are the audited financial statements of the City as of and for the year ended June 30,2001, together with the report thereon dated September 21, 2001 of Caporicci, Cropper & Larson, LLP, an accountanCY corporation, independent certified public accountants (the "Auditor"). Such audited financial statements have been included herein in reliance upon the report of the Auditor. The Auditor has not undertaken to npdate the audited financial statements of the City or its report or to take any action intended or likely to elicit information conceming the accuracy, completeness or faimess of the statements made in this Official Statement, and nO opinion is expressed by the Auditor with respect to any event subsequent to its report dated September 21 , 200 I. MISCELLANEOUS Included herein are brief sununaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or ab'feement between the City and the purchasers or Owners of any of the Certificates. The execution and delivery of this Official Statement has been duly authorized by the City. CITY OF CHULA VISTA By: Assistant City Manager 32 DOCSOC\893758,S\24036.0025 c2-:i':J., APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF CHULA VISTA This append/x sets forth general in(ormation about the City of Chula Vista ("Chula Vista ") including information with respect to its finances. The fOllowing information concerning Chula Vista. the County of San Diego (the "County ") and the State o( California (the "State ") is included only for general background purposes. It is not intended to suggest that the Certificates are payable from any source other than Lease Payments. General Description Chula Vista is located on San Diego Bay in Southern California, 8 miles south of the City of San Diego and 7 miles north of the Mexico border, in the area. generally known as "South Bay." Chula Vista's city limits cover approximately 50 square miles. Chula Vista was incorporated March 17, 1911 and became a chartered city in 1949. Chula Vista operates under a Council-Manager form of govemment and provides the following services: public safety, community services, engineering services, planning services, public works, general administrative services and capital improvements. With a January 2001 estimated population of 183,300, Chula Vista is the second largest city in the County. Population The historic population ofChula Vista, the County and the State is shown below. City of Chula Vista, County of San Diego and Sfafe of California Population Estimates Year Citv ofChula Vista County of San Diego State of California 1995 148,900 2,613,100 31,617,000 1996 151,300 2,621,100 31,837,000 1997 154,500 2,653,400 32,207,000 1998 159,500 2,702,800 32,657,000 1999 164,200 2,805,900 33,753,000 2000 174,400 2,835,400 34,207,000 2001 183,300 2,883,600 34,818,000 Source: California State Department of Finance, E-4 Revised His/Of'ical CUy, County and State Population Estimates. /99/- 2000. with /990 and 2000 Census Counts and E-/ City/County Population Estimates. with Annual Percent Change, January I, 2000 and 2001. A-I DOCSOC\893758v5\24036 0025 .;)-.5'3 Building Activity Residential building activity for the past five calendar years for Chu!a Vista is shown in the following tables. City ofChula Vis fa New Housing Units Building Permits 1996 1997 1998 1999 2000 2001 Single Family Units ~ 927 1,180 1,796 1,776 2,184 Multifamily Units 77 123 166 750 864 1,341 Total Units 948 1,050 1,346 2,546 2,640 3,525 Source: Construction Industry Research Board. Cify of Chula Vista Building Permif Valuations (Dollar Volume in 000'5) 1996 1997 1998 1999 2000 2001 Residential - - - Ncw Single Family 5145,991 $155,849 $214,986 $307,653 $319,086 $433,851 New Multifamily 7,093 11,075 11,452 53,470 74,634 107,732 Res. AI\. & Adds 5,744 6,439 5,391 5,085 4,863 7,987 Total Rcsidential ~ 173,364 231,829 366,209 398,583 549,570 Nonresidential New Commercial $ 747 $ 10,954 $ 17,432 $ 11,213 $ 17,916 $ 22,139 New Industrial 142 0 5,581 7,909 17,418 2,139 New Other'QI 2,165 6,104 11,483 5,840 17,890 11,112 Alters. & Adds. 7,868 9,036 12,783 13,552 10,527 13,092 Total Non- ~ 26,095 47,280 38,516 ~ ~ Residential Total All Building $169,753 S 199,459 S279, 11 0 $404,725 $462,335 $598,052 ~ ~~ (I) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings and no-residential alterations and additions. Note: "Total All Building" IS the sum of Residential and Nonresidential Building Permit Valuations. Totals may not add to sums because of independent rounding. Source: Construction Industry Research Board. A-2 DOCSOC\89375Rv5\24036.0025 c;;) - ~-.¡ Employment The following table summarizes the labor force, employment and unemployment figures over the period 1997 through 2001 for Chula Vista, the County, the State and the United States. Chula Vista, San Diego County, State of California and United States Labor Force, Employment and Unemployment Yearly Average Civilian Civilian Civilian Civilian Year and Area Labor Force Employmenf(l) Unemployment(2) Unemployment Rate(3) 1996 Chula Vista 65,090 61,470 3,620 5.6% San Diego County 1,241,300 1,175,900 65,400 5.3% California 15,511,600 14,391,500 1,120,100 7.2% United States 133,943,000 126,708,000 7,236,000 5.4% 1997 Chula V1Sta 67,340 64,340 3,010 4.5% San DIego County 1,285,100 1,230,800 54,300 4.2% California 15,947,200 14,942,500 1,004,700 6.3% United Statesl" 136,297,000 129,558,000 6,739,000 5.0% 1998 Chula Vista 69,200 66,630 2,570 3.7% San Diego County 1,321,000 1,274,600 46,400 3.5% California 16,336,500 15,367,500 969,000 5.9% United States'" 137,673,000 131,463,000 6,210,000 4.5% 1999 Chula Vista 71 ,300 68,980 2,320 3.3% San Diego County 1,361,600 1,319,600 42,000 3.1% California 16,596,500 15,731,700 864,800 5.2% United States"} 139,368,000 133,488,000 5,580,000 4.2% 2000 Chula Vista 73,410 71,080 2,330 3.2% San Diego County 1,401,900 1,359,900 42,000 3.0% Califomia 17,090,800 16,245,600 845,200 4.9% United States"} 140,863,000 135,208,000 5,655,000 4.0% 2001 Chula Vista 74,620 72,090 2,530 3.4% San Diego County 1,424,900 1,379,200 45,700 3.2% California 17,362,200 16,435,200 927,100 5.3% United States(SI 141,815,000 135,073,000 6,742,000 4.8% (II Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. ,3) The unemployment rate is computed from unrounded data: therefore, It may differ from rates computed from rounded ,'I figures in this table. Not strictly comparable with data for prior years. Source: California Employment Development Department, based on March 2001 benchmark and U.S. Department of Labor. Bureau of Labor Statistics. A-J DOCSOCl89 3 7 58v 5\2403 6.0025 .,;; - ~-S- San Diego Metropolitan Statistical Area ("MSA"), which includes Chula Vista, civilian labor force and wage and salary employment figures for calendar years 1997 through 2001 are shown in the following table. These figures are county-wide statistics and may not necessarily accurately renect employment trends in Chula Vista. San Diego MSA Civilian Labor Force, Employment and Unemployment Annual Averages, March 2001 Benchmark 1997 1998 1999 2000 2001 Civilian Labor Force!" 1,285,100 1,321,100 1,361,600 1,401,900 1,424,800 Employment 1,230,800 1,274,700 1,319,600 1,359,900 1,379,200 Unemployment 54,300 46,400 42,000 42.000 45,700 Unemployment Rate 4.2% 3.5% 3.1% 3.0% 3.2% Wage & Salary Employment!2) Total, Allindustnes 1,065,000 1,116,100 1,164,100 1,205,200 1,232,600 Agricultural, Forestry, and 10,800 10,600 11,200 11,400 11,000 Fisheries Non-Agricultural 1,054,200 1,105,500 1,152,900 1,193,800 1,221,600 Mmmg 400 300 300 400 300 Construction 53,000 61,800 67,000 70,000 73,400 Manufacturing 123,100 127,600 128,100 129,200 130,600 Transportation & pubhc utihties 41,600 47,000 51,300 50,800 52,000 Wholesale trade 45,600 48,300 50,300 51,000 50,300 Retail trade 198,400 201,100 206,100 217,100 220,800 Finance, insurance & real estate 60,900 65,300 6S,700 69,500 70,800 Services 339,300 359,600 381,700 399,200 409,500 Govemment 192,000 194,500 199,300 206,600 213,900 Note: The "Total, All Industries" data is not directly comparable to the employment data found herein. I'} Based on place of residence (21 Based on place of work. Source: State of Califomia, Employment Development Department, San Diego MSA Annual Average Labor Force and Industry Employment, March 2001 Benchmark A-4 00(,80C\893758v5\24036 0025 éJ- ~~ The following listings set forth Chula Vista's Major Employers by Business Industrial/Office, Govemment and Retail based industries: Chula Vista's Major Employers (Businesses with 150 or more Employees) Bnsiness Industrial/Office No. of Namc Type of Business Employees BF Goodrich Aerospace Aerostructures Group Aerospace Manufacturer 2,075 Sharp Chula Vista Medical Centcr Hospital 800 Scripps Memorial Hospital Hospital 650 White Water Canyon Amusement Park 500 American Fashion Inc. Clothing Manufacturcr 500 Sunrise Medical Inc. Medical Offices 450 Eco Building Systems Modular Building Manufacturer 210 American Manufacturing Concepts Clothing Manufacturer 200 Coastal Embroidery Specialty Manufacturer 200 Sharp Rees-Stealy Medical Group MedicalOfficcs 200 Fredericka Manor Care Center Day Care Service 200 MDllnterviewing Services Inc. Management Consulting Service 200 Pacific Waste Services Inc. Sanitary Waste Service 200 Hyspan Precision Products Inc. Fabricated Metal Manufacturer 200 Raytheon Systems Electrical Manufacturer 200 Fredericka Manor Rctirement Community Elderly Care Facility t71 South Bay Community Services Social Service Agency 160 Crower Cams & Equipment Ine. Motor Vehicle Part Manufacturer 160 Navcare Hospital 150 Community Health Group Medical Offices 150 Government No. of Name Type of Business Employees United States Border Patrol Government Agency 2,700 Southwestern Community College Community College 1,100 City of Chula Vista Municipal Government 825 Department of Social Services Social Service Agency 300 Sweetwater Union High School District Secondary School District 260 United States Postal Service Government Agency 150 Feaster Edison Charter School Elementary School 150 Chula Vista Elementary School District Elementary School District 150 Retail No. of Name Type of Business Employees Scars Department Store 360 Price Costco General Merchandise 250 Macy's Department Store 250 BIg Kmart General Merchandise 200 Fuller Honda Automotive Retailer 200 Target Stores General Merchandise 180 J C Penney Department Store 150 Vons Grocery Store 150 Fuller Ford Automotive Retailer 150 Source: City of Chula Vista A-5 DOCSO"\89J758v5\240J60025 <:::J -51 Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other than labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-fann dwellings), dividends paid by corporations, interest income from all sources and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local, nontax payments, fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. govemment definitions, the resultant figure is commonly known as "disposable personal income." Chula Vista, San Diego County and California Effective Buying Income") Median Effective Per Capita Household Percent of Buying Effective Effective Households Income(2) Buymg Income Buying Income over $50,000 1996 Chula Vista $ 2,092,373 $13,201 $32,128 26.9 San Diego County 40,913,543 14,975 34,445 29.9 Califomla 492,516,991 15,068 35,216 31.7 1997 Chula Vista $ 2,217,170 $13,762 $33,267 28.9 San Diego County 43,212,824 15,619 35,725 31.7 California 524,439,600 15,797 36,483 33.5 1998 Chula Vista S 2,408,888 $14,187 $33,91 I 30. I San Diego County 46,056,143 16,101 36,296 32.8 Califomia 551,999,317 16,299 37,091 34.6 1999 Chula Vista $ 2,629,899 $15,776 $37,725 35.4 San Diego County 49,907,828 17,270 39,213 37.4 California 590,376,663 17,245 39,492 38.3 2000 Chula Vista $ 2,959,674 $17,268 $42,550 41.6 San Diego County 54,337,662 19,150 44,292 43.7 California 652, I 90,282 19,081 44,464 44.3 II) Not comparable with prior years. Effective Buying Income is now based on money income (which does not take into account sale of property, taxes and social security paid, receipt of food stamps, etc.) versus personal income. '" Dollars in thousands. Source' "Survey of Buying Power," Sales & Marketing Management Magazine, dated 1997, 1998. 1999,2000 and 2001. Sales Taxes The following table shows taxable transactions in Chula Vista by type of business during calendar years 1996 through 2000. As indicated below, total retail sales for Chula Vista in 1996 increased by approximately 6.5% over the 1995 level, in 1997 increased by approximately 7.1% over the 1996 level, in A-6 DOCSOC\893758v5\24036.0025 c.? - ~-V 1998 increased by approximately 8.8% over the 1997 level, in 1999 increased approximately 10.3% over the 1998 level and in 2000 increased approximately 13% over the 1999 level. A summary of historic taxable transactions for Chula Vista is shown in the following table. City of Chula Vista Taxable Transactions (Dollars in thousands) 1996 1997 1998 1999 2000 Apparel Stores Group $ 61,487 $ 64,979 $ 63,414 $ 61,758 $ 66,598 General Merchandise Stores 287,235 337,230 382,944 439,731 495,679 Drug Stores 23,220 III (I) (I) II) Food Stores Group 72.388 81,503 8],006 85,662 90,487 Packaged Liquor Stores 5,948 (2) (2) (2) (2) Eating and Drinking Group 121,494 126,357 13 ],661 142,329 155,583 Houschold Group/Home Furn. Appli. 43,600 47,004 55,856 61,923 66,365 Building Material Group 68.119 70,930 75,812 87,902 102,370 Automotive Group 92,235 89,986 107,808 126,304 145,923 Service Stations 101,821 103,994 88,570 95,546 12],244 Other Retail Stores 109664 120212 ]33,463 139837 157152 Retail Stores Total $ 987,211 SI,042,195 $1,120,534 $1,240.992 SI,401,401 All Othcr Outlets 145881 171.228 199,661 215,396 206,889 Total All Outlets $1,133,092 51,213,423 $1,320,195 $1,456,388 $1,608,290 (I) Included in General Merchandise Stores. (2) Included in Eating and Drinking Group. Source: State Board of Equalization. Edncation Public educational instruction from kindergarten through high school is provided by the Chula Vista Elementary School District and Sweetwater Union High School District. These districts administer twenty-six elementary schools, nine junior high schools and eight senior high schools. Southwestern College, a two year Community College, has an enrollment of more than 15,000. There are also four adult education schools and twelve private schools. There are seven universities or colleges within 30 minutes commuting distance from Chula Vista in the San Diego Metropolitan Area. Chula Vista has proposed a University of California campus in Chula Vista, to be located on a 400 acre site adjoining the Olympic Training Center. Community Facilities' There are two acute-care hospitals, two psychiatric hospitals and three convalescent hospitals, and more than 400 medical doctors and allied professionals in Chula Vista. There are two daily, one weekly and one semi-weekly newspapers published and circulated in Chula Vista. Chula Vista has one main public library and two branch libraries. Recreational facilities within or near Chula Vista include twenty-four parks, four community centers, six "tot lots," two ball fields, twenty-eight tennis courts, three golf courses, four municipal swimming pools, two gymnasiums and boat launching facilities, Chula Vista's bayfront area contains a marina which houses 552 boats and miles of public beaches. Chula Vista also provides many trails for bicycling, hiking and joggmg. A-7 OOCSOCl893 7 58v 5\2403 6. 0025 r:Y - ~---C¡ Chula Vista is also the home of the United States Olympic Training Center. This is the third such training center in the nation and the only year round training facility. The center is located on a ISO-acre site donated by EastLake Development Company adjacent to the Otay Lake reservoir. Chula Vista has more than sixty churches and nearly 100 service, fraternal and civic organizations. Transporfation U.S. Highways 5 (along the coast) and 805 (inland) provide full freeway access from Chula Vista north to San Diego and south to the Mexican boarder. Commuter rail service is provided by the San Diego Trolley, a light rail system started in 1981 and eleven bus routes serve Chula Vista. Daily bus connections serve Chula Vista, and Southern Pacific Railway and San Diego's Lindbergh International Airport are fifteen minutes to the north ofChula Vista. Utilities Electric power and natural gas are provided by San Diego Gas and Electric. Pacific Bell provides telephone service to the area. Otay Water District and Sweetwater Water District provide water service and Chula Vista provides sewer service. A-8 OOC50C\893758v5\24036.0025 D2 -~ 0 APPENDIX B THE CITY OF CHULA VISTA AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2001 8-1 DOCSOC\893758v5\24036.0025 c;;) -Go ( APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of certain provisions of the Trust Agreement and the Lease which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the respective agreementfor afùll and complete statement a/the provisions thereof c-] DOCSOC\893758v5\24036.0025 c2 - fc d... APPENDIX D FORM OF LEGAL OPINION 0-1 DOCSOC\893758v5\24036 0025 02-,-3 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY E-] DOCSOC\S93758v5\24036.0025 .,:;-"ý APPENDIX F CITY INVESTMENT POLICY 1. PURPOSE Effective cash flow management and cash investment practices are recognized as essential to good fiscal management. This Statement is intended to provide guidelines for the prudent investment of the City's temporarily idle cash in all Funds, and outline the policies for maximizing the efficiency of the City's cash management system. 2. OBJECTIVE The objective of the investment policy is to provide guidelines for insuring the safety of funds invested while maximizing investment interest income to the City. 3. INVESTMENT POLICY A. The Finance Director is responsible for investing the cash balances in all City Funds in accordance with the Califomia Govemment Code, Sections 53600 et seq. and 53635 et seq. This policy does not include Long TenTI Debt Reserve Funds and Deferred Compensation Funds, which are exceptions covered by other more specific Govemment Code sections and the legal documents unique to each debt transaction. Investment practices shall confom1 to the prudent man rule (Civil Code Sect. 2261, et seq.) which states, in essence, that "in investmg... property for the benefit of another, a trustee shall exercise the judgmenf and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs..." The Finance Director and other individuals assigned to manage the investment portfolio, acting within the intent and scope of the investment policy and other written procedures, and exercising due diligence, shall be relieved of personal responsibility and liability for an individual investment's credit risk or market price changes, provided material deviations from expectations are reported in a timely manner and appropriate action is taken to control any adverse developments. B. It is the City's full intent, at the time of purchase, to hold all investments until maturity in order to ensure the retum of all invested principal. However, it is realistically anticipated that market prices of securities purchased as investments will vary depending on economic conditions, interest rate fluctuations, or individual security credit factors. In a well diversified investment portfolio, such temporary variations in market value will inevitably result in measurable losses at any specific point in time. From time to time, changes in economic or market conditions may dictate that it is in the City's best interest to sell a security prior to maturIty. C. The three principle factors of Safety, Liquidity and Yield are to be taken into consideration, in the specific order listed, when making investment decisions. (i) Safety of principal is the foremost factor to be considered during each investment transaction. Safety in investing refers to minimizing the potential for loss of principal, interest or a combination of the two due to the two types of risk, Credit Risk and Market Risk. F-l DOCSOC\89J758v5\24036.0025 0/ - "S- (a) Credit Risk, defined as the risk of loss due to failure of the issner of a secnrity, shall be mitigated by only investing in very safe, or "investment grade" securities and diversifying where feasible. (b) Market Risk, defined as market value fluctuations due to overall changes in interest rates shall be mitigated by limiting the average maturity of the investment portfolio to less than 3 years, with a maximum maturity of anyone security of 5 years without prior Council approval. Also, the portfolio will be structured based on liquidity needs so as to avoid the need to sell securities prior ta maturity. (ii) Liquidify refers to the ability to convert an investment to cash promptly with minimum risk of losing some portion of principal or interest. The investment portfolio will be structured based an historic cash flow analysis in order to provide the necessary liquidity as investments routinely mature. A portion of the portfolio will be maintained in liquid short-ternl securities which can be converted to cash if necessary to meet unforeseen disbursement requirements. (iii) Yield is the average annual return on an investment based on the interest rate, price, and length of time to maturity. The City attempts to obtain the highest yield possible, provided that the basic criteria of safety and liquidity have been met. 4. AUTHORIZED INVESTMENT INSTRUMENTS The City may invest in the following instruments under the guidelines as provided herein: A. Certificates of Deposit. Time Certificates of Deposit will be made only in FDIC or FSLIC insured accounts. For deposits in excess of the insured maximum of $100,000, approved collateral shall be required in accordance with California Govemment Code Section 53652 and/or 53651 (m) (1). No more than 25% of the investment portfolio may be invested in this investment type. B. Securities of the U.S. Government or its Agencies. Inclndes obligations issued by Federal Home Loan Banks, Government National Mortgage Association, the Fann Credit System, the Federal Home Loan Bank, the Federal Home Loan Mortgage Association, the Federal National Mortgage Association, the Studeut Loan Marketing Association, or obligations or other instruments of or issued by a federal agency or a United States Government sponsored enterpnse. C. Treasury Bills and Notes. U.S. Treasury Bills, Notes, Bonds or Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. D. Local Agencv Investment Fund (LA IF). Investment of funds in the California LAIF which allows the State Treasurer to invest through the Pooled Money Investment Account. Maximum investment is subject to state regulation. E. Countv of San Diego Treasury Pool. Investment of funds in the County of San Diego Treasnry which allows the Counfy Treasurer-Tax Collector to invest local funds through a pooled concept. F. Bankers Acceptance. Bills of Exchange or Time Drafts drawn on and accepted by a commercial bank, otherwise known as Bankers Acceptances, both domestic and foreign, which are eligible for purchase by the Federal Reserve System. Purchases of Bankers F-2 00C50C\89 3 7 58v 5\24036.0025 c:.2 - Co " Acceptances may not exceed 270 days maturity or total more than 40% of the cost value of the City's investment portfolio. G. Commercial Paper. Paper of the highest rating as provided by Moody's Investors Service, Inc. (PI), or Standard and Poor's Corporation (Al+). Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000). Purchases of eligible commercial paper may not exceed 180 days maturity, represent more than 10% of the outstanding paper of the issuer, or total more than 15% of the cost value of the City's investment portfolio. H. Negotiable Certificates of Deposit. Issued by a nationally or state-chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank. Purchases of Negotiable Certificates of Deposit may not total more than 30% of the cost value of the City's investment portfolio. I. Repurchase Agreements. A purchase of securities by the City pursuant to a Master Repurchase Agreement by which the seller will repurchase such securities on or before a specified date, or on demand of either party, and for a specified amount. Investments in repurchase agreements will be used solely as short tenn investments not to exceed 90 days and be collateralized by securities having a market value of at least 102% of the value of the repurchase agreement at all times during the tenn of the investment. J. Medium Tern] Corporate Notes. Corporate obligations shall be rated A or better by Moody's and or Standard and Poor's rating agencies. Purchases of corporate medium tenn notes shall not total more than 30'% of the cost value of the City's investment portfolio, nor for anyone corporation, when combined with any Commercial Paper issued by the same corporation, total more than 15% of the cost value of the City's investment portfolio. K. Various daily cash funds administered for or by Trustees, Paying Agents, or Custodian Banks contracted by the City may be purchased as allowed under Califomia Government Code. Only those funds holding U.S. Treasury or Government Agency obligations shall be purchased. 5. DIVERSIFICA nON Investments shall be diversified among institutions, types of securities and maturities to maximize safety and yield with changing market conditions. Local financial institutions will be given preferential consideration for investment of City funds consistent with the City's objective of attaining market rates of return, and consistent with constraints imposed by its safety objectives, cash flow considerations and State laws. 6. SAFEKEEPING All investments of the City shall have the City of Chula Vista as registered owner and shall be held in safekeeping by a third party bank trust department, acting as agent for the City under the tenns of a custody agreement. F-3 DOCSOC\893758v5\24036 0025 r;:;)-C:.7 7. INVESTMENT REPORTS A. The Director of Finance shall submit a quarterly investment report to the City Manager and City Council in accordance with Government Code Section 16481.2 containing the following infonnation for each individual investment: - Financial institution ~ Type of investment - Purchase Price of investment - Rate of interest - Purchase date - Maturity date - Current market value for securities - Other data as required by the City In addition, the report shall include a statement of compliance of the portfolio with the Council approved Investment Policy and a statement indicating the ability of the City to meet its expenditure requirements for the next six months. 8. POLlCY REVIEW This investment policy and guidelines shall be adopted by resolution of the City Council on an annual basis after being reviewed to ensure its consistency with the overall objectives of preservation of principal, liquidity, and yield, and its relevance to current law and financial and economic trends. F-4 OOCSOC\893758v5\24036.0025 c.? -~ 8' APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the City of Chula Vista (the "City") and MuniFinancial (the "Dissemination Agent") in connection with the execution and delivery of $ City ofChula Vista 2002 Certificates of Participation (Police Facilities Project) (the "Certitìcates"). The Certificates are being executed pursuant to a Trust Agreement, dated as of June I, 2002, by and among the City, U.S. Bank, N.A., as trustee (the "Trustee") and the Chula Vista Public Financing Authority (the "Authority"). The City covenants as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Certificates and in order to assist the Participating Underwriter in complying with the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized tenn used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized ten11S shall have the following meanings: "Annual Report" shall mean any Comprehensive Annual Financial Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean 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 intennediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. "Disclosure Representative" shall mean the City Manager of the City, the Deputy City Manager/Finance Director of the City or their designee, or such other officer or employee as the City shall designate in writing from time to time. "Dissemination Agent" shall mean MuniFinancial, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Infonnation Repository for purposes of the Rule. "Official Statement" shall mean the Official Statement relating to the Certificates, dated September 26, 2000. "Participating Underwriter" shall mean the original underwriter of the Certificates required to comply with the Rule in connection with the offering of the Certificates. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State ofCalifomia. G-I 00CSOC\893758v5\24036.0025 <::>J - to 9 "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The City shall, or, upon delivery of the AImual Report to the Dissemination Agent, shall cause the Dissemination Agent to, not later than each February I of each year commencing February I, 2003, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the AImual Report if they are not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) Not later than fifteen (15) Business Days prior to said date, the City shall provide the AImual Report to the Dissemination Agent (if other than the City). If the City is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the City shall send a notice to each Repository in substantially the fonn attached as Exhibit A. (c) The Dissemination Agent shall: (i) detennine each year prior to the date for providing the AImual Report the name and address of each National Repository and the State Repository, if any; and (ii) (if the Dissemination Agent is other than the City), file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) The City's audited financial statements, prepared in accordance with generally accepted auditing standards for municipalities in the State of Califomia. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a fonnat similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same maImer as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding subsection (a) by flie date required by Section 3 hereof, updates of Tables I through 7, 9 and 11 set forth in the Official Statement. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. 1f the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. G-2 DOCSOC\893758v5\24036.0025 0.')-70 SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Modifications to rights of Certificate holders. (iv) Optional, contingent or unscheduled certificate calls. (v) Defeasances. (vi) Rating changes. (vii) Adverse tax opinions or events a!Tecting the tax-exempt status of the Certificates. (viii) Unscheduled draws on the debt service reserves reflecting financial difficulties. (ix) Unscheduled draws on the credit enhancements reflecting financial difficulties. (x) Substitution of the credit or liquidity providers or their failure to perfonn. (xi) Release, substitution or sale of property securing repayment of the Certificates. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible detennine if such event would be material under applicable federal securities laws. (c) If the City detemlines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly file a notice of such occurrence with the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv) and (v) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Certificates pursuant to the Trust Agreement. SECTION 6. Tennination of Reporting Obligation. The City's obligations under this Disclosure Agreement shall tenninate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such temlination occurs prior to the final maturity of the Certificates, the City shall give notice of such tennination in the same manner as for a Listed Event under Section S(c). SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any marmer for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City and shall have no duty to review any infom1ation provided to it by the City. The Dissemination Agent shall have no duty to prepare any infonnation report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely marmer and in a fOnD suitable for filing. 0-3 DOCSOC\893758v5\24036.0025 ~-71 SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is pennitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial infommtion or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative fonn and also, if feasible, in quantitative fonn) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the fonner accounting principles. SECTION 9. Additional Infommtion. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other infonnation, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other infomlation in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any infonnation in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Certificate to update such infonnation or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any Holder or Beneficial Owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific perfonnance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the City to comply with this Disclosure Agreement shall be an action to compel perfonnance. No Certificate holder or Beneficial Owner may institute such action, suit or proceeding to compel perfonnanee unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees, to the extent pennitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, hannless against any loss, expense and liabilities which it may incur arising out of or in the exercise or perfonnance of its powers and duties hereunder, including the costs and expenses (including attomey's fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to tome and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the perfonnance of its duties hereunder. In perfonning its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Certificate holders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. G-4 DOCSOC\893758v5\24036.0025 c2-7~ SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the City: City ofChula Vista 276 Fourth Avenue Chula Vista, California 91910 To the Dissemination Agent: MuniFinancial 28765 Single Oaks Drive, Suite 200 Temecula, California 92590 SECTION 13. Beneficiaries. This Disclosure Agreement solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity. G-5 c2-13 DOCSOC\893758v5\240J60025 SECTION 14. Signature. This Disclosure Agreement has been executed by the undersigned on the date hereof, and such signature binds the City to the undertaking herein provided. Dated: June _ ,2002 CITY OF CHULA VISTA By: Its: Finance Director MUNIFINANCIAL, as Dissemination Agent By: Its: Authorized Officer G-6 c::J-7¥ DOCSOC\893758v5\24036.0025 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name ofIssuer: City ofChula Vista Name of Certificate Issue: $ City ofChula Vista 2002 Certificates of Participation (Police Facilifies Project) Date ofIssuance: ,2002 NOTICE IS HEREBY GIVEN that the City has not provided an Ammal Report with respect to the above-named Certificates as required by the Continuing Disclosure Agreement executed by the City on the date of issuance of the Certificates. The City anticipates that the Annual Report will be filed by Dated: Dissemination Agent By: 0-7 <:Q-7S' DOCSOC\893 7 58v 5\240360025 APPENDIX H DTC BOOK-ENTRY SYSTEM The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Certificates (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 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 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 Unifonn Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries ofDTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as 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. Purchases of 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 confinnation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confinnations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant tl1rough 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 Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name ofDTC'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's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which mayor 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. H-I DOCSOC\893758v5\24036.0025 <::J-7~ Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, aud by Direct Participants and Indirect Participants to Beneficial Owners will be governed by aITangements among them, subject to any stafutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 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 redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Benetìcial 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 shall be sent to DTc. If less than all of the Certificates within a maturity are being prepaid, DTC's practice is to detennine by lot the amount of the interest of each Direct Participant in such maturity to be prepaid. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Certificates are credited on the record dafe (identitìed in a listing attached to the Omnibus Proxy). Prepayment proceeds, distributions, and dividend payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized represenfative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and coITesponding detail infonnation from the City or the Trustee, on payment date 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 fonD or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments 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. A Beneficial Owner shall give notice to elect to have its Certificafes purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant's interest in the Certificates, on DTC's records, to the Trustee. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transfeITed by Direct Participants on DTC's records and followed by a book-entry credit of tendered Certificates to the Trustee's DTC account. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, physical Certificates will be printed and delivered. The infonnation in this section concerning DTC and DTC's book-entry system has been obtained trom sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. H-2 c:;- '7 "1 nOCSOC\89375X,5\24036.0025 TABLE OF CONTENTS ~ ARTICLE I DEFINITIONS Section 1.01. Definitions and Rules of Construction. ..... ................................ ..1 Section 1.02. Authorization... ................... ................. ..............9 Section 1.03. Equal Security.. ...................................................,.......... ........9 ARTICLE II THE 2002 CERTIFICATES OF PARTICIPATION Section 2.01. Authorization ............................... .............. ...... .............9 Section 2.02. Description of Certificates.. ....... ............... .............9 Section 2.03. Form of Certificates.. ...................... ........... ........ ..... .........11 Section 2.04. Execution.......................................................................... .......11 Section 2.05. Application of Proceeds and Other Amounts.. ................ ............ .......11 Section 2.06. Transfer and Exchange. ................................................... .....11 Section 2.07. Certificates Mutilated, Lost, Destroyed or Stolen ........... ............. .....12 Section 2.08. Execution of Documents and Proof of Ownership ....... ....................... ..12 Section 2.09. Certificate Register ..................................................... ..... ..... ..13 Section 2.10. Book-Entry System................................................... ............................ ..13 Section 2.11. Destruction of Cancelled Certificates.................. .................................. ..16 Section 2.12. Additional Certificates.. ............... ............ ..16 ARTICLE 111 PROJECT FUND Section3.01. Establishment of Project Fund.......................... .......... ..... ..18 Section 3.02. Purpose ......................................................"""""".........."."""""",. ............18 Section 3.03. Deposit of Moneys; Payment of Project Costs and Delivery Costs. ............18 Section 3.04. Transfers of Unexpended Proceeds ........................ ....................................19 ARTICLE IV PREP A YMENT OF CERTIFICATES Section 4.01. Establishment of Prepayment Fund......................... ........19 Section 4.02. Extraordinary Prepayment.. ..................... .......... ..........19 Section 4.03. Prepayment ...................................................... ................. ..........19 Section 4.04. Selection of Certificates for Prepayment.. ..... .........20 Section 4.05. Notice of Prepayment. .................... ............ .........20 Section 4.06. Partial Prepayment of Certificates.. ........... ..... ..... ......21 i DOC'SOC\84600 I v4\24036.0025 ó/-7t¡ TABLE OF CONTENTS (continued) ~ Section 4.07. Effect of Notice of Prepayment.. ........ ......... ..... .....21 Section 4.08. Surplus.. ..... ..21 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND Section 5.01. Security Provisions. .................................... ........... ................ ..... ..... ..22 Section 5.02. Establishment of Lease Payment Fund...... ........ ............... ....22 Section 5.03. Deposits ......................... .................... ..................... ................23 Section 5.04. Application of Moneys ........ ........................... ............................. ..23 Section 5.05. Surplus.. .......... .................... .................. ..23 ARTICLE VI RESERVE FUND Section 6,01. Establishment of Reserve Fund ............................ ...................... .............23 Section 6.02. Funding. ................... ................. ................ ................. ..24 Section 6.03. Transfers of Excess. ..............................""""""""""'..'........... ..24 Section 6.04. Application of Reserve Fund in Event of Deficiency in Lease Payment Fund............................................. ..... ......... ..25 Section 6.05. Transfer to Make All Lease Payments........ .............. ..... ..25 ARTICLE VB NET PROCEEDS FUND Section 7.01. Establishment of Net Proceeds Fund: Deposits............... ...................25 Section 7.02. Cooperation.................. ............ ......... ....................... ............26 ARTICLE VIII MONEYS IN FUNDS; INVESTMENT Section 8.01. Held in Trus!................... ............... ................. ..26 Section 8.02. Investments Authorized. .................... ..... ...................... ........26 Section 8.03. Disposition of Investments ........................................ .................................27 Section 8.04. Accounting...................................................... ....................... ....27 Section 8.05. Valuation and Disposition of Investments............... ..... ....... ......28 Section 8.06. Commingling of Moneys in Funds ........ ................... ..................... ......28 Section 8.07. Tax Covenants.. ............................. ................ ......... .......... ....28 Section 8.08. Rebate Fund... ............... ..... ....29 ií OOCSOC\84600 I v4\24036.0025 ~- 7 c¡ TABLE OF CONTENTS (continued) ~ ARTICLE IX THE TRUSTEE Section 9.01. Appointment of Trustee. ......... ......... ....... .......... .........31 Section 9.02. Merger or Consolidation......... .....32 Section 9.03. Protection of the Trustee........ .............. ..32 Section 9.04. Rights of the Trustee.............. ............................ ..33 Section 9.05. Standard of Care ....................... ..... ..33 Section 9.06. Compensation of the Trustee.... ............... ......................... ...33 Section 9.07. Indemnification of Trustee ....................................... ...................... ...33 Section 9.08. Trustee's Disclaimer of Warranties.. ............. ........................... ..34 ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS Section 10.01. Amendments Pennitted. ......................................................................... ...35 Section 10.02. Procedure for Amendment with Written Consent of the Owners............. ..36 Section 10.03. Disqualified Certificates .................. ........ .......... ..37 Section 10.04. Effect of Supplemental Agreement ........................ .....................................37 Section 10.05. Endorsement or Replacement of Certificates Delivered After Amendments. 37 Section 10.06. Amendatory Endorsement of Certificates....................................................... 37 Section 10.07. Copies of Amendments Delivered to S&P .....................................................37 ARTICLE XI COVENANTS; NOTICES Section 11.01. Compliance With and Enforcement of the Lease.............. .......38 Section 11.02. Payment of Taxes ................................ ....38 Section 11.03. Observance of Laws and Regulations.. ..... ....... ..... ..............38 Section 11.04. Prosecution and Defense of Suits.. ................ ..... ........38 Section 11.05. City Budgets .....o........... ...... .......38 Section 11.06. Further Assurances ........... ...... ..o.. .......39 Section 11.07. Continuing Disclosure ...... ................... ..... .......39 ARTICLE XII LIMIT A TION OF LIABILITY Section 12.01. Limited Liability of the City............................................................. .......39 Section 12.02. No Liability of the City or Authority for Trustee Perfonnance.. ......39 Section 12.03. Limitation of Rights to Parties and Certificate Owners.. ..... ..............40 iii DOCSOC\84600 I v4\24036.0025 02 -~ ò TABLE OF CONTENTS (continued) ~ Section 12.04. No Liability of Authority to the Owners ............. ............... ......... ..........40 ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS Section 13.01. Assignment of Rights. ................. ............. ..... ................. ....40 Section 13.02. Events of Default. ...... ............ ......... ......40 Section 13.03. Application of Funds ....................... ....... ............................ ......40 Section 13.04. Institution of Legal Proceedings.. ............... ........ ......41 Section 13.05. Non-Waiver ................................ ...... ..... ..... ...........41 Section 13.06. Remedies Not Exclusive..................................................................... ........42 Section 13.07. Power of Trustee to Control Proceedings ""......" .......42 Section 13.08. Limitation on Certificate Owners' Right to Sue................. ........... ........42 Section 13.09. Agreement to Pay Attorneys' Fees and Expenses ......................... ........42 Section 13.10. Insurer's Rights............ ....... ..43 ARTICLE XIV MISCELLANEOUS Section 14.01. D,efeasance................................... ....... .............. ..... .........43 Section 14.02. Non-Presentment of Certificates...... ............. .........44 Section 14.03. Acquisition of Certificates by City............. .......... ..... ............45 Section 14.04. Records ..................... ............ ............. ............ ...... ............45 Section 14.05. Notices ............... ..... ............ ........................ ...... ..45 Section 14.06. Governing Law.............................................................. ..............................46 Section 14.07. Binding Effect: Successors ....................................... .....................................46 Section 14.08. Execution in Counterparts ..................... ................... ......... ......46 Section 14.09. Headings ........................................... ..... ........... ......46 Section 14.10. Waiver of Notice................................................. ..... ................... ....46 Section 14.11. Separability oflnvalid Provisions ..................................... ........ .......46 Section 14.12. Insurer to be Deemed Owner: Rights of the Insurer. ................ .......46 Section 14.13. Claims Under Insurance Policy: Payments by and to Insurer ...... .....46 Section 14.14. Information to be Provided to the Insurer... ...46 Signature Page.. . S-I EXHIBIT A FORM OF CERTIFICATE........................................................... .....A-I EXHIBIT B-1 FORM OF WRITTEN DELIVERY COST REQUISITION.......... ...... 8-1-1 EXHIBIT B-2 FORM OF WRITTEN PROJECT COST REQUISITION............. .... 8-2-1 iv lJOCSOC\84600 I v4\24036 0025 ól -ð' I TRUST AGREEMENT Dated as of June 1, 2002 by and among U.S. BANK, N.A., as Trustee and the CHULA VISTA PUBLIC FINANCING AUTHORITY and the CITY OF CHULA VISTA relating to the $ CITY OF CHULA VISTA 2002 CERTIFICATES OF PARTICIPATION (POLICE FACILITY PROJECT) DOCSOC\84600 I v4\24036 0025 ól-ð';t. TRUST AGREEMENT THIS TRUST AGREEMENT, made and entered into as of June 1,2002, by and among U.S. BANK, N.A., a national banking association organized under the laws of the United States, as trustee (the "Trustee"), the CHULA VISTA PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of Cali fomi a, as Authority under the Lease hereinafter referred to (the "Authority"), and the CITY OF CHULA VISTA, a municipal corporation duly organized and existing under the Constitution and laws of the State of California, as lessee under the Lease (the "City"); '>YI II"LJ:' ~H It!: WHEREAS, the City and the Authority desire to enter into a Lease/Purchase Agreement, dated as of June 1,2002 (the "Lease"), whereby the City, as agent of the Authority, shall cause the acquisition and construction of improvements to the City's police facility (collectively, the "Project"), as described therein, and the City has agreed to lease the Leased Premises, defined below, from the Authority; and WHEREAS, to finance the costs of the Project, the City and the Authority have entered into the Lease, whereby the Authority has agreed to lease the Leased Premises, to the City; and WHEREAS, the City and the Authority have authorized the sale of 2002 Certificates of Participation in order to finance the Project; and WHEREAS, as security therefor, the Authority will assign the rights to receive certain Lease Payments described in the Lease, and the Authority and the City will grant a security interest in all moneys held by the Trustee hereunder (other than the Rebate Fund as described herein) to the Trustee for the benefit of the Owners of Certificates executed and delivered hereunder and the Trustee has agreed to execute and deliver 2002 Certificates of Participation designated $ City ofChula Vista 2002 Certificates of Participation, (Police Facility Project), each evidencing fractional interests in the Lease Payments and Prepayments made by the City under the Lease; and 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 tenns are defined herein). NOW, THEREFORE, in consideration ofthe 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 tenns 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 tenns "hereby," "hereof," "hereto," "herein," "hereunder" and any similar tenns, as used in this Trust Agreement, refer to this Trust Agreement as a whole. I DOCSOC\846001 v4\24036.0025 r:::2-83 "Additional Certificates" means 2002 Certificates of Participation authorized by a supplemental Trust 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. "Assignment Agreement" means the Assignment Agreement related to the Certificates, dated as of the date hereof, by and between the Trustee and the Authority, and any duly authorized and executed amendments thereto. "Authoritv" means the Chura Vista Public Financing Authority, a joint exercise of powers authority organized under the laws of the State, its successors and assigns. "Authority Representative" means the President, Vice President, Secretary, Treasurer, Executive Director, Assistant Executive Director or Assistant Treasurer of the Authority, or any other person authorized to act on behalf of the Authority under or with respect to the Lease. "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 Dav" 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 the $ aggregate principal amount of City ofChula Vista 2002 Certificates of Participation, (Police Facility Project) to be executed and delivered by the Trustee pursuant to this Trust Agreement. "Certificate of Completion" means a certificate of the City Representative stating that all components of the Project have been completed or concluded in conformity with the requirements of the Lease. "Certificate Year" means the period extending from August 2 each year to August I of the subsequent calendar year, provided that the first Certificate Year shall commence on the Closing Date and end on August 1,2002. "Çi!y" means the City ofChula Vista, a municipal corporation organized and existing under the laws and Constitution of the State, and its successors and assigns. "City Representative" means the City Manager and Deputy City Manager/Finance Director of the City 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. 2 nOCSOC\84óOO I v4\24036 0025 c¿ -fi~ "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. "Continuing Disclosure Agreement" means that certain Continuing Disclosure Agreement dated as of June 1,2002, by and between the City and U.S. Bank, N.A., as Dissemination Agent, as it may be amended from time to time in accordance with the tenus thereof. "Delivery Cost Requisition" means a written requisition substantially in the fonD 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 Authority 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, the premium for the Insurance Policy or any insurance policies purchased to satisfy the Reserve Requirement, 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 infonnation 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. "Denominational Amount" means $5,000 or any integral multiple thereof. "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. "Event of Default" means an event of default under the Lease, as defined in Section 9.1 thereof. "Fiscal Year" means the fiscal year of the City commencing July I and ending June 30 of the next year. "Government Obligations" means Pennitted Investments of the type described in paragraph (I) of the definition thereof. "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 Authority, the Trustee or the City. "Insurance Business Dav" means any day other than (i) a Saturday or Sunday, or (ii) a day on which the Insurer's Fiscal Agent or lending institutions in the State of New York are authorized or required by law or executive order to remain closed. 3 DOCSOC\84600] v4\24036.0025 cJ -ff~ "Insurance Policy" means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal and interest with respect to the Certificates as provided therein. "Insurer" means ,a -domiciled stock insurance company, or any successor thereto or assignee thereof. "Interest Payment Date" means February I and August I of each year commencing August I, 2002. "Lease" means the Lease/Purchase Agreement related to the Certificates, dated as of the date hereof, by and between the City and the Authority, and any duly authorized and executed amendments thereto. "Lease Payment" means any payment required to be paid by the City to the Authority 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. "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. "Moody's" means Moody's Investors Service or any successors or assigns thereto. "Net Proceeds" means any proceeds of any insurance, perfonnance 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. "Nominee" means the nominee of the Depository, which may be the Depository, as determined trom time to time pursuant to Section 2.10 hereof. "Original Purchaser" means Prudential Securities Incorporated as original purchaser of the Certificates on the C10sing Date. "Outstanding" when used as of any particular time with respect to Certificates, means (subject to the provisions of Section 10.03 hereot) all Certificates theretofore executed and delivered by the Trustee under this Trust Agreement except: 4 DOCSOC\84600 I v4\24036.0025 c:;} - ~ (., (I) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates for the payment or prepayment of which funds or Govemment 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 Certiticates), provided that, if such Certitìcates 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 in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to Sections 2.06 and 2.07 hereof. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest with respect to the Certificates shall be paid by the Insurer pursuant to the Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City. "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 certitìcates as securities depository. "Permitted Investments" means, if and to the extent permitted by law and by any policy guide1ines promulgated by the City: (I) For all purposes including defeasance investments in refunding escrow accounts (the Trustee is entitled to rely upon investment direction of the City as a certification that such investment is a Permitted Investment): (a) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (ii) below); or (b) direct obligations of (including obligations issued or held in book entry form on the books ot) the Department of the Treasury of the United States of America; or (c) senior debt obligations of other government sponsored agencies approved by the Insurer. (2) For all purposes other than defeasance investments in refunding escrow accounts: (a) obligations of any ofthe following federal agencies which obligations represent the full faith and credit of the United States of America, including: Export-Import Bank, Farm Credit System Financial Assistance Corporation, Rural Economic Community Development Administration (formerly the Farmers Home Administration), General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage 5 DO('80('\84600 I v4\24036 0025 o<-[?7 Association (GNMA), U.S. Department of Housing & Urban Development (PHA 's), Federal Housing Administration and Federal Financing Bank; (b) direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations rated "Aaa" by Moody's or "AAA" by S&P issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC), obligations of the Resolution Funding Corporation (REFCORP), senior debt obligations of the Federal Home Loan Bank System and senior debt obligations of other Government Sponsored Agencies approved by the Insurer; (c) u.S. dollar denominated deposit accounts and bankers' acceptances with domestic commercial banks (including those of the Trustee and its affiliates) which have rating on their short term certificates of deposit on the date of purchase of "A-I" or "A-I +" by S&P and "P-I" by Moody's and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (d) commercial paper which is rated at the time of purchase in the single highest classification, "A-I +" by S&P and "P-I" by Moody's and which matures not more than 270 days after the date of purchase; (e) investments in a money market fund rated "AAAm" or "AAAm-Q" or better by S&P, including funds for which the Trustee or its affiliates provide investment advisory or other management services; (t) pre-refunded Municipal Obligations defined as follows: Any bonds or other obligations or any state of the United States of America of any agency, instrumentality or local governmental unit of any such state, which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of S&P and Moody's or any successors thereto; or (ii) (I) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (1 )(b) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (2) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (g) municipal obligations rated "Aaa/AAA" or general obligations of states with a rating of at least "A2/ A" or higher by both Moody's and S&P; 6 DOCSOC\84600 I v4\24036.0025 d -f f (h) investment agreements approved in writing by the Insurer (supported by appropriate opinions of counsel); (i) the Local Agency Investment Fund of the State, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name; and (j) other forms of investments (including repurchase agreements) approved in writing by the Insurer. The value of the above investments shall be determined as follows: "Value" which shall be determined as of the end of each month, means that the value of any investments shall be calculated as follows: (a) for securities, the closing bid price quoted by Interactive Data Systems, Inc.; or (b) for securities a valuation performed by a nationally recognized and accepted pricing service acceptable to the Insurer whose valuation method consists of the composite average of various bid price quotes on the valuation date; or (c) for securities, the lower of two dealer bids on the valuation date. The dealers or their parent holding companies must be rated at least investment grade by S&P and Moody's. In addition, the dealers must be market makers in the securities being valued. (d) As to certificates of deposit and bankers' acceptances: the face amount thereof: plus accrued interest. (e) As to any investment not specified above: the value thereof established by prior agreement between the City, the Trustee and the Insurer. "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 550 South Hope Street, Suite 500, Los Angeles, Califomia 90071, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee; provided, however, that for the purposes of payment, transfer or exchange of Certificates such term means c/o U.S. Bank Trust Bank National Association, St. Paul, Minnesota 55101, Attention: Corporate Trust Services, or at such other address as may be designated by the Trustee. "Project" has the meaning set forth in the Lease. "Proiect Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B-Z. 7 DOCSOC\84600 I v4\24036 0025 02 -ð' ~ "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 contracf therefor. Project Costs include, but are not limited to, the administrative, engineering, legal, financial and other costs incurred by the City and the Authority 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 Authority to enforce remedies hereunder or under the Lease. "Project Fund" means the fund by that name established and held by the Trustee pursuant to Article III hereof "Property" has the meaning set forth in the Lease. "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. "Reserve Fund" means the fund by that name established and held by the Trustee pursuant to Artic]e VI hereof "Reserve Requirement" means, as of any calculation date, the least of (1) the maximum aggregate annual Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificates that have been defeased), (2) ]25% of the average annual aggregate Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificates that have been defeased), or (3) 10% of the face amount of the Certificates and/or the Additiona] Certificates, as app1icab]e (less original issue discount if in excess of two percent of the stated prepayment amount at maturity). "S&P" means Standard & Poor's Ratings Services or any successors or assigns thereto. "Site Lease" means the Site Lease related to the Certificates, dated the date hereof, by and between the Authority and the City. "Specia] Counse]" 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 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. "Tax Certificate" means the Tax Certificate, dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and de1ivered to the City on the date of execution and de1ivery of the 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. 8 DOCSOC\84600 I v4\24036 0025 c::J -90 "Trustee" means US. Bank, 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. Section 1.02. Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is du1y empowered to enter into this Trust Agreement, and has taken aH actions necessary to authorize the execution of this Trust Agreement by the officers and persons signing it. Section 1.03. Equal Security. In consideration ofthe acceptance of the Certificates by the Owners, this Trust Agreement shaH be deemed to be and shaH 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 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 over any other Certificates 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 are equaHy secured as provided in this Section 1.3, except as may be otherwise expressly provided in this Trust Agreement. ARTICLE II THE 2002 CERTIFICATES OF PARTICIPATION Section 2.01. Authorization. Upon written request of the City Representative the Trustee will execute and deliver to the Original Purchaser Certificates in an aggregate principal amount of $ representing proportionate ownership interests in the Lease Payments and the Prepayments, Section 2.02. Description of Certificates. (a) Each Certificate shaH be dated June 1,2002, shall mature on August I in each of the years and in the amounts, and shaH bear interest (calculated on the basis of a 360-day year of twelve 30-day months) at the rates, as follows: 9 DOCSOC\84600 I v4\24036 0025 0} - 91 Maturity Principal Interest (August I) Amount Rate The Certificates shall be delivered in fully registered form, numbered from one upwards in consecutive numerical order (with such a1phabetical prefix as the Trustee shall determine). The Certificates shall be executed and delivered in the denominations of $5,000 and any integral multiple thereof. 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 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 it shall bear interest from June I, 2002; 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. (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 1east $1,000,000 in aggregate principal amount of Outstanding 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 shall be paid by check or draft to the registered Owners of the Certificates as of a special 10 DOCSOC\84úOOl v4\24036O025 å2 -9 d.. record date to be fixed by the Trustee, notice of which special record date shall be given to the registered Owners of the Certificates no less than ten days prior thereto. The principal of and premium, if any, on the 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 attached hereto and by this reference incorporated herein with such appropriate additions, modifications, and insertions as are permitted or required by this Trust Agreement or the Insurer. 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. Section 2.04. Execution. The Certificates shall be executed by and in the name ofthe 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. The proceeds from the sale of the Certificates in the amount of$ (representing the par amount of the Certificates of $ , less the Insurance Policy premium of $ , less the net Original Purchaser's discount of$ , less Purchaser's discount of$- and plus accrued interest of $ ) shall be deposited with the Trustee as follows: $ to the Project Fund for the payment of Project Costs and Delivery Costs, $ to the Interest Account of the Lease Payment Fund and $- to the Reserve Fund, which amount equals the initial Reserve Requirement. 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. (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 governmental charge required to be paid with respect to such exchange. 11 DOCSOCl84600 1 v4\24036.0025 .,;J - 93 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. Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it. If any Certificate shan 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 Authority and the City, shall be given, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate oflike tenor, maturity and principal amount and numbered as the Trustee shan 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 shan be equany and proportionately entitled to the benefits of this Trust Agreement with all other Certificates secured by this Trust Agreement. The Trustee shall not be required to treat both the original Certificate and any replacement Certificate as being Outstanding for the purpose of determining the principal amount of Certificates which may be executed and delivered hereunder or for the purpose of determining any percentage of Certificates Outstanding hereunder, but both the original and replacement Certificate shall be treated as one and the same. 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 12 DOCSOC\84600 I v4\24036.0025 dì-qtj corporation, association or partnership, such certificate shall also constitute sufficient proof of his authority. (b) The fact of the ownership of Certitìcates 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. Any request or consent of the Owner of any Certificate shall bind every future Owner of the same Certitìcate in respect of anything done or to be done by the Trustee in pursuance of such request or consent. Section 2.09. Certiticate Register. The Trustee will keep or cause to be kept at its Principal Office sufficient books for the registration and transfer of the Certificates which shall, during nonnal working hours and upon reasonable notice, be open to inspection by the City and the Authority; 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 Authority 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 Authority and the Trustee shall not be affected by any notice to the contrary. Section 2.10. Book-Entry System. (a) Election of Book-Entry Svstem. 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 Certitìcates, or any portion thereof, may not thereafter be transferred except as provided in Section 2.1 O( 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 Certitìcates. 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 Certitìcate 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 13 DOCSOC\84600 I v4\24036 0025 é2 - 9S" 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 attomey 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 detennined 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 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 detennines not to continue to act as securities depository for book-entry Certificates, or (ii) the City detennines 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 detennines 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) Pavments 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 2.0 I 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: 14 DOCSOC\84600] '4\240360025 r;;;l-9~ (A) to any successor ofDTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.1 O( d) ("Substitufe Depository"); provided that any successor ofDTC 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 (I) 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 (I) 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. (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 ofthe 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. 15 DOCSOC\846001 v4\24036 0025 á) -97 (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 Authority 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 tenns 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 (ii) requires that prior to the delivery of such Additional Certificates the Reserve Requirement with respect to such Additional Certificates shall be on deposit in the Reserve Fund established hereunder or in a reserve fund established under such supplemental agreement; (b) The scheduled principal and interest payable with respect to such Additional Certificates shall be payable on1y on Interest Payment Dates applicable to the Certificates; (c) The 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 (except to the extent such principal, premium and interest may be payable out of moneys then in the Reserve Fund or otherwise on deposit with the Trustee in accordance with this Trust Agreement), (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, bettennents, 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 as are necessitated by the execution and delivery of such Additional 16 DOCSOC\84600 I v4\24036 0025 ~-9g Certificates (provided, however, that such other revisions shan not prejudice the rights of the Owners of Outstanding Certificates as granted them under the tenus of this Trust Agreement); (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 Authority Representative that there exists on the part of the Authority no Event of Default (or any event which, once an notice or grace periods have passed, would constitute an Event of Default); (t) The Trustee shall have received a certificate ofthe 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 tenD 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 have been duly authorized, executed and delivered by each of the respective parties thereto (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), (iii) assuming that no Event of Default has occurred and is continuing, this Trust Agreement, as amended by said supplemental agreement, and the Lease, as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the respective parties thereto, enforceable against said parties in accordance with their respective tenus (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 to the Lease, and perfonnance by the parties thereunder, will not result in the inclusion of the interest portion of any Lease Payments payable with respect to any Certificates, including Additional Certificates, theretofore prepared, executed and delivered, in the gross income of the Owners of the Certificates for purposes of federal income taxation; (h) The City shall have provided the Insurer written notice of the proposed execution and delivery of such Additional Certificates at the addresses indicated in Section 14.05 and shall have received prior written consent of the Insurer with respect to such Additional Certificates; provided that any Additional Certificates being delivered to refund any outstanding Certificates shall not require the prior written consent of the Insurer if the aggregate maximum annual debt service with respect to the Certificates and the Additional Certificates during any remaining year that the Certificates will be outstanding does not exceed maximum annual debt service with respect to the Certificates prior to such refunding. (i) 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; 17 DOCSOC\84600 I v4\24036.0025 cY - 99 U) Upon the execution and delivery of such Additional Certificates, the amount on deposit in the Reserve Fund shall be equal to the Reserve Requirement, taking into account the execution of the Additional Certificates; and (k) Such other conditions shall have been satisfied, and such other instruments shall have been duly executed and delivered to the Trustee (with a copy to the Insurer), as the City or the Authority shall have reasonably requested. Upon delivery to the Trustee of the foregoing instruments, the Trustee shall cause to be executed and delivered Additional Certificates representing the aggregate principal amount specified in such supplemental agreement, and such Additional Certificates shall be equally and ratably secured with all Certificates, 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 anyone Certificate, 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 ofChula Vista (Police Facility Project) Project Fund," referred to herein as the "Project Fund"; 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. Section 3.03. Deposit of Moneys; Payment ofProiect Costs and Delivery Costs. (a) Deposits. There shall be credited to the Project Fund the following amounts: (1) the proceeds of sale of the Certificates required to be deposited therein pursuant to Section 2.05 hereof; (2) all investment earnings on moneys held in the Project Fund, which shall remain in the Project Fund until expended for Project Costs or applied to the prepayment of 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 Project Fund 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 18 DOCSOC\8460ü I v4\24036.0025 <::::J - I 00 disbursement from the Project Fund in reliance upon a Project Cost Requisition or Delivery Cost Requisition signed by the 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 ofthe 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 Lease Payment Fund to be applied to the payment of principal and interest with respect to the Certificates as prescribed in Section 5.04 hereof or, at the written election of the City delivered to the Trustee, 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 PREPAYMENT FUND Section 4.01. Establishment of Prepayment Fund. The Trustee shall establish a special fund designated as the "City ofChula Vista (Police Facility Project) Prepayment Fund," referred to 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. Moneys to be used for prepayment of the Certificates shall be deposited into the Prepayment Fund and used solely for the purpose of prepaying the Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates to the Trustee. Section 4.02. Extraordinary Prepavment. 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.I(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 Prepavment. The Certificates maturing on or after August 1,20- are subject to prepayment prior to maturity in whole or in part on any date on or after August I, 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 Lease Payments (in integral multiples of $5,000 but not in a principal amount of less than $20,000), at the following prepayment prices expressed as a percentage of the principal component to be prepaid), plus accrued interest to the date fixed for prepayment: Prepavment Date Prepayment Price August 1,20- through August 31, 20- % August I, 20- through August 31, 20- August 1,20- and thereafter 19 OOCSüC\84600 I v4\24036.0025 e::2-IO/ 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 win continue to pay the Lease Payments as ¡fno such notice had been given. Section 4.04. Selection of Certificates for Prepayment. Whenever provision is made in this Trust Agreement for the optional prepayment of Certificates and less than an Outstanding Certificates are caned for optional prepayment, the Trustee shan select Certificates for optional prepayment from among maturities selected by the City and by lot within any maturity. For extraordinary prepayment of Certificates pursuant to Section 10.2 of the Lease, the Trustee shan select Certificates for prepayment pro rata among maturities and by lot within any maturity. The Trustee shall promptly notify the City and the Authority in writing of the Certificates so selected for prepayment by mailing to the City and the Authority copies of the notice of prepayment provided for in Section 4.05. Section 4.05. Notice of Prepayment. (a) Content. When prepayment is authorized or required pursuant to this Article IV, the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) the prepayment date, (b) the prepayment price, (c) ifless 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, (t) the original date of execution and delivery of the Certificates, and (g) any other descriptive information regarding the Certificates needed to identify accurately the Certificates being prepaid. 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. (b) Recipients: Timing. Notice of such prepayment shall be sent by first class mail or delivery service postage prepaid, or by telecopy, to the municipal Securities Depository (as defined below) on the date of mailing of notice to the Owners by first class mail and to the Information Services (as defined below) that disseminate securities redemption notices, on the date notice is mailed to the Owners and by first class mail, postage prepaid, to the Authority 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. The Securities Depository is The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax- (516) 227-4039 or 4190; or, in accordance with the then current guidelines of the Securities and Exchange Commission to such other addresses and/or such other securities depositories or to no such depositories as the City may designate in writing to the Trustee. Information Services include Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's Investor's Service, 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 20 00('50('\846001 v4\24036.0025 c.2 -(OJ-. 28217, Attention: Called Bond Dept.; and Standard and Poor's Ratings Services "Called Bond Record," 55 Water Street, New York, New York 10041; or, in accordance with then current guidelines of the Securities and Exchange Commission, to such other addresses and/or such other services providing infonnation with respect to called bonds, or to no such services, as the City may designate in writing to the Trustee. Section 4.06. Partial Prepavment 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 ofthe 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 Authority and the Trustee shall be released and discharged from all liability to the extent of such payment. Section 4.07. Effect of Notice ofPrepavment. Notice having been given to the Owners of the Certificates as aforesaid, 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 said date of 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 aforesaid, 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. Surp1us. 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. 21 DOCSOC\84600 I v4\24036 0025 ",.,J- (03 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND Section 5.01. Security Provisions. (a) Assignment of Rights in Lease. The Authority has, pursuant to the Assignment Agreement, presently assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Authority'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 Authority may at any time be entitled (other than amounts due to the Authority 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 Authority shall be deemed to be held and to have been collected or received by the Authority as the agent of the Trustee and ifreceived by the Authority at any time shall be deposited by the Authority 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. If the City shall fail to deposit with the Trustee a Lease Payment on the applicable Lease Payment Date, the Trustee shall, within three Insurance Business Days after such Lease Payment Date, notify the Insurer of such failure. The Insurance Policy shall be held by the Trustee and, shall be deemed to be held in the Lease Payment Fund. (b) Securitv Interest in Monevs and Funds. The Authority and the City, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners a lien on and a security interest in all moneys in the funds 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 Reserve Fund, the Prepayment Fund, the Project 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. (c) Pledge of Lease Payments and Proceeds. The Lease Payments and any proceeds from the re-Ietting or any other disposition of the Leased Premises pursuant to Article IX of the Lease (the "Lease Proceeds") are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the Certificates and 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. Section 5.02. Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City ofChula Vista (Police Facility Project) Lease Payment Fund and shall establish an Interest Account therein. All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the City nor the Authority 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. 22 d.-IOc.f 00('50('\84600] v4\24036.0025 Section 5.03. Deposits. There shall be deposited in the Interest Account of the Lease Payment -Fund the amount specified in Section 2.05 which shall be applied as a credit on the Lease Payment due on July 15,2002 and shall pay a portion of the interest due with respect to the Certificates on August I, 2002. There shall be deposited in the Lease Payment Fund all Lease Payments and in the Prepayment Fund all 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 Lease Payment then due. Section 5.04. Application of Moneys. Except as provided in this Section 5.04, in all amounts in the 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 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. 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(a) 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. ARTICLE VI RESERVE FUND Section 6.01. Establishment of Reserve Fund. The Trustee shall establish a special fund designated as the "City ofChula Vista (Police Facility Project) Reserve Fund," referred to herein as the "Reserve Fund." All moneys at any time on deposit in the Reserve Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates, as a reserve for the payment when 23 DOCSOC\84600 1 v4\24036 0025 cJ- lò~ due of all the Lease Payments to be paid pursuant to the Lease and of all payments on the Certificates and applied solely as provided herein. Section 6.02. Funding. (a) Reserve Requirement. On the Closing Date, there shall be transferred to the Reserve Fund, $ , which shall be in an amount equal to the initial Reserve Requirement. The Reserve Requirement, or any portion thereof, may be satisfied by the City by crediting to the Reserve Fund moneys or, with the prior written consent of the Insurer and with notice to S&P, a letter of credit, a bond insurance policy, or any other comparable credit facility or any combination thereof which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement; however, the long-tenD unsecured debt or claim-paying ability, as the case may be, of the provider of any such letter of credit, bond insurance policy or any other comparable credit facility, must have a rating of at least no less than the current rating on the Certificates. (b) Delinquent Lease Payments. The City hereby agrees that if at any time the balance in the Reserve Fund shall be reduced below the Reserve Requirement, the first payments of Lease Payments thereafter payable by the City and not needed to pay interest and principal components of Lease Payments payable to the Certificate Owners on the next Interest Payment Date shall be used to first, reimburse the provider of a surety bond, or any insurance policy or letter of credit for any repayment obligation owing thereto for any draw on a surety bond, insurance policy or letter of credit credited to the Reserve Fund and second, to increase the balance in the Reserve Fund to the Reserve Requirement. (c) Certain Net Proceeds. Net Proceeds of rental interruption insurance shall be deposited first to the Reserve Fund to make up any deficiencies therein and second to the Lease Payment Fund to be credited to the payment of the Lease Payments in the order in which they become due. Section 6.03. Transfers of Excess. The Trustee shall, on or before February 15 and July 15 of each year, provide written notice to the City of any moneys which will be on hand in the Reserve Fund (including investment earnings) in excess of the Reserve Requirement on the next succeeding February I or August I, as the case may be, and one Business Day immediately preceding any Lease Payment Date, the Trustee shall transfer such excess moneys, prior to the filing of a Certificate of Completion pursuant to Section 3.4 of the Lease, to the Project Fund, and thereafter to the Lease Payment Fund to be applied to the Lease Payment then due from the City. In the event of the partial Prepayment of Lease Payments, the City may instruct the Trustee to reduce the amounts on deposit in the Reserve Fund to the Reserve Requirement as of such date and may direct the Trustee to transfer excess amounts from the Reserve Fund for any lawful purpose. The transfers described above are in each case subject to the requirement that if the Certificate proceeds shall have become subject to the arbitrage rebate provisions of Section 148(1) of the Code as described in Section 8.08 hereof then certain investment earnings are to be transferred to the Rebate Fund at the direction of the City as provided in Section 8.08 hereof. 24 DOCSOC\846001 v4\24036.0025 <:J-toCo Section 6.04. Application of Reserve Fund in Event of Deficiency in Lease Payment Fund. Whether or not Lease Payments are then in abatement, ifone (I) day immediately preceding any Interest Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the principal and interest with respect to the Certificates then coming due and payable, the Trustee first shall apply the moneys available in the Reserve Fund to make the payments due with respect to the Certificates on such Interest Payment Date by transferring the amount necessary for such purpose to the Lease Payment Fund. The Trustee shall take whatever action is necessary to liquidate or draw upon investments of funds held in the Reserve Fund or draw upon any surety bond, insurance policy or letter of credit securing the Reserve Fund to make such funds available for application as provided hereunder on the Interest Payment Date. Section 6.05. Transfer to Make All Lease Payments. If on any Interest Payment Date the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal or interest with respect to Certificates not presented for payment) are sufficient to pay all Outstanding Certificates, including all principal, interest and prepayment premiums (if any), the Trustee shall, upon the written direction of the City Representative, transfer all amounts in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments or Prepayments on behalf of the City and such moneys shall be distributed to the Owners of Certificates in accordance with Article II of this Trust Agreement. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates and the Trustee's fees and expenses pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease, or upon provision for such payments as provided in Section 14.01 hereof and provisions for any amounts required to be transferred to the Rebate Fund pursuant to Section 8.08 hereof, shall at the written direction of the City be withdrawn by the Trustee and paid to the City. ARTICLE VII NET PROCEEDS FUND Section 7.01. Establishment of Net Proceeds Fund: Deposits. The Trustee shall establish when required a special fund designated as the "City ofChula Vista (Police Facility 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.I(a) of the Lease. (a) Casualtv 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 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. 25 c:J-IO7 DOCSOC\846001 v4\24036 0025 (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 detennines 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 detennination to be certified by the City in writing), such proceeds shall, with the written approval of the Insurer, be remitted to the City and used for any lawful purpose thereof; or (ii) If the City detennines 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, with the written approval of the Insurer, 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 4.01 hereof. Section 7.02. Cooperation. The Authority and the Trustee shall cooperate fully with the City at the expense of the City in filing any proof ofloss 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. 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 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 earned 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 Authority, the Trustee or the City, or any of them. Section 8.02. Investments Authorized. (a) Bv 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. The Trustee shall not be obligated to provide any representations in any investment agreement. (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 oral notification and distribution by US. Mail or overnight courier service of such notice, such investment in specific Pennitted Investments not less than two Business Days prior to 26 00CSOC\846001 v4\24036.0025 ...2-IO?5 the date that such Permitted Investment is to take effect. Such investments and reinvestments shall be made giving ful1 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 (2)( e) 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 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. Notwithstanding anything to the contrary contained herein, investments purchased with funds on deposit in the Reserve Fund shal1 have an average aggregate weighted term to maturity of not greater than five years; provided that such amounts may be invested in an investment agreement described in paragraph 2(h) of the definition of Permitted 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; and provided that no such investment of amounts in the Reserve Fund allocable to the Certificates or a series of Additional Certificates shall mature later than the respective final maturity date of the Certificates or the series of Additional Certificates, as applicable. (c) Registration. Such investments, if registerable, 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 acknowledges that to the extent regulations of the Comptrol1er of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifical1y 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 responsib1e or liable for any loss suffered in connection with 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. Disposition of Investments. Any income, profit or 10ss on the investment of moneys held by the Trustee hereunder shall be credited to the respective fund for which it is held, except as otherwise provided herein. Section 8.04. Accounting. The Trustee shall fumish 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 shal1 not be obligated to deliver an accounting for any fund or account that (i) has a ba1ance 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 al1 Certificates paid and discharged. 27 DOCSOC\846001 v4\24036 0025 6)-(0'1 Section 8.05. Valuation and Disposition ofInvestments. (a) Valuation. Subject to the provisions of Section 8.08 hereof, for the purpose of detennining the amount in any fund, a1l Pennitted 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 a1l funds and accounts, investments shall be valued by the Trustee (i) as frequently as deemed necessary by the Insurer but not less often than annua1ly nor more often than monthly, and (ii) upon any draw upon the Reserve Fund. 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. (b) Disposition. Subject to the provisions of Section 8.08 hereof, the Trustee sha1l sell, or present for prepayment, any Pennitted 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 Pennitted Investment is credited. Section 8.06. Commingling of Monevs 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 a1l funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by the Trustee. The City sha1l ensure that any such commingling complies with Section 1.148-4 of the Treasury Regulations, and sha1l provide direction to the Trustee accordingly. Section 8.07. Tax Covenants. (a) General. The City and the Authority hereby covenant with the holders of the Certificates that, notwithstanding any other provisions of this Trust Agreement, they sha1l 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 Certificates under Section 103 of the Code. The Authority hereby covenants with the holders of the of the Certificates that, notwithstanding any other provision of this Trust Agreement, to the extent that the Authority may have control over the Project or the proceeds of the Certificates, it shall not take any action that would adversely affect the exclusion from gross income of interest with respect to the Certificates under Section 103 of the Code. The City and the Authority (to the extent that the Authority may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or pennit the use of proceeds of the Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such tenD 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 with respect to the Certificates. (b) Use of Proceeds. The City and the Authority (to the extent that the Authority 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 Certificates to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, sha1l not make any use of the proceeds of the Certificates or the Project, or any portion thereof, or any other funds of the City, that would cause the Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any Certificates are outstanding, the City and the Authority, with respect to such proceeds and the Project and such other funds, will comply with applicab1e requirements of the Code and a1l regulations of the United States Department 28 DOCSOC\84600 I v4\24036.0025 c:::J-!fÓ 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 Certificates as "governmental bonds." (c) Arbitrage. The City and the Authority (to the extent that the Authority may have control over the Project or fhe proceeds of the Certificates) shall not, directly or indirectly, use or penn it the use of any proceeds of any Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City and the Authority 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 Certificates. (d) Federal Guarantee. The City and the Authority (to the extent that the Authority 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 Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (e) 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 Certificates. Section 8.08. Rebate Fund. (a) General. The Trustee shall establish a special fund designated the "City of Chula Vista (Police Facility 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 ifit 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. (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 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 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" 29 DOCSOC\84600 I v4\24036 0025 ~-(fl calculated in accordance with the preceding sentence. Such excess may be withdrawn from the Rebate Fund to the extent pennitted 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 Certificates (including amounts treated as proceeds of the Certificates) (I) 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 I 48(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." (b) Withdrawal Following Pavment of Certificates. Any funds remaining in the Rebate Fund after prepayment of all the 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. (c) 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 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 (I) the fifth Certificate Year, and (2) each fifth Certificate Year thereatìer, 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 Certificates, an amount equal to IOO'/'o of the "rebate amount" calculated as of the date of such payment (and any income attributable to the "rebate amount" detennined to be due and payable) in accordance with Section 1. 148-3 of the Treasury Regulations. (d) 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 8420 I on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Fonn 8038-T, which shall be completed by the arbitrage rebate consultant for execution by the City and provided to the Trustee. (e) 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. 30 c:::J-(Id-... 00('SO('\846001 v4\24036.0025 (I) 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. (g) Record Keeping. The City shall retain records of all determinations made hereunder until six years after the complete retirement of the Certificates. (h) Survival of 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. Appointment of Trustee. (a) Appointment. U.S. Bank, N.A., a national banking association organized under the laws of the United States, is hereby appointed Trustee by the Authority and the City. (b) Qualifications. The Authority and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, Califomia, Seattle, Washington, 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 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 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 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. The Insurer and, 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) Resignation. The Trustee may, upon prior written notice to the City, the Insurer and the Authority, resign; provided that such resignation shall not take effect until the successor Trustee is appointed as provided in this Section 9.0 I. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee subject to written approval of the Insurer. In the event the City does not name a successor Trustee within thirty (30) days of receipt of notice of the Trustees' resignation, then the Trustee may petition a federal or state court to seek the immediate appointment of a successor Trustee. (e) Successor. Any successor Trustee shall be a bank 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 31 cJ -/13 DOCSOC\84600 I v4\24036.0025 successor Trustee and upon receipt of written approval of the Insurer. Upon such acceptance, the successor Trustee shall mail notice thereof to the Owners at their respective addresses set forth on the Certiticate 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 party 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 9.0 I, 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 Papers or Documents. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, direction, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good tàith 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. (b) Reliance Upon Opinions ofCounse1. The Trustee may consult with its counselor 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 tull and complete authorization and protection in respect of any action taken by the Trustee in reliance thereon. (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 Authority 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. 32 -1/ t/ DOCSOC\84600 1 v4\24036 0025 c1 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. So long as there is no Event of Default, (a) the Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct, and (b) 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 corporate trustee would exercise in such event. 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 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. The City's obligation hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates. 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 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 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, or (vi) the exercise and performance by the Trustee of its powers and duties hereunder or any related 33 DOCSOC\84600] v4\24036 0025 cY-lfS- document, (vii) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates or this 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, successors or assigns. The City's obligations hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates, or the resignation or remova1 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, Authority 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. 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 re1ating 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 with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect 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. 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 34 00C50C\84600 I v4\24036.0025 C>2-((b 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, íùrnishing, functioning or the City's use and possession of the Leased Premises. ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS Section 10.01. Amendments Pennitted. (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 Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy) and 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 fixed 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, or diminish the security afforded by the Insurance Policy without the express consent of the Owner of such Certificate and the Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy), or (ii) reduce or have the effect of reducing the percentage of Certificates required for the affinnative 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 10.0 I without the prior written consent of the Owners of all Certificates then outstanding and the Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy). 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 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, with the prior written consent of the Insurer (so long as the Insurer is not in default in its payment obligations under the 35 DOCSOC\84600 I v4\24036.0025 c:::J-117 Insurance Policy) without the consent of any such Owners, but only to the extent pennitted 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 adversely affect the interest of the Owners or the Insurer, (iv) to substitute the Leased Premises, or a portion thereof, in accordance with Sections 3.5, 7.12 and 7.13 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 Lease Payments and the interest payable with respect to the Certificates, (vi) to add to the rights of the Trustee, (vii) 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 ofthe 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. 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 1O.01(a) hereof. A copy 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 ofCertiticates 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 36 DOCSOC\846001 v4\24036 0025 C)-Iff 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 owned or held by or for the account of the City or the Authority or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Authority (except any 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 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. 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 as to which such consent is given are disqualified as provided in this Section 10.03 hereof. 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 Trustee 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 Trustee, 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 Trustee 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 S&P. 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. 37 ~~ If c¡ DOCSOC\846001 v4\24036 0025 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 Authority 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 trom 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 Authority thereunder. The Authority 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 mayor can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee. Section 11.02. Pavment 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 ofthe Trustee, the Insurer 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 I 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 tàiled 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 Defau1t under Section 9.I(b) of the Lease. The Trustee shall forward a copy of such notice to the Authority and to the Insurer. Upon receipt of such notice, the City shall notify the Trustee of the proceedings proposed to be taken by the City, and shall keep the Trustee advised of all proceedings thereafter taken by the City. 38 c2 - ( c:20 DOCSOC\84600 I v4\24036 0025 Section 11.06. Further Assurances. The Authority 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 catTy out the intention or to facilitate the performance ofthis 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 catTy out all ofthe 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. ARTICLE XII LIMITATION OF LIABILITY Section 12.01. Limited Liability of the City. 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 Citv or Authoritv for Trustee Performance. Except as expressly provided herein, neither the City nor the Authority 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) Sufticiencv of this Trust Agreement or Lease Payments. The Trustee makes no representations as to the vaJidity or sufticiency of the Certificates, shall incur no responsibility 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 Authority 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 Authority and Citv. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, 39 00('SO('\84600 I v4\24036.0025 c::J -I c). I covenants and agreements of the City or the Authority (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 Authority, 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 Authority, the Trustee and the Owners. Section 12.04. No Liabilitv of Authority to the Owners. Except as expressly provided herein, the Authority 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 performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by this Trust Agreement. ARTICLE Xlll 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 Authority has transferred, assigned and set over to the Trustee for the benefit of the Owners, certain of the Authority'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 DEF AUL T TO BE IMMEDIA TEL Y DUE AND PAYABLE; provided further that so long as the Insurer shall not be in default in its payment obligations under the Insurance Policy, the Insurer shall control all remedies upon an Event of Default. 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 thereot~ or shall have received written notice thereof at the Principa] 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 XIll 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 Section 9.06 hereof and Section 4.11 of the Lease in the following order upon presentation of the severa] Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereofiffully paid- 40 DOCSOC\84600 I v4\24036.0025 Ol-I,J~ First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee and then of the Owners in declaring such Event of Default and in performing its duties hereunder, including reasonable compensation to its or their agents, attorneys and counsel; 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 thereofratably according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; 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 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; and Fourth, Insurer: to the extent not included in clauses First, Second or Third above, to the payment of all amounts then due to the Insurer, as certified in writing to the Trustee. Section 13.04. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee, with the prior written consent of the Insurer, 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. Section 13.05. Non-Waiver. Nothing in this Article XlII or in any other provision of this Trust Agreement or in the Certificates shall affect or impair the obligation of the City which is absolute and unconditional, to payor prepay the Lease Payments as provided in the Lease. So long as the Insurer is not in default in its payment obligations under the Insurance Policy, the Trustee shall not waive any default or breach of duty or contract hereunder without the prior written consent of the Insurer. 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 XlII 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. 41 DOCSOC\846001 v4\24036 0025 02 -I :1...3 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 hereatìer existing, at law or in equity or by statute or otherwise. Section 13.07. Power of Trustee to Control Proceedings. Subject to the Insurer's right to control all remedies upon an Event of Default, 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, upon the request of the Insurer, 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 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) so long as the Insurer is not in default in its payment obligations under the Insurance Policy, such Owner shall have obtained the Insurer's consent to such institution or appointment; (c) 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; (d) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in comp1iance with such request; (e) the Trustee shall have reíùsed 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 (t) 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 nnder this 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. Section 13.09. Agreement to Pav Attorneys' Fees and Expenses. In the event any party to this Trust Agreement should default under any of the provisions hereof and the nondeíàulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement or observance of any obligation or agreement on the part of the defaulting party contained herein, the 42 cJ-/02.Ý DOC"SOC\84600 I v4\24036.0025 defaulting party agrees that it will on demand therefor pay to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. Section 13.10. Insurer's Rights. Anything in this Trust Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Trust Agreement. ARTICLE XIV MISCELLANEOUS Section 14.01. Defeasance. (a) Methods. If and when any Outstanding Certificates shall be paid and discharged in anyone or more of the following ways: (i) Pavment or Prepavment: 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 and the Reserve 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 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 and the Reserve 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 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 Authority, the Trustee and the City with respect to such Certificates shall cease and terminate, except only the obligation of the City and the Authority to comply with the provisions of Sections 8.07 and 8.08 hereof and the obligation of the Trustee to payor 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 43 DOCSOC\84600 I '4\24036.0025 <::>Ì - I..z. s- 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 Lease Payments under the Lease. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest with respect to the Certificates shall be paid by the Insurer pursuant to the Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and the assignment and pledge of the Lease Payments and all covenants, agreements and other obligations of the City to the Owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such Owners. (b) Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to the 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, any amounts due and owing to the Insurer, 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 Reports. 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 and the Insurer, in fonn and substance acceptable to the City and the Insurer of a nationally recognized finn 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, which escrow deposit agreement shall be in fonn and substance acceptable to the Insurer, and (iii) a copy of an Opinion of Counsel, dated the date of such defeasance and addressed to the Trustee, the City and the Insurer, in fonn and substance acceptable to the City and the Insurer, 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 to the Owner thereof for payment of such Certificate shall forthwith cease, tenninate 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 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, 44 DOCSOCl84600 I v4\24036.0025 ëì -(.L(.;, 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 ofCertitìcates 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, which shall be available for inspection by the City, the Authority 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 ofChula Vista 276 Fourth Avenue Chula Vista, California 91910 Attention: Director of Finance If to the Authority: Chula Vista Public Financing Authority 276 Fourth Avenue Chula Vista, California 91910 Attention: Executive Director ¡fto the Trustee: U.S. Bank, N.A. 550 South Hope Street, Suite 500 Los Angeles, Califomia 90071 Attention: Corporate Trust Services If to S&P: Standard & Poor's Ratings Services 55 Water Street New York, New York 10004 Attention: Public Finance Department If to the Insurer: 45 00('50('1846001 v4\24036.0025 ~-/J.. 7 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 Authority, 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 Authority, 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. Separabilitv of Invalid Provisions. In case anyone 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 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 Certificates pursuant thereto irrespective of the fact that anyone or more sections, paragraphs, sentences, clauses or phrases of this Trust Agreement may be held illegal, invalid or unenforceable. Section 14.12. Insurer to be Deemed Owner: Rights of the Insurer. [TO COME] Section 14.13. Claims Under Insurance Policy: Payments bv and to Insurer. As long as the Insurance Policy shall be in full force and effect, the City and the Trustee agree to comply with the following provisions: [TO COME] Section 14.14. Infonnation to be Provided to the Insurer. [TO COME] 46 DOCSOC\8460Q] v4\24036.0025 r:::2 - I J..% IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. U.S. BANK, N.A., as Trustee By: Its: Authorized Officer CHULA VISTA PUBLIC FINANCING AUTHORITY By: Its: Executive Director ATTEST: Secretary CITY OF CHULA VISTA By: Its: City Manager ATTEST: City Clerk S-I OOCSOC\84600 I v4\24036.0025 C)-I¿'1 EXHIBIT A FORM OF CERTIFICATE EXCEPT AS OTHERWISE PROVIDED IN SECTION 2.10 OF THE TRUST AGREEMENT DESCRIBED HEREIN, THIS GLOBAL CERTIFICATE MAY BE TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE DEPOSITORY (AS DEFINED IN SAID TRUST AGREEMENT) OR TO A SUCCESSOR DEPOSITORY OR TO A NOMINEE OF A SUCCESSOR DEPOSITORY. R- - $ ~ UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF SAN DIEGO CITY OF CHULA VISTA CERTIFICATE OF PARTICIPATION SERIES A OF 2002 (Police Facility Project) Evidencing the Fractional Interest of the Owner Hereof In Lease Payments to be Made by CITY OF CHULA VISTA As Rental for Certain Project Pursuant to a Lease/Purchase Agreement With CHULA VISTA PUBLIC FINANCING AUTHORITY INTEREST RATE MATURITY DATE DATED DATE CUSIP % August 1,- June 1,2002 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: AND NOlI 00 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 Lease Payments and Prepayments thereof under and as defined in that certain Lease/Purchase Agreement, dated as of June I, 2002 (the "Lease"), by and between the Chula Vista Public Financing Authority, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the "Authority') and the City of Chula Vista, a municipal corporation organized and existing under and by virtue of the laws and Constitution of the State of California (the "City"), which Lease Payments and Prepayments and certain other rights and interests under the Lease have been assigned to U.S. Bank, N.A., as A-I DOCSOC\84600 1>4\24036.0025 c2-/.3 0 trustee (the "Trustee"), having a corporate trust office or agency in St. Paul, Minnesota (said office being herein referred to as the "Principal Office"). The Registered Owner of this Certificate is entitled to receive, subject to the tenus of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the Lease Payments designated as principal coming due during the preceding twelve months, and to receive on August 1,2002, and semiannually thereafter on February I and August I of each year (the "Payment Dates") until payment in full of said portion of principal, the Registered Owner's portion of the 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 proceeding a Payment Date (the "Record Date") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (it) unless this Certificate is executed on or prior to July 15, 2002, in which event interest shall be payable ITom 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 2002 Certificates of Participation, (P01ice Facility Project) (the "Certificates") which have been executed and delivered by the Trustee pursuant to the tenus of a Trust Agreement, dated as of June I, 2002 (the "Trust Agreement"), by and among the Trustee, the Authority and the City. 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 tenus on which the Certificates are deJivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obJigations 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 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 Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any fonD of taxation or for which the City has levied or pledged any fonD of taxation. The obJigation of the City to pay 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 Lease Payments may be abated during any period in which, by reason of material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use A-2 OOCSOC\846001 .4\240360025 ~ -I" ( and right of possession by the City of the Leased Premises. Failure of the City to pay 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 then Outstanding, and may be amended without such consent under certain circumstances but in no event such that the interests of the Registered Owners of the Certificates are adversely affected. No such modification or amendment shall (i) extend or have the effect of extending the fixed 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 and the Insurer so long as the Insurer is not in default in its payment obligations under that Insurance Policy, or (ii) reduce or have the effect ofreducing the percentage of 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 the Insurer so long as the Insurer is not in default in its payment obligations under that Insurance Policy. 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 cancel1ation of this Certificate. Upon such transfer a new Certificate or Certificates, of 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 Authority, 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 Authority 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. 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 premlUm. The Certificates maturing on or after August I, 20- are subject to prepayment prior to maturity in whole or in part on any date on or after August 1,20_, at the option of the City, in the event the City exercises its option under the Lease to prepay al1 or a portion of the principal component of the Lease Payments (in integral multiples of $5,000 but not in a principal amount of less than $20,000), at the following prepayment prices expressed as a percentage of the principal component to be prepaid), plus accrued interest to the date fixed for prepayment: A-3 DOCSOC\84600] v4\24036 0025 e:J - ( 3 2.... Prepayment Date Prepayment Price August 1,2°- through August 31, 2°- % August 1,2°- through August 31, 2°- % August I, 20- and thereafter % 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 sufticiency 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 shan cease to accrue with respect hereto from and after the date fixed for prepayment. The City has certified that an 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 an other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount ofCertifìcates 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 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 shan 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 u.s. Bank, N.A., as Trustee, acting pursuant to the Trust Agreement. Date of Execution: U.S. BANK, N.A., as Trustee By: Its: Authorized Officer A-4 DOCSOC\84600 I v4\24036.0025 ~-(33 (FORM OF STATEMENT OF INSURANCE) [TO COME] (FORM OF ASSIGNMENT) FOR V ALOE 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) must be guaranteed by an NOTICE: The signature to this assignment must eligible guarantor institution. 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-5 c2 -1.3-<1 DOCSOC\84600] ,4\24036.0025 EXHIBIT B-1 FORM OF WRITTEN DELIVERY COST REQUISITION U.S. Bank, N.A., as Trustee RE: Disbursement from the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City ofChula Vista 2002 Certificates of Participation, (Police Facility Project), dated as of June 1,2002 (the "Agreement"), by and among you as trustee, Chula Vista Public Financing Authority and the City of Chula Vista (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-I-l DOCSOC\84600 I v4\24036.0025 c::2 -I ,3 S- EXHIBIT B-2 FORM OF WRITTEN PROJECT COST REQUISITION U.S. Bank, N.A., as Trustee RE: Disbursement from the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City ofChula Vista 2002 Certificates of Participation, (Police Facility Project), dated as of June 1,2002 (the "Agreement"), by and among you as trustee, Chula Vista Public Financing Authority and the City ofChula Vista (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-l DOCSOC\84600 I v4\24036.0025 r::::::2-IU TABLE OF CONTENTS ~ ARTICLE I DEFINITIONS AND EXHIBITS Section I. I. Definitions and Rules of Construction. ............. .............. .....2 Section 1.2. 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 Authority................. ....5 ARTICLE III ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT Section 3.1. Deposit of Certificate Proceeds.. .......... ....... .............. .......... .................6 Section 3.2. Completion of the Project................................. ..................... .................7 Section 3.3. Payment of Project and Delivery Costs ............ .................. ..... .........7 Section 3.4. Completion Certification ......................................... ...........7 Section 3.5. Substitution of or Addition to the Project................ .....................................7 Section 3.6. Compliance with Law. ............................................... ....................... ...7 Section 3.7. Further Assurances and Corrective Instruments.. ............. ..8 ARTICLE IV AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS Section 4.1. Lease.. ................ ............... .................. ..... ..8 Section 4.2. Term............................................. ....... ...................... ............................8 Section 4.3. Extension of Lease Term ............... ........... ........................ ....... ...........8 Section 4.4. Lease Payments. ............... .......... ............. ..... ..........9 Section 4.5. No Withholding ..... ...... ......... ............... ..... ............10 Section 4.6. Fair Rental Value............... ....... ..... ..................... ............. .........10 Section 4.7. Budget and Appropriation .......... ........ ....... ...... ....... ..10 Section 4.8. Assignment of Lease Payments............. .......... ............ ..10 Section 4.9. Use and Possession............................................................. .............. ..11 Section 4.10. Abatement of Lease Payments and Additional Payments.. .............. ..11 Section 4.11. Additional Payments.. ..... ....................... ............................... ..12 Section 4.12. Net-Net-Net Lease.. ............ ............... ................. ..12 i DOCSOC\8460 19v3\24036.tJO25 e::J-/37 TABLE OF CONTENTS (continued) I'<lg<' ARTICLE V INSURANCE Section 5.1. Public Liability and Leased Premises Damage............... ....12 Section 5.2. Workers' Compensation .......... ............ ......13 Section 5.3. Casualty and Theft Insurance.. .................................. ......13 Section 5.4. Rental Interruption Insurance.. .......... ............ ...............14 Section 5.5. Title Insurance ............................. ..... ................ ............ .......14 Section 5.6. General Insurance Provisions. ........ ............... ..... .......... .........14 Section 5.7. Cooperation.. .................. ............ .............. ...........................15 ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Application of Net Proceeds. .,.. ............ ..... .......15 ARTICLE VII COVENANTS WITH RESPECT TO THE LEASED PREMISES Section 7.1. Use of the Leased Premises .............................................. .......... ......17 Section 7.2. Interest in the Leased Premises and the Lease.................. ...............17 Section 7.3. Option to Purchase......................... ................. .............,.........17 Section 7.4. Quiet Enjoyment.............................................................................................18 Section 7.5. Installation of the City's Personal Leased Premises.. ..... ..................18 Section 7.6. Access to the Leased Premises .............................................. .......................18 Section 7.7. Maintenance, Utilities, Taxes and Assessments. ............................................18 Section 7.8. Modification of the Leased Premises. ............................... ..................19 Section 7.9. Encumbrances; Alternative Financing Methods.. ....... ............... .....20 Section 7.10. Authority's Disclaimer of Warranties........................................... ......,."... ..20 Section 7.11. The City's Right to Enforce Warranties of Vendors or Contractors. ..........21 Section 7.12. Substitution or Release of the Leased Premises. .....21 Section 7.13. Compliance with Law, Regulations, Etc. ..... ..... ........22 Section 7.14. Environmental Compliance. ............ .................... ...... ........23 Section 7.15. Condemnation of Leased Premises.. ................ ..... ...... ..24 ARTICLE Vl11 ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Authority.................... ...........24 Section 8.2. Assignment and Subleasing by the City... ............................... .......24 ii DOCSOC\8460 19v 3\240360025 02.-I.3? TABLE OF CONTENTS (continued) ~ Section 8.3. Amendments and Modifications.. """"""."" ......... .................25 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined... ............... ............ ......... ........25 Section 9.2. Remedies on Default.... ...... ................ ............ ........26 Section 9.3. No Remedy Exclusive ........................................................... ...........28 Section 9A. Agreement to Pay Attorneys' Fees and Expenses ..... ............. ..... ...........28 Section 9.5. No Additional Waiver Implied by One Waiver..............................................28 Section 9.6. Application of the Proceeds from the Re-Lease of the Leased Premises.. ....28 Section 9.7. Trustee and Owners to Exercise Rights...... ................. ........................... ...28 ARTICLE X PREP A YMENT OF LEASE PAYMENTS Section 10.1. Security Deposit........................... ........................... ............. ......... ..........28 Section 10.2. Extraordinary Prepayment ....................... ............... ..................29 Section 10.3. Optional Prepayment ............... .................. ................. ...... ..29 ARTICLE XI MISCELLANEOUS Section 11. 1. Notices ............... ............. ................... .................. ..,....29 Section 11.2. Binding Effect.. .......... ........................ ............ .......... ...........29 Section 11.3. Severability...................................... ............... ..... ..... .............29 Section IIA. Execution in Counterparts. .................. ........... ..... .............29 Section 11.5. Applicable Law............................... ................ ..'" .............................29 Section 11.6. Insurer as Third-Party Beneficiary. .................. ...... .............. ...30 EXHIBIT A SCHEDULE OF LEASE PAYMENTS ............ ............. .............. .........A-I EXHIBIT B DESCRIPTION OF THE PROPERTY............. ....... ..... ...........B-I EXHIBIT C DESCRIPTION OF THE PROJECT..................... .............. ...... ...........C-I EXHIBIT D LEASE SUPPLEMENT FORM...................................................................D-I EXHIBIT E FORM OF CERTIFICATE OF SUBSTITUTION OR ADDITION OF PROJECT COMPONENT ................. ............. ...... .....................E-I iii DOCSOC\8460] 9v3\24036 0025 ç;)-i.39 Recording Requested By: City ofChula Vista When Recorded Mail To: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 Attn: Robert 1. Whalen This document is recorded for the benefit of the City of Chula Vista and recording is fee-exempt under § 27383 of the Government Code. LEASE/PURCHASE AGREEMENT by and between the CHULA VISTA PUBLIC FINANCING AUTHORITY, as Lessor and the CITY OF CHULA VISTA, as Lessee Dated as of June I, 2002 $ City ofChula Vista 2002 Certificates of Participation (Police Facility Project) DOCSOC\846019v3\24036.0025 ~ ~/ i./ D LEASEIPURCHASE AGREEMENT THIS LEASE/PURCHASE AGREEMENT, dated as of June 1,2002, by and between the CHULA VISTA PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California, as lessor (the "Authority"), and the CITY OF CHULA VISTA, a municipal corporation duly organized and existing under the Constitution and laws of said State, as lessee (the "City"); WI TN ESSE TH: WHEREAS, the City may enter into leases and agreements relating to real property and buildings to be used by the City; and WHEREAS, the Authority and the City wish to provide financing for the acquisition, construction and equipping of a new poJice facility for the City, all as described in Exhibit C hereto (collectively, the "Project") by entering into this Lease/Purchase Agreement (the "Lease") and authorizing and directing the execution and delivery of2002 Certificates of Participation designated City of Chula Vista 2002 Certificates of Participation, (PoJice Facility Project) (the "Certificates"), evidencing fractional interests in 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 Authority under which the City has agreed to lease the real property described in Exhibit B hereto (the "Property") to the Authority, and which Site Lease provides that the title to the Property 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 Authority hereunder, the Authority will sublease to the City the Property and will cause the Project to be constructed on the Property, and will grant to the City a right to purchase the Project; and WHEREAS, the Authority 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 various public facilities, land and equipment and the leasing of facilities, land and equipment for the use, benefit and enjoyment of the public; 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 the 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 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: I -/4 I DOCSOC\8460 19v 31240360025 c;;< ARTICLE I DEFINITIONS AND EXHIBITS Section 1.1. 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 U.S. Bank, N.A., as Trustee thereunder, the Authority, 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. "Completion Certificate" means the certificate of the City filed with the Trustee and signed by an Authorized Representative of the City, 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, ~ ~.) (together with the regulations promulgated thereunder, "CERCLA"), the Resource Conservation and Recovery Act, as amended (42 U.S.c. Section 6901, ~~.) (together with the regulations promulgated thereunder, "RCRA"), the Emergency Planning and Community Right-to- Know Act, as amended (42 U.S.c. Section 11001, ~ ~.) (together with the regulations promulgated thereunder, "Title III"), the Clean Water Act, as amended (33 U.S.c. Section 1321 ~ ~.) (together with the regulations promulgated thereunder, "CW A"), the Clean Air Act, as amended (42 U.S.C. Section 7401, ~ ~.) (together with the regulations promulgated thereunder, "CAA") and the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 ~ ~.) (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. "Leased Premises" means the Property and the Project leased by the Authority to the City pursuant hereto. "Permitted Encumbrances" means, as of any particular time: (i) liens for general <l<i 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 ofrecord as of the Closing Date and which the City hereby certifies will not materially impair the use of the Property 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 ofrecordation of this Lease and to which the Insurer, the Authority, the City and the Trustee consent in writing, "Project" means the Project described in Exhibit C hereto, and any and all additions or substitutions thereto made as provided in Section 3.5 hereof. 2 DOCSOC\8460 19v 3\24036.0025 c:.l-/4J- "Propertv" means the site described in Exhibit B hereto being leased to the City by the Authority. "Vendors" or "Contractors" means the persons with whom the Authority, or the City as agent of the Authority, has contracted for comp1etion of the Project. Section 1.2. Exhibits. The tàllowing 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 Authority, showing the Lease Payment Date and amount of each Lease Payment. Exhibit B: Legal Description of the Property. Exhibit C: General Description ofthe Project. Exhibit D: Lease Supplement Form. Exhibit E: Form of Certificate of Substitution or Addition of Project Component. ARTICLE 11 REPRESENT A TIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the Citv. The City represents, covenants and warrants to the Authority as follows: (a) Due Organization and Existence. The City is a municipal corporation duly organized and existing under the Constitution and laws of the State. (b) Authorization; Enforceabilitv. 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 aftècting the rights of creditors generally. (c) No Cont1icts 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. 3 c::.l -I 43 00('80('\8460] 9vJ\24036 0025 (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 Authority. The City covenants to defend, indemnify and hold hannless the Authority and its directors, officers, employees and assigns (conectively, 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 shan 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 hannless 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 perfonnance 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 Authority, its officers, agents, employees, successors or assigns. (I) 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 interest with respect to the Certificates under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). The City shan not, directly or indirectly, use or pennit the use of proceeds of the Certificates or the Leased Premises, or any portion thereof, by any person other than a governmental unit (as such tenn is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion trom gross income for federal income tax purposes of interest with respect to the 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 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 Certificates or the Leased Premises, or any portion thereof, or any other funds of the City, that would cause the Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any Certificates are outstanding, the City, with respect to such proceeds and the Leased Premises and such other tùnds, 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 pennit the use of any proceeds of any Certificates, or of the Leased Premises, or other funds of the City, or take or omit to take any action, that would cause the 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 4 c:;). - I t./ </ DOCSOC\8460 19v3\24036.0025 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 Certificates. The City 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 Certificates to be "federally guaranteed" within the meaning of Section l49(b) of the Code. (g) Floodplain. The City hereby represents that the Property is not in a 100 year floodplain. (h) Essentiality of Propertv. The City hereby represents that the Property is essential for the City's performance of its governmental functions. (i) 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. (j) Title Insurance. The City hereby represents that the Property is the same property which is the subject of the AL TA 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 Authority. The Authority represents, covenants and warrants to the City as follows: (a) Due Organization and Existence; Enforceabilitv. The Authority is a joint powers authority duly organized, existing and in good standing under and by virtue of 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 Authority, 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 Authority or any restriction or any agreement or instrument to which the Authority is now a party or by which the Authority 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 Authority, or upon the Leased Premises except by Permitted Encumbrances and by the pledge contained in the Trust Agreement. (c) Execution and Delivery. The Authority has duly authorized and executed this Lease in accordance with the laws of the State. 5 0) -/4S" DOCSOC\8460 19v 3\24036.0025 (d) Maintenance of Existence. To the extent permitted by law, the Authority agrees that during the term hereof it will maintain its existence as a joint powers authority, will not become a general or limited partner in any partnership and 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 Authority 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 interest with respect to the Certificates under Section 103 of the Code. To the extent that the Authority may control the Leased Premises or the proceeds of the Certificates, the Authority shall not, directly or indirectly, use or permit the use of proceeds of the Certificates or the Leased Premises, 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 trom gross income for federal income tax purposes of interest with respect to the Certificates. The Authority shall not take any action if any such action would cause the Certificates to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, to the extent that the Authority may control the Leased Premises or the proceeds of the Certificates, shall not make any use of the proceeds of the Certificates or the Leased Premises, or any portion thereof, or any other funds of the City, that would cause the Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any Certificates are outstanding, to the extent that the Authority may control the Leased Premises or the proceeds of the Certificates, the Authority, 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. To the extent that the Authority may control the Leased Premises or the proceeds of the Certificates, the Authority shall not, directly or indirectly, use or permit the use of any proceeds of any Certificates, or of the Leased Premises, or other funds of the City, or take or omit to take any action, that would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, to the extent that the Authority may control the Leased Premises or the proceeds of the Certificates, the Authority 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 Certificates. To the extent that the Authority may control the proceeds of the Certificates, the Authority shall not make any use of the proceeds of the Certificates or any other of its funds, or take or omit to take any other action, that would cause the Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. ARTICLE III ACQUISITION, CONSTRUCTION AND INST ALLA TION 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 Authority agrees to payor 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 6 é2-/4c' 00('50('\8460 I 9v 3\24036.0025 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 Authority and the City agree to execute and deliver the Agency Agreement pursuant to which the City as the agent of the Authority will acquire, construct, deliver and install the Project. The City and the Authority each covenants and agrees to comply with the tenns 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 Authority expect that the Project will be substantiany completed in accordance with plans and specifications described in the Agency Agreement on or prior to August I, 2004. 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 each issue 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 each issue of Additional Certificates. On the date of filing a Completion Certificate, an 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. If the Authority, for any reason whatsoever, cannot deliver possession of the Leased Premises by August 1,2004, 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 Authority 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 completion date thereof specified in the first paragraph of this Section 3.4 and the time when the Leased Premises is substantially completed, shall be payable solely to the extent and trom the sources of payment identified in Section 4.10(a) hereof. 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 fonn contained in Exhibit E hereto, so long as such substitution or addition does not cause, in and of itself, the interest represented by the Certificates to be included in gross income for federal income tax purposes. Section 3.6. Compliance with Law. (a) Public Bidding. The City shall comply with an applicable provisions for bids and contracts prescribed by law, including, without limitation, the Public Contract Code and the Government Code of the State. 7 DOCSOC\8460 19v3\24036.0025 a:; -I<t-l (b) Wage Rates and Working Hours. The City shall comply with all applicable provisions relating to prevailing wage rates and working hours, as applicable, required by the Government Code of the State. (c) Plans and Specifications. If applicable, the City shall prepare and adopt plans and specifications for the acquisition, construction and installation of the Project or portions thereof pursuant to the Government Code of the State. Section 3.7. Further Assurances and Corrective Instruments. The Authority and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Property hereby leased or intended so to be or for carrying out the expressed intention of this Lease. ARTICLE IV AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS Section 4.1. Lease. The Authority hereby leases the Leased Premises to the City, and the City hereby leases the Leased Premises from the Authority, upon the tenus 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 Property and shall not cause the extinguishment of the leasehold interest granted to the Authority under the Site Lease. Section 4.2. Tenn. The tenD of this Lease shall commence on the date of execution hereof and shall end on August I, 20_, unless extended pursuant to Section 4.3 hereof, or unless tenninated prior thereto upon the earliest of any of the following events: (a) Default and Tennination. A default by the City and the Authority's election to tenninate 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; or (c) Prepavment. 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 14.0 I of the Trust Agreement. (d) Purchase. Upon the exercise by the City of its option to purchase all of the Authority'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 Authority's interest in a portion of the Leased Premises, as provided in Section 7.3, the Lease shall be tenninated only with respect to the portion of the Leased Premises purchased. Section 4.3. Extension of Lease Tenn. The Tenn of this Lease may be extended up to August I, 20- 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, or if the Lease 8 DOCSOC\8460 19v 3\24036.0025 é2-14~ Payments or Additional 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 fuHy paid, except that the Term shaH in no event be extended beyond August 1,20_. 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 Authority, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the Lease Payments (denominated into components of principal and interest, the interest component being paid semiannually) in the amounts specified in Exhibit A, to be 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) 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 Additiona1 Certificates. The obligation of the City to pay Lease Payments shall commence on the Closing Date for the Certificates; provided, however, that, until a Completion Certificate is filed with the Trustee with respect to the portion of the Project being financed with the proceeds of the Certificates and the Leased Premises are made available for use and occupancy by the City, Lease Payments shall be paid only to the extent described in Section 4.10(a) hereoffrom the proceeds of the sale of the Certificates deposited with the Trustee, any liquidated damages of the type described in Section 4.10(a) hereof deposited to the Lease Payment Fund, or any other source of legally available funds. 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. (b) Credits. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than accrued and capitalized interest, which shall be credited in accordance with Section 5.04 of the Trust Agreement, and other than amounts resulting from the prepayment ofthe 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 Lease Payment then due and payable. No Lease Payment need be made 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 Pavments. 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 Additiona1 Certificate, as applicable, represented by such delinquent Lease Payment. 9 DOCSOC\8460 19v3\24036 0025 ç:)-14~ Section 4.5. No Withholding. Notwithstanding any dispute between the Authority 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 City and the general public, and the transfer of the Authority'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 I 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 Authority's rights under this Lease, including the right to receive and enforce payment of the Lease Payments and Additional Payments, Prepayments, to be made by the City hereunder, have been assigned to the Trustee, subject to certain exceptions, pursuant to the Assignment Agreement, to which assignment the City hereby consents. The Authority hereby directs the City, and the City hereby agrees, to pay to the Trustee at the Trustee's corporate trust office in St. Paul, Minnesota, or to the Trustee at such other place as the 10 DOCSOC\846019v3\24036.0025 c)-/~u Trustee shall direct in writing, all Lease Payments, or Prepayments thereof payable by the City hereunder. The Authority 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 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) In the Event of Non-Delivery. To the extent described below, the amount of Lease Payments and Additional Payments due hereunder shall be abated during any period in which by reason of delay in the completion of the Project beyond the completion date set forth in Section 3.4 hereof there is substantial interference with the City's use and occupancy of the Leased Premises. The amount of such abatement shall be such that the resulting Lease Payments and Additional Payments do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who may not be an employee of the City) for the use and occupancy of the Property and the completed portions of the improvements constituting the Leased Premises. Such abatement shall continue until the substantial completion of the Leased Premises. Notwithstanding the foregoing, the City shall remain obligated to make Lease Payments and Additional Payments hereunder to the extent there are proceeds of any completion or performance b0nds or moneys paid to the City by the contractors or any other person as liquidated damages as a result of any defect or delay in completion of the Project or to the extent that amounts in the Reserve Fund or the Interest Account of the Project Fund are available to pay Lease Payments which would otherwise be abated under this Section 4.10(a). Any amounts received by the City as liquidated damages shall be deposited by the City immediately upon receipt in the Lease Payment Fund. (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 se1ected by the City, who is not an emp10yee 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 ofthe 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 II C? -/:S-I DOCSOC\8460 I 9v3\24036.0025 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 thaf moneys are available in the Reserve Fund or 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 Authority, 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 Authority 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 Authority 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 amounts due to the Insurer and all other necessary administrative costs of the Authority or charges required to be paid by it in order to comply with the tenDS 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 Authority 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. 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 Authority, free and clear of any expenses, 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 Tenn hereof, a standard comprehensive general public liability and Leased Premises damage insurance policy or policies in protection of the City, its 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 Leased Premises damage occasioned by reason of the use or operation of any City Leased Premises 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 $3,000,000 for personal 12 DOCSOCI8460¡ 9v3124036.0025 ol-I$:2. injury or deaths of two or more persons in each accident or event, and in a minimum amount of $150,000 (subject to a deductible clause of not to exceed $50,000) for damage to Leased Premises resulting from each accident or event. Such public liability and Leased Premises 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-Insurance. 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 satistàction 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) Casualtv 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, vehicle damage, smoke and such other hazards as are normally covered by such insurance, excluding flood and earthquake; provided, however, that a t1ood and earthquake rider shall be purchased if the City, in its reasonable discretion, determines that such coverage is available from reputable insurers at commercially reasonable rates. (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 one hundred thousand dollars ($100,000) for anyone loss or, in the case of a flood and earthquake rider, ten percent (10%) of the coverage obtained. The term "full rep1acement 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 comp1iance with Section 5.6( e) hereof; may be maintained in the form of self-insurance by the City through a Califomia joint powers authority. (d) Pavment 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. 13 DOCSOC\8460 19v3\24036.0025 c:¿ -/~-3 Section 5.4. Rental Interruption Insurance. (a) Coverage and Amount. 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 Authority as additionally insured parties. (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 (I) in the Reserve Fund to make up any deficiencies therein, and (2) 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. 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 AL T A title policy (with western regional exceptions), in an amount equal to the aggregate principal amount of the 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 ofthe Trust Agreement. So long as any of the Certificates remain Outstanding, each policy of the title insurance 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. Such policy of title insurance, including the endorsements thereto, shall be in form and substance acceptable to the Insurer. 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 an insurance agent, broker or consultant to the City to comply with the provisions hereof. All such policies shall provide that the City shall give the Trustee 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. (b) Payment of Premiums. The City shall payor 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. 14 c¿ -/~-C/ DOCSOC\84ÚOI9vJ\240J6.0025 (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 agreed to by the Trustee. (d) Evidence of Insurance. The City shall cause to be delivered to the Trustee and the Insurer annually on or before August I a certificate stating that the insurance policies required by this Lease are in full force and effect. (e) SelfInsurance. The City may only elect to self insure pursuant to Sections 5.1 and 5.2 hereof (the City may elect to self-insure for purposes of Section 5.3, but only to the extent of insurance provided by a California joint powers authority) if and to the extent such self-insurance method or plan of protection shall afford reasonable protection to the Authority 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 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 Deputy City Manager/Finance Director in accordance with the California Labor Code and the California Government Code; (ii) The se1f~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 an annual basis by the City's City Manager or Deputy City Manager/Finance Director; and any deficiencies in any self-insured claims reserve fund shall be remedied in accordance with the recommendation of the City's City Manager or Deputy City Manager/Finance Director; and (iii) In the event the self-insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City's City Manager or Deputy City Manager/Finance Director, shall be maintained. Section 5.7. Cooperation. The Authority 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 Authority shall transfer to the Trustee any 15 c2. -/~-S- DOCSOC\8460 19v3\24036O025 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 Authority 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 ofthe prior written consent ofthe Insurer and 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, finD or corporation named in the requisition as provided in paragraph (iv) below. (i) Certification. The City Representative must certify to the Authority and the Trustee that: (ii) 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 110% of the projected costs of replacement or repair (or such lesser percentage as may be consented to by the Insurer), as demonstrated in an attached reconstruction budget, and (iii) 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. (iv) Requisition. The City Representative must state with respect to each payment to be made (I) the requisition number, (2) the name and address of the person, finD 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 Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation. 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 7.0 I of the Trust Agreement shall be paid to the City after payment of amounts due the Trustee pursuant to Section 9.6 and 9.7 of the Trust Agreement. (c) Disbursement for Prepavment. If the City Representative notifies the Trustee in writing of the City's detennination that the certification provided in Section 6. I (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 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 and Reserve Fund are not sufficient to prepay all the Certificates then Outstanding, then the City shall not be pennitted to certify that repair, replacement or improvement 16 c2 -I ~-c. DOCSOC\846019vJ\240J60025 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, finn, 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) Authoritv Holds Leasehold Interest During Tenn. During the Tenn of this Lease, the Authority 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 Tenn of this Lease. (b) Title Transferred to the City at End of Tenn. Upon expiration of the Tenn as provided in Section 4.2(b) or 4.2(c) hereof, all right, title and interest of the Authority 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. Section 7.3. Option to Purchase. The City may exercise an option to purchase the Authority'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 tenninate as provided in Section 4.2 hereot~ excepting in the case all of the Authority'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 Authority's interest in the Leased Premises shall revert and transfer to the City automatically and without further action by the City or the Authority, and the Authority 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 Authority'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 Authority's interest in the Leased Premises for reversion and transfer to the City and the Authority 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 Authority's interest in the Leased Premises; provided, that such portion shall revert and transfer to the City only if (i) 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 detennined by an independent appraisal acceptable to the Authority and the Insurer) is proportionately less than or equal to the reduction in the maximum 17 cJ -I S"í DOCSOC\846019v3\240J6.0025 annual Lease Payments under this Lease resulting from such purchase and (ii) the Insurer shall have provided its written consent to such reversion and transfer. 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 Authority shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall during such Term peaceably and quietly have and hold and enjoy the Leased Premises, without suit, trouble or hindrance from the Authority, or any person or entity claiming under or through the Authority except as expressly set forth in this Lease. The Authority 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 Authority may lawfully do so. Notwithstanding the foregoing, the Authority shall have the right to inspect the Leased Premises as provided in Section 7.6 hereof. Section 7.5. Installation of the Citv's Personal Leased Premises. 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 personal Leased Premises in or upon any portion of the Leased Premises. All such items shall remain the sole personal Leased Premises 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 Authority nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to 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 Authority, any Authority Representative and the Authority'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 Authority, any such Authority Representative, and the Authority'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 Authority agrees to provide only the Leased Premises, as hereinbefore more specifically set forth. The City waives the benefits of subsections I 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 payor cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Authority or the City or levied, assessed or charged against any portion of the Leased 18 DOCSOC\8460 19v3l24036.0025 ~ -/~ð" 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 Tenn 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 pennit 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 Authority and the Trustee with the opinion of an Independent Counsel acceptable to the Authority, to the effect that, by nonpayment of any such items, the interest of the Authority 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 fonn satisfactory to the Authority. The Authority 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, Modiíications 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 damage any portion of 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 Certificates; and the Leased Premises, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value which is not substantially less than the value of the Leased Premises immediately prior to the making of such additions, modifications and improvements. (b) No Liens. Except for Pennitted Encumbrances, the City will not pennit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materia1s 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 Authority of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may pennit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in fonn satisfactory to the Trustee (as assignee of the Authority). The Authority 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, 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 Authority and the Trustee, that (I) such replacement does not adversely 19 ~ -I ~-r:¡ DOCSOC\8460 19,3\24036.0025 affect the federal income tax exclusion or the State tax-exempt status of the interest with respect to the Certificates, 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 the Insurer and 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 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 or redevelopment, the City and the Trustee receive an independent appraisal from a California certified general appraiser that the annual fair rental value of the replacements will be at least equal to the annual fair rental value of the Leased Premises immediately prior to such replacement or redevelopment. 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 Pennitted Encumbrances and other than the respective rights of the Authority 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 Authority 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 (I) any such mortgage, pledge, liens, charges, encumbrances or claims shall at any time while any of the 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 Certificates in the gross income of the owners of the Certificates for purposes of federal income taxation or impair the State tax-exempt status of such payments. Section 7.10. Authoritv's Disclaimer of Warranties. THE AUTHORITY 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 20 DOCSOC\8460 19v 3\24036.0025 r::::J-(fc 0 PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Authority be liable for incidenfal, indirect, special or consequential damages, in connecfion with or arising out of this Lease, the Site Lease, the Assignment Agreement or the Trust Agreement for the existence, turnishing, 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 Authority 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 Authority 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 Authority, nor shall such matter have any effect whatsoever on the rights and obligations of the Authority 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 all amounts recovered as a result of the assertion of any such claims and rights. The Authority 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. (a) The City shall have the right to substitute alternate real Leased Premises 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 paragraph (i) through (ii) 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: (i) the City provides prior written notice thereof to the Insurer; (ii) an independent California Certified General or equivalent certified real estate appraiser selected by the City tinds (and delivers a certificate to the City and the Trustee setting forth its findings) that the substituted real Leased Premises (x) has a fair rental value greater than or equal to the fair rental value of the Leased Premises to be released so that the Lease Payments payable by the City pursuant to the Lease will not be abated, and (y) has an equivalent or greater usefu11ife as the Leased Premises to be released and that the useful life of the substituted real Leased Premises exceeds the remaining term of the Lease Payments hereunder; (iii) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) with respect to the substituted real Leased Premises with an endorsement so as to be payable to the Trustee for the benefit of the Owners. Such policy shall comply with Section 5.5 hereof, shall be in a form satisfactory to the Insurer, the Trustee and the Authority, shall be in the amount equal to the principal component of Lease Payments attributable to the substituted real Leased Premises, and shall insure the leasehold interest or the fee simp1e interest of the Authority or the City, as applicable, to the substituted real Leased Premises; 21 é2 -( (., I OOC50C\8460 19v3\24036 0025 (iv) the City provides the Authority and the Trustee with an opinion of Special Counsel that such substitution does not cause, in and of itself, the interest evidenced and represented by the Certificates to be included in gross income for federal income tax purposes; (v) the City shall give, or cause to be given, any notice of the occurrence of such substitution required to be given pursuant to the Continuing Disclosure Agreement; (vi) upon the substitution of any real Leased Premises and improvements thereon for all or a portion of the Leased Premises then existing, the City, the Authority and the Trustee shall execute and the City shall record with the ot1ice of the County Recorder, County of San Diego, Califomia, any document necessary to reconvey to the City the portion of the Leased Premises being substituted and to include the substituted real Leased Premises and/or improvements thereon as all or a portion of the Leased Premises; (vii) the City shall certify to the Trustee and the Insurer that the substituted real Leased Premises is of approximately the same degree of essentiality to the City as the portion of the Leased Premises being replaced; and (viii) the Trustee shall receive the Insurer's prior written consent to such substitution (which consent shall not unreasonably withheld). Section 7.13. Compliance with Law, Regulations, Etc. (a) 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 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, neither the City nor to the best of its knowledge, after due inquiry, 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, CW A, 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 those amounts ordinarily found in the inventory of, or used in the maintenance of the City's Corporation Yard or related buildings, 22 c:¿ -I " :L DOCSOC\8460 19v3\24036.0025 the use, treatment, storage, transportation and disposal of which has been and shall be in compliance with all Laws and Regulations. (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) The City shall not use or pennit 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 all Environmental Regulations, and any state equivalent laws and regulations, nor shall it pennit, 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, the City shall promptly commence and perfonn, or cause to be commenced and perfonned 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 or other Leased Premises, in compliance with all Environmental Regulations. Notwithstanding anything to the contrary contained herein, underground storage tanks shall only be pennitted 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 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 pennitted by law, defend, indemnify and hold hanDless the Trustee, the Owners, the Authority, their partners, depositors 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 incurred to enforce the indemnification contained in this Section 7.14, consultants' fees, investigation and laboratory fees, 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 23 ól - ( ,=>3 DOCSOC\846019v3\24036.0025 in any way related to, (i) the presence, disposal, release, threat of re1ease, removal, discharge, storage or transportation of any Hazardous Materials on, from or beneath the Leased Premises, (ii) any personal injury (including wrongful deafh) 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 to the Owners and the other indemnitees 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 indemnitee. The obligations and liabilities under this Section 7.14( c) shall survive the payment and satisfaction of all 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 1awfully do so, that, except as described in Section 6 of the Site Lease, so long as any of the 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 greater of: (i) if the Certificates are then subject to optional prepayment, the principal and interest components of the Certificates outstanding through the date of their prepayment, or (ii) if the Certificates are not then subject to optional prepayment, the amount necessary to defease the 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 Authoritv. Except as provided herein, in the Trust Agreement and the Assignment Agreement, the Authority 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 City. (a) Assignment. Tliis Lease may be assigned by the City, with the consent of the Insurer (which consent shall not be unreasonably withheld), 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 Certificates or affect the validity of this Lease. In the event that this Lease is assigned by the City, the obligation to make Lease Payments liereunder shall remain the obligation oftlie City. 24 e::J - I (ç. .¡ DOCSOC\8460 19v3\24036.0025 (b) Sublease. The City may sublease all or any portion of the Leased Premises, with the consent of the Trustee (as assignee of the Authority) and the Insurer, 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; and (ii) The City shall, within thirty (30) days after the delivery thereof, fumish or cause to be furnished to the Authority, the Trustee and the Insurer a true and complete copy of such sublease; (iii) No sublease by the City shall cause the Leased Premises to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State; and (iv) No sublease shall cause the interest component of the Lease Payments due with respect to the Leased Premises to become includable in gross income for federal income tax purposes or subject to State personal income taxes. Section 8.3. Amendments and Modifications. This Lease may be amended or any of its tenns modified with the written consent of the Insurer, the City and the Trustee (as assignee of the Authority), 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 tenns "events of default" and "default" shall mean, whenever they are used in this Lease, anyone 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 perfonn any warranty, covenant, condition or agreement on its part to be observed or perfonned herein 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 Authority, the Insurer, the Trustee, or the Owners of not less than twenty percent (20%) in aggregate principal amount of Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Authority, the Insurer or 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, except that such grace period shall not exceed 60 days without the prior written consent of the Insurer. (c) Bankruptcv 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 25 00('SO('\8460 19v3\24036.0025 cJ - If, ~ 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 Authority to exercise any and all remedies available pursuant to law or granted pursuant to this Lease. 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 Authority, if requested to do so by the Authority, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. So long as the Insurer is not in default under the Insurance Policy, the Insurer shall control all remedies upon an event of default hereunder. The Owners' direction of remedies upon default are subject to the prior written consent of the Insurer. The Insurer, acting alone, shall have the right to direct all remedies upon an event of default. (a) No Tennination; Repossession and Re-Lease on Behalf of The Citv. In the event the Authority does not elect to tenninate this Lease in the manner hereinafter provided for in subparagraph (b) hereof, the Authority 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 fOnD 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 Authority re-enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the perfonnance of all conditions contained herein and shall reimburse the Authority for any deficiency arising out of the re-Ieasing of the Leased Premises, or, in the event the Authority is unable to re-lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Tenn 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 Authority or any suit brought by the Authority for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Authority. The City hereby irrevocably appoints the Authority 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 perfonnance of any covenants contained herein to be perfonned by the City and to remove all personal Leased Premises whatsoever situated upon the Leased Premises, to place such Leased Premises in storage or other suitable place in the County of San Diego, for the account of and at the expense of the City, and the City hereby exempts and agrees to save hanDless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re-Ieasing of the Leased Premises. The City hereby waives any and all claims for damage caused or which may be caused by the Authority 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 26 <:::2 - I " r:o DOCSOC\846019vJ\240J60025 for damages to or loss of any Leased Premises 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 Authority 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 Authority in effecting such re-Ieasing 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 Authority 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 Authority, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re-Ieasing 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 Authority, or the Trustee or the Owners, as assignees of the Authority, 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 Authority 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 Authority in any manner whatsoever or the re-Ieasing of the Leased Premises), the City nevertheless agrees to pay to the Authority 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 Authority 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 Authority, 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 Authority on re-Ieasing 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 Authority 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 Authority shall have given written notice to the City of the election on the part of the Authority 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 Authority 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-Ieasing 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 Certificates to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes. 27 DOCSOC\8460] 9v3\24036 0025 Ç;¿-/f.7 (d) No Tel1Tlination bv The Citv. Under no circumstances may the City tel1Tlinate this Lease as a remedy for a default by the Authority in the perfol1Tlance of any obligation of the Authority hereunder. Section 9.3. No Remedy Exclusive. No remedy conferred herein upon or reserved to the Authority 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 may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article 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 Attornevs' Fees and Expenses. In the event either party to this Lease 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 perfol1Tlance 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 Authority 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. Section 9.7. Trustee and Owners to Exercise Rights. Such rights and remedies as are given to the Authority under this Article IX have been assigned by the Authority to the Trustee under the 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. 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 14.0 I 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 ob1igations of the City under this Lease, and all security provided by this Lease for said obligations, shall cease and tel1Tlinate, 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 automatica11y and without further action by the City or the Authority (except as provided herein). Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease 28 DOCSOC\8460 19v3\24036.0025 02-1"8 Payments in accordance with the provisions of this Lease. The Authority shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for calT)'ing out the title transfer of the Leased Premises. Section 10.2. Extraordinary Prepayment. 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 Certitìcates) pursuant to Section 4.02 of the Trust Agreement. The City and the Authority 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 Prepavment. Subject to the terms and conditions of this Section, the Authority 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, provided that no amounts are owed to the Insurer under the Insurance Policy. The City and the Authority 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 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 Authority, as the case may be, at the addresses indicated in Section 14.05 of the Trust Agreement. The Authority, 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 Authority and the City and their respective successors and assigns. Section 11.3. Severabilitv. 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 Counterparts. 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. 29 DOCSOC\8460 19v3\24036 0025 c2 -/ C;; 9 Section 11.6. Insurer as Third-Partv Beneficiary. The Insurer is a third-party beneficiary of this Lease. 30 cJ-/70 DOCSOC\8460 19,3\24036.0025 IN WITNESS WHEREOF, the Authority 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 firsf above written. CHULA VISTA PUBLIC FINANCING AUTHORITY, as Authority By: Its: Executive Director Attest: Secretary CITY OF CHULA VISTA, as Lessee By: Its: City Manager Attest: City Clerk S-I 00('SO('\8460 19v3\24036.0025 ~-/7 I CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the real Leased Premises conveyed under the foregoing to the City of Chula Vista, a municipal corporation organized under 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 Chula Vista, pursuanf fo authority conferred by resolution of the said City Council adopted on ,2002 and the grantee consents to recordation thereof by its duly authorized officer. Dated: CITY OF CHULA VISTA By: Its: City Manager DOCSOC\8460 19v3\24036.0025 <::::.J - I 7 J..... EXHIBIT A SCHEDULE OF LEASE PAYMENTS Date Principal Interest Payment A-I r::;l - 173 DOCSOC\8460 19v3\24036 0025 EXHIBIT B DESCRIPTION OF THE LEASED PREMISES THAT REAL LEASED PREMISES IN THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO DESCRIBED AS FOLLOWS: PORTION OF LOT 17 IN QUARTER SECTION 137 OF CHULA VISTA, IN THE CITY OF CHULA VISTA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 505. B-1 c::::J - /, t./ 00C50C\8460 19v3\24036 0025 EXHIBIT C DESCRIPTION OF THE PROJECT The Project consists of the acquisition and construction of the City's police facility, consisting of approximately 160,000 square feet ofbui1dings and re1ated site improvements. C-I DOCSOC\8460 19v3\24036 0025 é)-( 7S- EXHIBIT D LEASE SUPPLEMENT FORM There is hereby subjected to the terms of that certain Lease/Purchase Agreement, dated as of June 1,2002, by and between the Authority and the City ofChula Vista (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: (I) 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 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 CHULA VISTA By: r signature 1 City Representative 0-1 c:J-f7(.,:. DOC'SOC\8460 19v3\24036.0025 EXHIBIT E FORM OF CERTIFICATE OF SUBSTITUTION OR ADDITION OF PROJECT COMPONENT I, of the City ofChula Vista (the "Issuer") hereby certify that project is to become a part of the Project as defined under the Lease/Purchase Agreement, dated as of June 1,2002 (the "Lease"), by and between the Issuer and 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 June 1,2002, by and among the Issuer, the Corporation and U.S. Bank, N.^-, as trustee thereunder, until such time as the Lease is terminated. City Representative E-l 02-/77 00('50('\8460 19v3\24036.0025 STATE OF CALIFORNIA ) ) ss COUNTY OF SAN DIEGO ) On June -' 2002 before me, the undersigned, personally appeared David D. Rowlands, Jf., personally known to me to be the person whose names is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the Instrument. [SEAL] WITNESS my hand and official seal Susan Bigelow, CMC/AAE City Clerk of the City ofChula Vista DOCSOC\8460 19vJ\240J60025 é?-/7fr Recording Requested By: City ofChula Vista When Recorded Mail To: StradJing Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 Attn: Robert J. Whalen This document is recorded for the benefit of the City of Chula Vista and recording is fee-exempt under § 27383 of the Government Code. SITE LEASE by and between the CITY OF CHULA VISTA and the CHULA VISTA PUBLIC FINANCING AUTHORITY Dated as of June 1,2002 $ City ofChula Vista 2002 Certificates of Participation (Police Facility Project) 00CSOC\846022vJ\240J6.0025 d-/?CJ SITE LEASE This SITE LEASE, executed and entered into as of June 1,2002, by and between the CITY OF CHULA VISTA, a municipal corporation duly organized and existing under and by virtue of the Constitution and laws of the State of Ca1ifomia (the "City"), and the CHULA VISTA PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under and by virtue of the laws of the State of California (the "Authority"); WITNESSETH: WHEREAS, the Authority 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 (the "Property") to the Authority; and WHEREAS, the Authority intends to lease back to the City the Property, together with the improvements to be constructed thereon (the "Project" and, together with the Property, 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 Authority 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 contract to be performed concurrently herewith, including without limitation the delivery of certain 2002 Certificates of Participation designated City of Chula Vista 2002 Certificates of Participation, (Police Facility Project) (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 Authority, and US. Bank, 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 the 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. Section 2. The Property. The City hereby leases to the Authority and the Authority hereby leases from the City, on the terms and conditions hereinafter set forth, the Property; provided that the Lease is duly executed and delivered by the parties hereto simultaneously herewith. 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 August I, 20- 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 defàult by the City under the Lease and the Authority's 1 DOCSOC\846022v3\24036.0025 c:;) -I ~ () 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 Authority, and any assignee or successor in interest of the Authority under this Site Lease, shall pay to the City, from proceeds of sale of the Certificates, the sum of $1.00 as prepayment of rental hereunder. Section 5. Purpose. The Authority shall use the Property solely for the purpose of leasing back such Property to the City or others 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 Authority may exercise the remedies ofrepossession of the Leased Premises, as provided in the Lease. Section 6. Interest in Property. The City warrants and covenants that it has sufficient interest in the Property to lease it hereunder. In the event of a title defect in the Property that impairs the right to use and occupy the Property, 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 Property and to cure such defect and limitation of the right to use and occupancy. Section 7. Assignments and Subleases. The City acknow1edges and affirms the assignment by the Authority 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 Authority without necessity of obtaining the consent of the City, if any event of default occurs under the Lease. Section 8. Termination. The Authority agrees, upon the termination of this Site Lease, to quit and surrender the Property 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 Property at the time of the termination of this Site Lease shall remain thereon and title thereto shall vest in the City. Upon payment by the City of all Lease Payments and all Additional Payments, the term of this Site Lease shall terminate. 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 Property may be released from this Site Lease. Upon payment by the City of all Lease Payments and all Additional Payments, as defined in the Lease, 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 Authority in the performance of any obligation of the Authority hereunder. Section 9. Quiet Eniovment. The Authority at all times during the term of this Site Lease shall peaceably and quietly have, hold and enjoy all of the Property. 2 DOCSDC\846022vJ\240J6.0025 <::::J - I ~ t Section 10. Default. In the event the Authority 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 are outstanding, the 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 Property. Section 12. Eminent Domain. In the event the whole or any part of the Property is taken by eminent domain proceedings, the interest of the Authority shall be recognized and is hereby determined to be the amount of unpaid Lease Payments and all Additional Payments due the Authority under the Lease. Section 13. Partial Invalidity. If anyone 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 tullest 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 ofCalifomia. Section 15. Representatives. Whenever under the provisions of this Site Lease the approval of the Authority or the City is required, or the Authority or the City is required to take some action at the request of the other, such approval or such request shall be given for the City by the Superintendent or the Director of Administrative Services, as representative, and for the Authority by its Executive Director, Secretary, Assistant Secretary or Treasurer, as representative, or his or her written designee as representative, and any party 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. Section 18. Amendments. This Site Lease may be amended in writing as may be mutually agreed by the City and the Authority; provided, however, that if Certificates have been executed and delivered no such amendment which materially adversely affects the rights of the Owners of the 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. 3 DOCSOC\846022vJ\24036.0025 c:::) - I f? J.... Section 19. Incorporation. This Site Lease is hereby made a part of the Lease and shall be subject to all the terms and conditions of the Lease. Section 20. Warranties of the City as to the Property. The City covenants and warrants to the Authority: (a) That except tor Permitted Encumbrances, the Property 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) That all taxes, assessments, or impositions of any kind with respect to the Property, except current taxes, have been paid in full; (c) That the Property is necessary to the City in order for the City to perform its governmental functions; and (d) That the Property is properly zoned for its intended purposes. 4 DOCSOC\846022v 3\2403 6.0025 c::J-(ff3 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. CITY OF CHULA VISTA By: Its: City Manager Attest: City Clerk CHULA VISTA PUBLIC FINANCING AUTHORITY By: Its: Executive Director Attest: Secretary S-l DOCSOC\846022v3\24036.0025 02-/"?cf EXHIBIT A DESCRIPTION OF PROPERTY THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO, AND IS DESCRIBED AS FOLLOWS: PORTION OF LOT [7 IN QUARTER SECTION 137 OF CHULA VISTA, IN THE CITY OF CHULA VISTA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 505. A-I DOCSOCIR46022v 3124036.0025 c;::;) - ( 'i? :s- STATE OF CALIFORNIA ) ) ss COUNTY OF SAN DIEGO ) On June -' 2002 before me, the undersigned, personally appeared David D. Rowlands, Jr., personally known to me to be the person whose names is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the mstrument. [SEAL] WITNESS my hand and official seal Susan Bigelow, CMC/AAE City Clerk of the City ofChula Vista DOCSOC\846022v 3\24036.0025 cJ -( ~~ AGENCY AGREEMENT by and among CHULA VISTA PUBLIC FINANCING AUTHORITY and CITY OF CHULA VISTA Relating to $ City ofChuIa Vista 2002 Certificates of Participation (Po1ice Facility Project) Dated as ofJune ],2002 DOC SO( '\894 900v 2 \240 3 6.0025 d-fc¿7 AGENCY AGREEMENT THIS AGENCY AGREEMENT (the "Agency Agreement"), dated as of June 1,2002, is entered into by and between CHULA VISTA PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "Authority"), and the CITY OF CHULA VISTA, a municipal corporation duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"); WITNESSETH: WHEREAS, the Authority and the City have entered into a Lease/Purchase Agreement, dated as of the date hereof (the "Lease"), whereby the Authority has agreed to lease to the City certain real property (the "Property") and the improvements to be constructed on the Property (the "Project" and, together with the Property, the "Leased Premises"); and WHEREAS, the Authority, pursuant to an Assignment Agreement (the "Assignment Agreement"), entered into as of the date hereof by and between the Authority and U.S. Bank, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States, as trustee (the "Trustee"), has assigned without recourse all its rights to receive the Lease Payments scheduled to be paid by the City under the Lease to the Trustee for the benefit of the owners of certificates of participation (the "Certificates") to be executed and delivered pursuant to a Trust Agreement of even date herewith (the "Trust Agreement"), by and among the Trustee, the Authority and the City; and WHEREAS, the Authority desires to appoint the City as its agent for the purposes of the acquisition, construction, delivery and installation of the Project; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been perfonned precedent to and in connection with the execution and entering into of this Agency Agreement do exist, have happened and have been perfonned in regular and due time, fOnD 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 I. Citv to Act as Agent for the Authority and the Citv. The Authority 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 Authority 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 any applicable requirements of governmental authorities and law. The appointment by the Authority 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, 2 DOC SO08 94 900 v2 \240 3 6.0025 eX -( f18' 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 or obligations of the Authority under the Lease which have been assigned by the Authority to the Trustee pursuant to the Assignment Agreement. It is recognized by the parties that the Authority has appointed the City for the purposes specified in this Agency Agreement, rather than appoint another finD or entity for said purposes, based upon the Authority's and the City's detennination that the City is suitable to perfonn 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 va1uable consideration in hand received, does hereby accept the foregoing appointment as agent of the Authority for the purposes set forth in Section I hereof. Section 3. Time of Completion and Liquidated Damages. The construction and equipping of the Project shall be completed on or prior to August 1,2004. It is agreed that, if the City does not cause the completion of the acquisition, construction, equipping and installation of the Project by its completion date specified above by construction contractors or a construction manager, whichever the City deems appropriate, liquidated damages will be assessed against the construction contractor for each day completion is delayed in an amount of not less than $- per day. The City shall cause to be paid to the Trustee all amounts received as liquidated damages for application toward the Lease Payments. Each construction contractor hired by the City shall be required to provide payment and perfonnance 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 tenus: (a) Construction and Completion. The City agrees to proceed with all due diligence to complete the construction, acquisition, delivery and installation of the Project, all in accordance with the plans and specifications for the Project (the "Plans and Specifications") approved pursuant to the DesignlBuild Agreement dated November 20, 2001 between the City and Highland Partnership, Inc. The City shall comply with all statutes and laws applicable to the perfonnance 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 Plans and Specifications 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, (iii) reduce the fair rental value of the Project, or (iv) increase the total Costs of the Project to an amount in excess of the amount in the Project Fund unless there has been deposited with the City an amount equal to such excess or unless there has been deposited with the City a certificate of an Authorized Representative of the City, 3 DOC SOC\8 94 900v 2\240 3 6.0025 cJ -/~1 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 Costs of the Project. Payment of the portion of the Costs of the Project being financed by the City shall be made from moneys deposited in the Project Fund, and shall be disbursed for such purpose in accordance and upon compliance with the Trust Agreement. Neither the Authority nor the City shall be liable for the payment of Costs of the Project other than from amounts on deposit in the Project Fund; and (d) Unexpended Monies. The City agrees that unexpended moneys remaining in the Project Fund shall, upon payment in full of all Costs of the Project, be applied solely in accordance with the provisions of the Trust Agreement. (e) Partial Invalidity. If anyone 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 3. Applicable Law. This Agency Agreement shall be governed by and construed in accordance with the laws of the State. Section 4. Representatives. Whenever under the provisions of this Agency Agreement the approval of the Authority or the City is required, or the Authority or the City is required to take some action at the request of the other, such approval or such request shall be given for the Authority by an Authorized Representative of the Authority and for the City by an Authorized Representative of the City and any party hereto shall be authorized to rely upon any such approval or request. Section 5. 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 ofChula Vista 276 Fourth Avenue Chula Vista, California 91910 Attention: Assistant City Manager If to the Authority: Chula Vista Public Financing Authority c/o City ofChula Vista 276 Fourth Avenue Chula Vista, California 91910 Attention: Executive Director If to the Trustee: U.S. Bank, N.A. 550 South Hope Street, Suite 500 Los Angeles, California 90071 Attention: Corporate Trust Services 4 DOC SOC\8 ~4 900v2 \240 3 6.0025 OJ-( 9G The Authority, the City and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices or other communications will be sent. Section 6. 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. Section 7. Execution in Counterparts. 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 8. 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 Authority and the City, with the prior written consent of the Trustee and the Insurer and subsequent notice thereof to the Rating Agency. 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. IN WITNESS WHEREOF, the parties hereto have executed this Agency Agreement as of the day and year first written above. CITY OF CHULA VISTA By: City Manager ATTEST: By: City Clerk CHULA VISTA PUBLIC FINANCING AUTHORITY By: Executive Director ATTEST: By: Secretary 5 DOCSOC\8 94 900v 2 \240 3 6.0025 d-!9/ Recording Requested By: ) City ofChula Vista ) ) When Recorded Mail To: ) Stradling Yocca Carlson & Rauth ) 660 Newport Center Drive, Suite 1600 ) Newport Beach, California 92660 ) Attn: Robert 1. Whalen ) This document is recorded for the benefit of the City ofChula Vista and recording is fee- exempt under §27383 of the Government Code. ASSIGNMENT AGREEMENT by and between the CHULA VISTA PUBLIC FINANCING AUTHORITY and U.S. BANK, N.A. as Trustee Dated as ofJune 1,2002 $ City ofChula Vista 2002 Certificates of Participation (Police Facility Project) DOCSOC\846025v 3\24036.0025 d-/9à ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT, executed and entered into as of June I, 2002, by the CHULA VISTA PUBLIC FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under and by virtue of the laws of the State of California (the "Authority"), and accepted by u.s. Bank, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America, as trustee under the Trust Agreement (defined below) (the "Trustee"); WITNESSETH: WHEREAS, the Authority and the City ofChula Vista, a municipal corporation and a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), have executed and entered into a Site Lease (the "Site Lease") and a Lease/Purchase Agreement (the "Lease"), each dated as of the date hereof and recorded concurrently herewith, whereby respectively, the City has agreed to lease certain real property of the City described in Exhibit A to the Site Lease and in Exhibit A hereto (the "Property") to the Authority and the Authority has agreed to lease back such Property and the improvements to be constructed thereon (collectively, the "Leased Premises") to the City, as provided therein; and WHEREAS, under and pursuant to the Lease, the City is obligated to make Lease Payments, as defined therein, to the Authority for the Lease of the Leased Premises; and WHEREAS, the Authority desires to assign without recourse all its rights to receive the Lease Payments scheduled to be paid by the City under and pursuant to the Lease to the Trustee and certain of its other rights, title, interest and obligations under the Lease as described herein; and WHEREAS, the Authority desires to assign without recourse all of its rights to, under and pursuant to the Site Lease to the Trustee; and WHEREAS, in consideration of such assignment and the execution and entering into of a Trust Agreement (the 'Trust Agreement") to be executed and entered into as of the date hereof, by and among the Trustee, the Authority and the City, the Trustee has agreed to execute and deliver certificates of participation designated City of Chula Vista 2002 Certificates of Participation (Police Facility Project) (the "Certificates") in an aggregate principal amount equal to the aggregate principal components of such Lease Payments; and WHEREAS, each party has deteffilined that all acts conditions and things required by law to exist, to have happened and to have been perfoffiled precedent to and in connection with its execution and entering into of this Assignment Agreement (the "Assignment Agreement") do exist, have happened and have been perfoffiled in regu1ar and due time, foffil and manner as required by law and it is now duly authorized to execute and enter into the Assignment Agreement. NOW, THEREFORE, IN CONSIDERA nON OF THE PREMISES AND OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR 1 DOCSOC\846025v 3\240360025 oì -/93 OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: Section 1. Assignment. - (a) Site Lease. The Authority hereby transfers, assigns and sets over to the Trustee, for the benefit of the Owners (as defined in the Trust Agreement) of the Certificates executed and delivered under the Trust Agreement, all of the Authority's rights, title, and interest under the Site Lease. (b) Lease. The Authority hereby transfers, assigns and sets over to the Trustee, for the benefit of the owners of the Certificates executed and delivered under the Trust Agreement, all of the Authority's rights, title, interest and obligations under the Lease (excepting only the Authority's rights under Sections 2.I(e), 4.11, 7.14 and 9.4 of the Lease), including, without limitation, (I) the right to receive and collect all of the Lease Payments, Prepayments and Additional Payments (except to the extent payable to the Authority) (as such terms are defined in the Trust Agreement) from the City under the Lease or the Trust Agreement, as applicable, (2) the right to receive and collect any proceeds of any insurance maintained thereunder, or any condemnation award rendered with respect to the Leased Premises, or of any lease of the Leased Premises in the event of a default by the City under the Lease, (3) the right to take all actions and give all consents under the Lease, including without limitation, Section 7.8(b) (regarding liens), 8.2(b) (regarding subleases), Section 8.3 (regarding amendments of the Lease) and Section 9.2 (regarding defaults), (4) the right to exercise such rights and remedies conferred on the Authority pursuant to the Lease as may be necessary or convenient (i) to enforce payment of the Lease Payments, Prepayments and Additional Payments and any other amounts required to be deposited in the Lease Payment Fund, the Prepayment Fund, the Reserve Fund or the Net Proceeds Fund established under the Trust Agreement, or (ii) otherwise to protect the interests of the Authority in the event of a default by the City under the Lease, and (5) the right of the Authority to receive rental in excess of Lease Payments as compensation for re-leasing the Leased Premises upon events of default under the Lease, as provided in Section 9.2(a) and (b) of the Lease. (c) Assignment for Owners of Certificates. All rights assigned by the Authority shall be administered by the Trustee as assignee thereof according to the provisions of the Trust Agreement and for the equal and proportionate benefits of the Owners of the Certificates. Section 2. Acceptance. The Trustee hereby accepts the foregoing assignment for the benefit of the Owners of the Certificates, subject to the conditions and terms of the Trust Agreement, and all such Lease Payments shall be applied and all such rights so assigned shall be exercised by the Trustee under and pursuant to the Trust Agreement. Section 3. Conditions. The Assignment Agreement shall confer no rights and shall impose no obligations upon the Trustee beyond those expressly provided in the Trust Agreement. The Trustee does not warrant the accuracy of the recitals hereto. The Trustee shall not be responsible for any representations, covenants or warranties of the Authority. The assignment hereunder is to the Trustee solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. The Trustee is not responsible for 2 DOC SOC\8460 2 5 v 3 \240 3 6.0025 r;::) -/9 '1 any representations, warranties or covenants made by the assignor under the Lease or the Site Lease. Section 4. No Other Claim. The Authority hereby represents and warrants that there are no present and outstanding claims on Lease Payments or any other moneys assigned by the Authority to the Trustee hereunder. Section 5. Counterparts. This Assignment Agreement 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. 3 DOCSOC\846025v3\24036.0025 C2 -I <¡ ç- ¡ IN WITNESS WHEREOF, the parties hereto have executed and entered into the Assignment Agreement by their officers thereunto duly authorized as of the day and year first above written. CHULA VISTA PUBLIC FINANCING AUTHORITY By: Its: Executive Director Attest: By: Secretary Accepted by: u.s. BANK, N.A., as Trustee By: Its: Authorized Officer S-l DOC SO08460 25 v 3 \240 3 6.0025 ó2-(9fp EXHIBIT A DESCRIPTION OF THE PROPERTY THAT REAL PROPERTY IN THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO DESCRIBED AS FOLLOWS: PORTION OF LOT 17 IN QUARTER SECTION 137 OF CHULA VISTA, IN THE CITY OF CHULA VISTA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 505. A-I 02 -I 9 7 OOC500846025v3\24036.0025 STATE OF CALIFORNIA ) ) ss COUNTY OF SAN DIEGO ) On June -' 2002 before me, the undersigned, personally appeared David D. Rowlands, Jr., personally known to me to be the person whose names is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. [SEAL] WITNESS my hand and official seal Susan Bigelow, CMC/AAE City Clerk of the City ofChula Vista DOCSOC\846025v 3124036.0025 ~-!9l{ STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) On June -' 2002 before me, the undersigned, personally appeared , personal1y known to me (or 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. [SEAL] WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC ¡ 00CSOC\846025,]\24036 0025 ~ -( ? 9