The URL can be used to link to this page

Home My WebLink AboutC-4527(E) - PSA for Bond Counsel Services (Newport Beach Civic Center)usaq�0 PROFESSIONAL SERVICES AGREEMENT WITH STRADLING YOCCA CARLSON & RAUTH FOR BOND COUNSEL SERVICES THIS AGREEMENT is made and entered into as of this Wt l day of �I�yi , 2010 ( "Effective Date "), by and between the CITY OF NEWPORT BEACH, a Municipal Corporation ( "City "), STRADLING YOCCA CARLSON & RAUTH, A California Professional Corporation, whose address is: 660 Newport Center Dr., Suite 1600, Newport Beach California, 92660 -6422 ( "Consultant'), and is made with reference to the following: RECITALS A. City is a municipal corporation duly organized and validly existing under the laws of the State of California with the power to carry on its business as it is now being conducted under the statutes of the State of California and the Charter of City. B. City is contemplating financing the construction of various public improvements through the issuance and sale of municipal securities such as lease revenue bonds ( "Bonds "). Potential public improvements that may be financed by the issuance of Bonds include, but are not limited to, the development and construction of a new Civic Center, Sunset Ridge Park, Marina Park, and the Oasis Senior Center, Bonds may also be used to refinance the outstanding Central Library Certificates of Participation (Refunded Series 1992) ( "COPs "). Collectively, all the contemplated public improvements, Bonds and COPs refinancing shall be referred to as the `Project'. C. City desires to engage Consultant to act as Bond Counsel in connection with the proposed Project. D. Consultant possesses the skill, experience, ability, background, certification and knowledge to provide the services described in this Agreement. E. The principal attorney with the Consultant for purposes of the Project shall be David R. McEwen. F. City has solicited and received a proposal from Consultant, has reviewed the previous experience and evaluated the expertise of Consultant, and desires to retain Consultant to render professional services under the terms and conditions set forth in this Agreement. NOW, THEREFORE, it is mutually agreed by and between the undersigned parties as follows: 1. TERM The term of this Agreement shall commence on the Effective Date, and shall terminate upon either the issuance of the Bonds and completion of all Project work or on 31 St day of March 2011, whichever is sooner. 2. SERVICES TO BE PERFORMED; EXCLUDED SERVICES Consultant shall diligently perform all the services described under the heading "Services Included" -in the Scope of Services attached hereto as Exhibit A and incorporated herein by reference. The City may elect to delete certain tasks of the Scope of Services at its sole discretion. Consultant shall not be responsible for the services described under the heading "Services Excluded" in Exhibit A. 3. TIME OF PERFORMANCE Time is of the essence in the performance of services under this Agreement and the services shall be performed to completion in a diligent and timely manner. The failure by Consultant to perform the services in a diligent and timely manner may result in termination of this Agreement by City. 4. COMPENSATION TO CONSULTANT Consultant's compensation for all work performed in accordance with this Agreement, contingent upon issuance of the Bonds, shall be the total sum of One Hundred Thousand Dollars and no1100 ($100,000.00). The total sum shall not be exceeded without prior written authorization from City. In the event that no Bonds are sold, Consultant shall only be entitled to be reimbursed for reimbursable items set forth herein and shall not be entitled to any fees or other compensation under this Agreement. 4.1 City shall reimburse Consultant for those costs or expenses specifically approved in this Agreement, or specifically approved in writing in advance by City. Unless otherwise approved, such costs shall be limited and include nothing more than the following costs incurred by Consultant: A. Document reproduction charges, overnight delivery and messenger charges, telecommunication charges, printing costs, filing fees, and long distance telephone calls. B. Actual costs and /or other costs and /or payments specifically authorized in advance in writing by City and incurred by Consultant in the performance of this Agreement. 4.2 Consultant shall not receive any compensation for Extra Work performed without the prior written authorization of City. As used herein, "Extra Work" means any work that is determined by City to be necessary for the proper completion of the Project, but which is not included within the Scope of Services and which the parties did not reasonably anticipate would be necessary at the execution of this Agreement. Extra Work shall be paid at the customary hourly rate of the attorney performing such services, which rate in no event will exceed $325.00 per hour. 2 5. PROJECT MANAGER Consultant shall designate a Project Manager, who shall coordinate all phases of the Project. This Project Manager shall be available to City at all reasonable times during the Agreement term. Consultant has designated David R. McEwen to be its Project Manager. Consultant shall not remove or reassign the Project Manager without the prior written consent of City. City's approval shall not be unreasonably withheld. Consultant, at the sole discretion of City, shall remove from the Project any of its personnel assigned to the performance of services upon written request of City. Consultant warrants that it will continuously furnish the necessary personnel to complete the Project on a timely basis as contemplated by this Agreement. 6. ADMINISTRATION This Agreement will be administered by the Administrative Services Department. Dan Matusiewicz shall be the Project Administrator and shall have the authority to act for City under this Agreement. The Project Administrator or his authorized representative shall represent City in all matters pertaining to the services to be rendered pursuant to this Agreement. 7. CITY'S RESPONSIBILITIES To assist Consultant in the execution of its responsibilities under this Agreement, City agrees to, where applicable, provide access to, and upon request of Consultant, one copy of all existing relevant information on file at City. City will provide all such materials in a timely manner so as not to cause delays in Consultant's work schedule. 8. STANDARD OF CARE 8.1 All of the services shall be performed by Consultant or under Consultant's supervision. Consultant represents that it possesses the professional and technical personnel required to perform the services required by this Agreement, and that it will perform all services in a manner commensurate with community professional standards. All services shall be performed by qualified and experienced personnel who are not employed by City, nor have any contractual relationship with City. By delivery of completed work, Consultant certifies that the work conforms to the requirements of this Agreement and all applicable federal, state and local laws and the professional standard of care. 8.2 Consultant represents and warrants to City that it has, shall obtain, and shall keep in full force in effect during the term hereof, at its sole cost and expense, all licenses, permits, qualifications, insurance and approvals of whatsoever nature that is legally required of Consultant to practice its profession. Consultant shall maintain a City of Newport Beach business license during the term of this Agreement. 8.3 Consultant shall not be responsible for delay, nor shall Consultant be responsible for damages or be in default or deemed to be in default by reason of strikes, lockouts, accidents, or acts of God, or the failure of City to furnish timely information or 3 to approve or disapprove Consultant's work promptly, or delay or faulty performance by City, contractors, or governmental agencies. 9. HOLD HARMLESS To the fullest extent permitted by law, Consultant shall defend City, its City Council, boards and commissions, officers, agents, volunteers, and employees (collectively, the "Indemnified Parties ") against any and all claims (including, without limitation, claims for bodily injury, death or damage to property), investigations, challenges, demands, obligations, damages, actions, causes of action, suits, losses, judgments, fines, penalties, liabilities, costs and expenses (including, without limitation, attorney's fees, disbursements and court costs) of every kind and nature whatsoever (individually, a Claim; collectively, "Claims "), which may arise from or in any manner relate (directly or indirectly) to any breach of the terms and conditions of this Agreement, any Work performed or Services provided under this Agreement including, without limitation, defects in workmanship or materials or Consultant's presence or activities conducted on the Project (including the negligent and /or willful acts, errors and /or omissions of Consultant, its principals, officers, agents, employees, vendors, suppliers, subconsultants, subcontractors, anyone employed directly or indirectly by any of them or for whose acts they may be liable or any or all of them). To the fullest extent permitted by law, Consultant shall indemnify and hold harmless City, its City Council, boards and commissions, officers, agents, volunteers, and employees (collectively, the "Indemnified Parties ") from and against any and all claims (including, without limitation, claims for bodily injury, death or damage to property), demands, obligations, damages, actions, causes of action, suits, losses, judgments, fines, penalties, liabilities, costs and expenses (including, without limitation, attorney's fees, disbursements and court costs) of every kind and nature whatsoever (individually, a Claim; collectively, "Claims "), which is proximately caused by any breach of the terms and conditions of this Agreement and any Work performed or Services provided under this Agreement (including the negligent and /or willful acts, errors and /or omissions of Consultant, its principals, officers, agents, employees, anyone employed directly or indirectly by any of them or for whose acts they may be liable or any or all of them). Notwithstanding the foregoing, nothing herein shall be construed to require Consultant to indemnify the Indemnified Parties from any Claim arising from the sole negligence or willful misconduct of the Indemnified Parties. Nothing in this indemnity shall be construed as authorizing any award of attorney's fees in any action on or to enforce the terms of this Agreement. This indemnity shall apply to all claims and liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by the Consultant. 10. INDEPENDENT CONTRACTOR It is understood that City retains Consultant on an independent contractor basis and Consultant is not an agent or employee of City. The manner and means of conducting the work are under the control of Consultant, except to the extent they are 12 limited by statute, rule or regulation and the expressed terms of this Agreement. Nothing in this Agreement shall be deemed to constitute approval for Consultant or any of Consultant's employees or agents, to be the agents or employees of City. Consultant shall have the responsibility for and control over the means of performing the work, provided that Consultant is in compliance with the terms of this Agreement. Anything in this Agreement that may appear to give City the right to direct Consultant as to the details of the performance or to exercise a measure of control over Consultant shall mean only that Consultant shall follow the desires of City with respect to the results of the services. 11. COOPERATION Consultant agrees to work closely and cooperate fully with City's designated Project Administrator and any other agencies that may have jurisdiction or interest in the work to be performed. City agrees to cooperate with the Consultant on the Project. 12. CITY POLICY Consultant shall discuss and review all matters relating to policy and Project direction with City's Project Administrator in advance of all critical decision points in order to ensure the Project proceeds in a manner consistent with City goals and policies. 13. PROGRESS Consultant is responsible for keeping the Project Administrator and /or his duly authorized designee informed on a regular basis regarding the status and progress of the Project, activities performed and planned, and any meetings that have been scheduled or are desired. 14. INSURANCE Without limiting Consultant's indemnification of City, and prior to commencement of work, Consultant shall obtain, provide and maintain at its own expense during the term of this Agreement, policies of insurance of the type and amounts described below and in a form satisfactory to City. A. Proof of Insurance. Consultant shall provide certificates of insurance to City as evidence of the insurance coverage required herein, along with a waiver of subrogation endorsement for workers' compensation. Insurance certificates and endorsement must be approved by City's Risk Manager prior to commencement of performance. Current certification of insurance shall be kept on file with City at all times during the term of this contract. City reserves the right to require complete, certified copies of all required insurance policies, at any time. Consultant shall procure and maintain for the duration of the contract insurance against claims for injuries to persons or damages to property, which may arise from or in connection with the performance of the Work 5 hereunder by Consultant, his agents, representatives, employees or subconsultants. The cost of such insurance shall be included in Consultant's bid. B. Acceptable Insurers. All insurance policies shall be issued by an insurance company currently authorized by the Insurance Commissioner to transact business of insurance in the State of California, with an assigned policyholders' Rating of A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best's Key Rating Guide, unless otherwise approved by the City's Risk Manager. C. Coverage Requirements. i. Workers' Compensation Coverage. Consultant shall maintain Workers' Compensation Insurance (Statutory Limits) and Employer's Liability Insurance (with limits of at least one million dollars ($1,000,000)) for Consultant's employees in accordance with the laws of the State of California, Section 3700 of the Labor Code In addition, Consultant shall require each subconsultant to similarly maintain Workers' Compensation Insurance and Employer's Liability Insurance in accordance with the laws of the State of California, Section 3700 for all of the subconsultant's employees. Any notice of cancellation or non - renewal of all Workers' Compensation policies must be received by City at least thirty (30) calendar days (ten (10) calendar days written notice of non- payment of premium) prior to such change. Consultant shall submit to City, along with the certificate of insurance, a Waiver of Subrogation endorsement in favor of City, its officers, agents, employees and volunteers. ii. General Liability Coverage. Consultant shall maintain commercial general liability insurance in an amount not less than one million dollars ($1,000,000) per occurrence for bodily injury, personal injury, and property damage, including without limitation, blanket contractual liability. iii. Automobile Liability Coverage. Consultant shall maintain automobile insurance covering bodily injury and property damage for all activities of the Consultant arising out of or in connection with Work to be performed under this Agreement, including coverage for any owned, hired, non -owned or rented vehicles, in an amount not less than one million dollars ($1,000,000) combined single limit for each accident. iv. Professional Liability (Errors & Omissions) Coverage. Consultant shall maintain professional liability insurance that covers the Services to be performed in connection with this Agreement, in the minimum amount of five million dollars ($5,000,000) limit per claim and in the aggregate. D. Other Insurance Provisions or Requirements. The policies are to contain, or be endorsed to contain, the following provisions: i. Waiver of Subrogation. All insurance coverage maintained or procured pursuant to this agreement shall be endorsed to waive subrogation against City, its elected or appointed officers, agents, officials, employees and volunteers or shall specifically allow Consultant or others providing insurance evidence in compliance with these requirements to waive their right of recovery prior to a loss. Consultant hereby waives its own right of recovery against City, and shall require similar written express waivers and insurance clauses from each of its subconsultants. ii. Enforcement of Contract Provisions. Consultant acknowledges and agrees that any actual or alleged failure on the part of the City to inform Consultant of non - compliance with any requirement imposes no additional obligations on the City nor does it waive any rights hereunder. iii. Requirements not Limiting. Requirements of specific coverage features or limits contained in this Section are not intended as a limitation on coverage, limits or other requirements, or a waiver of any coverage normally provided by any insurance. Specific reference to a given coverage feature is for purposes of clarification only as it pertains to a given issue and is not intended by any party or insured to be all inclusive, or to the exclusion of other coverage, or a waiver of any type. iv. Notice of Cancellation. Consultant agrees to oblige its insurance agent or broker and insurers to provide to City with thirty (30) days notice of cancellation (except for nonpayment for which ten (10) days notice is required) or nonrenewal of coverage for each required coverage. E. Timely Notice of Claims. Consultant shall give City prompt and timely notice of claims made or suits instituted that arise out of or result from Consultant's performance under this Agreement. F. Additional Insurance. Consultant shall also procure and maintain, at its own cost and expense, any additional kinds of insurance, which in its own 7 judgment may be necessary for its proper protection and prosecution of the Work. 15. PROHIBITION AGAINST ASSIGNMENTS AND TRANSFERS Except as specifically authorized under this Agreement, the services to be provided under this Agreement shall not be assigned, transferred contracted or subcontracted out without the prior written approval of City. Any of the following shall be construed as an assignment: The sale, assignment, transfer or other disposition of any of the issued and outstanding capital stock of Consultant, or of the interest of any general partner or joint venturer or syndicate member or cotenant if Consultant is a partnership or joint- venture or syndicate or cotenancy, which shall result in changing the control of Consultant. Control means fifty percent (50 %) or more of the voting power, or twenty -five percent (25 %) or more of the assets of the corporation, partnership or joint - venture. 16. SUBCONTRACTING The parties recognize that a substantial inducement to City for entering into this Agreement is the professional reputation, experience and competence of Consultant. Assignments of any or all rights, duties or obligations of the Consultant under this Agreement will be permitted only with the express written consent of City. Consultant shall not subcontract any portion of the work to be performed under this Agreement without the prior written authorization of City. 17. OWNERSHIP OF DOCUMENTS Each and every report, draft, document and other writing produced (hereinafter "Documents "), prepared or caused to be prepared by Consultant, its officers, employees, agents and subcontractors, in the course of implementing this Agreement, shall become the exclusive property of City, and City shall have the sole right to use such materials in its discretion without further compensation to Consultant or any other party. Consultant shall, at Consultant's expense, provide such Documents to City upon prior written request. Documents prepared by Consultant pursuant to this Agreement are not intended or represented to be suitable for reuse by City or others on any other project. Any use of completed Documents for other projects and any use of incomplete Documents without specific written authorization from Consultant will be at City's sole risk and without liability to Consultant. Further, any and all liability arising out of changes made to Consultant's deliverables under this Agreement by City or persons other than Consultant is waived against Consultant and City assumes full responsibility for such changes unless City has given Consultant prior notice and has received from Consultant written consent for such changes. 0 18. CONFIDENTIALITY All Documents, including drafts, notes and communications that result from the services in this Agreement, shall be kept confidential unless City authorizes in writing the release of information. 19. RECORDS Consultant shall keep records and invoices in connection with the work to be performed under this Agreement. Consultant shall maintain complete and accurate records with respect to the costs incurred under this Agreement and any services, expenditures and disbursements charged to City, for a minimum period of three (3) years, or for any longer period required by law, from the date of final payment to Consultant under this Agreement. All such records and invoices shall be clearly identifiable. Consultant shall allow a representative of City to examine, audit and make transcripts or copies of such records and invoices during regular business hours. Consultant shall allow inspection of all work, data, Documents, proceedings and activities related to the Agreement for a period of three (3) years from the date of final payment to Consultant under this Agreement. 20. WITHHOLDINGS City may withhold payment to Consultant of any disputed sums until satisfaction of the dispute with respect to such payment. Such withholding shall not be deemed to constitute a failure to pay according to the terms of this Agreement. Consultant shall not discontinue work as a result of such withholding. Consultant shall have an immediate right to appeal to the City Manager or his /her designee with respect to such disputed sums. Consultant shall be entitled to receive interest on any withheld sums at the rate of return that City earned on its investments during the time period, from the date of withholding of any amounts found to have been improperly withheld. 21. ERRORS AND OMISSIONS In the event of errors or omissions that are due to the negligence or professional inexperience of Consultant which result in expense to City greater than what would have resulted if there were not errors or omissions in the work accomplished by Consultant, the additional expense shall be borne by Consultant. Nothing in this paragraph is intended to limit City's rights under the law or any other sections of this Agreement. 22. CITY'S RIGHT TO EMPLOY OTHER CONSULTANTS City reserves the right to employ other Consultants in connection with the Project. 23. CONFLICTS OF INTEREST The Consultant or its employees may be subject to the provisions of the California Political Reform Act of 1974 (the "Act "), which (1) requires such persons to I*] disclose any financial interest that may foreseeably be materially affected by the work performed under this Agreement, and (2) prohibits such persons from making, or participating in making, decisions that will foreseeably financially affect such interest. If subject to the Act, Consultant shall conform to all requirements of the Act. Failure to do so constitutes a material breach and is grounds for immediate termination of this Agreement by City. Consultant shall indemnify and hold harmless City for any and all claims for damages resulting from Consultant's violation of this Section. 24. NOTICES All notices, demands, requests or approvals to be given under the terms of this Agreement shall be given in writing, and conclusively shall be deemed served when delivered personally, or on the third business day after the deposit thereof in the United States mail, postage prepaid, first -class mail, addressed as hereinafter provided. All notices, demands, requests or approvals from Consultant to City shall be addressed to City at: Attn: Dan Matusiewicz Administrative Services Department City of Newport Beach PO Box 1768 3300 Newport Boulevard Newport Beach, CA 92658 Phone: (949) 644 -3126 Fax: (949) 644 -3339 All notices, demands, requests or approvals from CITY to Consultant shall be addressed to Consultant at: Attn: David R. McEwen Stradling Yocca Carlson & Rauth 660 Newport Center Dr., Suite 1600 Newport Beach, CA 92660 -6422 Phone: (949) 725 -4162 Fax: (949) 823 -5162 25. TERMINATION In the event that either party fails or refuses to perform any of the provisions of this Agreement at the time and in the manner required, that party shall be deemed in default in the performance of this Agreement. If such default is not cured within a period of two (2) calendar days, or if more than two (2) calendar days are reasonably required to cure the default and the defaulting party fails to give adequate assurance of due performance within two (2) calendar days after receipt of written notice of default, specifying the nature of such default and the steps necessary to cure such default, and thereafter diligently take steps to cure the default, the non - defaulting party may 10 terminate the Agreement forthwith by giving to the defaulting party written notice thereof. Notwithstanding the above provisions, City shall have the right, at its sole discretion and without cause, of terminating this Agreement at any time by giving seven (7) calendar days prior written notice to Consultant. In the event of termination under this Section, City shall pay Consultant for services satisfactorily performed and costs incurred up to the effective date of termination for which Consultant has not been previously paid. On the effective date of termination, Consultant shall deliver to City all reports, Documents and other information developed or accumulated in the performance of this Agreement, whether in draft or final form. 26. COMPLIANCE WITH ALL LAWS Consultant shall at its own cost and expense comply with all statutes, ordinances, regulations and requirements of all governmental entities, including federal, state, county or municipal, whether now in force or hereinafter enacted. In addition, all work prepared by Consultant shall conform to applicable City, county, state and federal laws, rules, regulations and permit requirements and be subject to approval of the Project Administrator and City. A waiver by either party of any breach, of any term, covenant or condition contained herein shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, whether of the same or a different character. 28. INTEGRATED CONTRACT This Agreement represents the full and complete understanding of every kind or nature whatsoever between the parties hereto, and all preliminary negotiations and agreements of whatsoever kind or nature are merged herein. No verbal agreement or implied covenant shall be held to vary the provisions herein. 29. CONFLICTS OR INCONSISTENCIES In the event there are any conflicts or inconsistencies between this Agreement and the Scope of Services or any other attachments attached hereto, the terms of this Agreement shall govern. 30. INTERPRETATION The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of the Agreement or any other rule of construction which might otherwise apply. 11 31. AMENDMENTS This Agreement may be modified or amended only by a written document executed by both Consultant and City and approved as to form by the City Attorney. 32. SEVERABILITY If any term or portion of this Agreement is held to be invalid, illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. 33. CONTROLLING LAW AND VENUE The laws of the State of California shall govern this Agreement and all matters relating to it and any action brought relating to this Agreement shall be adjudicated in a court of competent jurisdiction in the County of Orange. 34. EQUAL OPPORTUNITY EMPLOYMENT Consultant represents that it is an equal opportunity employer and it shall not discriminate against any subcontractor, employee or applicant for employment because of race, religion, color, national origin, handicap, ancestry, sex or age. 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year first written above. APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY DW=71a w Leonie Mulvihill, Assistant City Attorney City of Newport Beach ATTEST: By: 4 . U�1rVb_� Leilani I. Brown, City Clerk City of Newport Beach CITY OF NEWPORT BEACH, A Municipal Corporation By: :- Keith D. Curry, Mayor City of Newport Beach CONSULTANT: Stradling Yocc ja Carlson & Rauth By: /0�- (Corporate Officer) II N1 I WN i / Print Name: ®dvil oe, Apo By: , 4'a, (Financial dOfficer) Title: U YV Print Name: %N'( K--RN Attachments: Exhibit A — Scope of Services 13 EXHIBIT A SCOPE OF SERVICES Services Included The City retains Bond Counsel to provide, and Bond Counsel will provide, legal services in connection with the issuance of the Certificates. Bond Counsel agrees to consult with and advise City officials as to the best legal method of accomplishing the issuance of the Certificates. Such services shall include, but not limited to, the drafting of resolutions, agreements and other documents required for the issuance of the Certificates and the rendering of a legal opinion (hereinafter called "the opinion ") pertaining to the issuance of the Certificates to the effect that: (a) The Certificates have been properly authorized, executed and delivered and are valid binding obligations; (b) The essential sources of security for the Certificates have been legally provided; and (c) Interest with respect to the Certificates is exempt from California personal income taxation and is excluded from gross income for purposes of federal income taxes. Bond Counsel's services will also include compiling a sufficient record justifying the opinion by: (i) Researching applicable laws and ordinances relating to the Certificates; (ii) Attending conferences and consulting with City staff and counsel regarding such laws, and the need for amendments thereto, or additional legislation; (iii) Participating with any financial advisors, underwriters or other experts retained by the City in structuring the issuance of the Certificates; (iv) Supervising and preparing documentation of certain steps to be taken through the issuance of the certificates including: a. Drafting all resolutions, rules and regulations, and other legal documents relating to the security of the Certificates, in consultation with City, its counsel, financial advisors, underwriter and other experts; b. Preparing the record of proceedings for the authorization, sale and issuance of the Certificates; c. Reviewing those portions of the official statement or placement memorandum for the Certificates which describe the Certificates, the financing documents prepared by us and our opinion; d. Reviewing the purchase contract or the bidding documents for the Certificates and participating in the related negotiations; e. Attending informational meetings and other conferences scheduled by the City, the financial advisors or the underwriter; f. Consulting with prospective purchasers of the Certificates, their legal counsel and rating agencies; g. Consulting with counsel to City concerning any legislation or litigation during the course of the financings; h. Consulting with the trustee for the Certificates, and counsel to the trustee; i. Preparing the form of the Certificates, and supervising their production or printing, signing, authentication and delivery; j. Rendering the final approving opinion as to the validity of the Certificates for use and distribution upon their issuance; and k. Rendering any necessary collateral legal opinions as to the applicability of the registration requirements of federal securities laws. A -2 v &DOOR'S August 5, 2010 City of Newport Beach 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658- -8915 Attention: Mr. Dave Kiff, City Manager Morna Lebron Manager Fee Administration 55 Water Street, 38th Floor New York, NY 10041 -0003 tel212 438 -6808 morna_lebronC,Dstandardandpoors.com issue no.: 1137691 Steven G. Zimmermann Managing Director One Market Steuart Tower, 15th Floor San Francisco, CA 94105 -1000 tel 415 371 -5000 Steven _zimmermanngstandardandpoors.co m Re: US$130,000,000 Newport Beach, California, Certificates Of Participation Dear Mr. Kiff: Thank you for your request for a Standard & Poor's rating for the above - referenced obligations. In accepting a Standard & Poor's rating, you agree to accept and comply with this letter and the enclosed Terms and Conditions. We will make every effort to provide you with the high level of analytical performance and knowledgeable service for which we've become known worldwide. The analytic team from Standard & Poor's is Bea Chiem and Paul Dyson. If you have any questions at any time, please feel free to contact Bea at 1(415) 371 -5070 or by email at bea chiem (a- ,standardandpoors.com. Paul can be reached at 415- 371 -5079 or by email at paul dyson@standardandpoors.com. If you have not already done so, please forward a set of all pertinent information to each analyst at the following address: Standard & Poor's Ratings Services Public Finance Department One Market Steuart Tower, 15th Floor San Francisco, CA 94105 -1000 In consideration of our analytic review and issuance of the rating, you agree to pay us the following fees: Rating Fee of $41,000. Standard & Poor's reserves the right to adjust the rating fee if the proposed par amount changes. Payment of the fee is not conditioned on Standard & Poor's issuance of any particular rating. Mr. Dave Kiff Page 3 August 5, 2010 CONFIRMED, AGREED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN City of Newport Beach By. Name: Title: or your agents or advisors infringes or violates the intellectual property rights of a third party, except in either case, to the extent such Losses are judicially determined to result from gross negligence or willful misconduct of Ratings Services. Confidential Information. For purposes of this Agreement, "Confidential Information" shall mean information that you or your agents or advisors have provided to Ratings Services and, in a specific and particularized manner, have marked or otherwise indicated in writing that such information is "Proprietary and Confidential." Notwithstanding the foregoing, information disclosed by you or your agents or advisors to Ratings Services shall not be deemed to be Confidential Information, and Ratings Services shall have no obligation to treat such information as Confidential Information, if such information (i) was known by Ratings Services or its affiliates at the time of such disclosure and was not known by Ratings Services to be subject to a prohibition on disclosure, (ii) was known to the public at the time of such disclosure, (iii) becomes known to the public (other than by an act of Ratings Services or its affiliates) subsequent to such disclosure, (iv) is disclosed to Ratings Services or its affiliates by a third party subsequent to such disclosure and Ratings Services reasonably believes that such third party's disclosure to Ratings Services or its affiliates was not prohibited, (v) is developed independently by Ratings Services or its affiliates without reference to the Confidential Information, (vi) is approved in writing by you for public disclosure, or (vii) is required by law or regulation to be disclosed by Ratings Services or its affiliates or publicly disclosed by you. Ratings Services' Use of Information. Except as otherwise provided herein, Ratings Services shall not disclose Confidential Information to third parties. Ratings Services may use Confidential Information to assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, and may share Confidential Information with its affiliates engaged in the ratings business, provided that, in each case, the Confidential Information is not presented publicly in a way that can be attributed to you and such affiliates are bound by appropriate confidentiality obligations. Ratings Services may also use, publish and share Confidential Information with any of its affiliates or agents engaged in the ratings or other financial services businesses who are bound by appropriate confidentiality obligations ( "Relevant Affiliates and Agents "), for modelling, benchmarking and research purposes, provided that, in each case, Confidential Information is not presented publicly in a way that can be attributed to you. With respect to structured finance ratings not maintained on a confidential basis, Ratings Services may publish data aggregated from Confidential Information, excluding data that is specific to and identifies individual debtors ( "Relevant Data "), and share such Confidential Information with any of its Relevant Affiliates and Agents for general market dissemination of Relevant Data; you confirm that, to the best of your knowledge, there are no third parties whose rights would be adversely affected by any such publication. Ratings Services and its affiliates reserve the right to use, publish, disseminate, or license others to use, publish or disseminate any non- Confidential Information provided by you, your agents or advisors. Ratings Services Not an Expert, Underwriter or Seller under Securities Laws. Ratings Services has not consented to and will not consent to being named an "expert" or any similar designation under any applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation, Section 7 of the U.S. Securities Act of 1933. Ratings Services is not an "underwriter" or "seller" as those terms are defined under applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation Sections 11 and 12(a)(2) of the U.S. Securities Act of 1933. Rating Services has not performed the role or tasks associated with an "underwriter" or "seller" under the United States federal securities laws or other regulatory guidance, rules or recommendations in connection with this engagement. Office of Foreign Assets Control. Neither you nor the issuer (if you are not the issuer) is subject to economic, trade, or transactional sanctions imposed by the United States Government or any state government. None of you, the issuer (if you are not the issuer), or any of your or the issuer's owners, directors, officers, employees, or group companies appears on any list of known or suspected terrorists, terrorist organizations or other prohibited persons maintained by any agency of the United States Government or of any other jurisdiction in which you or the issuer or any of your or the issuer's group of companies are doing business, including but not limited to the List of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury. Neither you nor the issuer (if you are not the issuer) is owned or controlled, directly or indirectly, by any entity subject to such sanctions or appearing on such lists. For so long as this agreement is in effect, you will promptly notify Ratings Services if any of these circumstances change. Ratings Services' Use of Confidential Ratings. Ratings Services may use confidential ratings in its analysis of the debt issued by collateralized debt obligation (CDO) and other investment vehicles. Ratings Services may disclose a Ratings U.S. (5/21/10) the exclusive forums for any dispute arising out of or relating to this Agreement and the parties hereby consent to the personal jurisdiction of such courts. Ratings U.S. (5/21/10) STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To Ratings You understand and agree that: General. The ratings and other views of Standard & Poor's Ratings Services ( "Ratings Services ") are statements of opinion and not statements of fact. A rating is not a recommendation to purchase, hold, or sell any securities nor does it comment on market price, marketability, investor preference or suitability of any security. While Ratings Services bases its ratings and other views on information provided by issuers and their agents and advisors, and other information from sources it believes to be reliable, Ratings Services does not perform an audit, and undertakes no duty of due diligence or independent verification, of any information it receives. Such information and Ratings Services' opinions should not be relied upon in making any investment decision. Ratings Services does not act as a "fiduciary" or an investment advisor. Ratings Services neither recommends or will recommend how an issuer can or should achieve a particular rating outcome nor provides or will provide consulting, advisory, financial or structuring advice. All Rating Actions in Ratings Services' Sole Discretion. Ratings Services may assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, at any time, in Ratings Services' sole discretion. Ratings Services may take any of the foregoing actions notwithstanding any request for a confidential rating or a withdrawal of a rating, or termination of this Agreement. Ratings Services will not convert a public rating to a confidential rating. Publication. Ratings Services reserves the right to use, publish, disseminate, or license others to use, publish or disseminate the rating provided hereunder and any analytical reports, including the rationale for the rating, unless you specifically request in connection with the initial rating that the rating be assigned and maintained on a confidential basis. If, however, a confidential rating or the existence of a confidential rating subsequently becomes public through disclosure other than by an act of Ratings Services or its affiliates, Ratings Services reserves the right to treat the rating as a public rating, including, without limitation, publishing the rating and any related analytical reports. Any analytical reports published by Ratings Services are not issued by or on behalf of you or at your request. Notwithstanding anything to the contrary herein, Ratings Services reserves the right to use, publish, disseminate or license others to use, publish or disseminate analytical reports with respect to public ratings that have been withdrawn, regardless of the reason for such withdrawal. Ratings Services may publish explanations of Ratings Services' ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Ratings Services' ability to modify or refine its ratings criteria at any time as Ratings Services deems appropriate. Information to be Provided by You. For so long as this agreement is in effect, in connection with the rating provided hereunder, you warrant that you will provide, or cause to be provided, as promptly as practicable, to Ratings Services (i) all information requested by Ratings Services in accordance with its published ratings criteria, and (ii) any other information relevant to the rating and, if applicable, surveillance of the rating, including, without limitation, information on material changes to information previously provided by you, your agents or advisors to Ratings Services, other than information you reasonably believe is not material to the rating or such surveillance. The rating, and the maintenance of the rating, may be affected by Ratings Services' opinion of the information received from you or your agents or advisors. You further warrant that all information provided to Ratings Services by you or your agents or advisors regarding the rating or, if applicable, surveillance of the rating, contains no untrue statement of material fact and does not omit a material fact necessary in order to make such information, in light of the circumstances in which it was provided, not misleading. A material breach of the warranties in this paragraph shall constitute a material breach of this Agreement. To the extent permitted by applicable law, you will be liable to Rating Services and its affiliates for all losses, damages, liabilities, judgments, costs, charges and expenses (including reasonable attorneys' fees) ( "Losses ") (x) resulting from a material breach of the warranties in this paragraph, including but not limited to all Losses arising from claims asserted by any third party against Ratings Services, or (y) that arise out of or relate to any claim that the information provided by you Ratings U.S. (5/21/10) or your agents or advisors infringes or violates the intellectual property rights of a third party, except in either case, to the extent such Losses are judicially determined to result from gross negligence or willful misconduct of Ratings Services. Confidential Information. For purposes of this Agreement, "Confidential Information" shall mean information that you or your agents or advisors have provided to Ratings Services and, in a specific and particularized manner, have marked or otherwise indicated in writing that such information is "Proprietary and Confidential." Notwithstanding the foregoing, information disclosed by you or your agents or advisors to Ratings Services shall not be deemed to be Confidential Information, and Ratings Services shall have no obligation to treat such information as Confidential Information, if such information (i) was known by Ratings Services or its affiliates at the time of such disclosure and was not known by Ratings Services to be subject to a prohibition on disclosure, (ii) was known to the public at the time of such disclosure, (iii) becomes known to the public (other than by an act of Ratings Services or its affiliates) subsequent to such disclosure, (iv) is disclosed to Ratings Services or its affiliates by a third party subsequent to such disclosure and Ratings Services reasonably believes that such third party's disclosure to Ratings Services or its affiliates was not prohibited, (v) is developed independently by Ratings Services or its affiliates without reference to the Confidential Information, (vi) is approved in writing by you for public disclosure, or (vii) is required by law or regulation to be disclosed by Ratings Services or its affiliates or publicly disclosed by you. Ratings Services' Use of Information. Except as otherwise provided herein, Ratings Services shall not disclose Confidential Information to third parties. Ratings Services may use Confidential Information to assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, and may share Confidential Information with its affiliates engaged in the ratings business, provided that, in each case, the Confidential Information is not presented publicly in a way that can be attributed to you and such affiliates are bound by appropriate confidentiality obligations. Ratings Services may also use, publish and share Confidential Information with any of its affiliates or agents engaged in the ratings or other financial services businesses who are bound by appropriate confidentiality obligations ( "Relevant Affiliates and Agents "), for modelling, benchmarking and research purposes, provided that, in each case, Confidential Information is not presented publicly in a way that can be attributed to you. With respect to structured finance ratings not maintained on a confidential basis, Ratings Services may publish data aggregated from Confidential Information, excluding data that is specific to and identifies individual debtors ( "Relevant Data "), and share such Confidential Information with any of its Relevant Affiliates and Agents for general market dissemination of Relevant Data; you confirm that, to the best of your knowledge, there are no third parties whose rights would be adversely affected by any such publication. Ratings Services and its affiliates reserve the right to use, publish, disseminate, or license others to use, publish or disseminate any non- Confidential Information provided by you, your agents or advisors. Ratings Services Not an Expert, Underwriter or Seller under Securities Laws. Ratings Services has not consented to and will not consent to being named an "expert" or any similar designation under any applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation, Section 7 of the U.S. Securities Act of 1933. Ratings Services is not an "underwriter" or "seller" as those terms are defined under applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation Sections 11 and 12(a)(2) of the U.S. Securities Act of 1933. Rating Services has not performed the role or tasks associated with an "underwriter" or "seller" under the United States federal securities laws or other regulatory guidance, rules or recommendations in connection with this engagement. Office of Foreign Assets Control. Neither you nor the issuer (if you are not the issuer) is subject to economic, trade, or transactional sanctions imposed by the United States Government or any state government. None of you, the issuer (if you are not the issuer), or any of your or the issuer's owners, directors, officers, employees, or group companies appears on any list of known or suspected terrorists, terrorist organizations or other prohibited persons maintained by any agency of the United States Government or of any other jurisdiction in which you or the issuer or any of your or the issuer's group of companies are doing business, including but not limited to the List of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury. Neither you nor the issuer (if you are not the issuer) is owned or controlled, directly or indirectly, by any entity subject to such sanctions or appearing on such lists. For so long as this agreement is in effect, you will promptly notify Ratings Services if any of these circumstances change. Ratings Services' Use of Confidential Ratings. Ratings Services may use confidential ratings in its analysis of the debt issued by collateralized debt obligation (CDO) and other investment vehicles. Ratings Services may disclose a Ratings U. S. (5/2 1 /10) confidential rating as a confidential credit estimate to the managers of CDO and similar investment vehicles. Ratings Services may permit CDO managers to use and disseminate credit estimates on a limited basis and subject to various restrictions; however, Ratings Services cannot control any such use or dissemination. Entire Agreement. Nothing in this Agreement shall prevent Ratings Services from acting in accordance with applicable laws, regulations and Ratings Services' policies as published from time to time. Subject to the prior sentence, this Agreement constitutes the complete and entire agreement between the parties regarding its subject matter. The terms of this Agreement supersede any other terms and conditions relating to information provided to Ratings Services by you or your agents and advisors, including without limitation, terms and conditions of websites through which you or your agents and advisors make such information available to Ratings Services, and such terms and conditions shall not apply to Ratings Services. Limitation on Damages. Ratings Services does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information. RATINGS SERVICES GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Ratings Services, its affiliates or third party providers, or any of their officers, directors, shareholders, employees or agents shall not be liable to you, your affiliates or any person asserting claims on your behalf, directly or indirectly, for any inaccuracies, errors, or omissions, in each case regardless of cause, actions, damages (consequential, special, indirect, incidental, punitive, compensatory, exemplary or otherwise), claims, liabilities, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in any way arising out of or relating to the rating provided hereunder or the related analytic services even if advised of the possibility of such damages or other amounts except to the extent such damages or other amounts are judicially determined to result from gross negligence or willful misconduct of Ratings Services. In furtherance and not in limitation of the foregoing, Ratings Services will not be liable to you, your affiliates or any person asserting claims on your behalf in respect of any decisions alleged to be made by any person based on anything that may be perceived as advice or recommendations. In the event that Ratings Services is nevertheless held liable to you, your affiliates, or any person asserting claims on your behalf for monetary damages under this Agreement, in no event shall Ratings Services be liable in an aggregate amount in excess of three times the aggregate fees paid to Ratings Services for the rating giving rise to the cause of action during the twelve- months preceding the date the alleged claim has arisen, up to a maximum of US$1,000,000 except to the extent such limitation is unenforceable by law. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. Neither party waives any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Termination of Agreement. This Agreement may be terminated by either party at any time upon written notice to the other party. Except where expressly limited to the term of this Agreement, these Terms and Conditions shall survive the termination of this Agreement. No Third —Party Beneficiaries. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary of this Agreement or of the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Amendments. This Agreement may not be amended except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties irrevocably agree that the state and federal courts of New York located in the County of New York shall be Ratings U.S. (5/21/10) 6 the exclusive forums for any dispute arising out of or relating to this Agreement and the parties hereby consent to the personal jurisdiction of such courts. Ratings U.S. (5/21/10) $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CLOSING MEMORANDUM Time and Place Preclosing will be held on Monday, November 29, 2010 and Closing on Tuesday, November 30, 2010. Preclosing will be held at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, CA at 1:00 p.m. Closing will be via telephone at 9:00 a.m. Parties City David Kiff, City Manager Tracy McCraner, Director of Administrative Services /Treasurer Dan Matusiewicz, Deputy Director of Administrative Services /Treasurer City of Newport Beach City Attorney David R. Hunt, City Attorney Leonie Mulvihill, Deputy City Attorney Special Counsel David R. McEwen, Esq. Brian P. Forbath, Esq. Carol L. Lew, Esq. Stradling Yocca Carlson & Rauth Disclosure Counsel Arto C. Becker, Esq. Diane Quan, Esq. Hawkins Delafield & Wood LLP Financial Advisor Tom DeMars, Principal Robert Porr, Sr. Vice President Paul Pender, Vice President Fieldman, Rolapp & Associates Underwriters William Huck, Managing Director Ken Holman, Vice President Stone & Youngberg LLC, Representative For: Eric Scriven, Senior Vice President E.J. De La Rosa & Co., Inc. DOC S OC/ 1445072v3 /022459 -0014 Underwriters' Counsel Trustee Trustee's Counsel Escrow Agent Dissemination Agent DOC SOC/ 1445072v3/022459 -0014 Grace Barvin, Director John Houlberg, Vice President Bank of America Merrill Lynch Cheryl Hines, Managing Director Raymond James Chris Lynch, Esq. Jones Hall Greg Chenail The Bank of New York Mellon Trust Company, N.A. Rhea L. Murphy, Esq. The Bank of New York Mellon Trust Company, N.A. Martin Meza U.S. Bank National Association Jenny Emami, Client Services Manager Digital Assurance Certification, L.L.C. (DAC) $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CLOSING INDEX BASIC DOCUMENTS 1. Site Lease 2. Memorandum of Lease /Purchase Agreement 3. Lease /Purchase Agreement 4. Assignment Agreement 5. Trust Agreement 6. Continuing Disclosure Agreement 7. Agency Agreement 8. Escrow Agreement; Instructions and Request to Trustee 9. Calculation Agency Agreement DOCUMENTS TO BE DELIVERED BY THE CITY 10. Resolution No. 2010 -65 entitled "A Resolution of the City Council of the City of Newport Beach Regarding its Intention to Enable Reimbursement of Interim Expenditures from Proceeds of a Possible Future Debt Issuance for Civic Center Project," adopted June 22, 2010; Minutes of the June 22, 2010 meeting. 11. Resolution No. 2010 423 entitled "A Resolution of the City Council of the City of Newport Beach Approving the Escrow Agreement, Appropriating Funds and Authorizing the City Manager to Take all Necessary Action in Connection Therewith," adopted October 26, 2010; Minutes of the October 26, 2010 meeting. 12. Resolution No. 2010 -126 entitled "A Resolution of the City Council of the City of Newport Beach Authorizing the Preparation, Sale and Delivery of Not to Exceed $128,000,000 Principal Amount of Certificates of Participation, Series 2010 (Civic Center Project/Central Library Refunding) and Approving Certain Documents and Authorizing Certain Actions in Connection Therewith," adopted November 9, 2010; Minutes of the November 9, 2010 meeting. DOC S OC/ 1445072v3 /022459 -0014 13. CDIAC Report of Proposed Debt Issuance (2), Acknowledgment from CDIAC (2) and Report of Final Sale (2) 14. Certificate as to Near Finality of the Preliminary Official Statement 15. Incumbency and Signature Certificate of the City 16. Closing Certificate of the City 17. Instructions to Trustee 18. Written Delivery Costs Requisition — Requisition No. 1 (2010A Certificates) 19. Written Delivery Costs Requisition — Requisition No. 1 (2010B Certificates) 20. Tax Certificate, together with Certificate of the Underwriters; IRS Form 8038 -G 21. Tax Certificate (201013 BABs), together with Certificate of Underwriters; IRS Form 8038 -B 22. Certificate Regarding Insurance; Certificate of Insurance 23. DTC Blanket Issuer Letter of Representations 24. Specimen Certificate of Participation (2) DOCUMENTS TO BE DELIVERED BY THE CORPORATION 25. Resolution No. PFC2010 -1 entitled "Resolution of the Board of Directors of the Newport Beach Public Facilities Corporation Approving the Execution and Delivery of Documents in Connection With the Sale and Delivery of Not To Exceed $128,000,000 Principal Amount of Certificates of Participation and Authorizing Certain Actions in Connection Therewith," adopted November 9, 2010; Minutes of the November 9, 2010 meeting. 26. Incumbency and Signature Certificate of the Corporation, together with (a) Bylaws, (b) Articles of Incorporation, and (c) Statement of Information (Domestic Nonprofit Corporation) 27. Closing Certificate of the Corporation 28. Certificate of Status Domestic Nonprofit Corporation (Good Standing Certificate) 29. FTB Exempt Letter of Good Standing DOCUMENTS RELATING TO THE SALE OF THE CERTIFICATES 30. Purchase Contract — Letter of Representations 31. Preliminary Official Statement 2 DOC SOC/ 1445072v3/022459 -0014 32. Official Statement 33. Underwriter's Receipt for the Certificates 34. Rating Letters (3) DOCUMENTS TO BE DELIVERED BY THE TRUSTEE 35. Officer's Certificate; Extracts from By -Laws 36. Closing Certificate of Trustee 37. Trustee's Receipt of Proceeds DOCUMENTS TO BE DELIVERED BY THE ESCROW AGENT 38. Authorized Signer(s) Certificate 39. Closing Certificate of Escrow Agent 40. Escrow Agent's Receipt OPINIONS 41. Approving Opinion of Special Counsel — 2010A (Tax Exempt) 42. Approving Opinion of Special Counsel — 2010B (Federally Taxable Direct Pay Build America Bonds) 43. Reliance Letter to the Trustee 44. Supplemental Opinion of Special Counsel 45. Defeasance Opinion of Special Counsel 46. Opinion of City Attorney 47. Opinion of Corporation Counsel 48. Opinion of Counsel to the Trustee 49. Opinion of Underwriters' Counsel 50. Opinion of Disclosure Counsel; Reliance Letter 3 DOC SOC/ 1445072v3/022459 -0014 MISCELLANEOUS 51. Letter of Instructions to Title Company 52. Title Insurance Policies (9) 53. Termination of Project Lease 54. Termination of Site Lease 55. Certificate of Dissemination Agent 56. Agreement of Mutual Understanding Regarding Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase Recorded on May 8, 1992 as Instrument No. 92- 304757 57. Agreement of Mutual Understanding Regarding Amended and Restated Grant Deed (Parcel 3, Parcel Map 90 -361 Newport Village) Recorded on June 2, 2008 as Instrument No.2008000262433 58. Amendment of Declaration of Special Land Mortgage Lien and Option to Repurchase No. 92- 304757 59. Distribution List 4 DOCSOC/ 1445072v3/022459 -0014 Use Restrictions, Right of First Refusal, recorded on May 8, 1992 as Instrument R va. suz.,! By flcl�,fily N£31-Lonal `ualle RECORDING REQUESTED BY: City of Newport Beach AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, Californ ia 92660 Attn: David R. McEwen, Esq. This Document was electronically recorded by Fidelity National Major Accounts Recorded in Official Records, Orange County Tom Daly, Clerk-Recorder NO FEE 2010000635816 10:54am 11/29/10 93 401 L02 22 0.00 0.00 0.00 0.00 63.00 0.00 0.00 0.00 [Space above for Recorder's 'Phis document is recorded for the benefit of the City of Newport Beach and recording is fee - exempt under §27383 of the Government Code. SITE LEASE by and between CITY OF NEWPORT BEACH and NEWPORT BEACH PUBLIC FACILITIES CORPORATION Dated as of November 1, 2010 Relating to $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOC/1423572v7/022459 -0014 SITE LEASE This SITE LEASE, dated as of November 1, 2010, by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City "), and the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation "); WITNESSETH: WHEREAS, the Corporation has agreed to enter into this Site Lease (the "Site Lease ") with the City wherein the City will lease the real property described in Exhibit A hereto and the existing improvements thereon (the "Leased Premises ") to the Corporation; and WHEREAS, the Corporation intends to lease back to the City the Leased Premises pursuant to a Lease /Purchase Agreement to be executed and entered into as of the date hereof (the "Lease "); and WHEREAS, by resolutions the City and the Corporation have agreed to execute this Site Lease, and to deliver it upon performance and compliance by each party with all terms or conditions of this Site Lease to be performed concurrently herewith, including, without limitation, the delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 201013 (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates ") executed and delivered pursuant to a Trust Agreement, dated as of the date hereof (the "Trust Agreement "), by and among the City, the Corporation, and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "); and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Site Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into the Site Lease. NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: Section 1. Definitions. All terms not otherwise defined herein shall have the definitions given such terms in the Trust Agreement or the Lease. Section 2. The Leased Premises. The City hereby leases to the Corporation and the Corporation hereby leases from the City, on the terms and conditions hereinafter set forth, the Leased Premises; rop vided that the Lease is duly executed and delivered by the parties hereto simultaneously herewith. DOCSOC/ 1423572 V7 /022459 -0014 Section 3. Term. The tern of this Site Lease shall commence as of the date of execution hereof and shall remain in effect until the later of July 1, 2040 or the Term, as defined in the Lease, expires as provided therein, unless such term is sooner terminated as hereinafter provided; provided, however, that in the event of a default by the City under the Lease and the Corporation's election to terminate the Lease under Section 9.2(b) thereof, the term of this Site Lease shall not terminate until such time as all amounts payable by the City under the Lease and the Trust Agreement have been paid in full. Section 4. Rental. The Corporation, and any assignee or successor in interest of the Corporation under this Site Lease, shall pay to the City a single rental payment of $127,118,669.55, from proceeds of sale of the Certificates, by causing such amount to be deposited and applied pursuant to the Trust Agreement. Section 5. Purpose. The Corporation shall use the Leased Premises solely for the purpose of leasing back such Leased Premises to the City pursuant to the Lease and for such purposes as may be incidental thereto; provided, that in the event of default by the City under the Lease or termination pursuant thereto, the Corporation may exercise the remedies of repossession of the Leased Premises, as provided in the Lease. Section 6. Interest in Leased Premises. The City warrants and covenants that it has sufficient interest in the Leased Premises to lease it hereunder. In the event of a title defect in the Leased Premises that impairs the right to use and occupy the Leased Premises, the City covenants that it will exercise its power, including but not limited to, its condemnation powers to the extent permitted by law, to obtain the necessary rights in the Leased Premises and to cure such defect and limitation of the right to use and occupancy. Section 7. Assignments and Subleases. The City acknowledges and affirms the assignment by the Corporation of certain of its rights under this Site Lease to the Trustee, under the terms of the Assignment Agreement dated as of the date hereof, for the benefit of the Owners of the Certificates. This Site Lease may also be assigned and the Leased Premises subleased, as a whole or in part, by the Corporation without necessity of obtaining the consent of the City, if any event of default occurs under the Lease. Section 8. Termination. The Corporation agrees, upon the termination of this Site Lease, to quit and surrender the Leased Premises in the same good order and condition as the same was in at the time of commencement of the term hereunder, reasonable wear and tear excepted, and agrees that any permanent improvements and structures existing upon the Leased Premises at the time of the termination of this Site Lease shall remain thereon and title thereto shall vest in the City. Upon the exercise by the City of its option to purchase a portion of the Leased Premises, as set forth in Section 7.3 of the Lease and upon payment therefor, a corresponding portion of the Leased Premises may be released from this Site Lease. Upon payment by the City of all Lease Payments and all Additional Payments due during the tern of the Lease, as provided for in Article IV thereof, the term of this Site Lease shall terminate. Under no circumstances may the City terminate this Site Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation hereunder. DOCSOC/ 1423 572v7/022459 -0014 Section 9. Quiet Enjoyment. The Corporation at all times during the term of this Site Lease shall peaceably and quietly have, hold and enjoy all of the Leased Premises; provided, however, that the City shall have the right to replace or renovate some or all of the existing improvements to the Leased Premises with new improvements of equivalent or greater value. Section 10. Default. In the event the Corporation shall be in default in the performance of any obligation on its part to be performed under the terms of this Site Lease, which default continues for 30 days following written notice and demand for correction thereto by the City, the City may exercise any and all remedies granted by law; provided, however, that no merger of this Site Lease and the Lease shall be deemed to occur as a result thereof and, so long as any Certificates and Additional Certificates are outstanding, this Site Lease shall not be terminated except as provided in Section 8 hereof. Section 11. Takes. Subject to the provisions of Section 7.7 of the Lease, the City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Premises. Section 12. Eminent Domain. In the event the whole or any part of the Leased Premises is taken by eminent domain proceedings, the interest of the Corporation shall be recognized and is hereby determined to be the amount of unpaid Lease Payments and all Additional Payments due the Corporation under the Lease. Section 13. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Site Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Site Lease shall be affected thereby, and each provision of this Site Lease shall be valid and enforceable to the fullest extent permitted by law. Section 14. Applicable Law. This Site Lease shall be governed by and construed in accordance with the laws of the State of California. Section 15. Representatives. Whenever under the provisions of this Site Lease the approval of the Corporation or the City is required, or the Corporation or the City is required to take some action at the request of the other, such approval or such request shall be given for the City by the City Manager or the Assistant City Manager, or their written designees, as representative, and for the Corporation by its President, Vice - President, Secretary, Assistant Secretary or Treasurer, or their written designees, as representative, and any 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. DOC S OC/1423 572v7/022459 -0014 Section 18. Amendments. This Site Lease may be amended in writing as may be mutually agreed by the City and the Corporation; provided, however, that no such amendment which materially adversely affects the rights of the Owners of the Certificates and any Additional Certificates shall be effective unless it shall have been consented to by the Trustee and the Owners of a majority in aggregate principal amount of the Certificates then Outstanding. Section 19. Incorporation. This Site Lease shall be subject to all the terms and conditions of the Lease. Section 20. Warranties of the City as to the Leased Premises. The City covenants and warrants to the Corporation that: (a) except for Permitted Encumbrances, the Leased Premises is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the financing as contemplated by the Lease; (b) all taxes, assessments, or impositions of any kind with respect to the Leased Premises, except current taxes, have been paid in full; (c) the Leased Premises is properly zoned for its intended purposes; and (d) the Leased Premises is necessary to the City in order for the City to perform its governmental functions. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK) DOCSOC/1423572v7/022459 -0014 IN WITNESS WHEREOF, the parties have caused this Site Lease to be executed by their duly authorized officers as of the date and year first above written. [SEAL] ATTEST: r City Clerk ATTEST: G._ ! Secree`aYy CITY OF NEWPORT BEACH By:_ Its: Cit 6i NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: ChiefFinan(i lOfficer Signed in Counterpart S -1 DOCSOC/1423572v7/022459 -0014 [Site Lease Signature Pages Continued] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: t ,...� David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL By: Sadl�i ing �Iocca Carlson & Rauth, a Professional Corporation Signed in Counterpa S -2 D O C S O C/ 1423 5 72v7/022459 -0014 CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the Leased Premises conveyed under the foregoing to the Newport Beach Public Facilities Corporation (the "Corporation "), a 501(c)4 nonprofit public benefit corporation duly organized under the laws of the State of California, is hereby accepted by the undersigned officer or agent on behalf of the Corporation, pursuant to authority conferred by resolution of the said Corporation adopted on November 9, 2010, and the grantee consents to recordation thereof by its duly authorized officer. Dated: November a, 2010 NEWPORT BEACH PUBLIC FACILITIES CORPORATION By' — Its: C ief Fir>an ial Officer [SEAL] ATTEST: Secre�'xt� DOC SOC/1423572v7/022459 -0014 STATE OF CALIFORNIA COUNTY OF ORANGE On �OV�$A K '7,,; , 2010, before me, the undersigned, personally appeared , personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacities, and that by his signature(x)�'on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. [SEAL] DOC SOC/ 1423 572x7/022459 -0014 CW n - Leilani 1. Brown, City Clerk of the City of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE On NV ✓ ' d3 , 2010, before me, Il l-AA personally appeared to me on the basis of satisfactory evidence to the CTO7v , Notary Public, 1 who proved whose names(sk, is/^ subscribed to the within instrument and acknowledged to me that Mshe�y executed the same in �li�(her /tl authorized capacity(} ,and that by s/herG*)& signature�on the instrument the person�or the entity upon behalf of which the persotacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal DOCSOC/1423572v7/022459 -0014 0� �, WASHINGTON Commission # 1840150 Z Notary Public - CalilOrnia z'a® of County M CComm. Ex ires Mar 12, 2013+ EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property and improvements thereon in the City of Newport Beach, County of Orange, State of California, described as follows: Newport Coast Community Center: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: A PORTION OF PARCEL 1 OF LOT LINE ADJUSTMENT 94 -006, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED MARCH 22, 1994, AS INSTRUMENT NUMBER 94- 0202108 OF OFFICIAL RECORDS, ORANGE COUNTY RECORDERS OFFICE, STATE OF CALIFORNIA, BEING MORE PRACTICALLY DESCRIBED AS FOLLOWS: COMMENCING AT THE CENTERLINE INTERSECTION OF NEWPORT COAST DRIVE AND SAN JOAQUIN HILLS ROAD AS SHOWN ON SAID TRACT MAP; THENCE NORTH 840 27' 16" WEST ALONG SAID CENTERLINE OF SAN JOAQUIN HILLS ROAD A DISTANCE OF 441.70 FEET; THENCE LEAVING SAID CENTERLINE NORTH 050 32' 44" EAST A DISTANCE OF 61.49 FEET TO THE NORTHERLY RIGHT OF WAY LINE OF LAST SAID ROAD, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 05° 32' 44" EAST A DISTANCE OF 345.01 FEET TO A POINT ON A NON - TANGENT CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 142.54 FEET TO WHICH A RADIAL LINE BEARS SOUTH 480 54' 51" WEST; THENCE CONTINUING ALONG THE NORTHERLY LINE OF SAID LOT LINE ADJUSTMENT THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHEASTERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 370 02'25" AN ARC LENGTH OF 92.15 FEET; THENCE SOUTH 78° 07' 34" EAST A DISTANCE OF 36.87 FEET; THENCE NORTH 740 03' 52" EAST A DISTANCE OF 79.69 FEET; THENCE NORTH 64'42' 53" EAST A DISTANCE OF 58.38 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 50.00 FEET; THENCE EASTERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 250 58' 33" AN ARC LENGTH OF 22.67 FEET; THENCE SOUTH 89° 18'34" EAST A DISTANCE OF 123.01 FEET; THENCE NORTH 77° 16'30" EAST A DISTANCE OF 18.90 FEET TO WESTERLY RIGHT OF WAY LINE OF SAID NEWPORT COAST DRIVE AND THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2291.00 FEET TO WHICH A RADIAL LINE BEARS SOUTH 850 40' 34" EAST; THENCE CONTINUING ALONG LAST SAID WESTERLY RIGHT OF WAY LINE THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 030 11'42" AN ARC LENGTH OF 127.75 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE WESTERLY HAVING A RADIUS OF 201.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF A -1 DOCSOC/ 1423 572v7/022459 -0014 80 19' 02" AN ARC LENGTH OF 29.18 FEET; THENCE SOUTH 151 50' 10" WEST A DISTANCE OF 30.62 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY HAVING A RADIUS OF 219.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 070 34' 07" AN ARC LENGTH OF 28.93 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2929.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 81° 23' 57" EAST; THENCE SOUTHERLY ALONG SAID REVERSE CURVE THROUGH A CENTRAL ANGLE OF 20 09' 07" AND ARC LENGTH OF 110.03 FEET; THENCE SOUTH 79° 14' 50" EAST A DISTANCE OF 4.00 FEET TO THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2925.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 79° 14' 50" EAST; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 00 34'09" AN ARC LENGTH OF 29.06 FEET TO AN ANGLE POINT ON SAID WESTERLY RIGHT OF WAY LINE; THENCE LEAVING SAID RIGHT OF WAY LINE SOUTH 480 1 F 54" WEST A DISTANCE OF 29.57 FEET TO A POINT ON SAID NORTHERLY RIGHT OF WAY LINE OF SAN JOAQUIN HILLS ROAD; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE SOUTH 890 52' 33" WEST A DISTANCE OF 51.85 FEET; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE NORTH 850 17'57" WEST A DISTANCE OF 305.86 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM ARID ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM OTHER LANDS OTHER THAN THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERLY TO DRILL, MINE, STORE, 'EXPLORE, OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, FOR USE OF SURFACE OR SUBSURFACE WATER BY THE COUNTY FOR LOCAL PARK PURPOSES ON THE PROPERTY, ANY AND ALL WATER, SOLAR - HEATED WATER, RECLAIMED RIGHTS, WHETHER SURFACE OR SUBSURFACE, APPURTENANT OR RELATING TO THE PROPERTY, OR OWNED OR USED BY OFFEROR IN CONNECTION WITH THE PROPERTY TOGETHER WITH THE RIGHT TO EXPLORE, DRILL, REDRILL AND REMOVE SUCH WATER FROM THE PROPERTY, TO STORE SUCH WATER IN THE GROUND -WATER BASIN UNDERLYING THE PROPERTY BY PERCOLATING, SPREADING, OR INJECTING WATER INTO SUCH BASIN FROM LOCATIONS ON LANDS LYING OUTSIDE OF THE PROPERTY, AND TO DIVERT OR OTHERWISE A -2 DOCSOC/ 1423 572v7/022459-0014 UTILIZE SUCH WATER, RIGHTS, OR INTERESTS ON ANY OTHER PROPERTY OWNED OR LEASED BY OFFEROR, BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RIGHT, AS RESERVED BY THE IRVINE COMPANY, A MICHIGAN CORPORATION, IN IRREVOCABLE OFFER OF DEDICATION, RECORDED APRIL 8, 1993, AS INSTRUMENT NO. 93- 0234810, AND IN GRANT DEED RECORDED JANUARY 2, 1997, AS INSTRUMENT NO. 19970000564, BOTH OF OFFICIAL RECORDS. Mariner's Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL A: A PARCEL OF LAND CONTAINING 9.019 ACRES AND BEING A PORTION OF BLOOK 53, AS SHOWN UPON A MAP OF IRVINE'S SUBDIVISION RECORDED IN MISCELLANEOUS MAPS, BOOK 1, PAGE 88, RECORDS OF ORANGE COUNTY, CALIFORNIA, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO -WIT: BEGINNING AT THE INTERSECTION OF A LINE LYING SOUTHWESTERLY OF, PARALLEL TO, AND DISTANT 17 FEET FROM THE SOUTHEASTERLY PROLONGATION OF THE CENTER LINE OF 19TH STREET AS SHOWN UPON A MAP OF NEWPORT HEIGHTS, RECORDED IN MISCELLANEOUS MAP BOOK 4, PAGE 83, RECORDS OF ORANGE COUNTY, SAID LINE ALSO BEING THE NORTHWESTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE ORANGE COUNTY FLOOD CONTROL CHANNEL, AS CONVEYED TO THE COUNTY OF ORANGE BY DEED RECORDED APRIL 7, 1954, IN BOOK 2705, PAGE 539, OFFICIAL RECORDS OF SAID ORANGE COUNTY, AND A LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE SOUTH 50° 11' 30" EAST ALONG SAID NORTHWESTERLY PROLONGATION AND ALONG SAID SOUTHWESTERLY LINE OF SAID FLOOD CONTROL CHANNEL A DISTANCE OF 277 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHWEST AND HAVING A RADIUS OF 868 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE AND SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 713.99 FEET; THENCE SOUTH 3° 03' 42" EAST, TANGENT TO LAST MENTIONED CURVE, AND ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 58 FEET; THENCE SOUTH 16° 55'29" EAST ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 10.46 FEET; THENCE SOUTH 860 56' 18" WEST A DISTANCE OF 106.72 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHEAST AND HAVING A RADIUS 'OF 710 FEET; SAID LINE ALSO BEING THE SOUTHWESTERLY PROLONGATION OF THE CENTER LINE OF MARINERS DRIVE, 60 FEET IN WIDTH, AS SHOWN UPON A MAP OF TRACT NO. 3004, RECORDED IN MISCELLANEOUS MAP BOOK 92, PAGES 1 AND 2, RECORDS OF SAID ORANGE COUNTY; THENCE WESTERLY ALONG SAID CURVE A DISTANCE OF 152.14 FEET; THENCE NORTH 15° 20' 20" A -3 DOCSOC/1423572d7/022459 -0014 WEST, RADIAL TO LAST MENTIONED CURVE, A DISTANCE OF 30 FEET; THENCE NORTH 500 1 F 05" WEST A DISTANCE OF 758.99 FEET TO A POINT OF INTERSECTION WITH THE AFOREMENTIONED PARALLEL LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE NORTH 39° 48' 55" EAST ALONG SAID PARALLEL LINE A DISTANCE OF 495.70 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM, THAT PORTION OF THE LAND CONVEYED TO NEWPORT -MESA UNIFIED SCHOOL DISTRICT IN QUITCLAIM DEED RECORDED JANUARY 14, 2003 AS INSTRUMENT NO. 2003000045873, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH HAVING A BEARING AND DISTANCE OF N I5 020'20" W 30.00 FEET, SAID NORTHWESTERLY TERMINUS BEING THE INTERSECTION OF THE SOUTHWESTERLY LINE OF SAID CERTAIN PARCEL OF LAND DEEDED TO THE CITY OF NEWPORT BEACH AND THE NORTHERLY LINE OF MARINERS DRIVE, 60.00 FEET WIDE, AS SHOWN ON MAP OF TRACT NO. 1896 FILED IN BOOK 114, PAGE 43 THROUGH 45 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG SAID SOUTHWESTERLY LINE N 50 011'06" W 498.00 FEET; THENCE N 39 °48'55" E 38.00 FEET; THENCE S 50 °11'05" E 526.60 FEET TO A POINT IN SAID NORTHERLY LINE OF MARINERS DRIVE, SAID NORTHERLY LINE BEING A CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 740.00 FEET, A RADIAL TO SAID POINT BEING N 11 °49'06" W; THENCE WESTERLY ALONG SAID NORTHERLY LINE AND CURVE, THROUGH A CENTRAL ANGLE OF 03 041'14 ", AN ARC LENGTH OF 47.62 FEET TO THE POINT OF BEGINNING. PARCEL B: A PORTION OF THAT CERTAIN PARCEL OF LAND IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED IN DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT, FILED IN BOOK 3970, PAGE 3 OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND SHOWN AS ASSESSOR'S PARCEL NO. 425- 071-01 FILED IN BOOK 425, PAGE 7 OF ASSESSOR'S MAPS IN THE OFFICE OF THE COUNTY ASSESSOR OF SAID COUNTY, SAID PORTION MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN SAID DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT HAVING A BEARING AND DISTANCE OF N 50 011'05" W 758.99 FEET, SAID CERTAIN COURSE BEING THE NORTHEASTERLY LINE OF SAID CERTAIN PARCEL DEEDED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT; THENCE ALONG SAID NORTHEASTERLY LINE S 50 °11'05" E 50.00 FEET TO ITS INTERSECTION WITH THE SOUTHEASTERLY LINE OF IRVINE AVENUE AS DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH FILED IN A -4 DOCSOC/ 1423572v7/022459 -0014 BOOK 3978, PAGE 542 OF SAID OFFICIAL RECORDS, SAID INTERSECTION BEING THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE S 50 011'05" E 210.99 FEET; THENCE S 39 °48'55" W 92.00 FEET; THENCE N 50 °11'05" W 120.99 FEET; THENCE S 39 °48'55" W 10.00 FEET; THENCE N 50 011'05" W 90.00 FEET TO SAID SOUTHEASTERLY LINE OF IRVINE AVENUE; THENCE ALONG SAID SOUTHEASTERLY LINE N 39 °48'55" E 102.00 FEET TO THE TRUE POINT OF BEGINNING. APN: 425- 071 -03 Fire Station 7 (Santa Ana Heights): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: LOTS 57 THROUGH 60 AND THE SOUTHWESTERLY 66 FEET OF LOT 56, TRACT NO. 706, PER MAP RECORDED IN BOOK 21, PAGES 25 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER, COUNTY OF ORANGE, CALIFORNIA. APN: 439 - 391 -29 Central Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1: (APN: 442 - 014 -26) THE SOUTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, A -5 DOC SOC/ 1.423572v7/022459 -0014 THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304758, OF OFFICIAL RECORDS. PARCEL LA: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL I TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. A -6 DOCSOC/ 1423572 v7 /022459 -0014 PARCEL 1B: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT 'BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 01.) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2: (APN: 442 - 014 -25) THE NORTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. A -7 DOCSOC/ 1423572v7/022459 -0014 EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304759, OF OFFICIAL RECORDS. PARCEL2A: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL I AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT A -8 DOC SOC/ 1423 572x7/022459 -0014 STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2B: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF 'PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE A -9 DOCSOC/ 1423572v7/022459 -0014 ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. Oasis Senior Center: PARCEL 1 OF PARCEL MAP NO. 2008 -161, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 367, PAGES 26, 27 AND 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE ABOVE DESCRIBED PROPERTY, TOGETHER WITH THE RIGHT TO EXPLORE FOR, DEVELOP, EXTRACT AND REMOVE THE SAME THEREFROM BY SLANT DRILLING OR OTHER LIKE METHODS, WITH DERRICKS OR DRILL RIGS LOCATED OUTSIDE OF THE BOUNDARIES OF SAID PROPERTY, AS RESERVED BY THE IRVINE COMPANY IN THE DEED RECORDED MAY 5, 1959, IN BOOK 4698, PAGE 478, OF OFFICIAL 'RECORDS. ALSO EXCEPTING ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE, AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED BY THE IRVINE COMPANY, IN THE DEED RECORDED APRIL 29, 1986, AS INSTRUMENT NO. 86- 170658, OF OFFICIAL RECORDS. APN: 458-651-02,458-651-11,458-651-13 Fire Station 3/Police Station (Newport Center): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS A -10 D O C S O C/ 1423 572v7/022459-0014 DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 55, PAGE 31 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, PETROLEUM AND OTHER HYDROCARBON SUBSTANCES AND CONVENIENT RIGHT TO EXPLORE AND EXTRACT AND TAKE ON AND AT LEVELS BELOW THE DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND BY MEANS OF WELLS, DERRICK OF OTHER EQUIPMENT FROM THE SURFACE LOCATIONS AS RESERVED BY THE IRVINE COMPANY, IN DEED RECORDED JULY 28, 1970 IN BOOK 9357, PAGE 805 AND FEBRUARY 1, 1973, IN BOOK 10538, PAGE 27 OF OFFICIAL RECORDS. APN: 442-261-07,08 AND 09 Fire Station 4 (Balboa Island): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND 1S DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP 92 -139, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FULED IN BOOK 314, PAGES 36 AND 37 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. APN: 050 - 173 -01 Civic Center (1100 and 1300 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 3 OF PARCEL MAP 90 -361, IN THE CITY OF NEWPORT BEACH, AS PER MAP RECORDED IN BOOK 270, PAGE(S) 15 THROUGH 18, INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. APN: 442- 014 -27 Civic Center (1450 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: THAT PORTION OF PARCEL MAP NO. 88 -163, AS SHOWN ON A MAP FILED IN BOOK 253, PAGES 34 AND 35 OF PARCEL MAPS, IN THE OFFICE OF THE COUNT A -11 DOCS OC/ 1423572v7/022459 -0014 RECORDER OF ORANGE COUNTY, CALIFORNIA, SHOWN AS "REMAINING PARCEL ". EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOW, GEOTHERMAL STEAM, ANY OTHER MATERIAL RESOURCES AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OUTSIDE THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, ANY AND ALL WATER, WATER RIGHTS, OR INTEREST THEREIN APPURTENANT TO, UNDERLYING OR RELATING TO THE PROPERTY, OR OWNED OR USED BY GRANTOR IN CONNECTION WITH THE PROPERTY OR FOR ANY BENEFICIAL USE, NO MATTER HOW ACQUIRED BY GRANTOR, AND INCLUDING BUT NOT LIMITED TO THE RIGHTS THAT ARE RIPARIAN, OVERLYING, APPROPRIATIVE, PRESCRIPTIVE, PERCOLATING, LITTORAL, ADJUDICATED, STATUTORY OR CONTRACTUAL, BUT WITHOUT, HOWEVER, ANY RIGHT TO ENTER UPON THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RESERVED RIGHTS, AS RESERVED IN GRANT DEED RECORDED OCTOBER 17, 2008, AS INSTRUMENT NO. 2008000480500, OF OFFICIAL RECORDS. APN: 442 - 014 -24 A -12 DOCS OC/ 1423 572v7/022459 -0014 ci;� tJ s1 rl k1 "'J _- RECORDING REQUESTED BY: City of Newport Beach AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: Brian P. Forbath, Esq. This Document was electronically recorded by Fidelity National Major Accounts Recorded in Official Records, Orange County Tom Daly, Clerk- Recorder IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII NO FEE 2010000635817 10:54am 11/29/10 93 401 M11 19 0.00 0.00 0.00 0.00 54.00 0.00 0.00 0.00 [Space This document is recorded for the benefit of the City of Newport Beach and recording is fee - exempt under § 27383 of the Government Code. MEMORANDUM OF LEASE/PURCHASE AGREEMENT by and between CITY OF NEWPORT BEACH and NEWPORT BEACH PUBLIC FACILITIES CORPORATION Dated as of November 1, 2010 Relating to $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOC/ 1446617v3 /022459 -0014 MEMORANDUM OF LEASE/PURCHASE AGREEMENT THIS MEMORANDUM OF LEASE /PURCHASE AGREEMENT (the "Memorandum ") is made and entered into as of the 1st day of November, 2010, by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California (the "City "), and the NEWPORT BEACH PUBLIC FINANCING CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation "). The City has pursuant to a Site Lease, dated as of November 1, 2010 (the "Site Lease "), by and between th City and the Corporation, which was recorded November 29, 2010 as Instrument No.AAew.'✓` o��e Official Records of the County of Orange, which Site Lease is being recorded currently herewith, leased all of the real property legally described in Exhibit A attached hereto to the Corporation. FOR VALUABLE CONSIDERATION, the Corporation hereby leases to the City, and the City hereby leases back from the Corporation, all of the real property legally described in Exhibit A attached hereto and made a part hereof, subject to the terms and conditions of that certain unrecorded Lease/Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Corporation, which by this reference is incorporated herein. All capitalized terms in this Memorandum not otherwise defined herein shall have the same meaning as set forth in the Lease. The Corporation's rights under the Lease, including the right to receive and enforce payment of the Lease Payments to be made by the City under the Lease, have been assigned and transferred to The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States of America, as trustee pursuant to the Trust Agreement, without recourse for the benefit of the Owners of the Certificates pursuant to the Assignment Agreement, to which assignment, transfer and sale the City hereby consents. The Term of the Lease shall commence on the Closing Date (as such term is defined in the Trust Agreement) and shall end on July 1, 2040, unless such term is extended as provided in the Lease. The Term of the Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all Interest Components and Principal Components represented thereby are not fully paid by the City as a result of a default in the payment of Lease Payments, or because the Lease Payments under the Lease have been abated at any time as permitted by the terms of the Lease, then the Term will be extended until all Certificates and Additional Certificates are fully paid, except that the Term will in no event be extended beyond the tenth anniversary of the final scheduled maturity of any Certificate or Additional Certificate. DOCSOC/ 1446617v3/022459 -0014 IN WITNESS WHEREOF, each of the parties hereto has executed this Memorandum of Lease as of the day and year first hereinabove written. [SEAL] ATTEST: City Clerk ATTEST: Secre aiy DOCSOC/ 1446617v3 /022459 -0014 CITY OF NEWPORT BEACH By: �- Its: City anager NEWPORT BEACH PUBLIC FACILITIES CORPORATION By � c Its: Chief Fi cial Officer S -1 Signeci in counterpart [Memorandum of Lease /Purchase Agreement Signature Pages Continued] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: s By: David R. Hunt, City Attorney APPROVED AS TO FORM: By. t S occa Carlson & Rauth, Signed in Counterpai a Professional Corporation S -2 DOCSOC/ 1446617v3 /022459 -0014 CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the Leased Premises conveyed under the foregoing to the City of Newport Beach, a chartered city duly organized and existing under the Constitution and laws of the State of California, is hereby accepted by the undersigned officer or agent on behalf of the City Council of the City of Newport Beach, pursuant to authority conferred by resolution of the said City Council adopted on November 9, 2010, and the grantee consents to recordation thereof by its duly authorized officer. A 11 Dated: November 2010 CITY OF NEWPORT BEACH By: 2- Its: City anager ATTEST: By: �• �J r t , Its: City Clerk DOCSOC/ 1446617x3/022459 -0014 STATE OF CALIFORNIA COUNTY OF OR- A�NoGrE 2010, before me, the undersigned, personally appeared personally known to me to be the person whose name is subscribed to the within instrum nt and acknowledged to me that he executed the same in his authorized capacities, and that by his signature(sron the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. [SEAL] DOCS OC/ 1446617v3/022459 -001.4 Leilani I. Brown, City Clerk of the City of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE OnN(IWV[16,- a3,2GID ; before me, LI LL" Al� WN 4 i 67D1 Notary Public, personally appeared ' MA yi , who proved to me on the basis of satisfactory ev' ence to be the person, whose nam&* is /ayl� subscribed to the within instrument and acknowledged to me that'*she /tWp executed the same in �65 /her /t authorized capacity*, and that by'jfiS/her /t* signatureM on the instrument the person's or the entity upon behalf of which the personKacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS mvAland and official seal �� L. WASHINGTON Commission # 1840150 OF NOTARY PUBLIC z • Notary public - California $ Orange County M Comm . Ex ices Mar 12, 2013 DOCS OC/ 1446617v3/022459 -0014 EXHIBIT A LEGAL DESCRIPTION Real property in the City of Newport Beach, County of Orange, State of California, described as follows: Newport Coast Community Center: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: A PORTION OF PARCEL 1 OF LOT LINE ADJUSTMENT 94 -006, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED MARCH 22, 1994, AS INSTRUMENT NUMBER 94- 0202108 OF OFFICIAL RECORDS, ORANGE COUNTY RECORDERS OFFICE, STATE OF CALIFORNIA, BEING MORE PRACTICALLY DESCRIBED AS FOLLOWS: COMMENCING AT THE CENTERLINE INTERSECTION OF NEWPORT COAST DRIVE AND SAN JOAQUIN HILLS ROAD AS SHOWN ON SAID TRACT MAP; THENCE NORTH 840 27' 16" WEST ALONG SAID CENTERLINE OF SAN JOAQUIN HILLS ROAD A DISTANCE OF 441.70 FEET; THENCE LEAVING SAID CENTERLINE NORTH 050 32' 44" EAST A DISTANCE OF 61.49 FEET TO THE NORTHERLY RIGHT OF WAY LINE OF LAST SAID ROAD, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 05° 32' 44" EAST A DISTANCE OF 345.01 FEET TO A POINT ON A NON - TANGENT CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 142.54 FEET TO WHICH A RADIAL LINE BEARS SOUTH 480 54' 51" WEST; THENCE CONTINUING ALONG THE NORTHERLY LINE OF SAID LOT LINE ADJUSTMENT THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHEASTERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 370 02' 25" AN ARC LENGTH OF 92.15 FEET; THENCE SOUTH 78° 07' 34" EAST A DISTANCE OF 36.87 FEET; THENCE NORTH 740 03'52" EAST A DISTANCE OF 79.69 FEET; THENCE NORTH 64'42' 53" EAST A DISTANCE OF 58.38 FEET TO THE 'BEGINNING OF A TANGENT CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 50.00 FEET; THENCE EASTERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 250 58' 33" AN ARC LENGTH OF 22.67 FEET; THENCE SOUTH 89° 18'34" EAST A DISTANCE OF 123.01 FEET; THENCE NORTH 77° 16' 30" EAST A DISTANCE OF 18.90 FEET TO WESTERLY RIGHT OF WAY LINE OF SAID NEWPORT COAST DRIVE AND THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2291.00 FEET TO WHICH A RADIAL LINE BEARS SOUTH 850 40' 34" EAST; THENCE CONTINUING ALONG LAST SAID WESTERLY RIGHT OF WAY LINE THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 030 1F 42" AN ARC LENGTH OF 127.75 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE WESTERLY HAVING A RADIUS OF 201.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF A -1 DOCSOC/ 1446617v3 /022459 -0014 80 19' 02" AN ARC LENGTH OF 29.18 FEET; THENCE SOUTH 15° 50' 10" WEST A DISTANCE OF 30.62 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY HAVING A RADIUS OF 219.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 070 34' 07" AN ARC LENGTH OF 28.93 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2929.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 81° 23' 57" EAST; THENCE SOUTHERLY ALONG SAID REVERSE CURVE THROUGH A CENTRAL ANGLE OF 20 09' 07" AND ARC LENGTH OF 110.03 FEET; THENCE SOUTH 79° 14' 50" EAST A DISTANCE OF 4.00 FEET TO THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2925.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 79° 14' 50" EAST; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 00 34' 09" AN ARC LENGTH OF 29.06 FEET TO AN ANGLE POINT ON SAID WESTERLY RIGHT OF WAY LINE; THENCE LEAVING SAID RIGHT OF WAY LINE SOUTH 480 1 F 54" WEST A DISTANCE OF 29.57 FEET TO A POINT ON SAID NORTHERLY RIGHT OF WAY LINE OF SAN JOAQUIN HILLS ROAD; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE SOUTH 890 52' 33" WEST A DISTANCE OF 51.85 FEET; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE NORTH 850 17' 57" WEST A DISTANCE OF 305.86 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM ARID ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM OTHER LANDS OTHER THAN THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERLY TO DRILL, MINE, STORE, EXPLORE, OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, FOR USE OF SURFACE OR SUBSURFACE WATER BY THE COUNTY FOR LOCAL PARK PURPOSES ON THE PROPERTY, ANY AND ALL WATER, SOLAR - HEATED WATER, RECLAIMED RIGHTS, WHETHER SURFACE OR SUBSURFACE, APPURTENANT OR RELATING TO THE PROPERTY, OR OWNED OR USED BY OFFEROR IN CONNECTION WITH THE PROPERTY TOGETHER WITH THE RIGHT TO EXPLORE, DRILL, REDRILL AND REMOVE SUCH WATER FROM THE PROPERTY, TO STORE SUCH WATER IN THE GROUND -WATER BASIN UNDERLYING THE PROPERTY BY PERCOLATING, SPREADING, OR INJECTING WATER INTO SUCH BASIN FROM LOCATIONS ON A -2 DOCSOC/1446617v3/022459 -0014 LANDS LYING OUTSIDE OF THE PROPERTY, AND TO DIVERT OR OTHERWISE UTILIZE SUCH WATER, RIGHTS, OR INTERESTS ON ANY OTHER PROPERTY OWNED OR LEASED BY OFFEROR, BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RIGHT, AS RESERVED BY THE IRVINE COMPANY, A MICHIGAN CORPORATION, IN IRREVOCABLE OFFER OF DEDICATION, RECORDED APRIL 8, 1993, AS INSTRUMENT NO. 93- 0234810, AND IN GRANT DEED RECORDED JANUARY 2, 1997, AS INSTRUMENT NO. 19970000564, BOTH OF OFFICIAL RECORDS. Mariner's Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL A: A PARCEL OF LAND CONTAINING 9.019 ACRES AND BEING A PORTION OF BLOOK 53, AS SHOWN UPON A MAP OF IRVINE'S SUBDIVISION RECORDED IN MISCELLANEOUS MAPS, BOOK 1, PAGE 88, RECORDS OF ORANGE COUNTY, CALIFORNIA, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO -WIT: BEGINNING AT THE INTERSECTION OF A LINE LYING SOUTHWESTERLY OF, PARALLEL TO, AND DISTANT 17 FEET FROM THE SOUTHEASTERLY PROLONGATION OF THE CENTER LINE OF 19TH STREET AS SHOWN UPON A MAP OF NEWPORT HEIGHTS, RECORDED IN MISCELLANEOUS MAP BOOK 4, PAGE 83, RECORDS OF ORANGE COUNTY, SAID LINE ALSO BEING THE NORTHWESTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE ORANGE COUNTY FLOOD CONTROL CHANNEL, AS CONVEYED TO THE COUNTY OF ORANGE BY DEED RECORDED APRIL 7, 1954, IN BOOK 2705, PAGE 539, OFFICIAL RECORDS OF SAID ORANGE COUNTY, AND A LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE SOUTH 50° 11' 30" EAST ALONG SAID NORTHWESTERLY PROLONGATION AND ALONG SAID SOUTHWESTERLY LINE OF SAID FLOOD CONTROL CHANNEL A DISTANCE OF 277 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHWEST AND HAVING A RADIUS OF 868 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE AND SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 713.99 FEET; THENCE SOUTH 3° 03' 42" EAST, TANGENT TO LAST MENTIONED CURVE, AND ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 58 FEET; THENCE SOUTH 16° 55' 29" EAST ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 10.46 FEET; THENCE SOUTH 860 56' 18" WEST A DISTANCE OF 106.72 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHEAST AND HAVING A RADIUS OF 710 FEET; SAID LINE ALSO BEING THE SOUTHWESTERLY PROLONGATION OF THE CENTER LINE OF MARINERS DRIVE, 60 FEET IN WIDTH, AS SHOWN UPON A MAP OF TRACT NO. 3004, RECORDED IN MISCELLANEOUS MAP BOOK 92, A -3 DOC SOC/ 1446617x3 /022459 -0014 PAGES 1 AND 2, RECORDS OF SAID ORANGE COUNTY; THENCE WESTERLY ALONG SAID CURVE A DISTANCE OF 152.14 FEET; THENCE NORTH 150 20' 20" WEST, RADIAL TO LAST MENTIONED CURVE, A DISTANCE OF 30 FEET; THENCE NORTH 500 11' 05" WEST A DISTANCE OF 758.99 FEET TO A POINT OF INTERSECTION WITH THE AFOREMENTIONED PARALLEL LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE NORTH 39° 48' 55" EAST ALONG SAID PARALLEL LINE A DISTANCE OF 495.70 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM, THAT PORTION OF THE LAND CONVEYED TO NEWPORT -MESA UNIFIED SCHOOL DISTRICT IN QUITCLAIM DEED RECORDED JANUARY 14, 2003 AS INSTRUMENT NO. 2003000045873, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH HAVING A BEARING AND DISTANCE OF N 15 020'20" W 30.00 FEET, SAID NORTHWESTERLY TERMINUS BEING THE INTERSECTION OF THE SOUTHWESTERLY LINE OF SAID CERTAIN PARCEL OF LAND DEEDED TO THE CITY OF NEWPORT BEACH AND THE NORTHERLY LINE OF MARINERS DRIVE, 60.00 FEET WIDE, AS SHOWN ON MAP OF TRACT NO. 1896 FILED IN BOOK 114, PAGE 43 THROUGH 45 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG SAID SOUTHWESTERLY LINE N 50 °11'06" W 498.00 FEET; THENCE N 39 °48'55" E 38.00 FEET; THENCE S 50 °11'05" E 526.60 FEET TO A POINT IN SAID NORTHERLY LINE OF MARINERS DRIVE, SAID NORTHERLY LINE BEING A CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 740.00 FEET, A RADIAL TO SAID POINT BEING N I1 °49'06" W; THENCE WESTERLY ALONG SAID NORTHERLY LINE AND CURVE, THROUGH A CENTRAL ANGLE OF 03041'14", AN ARC LENGTH OF 47.62 FEET TO THE POINT OF BEGINNING. PARCEL B: A PORTION OF THAT CERTAIN PARCEL OF LAND IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED IN DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT, FILED IN BOOK 3970, PAGE 3 OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND SHOWN AS ASSESSOR'S PARCEL NO. 425- 071 -01 FILED IN BOOK 425, PAGE 7 OF ASSESSOR'S MAPS IN THE OFFICE OF THE COUNTY ASSESSOR OF SAID COUNTY, SAID PORTION MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN SAID DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT HAVING A BEARING AND DISTANCE OF N 50°11'05' W 758.99 FEET, SAID CERTAIN COURSE BEING THE NORTHEASTERLY LINE OF SAID CERTAIN PARCEL DEEDED TO THE NEWPORT BEACH ELEMENTARY SCHOOL A -4 DOCSOC/1446617v3/022459 -0014 DISTRICT; THENCE ALONG SAID NORTHEASTERLY LINE S 50 011'05" E 50.00 FEET TO ITS INTERSECTION WITH THE SOUTHEASTERLY LINE OF IRVINE AVENUE AS DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH FILED IN BOOK 3978, PAGE 542 OF SAID OFFICIAL RECORDS, SAID INTERSECTION BEING THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE S 50 011'05" E 210.99 FEET; THENCE S 39 °48'55" W 92.00 FEET; THENCE N 50°11'05" W 120.99 FEET; THENCE S 39 °48'55" W 10.00 FEET; THENCE N 50011'05" W 90.00 FEET TO SAID SOUTHEASTERLY LINE OF IRVINE AVENUE; THENCE ALONG SAID SOUTHEASTERLY LINE N 39 °48'55" E 102.00 FEET TO THE TRUE POINT OF BEGINNING. APN: 425- 071 -03 Fire Station 7 (Santa Ana Heights): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND 1S DESCRIBED AS FOLLOWS: LOTS 57 THROUGH 60 AND THE SOUTHWESTERLY 66 FEET OF LOT 56, TRACT NO. 706, PER MAP RECORDED IN BOOK 21, PAGES 25 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER, COUNTY OF ORANGE, CALIFORNIA. APN: 439 - 391 -29 Central Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1: (APN: 442 - 014 -26) THE SOUTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH; COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO A -5 DOCSOC/1446617v3/022459 -0014 BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304758, OF OFFICIAL RECORDS. PARCEL IA: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE `BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE A -6 DOCSOC/ 1446617v3/022459 -0014 BURDENED PARCEL I SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 1B: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2: (APN: 442- 014 -25) A -7 DOCSOC/1446617v3/022459 -001 4 THE NORTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304759, OF OFFICIAL RECORDS. PARCEL 2A: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES A -8 DOCSOC/ 1446617v3/022459 -0014 OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2B: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL I IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB A -9 DOC SOC/1446617v3/022459 -0014 CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. Oasis Senior Center: PARCEL 1 OF PARCEL MAP NO. 2008 -161, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 367, PAGES 26, 27 AND 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE ABOVE DESCRIBED PROPERTY, TOGETHER WITH THE RIGHT TO EXPLORE FOR, DEVELOP, EXTRACT AND REMOVE THE SAME THEREFROM BY SLANT DRILLING OR OTHER LIKE METHODS, WITH DERRICKS OR DRILL RIGS LOCATED OUTSIDE OF THE BOUNDARIES OF SAID PROPERTY, AS RESERVED BY THE IRVINE COMPANY IN THE DEED RECORDED MAY 5,1959, IN BOOK 4698, PAGE 478, OF OFFICIAL RECORDS. ALSO EXCEPTING ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE, AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED BY THE IRVINE COMPANY, IN THE DEED RECORDED APRIL 29, 1986, AS INSTRUMENT NO. 86- 170658, OF OFFICIAL A -10 DO CSOC/ 1446617v3/022459 -001.4 RECORDS. APN: 458-651-02,458-651-11,458-651-13 Fire Station 3/Police Station (Newport Center): THE LAND REFERRED TO 14EREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL I OF PARCEL MAP, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 55, PAGE 31 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, PETROLEUM AND OTHER HYDROCARBON SUBSTANCES AND CONVENIENT RIGHT TO EXPLORE AND EXTRACT AND TAKE ON AND AT LEVELS BELOW THE DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND BY MEANS OF WELLS, DERRICK OF OTHER EQUIPMENT FROM THE SURFACE LOCATIONS AS RESERVED BY THE IRVINE COMPANY, IN DEED RECORDED JULY 28, 1970 IN BOOK 9357, PAGE 805 AND FEBRUARY 1, 1973, IN BOOK 10538, PAGE 27 OF OFFICIAL RECORDS. APN: 442 - 261 -07. 08 AND 09 Fire Station 4 (Balboa Island): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP 92 -139, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE; STATE OF CALIFORNIA, AS PER MAP PALED IN BOOK 314, PAGES 36 AND 37 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. APN: 050- 173 -01 Civic Center (1100 and 1300 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 3 OF PARCEL MAP 90 -361, IN THE CITY OF NEWPORT BEACH, AS PER MAP RECORDED IN BOOK 270, PAGE(S) 15 THROUGH 18, INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. A -11 DOCSOC/ 1446617v3 /022459 -0014 APN: 442 - 014 -27 Civic Center (1450 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: THAT PORTION OF PARCEL MAP NO. 88 -163, AS SHOWN ON A MAP FILED IN BOOK 253, PAGES 34 AND 35 OF PARCEL MAPS, IN THE OFFICE OF THE COUNT RECORDER OF ORANGE COUNTY, CALIFORNIA, SHOWN AS "REMAINING, PARCEL ". EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOW, GEOTHERMAL STEAM, ANY OTHER MATERIAL RESOURCES AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OUTSIDE THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, ANY AND ALL WATER, WATER RIGHTS, OR INTEREST THEREIN APPURTENANT TO, UNDERLYING OR RELATING TO THE PROPERTY, OR OWNED OR USED BY GRANTOR IN CONNECTION WITH THE PROPERTY OR FOR ANY BENEFICIAL USE, NO MATTER HOW ACQUIRED BY GRANTOR, AND INCLUDING BUT NOT LIMITED TO THE RIGHTS THAT ARE RIPARIAN, OVERLYING, APPROPRIATIVE, PRESCRIPTIVE, PERCOLATING, LITTORAL, ADJUDICATED, STATUTORY OR CONTRACTUAL, BUT WITHOUT, HOWEVER, ANY RIGHT TO ENTER UPON THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RESERVED RIGHTS, AS RESERVED IN GRANT DEED RECORDED OCTOBER 17, 2008, AS INSTRUMENT NO. 2008000480500, OF OFFICIAL RECORDS. APN: 442 - 014 -24 A -12 DOCS OC/ 144661.7v3/022459 -0014 EXECUTION COPY LEASE/PURCHASE AGREEMENT by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION, as Lessor and CITY OF NEWPORT BEACH, as Lessee Dated as of November 1, 2010 Relating to $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOC SOC/ !423553 v7 /022459 -0014 Section 1.1. Section 1.2. Section 2.1. Section 2.2. TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Definitions and Rules of Construction ........................................ ..............................2 Exhibits........................................................................................ ..............................3 ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Representations, Covenants and Warranties of the City ............. ..............................3 Representations, Covenants and Warranties of the Corporation . ..............................6 ARTICLE III ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT Section 3.1. Deposit of Certificate Proceeds ................................................... ..............................8 Section 3.2. Completion of the Project ............................................................ ..............................8 Section 3.3. Payment of Project and Delivery Costs ....................................... ..............................8 Section 3.4. Completion Certification ............................................................. ..............................8 Section 3.5. Substitution of or Addition to the Project .................................... ..............................9 Section3.6. Compliance with Law .................................................................. ..............................9 Section 3.7. Further Assurances and Corrective Instruments .......................... ..............................9 ARTICLE IV AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS Section4.1. Lease ............................................................................................ ..............................9 Section4.2. Term ............................................................................................ ..............................9 Section 4.3. Extension of Lease Tenn ............................................................ .............................10 Section4.4. Lease Payments .......................................................................... .............................10 Section4.5. No Withholding .......................................................................... .............................11 Section4.6. Fair Rental Value ....................................................................... ..............................1 l Section 4.7. Budget and Appropriation .......................................................... .............................11 Section 4.8. Assignment of Lease Payments .................................................. .............................12 Section 4.9. Use and Possession ..................................................................... .............................12 Section 4.10. Abatement of Lease Payments and Additional Payments .......... .............................12 Section 4.11. Additional Payments .................................................................. .............................13 Section 4.12. Net - Net -Net Lease ...................................................................... .............................13 DOCSOC/ 1423553v7/022459 -0014 TABLE OF CONTENTS (continued) Page ARTICLE V INSURANCE Section 5.1. Public Liability and Leased Premises Damage .......................... .............................14 Section 5.2. Workers' Compensation ............................................................. .............................14 Section 5.3. Casualty and Theft Insurance ..................................................... .............................14 Section 5.4. Rental Interruption Insurance ..................................................... .............................15 Section5.5. Title Insurance ............................................................................ .............................15 Section 5.6. General Insurance Provisions ..................................................... .............................16 Section5.7. Cooperation ................................................................................ .............................17 ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Application of Net Proceeds ....................................................... .............................17 ARTICLE VII COVENANTS WITH RESPECT TO THE LEASED PREMISES Section 7.1. Use of the Leased Premises ........................................................ .............................18 Section 7.2. Interest in the Leased Premises and the Lease ........................... .............................18 Section7.3. Option to Purchase ..................................................................... .............................18 Section7.4. Quiet Enjoyment ......................................................................... .............................19 Section 7.5. Installation of the City's Personal Property ................................ .............................19 Section 7.6. Access to the Leased Premises ................................................... .............................19 Section 7.7. Maintenance, Utilities, Taxes and Assessments ......................... .............................20 Section 7.8. Modification of the Leased Premises ......................................... .............................20 Section 7.9. Encumbrances; Alternative Financing Methods ......................... .............................21 Section 7.10. Corporation's Disclaimer of Warranties .................................... .............................22 Section 7.11. The City's Right to Enforce Warranties of Vendors or Contractors .......................22 Section 7.12. Substitution or Release of the Leased Premises ......................... .............................23 Section 7.13. Compliance with Law, Regulations, Etc .................................... .............................24 Section 7.14. Environmental Compliance ........................................................ .............................24 Section 7.15. Condemnation of Leased Premises ............................................ .............................26 ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Corporation .............. Section 8.2. Assignment and Subleasing by the City. ii DOCSO C/ 1423553 v7 /022459 -0014 TABLE OF CONTENTS (continued) Page Section 8.3. Amendments and Modifications ................................................. .............................27 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined .......................................................... .............................27 Notices ........................................................................................ Section 9.2. Remedies on Defaul t .................................................................. .............................27 Section 9.3. No Remedy Excl usive ................................................................ .............................29 Section11.3. Section 9.4. Agreement to Pay Attorneys' Fees and Expenses ...................... .............................30 .............................31 Section 9.5. No Additional Waiver Implied by One Waiver .......................... .............................30 Execution in Counterparts .......................................................... Section 9.6. Application of the Proceeds from the Re -Lease of the Leased Premises ................30 Section 9.7. Trustee and Owners to Exercise Rights ...................................... .............................30 ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1. Security Deposit ......................................................................... .............................30 Section 10.2. Extraordinary Prepayment .......................................................... .............................30 Section 10.3. Optional Prepayment .................................................................. .............................31 ARTICLE XI MISCELLANEOUS Section11.1. Notices ........................................................................................ .............................31 Section11.2. Binding Effect ............................................................................ .............................31 Section11.3. Severabil ity ................................................................................. .............................31 Section 11.4. Execution in Counterparts .......................................................... .............................31 Section11.5. Applicable Law .......................................................................... .............................31 Signatures EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E ..... ............................... S -1 SCHEDULE OF LEASE PAYMENTS ........................ ............................... DESCRIPTION OF THE LEASED PREMISES .......... ............................... DESCRIPTION OF THE PROJECT ............................ ............................... LEASE SUPPLEMENT FORM ................................... ............................... FORM OF CERTIFICATE OF SUBSTITUTION OR ADDITION OF PROJECT COMPONENT ............................................ ............................... DOCSOC/ 1423553v7/022459 -0014 .......A -1 .......B -1 .......0 -1 .......D -1 ....... E-1 LEASE/PURCHASE AGREEMENT THIS LEASE/PURCHASE AGREEMENT, dated as of November 1, 2010, by and between the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California, as lessor (the "Corporation "), and the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of said State, as lessee (the "City "); WITNESSETH. WHEREAS, the City may enter into leases and agreements relating to real property and buildings to be used by the City; and WHEREAS, the City and the Corporation have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building :Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project"); and WHEREAS, the Corporation and the City wish to provide financing for the acquisition, improving and equipping of a new City Hall, all as described in Exhibit C hereto (the "Civic Center Project" and together with the Central Library Project the "Project") and to provide for the refinancing of the Central Library Project by entering into this Lease /Purchase Agreement (the "Lease ") and authorizing and directing the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project) (the "2010A Certificates ") evidencing fractional interests in 2010A Lease Payments (as defined in the Trust Agreement) to be made by the City under this Lease and the City of Newport Beach Certificates of Participation 2010B (Taxable) (Civic Center Project) (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates ") evidencing fractional interests in 2010B Lease Payments (as defined in the Trust Agreement) to be made by the City under this Lease; and WHEREAS, the City has entered into a Site Lease of even date herewith (the "Site Lease ") with the Corporation under which the City has agreed to lease the real property described in Exhibit hereto, including the existing improvements thereon (the "Leased Premises "), to the Corporation, which Site Lease provides that the title to the Leased Premises shall vest in the City at the expiration of the Site Lease (as provided in Section 8 thereof), and contains other terms and conditions as the governing board of the City deems to be in the best interest of the City; and WHEREAS, in consideration of the Lease Payments to be paid by the City to the Corporation hereunder, the Corporation will cause the Project to be constructed, and will grant to the City a right to purchase the Corporation's interest in the Leased Premises; and WHEREAS, the Corporation is authorized pursuant to the laws of the State of California and its formation documents to provide financial assistance to the City by acquiring, constructing and financing and refinancing various public facilities, land and equipment and the leasing of facilities, land and equipment for the use, benefit and enjoyment of the public; DOCSOC/ 1423553 v7 /022459 -0014 WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease; NOW, THEREFORE, in consideration of the above premises and of the mutual covenants hereinafter contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section I.I. Definitions and Rules of Construction. Unless the context otherwise requires, the capitalized terms used herein shall, for all purposes of this Lease, have the meanings specified in the Trust Agreement related to the Certificates (the "Trust Agreement "), dated as of the date hereof, by and among The Bank of New York Mellon Trust Company, N.A., as Trustee thereunder, the Corporation, and the City, together with any amendments thereof or supplements thereto permitted to be made thereunder; and the additional terms defined in this Section shall, for all purposes of this Lease, have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this Lease, refer to this Lease as a whole. "Central Library Site" means the portion of the Leased Premises identified as such on Exhibit B hereto. "Civic Center Site" means the portion of the Leased Premises identified as such on Exhibit B hereto. "Completion Certificate" means the certificate of the City filed with the Trustee and signed by a City Representative, as prescribed by Section 3.4 hereof. "Environmental Regulations" shall mean all Laws and Regulations, now or hereafter in effect, with respect to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (42 U.S.C. Section 9601, et seq.) (together with the regulations promulgated thereunder, "CERCLA "), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et sec.) (together with the regulations promulgated thereunder, "RCRA "), the Emergency Planning and Community Right -to- Know Act, as amended (42 U.S.C. Section 11001, et Leg.) (together with the regulations promulgated thereunder, "Title III "), the Clean Water Act, as amended (33 U.S.C. Section 1321 et seq.) (together with the regulations promulgated thereunder, "CWA "), the Clean Air Act, as amended (42 U.S.C. Section 7401, et sec.) (together with the regulations promulgated thereunder, "CAA ") and the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et seed.) (together with the regulations promulgated thereunder, "TSCA "), and any state or local similar laws and regulations and any so- called local, state or federal "superfund" or "superlien" law. "Interest Component" means the portion of each Lease Payment designated in Exhibit A hereto as the Interest Component. DOCSOC/1423553v7/022459 -0014 "Leased Premises" means the real property described in Exhibit B hereto and the existing improvements thereon being leased to the City by the Corporation. "Permitted Encumbrances" means, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of Section 7.7 hereof, permit to remain unpaid; (ii) the Assignment Agreement; (iii) this Lease; (iv) the Site Lease; (v) any contested right or claim of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by law to the extent permitted under Section 7.8(b) hereof; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Closing Date, which the City hereby certifies will not materially impair the use of the Leased Premises by the City; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of this Lease and to which the Corporation and the City consent in writing. "Principal Component" means the portion of the Lease Payments designated in Exhibit A hereto as the Principal Component. " Project" means the improvements described in Exhibit C hereto, and any and all additions or substitutions thereto made as provided in Section 3.5 hereof, and any additional improvements financed with the proceeds of Additional Certificates. "Term" means the term of this Lease as set forth in Section 4.2 hereof. "Vendors" or "Contractors" means the persons with whom the Corporation, or the City as agent of the Corporation, has contracted for completion of the Project. Section 1.2. Exhibits. The following Exhibits are attached to, and by reference made a part of, this Lease: Exhibit A: Schedule of Lease Payments to be paid by the City to the Corporation, showing the Lease Payment Date and amount of each Lease Payment. Exhibit B: Legal Description of the Leased Premises. Exhibit C: General Description of the Project. Exhibit D: Lease Supplement Form. Exhibit E: Form of Certificate of Substitution or Addition of Project Component. ARTICLE 11 REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the Citv. The City represents, covenants and warrants to the Corporation as follows: (a) Due Organization and Existence. The City is a municipal corporation and a chartered city duly organized and existing under the Constitution and laws of the State. DOCSOC/ 1423553v7/022459 -0014 (b) Authorization; Enforceability. The Constitution and laws of the State authorize the City to enter into this Lease, the Site Lease, the Trust Agreement, the Agency Agreement and the Continuing Disclosure Agreement, and to enter into the transactions contemplated by and to carry out its obligations under all of the aforesaid leases and agreements; the City has duly authorized and executed all of the aforesaid leases and agreements. This Lease, the Site Lease, the Trust Agreement, the Agency Agreement and the Continuing Disclosure Agreement constitute the legal, valid and binding obligations of the City enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (c) No Conflicts or Default; No Liens or Encumbrances. Neither the execution and delivery of this Lease, the Site Lease, the Continuing Disclosure Agreement, the Agency Agreement or the Trust Agreement, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the City is now a party or by which the City is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the City, or upon the Leased Premises except for Permitted Encumbrances and the pledges contained in the Trust Agreement. (d) Execution and Delivery. The City has duly authorized and executed this Lease in accordance with the Constitution and laws of the State. (e) Indemnification of Corporation. The City covenants to defend, indemnify and hold harmless the Corporation and its directors, officers, employees and assigns (collectively, the "Indemnified Party") against any and all losses, claims, damages or liabilities, joint or several, including fees and expenses incurred in connection therewith, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise in connection with the transactions contemplated by this Lease, and shall reimburse any such Indemnified Party for any legal or other expenses incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of the transactions contemplated by this Lease. In particular, without limitation, the City shall and hereby agrees to indemnify and save the Indemnified Party harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on the Leased Premises by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under this Lease, (iii) any act of negligence of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (iv) any act of negligence of any assignee or sublessee of the City with respect to the Leased Premises, or (v) the completion of the Project or the authorization of payment of the Project Costs by the City. No indemnification is made under this Section or elsewhere in this Lease for claims, losses or damages, including legal fees and expenses, arising out of the willful misconduct or negligence under this Lease by the Corporation, its directors, officers, agents, employees, successors or assigns. (f) General Tax and Arbitrage Covenant. The City hereby covenants that, notwithstanding any other provision of this Lease, it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) under 4 DOCSOC /1423553 v7 /022459 -0014 Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). The City shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, by any person other than a governmental unit (as such tern is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates). The City shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) are outstanding, the City, with respect to the proceeds thereof, the portion of the Leased Premises and the Project intended for public use and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall not, directly or indirectly, use or permit the use of any proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or of the Leased Premises, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). The City shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (g) The City hereby makes an irrevocable election to receive a refundable credit under Section 54AA(g)(2)(B) of the Code in cash with respect to the City's obligations to make 2010B Lease Payments and covenants to cause such amounts to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments. The City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any 5 DOCSOC/ 1423553v7/022459 -0014 other action that would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under this Lease as evidenced by the 2010B Certificates. (h) Flood Plain. The City hereby represents that the Leased 'Premises is not in a 100 year flood plain. (i) Essentiality of the Leased Premises. The City hereby represents that the Leased Premises are essential for the City's performance of its governmental functions. 0) Zoning Environmental and Safety Ordinance Compliance. The City hereby represents that the Leased Premises complies in all respects with applicable zoning, environmental and safety ordinances. (k) Title Insurance. The City hereby represents that the Leased Premises is the same property which is the subject of the ALTA title insurance policy (with western regional exceptions) or CLTA title insurance policy issued by Fidelity National Title Company pursuant to Section 5.5 hereof. Section 2.2. Representations. Covenants and Warranties of the Corporation. The Corporation represents, covenants and warrants to the City as follows: (a) Due Organization and Existence: Enforceability. The Corporation is a 501(c)(4) nonprofit public benefit corporation duly organized, existing and in good standing under the laws of the State, has the power to enter into this Lease, the Assignment Agreement, the Site Lease, the Agency Agreement and the Trust Agreement; is possessed of full power to own and hold real and personal property, and to lease and sell the same; and has duly authorized the execution and delivery of all of the aforesaid leases and agreements. This Lease, the Assignment Agreement, the Site Lease, the Agency Agreement and the Trust Agreement constitute the legal, valid and binding obligations of the Corporation, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. (b) No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution and delivery of this Lease, the Assignment Agreement, the Site Lease, the Agency Agreement or the Trust Agreement, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the joint powers agreement of the Corporation or any restriction or any agreement or instrument to which the Corporation is now a party or by which the Corporation is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Corporation, or upon the Leased Premises except by Permitted Encumbrances and by the pledge contained in the Trust Agreement. (c) Execution and Delivery. The Corporation has duly authorized and executed this Lease in accordance with the laws of the State. (d) Maintenance of Existence. To the extent permitted by law, the Corporation agrees that during the term hereof it will maintain its existence as a 501(c)(4) nonprofit public benefit 6 DO CSOC/ 1423553v7/022459 -0014 corporation, will not combine or consolidate with or merge into any other entity or permit one or more other entities to consolidate with or merge into it. (e) General Tax and Arbitrage Covenant. The Corporation covenants that, notwithstanding any other provision of this Lease, it shall not take any action if any such action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates intended for public use under Section 103 of the Code (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). The Corporation shall not take any action if any such action would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) are outstanding, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation, with respect to the proceeds thereof, the portion of the Leased Premises intended for public use, the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), or of the Leased Premises, or other funds available to it, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States 7 DOCSOC /1423553 v7/022459 -0014 Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax- exempt Certificates). To the extent that the Corporation may control the proceeds of the Certificates or any Additional Certificates, the Corporation shall not make any use of the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax- exempt Certificates) or any other of its funds, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax- exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. To the extent that the Corporation may have control over the proceeds of the 2010B Certificates, the Corporation shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under this Lease as evidenced by the 2010B Certificates. ARTICLE III ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT Section 3.1. Deposit of Certificate Proceeds. On the Closing Date for the Certificates and on the Closing Date for any Additional Certificates, the Corporation agrees to pay or cause to be paid to the Trustee the proceeds of the sale of the Certificates and Additional Certificates, which moneys, in the case of the Certificates, shall be deposited with the Trustee as provided in Section 2.05 of the Trust Agreement, or in the case of Additional Certificates as provided in any Supplemental Trust Agreement which relates to such Additional Certificates. Section 3.2. Completion of the Project. The Corporation and the City agree to execute and deliver the Agency Agreement pursuant to which the City, as the agent of the Corporation, will acquire, construct, deliver and install the Project. The City and the Corporation each covenants and agrees to comply with the terms of the Agency Agreement. Section 3.3. Payment of Project and Delivery Costs. Payment of the Project Costs and Delivery Costs shall be made from the moneys deposited with the Trustee in the Project Fund as provided in Section 3.1 hereof and Section 2.05 of the Trust Agreement, which shall be disbursed in accordance and upon compliance with Article III of the Trust Agreement. Section 3.4. Completion Certification. The City and the Corporation expect that the Project will be substantially completed in accordance with plans and specifications described in the Agency Agreement on or prior to the dates specified in Section 3 to the Agency Agreement. Upon the completion of acquisition, construction, delivery and installation of the portion of the Project to be financed with the proceeds of the Certificates, and upon the completion of the improvements to be financed with each series of Additional Certificates, the City shall deliver to the Trustee a Completion Certificate with respect thereto. A separate Completion Certificate will be filed with respect to the portion of the Project to be financed from the Certificates and the portion to be financed with each series of Additional Certificates. 8 DOCSOC/1423553v7/022459 -0014 On the date of filing a Completion Certificate, all excess moneys remaining in the Project Fund for the Certificates or issue of Additional Certificates for which such Completion Certificate is delivered shall be applied in accordance with the provisions of Section 3.04 of the Trust Agreement. Section 3.5. Substitution of or Addition to the Project. The City shall have the right to substitute alternate items for any portion of the Project listed in Exhibit C hereto or provide for additional components of the Project by providing the Trustee with a written certificate in the form contained in Exhibit E hereto, so long as such substitution or addition does not cause, in and of itself, the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments or result in a reduction in the fair rental value of the Leased Premises. Section 3.6. Compliance with Law. (a) Public Bidding. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all applicable provisions for bids and contracts prescribed by law, including, without limitation, the Public Contract Code and the Government Code of the State. (b) Wage Rates and Working Hours. Except as otherwise provided by City Charter and the City of Newport ,Beach Municipal Code, the City shall comply with all provisions relating to prevailing wage rates and working hours applicable to it under the laws of the State. (c) Plans and Specifications. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall prepare and adopt plans and specifications for the acquisition, construction and installation of the Project pursuant to the Government Code and Public Contracts Code of the State. Section 3.7. Further Assurances and Corrective Instruments. The Corporation and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Premises hereby leased or intended so to be or for carrying out the expressed intention of this Lease. ARTICLE IV AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS Section 4.1. Lease. The Corporation hereby leases the Leased Premises to the City, and the City hereby leases the Leased Premises from the Corporation, upon the terms and conditions set forth herein. This Lease shall not operate as a merger of the City's leasehold estate in the Leased Premises pursuant to this Lease and its fee estate in the Leased Premises and shall not cause the extinguishment of the leasehold interest granted to the Corporation under the Site Lease. Section 4.2. Term. The Term of this Lease shall commence on the date of execution hereof and shall end on July 1, 2040, unless extended pursuant to Section 4.3 hereof, or unless terminated prior thereto upon the earliest of any of the following events: DOCSOC/ 1423553v7/022459 -0014 (a) Default and Termination. A default by the City and the Corporation's election to terminate this Lease under Section 9.2(b) hereof; (b) Payment of All Lease Payments. The payment by the City of all Lease Payments required under Section 4.4 hereof and any Additional Payments required under Section 4.11 hereof; (c) Prepay. The deposit of funds or Government Obligations with the Trustee in amounts sufficient to pay all Lease Payments as the same shall become due, as provided in Section 10.1 hereof and in Section 14.01 of the Trust Agreement; or (d) Purchase. Upon the exercise by the City of its option to purchase all of the Corporation's interest in the Leased Premises as provided in Section 7.3 hereof; provided, however, that upon exercise by the City of its option to purchase the Corporation's interest in a portion of the Leased Premises, as provided in Section 7.3, the Lease shall be terminated only with respect to the portion of the Leased Premises purchased. Section 4.3. Extension of Lease Term. The Term of this Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all 'Interest Components and Principal Components represented thereby shall not be fully paid by the City as a result of a default in the payment of Lease Payments, or because the Lease Payments hereunder shall have been abated at any time as permitted by the terms hereof, then the Term shall be extended until all Certificates and Additional Certificates shall be fully paid, except that the Term shall in no event be extended beyond the tenth anniversary of the final scheduled maturity of any Certificate or Additional Certificate. Section 4.4. Lease Pam. (a) Time and Amount. Subject to the provisions of Section 4.10 (regarding abatement in event of loss of use of any portion of the Leased Premises), Section 7.3 (regarding option to purchase) and Article X (regarding prepayment of Lease Payments), the City agrees to pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the 2010A Lease Payments and the 2010B Lease Payments (denominated into components of principal and interest, the Interest Component of such Lease Payment being paid semiannually) in the amounts specified in Exhibit A, to be due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) specified in Exhibit A (the "Lease Payment Date ") which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. In the event that any Additional Certificates are executed and delivered pursuant to the Trust Agreement, the City and the Trustee shall execute an amendment to Exhibit A to state the Lease Payments due hereunder as a result of the execution and delivery of such Additional Certificates. The obligation of the City to pay Lease Payments shall commence on the Closing Date for the Certificates. In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the Trustee shall provide prompt written notice to the City of such failure to pay; provided, however, that failure to give such notice shall not excuse any event of default under Section 9.1 hereof. 10 DOCS00 1423553x7/022459 -0014 The City's obligation to make 2010B Lease Payments are hereby designated as federally taxable `Build America Bonds" pursuant to the American Recovery Reinvestment Tax Act of 2009 and the provisions of Section 54AA of the Code. (b) Credits. Any amount held in the 2010A Account of the Lease Payment Fund or the 2010B Account of the Lease Payment Fund on any Lease Payment Date (other than capitalized interest, which shalt be credited in accordance with Section 5.03 of the Trust Agreement, and other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to Section 10.2 hereof and other amounts required for payment of principal with respect to any Certificates or Additional Certificates that have matured or been called for payment and have not been presented for payment or interest) shall be credited towards the applicable Lease Payment then due and payable. The City need not transfer additional cash to the Trustee on any Lease Payment Date if the amounts then held in the Lease Payment Fund (other than those amounts excluded under the prior sentence) are at least equal to the Lease Payment then required to be paid. (c) Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments required in this Section, the Lease Payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the original interest rate payable with respect to each Certificate or Additional Certificate, as applicable, represented by such delinquent Lease Payment. Section 4.5. No Withholdine. Notwithstanding any dispute between the Corporation and the City, including a dispute as to the failure of any portion of the Leased Premises in use by or possession of the City to perform the task for which it is leased, the City shall make all Lease Payments and Additional Payments when due and shall not withhold any Lease Payments pending the final resolution of such dispute. Section 4.6. Fair Rental Value. The Lease Payments and Additional Payments shall be paid by the City in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Leased Premises during each such period for which said Lease Payments are to be paid. The parties hereto have agreed and determined that such total rental represents the fair rental value of the Leased Premises. In making such determination, consideration has been given to the fair market value and replacement cost of the Leased Premises, other obligations of the parties under this Lease (including but not limited to costs of maintenance, taxes and insurance), the uses and purposes which may be served by the Leased Premises and the benefits therefrom which will accrue to the City and the general public, and the transfer of the Corporation's leasehold interest in the Leased Premises at the end of the Term. Section 4.7. Budget and Appropriation. The City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due hereunder in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of the annual budget, such amounts shall be included and maintained in such budget as amended. During the Term, the City will furnish annually, on or before August 1 of each year, to the Trustee a certificate of the City Representative stating that all Lease Payments and Additional Payments due hereunder for the applicable Fiscal Year have been included in its annual budget and the amount so included. The 11 DOCSOC/ 1423 553v7/022459 -0014 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 Pam. Certain of the Corporation's rights under this Lease, including the right to receive and enforce payment of the Lease Payments, Additional Payments and Prepayments, to be made by the City hereunder, have been assigned absolutely to the Trustee, subject to certain exceptions, pursuant to the Assignment Agreement, to which assignment the City hereby consents. The Corporation hereby directs the City, and the City hereby agrees, to pay to the Trustee at the Trustee's corporate trust office designated in the Trust Agreement, or to the Trustee at such other place as the Trustee shall direct in writing, all Lease Payments, Additional Payments or Prepayments thereof payable by the City hereunder. The Corporation will not assign or pledge the Lease Payments or other amounts derived from the Leased Premises and from its other rights under this Lease except as provided under the terms of this Lease, the Assignment Agreement and the Trust Agreement, or its duties and obligations except as provided under this Lease. Section 4.9. Use and Possession. The total Lease Payments due in any Fiscal Year shall be in consideration for the City's right to use and possession of the Leased Premises for such Fiscal Year. During the Term of this Lease, the City shall be entitled to the exclusive use and possession of the Leased Premises, subject only to the Permitted Encumbrances. Section 4.10. Abatement of Lease Payments and Additional Payments. (a) [Reserved]. (b) In the Event of Damage, Destruction, Condemnation or Title Defect. Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title 12 DOCS OC/ 1423553 v7 /022459 -0014 defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, this Lease shall continue in full force and effect and the City waives any right to terminate this Lease by virtue of any such damage, destruction, interference or taking. Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased Premises, the City shall remain obligated to make Lease Payments which would otherwise be abated (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. The Lease Payments shall be payable from such amounts paid under (i) and (ii) above as an obligation of the City payable from a special fund. (c) Repair or Replacement. In the event of such abatement, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds pursuant to Section 6.1(c), the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Section 4.11. Additional Payments. In addition to the Lease Payments, the City shall also pay such amounts ("Additional Payments ") as shall be required for the payment of all administrative costs of the Corporation relating to the Leased Premises, the Certificates and any Additional Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its interest in the Leased Premises or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to comply with the terms of the Certificates and any Additional Certificates or of the Trust Agreement, including premiums or insurance maintained pursuant to Article V hereof or to indemnify the Corporation and its employees, officers and directors and the Trustee. All such Additional Payments to be paid hereunder shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing. Section 4.12. Net - Net -Net Lease. This Lease shall be deemed and construed to be a "net - net -net lease" and the City hereby agrees that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, reserve deposits, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided herein. 13 DOCS OC/ l 423553v7/022459 -0014 ARTICLE V INSURANCE Section 5.1. Public Liability and Leased Premises Damage. (a) Coverage. The City shall maintain or cause to be maintained, throughout the Term hereof, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of any City property or portion thereof. (b) Limits. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $500,000 for damage to property resulting from each accident or event (in each case subject to a deductible clause of not to exceed $500,000). Such public liability and property damage insurance may, however, be in the form of a single limit policy covering all such risks in an amount equal to the liability limits set forth herein. (c) Joint or Self= 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 satisfaction of the liability with respect to which the insurance proceeds shall have been paid. Section 5.2. Workers' Compensation. The City shall also maintain workers' compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers' Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto (with provision for self- insurance). Section 5.3. Casualty and Theft Insurance. (a) Casualty and Theft Insurance; Coverage. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of this Lease, insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious mischief insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are nonnally covered by such insurance, excluding flood and earthquake; notwithstanding the foregoing, the City shall not be required to maintain such insurance on the portion of the Leased Premises located on the Civic Center Site until a Completion Certificate has been filed with the Trustee. The City shall not be required to purchase or maintain earthquake or flood insurance with respect to the Leased Premises. 14 DOCSOC/ 1423553v7/022459 -0014 (b) Amount. Such insurance shall be in an amount not less than the replacement cost of the Leased Premises, subject to a "deductible clause" not to exceed two hundred fifty thousand dollars ($250,000) for any one loss or, in the case of a flood and earthquake rider, ten percent (10 %) of the coverage obtained. The term "full replacement value" as used in this Section 5.3 shall mean the actual replacement cost of the improvements constituting the Leased Premises. (c) Joint or Self Insurance. Such insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with Section 5.6(e) hereof, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Net Proceeds Fund and applied as provided in Section 6.1. Section 5.4. Rental Interruption Insurance. (a) Coverage and Amount. Upon delivery of the Leased Premises to it for occupancy, the City shall maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24 -month period, to insure against loss of rental income from the Leased Premises caused by perils covered by the insurance required to be maintained as provided in Section 5.3 hereof. Such rental interruption insurance shall name the Trustee and the Corporation as additionally insured parties and the Trustee as the loss payee. (b) Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental income or use and occupancy insurance carried by the City but may not be maintained in the form of self- insurance by the City. (c) Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable and proportionately between 2010A Lease Payments and 2010B Lease Payments if there are insufficient Net Proceeds to pay all Lease Payments due in any such Certificate Year. Section 5.5. Title Insurance. The City shall obtain and, throughout the Term of this Lease, maintain or cause to be maintained title insurance on the Leased Premises, in the form of an ALTA title policy (with western regional exceptions) or in the form of a CLTA title policy, in an amount equal to the aggregate principal amount of the Certificates and Additional Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same, payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or policies shall insure the City's leasehold estate hereunder in the Leased Premises, subject only to Permitted Encumbrances. All Net Proceeds received under said policy or policies shall be deposited with the Trustee and applied as provided in Section 7.01 of the Trust Agreement. So long as any of the Certificates and Additional Certificates remain Outstanding, each policy of the title insurance obtained pursuant hereto or required hereby shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Certificate Owners and the owners of any Additional Certificates. The Net Proceeds of such insurance shall be applied as provided in Section 6.1. 15 DOCSOC /1423 553v7/022459 -0014 Section 5.6. General Insurance Provisions. (a) Form of Policies. All policies of insurance required to be procured and maintained pursuant to this Lease and any statements of self- insurance shall be in a form certified by the City Representative or an insurance agent, broker or consultant to the City to comply with the provisions hereof All such policies shall provide that the insured parties shall be given thirty (30) days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be procured and maintained pursuant to Section 5.3 (regarding casualty and theft insurance), Section 5.4 (regarding rental interruption insurance) and Section 5.5 (regarding title insurance) shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Owners. All required insurance policies must be provided by a commercial insurer rated A by Best or A- and A3 by S &P and Moody's, respectively. All policies shall name the City, the Corporation and the Trustee as insureds and the Trustee as a loss payee. (b) Payment of Premiums. The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease, and shall promptly furnish or cause to be furnished to the Trustee a certificate to such effect, as described in paragraph (d) below. (c) Protection of the Trustee. The Trustee shall not be responsible for the sufficiency or adequacy of any insurance herein required and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. (d) Evidence of Insurance. The City shall cause to be delivered to the Trustee annually on or before August 1 a certificate stating that the insurance policies required by this Lease are in full force and effect. (e) Self Insurance. The City may only elect to self insure pursuant to Sections 5.1, 5.2 and 5.3(c) hereof if and to the extent such self - insurance method or plan of protection shall afford reasonable protection to the Corporation and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by other cities in the State other than the City. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance shall not be deemed to be self- insurance for purposes hereof. Any self- insurance maintained by the City pursuant to this Article V shall comply with the following terms: (i) The self- insurance program shall be approved in writing by the City's City Manager or Assistant City Manager and an independent insurance consultant in accordance with the California Labor Code and the California Government Code; (ii) The self - insurance program shall include an actuarially sound claims reserve fund out of which each self - insured claim shall be paid; the adequacy of such fund shall be evaluated on a biannual basis by the City Representative in a certified statement delivered to the Trustee; and any deficiencies in any self - insured claims reserve fund shall be remedied in accordance with the recommendation of the City Representative; and (iii) In the event the self - insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City Representative, shall be maintained. 16 DOCSOC/1423553v7/022459 -0014 Section 5.7. Cooperation. The Corporation shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any portion thereof. ARTICLE VI DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS Section 6.1. Application of Net Proceeds. (a) Deposit in Net Proceeds Fund. The City shall remit promptly to the Trustee any Net Proceeds received by the City and the Trustee as provided in Section 5.3 (regarding casualty and theft insurance) and Section 5.5 (regarding title insurance) promptly upon receipt thereof, and pursuant to Section 7.01 of the Trust Agreement, the Trustee shall deposit such Net Proceeds of insurance in the Net Proceeds Fund. The City and /or the Corporation shall transfer to the Trustee any other Net Proceeds (other than Net Proceeds paid under Sections 5.1, 5.2 and 5.4 hereof which shall be applied as described in such sections) received by the City and/or Corporation in the event of any accident, destruction, theft or taking by eminent domain or condemnation with respect to the Project, for deposit in the Net Proceeds Fund. (b) Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph (ii) below, the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as provided in paragraph (ii) below. (i) Certification. The City Representative must certify to the Corporation and the Trustee that: (x) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose, together with any other funds supplied by the City to the Trustee in a subaccount of the Net Proceeds Fund for such purpose, are expected to equal at least 100% of the projected costs of replacement or repair, as demonstrated in an attached reconstruction budget, and (y) Timely Completion. In the event that damage, destruction or taking results, or is expected to result, in an abatement of Lease Payments, such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds, as described in Section 5.4 together with other identified available moneys, will be available to pay in full all Lease Payments coming due during such period as demonstrated in an attached reconstruction schedule. (ii) Requisition. The City Representative must deliver to the Trustee a requisition stating with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation. Each such cost requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. 17 DOCSOC/1423553v7/022459 -0014 Any balance of the Net Proceeds remaining after such replacement or repair has been completed and after payment or provision for payment of all Certificates as provided in Section 7.01 of the Trust Agreement and all Additional Certificates as provided in any Supplemental Trust Agreement pursuant to which such Additional Certificates are executed and delivered shall be paid to the City after payment of amounts due the Trustee pursuant to Sections 9.6 and 9.7 of the Trust Agreement. (c) Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City's determination that the certification provided in Section 6.1(b)(i) cannot be made or that replacement or repair of any portion of the Leased Premises is not economically feasible or in the best interest of the City, then the Trustee shall promptly transfer the Net Proceeds to the Prepayment Fund as provided in Section 7.01 of the Trust Agreement and apply them to prepayment of the Certificates as provided in Section 4.02 of the Trust Agreement and Additional Certificates as provided in a Supplemental Trust Agreement and prepayment of Lease Payments as provided in Section 10.2 hereof; provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net Proceeds, together with funds then on hand in the Lease Payment Fund are not sufficient to prepay all the Certificates and Additional Certificates then Outstanding, then the City shall not be permitted to certify that repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best interest of the City. In such event, the City shall proceed to repair, replace or improve the Leased Premises as described herein from legally available funds in the then - current Fiscal Year and shall make the required notification to the Trustee pursuant to Section 7.01 of the Trust Agreement and the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm, or corporation named in the requisition as provided therein. ARTICLE VII COVENANTS WITH RESPECT TO THE LEASED PREMISES Section 7.1. Use of the Leased Premises. The City represents and warrants that it has an immediate need for, and expects to make immediate use of, all of the Leased Premises, which need is not temporary or expected to diminish in the foreseeable future. Section 7.2. Interest in the Leased Premises and the Lease. (a) Corporation Holds Leasehold Interest During Term. During the Term of this Lease, the Corporation does and shall hold a leasehold interest in the Leased Premises pursuant to the Site Lease. The City shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents reasonably required, to maintain and evidence such title and interest at all times during the Term of this Lease. (b) Title Transferred to the City at End of Term. Upon expiration of the Term as provided in Section 4.2(b) or 4.2(c) hereof, all right, title and interest of the Corporation in and to all of the Leased Premises shall be transferred to and vest in the City, without the necessity of any additional document of transfer. Section 7.3. Option to Purchase. The City may exercise an option to purchase the Corporation's interest under the Site Lease and this Lease in the Leased Premises by depositing with the Trustee cash and/or Government Obligations as provided in Section 14.01 of the Trust Agreement. In such event, all or a portion of the obligations of the City under this Lease, and the 18 D OCSOC/1423553 v7/022459 -0014 security provided by this Lease for said obligations or said portion of the obligations, shall cease and terminate as provided in Section 4.2 hereof, excepting in the case all of the Corporation's interest has been purchased, only the obligation of the City to make, or cause to be made, such Lease Payments from such deposit. In the event Lease Payments and Additional Payments under this Lease have been paid in full, on the date of said deposit, the Corporation's interest in the Leased Premises shall revert and transfer to the City automatically and without further action by the City or the Corporation, and the Corporation shall execute and deliver such further instruments and tale such further action as may reasonably be requested by the City for carrying out the reversion and transfer of the Corporation's interests in the Leased Premises. In the event Lease Payments under this Lease have been paid in part only, on the date of said deposit, the City shall specify a discrete portion of the Corporation's interest in the Leased Premises for reversion and transfer to the City and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of such portion of the Corporation's interest in the Leased Premises; provided, that such portion shall revert and transfer to the City only if the reduction in the fair rental value of the Leased Premises resulting from such reversion and transfer at the time of such reversion and transfer (as determined by an independent appraisal acceptable to the Corporation) is proportionately less than or equal to the reduction in the maximum annual Lease Payments under this Lease resulting from such purchase. Any such deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with Section 4.4 hereof. Section 7.4. Quiet Enjoyment. During the Term, the Corporation shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall during such Term peaceably and quietly have and hold and enjoy the Leased Premises, without suit, trouble or hindrance from the Corporation, or any person or entity claiming under or through the Corporation except as expressly set forth in this Lease. The Corporation will, at the request of the City, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect the Leased Premises as provided in Section 7.6 hereof. Section 7.5. Installation of the City's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other property in or upon any portion of the Leased Premises. All such items shall remain the sole property of the City, regardless of the manner in which the same may be affixed to such portion of the Leased Premises, in which neither the Corporation nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to such portion of the Leased Premises resulting from the installation, modification or removal of any such items of equipment. Nothing in this Lease shall prevent the City from purchasing items to be installed pursuant to this Section, provided that no lien or security interest shall attach to any part of the Leased Premises. Section 7.6. Access to the Leased Premises. The City agrees that the Corporation, any Corporation Representative and the Corporation's successors, assigns or designees shall have the right at all reasonable times to enter upon the Leased Premises or any portion thereof to examine and inspect the Leased Premises. The City further agrees that the Corporation, any such Corporation Representative, and the Corporation's successors, assigns or designees shall have such rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the Leased Premises in the event of failure by the City to perform its obligations hereunder. 19 D OCSOC/1423553 v7/022459 -0014 Section 7.7. Maintenance, Utilities, Taxes and Assessments. (a) Maintenance; Repair and Replacement. Throughout the Term of this Lease, as part of the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased Premises shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. In exchange for the Lease Payments herein provided, the Corporation agrees to provide only the Leased Premises, as hereinbefore more specifically set forth. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of this Lease. (b) Tax and Assessments; Utility Charges. The City shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Corporation or the City or levied, assessed or charged against any portion of the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the 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 permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Corporation and the Trustee with the opinion of an Independent Counsel acceptable to the Corporation, to the effect that, by nonpayment of any such items, the interest of the Corporation in such portion of the Leased Premises will not be materially endangered and that the Leased Premises will not be subject to loss or forfeiture. Otherwise, the City shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Corporation. The Corporation will cooperate fully in such contest, upon the request and at the expense of the City. Section 7.8. Modification of the Leased Premises. (a) Additions. Modifications and Improvements. The City shall, at its own expense, have the right to make additions, modifications, and improvements to any portion of the Leased Premises if such improvements are necessary or beneficial for the use of such portion of the Leased Premises. All such additions, modifications and improvements shall thereafter comprise part of the Leased Premises and be subject to the provisions of this Lease. Such additions, modifications and improvements shall not in any way cause an abatement of Lease Payments with respect to the Leased Premises or cause it to be used for purposes other than those authorized under the provisions of State and federal law or in any way which would impair the State tax- exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates); and the Leased Premises, upon completion of any additions, modifications and improvements made pursuant to this Section, shall have an annual fair rental value which is not less than the annual Lease Payments. 20 DOCSOC /I 423553v7/022459 -0014 (b) No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any additions, modifications or improvements made by the City pursuant to this Section; provided that if any such lien is established and the City shall first notify or cause to be notified the Corporation of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Trustee (as assignee of the Corporation). The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City. (c) Replacements, Redevelopment and Renovation. The City shall, at its own expense, or with the proceeds of Additional Certificates, have the right to make replacements, redevelopment or renovation of all or a portion of the Leased Premises if the following conditions precedent are satisfied: (i) The City receives an opinion of Special Counsel, a copy of which the City shall furnish to the Corporation and the Trustee, that (1) such replacement does not adversely affect the federal income tax exclusion or the State tax - exempt status of the Interest Component evidenced by the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates) or would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 201OB Lease Payments, and (2) the Lease will remain the legal, valid, binding and enforceable obligation of the City; (ii) In the event such replacement, redevelopment or renovation would result in the temporary abatement of Lease Payments as provided in Section 4.10 hereof the City shall have notified any rating agency then providing a rating on the Certificates and shall deposit moneys with the Trustee in advance for payment of Lease Payments from the proceeds of Additional Certificates or from special funds of the City or other moneys, the application of which would not, in the opinion of Special Counsel (a copy of which shall have been delivered to the Trustee), result in such Lease Payments constituting indebtedness of the City in contravention of the Constitution and laws of the State; (iii) The City shall certify to the Trustee that it has sufficient funds to complete such replacement, redevelopment or renovation; and (iv) In the case of replacement(s), redevelopment or renovation other than from the proceeds of Additional Certificates, the City and the Trustee receive an independent appraisal from a California certified general appraiser that the annual fair rental value of Leased Premises following the replacement, redevelopment or renovation will be at least equal to the annual Lease Payments immediately prior to such replacement, redevelopment or renovation. 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 21 DOCSOC/ 1423553 v7 /022459 -0014 applicable, on or with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of the Corporation and the City as herein provided. Except as expressly provided in this Article VII, the City shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that the City may contest such liens if it desires to do so. The City shall reimburse the Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. (b) Ahemative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims shall at any time while any of the Certificates or Additional Certificates remain Outstanding be and remain subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the benefit of the Owners and (2) the City shall have first delivered to the Trustee an opinion of Special Counsel substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result in the inclusion of the interest with respect to the 2010A Certificates and the Additional Certificates (to extent such Additional Certificates are executed and delivered as tax exempt Certificates) in the gross income of the owners thereof for purposes of federal income taxation or impair the State tax- exempt status of such interest payments and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Section 7.10. Corporation's Disclaimer of Warranties. THE CORPORATION MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Corporation be liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Lease, the Site Lease, the Assignment Agreement, the Agency Agreement or the Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. Section 7.11. The City's Right to Enforce Warranties of Vendors or Contractors. The Corporation hereby irrevocably appoints the City its agent and attorney -in -fact during the Term of this Lease, so long as the City shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, respecting the Leased Premises which the Corporation may have against any vendor or contractor. The City's sole remedy for the breach of any such warranty, indemnification or representation shall be against the vendor or contractor with respect thereto, and not against the Corporation, nor shall such matter have any effect whatsoever on the rights and obligations of the Corporation with respect to this Lease, including the right to receive full and timely Lease Payments and all other payments due hereunder. The City shall be entitled to retain any and all amounts recovered as a result of the assertion of any such claims and rights. The Corporation shall, upon the City's request and at the City's expense, do all things and take all such actions as the City may request in connection with the assertion of any such claims and rights. 22 DOCSOC/ 1423 553 v7 /022459 -0014 Section 7.12. Substitution or Release of the Leased Premises The City shall have the right to substitute alternate real property for any portion of the Leased Premises described in Exhibit B hereto or to release a portion of the Leased Premises from the lien of this Lease by providing the Trustee with a supplement to this Lease substantially in the form attached as Exhibit D hereto and by satisfying the conditions set forth in paragraphs (i) through (vi) of this Section 7.12. All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution pursuant to this Section, there shall be no reduction in or abatement of the Lease Payments due from the City hereunder as a result of such substitution. No substitution or release shall be permitted hereunder unless: (a) In the case of a substitution, the City provides the Trustee with a certificate that the substituted real property has an equivalent or greater useful life as the Leased Premises to be released and that the useful life of the substituted Leased Premises exceeds the remaining term of the Lease Payments hereunder; (b) an independent California Certified General or equivalent certified real estate appraiser selected by the City finds (and delivers a certificate to the City and the Trustee setting forth its findings) that the Leased Premises following any release or substitution has an annual fair rental value greater than or equal to the corresponding Lease Payments due hereunder so that the Lease Payments payable by the City pursuant to the Lease will not be abated. Notwithstanding the foregoing, upon the filing by the City of the Completion Certificate, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site, provided that the City certifies to the Trustee that at least 90% of the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. (c) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) or CLTA title insurance policy with respect to any substituted property, with an endorsement so as to be payable to the Trustee for the benefit of the Owners, showing no prior liens thereon other than Permitted Encumbrances. Such policy shall comply with Section 5.5 hereof, shall be in the amount equal to the principal component of Lease Payments attributable to the substituted property, and shall insure the leasehold interest or the fee simple interest of the Corporation or the City, as applicable, to the substituted property; (d) the City provides the Corporation and the Trustee with an opinion of Special Counsel that such substitution or release does not cause, in and of itself, the interest evidenced and represented by the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause a loss of the cash subsidy payments from the United States Treasury with respect to the 2010B Certificates; (e) the City shall give, or cause to be given, any notice of the occurrence of such substitution or release required to be given pursuant to the Continuing Disclosure Agreement; and (f) upon the substitution of any real property and improvements thereon for all or a portion of the Leased Premises then existing, or the release of any portion of the Leased Premises, the City, the Corporation and the Trustee shall execute and the City shall record with the office of the County Recorder, County of Orange, California, any document necessary to reconvey to the City the 23 DOCSOC /1423 553 v7/022459 -0014 portion of the Leased Premises being released and to include any substituted real property and /or improvements as all or a portion of the Leased Premises. Section 7.13. Compliance with Law, Regulations, Etc. (a) Except as described in subsection (b) below, the City has, after due inquiry, no knowledge and has not given or received any written notice indicating that the past or present use of the Leased Premises or any practice, procedure or policy employed by it in the conduct of its business materially violates any applicable (including federal, state, county and local) law, regulation, code, order, rule, judgment or consent agreement, including, without limitation, those relating to zoning, building, use and occupancy, fire safety, health, sanitation, air pollution, ecological matters, environmental protection, hazardous or toxic materials, substances or wastes, conservation, parking, architectural barriers to the handicapped, or restrictive covenants or other agreements affecting title to the Leased Premises (collectively, "Laws and Regulations "). Without limiting the generality of the foregoing, to the best of its knowledge, after due inquiry, neither the City nor any prior or present owner, tenant or subtenant of the Leased Premises has, other than as set forth in subsections (a) and (b) of this Section or as may have been remediated in accordance with Laws and Regulations, (i) used, treated, stored, transported or disposed of any material amount of flammable explosives, polychlorinated biphenyl compounds, heavy metals, chlorinated solvents, cyanide, radon, petroleum products, asbestos, methane, radioactive materials, pollutants, hazardous materials, hazardous wastes, hazardous, toxic, or regulated substances or related materials, as defined in CERCLA, RCRA, CWA, CAA, TSCA and Title 111, and the regulations promulgated pursuant thereto, and in all other Environmental Regulations applicable to the City, the Leased Premises or the business operations conducted by the City thereon (collectively, "Hazardous Materials ") on, from or beneath the Leased Premises, (ii) pumped, spilled, leaked, disposed of emptied, discharged or released (hereinafter collectively referred to as "Release ") any material amount of Hazardous Materials on, from or beneath the Leased Premises, or stored any material amount of petroleum products at the Leased Premises in underground storage tanks. (b) Excluded from the representations and warranties in subsection (a) hereof with respect to Hazardous Materials are those Hazardous Materials in the amounts ordinarily found in the inventory of, or used in the maintenance of the City's City Hall or related buildings, the use, treatment, storage, transportation and disposal of which has been and shall be in compliance with all Laws and Regulations (the "Permitted Use "). (c) No portion of the Leased Premises located in an area of high potential incidence of radon has an unventilated basement or subsurface portion which is occupied or used for any purpose other than the foundation or support of the improvements to the Leased Premises. Section 7.14. Environmental Compliance. (a) Other than the Permitted Use, the City shall not use or permit the Leased Premises or any part thereof to be used to generate, manufacture, refine, treat, store, handle, transport or dispose of, transfer, produce or process Hazardous Materials, except, and only to the extent, if necessary to maintain the improvements on the Leased Premises and then, only in compliance with all Enviromnental Regulations, and any state equivalent laws and regulations, nor shall it permit, as a result of any intentional or unintentional act or omission on its part or by any tenant, subtenant, licensee, guest, invitee, contractor, employee and agent, the storage, transportation, disposal or use of Hazardous Materials or the Release or threat of Release of Hazardous Materials on, from or beneath 24 DOC SOC/ 1423 553v7/022459-0014 the Leased Premises or onto any other Leased Premises excluding, however, those Hazardous Materials in those amounts ordinarily found in the inventory of a municipal corporation, the use, storage, treatment, transportation and disposal of which shall be in compliance with all Environmental Regulations. Upon the occurrence of any Release or threat of Release of Hazardous Materials other than the Permitted Use, the City shall promptly commence and perform, or cause to be commenced and performed promptly, without cost to the Trustee, all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials so released, on, from or beneath the Leased Premises, in compliance with all Environmental Regulations. Notwithstanding anything to the contrary contained herein, underground storage tanks shall only be permitted subject to compliance with subsection (d) and only to the extent necessary to maintain the improvements on the Leased Premises. (b) The City shall comply with, and shall cause all tenants, subtenants, licensees, guests, invitees, contractors, employees and agents on the Leased Premises to comply with, all Environmental Regulations, and shall keep the Leased Premises free and clear of any liens imposed pursuant thereto; provided, however, that notwithstanding that a portion of this covenant is limited to the City's use of its best efforts, the City shall remain solely responsible for ensuring such compliance and such limitation shall not diminish or affect in any way the City's obligations contained in subsection (c) hereof as provided in subsection (c) hereof. Upon receipt of any notice from any person with regard to the Release of Hazardous Materials other than the Permitted Use on, from or beneath the Leased Premises, the City shall give prompt written notice thereof to the Trustee prior to the expiration of any period in which to respond to such notice under any Environmental Regulation. (c) Irrespective of whether any representation or warranty contained in Section 7.13 is not true or correct, the City shall, to the extent permitted by law, defend, indemnify and hold harmless the Trustee, the Owners, the Corporation and each of their respective employees, agents, officers, directors, trustees, successors and assigns, from and against any claims, demands, penalties, fines, attorneys' fees (including, without limitation, attorneys' fees and expenses incurred to enforce the indemnification contained in this Section 7.14, consultants' fees and expenses, investigation and laboratory fees and expenses, liabilities, settlements (five Business Days' prior notice of which the Trustee shall have delivered to the City) court costs, damages, losses, costs or expenses of whatever kind or nature, known or unknown, contingent or otherwise, occurring in whole or in part, arising out of, or in any way related to, (i) the presence, disposal, Release, threat of Release, removal, discharge, storage or transportation of any Hazardous Materials on, from or beneath the Leased Premises, (ii) any personal injury (including wrongful death) or Leased Premises damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any lawsuit brought or threatened, settlement reached (five Business Days' prior notice of which the Trustee shall have delivered to the City), or governmental order relating to Hazardous Materials on, from or beneath the Leased Premises, (iv) any violation of Environmental Regulations or subsection (a) or (b) hereof by it or any of its agents, tenants, employees, contractors, licensees, guests, subtenants or invitees, and (v) the imposition of any governmental lien for the recovery of environmental cleanup or removal costs. To the extent that the City is strictly liable under any Environmental Regulation, its obligation under the foregoing indemnification shall likewise be without regard to fault on its part with respect to the violation of any Environmental Regulation which results in liability to any indemnitee. The obligations and liabilities under this Section 7.14(c) shall survive the payment and satisfaction of all Certificates and Additional Certificates or resignation or removal of the Trustee. 25 DOCSOC /1423553 v7/022459 -0014 (d) The City shall conform to and carry out a reasonable program of maintenance and inspection of all underground storage tanks, and shall maintain, repair, and replace such tanks only in accordance with Laws and Regulations, including but not limited to Environmental Regulations. Section 7.15. Condemnation of Leased Premises. The City hereby covenants and agrees, to the extent it may lawfully do so, that, except as described in Section 6 of the Site Lease, so long as any of the Certificates or Additional Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Leased Premises. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City shall fail or refuse to abide by such covenant and condemns the Leased Premises, then the appraised value of the Leased 'Premises shall not be less than the sum of: (i) as to Certificates and Additional Certificates then subject to optional prepayment, the principal and interest components of such Certificates and Additional Certificates outstanding through the date of their prepayment, and (ii) as to Certificates and Additional Certificates not then subject to optional prepayment, the amount necessary to defease such Certificates and Additional Certificates to the first available prepayment date in accordance with the Trust Agreement. ARTICLE VIII ASSIGNMENT, SUBLEASING AND AMENDMENT Section 8.1. Assignment by the Corporation. Except as provided herein, in the Trust Agreement and the Assignment Agreement, the Corporation will not assign this Lease to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in Section 2.2 hereof. Section 8.2. Assignment and Subleasing by the City. (a) Assignment. This Lease may be assigned by the City, so long as such assignment does not, in the opinion of Special Counsel, adversely affect the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2O10A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds or affect the validity of this Lease. In the event that this Lease is assigned by the City, the obligation to make Lease Payments hereunder shall remain the obligation of the City. (b) Sublease. The City may sublease all or any portion of the Leased Premises subject to all of the following conditions: (i) This Lease and the obligation of the City to make Lease Payments and Additional Payments hereunder shall remain obligations of the City; (ii) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Corporation and the Trustee, a true and complete copy of such sublease; and 26 DOC SOC/ 1423553 v7/022459 -0014 (iii) The City shall furnish to the Corporation and the Trustee, an opinion of Special Counsel to the effect that the sublease will not cause the interest due with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Section 8.3. Amendments and Modifications. This Lease may be amended or any of its terms modified with the written consent of the City, the Corporation and the Trustee in accordance with Article X of the Trust Agreement. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of Default Defined. The following shall be "events of default" under this Lease and the terms "events of default" and "default" shall mean, whenever they are used in this Lease, any one or more of the following events: (a) Payment Default. Failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; and (b) Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed hereunder or otherwise with respect hereto or in the Trust Agreement or in the Site Lease, other than as referred to in clause (a) of this Section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation, the Trustee, or the Owners of not less than twenty percent (20 %) in aggregate principal amount of Certificates and Additional Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Corporation 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. (c) Bankruptcy or Insolvency. The filing by the City of a case in bankruptcy, or the subjection of any right or interest of the City under this Lease to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. Section 9.2. Remedies on Default. Whenever any event of default referred to in Section 9.1 hereof shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to this Lease. 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 27 DOCSOC /1423 553v7/022459 -0014 City will surrender possession of the .Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. (a) No Termination; Repossession and Re -Lease on Behalf of The Citv. In the event the Corporation does not elect to terminate this Lease in the manner hereinafter provided for in subparagraph (b) hereof, the Corporation may, with the consent of the City, which consent is hereby irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with this Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the 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 Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City hereby irrevocably appoints the Corporation as the agent and attomey -in -fact of the City to repossess and re -lease the Leased Premises in the event of default by the City in the performance of any covenants contained herein to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in the County of Orange, for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re- leasing of the Leased Premises. The City hereby waives any and all claims for damage caused or which may be caused by the Corporation in repossessing the Leased Premises as provided herein and all claims for damages that may result from the destruction of or the injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that may be in or upon the Leased Premises. The City agrees that the terms of this Lease constitute full and sufficient notice of the right of the Corporation to re -lease the Leased Premises in the event of such repossession without effecting a surrender of this Lease, and further agrees that no acts of the Corporation in effecting such re- leasing shall constitute a surrender or termination of this Lease irrespective of the term for which such re- leasing is made or the terms and conditions of such re- leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease shall vest in the Corporation to be effected in the sole and exclusive manner provided for in subparagraph (b) below. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re- leasing the Leased Premises, and all amounts payable by the City under this Lease and the Trust Agreement. In the event that the liability of the City under this subsection (a) is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such W DOCSOC/1423553v7/022459 -0014 year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies provided in this subsection (a). (b) Termination; Repossession and Re- Lease. In the event of the termination of this Lease by the Corporation at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of Section 5.04 of the Trust Agreement. Any surplus received by the Trustee, as assignee of the Corporation, from such re- leasing over total Lease Payments shall be remitted to the City. Additional Payments that would have been due hereunder and the fees, expenses and costs of the Trustee as assignee of the Corporation on re- leasing the Leased Premises shall be remitted to the City. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate this Lease, and no termination of this Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate this Lease. The City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of this Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. (c) Opinion of Special Counsel. The re- leasing of the Leased Premises as provided herein shall be subject to the opinion of Special Counsel that such re- leasing will not cause the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax- exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments with respect to the 2010B Certificates which have been designated as Build America Bonds. (d) No Termination by The City. Under no circumstances may the City terminate this Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation hereunder. Section 9.3. No Remedy Exclusive. No remedy conferred herein upon or reserved to the Corporation is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Corporation to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. 29 DO C SOC/ 1423553 v7 /022459 -0014 Section 9.4. Agreement to Pay Attorneys' Fees and Expenses. In the event either party to this Lease (except for the Trustee, as assignee of the Corporation) should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. Section 9.5. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Lease should be breached by either party and thereafter waived by the other party; such waiver shalt be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 9.6. Application of the Proceeds from the Re -Lease of the Leased Premises. All amounts received by the Corporation under this Article IX shall, subject to Section 13.03 of the Trust Agreement, be deposited by the Trustee in the Lease Payment Fund and credited towards the Lease Payments in order of Lease Payment Dates, and proportionally among 2010A Lease Payments and 2010B Lease Payments. Section 9.7. Trustee and Owners to Exercise Rights. Such rights and remedies as are given to the Corporation under this Article IX have been assigned by the Corporation to the Trustee under the Assigmnent Agreement, to which assignment the City hereby consents. Such rights and remedies shall be exercised by the Trustee and the Owners as provided in the Trust Agreement. In addition to the rights and remedies assigned by the Corporation to the Trustee, to the extent that the Trust Agreement and this Lease confer upon or gives or grant to the Trustee any right, remedy or claim under or by reason of the Trust Agreement or this Lease, the Trustee is hereby explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred given or granted. ARTICLE X PREPAYMENT OF LEASE PAYMENTS Section 10.1. Security Deposit. Notwithstanding any other provision of this Lease, the City may, on any date, secure the payment of Lease Payments and Additional Payments by a deposit by it with the Trustee of cash and /or Government Obligations as provided in Section 14.01 of the Trust Agreement. In such event, and provided that the City has paid any other amounts due and owing under this Lease and the Trust Agreement, all obligations of the City under this Lease, and all security provided by this Lease for said obligations, shall cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such deposit. On the date of said deposit, title to the Leased Premises shall vest in the City automatically and without further action by the City or the Corporation (except as provided herein). Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of this Lease. The Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the title transfer of the Leased Premises. Section 10.2. Extraordinary 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 30 DO CSOC/ 1.423553 v7 /022459 -0014 moneys theretofore deposited in the Prepayment Fund (at least 45 days prior to the date fixed for prepayment of the Certificates and any Additional Certificates) pursuant to Section 4.02 of the Trust Agreement. The City and the Corporation hereby agree that such Net Proceeds or other moneys shall be credited towards the City's obligations hereunder (except in the case of such Prepayment of the Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual Lease Payments will be proportional to the initial annual Lease Payments. Section 10.3. Optional Prepay. Subject to the terns and conditions of this Section, the Corporation hereby grants an option to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment prices set forth in Section 4.03 of the Trust Agreement and in any Supplemental Agreement. The City shall provide notice to the Trustee at least 45 days prior to the date fixed for prepayment of the Certificates (or on such later date as shall be consented to by the Trustee). The City and the Corporation agree that such prepayments shall be credited toward the City's obligations hereunder corresponding to the resulting prepayment of the Certificates and Additional Certificates in accordance with Section 4.03 of the Trust Agreement and any Supplemental Agreement on the dates and at the prepayment prices provided therein. ARTICLE X1 MISCELLANEOUS Section 11.1. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received on the earlier of the day of actual receipt or five Business Days after deposit in the United States mail in first -class or certified form, postage prepaid, to the City or the Corporation, as the case may be, at the addresses indicated in Section 14.05 of the Trust Agreement. The Corporation, the City, and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Section 11.2. Binding Effect. This Lease shall inure to the benefit of and shall be binding upon the Corporation and the City and their respective successors and assigns. Section 11.3. Severability. In the event any provision of this Lease shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 11.4. Execution in 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. 31 DOCSOC/ 1423 553v7/022459-0014 IN WITNESS WHEREOF, the Corporation has caused this Lease to be executed in its name by its duly authorized officer, and the City has caused this Lease to be executed in its name by its duly authorized officer, as of the date first above written. Attest: Secrehl NEWPORT BEACH PUBLIC FACILITIES CORPORATION, as Lessor // Its: ChiefFinanc'a Officer CITY OF NEWPORT BEACH, as Lessee By; 6„ Its: CityN ages OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL CO EL: By: tradling occa Carlson & Rauth, a Professional Corporation S -1 DOCSOC/ 1423 553/022459 -0014 CERTIFICATE OF ACCEPTANCE This is to certify that the interest in the Leased Premises conveyed under the foregoing to the City of Newport Beach, a chartered city duly organized under the Constitution and the laws of the State of California, is hereby accepted by the undersigned officer or agent on behalf of the City Council of the City of Newport Beach, pursuant to authority conferred by resolution of the said City Council adopted on November 9, 2010, and the grantee consents to recordation thereof by its duly authorized officer. Dated: November �, 2010 CITY OF NEWPORT BEACH By: IL-AA Its: City )M nager ATTEST: A�F Its: City Clerk DOCSOC/ 1423 553/022459 -0014 EXHIBIT A A -1 DOCSOC/7423553v7/022459 -0014 SCHEDULE OF LEASE PAYMENTS 2010ALEASEPAYMENTS 20108 LEASE PAYMENTS Animal Principal interest Principal Interest Combined Lease Date Component Component Lease Payments Component Component Lease Payments Payments 12/15110 $ 59,016.25 $ 59,01625 - 5 623,738.66 5 623,738.66 $ 682,754.91 06115111 $1,740,000 342,675.00 2,082,675.00 - 3,621,708.38 3,621,708.38 5,704,383.38 12/15/11 - 325,275.00 325,275.00 - 3,621,708.38 3,621,708.38 3,946,983.38 06/15/12 2,690,000 325,275.00 3,015,275.00 - 3,621,708.38 3,621,708.38 6,636,983.38 12/15112 - 284,925.00 284,925.00 - 3,621,708.38 3,621,708.38 3,906,633.38 06/15/13 2,775,000 284,925.00 3,059,925.00 - 3,621,70838 3,621,708.38 6,681,633.38 12/15113 - 243,300.00 243,300.00 - 3,621,708.38 3,621,70838 3,865,008.38 06/15/14 2,860,000 243,300.00 3,103,300.00 - 3,621,708.38 3,621,708.38 6,725,008.38 12/15/14 - 200,400.00 200,400.00 - 3,621,708.38 3,621,708.38 3,829,108.38 06115115 2,940,000 200,400.00 3,140,400.00 - 3,621,708.38 3,621,708.38 6,762,108.38 12115115 - 141,600.00 141,600.00 - 3,621,708.38 3,621,708.38 3,763,308.38 06115116 3,060,000 141,600.00 3,201,600.00 - 3,621,708.38 3,621,708.38 6,823,308.38 12/15/16 - 80,400.00 80,400.00 - 3,621,708.38 3,621,708.38 3,702,108.38 06115117 3,185,000 80,400.00 3,265,400.00 - 3,621,708.38 3,621,708.38 6,887,108.38 12/15117 - 16,700.00 16,700.00 - 3,621,708.38 3,621,708.38 3,638,408.38 06/15/18 410,000 16,700.00 426,700.00 $2,900,000 3,621,708.38 6,521,708.38 6,948,40838 12/15/18 - 8,500.00 8,500.00 - 3,557,16888 3,557,168.88 3,565,668.88 06115/19 425,000 8,500.00 433,500.00 2,980,000 3,557,168.88 6,537,168.88 6,970,668.88 12115/19 - - - - 3,486,378.98 3,486,378.98 3,486,378.98 06/15/20 - - - 3,065,000 3,486,378.98 6,551,378.98 6,551,37898 12/1520 - - - - 3,408,972.40 3,408,972.40 3,408,972.40 06/1521 - - - 3,165,000 3,408,972.40 6,573,972.40 6,573,972.4!1 12/15/21 - - - - 3,324,292.83 3,324,292.83 3,324,292.83 06/15/22 - - - 3,275,000 3,324,292.83 6,599,292.83 6,599,292.83 12115/22 - - - - 3,232,576.45 3,232,576.45 3,232,576.45 06115123 - - - 3,390,000 3,232,576.45 6,622,576.45 6,622,576.45 12/15/23 - - - - 3,133,402.00 3,133,402.00 3,133,402.00 06/15/24 - - - 3,510,000 3,133,402.00 6,643,402.00 6,643,402.00 12/1524 - - - - 3,009,568.60 3,009,568.60 3,009,568.60 06/15/25 - - - 3,675,000 3,009,568.60 6,684,568.60 6,684,568.60 12115/25 - - - - 2,879,791.60 2,879,791.60 2,879,791.60 06/15/26 - - - 3,850,000 2,879,791.60 6,729,791.60 6,729,791.60 12/15/26 - - - - 2,743,723.85 2,743,723.85 2,743,723.85 06/15/27 - - - 4,025,000 2,743,723.85 6,768,723.85 6,768,723.85 12/15/27 - - - - 2,601,365.35 2,601,365.35 2,601,365.35 06/15/28 - - - 4,210,000 2,601,365.35 6,811,365.35 6,811,365.35 12/1M8 - - - - 2,452,361.45 2,452,361.45 2,452,361.45 06/1529 - - - 4,405,000 2,452,361.45 6,857,361.45 6,857,361.45 12/15/29 - - - - 2,296,365.00 2,296,365.00 2,296,365.00 06115130 - - - 4,600,000 2,296,365.00 6,896365.00 6,896,365.00 12/15/30 - - - - 2,133,376.00 2,133,376.00 2,133,376.10 06/15/31 - - - 4,810,000 2,133,376.00 6,943,376.00 6,943,376.10 12115131 - - - - 1,960,985.60 1,960,985.60 1,960,985.60 06/15/32 - - - 5,035,000 1,960,985.60 6,995,985.60 6,995,985.60 12/15/32 - - - - 1,780,531.20 1,780,531.20 1,780,531.20 06/15/33 - - - 5,265,000 1,780,531.20 7,045,531.20 7,045,531.20 12/15/33 - - - - 1,591,833.60 1,591,833.60 1,591,833.60 06/15/34 - - - 5,510,000 1,591,833.60 7,101,833.60 7,101,833.60 12115/34 - - - - 1,394,355.20 1,394,355.20 1,394,355.20 06/151335 - - - 5,770,000 1,394,355.20 7,164,355.20 7,164,355.20 12/151335 - - - - 1,187,558.40 1,187,558.40 1,187,558.40 06/151336 - - - 6,035,000 1,187,558.40 7,222,558.40 7,222,558.40 12/15/36 - - - - 971,264.00 971,264.00 971,264.00 06115/37 - - - 6,320,000 971,264.00 7,291,264.00 7,291,264.00 12/15/37 - - - - 744,755.20 744,755.20 744,755.20 06/15/38 - - - 6,615,000 744,755.20 7,359,755.20 7,359,755.20 12115138 - - - - 507,673.60 507,673.60 507,673.60 06/15139 - - - 6,920,000 507,673.60 7,427,673.60 7,427,673.60 12/15139 - - - - 259,660.80 259,660.80 259,660.80 06/15140 - - - 7,245,000 259,660.80 7,504,660.80 7,504,660.80 A -1 DOCSOC/7423553v7/022459 -0014 EXHIBIT B DESCRIPTION OF THE LEASED PREMISES Real property and improvements located thereon in the City of Newport Beach, County of Orange, State of California, described as follows; Newport Coast Community Center: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: A PORTION OF PARCEL 1 OF LOT LINE ADJUSTMENT 94 -006, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED MARCH 22, 1994, AS INSTRUMENT NUMBER 94- 0202108 OF OFFICIAL RECORDS, ORANGE COUNTY RECORDERS OFFICE, STATE OF CALIFORNIA, BEING MORE PRACTICALLY DESCRIBED AS FOLLOWS: COMMENCING AT THE CENTERLINE INTERSECTION OF NEWPORT COAST DRIVE AND SAN JOAQUIN HILLS ROAD AS SHOWN ON SAID TRACT MAP; THENCE NORTH 840 27' 16" WEST ALONG SAID CENTERLINE OF SAN JOAQUIN HILLS ROAD A DISTANCE OF 441.70 FEET; THENCE LEAVING SAID CENTERLINE NORTH 050 32' 44" EAST A DISTANCE OF 61.49 FEET TO THE NORTHERLY RIGHT OF WAY LINE OF LAST SAID ROAD, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 05° 32' 44" EAST A DISTANCE OF 345.01 FEET TO A POINT ON A NON - TANGENT CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 142.54 FEET TO WHICH A RADIAL LINE BEARS SOUTH 480 54' 51" WEST; THENCE CONTINUING ALONG THE NORTHERLY LINE OF SAID LOT LINE ADJUSTMENT THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHEASTERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 370 02' 25" AN ARC LENGTH OF 92.15 FEET; THENCE SOUTH 78° 07' 34" EAST A DISTANCE OF 36.87 FEET; THENCE NORTH 740 03' 52" EAST A DISTANCE OF 79.69 FEET; THENCE NORTH 64'42' 53" EAST A DISTANCE OF 58.38 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 50.00 FEET; THENCE EASTERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 250 58' 33" AN ARC LENGTH OF 22.67 FEET; THENCE SOUTH 89° 18' 34" EAST A DISTANCE OF 123.01 FEET; THENCE NORTH 77° 16' 30" EAST A DISTANCE OF 18.90 FEET TO WESTERLY RIGHT OF WAY LINE OF SAID NEWPORT COAST DRIVE AND THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2291.00 FEET TO WHICH A RADIAL LINE BEARS SOUTH 850 40' 34" EAST; THENCE CONTINUING ALONG LAST SAID WESTERLY RIGHT OF WAY LINE THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 030 11' 42" AN ARC LENGTH OF 127.75 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE WESTERLY HAVING A RADIUS OF 201.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 80 19' 02" AN ARC LENGTH OF 29.18 FEET; THENCE SOUTH 15° 50' 10" WEST A B -1 DOCS O C/1423553 v7/022459 -0014 DISTANCE OF 30.62 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY HAVING A RADIUS OF 219.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 070 34' 07" AN ARC LENGTH OF 28.93 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2929.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 81° 23' 57" EAST; THENCE SOUTHERLY ALONG SAID REVERSE CURVE THROUGH A CENTRAL ANGLE OF 20 09' 07" AND ARC LENGTH OF 110.03 FEET; THENCE SOUTH 790 14' 50" EAST A DISTANCE OF 4.00 FEET TO THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2925.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 79° 14' 50" EAST; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 00 34' 09" AN ARC LENGTH OF 29.06 FEET TO AN ANGLE POINT ON SAID WESTERLY RIGHT OF WAY LINE; THENCE LEAVING SAID RIGHT OF WAY LINE SOUTH 480 1 P 54" WEST A DISTANCE OF 29.57 FEET TO A POINT ON SAID NORTHERLY RIGHT OF WAY LINE OF SAN JOAQUIN HILLS ROAD; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE SOUTH 890 52' 33" WEST A DISTANCE OF 51.85 FEET; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE NORTH 85017'57" WEST A DISTANCE OF 305.86 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM ARID ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM OTHER LANDS OTHER THAN THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERLY TO DRILL, MINE, STORE, EXPLORE, OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, FOR USE OF SURFACE OR SUBSURFACE WATER BY THE COUNTY FOR LOCAL PARK PURPOSES ON THE PROPERTY, ANY AND ALL WATER, SOLAR - HEATED WATER, RECLAIMED RIGHTS, WHETHER SURFACE OR SUBSURFACE, APPURTENANT OR RELATING TO THE PROPERTY, OR OWNED OR USED BY OFFEROR IN CONNECTION WITH THE PROPERTY TOGETHER WITH THE RIGHT TO EXPLORE, DRILL, REDRILL AND REMOVE SUCH WATER FROM THE PROPERTY, TO STORE SUCH WATER IN THE GROUND -WATER BASIN UNDERLYING THE PROPERTY BY PERCOLATING, SPREADING, OR INJECTING WATER INTO SUCH BASIN FROM LOCATIONS ON LANDS LYING OUTSIDE OF THE PROPERTY, AND TO DIVERT OR OTHERWISE UTILIZE SUCH WATER, RIGHTS, OR. INTERESTS ON ANY OTHER PROPERTY B -2 DO CSOC /l423 553v7/022459 -0014 OWNED OR LEASED BY OFFEROR, BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RIGHT, AS RESERVED BY THE IRVINE COMPANY, A MICHIGAN CORPORATION, IN IRREVOCABLE OFFER OF DEDICATION, RECORDED APRIL 8, 1993, AS INSTRUMENT NO. 93- 0234810, AND IN GRANT DEED RECORDED JANUARY 2, 1997, AS INSTRUMENT NO. 19970000564, BOTH OF OFFICIAL RECORDS. Mariner's Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL A: A PARCEL OF LAND CONTAINING 9.019 ACRES AND BEING A PORTION OF BLOOK 53, AS SHOWN UPON A MAP OF IRVINE'S SUBDIVISION RECORDED IN MISCELLANEOUS MAPS, BOOK 1, PAGE 88, RECORDS OF ORANGE COUNTY, CALIFORNIA, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO -WIT: BEGINNING AT THE INTERSECTION OF A LINE LYING SOUTHWESTERLY OF, PARALLEL TO, AND DISTANT 17 FEET FROM THE SOUTHEASTERLY PROLONGATION OF THE CENTER LINE OF 19TH STREET AS SHOWN UPON A MAP OF NEWPORT HEIGHTS, RECORDED IN MISCELLANEOUS MAP BOOK 4, PAGE 83, RECORDS OF ORANGE COUNTY, SAID LINE ALSO BEING THE NORTHWESTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE ORANGE COUNTY FLOOD CONTROL CHANNEL, AS CONVEYED TO THE COUNTY OF ORANGE BY DEED RECORDED APRIL 7, 1954, IN BOOK 2705, PAGE 539, OFFICIAL RECORDS OF SAID ORANGE COUNTY, AND A LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE SOUTH 50° 1 V 30" EAST ALONG SAID NORTHWESTERLY PROLONGATION AND ALONG SAID SOUTHWESTERLY LINE OF SAID FLOOD CONTROL CHANNEL A DISTANCE OF 277 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHWEST AND HAVING A RADIUS OF 868 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE AND SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 713.99 FEET; THENCE SOUTH 3° 03' 42" EAST, TANGENT TO LAST MENTIONED CURVE, AND ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 58 FEET; THENCE SOUTH 16'55'29" EAST ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 10.46 FEET; THENCE SOUTH 860 56' 18" WEST A DISTANCE OF 106.72 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHEAST AND HAVING A RADIUS OF 710 FEET; SAID LINE ALSO BEING THE SOUTHWESTERLY PROLONGATION OF THE CENTER LINE OF MARINERS DRIVE, 60 FEET IN WIDTH, AS SHOWN UPON A MAP OF TRACT NO. 3004, RECORDED IN MISCELLANEOUS MAP BOOK 92, PAGES I AND 2, RECORDS OF SAID ORANGE COUNTY; THENCE WESTERLY ALONG SAID CURVE A DISTANCE OF 152.14 FEET; THENCE NORTH 15° 20'20" WEST, RADIAL TO LAST MENTIONED CURVE, A DISTANCE OF 30 FEET; B -3 DOCSOC/ 1423553v7/022459 -0014 THENCE NORTH 50' 11' 05" WEST A DISTANCE OF 758.99 FEET TO A POINT OF INTERSECTION WITH THE AFOREMENTIONED PARALLEL LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE NORTH 39' 48' 55" EAST ALONG SAID PARALLEL LINE A DISTANCE OF 495.70 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM, THAT PORTION OF THE LAND CONVEYED TO NEWPORT -MESA UNIFIED SCHOOL DISTRICT IN QUITCLAIM DEED RECORDED JANUARY 14, 2003 AS INSTRUMENT NO. 2003000045873, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH HAVING A BEARING AND DISTANCE OF N 15 020'20" W 30.00 FEET, SAID NORTHWESTERLY TERMINUS BEING THE INTERSECTION OF THE SOUTHWESTERLY LINE OF SAID CERTAIN PARCEL OF LAND DEEDED TO THE CITY OF NEWPORT BEACH AND THE NORTHERLY LINE OF MARINERS DRIVE, 60.00 FEET WIDE, AS SHOWN ON MAP OF TRACT NO. 1896 FILED IN BOOK 114, PAGE 43 THROUGH 45 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG SAID SOUTHWESTERLY LINE N 50 011'06" W 498.00 FEET; THENCE N 39 °48'55" E 38.00 FEET; THENCE S 50'11'05" E 526.60 FEET TO A POINT IN SAID NORTHERLY LINE OF MARINERS DRIVE, SAID NORTHERLY LINE BEING A CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 740.00 FEET, A RADIAL TO SAID POINT BEING N 11 °49'06" W; THENCE WESTERLY ALONG SAID NORTHERLY LINE AND CURVE, THROUGH A CENTRAL ANGLE OF 03 041'14 ", AN ARC LENGTH OF 47.62 FEET TO THE POINT OF BEGINNING. PARCEL B: A PORTION OF THAT CERTAIN PARCEL OF LAND IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED IN DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT, FILED IN BOOK 3970, PAGE 3 OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND SHOWN AS ASSESSOR'S PARCEL NO. 425- 071-01 FILED IN BOOK 425, PAGE 7 OF ASSESSOR'S MAPS IN THE OFFICE OF THE COUNTY ASSESSOR OF SAID COUNTY, SAID PORTION MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN SAID DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT HAVING A BEARING AND DISTANCE OF N 50 011'05" W 758.99 FEET, SAID CERTAIN COURSE BEING THE NORTHEASTERLY LINE OF SAID CERTAIN PARCEL DEEDED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT; THENCE ALONG SAID NORTHEASTERLY LINE S 50'11'05" E 50.00 FEET TO ITS INTERSECTION WITH THE SOUTHEASTERLY LINE OF IRVINE AVENUE AS DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH FILED IN BOOK 3978, PAGE 542 OF SAID OFFICIAL RECORDS, SAID INTERSECTION BEING B -4 DOCS OC/ 1423553 v7 /022459 -0014 THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE S 50 011'05" E 210.99 FEET; THENCE S 39 °48'55" W 92.00 FEET; THENCE N 50 °11'05" W 120.99 FEET; THENCE S 39 °48'55" W 10.00 FEET; THENCE N 50011'05" W 90.00 FEET TO SAID SOUTHEASTERLY LINE OF IRVINE AVENUE; THENCE ALONG SAID SOUTHEASTERLY LINE N 39 °48'55" E 102.00 FEET TO THE TRUE POINT OF BEGINNING. APN: 425- 071 -03 Fire Station 7 (Santa Ana Heights): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH', COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: LOTS 57 THROUGH 60 AND THE SOUTHWESTERLY 66 FEET OF LOT 56, TRACT NO. 706, PER MAP RECORDED IN BOOK 21, PAGES 25 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER, COUNTY OF ORANGE, CALIFORNIA. APN: 439 - 391 -29 Central Library: THE LAND REFERRED TO HEREIN BELOW 1S SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1: (APN: 442- 014 -26) THE SOUTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES IS TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL 'RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE B -5 D 0 CS OC/ 1423 553v7/O22459-0014 SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE - COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304758, OF OFFICIAL RECORDS. PARCEL IA: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL I IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL I AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL I SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL IB: B -6 DOCSOC/ 1.423 553v7/022459 -0014 A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL I, DESCRIBED ABOVE, (THE ` BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL I IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2: (APN: 442 - 014 -25) THE NORTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER B -7 DOC SOC/1423 553 v7/022459 -0014 NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92-3047S9, OF OFFICIAL RECORDS. PARCEL 2A: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY 'PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER B -8 DOCSO C/ 1423553 v7/022459 -0014 ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2B: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE `BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE B -9 DOCSOC/ 1423 553v7/022459-0014 OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. Oasis Senior Center: PARCEL 1 OF PARCEL MAP NO. 2008 -161, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 367, PAGES 26, 27 AND 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE ABOVE DESCRIBED PROPERTY, TOGETHER WITH THE RIGHT TO EXPLORE FOR, DEVELOP, EXTRACT AND REMOVE THE SAME THEREFROM BY SLANT DRILLING OR OTHER LIKE METHODS, WITH DERRICKS OR DRILL RIGS LOCATED OUTSIDE OF THE BOUNDARIES OF SAID PROPERTY, AS RESERVED BY THE IRVINE COMPANY IN THE DEED RECORDED MAY 5, 1959, IN BOOK 4698, PAGE 478, OF OFFICIAL RECORDS. ALSO EXCEPTING ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREMABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE, AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HERE NABOVE DESCRIBED, AS RESERVED BY THE IRVINE COMPANY, IN THE DEED RECORDED APRIL 29, 1986, AS INSTRUMENT NO. 86- 170658, OF OFFICIAL RECORDS. APN: 458-651-02,458-651-11,458-651-13 Fire Station 3/Police Station (Newport Center): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP, IN THE CITY OF NEWPORT BEACH, COUNTY OF B -10 DOCSOC /l 423 553v7/022459-0014 ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 55, PAGE 31 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, PETROLEUM AND OTHER HYDROCARBON SUBSTANCES AND CONVENIENT 'RIGHT TO EXPLORE AND EXTRACT AND TAKE ON AND AT LEVELS BELOW THE DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND BY MEANS OF WELLS, DERRICK OF OTHER EQUIPMENT FROM THE SURFACE LOCATIONS AS RESERVED BY THE IRVINE COMPANY, IN DEED RECORDED JULY 28, 1970 IN BOOK 9357, PAGE 805 AND FEBRUARY 1, 1973, IN BOOK 10538, PAGE 27 OF OFFICIAL RECORDS. APN: 442 - 261 -07, 08 AND 09 Fire Station 4 (Balboa Island): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP 92 -139, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FIILED IN BOOK 314, PAGES 36 AND 37 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. APN: 050- 173 -01 Civic Center (1100 and 1300 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 3 OF PARCEL MAP 90 -361, IN THE CITY OF NEWPORT BEACH, AS PER MAP RECORDED IN BOOK 270, PAGE(S) 15 THROUGH 18, INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. APN: 442- 014 -27 Civic Center (1450 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: THAT PORTION OF PARCEL MAP NO. 88 -163, AS SHOWN ON A MAP FILED IN BOOK 253, PAGES 34 AND 35 OF PARCEL MAPS, IN THE OFFICE OF THE COUNT RECORDER OF ORANGE COUNTY, CALIFORNIA, SHOWN AS "REMAINING PARCEL ". B -11 DOC SOC/ 1423553 v7 /022459 -0014 EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOW, GEOTHERMAL STEAM, ANY OTHER MATERIAL RESOURCES AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OUTSIDE THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, ANY AND ALL WATER, WATER RIGHTS, OR INTEREST THEREIN APPURTENANT TO, UNDERLYING OR RELATING TO THE PROPERTY, OR OWNED OR USED BY GRANTOR IN CONNECTION WITH THE PROPERTY OR FOR ANY BENEFICIAL USE, NO MATTER HOW ACQUIRED BY GRANTOR, AND INCLUDING BUT NOT LIMITED TO THE RIGHTS THAT ARE RIPARIAN, OVERLYING, APPROPRIATIVE, PRESCRIPTIVE, PERCOLATING, LITTORAL, ADJUDICATED, STATUTORY OR CONTRACTUAL, BUT WITHOUT, HOWEVER, ANY RIGHT TO ENTER UPON THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RESERVED RIGHTS, AS RESERVED IN GRANT DEED RECORDED OCTOBER 17, 2008, AS INSTRUMENT NO. 2008000480500, OF OFFICIAL RECORDS. APN: 442- 014 -24 B -12 DOCSOC/ 1423553v7/022459 -0014 EXHIBIT C DESCRIPTION OF THE PROJECT The Civic Center Project consists of the design, construction and development or expansion of various public buildings and spaces on two parcels inland of the Newport Beach Central Library and bordered by Avocado Avenue and MacArthur Boulevard. In particular, the Civic Center Project includes: • Design and development of a park on 16 -acres of land, which will include a dog park, a civic lawn for outdoor events, places for art, a restored wetlands, 1.23 miles of walking and viewing trails, a belvedere and other view opportunities, and restrooms. • Design and expansion of the Central Library by 17,000 square feet and effectively linking the Central Library and Civic Center. The expansion of the Central Library will include improvements to the children's programs room, reading rooms, a sound and video room, expansion of the restrooms and the addition of a cafe and credit union. • Design and construction 450 -space parking structure to accommodate up to 350 cars associated with the City office building and 100 cars associated with use for the Central Library. • Design and construction of an emergency readiness center to serve as the permanent home of the City's emergency response team. • Design and construction of a new community room that seats up to 150 persons and opens to an outside covered area. This new community room will be made available for lectures, arts programs, and other community events. • Design and construction of new City Council Chambers that seat up to 150 persons and double as community meeting space when not being used by the City Council or its commissions. • Design and construction of a new City office building that will house approximately 240 employees who work at City Hall • Design and construction of a pedestrian bridge that would allow walkers to safely cross over San Miguel Avenue without impacting vehicular traffic. • Furniture, fixtures and equipment associated with the foregoing improvements. The City will seek to attain at least a Leadership in Energy and Environmental Design Silver designation for the Civic Center Project. To attain such designation, design of the Civic Center Project must include passive heating and cooling systems in the City office building, including a raised floor system and advanced lighting technologies, California- friendly landscaping in the main portion of the park, adjacent transit facilities and other means to increase the number of City workers C -1 DOCSOC/ 1423553 v7 /022459 -0014 who carpool, bike to work, or use alternative fuel vehicles and a building orientation that maximizes the ability for natural ventilation and natural light. C -2 DO CSOC/ 1423553 v7 /022459 -0014 EXHIBIT D LEASE SUPPLEMENT FORM There is hereby subjected to the terms of that certain Lease /Purchase Agreement, dated as of November 1, 2010, by and between the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") the following items which shall comprise a portion of the Leased Premises, as defined therein: Description of Substituted Leased Premises [Insert Description] Cost I, the City Representative, hereby certify that: (1) the fair rental value (based on the attached appraisal by an independent real estate appraiser) and the useful life of the above - described portion of the Leased Premises, as substituted, at least equals the fair rental value and the useful life of the portion of the Leased Premises for which it was substituted; (2) the above - described portion of the Leased Premises will be used by the City for authorized public purposes and can be leased under the provisions of the Lease and the Government Code; (3) the above - described portion of the Leased Premises is currently owned by the City; and (4) the above - described portion of the Leased Premises is of approximately the same degree of essentiality to the City as the portion of the Leased Premises being replaced. I, the City Representative, hereby certify that the portion of the Leased Premises being substituted is free and clear of all liens or claims of others, except for Permitted Encumbrances referred to in the Lease. CITY OF NEWPORT BEACH By: [signature] ature] City Representative D -I DOCSOC/ 1423 553v7/022459 -0014 EXHIBIT E FORM OF CERTIFICATE OF SUBSTITUTION OR ADDITION OF PROJECT COMPONENT I, of the City of Newport Beach (the "City ") hereby certify that project is to become a part of the Project as defined under the Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Newport Beach Public Facilities Corporation (the "Corporation') [in addition to the components of the Project as defined in the Lease or in substitution for component of the Project as defined in the Lease]. This Certificate shall be filed with the Trustee under the Trust Agreement, dated as of November 1, 2010, . by and among the City, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder, until such time as the Lease is terminated. City Representative E -1 DOCSOC /1423553 v7/022459 -0014 RECORDING REQUESTED BY: City of Newport Beach AND WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: David R. McEwen, Esq. This Document was electronically recorded by Fidelity National Major Accounts Recorded in Official Records, Orange County Tom Daly, Clerk- Recorder IIIIIIIIIIIIIIIIIIIIII 'lllllllllllllllll NO FEE 2010000635818 10:54am 11129/10 93 401 A30 21 0.00 0.00 0.00 0.00 60.00 0.00 0.00 0.00 above for Recorder's use.) This document is recorded for the benefit of the City of Newport Beach and recording is fee - exempt under §27383 of the Government Code. ASSIGNMENT AGREEMENT by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee Dated as of November 1, 2010 Relating to $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOC / 1423 556v7/022459 -0014 ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT, dated as of November 1, 2010, by the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California (the "Corporation "), and accepted by The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee under the Trust Agreement (defined below) (the "Trustee "); WITNESSETK WHEREAS, the Corporation and the City of Newport Beach, a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City "), 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, including the existing improvements thereon (the "Leased Premises "), to the Corporation and the Corporation has agreed to lease back 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 in the Trust Agreement (defined below), to the Corporation for the lease of the Leased Premises; and WHEREAS, the Corporation desires to assign absolutely, without recourse, all of 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 and interest under the Lease as described herein; and WHEREAS, the Corporation desires to assign absolutely, without recourse, all of its rights to, under and pursuant to the Site Lease to the Trustee; and WHEREAS, in consideration of such absolute assignment and the execution and entering into of a Trust Agreement (the "Trust Agreement ") dated as of the date hereof, by and among the Trustee, the Corporation and the City, the Trustee has agreed to execute and deliver certificates of participation designated as the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") in an aggregate principal amount equal to the aggregate principal components of such 2010A Lease Payments and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the Series 2010A Certificates, the "Certificates ") in an aggregate principal amount equal to the aggregate principal component of such 201013 Lease Payments; 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 its execution and entering into of this Assignment Agreement (this "Assignment Agreement") do exist, have happened and have been performed in regular and due time, form and manner as required by law and it is now duly authorized to execute and enter into the Assignment Agreement. D O C S O C/ 1 423 556v7/022459-0014 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. Assignment. lent. (a) Site Lease. The Corporation hereby transfers, assigns absolutely and sets over to the Trustee, for the benefit of the Owners (as defined in the Trust Agreement) of the Certificates and any Additional Certificates executed and delivered under the Trust Agreement, all of the Corporation's rights, title, and interest (but none of its obligations) under the Site Lease except for its rights to give consents and approvals thereunder. (b) Lease. The Corporation hereby transfers, assigns absolutely and sets over to the Trustee, for the benefit of the owners of the Certificates and any Additional Certificates executed and delivered under the Trust Agreement, all of the Corporation's rights, title and interest (but none of its obligations) under the Lease (excepting only the Corporation's rights to indemnity and the payment of its fees and expenses under Sections 2.1(e), 4.11, 7.9, 7.14 and 9.4 of the Lease), including, without limitation, (1) the right to receive and collect all of the Lease Payments, Prepayments and Additional Payments (except to the extent payable to the Corporation) (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 Section 9.2 (regarding defaults) of the Lease, but not the right to give other consents or approvals under the Lease, (4) the right to exercise such rights and remedies conferred on the Corporation 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 arnounts 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 Corporation in the event of a default by the City under the Lease, and (5) the right of the Corporation 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. Notwithstanding the foregoing, in addition to the Trustee, only owners of 2010A Certificates and Additional Certificates secured by 2010A Lease Payments (as set forth in a Supplemental Agreement) shall have any right, interest and security in the 2010A Lease Payments and 2010A Prepayments and only owners of 2010B Certificates and Additional Certificates secured by 2010B Lease Payments (as set forth in a Supplemental Agreement) shall have any right, interest and security in the 201013 Lease Payments and 201 OB Prepayments. (c) Assignment for Owners of Certificates. All rights assigned by the Corporation 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 and any Additional Certificates. Section 2. Acceptance. The Trustee hereby accepts the foregoing assignment for the benefit of the Owners of the Certificates and any Additional Certificates, subject to the conditions and terms of the Trust Agreement and this Assignment Agreement, and all such Lease Payments 2 DOC SOC/ 1423556v7/022459 -001.4 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 Corporation. 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 any representations, warranties or covenants made by the assignor under the Lease or the Site Lease. Section 4. No Other Claim. The Corporation hereby represents and warrants that there are no present and outstanding claims on Lease Payments or any other moneys assigned by the Corporation 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. Section 6. Applicable Law. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of California. Section 7. Definitions. Capitalized terms not otherwise defined herein shall have the definitions set forth in the Trust Agreement. WM41NDER OF PAGE INTENTIONALLY LEFT BLANK] DOCSOC/ 1423556v7/022459 -0014 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. ATTEST: By: C'-- Se3crerary NEWPORT BEACH PUBLIC FACILITIES CORPORATION By:�C Its: Chief Fina 'al Officer Accepted by: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: Authorized Officer Signed in Counterpart S -1 DOCS OC/ 1423556v7/022459 -0014 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. ATTEST: Secretary NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: Chief Financial Officer Accepted by: THE BANK OF NEW YORK MELLON TRUST COM By: Its: S -1 DOCSOC/ 1423 556v7/022459 -0014 aigned in CounCerpaC [Assignment Agreement Signature Pages Continued] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: 0— David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By: r ler�4- 'm Stradling Yocca Carlson & Rauth, a Professional Corporation S -2 DO CSO C/ 1423556v7/022459 -0014 STATE OF CALIFORNIA COUNTY OF ORANGE O , 1010,before me,, L4 Wi AA) WA64ii467ri-A) , Notary Public, personally appeared V C, r - C4,:�- , who proved to me on the basis of satisfackory evidence to be the person whose names is /kt subscribed to the within instrument and acknowledged to me that'd /she /tip* executed the same in %t's /her /tl> , authorized capacity( 'and that by /her /th in signature on the instrument the personl or the entity upon behalf of which the person(kacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal DOC SOC/ 1423 556v7/022459 -0014 @My L WASHINGTON Commission # 1840150 i Notary Public - California z _ Orange County Comm. Expires Mar 12, 2013 STATE OF CALIFORNIA COUNTY OF LOS ANGELES On _, 2010, before me, ley" -VA �(vl Notary Public, personally appeared (_'7 Cleac, 0f-q 12). t'In- P_l�Cwi e , who proved to me on the basis of satisfactory`'eviknce to be the person(s) whose names(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his /her /their authorized capacity(ies), and that by his /her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal [SEAL] SIG14ATURE OF NOTARf PUBLIC DOCSOC/ 1423556v7/022459 -0014 KAREN YU COMM, #1751273 N W ° NOTARY PUBLIC-CALIFORNIA n N Los Angeles County Comm. Expires Jun 16.2011 EXHIBIT A DESCRIPTION OF THE LEASED PREMISES Real property and improvements thereon in the City of Newport Beach, County of Orange, State of California, described as follows: Newport Coast Community Center: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: A PORTION OF PARCEL 1 OF LOT LINE ADJUSTMENT 94 -006, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED MARCH 22, 1994, AS INSTRUMENT NUMBER 94- 0202108 OF OFFICIAL RECORDS, ORANGE COUNTY RECORDERS OFFICE, STATE OF CALIFORNIA, BEING MORE PRACTICALLY DESCRIBED AS FOLLOWS: COMMENCING AT THE CENTERLINE INTERSECTION OF NEWPORT COAST DRIVE AND SAN JOAQUIN HILLS ROAD AS SHOWN ON SAID TRACT MAP; THENCE NORTH 840 27' 16" WEST ALONG SAID CENTERLINE OF SAN JOAQUIN HILLS ROAD A DISTANCE OF 441.70 FEET; THENCE LEAVING SAID CENTERLINE NORTH 050 32' 44" EAST A DISTANCE OF 61.49 FEET TO THE NORTHERLY RIGHT OF WAY LINE OF LAST SAID ROAD, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 05° 32' 44" EAST A DISTANCE OF 345.01 FEET TO A POINT ON A NON - TANGENT CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 142.54 FEET TO WHICH A RADIAL LINE BEARS SOUTH 480 54' 51" WEST; THENCE CONTINUING ALONG THE NORTHERLY LINE OF SAID LOT LINE ADJUSTMENT THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHEASTERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 370 02' 25" AN ARC LENGTH OF 92.15 FEET; THENCE SOUTH 78° 07' 34" EAST A DISTANCE OF 36.87 FEET; THENCE NORTH 740 03' 52" EAST A DISTANCE OF 79.69 FEET; THENCE NORTH 64'42' 53" EAST A DISTANCE OF 58.38 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 50.00 FEET; THENCE EASTERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 250 58' 33" AN ARC LENGTH OF 22.67 FEET; THENCE SOUTH 89° 18' 34" EAST A DISTANCE OF 123.01 FEET; THENCE NORTH 77° 16'30" EAST A DISTANCE OF 18.90 FEET TO WESTERLY RIGHT OF WAY LINE OF SAID NEWPORT COAST DRIVE AND THE BEGINNING OF A NON- TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2291.00 FEET TO WHICH A RADIAL LINE BEARS SOUTH 850 40' 34" EAST; THENCE CONTINUING ALONG LAST SAID WESTERLY RIGHT OF WAY LINE THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 030 11' 42" AN ARC LENGTH OF 127.75 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE WESTERLY HAVING A RADIUS OF 201.00 FEET; THENCE A -1 DOCS 00 1423 556v7/022459 -0014 SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 80 19' 02" AN ARC LENGTH OF 29.18 FEET; THENCE SOUTH 15° 50' 10" WEST A DISTANCE OF 30.62 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY HAVING A RADIUS OF 219.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 070 34' 07" AN ARC LENGTH OF 28.93 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2929.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 81° 23' 57" EAST; THENCE SOUTHERLY ALONG SAID REVERSE CURVE THROUGH A CENTRAL ANGLE OF 20 09' 07" AND ARC LENGTH OF 110.03 FEET; THENCE SOUTH 79° 14' 50" EAST A DISTANCE OF 4.00 FEET TO THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2925.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 79° 14' 50" EAST; THENCE SOUTHERLY ALONG SAID NON - TANGENT CURVE THROUGH A CENTRAL ANGLE OF 00 34'09" AN ARC LENGTH OF 29.06 FEET TO AN ANGLE POINT ON SAID WESTERLY RIGHT OF WAY LINE; THENCE LEAVING SAID RIGHT OF WAY LINE SOUTH 480 11' 54" WEST A DISTANCE OF 29.57 FEET TO A POINT ON SAID NORTHERLY RIGHT OF WAY LINE OF SAN JOAQUIN HILLS ROAD; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE SOUTH 890 52' 33" WEST A DISTANCE OF 51.85 FEET; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE NORTH 850 17'57" WEST A DISTANCE OF 305.86 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM ARID ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM OTHER LANDS OTHER THAN THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERLY TO DRILL, MINE, STORE, EXPLORE, OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, FOR USE OF SURFACE OR SUBSURFACE WATER BY THE COUNTY FOR LOCAL PARK PURPOSES ON THE PROPERTY, ANY AND ALL WATER, SOLAR - HEATED WATER, RECLAIMED RIGHTS, WHETHER SURFACE OR SUBSURFACE, APPURTENANT OR RELATING TO THE PROPERTY, OR OWNED OR USED BY OFFEROR IN CONNECTION WITH THE PROPERTY TOGETHER WITH THE RIGHT TO EXPLORE, DRILL, REDRILL AND REMOVE SUCH WATER FROM THE PROPERTY, TO STORE SUCH WATER IN THE GROUND -WATER BASIN UNDERLYING THE PROPERTY BY PERCOLATING, SPREADING, OR INJECTING WATER INTO SUCH BASIN FROM LOCATIONS ON A -2 DOCSOC/ 1423556v7/022459 -0014 LANDS LYING OUTSIDE OF THE PROPERTY, AND TO DIVERT OR OTHERWISE UTILIZE SUCH WATER, RIGHTS, OR INTERESTS ON ANY OTHER PROPERTY OWNED OR LEASED BY OFFEROR, BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RIGHT, AS RESERVED BY THE IRVINE COMPANY, A MICHIGAN CORPORATION, IN IRREVOCABLE OFFER OF DEDICATION, RECORDED APRIL 8, 1993, AS INSTRUMENT NO. 93- 0234810, AND IN GRANT DEED RECORDED JANUARY 2, 1997, AS INSTRUMENT NO. 19970000564, BOTH OF OFFICIAL RECORDS. Mariner's Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL A: A PARCEL OF LAND CONTAINING 9.019 ACRES AND BEING A PORTION OF BLOOK 53, AS SHOWN UPON A MAP OF IRVINE'S SUBDIVISION RECORDED IN MISCELLANEOUS MAPS, BOOK 1, PAGE 88, RECORDS OF ORANGE COUNTY, CALIFORNIA, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO -WIT: BEGINNING AT THE INTERSECTION OF A LINE LYING SOUTHWESTERLY OF, PARALLEL TO, AND DISTANT 17 FEET FROM THE SOUTHEASTERLY PROLONGATION OF THE CENTER LINE OF 19TH STREET AS SHOWN UPON A MAP OF NEWPORT HEIGHTS, RECORDED IN MISCELLANEOUS MAP BOOK 4, PAGE 83, RECORDS OF ORANGE COUNTY, SAID LINE ALSO BEING THE NORTHWESTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE ORANGE COUNTY FLOOD CONTROL CHANNEL, AS CONVEYED TO THE COUNTY OF ORANGE BY DEED RECORDED APRIL 7, 1954, IN BOOK 2705, PAGE 539, OFFICIAL RECORDS OF SAID ORANGE COUNTY, AND A LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE SOUTH 50° 11' 30" EAST ALONG SAID NORTHWESTERLY PROLONGATION AND ALONG SAID SOUTHWESTERLY LINE OF SAID FLOOD CONTROL CHANNEL A DISTANCE OF 277 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHWEST AND HAVING A RADIUS OF 868 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE AND SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 713.99 FEET; THENCE SOUTH 3° 03' 42" EAST, TANGENT TO LAST MENTIONED CURVE, AND ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 58 FEET; THENCE SOUTH 16'55'29" EAST ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 10.46 FEET; THENCE SOUTH 860 56' 18" WEST A DISTANCE OF 106.72 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHEAST AND HAVING A RADIUS OF 710 FEET; SAID LINE ALSO BEING THE SOUTHWESTERLY PROLONGATION OF THE CENTER LINE OF MARINERS DRIVE, 60 FEET IN WIDTH, AS SHOWN UPON A MAP OF TRACT NO. 3004, RECORDED IN MISCELLANEOUS MAP BOOK 92, PAGES 1 AND 2, RECORDS OF SAID ORANGE COUNTY; THENCE WESTERLY A -3 DOCSOC/ 1423 556v7/022459 -0014 ALONG SAID CURVE A DISTANCE OF 152.14 FEET; THENCE NORTH 15° 20' 20" WEST, RADIAL TO LAST MENTIONED CURVE, A DISTANCE OF 30 FEET; THENCE NORTH 500 1 P 05" WEST A DISTANCE OF 758.99 FEET TO A POINT OF INTERSECTION WITH THE AFOREMENTIONED PARALLEL LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE NORTH 39° 48' 55" EAST ALONG SAID PARALLEL LINE A DISTANCE OF 495.70 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM, THAT PORTION OF THE LAND CONVEYED TO NEWPORT -MESA UNIFIED SCHOOL DISTRICT IN QUITCLAIM DEED RECORDED JANUARY 14, 2003 AS INSTRUMENT NO. 2003000045873, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH HAVING A BEARING AND DISTANCE OF N 15 020'20" W 30.00 FEET, SAID NORTHWESTERLY TERMINUS BEING THE INTERSECTION OF THE SOUTHWESTERLY LINE OF SAID CERTAIN PARCEL OF LAND DEEDED TO THE CITY OF NEWPORT BEACH AND THE NORTHERLY LINE OF MARINERS DRIVE, 60.00 FEET WIDE, AS SHOWN ON MAP OF TRACT NO. 1896 FILED IN BOOK 114, PAGE 43 THROUGH 45 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG SAID SOUTHWESTERLY LINE N 50 011'06" W 498.00 FEET; THENCE N 39 °48'55" E 38.00 FEET; THENCE S 50 °11'05" E 526.60 FEET TO A POINT IN SAID NORTHERLY LINE OF MARINERS DRIVE, SAID NORTHERLY LINE BEING A CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 740.00 FEET, A RADIAL TO SAID POINT BEING N 11 °49'06" W; THENCE WESTERLY ALONG SAID NORTHERLY LINE AND CURVE, THROUGH A CENTRAL ANGLE OF 03 041'14 ", AN ARC LENGTH OF 47.62 FEET TO THE POINT OF BEGINNING. PARCEL B: A PORTION OF THAT CERTAIN PARCEL OF LAND IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED IN DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT, FILED IN BOOK 3970, PAGE 3 OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND SHOWN AS ASSESSOR'S PARCEL NO. 425- 071-01 FILED IN BOOK 425, PAGE 7 OF ASSESSOR'S MAPS IN THE OFFICE OF THE COUNTY ASSESSOR OF SAID COUNTY, SAID PORTION MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN SAID DEED TO TEL NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT HAVING A BEARING AND DISTANCE OF N 50 011'05" W 758.99 FEET, SAID CERTAIN COURSE BEING THE NORTHEASTERLY LINE OF SAID CERTAIN PARCEL DEEDED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT; THENCE ALONG SAID NORTHEASTERLY LINE S 50 °11'05" E 50.00 FEET TO ITS INTERSECTION WITH THE SOUTHEASTERLY LINE OF IRVINE A -4 DOCS OC/1423556v7/022459 -0014 AVENUE AS DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH FILED IN BOOK 3978, PAGE 542 OF SAID OFFICIAL RECORDS, SAID INTERSECTION BEING THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE S 50 011'05" E 210.99 FEET; THENCE S 39 °48'55" W 92.00 FEET; THENCE N 50 °11'05" W 120.99 FEET; THENCE S 39 °48'55" W 10.00 FEET; THENCE N 50 011'05" W 90.00 FEET TO SAID SOUTHEASTERLY LINE OF IRVINE AVENUE; THENCE ALONG SAID SOUTHEASTERLY LINE N 39 °48'55" E 102.00 FEET TO THE TRUE POINT OF BEGINNING. APN: 425- 071 -03 Fire Station 7 (Santa Ana Heights): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: LOTS 57 THROUGH 60 AND THE SOUTHWESTERLY 66 FEET OF LOT 56, TRACT NO. 706, PER MAP RECORDED IN BOOK 21, PAGES 25 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER, COUNTY OF ORANGE, CALIFORNIA. APN: 439 - 391 -29 Central Library: THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1: (APN: 442- 014 -26) THE SOUTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, A -5 DOCSOC /1423 556d7/022459 -0014 DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY 1N THE DEED 'RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304758, OF OFFICIAL RECORDS. PARCEL IA: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL I IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. A -6 DOC SOC/ 1423 5 5 6v7/022459-0014 PARCEL IB: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL I IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 (BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2: (AP-N: 442- 014 -25) THE NORTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. A -7 DOCSOC/ 1423556v7/022459 -0014 EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE- COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304759, OF OFFICIAL RECORDS. PARCEL 2A: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL I OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT A -8 DOCSOC/ 1423 556v7/022459 -0014 STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2B: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE `BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND 'EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 (`BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE A -9 DOCS OC/ 1423556v7/022459 -0014 ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. Oasis Senior Center: PARCEL 1 OF PARCEL MAP NO. 2008 -161, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 367, PAGES 26, 27 AND 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE ABOVE DESCRIBED PROPERTY, TOGETHER WITH THE RIGHT TO EXPLORE FOR, DEVELOP, EXTRACT AND REMOVE THE SAME THEREFROM BY SLANT DRILLING OR OTHER LIKE METHODS, WITH DERRICKS OR DRILL RIGS LOCATED OUTSIDE OF THE BOUNDARIES OF SAID PROPERTY, AS RESERVED BY THE IRVINE COMPANY IN THE DEED RECORDED MAY 5, 1959, IN BOOK 4698, PAGE 478, OF OFFICIAL RECORDS. ALSO EXCEPTING ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE, AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED BY THE IRVINE COMPANY, IN THE DEED RECORDED APRIL 29, 1986, AS INSTRUMENT NO. 86- 170658, OF OFFICIAL RECORDS. APN: 458-651-02,458-651-11,458-651-13 Fire Station 3/Police Station (Newport Center): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS A -10 DOCS OC/1423556v7/022459 -0014 DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 55, PAGE 31 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, PETROLEUM AND OTHER HYDROCARBON SUBSTANCES AND CONVENIENT RIGHT TO EXPLORE AND EXTRACT AND TAKE ON AND AT LEVELS BELOW THE DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND BY MEANS OF WELLS, DERRICK OF OTHER EQUIPMENT FROM THE SURFACE LOCATIONS AS RESERVED BY THE IRVINE COMPANY, IN DEED RECORDED JULY 28, 1970 IN BOOK 9357, PAGE 805 AND FEBRUARY 1, 1973, IN BOOK 10538, PAGE 27 OF OFFICIAL RECORDS. APN: 442-261-07,08 AND 09 Fire Station 4 (Balboa Island): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP 92 -139, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FBLED IN BOOK 314, PAGES 36 AND 37 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. APN: 050- 173 -01 Civic Center (1100 and 1300 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 3 OF PARCEL MAP 90 -361, IN THE CITY OF NEWPORT BEACH, AS PER MAP RECORDED IN BOOK 270, PAGE(S) 15 THROUGH 18, INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. APN: 442 - 014 -27 Civic Center (1450 Avocado): THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: THAT PORTION OF PARCEL MAP NO. 88 -163, AS SHOWN ON A MAP FILED IN BOOK 253, PAGES 34 AND 35 OF PARCEL MAPS, IN THE OFFICE OF THE COUNT A -11 D OCSOC /1423 556v7/022459 -0014 RECORDER OF ORANGE COUNTY, CALIFORNIA, SHOWN AS "REMAINING PARCEL ". EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOW, GEOTHERMAL STEAM, ANY OTHER MATERIAL RESOURCES AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OUTSIDE THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, ANY AND ALL WATER, WATER RIGHTS, OR INTEREST THEREIN APPURTENANT TO, UNDERLYING OR RELATING TO THE PROPERTY, OR OWNED OR USED BY GRANTOR IN CONNECTION WITH THE PROPERTY OR FOR ANY BENEFICIAL USE, NO MATTER HOW ACQUIRED BY GRANTOR, AND INCLUDING BUT NOT LIMITED TO THE RIGHTS THAT ARE RIPARIAN, OVERLYING, APPROPRIATIVE, PRESCRIPTIVE, PERCOLATING, LITTORAL, ADJUDICATED, STATUTORY OR CONTRACTUAL, BUT WITHOUT, HOWEVER, ANY RIGHT TO ENTER UPON THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RESERVED RIGHTS, AS RESERVED IN GRANT DEED RECORDED OCTOBER 17, 2008, AS INSTRUMENT NO. 2008000480500, OF OFFICIAL RECORDS. APN: 442- 014 -24 A -12 DOCSOC/ 1423556v7/022459 -0014 EXEUCTION COPY TRUST AGREEMENT Dated as of November 1, 2010 by and among THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee and NEWPORT BEACH PUBLIC FACILITIES CORPORATION and CITY OF NEWPORT BEACH Relating to the $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) DOCSOG 1423 520v7/022459 -0014 TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.01. Definitions and Rules of Construction Section 1.02. Authorization ........ ..............................� Section 1.03. Equal Security ...... ............................... ARTICLE II THE 2010 CERTIFICATES OF PARTICIPATION Section 2.01. Authorization ............................... ............................... Section 2.02. Description of Certificates ........... ............................... Section 2.03. Form of Certificates ..................... ............................... Section 2.04. Execution ..................................... ............................... Section 2.05. Application of Proceeds and Other Amounts ............. Section 2.06. Transfer and Exchange ................ ............................... Section 2.07. Certificates Mutilated, Lost, Destroyed or Stolen...... Section 2.08. Execution of Documents and Proof of Ownership..... Section 2.09. Certificate Register ...................... ............................... Section 2.10. Book -Entry System ..................... ............................... Section 2.11. Destruction of Cancelled Certificates ......................... Section 2.12. Additional Certificates ................. ............................... ARTICLE III PROJECT FUND Pave ...........................2 .........................13 .........................13 ...............13 ...............14 ...............15 ...............15 ...............15 ...............16 ...............16 ...............17 ...............1.7 ...............17 ...............20 ...............20 Section 3.01. Establishment of Project Fund .................................................... .............................22 Section3.02. Purpose ....................................................................................... .............................22 Section 3.03. Deposit of Moneys; Payment of Project Costs and Delivery Costs ........................ 22 Section 3.04. Transfers of Unexpended Proceeds ............................................ .......:.....................23 ARTICLE N PREPAYMENT FUND Section 4.01. Establishment of Prepayment Fund ............................................ .............................23 Section 4.02. Extraordinary Prepayment .......................................................... .............................23 Section4.03. Prepayment ................................................................................. .............................24 Section 4.04. Selection of Certificates for Prepayment .................................... .............................25 Section 4.05. Notice of Prepayment ................................................................. .............................26 Section 4.06. Partial Prepayment of Certificates .............................................. .............................27 i DOCSOC/ 1423520v7/022459 -0014 TABLE OF CONTENTS (continued) Page Section 4.07. Effect of Notice of Prepayment .................................................. .............................27 Section4.08. Surplus.. ................................................................................................................... 27 ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND Section 5.01. Security Provisions ..................................................................... .............................27 Section 5.02. Establishment of Lease Payment Fund ....................................... .............................28 Section5.03. Deposits ...................................................................................... .............................29 Section 5.04. Application of Moneys ............................................................... .............................29 Section5.05. Surplus ........................................................................................ .............................30 Section 7.01. Section 7.02. Section 8.01. Section 8.02. Section 8.03. Section 8.04. Section 8.05. Section 8.06. Section 8.07. Section 8.08. ARTICLE VI [RESERVED] ARTICLE VII NET PROCEEDS FUND Establishment of Net Proceeds Fund: Deposits .......................... .............................30 Cooperation................................................................................ .............................31 ARTICLE VIII MONEYS IN FUNDS; INVESTMENT Heldin Trust ............................................................................... .............................31 Investments Authorized .............................................................. .............................31 Crediting of investments ............................................................ .............................32 Accounting................................................................................. .............................32 Valuation and Disposition of Investments. Commingling of Moneys in Funds............ Tax Covenants ............ ............................... RebateFund ................ ............................... ARTICLE IX THE TRUSTEE Section 9.01. Appointment of Trustee ................... Section 9.02. Merger or Consolidation .................. Section 9.03. Protection of the Trustee ................. ii DO CSOC/ 1423520v7/022459 -0014 ................... 33 ................... 33 ................... 34 .................36 .................36 .................37 TABLE OF CONTENTS (continued) Page Section 9.04. Rights of the Trustee .................................................................. .............................37 Section 9.05. Standard of Care ......................................................................... .............................38 Section 9.06. Compensation of the Trustee ...................................................... .............................38 Section 9.07. Indemnification of Trustee ......................................................... .............................38 Section 9.08. Trustee's Disclaimer of Warranties ............................................ .............................40 ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS Section 10.01. Amendments Permitted .............................................................. .............................41 Compliance With and Enforcement of the Lease ....................... .............................44 Section 10.02. Procedure for Amendment with Written Consent of the Owners ...........................42 Section 10.03. Disqualified Certificates ............................................................. .............................43 Section 11.03. Section 10.04. Effect of Supplemental Agreement ............................................ .............................43 Section 10.05. Endorsement or Replacement of Certificates Delivered After Amendments .......... 43 Section 10.06. Amendatory Endorsement of Certificates .................................. .............................43 Section 10.07. Copies of Amendments Delivered to Rating Agencies .............. .............................44 Section 11.06. ARTICLE XI COVENANTS; NOTICES Section 11.01. Compliance With and Enforcement of the Lease ....................... .............................44 Section 11.02. Payment of Taxes ....................................................................... .............................44 Section 11.03. Observance of Laws and Regulations ........................................ .............................44 Section 11.04. Prosecution and Defense of Suits ............................................... .............................44 Section11.05. City Budgets ............................................................................... .............................44 Section 11.06. Further Assurances ..................................................................... .............................45 Section 11.07. Continuing Disclosure ................................................................ .............................45 ARTICLE XII LIMITATION OF LIABILITY Section 12.01. Limited Liability of the City ....................................................... .............................45 Section 12.02. No Liability of the City or Corporation for Trustee Performance ...........................45 Section 12.03. Limitation of Rights to Parties and Certificate Owners ............. .............................46 Section 12.04. No Liability of Corporation to the Owners ................................ .............................46 ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS Section 13.01. Assignment of Rights ................................................................. .............................46 Section13.02. Events of Default ........................................................................ .............................46 DOCSOC/ 1423 520v7/022459 -0014 TABLE OF CONTENTS (continued) Page Section 13.03. Application of Funds .................................................................. .............................47 Section 13.04. Institution of Legal Proceedings ................................................. .............................47 Section13.05. Non - Waiver ................................................................................ .............................47 Section 13.06. Remedies Not Exclusive ............................................................. .............................48 Section 13.07. Power of Trustee to Control Proceedings ................................... .............................48 Section 13.08. Limitation on Certificate Owners' Right to Sue ......................... .............................48 ARTICLE XIV MISCELLANEOUS Section14.01. Defeasance .................................................................................. .............................49 Section 14.02. Non- Presentment of Certificates ................................................ .............................50 Section 14.03. Acquisition of Certificates by City ............................................. .............................50 Section14.04. Records ....................................................................................... .............................50 Section14.05. Notices ........................................................................................ .............................50 Section 14.06. Governing Law ........................................................................... .............................51 Section 14.07. Binding Effect: Successors ........................................................ .............................51 Section 14.08. Execution in Counterparts .......................................................... .............................51 Section14.09. Headings ..................................................................................... .............................52 Section14.10. Waiver of Notice ........................................................................ .............................52 Section 14.11. Separability of Invalid Provisions .............................................. .............................52 Signatures................................................................................................ ............................... S -1 EXHIBIT A -1 FORM OF 2010A CERTIFICATE .................................... ............................... A -1 -1 EXHIBIT A -2 FORM OF 2010B CERTIFICATE .................................... ............................... A -2 -1 EXHIBIT B -1 FORM OF WRITTEN DELIVERY COST REQUISITION ............................ B -1 -1 EXHIBIT B -2 FORM OF WRITTEN PROJECT COST REQUISITION ............................... B -2 -1 ry DO CSOC/14235200/022459 -0014 TRUST AGREEMENT THIS TRUST AGREEMENT, dated as of November 1, 2010, by and among THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized under the laws of the United States, as trustee (the "Trustee "), the NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California, as lessor under the Lease hereinafter referred to (the "Corporation "), and the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California, as lessee under the Lease (the "City ") ; WITNESSETII WHEREAS, the City and the Corporation have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project "); and WHEREAS, the City and the Corporation have entered into a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the City, as agent of the Corporation, shall cause the acquisition, improvement and equipping of a new City Hall, as described therein (collectively, the "Civic Center Project" and together with the Central Library Project, the "Project ") and whereby the City shall refinance the Central Library Project, and the City has agreed to lease the Leased Premises (defined below) from the Corporation; and WHEREAS, in order to finance the Project, the City and the Corporation have authorized the sale of the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") evidencing fractional interests in the 2010A Lease Payments made by the City under the Lease, and the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "201013 Certificates" and together with the Series 2010A Certificates, the "Certificates ") each evidencing fractional interests in the 2010B Lease Payments made by the City under the Lease; and WHEREAS, as security for the Certificates, the Corporation has assigned the rights to receive all Lease Payments described in the Lease, and the Corporation and the City have granted a security interest in all moneys held by the Trustee hereunder (other than the Rebate Fund as described herein) to the extent described herein to the Trustee for the benefit of the Owners of Certificates and any Additional Certificates executed and delivered hereunder; and WHEREAS, Section 5420 et seq. of the California Government Code (the "Government Code ") provides statutory authority for pledging collateral for the payment of principal or prepayment price of, and interest on, any agreement, including certificates of participation, and the Government Code creates a continuing perfected security interest which shall attach immediately to such collateral irrespective of whether the parties to the pledge document have notice of the pledge and without the need for any physical delivery, recordation, filing or further act, and, therefore, the 1 DOCS OC /1423 5 20v7/022459 -0014 City and the Corporation hereby warrant and represent that pursuant to the Lease, this Trust Agreement and the Government Code, the Trustee has a first priority perfected security interest in the Lease Payments described in the Lease represented by the Certificates pursuant to the Government Code. WHEREAS, the Trustee has agreed to apply the proceeds of the Certificates deposited in the Project Fund to pay certain Project Costs and Delivery Costs (as such terns are defined herein) and to refinance the 1998 Certificates. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions and Rules of Construction. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Trust Agreement, have the meanings herein specified. Unless the context otherwise indicates, words importing the singular number shall include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this Trust Agreement, refer to this Trust Agreement as a whole. "Additional Certificates" means certificates of participation authorized by a Supplemental Agreement that are executed and delivered by the Trustee under and pursuant to Section 2.12. "Additional Payments ' means all amounts payable by the City as Additional Payments as defined in Section 4.11 of the Lease. "Assignment Agreement" means the Assignment Agreement, dated as of the date hereof, by and between the Trustee and the Corporation, and any duly authorized and executed amendments thereto. "Beneficial Owner" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. "Business Da v" means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York or the State of California are authorized or required by law or executive order to remain closed. "Certificates" means collectively, the 2010A Certificates and the 2010B Certificates. "Certificate of Completion" means a certificate of the City Representative delivered pursuant to Section 3.4 of the Lease stating that all components of the Project have been completed or concluded in conformity with the requirements of the Lease. DO CSOC/ 1423520v7/022459 -0014 "Certificate Year" means the period extending from July 2 each year to July I of the subsequent calendar year, provided that the first Certificate Year shall commence on the Closing Date and end on July 1, 2011. "City" means the City of Newport Beach, a chartered city organized and existing under the laws and Constitution of the State, and its successors and assigns. "City Representative" means the City Manager of the City, the Assistant City Manager or any other person authorized by the City Manager of the City to act on behalf of the City with respect to the Lease or this Trust Agreement. "Closing Date" means the date on which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof. "Code" means the Internal Revenue Code of 1986, and the regulations issued thereunder, as the same may be amended from time to time, and any successor provisions of law. Reference to a particular section of the Code shall be deemed to be a reference to any successor to any such section. "Comparable Treasury Issue" means, with respect to any prepayment date for a particular 2010B Certificate evidencing a 2010B Lease Payment, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid. "Comparable Treasury Price" means, with respect to any prepayment date for a particular 2010B Certificate, either (a) the average of five Reference Treasury Dealer quotations for the date fixed for prepayment, after excluding the highest and lowest such quotations, and (b) if the Independent Banking Institution is unable to obtain five such quotations, the average of the quotations that are obtained. The quotations will be the average, as determined by the Independent Banking Institution, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of principal amount) quoted in writing to the Independent Banking Institution, at 5:00 p.m. New York City time on any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. "Comparable Treasury Yield" means the yield which represents the weekly average yield to maturity for the preceding week appearing in the most recently published statistical release designated "H.15(519) Selected Interest Rates" under the heading "Treasury Constant Maturities," or any successor publication selected by the Independent Banking Institution that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity, for the maturity corresponding to the remaining tern to maturity of the 2010B Certificate being prepaid. The Comparable Treasury Yield will be determined as of any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. If the H.15(519) statistical release sets forth a weekly average yield for United States Treasury securities that have a constant maturity that is the same as the remaining term to maturity of the 2010B Certificate being prepaid, then the Comparable Treasury Yield will be equal to such weekly average 3 D O C S O C/ 1423 5200/022459-0014 yield. In all other cases, the Comparable Treasury Yield will be calculated by interpolation on a straight -line basis, between the weekly average yields on the United States Treasury securities that have a constant maturity (i) closest to and greater than the remaining term to maturity of the 2010B Certificate being prepaid; and (ii) closest to and less than the remaining term to maturity of the 2010B Certificate being prepaid. Any weekly average yields calculated by interpolation will be rounded to the nearest 1 /100th of 1 %, with any figure of 1 /200th of 1% or above being rounded upward. If, and only if, weekly average yields for United States Treasury securities for the preceding week are not available in the H.15(519) statistical release or any successor publication, then the Comparable Treasury Yield will be the rate of interest per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) at the Comparable Treasury Price as of the date fixed for prepayment. "Continuing Disclosure Agreement" means that certain Continuing Disclosure Agreement dated as of November 1, 2010, by and between the City and the Trustee, as Dissemination Agent, as it may be amended from time to time in accordance with the terms thereof "Corporation' means the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation organized under the laws of the State, its successors and assigns. "Corporation Representative" means the President, Vice President, Secretary, Treasurer of the Corporation, or any other person authorized to act on behalf of the Corporation under or with respect to the Lease. "Delivery Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B -1. "Deliver," means and includes all items of expense directly or indirectly payable by or reimbursable to the City or the Corporation relating to the financing of the Project from the proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the Original Purchaser, filing and recording costs, settlement costs, printing costs, word processing costs, reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies, any computer and other expenses incurred in connection with the Certificates, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing. "Deliver, ate" means the date on which any Series of Certificates or Additional Certificates are delivered to the Original Purchaser. "Depository" means the securities depository acting as depository pursuant to Section 2.10 hereof. ` DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates. "Escrow Agent" means U.S. Bank National Association or any successor or assigns. DOCSOC/1423520v7/022459 -0014 "Escrow Agreement" means the Escrow Agreement dated as of October 29, 2010, by and between the City and the Escrow Agent relating to the 1998 Certificates. "Escrow Fund" means that fund established pursuant to the Escrow Agreement and held by the Escrow Agent. thereof. "Event of Default" means an event of default under the Lease, as defined in Section 9.1 "Extraordinary Event" means: (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such Sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the 2010B Tax Certificate, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. "Fiscal Year" means the fiscal year of the City commencing July 1 and ending June 30 of the next year. "Fitch" means Fitch Ratings Group or any successors or assigns thereto. "Government Obligations' means Permitted Investments of the type described in paragraphs (A) or (B) of the definition thereof. "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the City. If the City fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for prepayment, or if the Independent Banking Institution appointed by the City is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee. "Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the City. "Interest Payment Date" means July 1 and January 1 of each year commencing January 1, 2011. 5 DOCS OC/1423520v7/022459 -0014 "Lease" means the Lease /Purchase Agreement related to the Certificates, dated as of the date hereof, by and between the City and the Corporation, and any duly authorized and executed amendments thereto. "Lease Pa n" means any of the 2010A Lease Payments, the 2010B Lease Payments or lease payments relating to Additional Certificates required to be paid by the City to the Corporation pursuant to Section 4.4 of the Lease. "Lease Payment Date" means the Lease Payment Date defined in Section 4.4(a) of the Lease, which shall be each December 15 and June 15 commencing December 15, 2010. "Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to Article V hereof. "Leased Premises" has the meaning set forth in the Lease. "Letter of Representations" means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the Certificates as book -entry certificates making reference to the DTC Operational Arrangements memorandum, as it may be amended from time to time, setting forth the basis on which the Depository serves as depository for such book -entry certificates, as such letters were originally executed or as they may be supplemented or revised or replaced by letters from the City and the Trustee delivered to and accepted by the Depository. "Make -Whole Premium" means, with respect to any 2010B Certificate to be prepaid, an amount calculated by an Independent Banking Institution equal to the positive difference, if any, between: (a) the sum of the present values, calculated as of the date fixed for prepayment of (i) each Interest Component that, but for the prepayment, would have been payable with respect,to the 2010B Lease Payment or portion thereof being prepaid on each regularly scheduled Lease Payment Date occurring after the date fixed for prepayment through the maturity date of the corresponding 2010B Certificate (excluding any accrued interest for the period prior to the date fixed for prepayment); plus (ii) the Principal Component that, but for such prepayment, would have been payable on the maturity date (or applicable mandatory sinking fund prepayment date or dates) with respect to the 2010B Certificate or portion thereof being prepaid; minus (b) the principal amount of the 2010B Lease Payment or portion thereof being prepaid. The present values of the Interest Components and Principal Components referred to in (a) above will be determined by discounting the amount of each such Interest Components and Principal Components from the date that each such payment would have been payable but for the prepayment to the date fixed for prepayment on a semiannual basis (assuming a 360 -day year consisting of twelve (12) 30- day months) at a discount rate equal to the Comparable Treasury Yield, plus (1) with respect to a 2010B Certificate prepaid as described in Section 4.03(c), 100 basis points, or (2) with respect to a 2010B Certificate prepaid as described in Section 4.03(d), 40 basis points. DOC SOC/ 1423520v7/022459 -0014 "Make -Whole Prepayment Price" means the greater of (])the original issue price (but not less than 100 %) of such Principal Component of the 2010B Lease Payments to be prepaid; or (2) the Principal Component of the 2010B Lease Payment to be prepaid plus the Make -Whole Premium, together, in each case, with accrued interest, if any, to the date fixed for prepayment of the 2010B Certificates. " Moody's" means Moody's Investors Service or any successors or assigns thereto. "Net Proceeds" means any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof. "Net Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to Article VII hereof. "1998 Certificates" means the $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project). 'Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.10 hereof. "Orieinal Purchaser" means Stone & Youngberg LLC, as representative of original purchasers of the Certificates on the Closing Date, or the original purchaser of any Series of Additional Certificates. "Outstandine' when used as of any particular time with respect to Certificates, means (subject to the provisions of Section 10.03 hereof) all Certificates or Additional Certificates theretofore executed and delivered by the Trustee under this Trust Agreement except: (1) Certificates or Additional Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates or Additional Certificates for the payment or prepayment of which funds or Government Obligations, together with interest earned thereon, in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates or Additional Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in Section 4.05 hereof or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (3) Certificates or Additional Certificates in lieu of or in exchange for which other Certificates or Additional Certificates shall have been executed and delivered by the Trustee pursuant to Sections 2.06 and 2.07 hereof. "Owner" or "Certificate Owner" or "Owner of a Certificate ", or any similar term, when used with respect to a Certificate means the person in whose name such Certificate is registered on the registration books maintained by the Trustee. "Participants" means those broker - dealers, banks and other financial institutions from time to time for which the Depository holds book -entry certificates as securities depository. DOCSOC/ 1423520x7/022459 -0014 "Permitted Investments" means, if and to the extent permitted by law and by any policy guidelines promulgated by the City: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury) or obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. Farmers Home Administration (FmHA) Certificates of beneficial ownership 2. Federal Housing Administration Debentures (FHA) 3. General Services Administration Participation certificates 4. Government National Mortgage Association (GNMA or "Ginnie Mae ") GNMA- guaranteed mortgage- backed bonds GNMA - guaranteed pass - through obligations 5. U.S. Maritime Administration Guaranteed Title XI financing (qualified under the Ship Financing Act of 1972) 6. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Corporation Bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mad') Participation certificates Senior debt obligations 8 DOCSOC/ 1423520v7/022459 -0014 3. Federal National Mortgage Association (FNMA or "Fannie Mae ") Mortgage- backed securities and senior debt obligations (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal) 4. Student Loan Marketing Association (SLMA or "Sallie Mae ") Senior debt obligations 5. Resolution Funding Corp (REFCORP) The interest only component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York 6. Farm Credit System Corp. - Consolidated system -wide bonds and notes D. Money market mutual funds registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm -G," "AAAm" or "AAm" and by Moody's of "Aaa," "Aal" or "Aa2," including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services or serves as investment administrator, shareholder servicing agent, and /or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to this Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to this Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee. E. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City) secured at all times by collateral described in (A) and /or (B) above and having a maturity of one year or less. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated "A -1 +" by Standard & Poor's and "Prime -1" by Moody's, which may include the Trustee and its affiliates. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City), savings accounts, deposit accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest bearing deposits, interest bearing money market accounts, bankers' acceptances or money market deposits which are fully insured by FDIC or are rated in the AA long term rating by Moody's or Standard & Poor's (including those of the Trustee and its affiliates). G. Commercial paper rated at the time of investment "Prime - 1" by Moody's and "A -1 +" or better by Standard & Poor's. H. Investment agreements, including guaranteed investment agreements, acceptable to the Trustee. DOCSOC/1423520v7/022459 -0014 L Bonds or notes issued by any state or municipality which are rated by Moody's and Standard & Poor's in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A -1 +" or better by Standard & Poor's, including those of the Trustee and its affiliates. K. Repurchase or reverse repurchase agreements rated "AA" or better by Standard and Poor's (including those of the Trustee or any of its affiliates) and that provide for the transfer of securities from a dealer bank or securities firm (seller /borrower) to the Trustee (buyer /lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee, in exchange for the securities at a specified date or dates. L. Any guaranteed investment contract, including forward delivery agreements ( "FDAs ") and forward purchase agreements ( "FPAs "), with a financial institution or insurance company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims - paying ability rated within the two highest rating categories of Standard & Poor's and Moody's. Only Permitted Investments described in clauses A, B or C above and having maturities equal to or less than 30 years from their date of delivery will be considered eligible for any collateralization /delivery purposes for guaranteed investment contracts, FDAs or FPAs; M. Pre- refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's. If, however, the issue is only rated by Standard & Poor's (i.e., there is no Moody's rating), then the pre- refunded bonds must have been pre - refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre - refunded municipals to satisfy this condition. N. The Local Agency Investment Fund of the State, provided that the Trustee may deposit and withdraw monies in its own name. O. Any other investments permitted by Government Code section 53601 (including investment agreements and forward delivery or forward purchase agreements). "Value" of the above investments shall be determined by the manner currently employed by the Trustee or any other manner consistent with industry standard. "Prepayment' means any payment made by the City pursuant to Article X of the Lease as a prepayment of Lease Payments. "Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to Article IV hereof. "Principal Office or Corporate Trust Office" means the corporate trust office of the Trustee at 700 South Flower Street, Suite 600, Los Angeles, California 90017, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee; provided, however, 10 DOCSOC/ 1423520v7/022459 -0014 that for the purposes of payment, transfer or exchange of Certificates such term means the office or agency of the Trustee at which, at any particular time its corporate trust agency business shall be conducted. "Project" has the meaning set forth in the Lease. "Project Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B -2. "Project Costs" means, with respect to any item or portion of the Project, the contract price paid or to be paid therefor upon acquisition, construction, procurement or improvement thereof, in accordance with a purchase order or contract therefor. Project Costs include, but are not limited to, the administrative, engineering, interior decorating, fixtures, furnishings and equipment, legal, financial and other costs incurred by the City and the Corporation in connection with the acquisition, construction, procurement, remodeling or improvement of the Project, all applicable sales taxes and other charges resulting from such construction, procurement, remodeling or improvement of the Project and the costs associated with making rebate calculations required by the Code. Project Costs shall not include any costs of the City or the Corporation to enforce remedies hereunder or under the Lease. "Project Fund" means the fund by that name established and held by the Trustee pursuant to Article III hereof. "Record Date" means the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day. "Reference Treasury Dealer" means any firm, specified by the City from time to time, that are primary United States Government securities dealers in the City of New York (each a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010A Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. "Series" means either the 2010A Certificates and such Additional Certificates which are secured by 2010A Lease Payments or the 2010B Certificates and such Additional Certificates which are secured by the 2010B Lease Payments as the context may suggest. "S &P" or "Standard & Poor's" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc., or any successors or assigns thereto. "Site Lease" means the Site Lease related to the Certificates, dated the date hereof by and between the Corporation and the City. "Special Counsel" means Stradling Yocca Carlson & Rauth, a Professional Corporation, or any other attorney or firm of attorneys of nationally recognized standing in matters pertaining to the 11 DO CSOC/ 1423 520v7/022459 -0014 tax- exempt status of interest on obligations issued by states and their political subdivisions and acceptable to the City. "State" means the State of California. "Supplemental Agreement" means a supplement to this Trust Agreement providing for the execution and delivery of Additional Certificates pursuant to Section 2.12. "Tax Certificate" means the Tax Certificates, each dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and delivered to the City on the date of execution and delivery of the 2010A Certificates and the 2010B Certificates, including any and all exhibits attached thereto. "Tenn" means the time during which the Lease is in effect, as provided in Section 4.2 of the Lease. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Trustee" means The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States, and any successor trustee. "Trust Agreement" or "Agreement" means this Trust Agreement, together with any amendments hereof or supplements hereto permitted to be made hereunder. "2010A Certificates" means the $20,085,000 aggregate principal amount of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project) to be executed and delivered by the Trustee pursuant to this Trust Agreement. "20108 Certificates" means the $106,575,000 aggregate principal amount of the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project/Central Library Refunding) to be executed and delivered by the Trustee pursuant to this Trust Agreement. "2010A Lease Pa ment" means any payment required to be paid by the City to the Corporation pursuant to Section 4.4 of the Lease as set forth in Exhibit A thereto and deposited in the 2010A Account of the Lease Payment Fund. "2010B Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to Section 4.4 of the Lease as set forth in Exhibit A thereto and deposited in the 2010B Account of the Lease Payment Fund. "2010A Prepa Ment" means any payment made by the City pursuant to Article X of the Lease as a prepayment of the 2010A Lease Payments. 12 DOCSOC/ 1423 520v7/022459 -0014 "201013 Prepayment" means any payment made by the City pursuant to Article X of the Lease as a prepayment of the 2010B Lease Payments. Section 1.02. Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Trust Agreement, and has taken all actions necessary to authorize the execution of this Trust Agreement by the officers and persons signing it. Section 1.03. Equal Security. In consideration of the acceptance of the Certificates by the Owners, this Trust Agreement shall be deemed to be and shall constitute a contract between the Trustee and the Owners to secure the full and final payment of the interest, if any, and principal represented by the Certificates and any Additional Certificates which may be executed and delivered hereunder, subject to each of the agreements, conditions, covenants and terms contained herein; and all agreements, conditions, covenants and terms contained herein required to be observed or performed by or on behalf of the Trustee shall be for the equal and proportionate benefit, protection and security of all Owners without distinction, preference or priority as to security or otherwise of any Certificates or Additional Certificates of a Series over any other Certificates or Additional Certificates of a Series by reason of the number or date thereof or the time of execution or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. All of the Certificates and any Additional Certificates of a Series are equally secured as provided in this Section 1.03, except as may be otherwise expressly provided in this Trust Agreement, provided that the 2010A Lease Payments and the 2010A Prepayments shall provide security only for the 2010A Certificates and any Additional Certificates secured by the 2010A Lease Payments and the 2010B Lease Payments and the 2010B Prepayments shall provide security only for the 2010B Certificates and any Additional Certificates secured by the 2010B Lease Payments. Any cash subsidy payments received by the City and deposited into the 2010B Account of the Lease Payment Fund are hereby pledged and secure only the 2010B Certificates or any Additional Certificates secured by the 2010B Lease Payments. ARTICLE I1 THE 2010 CERTIFICATES OF PARTICIPATION Section 2.01. Authorization. 'Upon written request of the City Representative, the Trustee will execute and deliver to the Original Purchaser 2010A Certificates in an aggregate principal amount of $20,085,000 representing fractional and undivided ownership interests in the 2010A Lease Payments and the 2010A Prepayments and 2010B Certificates in an aggregate principal amount of $106,575,000 representing fractional and undivided ownership interests in the 2010B Lease Payments and the 2010B Prepayments. The Certificates shall be initially executed and delivered as book -entry certificates. The Certificates are not, and shall in no event be deemed to be, a debt or obligation of the Trustee. The payments on the Certificates shall be made from funds, provided on or behalf of the City, for such purposes to the Trustee. 13 DOCS 00 1423 520v7/022459 -0014 Section 2.02. Description of Certificates. (a) Each 2010A Certificate shall be dated the Delivery Date and shall mature on July 1 in each of the years and in the amounts, and shall bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates, as follows: Maturity Principal Interest (July 1) Amount Rate 2011 $1,740,000 2.00% 2012 2,690,000 3.00 2013 2,775,000 3.00 2014 2,860,000 3.00 2015 2,940,000 4.00 2016 3,060,000 4.00 2017 3,185,000 4.00 2018 . 410,000 4.00 2019 425,000 4.00 (b) Each 2010B Certificate shall be dated the Delivery Date and shall mature on July 1 in each of the years and in the amounts, and shall bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates, as follows: Maturity Principal Interest (July I) Amount Rate 2018 $ 2,900,000 4.451% 2019 2,980,000 4.751 2020 3,065,000 5.051 2021 3,165,000 5.351 2022 3,275,000 5.601 2023 3,390,000 5.851 2030 17,800,000 7.018 2040 70,000,000 7.168 The Certificates shall be delivered in fully registered form, numbered from one upwards in consecutive numerical order (with such alphabetical prefix as the Trustee shall determine). The Certificates shall be executed and delivered in the denominations of $5,000 and any integral multiple thereof. Each Certificate and any Additional Certificates shall bear interest from the Interest Payment Date next preceding the date of execution thereof, unless (i) it is executed during the period from the day after the Record Date for an Interest Payment Date to and including such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is executed on or prior to the Record Date for the first Interest Payment Date, in which event interest shall be payable from the Delivery Date; provided, however, that if, at the time of execution of any Certificate or any Additional Certificates interest with respect to such Certificate or Additional Certificate is in default, such Certificate or Additional Certificate shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Certificate or Additional Certificate. 14 DOC SOC/ 1423520v7/022459 -00 14 (b) Payment Provisions. Interest with respect to any Certificate shall be payable in lawful money of the United States of America by check or draft of the Trustee, mailed no later than the Interest Payment Date to the Owner at his address as it appears, on the Record Date, on the registration books maintained by the Trustee or at such other address as has been furnished to the Trustee in writing by the Owner on or prior to such Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Certificates or Additional Certificates filed with the Trustee prior to any Record Date, interest with respect to such Certificates shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing) by wire transfer of immediately available funds to an account in the continental United States designated in such written request. Payments of defaulted interest with respect to the Certificates or Additional Certificates shall be paid by check or draft to the registered Owners of the Certificates or Additional Certificates as of a special record date to be fixed by the Trustee, notice of which special record date shall be given to the registered Owners of the Certificates or any Additional Certificates no less than ten days prior thereto. The principal of and premium, if any, on the Certificates or Additional Certificates is payable when due upon surrender thereof at the Principal Office in lawful money of the United States of America. Section 2.03. Form of Certificates. The Certificates and the assignment to appear thereon shall be substantially in the forms set forth in Exhibit A attached hereto and by this reference incorporated herein with such appropriate additions, modifications, and insertions as are permitted or required by this Trust Agreement. Pending the preparation of definitive Certificates the Certificates may be executed and delivered in temporary form exchangeable for definitive Certificates when ready for delivery. If the Trustee delivers temporary Certificates, it shall execute and deliver definitive Certificates in an equal aggregate principal amount of authorized denominations, when available, without additional charge, and thereupon the temporary Certificates shall be surrendered to the Trustee at its Principal Office. Until so exchanged, the temporary Certificates shall be entitled to the same benefits under this Trust Agreement as definitive Certificates. The form of any Additional Certificates shall be as set forth in the Supplemental Agreement relating to such Additional Certificates. Section 2.04. Execution. The Certificates shall be executed by and in the name of the Trustee by the manual signature of any authorized signatory of the Trustee. The Trustee shall insert the date of execution of each Certificate in the place provided thereon. Section 2.05. Application of Proceeds and Other Amounts. (a) The proceeds from the sale of the 2010A Certificates in the amount of $21,129,832.05 (representing the par amount of the Certificates of $20,085,000, plus original issue premium of $1,155,299.55, less Original Purchaser's discount of $110,467.50) shall be deposited with the Trustee as follows: $94,004.65 shall be deposited to the Delivery Costs Subaccount of the 2010A Account of the Project Fund for the payment of Delivery Costs, and $17,509,969.90 to the 2010A Account of the Project Fund. Additionally $3,525,857.50 shall be transferred to the Escrow Agent for deposit in the Escrow Fund. (b) The proceeds from the sale of the 2010B Certificates in the amount of $105,988,837.50 (representing the par amount of the Certificates of $106,575,000.00, less Original Purchaser's discount of $586,162.50 shall be deposited with the Trustee as follows: $498,807.40 shall be deposited to the Delivery Costs Subaccount of the 2010B Account of the Project Fund for the payment of Delivery Costs, and $105,490,030.10 to the 201013 Account of the Project Fund. 15 DOC SOC/14235200/022459 -0014 The Trustee may, in its discretion, establish a temporary fund or account in its books or records to facilitate such deposits and transfers. Section 2.06. Transfer and Exchange. (a) Transfer of Certificates. Any Certificate may, in accordance with its terms, be transferred upon the books required to be kept pursuant to the provisions of Section 2.09 by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate principal amount in authorized denominations. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the City. The Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer, and there shall be no other charge to any Owner for any such transfer. (b) Exchange of Certificates. Certificates may be exchanged at the Principal Office for a like aggregate principal amount of Certificates of other authorized denominations of the same tenor and maturity. The Trustee may require the payment by the Certificate Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the City. All Certificates surrendered pursuant to the provisions of this Section shall be cancelled and destroyed by the Trustee and shall not be redelivered. (c) Time for Transfer or Exchange. The Trustee shall not be obligated to transfer or exchange any Certificate after a Record Date and before the following Interest Payment Date, or during the period in which it is selecting Certificates for prepayment, or after notice of prepayment has been given as provided in Section 4.05. Section 2.07. Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate shall become mutilated, the Trustee, at the expense of the Owner of said Certificate, shall execute and deliver a new Certificate of like tenor, maturity and principal amount in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated and indemnification of the Trustee to its satisfaction. Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and, if an indemnity, satisfactory to the Trustee indemnifying the Trustee, the Corporation and the City, shall be given, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor, maturity and principal amount and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of an appropriate fee for each new Certificate delivered under this Section and of the expenses which may be incurred by the Trustee in carrying out the duties under this Section. Any Certificate executed under the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of this Trust Agreement with all other Certificates secured by this Trust Agreement. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate in place of 16 DOCSOC/ 1423 520x7/022459 -0014 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 shalt be sufficient for any purpose of this Trust Agreement (except as otherwise herein provided), if made in the following manner: (a) The fact and date of the execution by any Owner or his attorney or agent of any such instrument and of any instrument appointing any such attorney or agent, may be proved by a certificate, which need not be acknowledged or verified, of an officer of any bank or trust company located within the United States of America, or of any notary public, or other officer authorized to take acknowledgments of deeds to be recorded in such jurisdictions, that the persons signing such instruments acknowledged before him the execution thereof. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such certificate shall also constitute sufficient proof of his authority. (b) The fact of the ownership of Certificates by any person, the amount and numbers of such Certificates and the date of execution shall be proved by the registration books maintained pursuant to Section 2.09 hereof. Nothing contained in this Article It shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which the Trustee may deem sufficient in its sole discretion. Any request or consent of the Owner of any Certificate shall bind every future Owner of the same Certificate in respect of anything done or to be done by the Trustee in pursuance of such request or consent. Section 2.09. Certificate Re ister. The Trustee will keep or cause to be kept at its Principal Office or another office designated by the Trustee sufficient books for the registration and transfer of the Certificates which shall, during normal working hours and upon reasonable prior notice, be open to inspection by the City and the Corporation; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Certificates as hereinbefore provided. The City, the Corporation and the Trustee shall be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate shall be overdue and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. Section 2.10. Book -Entry System. (a) Election of Book -Entry System. Prior to the execution and delivery of the Certificates, the City may provide that such Certificates shall be initially executed and delivered as book -entry Certificates. If the City shall elect to deliver any Certificates in book -entry, then the City 17 DO CSOC/1423520v7/022459 -0014 shall cause the delivery of a separate single fully registered Certificate (which may be typewritten) for each maturity date of such Certificates in an authorized denomination corresponding to that total principal amount of the Certificates designated to mature on such date. Upon initial execution and delivery, the ownership of each such Certificate shall be registered in the Certificate register in the name of the Nominee, as nominee of the Depository, and ownership of the Certificates, or any portion thereof, may not thereafter be transferred except as provided in Section 2.10(d). With respect to book -entry Certificates, the City and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book -entry Certificates. Without limiting the immediately preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book -entry Certificates, (ii) the delivery to any Participant or any other person, other than an Owner as shown in the Certificate register, of any notice with respect to book -entry Certificates, including any notice of prepayment, (iii) the selection by the Depository and its Participants of the beneficial interests in book -entry Certificates to be prepaid in the event the City prepays the Certificates in part, or (iv) the payment by the Depository or any Participant or any other person, of any amount with respect to principal, premium, if any, or interest evidenced and represented by book -entry Certificates. The City and the Trustee may treat and consider the person in whose name each book - entry Certificate is registered in the Certificate register as the absolute Owner of such book -entry Certificate for the purpose of payment of principal, premium and interest with respect to such Certificate, for the purpose of giving notices of prepayment and other matters with respect to such Certificate, for the purpose of registering transfers with respect to such Certificate, and for all other purposes whatsoever. The Trustee shall pay all principal, premium, if any, and interest evidenced and represented by the Certificates only to or upon the order of the respective Owner, as shown in the Certificate register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal, premium, if any, and interest evidenced and represented by the Certificates to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Certificate register, shall receive a Certificate evidencing the obligation to make payments of principal, premium, if any, and interest evidenced and represented by the Certificates. Upon delivery by the Depository to the Owner and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word "Nominee" in this Trust Agreement shall refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book -entry Certificates for the Depository's book -entry system, the City shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the City any obligation whatsoever with respect to persons having interests in such book -entry Certificates other than the Owners, as shown on the Certificate register. In addition to the execution and delivery of a Letter of Representations, the City shall take such other actions, not inconsistent with this Trust Agreement, as are reasonably necessary to qualify book -entry Certificates for the Depository's book -entry program. (c) Selection of Depository. In the event (i) the Depository determines not to continue to act as securities depository for book -entry Certificates, or (ii) the City determines that continuation of the book -entry system is not in the best interest of the beneficial owners of the Certificates or the City, then the City will discontinue the book -entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City shall 18 DOCS OC/1423520v7/022459 -0014 prepare or direct the preparation of a new single, separate, fully registered Certificate for each of the maturity dates of such book -entry Certificates, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (d) hereof. If the City fails to identify another qualified securities depository to replace the Depository, then the Certificates shall no longer be restricted to being registered in such Certificate register in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Certificates shall designate, in accordance with the provisions of Section 2.06 hereof. (d) Payments to Depository. Notwithstanding any other provision of this Trust Agreement to the contrary, so long as all Outstanding Certificates are held in book -entry and registered in the name of the Nominee, all payments with respect to principal, prepayment premium, if any, and interest evidenced and represented by such Certificate and all notices with respect to such Certificate shall be made and given, respectively to the Nominees, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (i) The Certificates shall be initially executed and delivered as provided in Section 2.01 hereof. If such Certificates are initially registered in the name of the Nominee,,then registered ownership of such Certificates, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.10(d) ( "Substitute Depository"); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. (ii) In the case of any transfer pursuant to clause (A) or clause (B) of subsection (i) of this Section 2.10(d), upon receipt of all Outstanding Certificates by the Trustee, together with a written request of the City to the Trustee designating the Substitute Depository, a single new Certificate, which the City shall prepare or cause to be prepared, shall be executed and delivered for each maturity of Certificates then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such written request of the City. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.10(d), upon receipt of all Outstanding Certificates by the Trustee, together with a written request of the City to the Trustee, new Certificates, which the City shall prepare or cause to be prepared, shall be executed and delivered in such denominations and registered in the names of such persons as are requested in such written request of the City, subject to the limitations of Section 2.01 hereof, 19 DOCSOC/ 1423520x7/022459 -0014 provided that the Trustee shall not be required to deliver such new Certificates within a period of less than sixty (60) days from the date of receipt of such written request from the City. (iii) In the case of a partial prepayment or an advance refunding of any Certificates evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such Certificates indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository's failure to make such notations or errors in making such notations. (iv) The City and the Trustee shall be entitled to treat the person in whose name any Certificate is registered as the Owner thereof for all purposes of this Trust Agreement and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the Certificates. Neither the City nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any Certificates, and the Trustee may rely conclusively on its records as to the identity of the Owners of the Certificates. Section 2.11. Destruction of Cancelled Certificates. Whenever in this Trust Agreement provision is made for the surrender or cancellation by the Trustee and the delivery to the City of any Certificates, the Trustee will cancel and destroy such Certificates and deliver a certificate of such destruction to the City upon its request. Section 2.12. Additional Certificates. Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the following conditions, which are hereby made conditions precedent to the preparation, execution and delivery of such Additional Certificates: (a) The parties to this Trust Agreement shall have executed a Supplemental Agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established hereunder for the Certificates, as shall be necessary or appropriate, and (ii) specifies whether such Certificates are payable from 2010A Lease Payments or 2010B Lease Payments; (b) The scheduled principal and interest payable with respect to such Additional Certificates shall be payable only on Interest Payment Dates applicable to the Certificates; (c) The Lease and Site Lease shall have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates as and when the same mature or become due and payable, (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other 20 DOCS OC/ 1423520v7/022459 -0014 real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of this Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such Additional Certificates, and (iii) make such other revisions to the Lease and Site Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions shall not materially prejudice the rights of the Owners of Outstanding Certificates as granted them under the terms of this Trust Agreement as may be evidenced by the opinion of Special Counsel described under Section I0.01(b) hereol); (d) There shall have been delivered to the Trustee a counterpart of the amendments required by subsection 2.12(c) hereof; (e) The Trustee shall have received a certificate of the Corporation Representative that there exists on the part of the Corporation no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default); (f) The Trustee shall have received a certificate of the City Representative that (i) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease); (g) The Trustee shall have received an opinion of Special Counsel substantially to the effect that (i) said Supplemental Agreement and said amendments to the Lease comply in all respects with the requirements of this Section 2.12, (ii) said Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable) have been duly authorized, executed and delivered by the City and the Corporation, as applicable, (provided that said opinion of Special Counsel, in rendering the opinions set forth in this clause (ii), shall be entitled to rely upon one or more other opinions of counsel, including counsel to any of the respective parties to said Supplemental Agreement or said amendments to the Lease and Site Lease (if applicable)), (iii) assuming that no Event of Default has occurred and is continuing, this Trust Agreement, as amended by said Supplemental Agreement, and the Lease and Site Lease (if applicable), as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the City and Corporation, as applicable, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors' rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding) and (iv) the execution of such Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable), and performance by the parties thereunder, will not result in the inclusion of the Interest Component of any 2010A Lease Payments payable with respect to any 2010A Certificates, including Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), theretofore prepared, executed and delivered, in the gross income of the Owners of the 2010A Certificates or the owners of any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) for purposes of federal income taxation or the loss of the subsidy payments from the United States Treasury relating to the District's obligation to pay the Interest Component of the 2010B Lease Payments as evidenced by the 2010B Certificates; 21 DOCS OC/ 1423520v7/022459 -0014 (h) There shall have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under Section 5.5 of the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates; and (i) Such other conditions shall have been satisfied, and such other instruments shall have been duly executed and delivered to the Trustee, as the City or the Corporation shall have reasonably requested. Upon delivery to the Trustee of the foregoing instruments, the Trustee shall cause to be executed and delivered Additional Certificates of a Series representing the aggregate principal amount specified in such Supplemental Agreement, and such Additional Certificates shall be equally and ratably secured with all Certificates of like Series, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate of a Series; including Additional Certificates, over any other; provided, however, that no provision of this Trust Agreement shall require the City to consent to or otherwise permit the preparation, execution and delivery of Additional Certificates, it being understood and agreed that any such consent or other action of the City to permit the preparation, execution and delivery of Additional Certificates, or lack thereof, shall be in the sole discretion of the City. ARTICLE III PROJECT FUND Section 3.01. Establishment of Project Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Project Fund," referred to herein as the "Project Fund" and shall establish a 2010A Account and a 2010B Account therein. Within each of the 2010A Account and the 2010B Account, there shall be established Delivery Costs Subaccounts therein; shall keep the Project Fund separate and apart from all other funds and moneys held by it; and shall administer such fund as herein provided. The Project Fund shall be held and applied by the Trustee in accordance herewith. Section 3.02. Purpose. Moneys in the Project Fund shall be expended for Project Costs and Delivery Costs. Section 3.03. Deposit of Moneys; Payment of Project Costs and Delivery Costs. (a) Deposits. There shall be credited to the 2010A Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010A Certificates required to be deposited therein pursuant to Section 2.05 hereof, (2) all investment earnings on moneys held in the 2010A Account of the Project Fund, which shall remain in the 2010A Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2010A Certificates, as described in Section 3.04 below; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. There shall be credited to the 2010B Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010B Certificates required to be deposited therein pursuant to Section 2.05 hereof, (2) all investment earnings on moneys held in the 2010B Account of the Project 22 DOCSO C /1423 520v7/022459 -0014 Fund, which shall remain in the 2010B Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2010B Certificates, as described in Section 3.04 below; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. (b) Disbursements. The Trustee shall disburse moneys in the Project Fund from time to time to pay Project Costs directly or to reimburse the City for payment of Project Costs, upon receipt by the Trustee of a Project Cost Requisition signed by the City Representative. The Trustee shall have no duty or liability to monitor the application of any moneys disbursed hereunder. The Trustee shall disburse moneys from the Delivery Costs Subaccounts to pay Delivery Costs or to reimburse the City for payment of such Delivery Costs upon receipt by the Trustee of a Delivery Cost Requisition signed by the City Representative. The Trustee shall be absolutely protected in making any disbursement from the Project Fund in reliance upon a Project Cost Requisition or Delivery Cost Requisition signed by the City Representative. Each such Project Cost Requisition and Delivery Cost Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any remaining balance in a Delivery Costs Subaccount after June 15, 2011 shall be transferred by the Trustee to the applicable account of the Project Fund as directed in writing by City Representative. Section 3.04. Transfers of Unexpended Proceeds. Upon the filing with the Trustee of the Certificate of Completion pursuant to Section 3.4 of the Lease, the Trustee shall withdraw all remaining moneys in the Project Fund (other than any moneys retained therein to pay Project Costs not then due and payable and certified by the City Representative) and shall transfer such moneys to the applicable account of the Lease Payment Fund to be applied to the payment of principal and interest with respect to the applicable Series of Certificates as prescribed in Section 5.04 hereof or, at the written election of the City Representative delivered to the Trustee, together with an opinion of Special Counsel that such transfer will not cause interest due with respect to the 2010A Certificates to be included in gross income for federal income tax purposes, shall transfer such moneys to the City for the purpose of capital expenditures of the City, and following such transfer, the Project Fund shall be closed. ARTICLE IV PREPAYMENT FUND Section 4.01. Establishment of Prepayment Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center 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. Within the Prepayment Fund, the Trustee shall establish a "2010A Account' into which any 2010A Prepayments shall be deposited and a "2010B Account' into which any 2010B Prepayments shall be deposited. Moneys to be used for prepayment of the Certificates and Additional Certificates shall be deposited into the applicable account of the Prepayment Fund established for such Series and used solely for the purpose of prepaying the applicable Certificates or Additional Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates or Additional Certificates to the Trustee. Section 4.02. ExtraordinM Prelate lent. The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from Net Proceeds which the Trustee shall deposit in the Prepayment Fund as provided in Section 6.1(c) of the Lease at least 45 23 DOCS OC/ 1423520v7/022459 -0014 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. Prepa ment (a) 2010A Certificates Not subject to Optional Prepayment. The 2010A Certificates are not subject to optional prepayment prior to maturity. (b) [Reserved] (c) Extraordinary ptional Prepayment of 2010B Certificates. The 2010B Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event, as a whole or in part, on any date, and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. The City shall give the Trustee written notice of its intention to prepay the Certificates under this Section and the amount of the prepayment premium thereon in sufficient time to enable the Trustee to give notice of such prepayment. (d) Optional Prepayment of 2010B Certificates with Make -Whole Pa,, ice. The 2010E Certificates will be subject to prepayment prior to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. The City shall give the Trustee written notice of its intention to prepay the Certificates under this Section and the amount of the prepayment premium thereon in sufficient time to enable the Trustee to give notice of such prepayment. (e) Mandatory Sinking Account Payment. (i) The 2010B Certificates maturing July 1, 2030 (the "2030 Term 2010B Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2030 Term 2010B Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2030 Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2030 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions hereof. 24 DOCSOC/ 1423520v7/022459 -0014 Mandatory Prepayment Date Sinking Account (July 1) Payment 2024 $ 2,620,000 2025 2,580,000 2026 2,555,000 2027 2,530,000 2028 2,510,000 2029 2,505,000 2030* 2,500,000 * Final Maturity (ii) The 2010B Certificates maturing July 1, 2040 (the "2040 Term 2010B Certificates ") are subject to prepayment in part, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2040 Term 2010B Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2040 Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2040 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions hereof. Mandatory Prepayment Sinking Account Mandatory Prepayment Sinking Account Date (July I) Payment Date (July 1) Payment 2024 $ 890,000 2033 $ 5,265,000 2025 1,095,000 2034 5,510,000 2026 1,295,000 2035 5,770,000 2027 1,495,000 2036 6,035,000 2028 1,700,000 2037 6,320,000 2029 1,900,000 2038 6,615,000 2030 2,1.00,000 2039 6,920,000 2031 4,810,000 2040 7,245,000 2032 5,035,000 * Final Maturity If prior to one of the mandatory prepayment dates specified above the City purchases any 2030 Term 2010B Certificates or 2040 Term 2010B Certificates, then at least 45 days prior to the prepayment date the City shall notify the Trustee as to the principal amount purchased, and the amount of Certificates so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce the upcoming sinking account payment for the applicable maturity of the Certificates so purchased. All Certificates purchased pursuant to this subsection shall be cancelled pursuant to Section 14.03 hereof. Section 4.04. Selection of Certificates for Prepa.ment. Whenever provision is made in the Trust Agreement for the prepayment of less than all of the 2010 Certificates, the Trustee shall select the 2010 Certificates to be prepaid from all Certificates not previously called for prepayment (a) with 25 DOCS OC/ 1423520v7/022459 -0014 respect to any prepayment described pursuant to Section 4.02, among maturities of all 2010 Certificates and Additional Certificates on a pro rata basis as nearly as practicable, (b) with respect to any optional prepayment of 2010 Certificates, among maturities as directed by the City, (c) with respect to 2010A Certificates with the same maturity, by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair, and (d) with respect to 2010B Certificates with the same maturity, (i) if the 2010B Certificates are not book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid among the Owners of such 2010B Certificates on a pro rata basis as nearly as practicable, and (ii) if the 2010B Certificates are book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid on a pro rata pass- through distribution of principal basis in accordance with DTC procedures, provided that, so long as the 2010B Certificates are held in book -entry form, the selection for prepayment of such 201013 Certificates shall be made in accordance with the operational arrangements of DTC then in effect, and, if the DTC operational arrangements do not allow for prepayment on a pro rata pass - through distribution of principal basis, the 2010B Certificates will be selected for prepayment, in accordance with DTC procedures, by lot. The Trustee shall promptly notify the City and the Corporation in writing of the Certificates so selected for prepayment by mailing to the City and the Corporation copies of the notice of prepayment provided for in Section 4.05. The City shall provide the Trustee with a revised sinking fund schedule upon any prepayments. Section 4.05. Notice of Prepayment. (a) Content. When prepayment is authorized or required pursuant to this Article 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) if less than all of the Outstanding Certificates of a maturity are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, and (f) the original date of execution and delivery of the Certificates. Such notice shall further state that on the specified date there shall become due and payable upon each Certificate to be prepaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto shall cease to accrue and be payable. Such notice may specify that the prepayment of the Certificates to be prepaid is conditioned upon the timely receipt of funds required for such prepayment. (b) Recipients: Timing. Notice of such prepayment shall be sent by first class mail or delivery service postage prepaid, or by telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class mail, postage prepaid, to the Corporation and the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Under no circumstances shall the Trustee have any liability to any party for any inaccurate CUSIP number. In addition, notice of such prepayment shall also be sent by certified mail, overnight delivery service, facsimile transmission or other secure means, postage prepaid, to all municipal registered securities depositories and to at least two of the national information services that disseminate securities prepayment notices, when possible, at least two (2) days prior to the mailing of notices required by the first paragraph above, and in any event no later than simultaneously with the mailing of notices required by the first paragraph above; provided, that neither failure to receive such notice 26 DOCSOC/ 1423520x7/022459 -0014 nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Section 4.06. Partial Prepayment of Certificates. Upon surrender by the Owner of a Certificate for partial prepayment at the Principal Office, payment of such partial prepayment of the principal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal in principal amount to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment shall be valid upon payment of the amount thereby required to be paid to such Owner, and the City, the Corporation and the Trustee shall be released and discharged from all liability to the extent of such payment. Section 4.07. Effect of Notice of PreRayent. Notice having been given to the Owners of the Certificates as set forth in Section 4.05 hereof, and the moneys for the prepayment (including, the interest to the applicable date of prepayment), having, been set aside in the Prepayment Fund, the Certificates shall become due and payable on said date of prepayment, and, upon presentation and surrender thereof at the Principal Office, said Certificates shall be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to said date of prepayment. If, on the date of a prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as set forth in Section 4.05 hereof, then, from and after said date of prepayment, interest with respect to the Certificates to be prepaid shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of this Article shall be cancelled upon surrender thereof and destroyed. Section 4.08. Surplus. Any funds remaining in the Prepayment Fund after prepayment and payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees and expenses to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments payable under the Lease or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to Sections 8.07 and 8.08 hereof, shall be withdrawn by the Trustee and remitted to the City. ARTICLE V LEASE PAYMENTS; LEASE PAYMENT FUND Section 5.01. Security Provisions. (a) Assignment of Rights in Lease. The Corporation has, pursuant to the Assignment Agreement, absolutely assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Corporation's rights to receive and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease or pursuant hereto. All Lease Payments, Prepayments and such other 27 DOC SOC/ 1423520x7/022459 -0014 amounts to which the Corporation may at any time be entitled (other than amounts due to the Corporation under Section 4.11 of the Lease) shall be paid directly to the Trustee, and all of the Lease Payments and Prepayments collected or received by the Corporation shall be deemed to be held and to have been collected or received by the Corporation as the agent of the Trustee and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within five (5) Business Days after the receipt thereof, and all such Lease Payments shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund, all such Prepayments shall be forthwith deposited by the Trustee upon the receipt thereof in the Prepayment Fund. (b) Security Interest in Moneys and Funds. The Corporation and the City, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under this Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified herein and in the Lease. In addition to the Trustee, only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. In addition to the Trustee, only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 2010B Account of the Prepayment Fund. (c) Pledge of Lease Payments and Proceeds. The 2010A Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010A Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). The 2010B Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to Article IX of the Lease (the "Lease Proceeds ") are hereby irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under Section 2.12 hereof with respect to Additional Certificates, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the terms hereof, subject to Section 13.03 hereof and subject to Section 2.12 hereof. Section 5.02. Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Lease Payment Fund" and shall establish a 2010A Account and a 2010B Account therein. All moneys at any time deposited by the Trustee in an account of the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the applicable Certificates of such Series. So long as any Certificates are Outstanding, neither the City nor the Corporation shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in this Trust Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set forth. 28 DOCSOC/ 1423 520v7/022459 -0014 Section 5.03. Deposits. There shall be deposited in the 2010A Account of the Lease Payment Fund all 2010A Lease Payments and in the 2010A Account of the Prepayment Fund all 2010A Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to Section 2.05 hereof and Section 4.4 of the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation Section 5.4(c) of the Lease (regarding proceeds of rental interruption insurance) or pursuant to this Trust Agreement, which moneys shall be applied as a credit towards any 2010A Lease Payment then due. There shall be deposited in the 2010B Account of the Lease Payment Fund all 2010B Lease Payments and in the 2010B Prepayment Fund all 2010B Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to Section 2.05 hereof and Section 4.4 of the Lease, and any other moneys required to be deposited therein pursuant to the Lease; including without limitation Section 5.4(c) of the Lease (regarding proceeds of rental interruption insurance) or pursuant to this Trust Agreement, which moneys shall be applied as a credit towards any 2010B Lease Payment then due. The Trustee, in accordance with the Calculation Agency Agreement, dated as of November 1, 2010, by and between the City and the Trustee, shall at least 45 days but not more than 90 days prior to each Certificate Payment Date, submit to the United States Treasury a subsidy reimbursement request with respect to the 2010B Certificates in accordance with applicable Federal regulations. Upon receipt of such subsidy, the City shall deposit such cash subsidy payment into the 2010B Account of the Lease Payment Fund and use any such cash subsidy payments to offset its obligations to pay the Interest Component of the 2010B Lease Payments under the Lease. Section 5.04. Application of Moneys. Except as provided in this Section 5.04 and Section 5.05, all amounts in the 2010A Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2010A Certificates as the same shall become due and payable, in accordance with the provisions of Article 11 and Article IV hereof, subject to the requirement that certain investment earnings may be transferred to the Rebate Fund, as provided in Section 8.08 hereof. Except as provided in this Section 5.04 and Section 5.05, all amounts in the 2010B Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2010B Certificates as the same shall become due and payable, in accordance with the provisions of Article 11 and Article IV hereof. On or before each Interest Payment Date, the Trustee shall set aside an amount sufficient to pay the interest becoming due and payable on such Interest Payment Date on all Outstanding Certificates. Moneys so set aside shall be used and withdrawn by the Trustee solely for the purpose of paying the interest with respect to the Certificates as it shall become due and payable (including, accrued interest with respect to any Certificates prepaid prior to maturity). On or before each Interest Payment Date on which the principal of the Certificates shall be payable, the Trustee shall set aside an amount equal to (i) the principal amount of the Certificates coming due and payable on such Interest Payment Date pursuant to Section 2.02, and (ii) the prepayment price of the Certificates (consisting of the principal amount thereof and any applicable premiums) required to be prepaid on such Interest Payment Date pursuant to any of the provisions of Article IV hereof Moneys so set aside shall be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of the Certificates at the maturity thereof, or (ii) paying the 29 DOCSOC /1423520v7/022459 -0014 principal of and premium (if any) on any Certificates upon the prepayment thereof pursuant to Section 4.03 hereof. Section 5.05. Surplus. Any funds remaining in the Lease Payment Fund after payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease, or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to Section 8.08 hereof, shall be withdrawn by the Trustee and remitted to the City. ARTICLE VI [RESERVED] ARTICLE VII NETPROCEEDSFUND Section 7.01. Establishment of Net Proceeds Fund: Deposits. The Trustee shall establish when required a special fund designated as the "City of Newport Beach (Civic Center Project) Net Proceeds Fund," referred to herein as the "Net Proceeds Fund," to be maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided herein. The Trustee shall deposit Net Proceeds in the Net Proceeds Fund as provided in Section 6.1(a) of the Lease. (a) Casualty Insurance. The Trustee shall disburse Net Proceeds for replacement or repair of the Leased Premises as provided in Section 6.1(b) of the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the City Representative as provided in Section 6.1(c) of the Lease. Pending such application, such Net Proceeds may be invested by the Trustee as directed by the City Representative in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to be transferred to the Rebate Fund pursuant to Section 8.08 hereof, the Trustee shall pay any remaining moneys in the Net Proceeds Fund to the City after payment of any amounts due to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease. (b) Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the Leased Premises shall be applied and disbursed by the Trustee upon the Written Request of the City as follows: (i) If the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Premises and will not result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease (such determination to be certified by the City in writing), such proceeds shall be remitted to the City and used for any lawful purpose thereof, or (ii) If the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Premises and will result in an 30 DOCSOC/ 1423520v7/022459 -0014 abatement of Lease Payments and Additional Payments payable by the City under the Lease; then the Trustee shall immediately deposit such proceeds in the Prepayment Fund and such proceeds shall be applied to the prepayment of Certificates in the manner provided in Section 4.02 hereof. Section 7.02. Cooperation. The Corporation and the Trustee shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to Article V of the Lease and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any item or portion thereof, provided, however, the Trustee shall not be obligated to take any action hereunder if it is not indemnified to its satisfaction from and against any liability or expense arising therefrom. ARTICLE VIII MONEYS IN FUNDS; INVESTMENT Section 8.01. Held in Trust. The moneys and investments held by the Trustee under this Trust Agreement, other than in the Rebate Fund, are irrevocably held in trust for the benefit of the respective Owners and, in the case of the Rebate Fund, for payment as required to the United States Treasury, and for the purposes herein specified, and such moneys, and any income or interest 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 Corporation, the Trustee or the City, or any of them. Section 8.02. Investments Authorized. (a) By Trustee. Subject to the further provisions of this Article VIII, moneys held by the Trustee hereunder shall be invested and reinvested on maturity thereof by the Trustee pursuant to Section 8.02(b). The Trustee will report any such investments to the City on a monthly basis in its regular statements. (b) Upon Direction of the Citv. The City Representative shall direct by facsimile, to the designated trust officer responsible for the administration of this Trust Agreement, followed by distribution by U.S. Mail or overnight courier service of such notice, such investment in specific Permitted Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect. Such investments and reinvestments shall be made giving full consideration for the time at which funds are required to be available based among other things, scheduled completion of the various components of the Project. In the event that the City Representative does not so direct the Trustee, the Trustee shall invest in the Permitted Investments described in paragraph (D) of the definition thereof contained in Section 1.01 (as identified in a separate written instruction of the City Representative to be provided to the Trustee prior to the Closing of the issuance of the Certificates). Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund shall mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding the investment. Investments instructed by the City Representative to be purchased with funds on deposit in the Project Fund shall mature not later than the dates upon which such funds shall be needed to be expended for the payment of Project Costs. Investments to the later of the final maturity of the Certificates or any Additional Certificates so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with Article VI hereof. The 31 DOCSOC/ 1423520x7/022459 -0014 Trustee may conclusively rely upon the written instructions of the City Representative as to both the suitability and legality of the directed investments. (c) Registration. Such investments, if registrable, shall be registered in the name of the Trustee for the benefit of the Owners and held by the Trustee or its nominee. (d) Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by this Section. The Trustee may act as purchaser or agent in the making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an advisor to any provider of Permitted Investments hereunder. The City and Corporation acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City and the Corporation the right to receive brokerage confirmations of security transactions as they occur, at no additional costs, the City and Corporation specifically waives\ receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. (e) Trustee Standard of Care. Except as otherwise provided in Section 9.05, the Trustee shall not be responsible or liable for any consequences of any investment of funds or sale of such investment made by it in accordance with this Section or disposition made by it in accordance with Section 8.05(b). Section 8.03. Crediting of Investments. Except as otherwise provided in this Trust Agreement, any income, profit or loss on the investment of moneys held by the Trustee hereunder shall be credited to the respective fund for which it is held. Section 8.04. Accounting. The Trustee shall furnish to the City, not less than monthly, an accounting (which may be in the form of its regular statements) of all investments made by the Trustee and all funds and amounts held by the Trustee; provided, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. Section 8.05. Valuation and Disposition of Investments. (a) Valuation. Subject to the provisions of Section 8.08 hereof, for the purpose of determining the amount in any fund, all Permitted Investments (except investment agreements) credited to such fund shall be valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all funds and accounts, investments shall be valued by the Trustee not less often than annually nor more often than monthly. In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as may be available to the Trustee, including those within its regular accounting system and brokers and dealers in securities. (b) Disposition. Subject to the provisions of Section 8.08 hereof, the Trustee shall sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited. 32 DOC SOC/ 1423520v7/022459 -0014 Section 8.06. Commingling of Moneys in Funds. The Trustee may, and upon the written request of the City Representative shall, commingle any of the funds held by it pursuant to this Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by the Trustee. The City shall ensure that any such commingling complies with Section 1.148 -4 of the Treasury Regulations, and shall provide written direction to the Trustee accordingly. In no event shall the Trustee have any duty or obligation, at any time and in any manner to monitor compliance with any governmental regulations relating to commingling of accounts. Section 8.07. Tax Covenants. (a) General. The City and the Corporation hereby covenant with the holders of the 2O1OA Certificates that, notwithstanding any other provisions of this Trust Agreement, (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) they shall 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 2O10A Certificates under Section 103 of the Code. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of proceeds of the 2O1OA Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest due with respect to the 201OA Certificates. (b) Use of Proceeds. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 201OA 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 2O10A Certificates or the Project, or any portion thereof, or any other funds of the City, that would cause the 2O10A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2O1OA Certificates are outstanding, the City and the Corporation, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall establish reasonable procedures necessary to ensure continued compliance with Section 141 of the Code and the continued qualification of the 2O1OA Certificates as "governmental bonds." (c) Arbitrage. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of any proceeds of any 2O1OA Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would cause the 2O1OA Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City and the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates. (d) Federal Guarantee. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the Certificates) shall not make any use of the proceeds of the Certificates or any other funds of the City, or take or omit to take any other action, that would cause 33 DOCSOCA 423 520v7/022459 -0014 the 2010A Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (e) Covenant Retarding Build America Bonds. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the 2010B Certificates) shall not make any use of the proceeds of the 2010E Certificates, or take or omit to take any other action, that would cause the City to lose the cash subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. (1) 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 2010A Certificates and the 2010B Certificates. Section 8.08. Rebate Fund. (a) General. The Trustee shall establish a special fund designated the "City of Newport Beach (Civic Center Project) Rebate Fund" (the "Rebate Fund "). All amounts at any time on deposit in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States (the "Rebate Requirement") pursuant to Section 148 of the Code and the Treasury Regulations promulgated thereunder (the "Treasury Regulations "). Such amounts shall be free and clear of any lien under this Trust Agreement and shall be governed by this Section and Section 8.07 of this Trust Agreement and by the Tax Certificate executed by the City. The Trustee shall be deemed conclusively to have complied with the Rebate Requirement if it follows the directions of the City, and shall have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the City with the Rebate Requirement. (b) Deposits. G) 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 2010A Certificates the amount that would be considered the "rebate amount" within the meaning of Section 1.148 -3 of the Treasury Regulations, and (2) the City shall make an Additional Payment under Section 4.11 of the Lease and transfer to the Trustee for deposit in the Rebate Fund, if and to the extent required, amounts sufficient to cause the balance in the Rebate Fund to be equal to the "rebate amount" so calculated. (ii) The City shall not be required to deposit any amount to the Rebate Fund in accordance with preceding sentence if the amount on deposit in the Rebate Fund prior to the deposit required to be made under this subsection (a) equals or exceeds the "rebate amount" calculated in accordance with the preceding sentence. Such excess may be withdrawn from the Rebate Fund to the extent permitted under subsection (f) of this Section. (iii) The City shall not be required to calculate the "rebate amount," and shall not be required to deposit any amount to the Rebate Fund in accordance with this subsection (a), with respect to all or a portion of the proceeds of the 2010B Certificates (including amounts treated as proceeds of the Certificates) (1) to the extent such proceeds satisfy the expenditure requirements of Section 148(f)(4)(B) or Section 148(f)(4)(C) of the Code or Section 1.148 -7(d) of the Treasury 34 DOCS OC/ 1423520v7/022459 -0014 Regulations, whichever is applicable, and otherwise qualify for the exception to the Rebate Requirement pursuant to whichever of said sections is applicable, (2) to the extent such proceeds are subject to an election by the City under Section 148(f)(4)(C)(vii) of the Code to pay a 1- 1 /2% penalty in lieu of arbitrage rebate in the event any of the percentage expenditure requirements of Section 148(f)(4)(C) are not satisfied, or (3) to the extent such proceeds qualify for the exception to arbitrage rebate under Section 148(0(4)(A)(ii) of the Code for amounts in a "bona fide debt service fund." (c) Withdrawal Following Payment of 2010A Certificates. Any funds remaining in the Rebate Fund after prepayment of all the 2010A Certificates and any amounts described in paragraph (ii) of subsection (c) of this Section, or provision made therefor satisfactory to the Trustee, including accrued interest and payment of any applicable fees to the Trustee, shall be withdrawn by the Trustee and remitted to the City. (d) Withdrawal for Payment of Rebate. Upon the City's written direction, but subject to the exceptions contained in subsection (a) of this Section to the requirement to calculate the "rebate amount" and make deposits to the Rebate Fund, the Trustee shall pay to the United States, from amounts on deposit in the Rebate Fund, (i) not later than 60 days after the end of (1) the fifth Certificate Year, and (2) each fifth Certificate Year thereafter, an amount that, together with all previous rebate payments, is equal to at least 90% of the `rebate amount" calculated as of the end of such Certificate Year in accordance with Section 1.148 -3 of the Treasury Regulations; and (ii) not later than 60 days after the payment of all 2010A Certificates, an amount equal to 100% of the "rebate amount" calculated as of the date of such payment (and any income attributable to the "rebate amount" determined to be due and payable) in accordance with Section 1.148 -3 of the Treasury Regulations. (e) Rebate Payments. Each payment required to be made pursuant to subsection (c) of this Section shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038 -T, which shall be completed by the arbitrage rebate consultant for execution by the City and provided to the Trustee. (f) Deficiencies in the Rebate Fund. In the event that, prior to the time any payment is required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City shall calculate the amount of such deficiency and direct the Trustee to deposit an amount received from the City equal to such deficiency into the Rebate Fund prior to the time such payment is due. (g) Withdrawals of Excess Amounts. In the event that immediately following the calculation required by subsection (a) of this Section, but prior to any deposit made under said subsection, the amount on deposit in the Rebate Fund exceeds the "rebate amount" calculated in accordance with said subsection, upon written instructions from the City, the Trustee shall withdraw the excess from the Rebate Fund and credit such excess to the Lease Payment Fund. (h) Record Keeping. The City shall retain records of all determinations made hereunder until six years after the complete retirement of the Certificates. 35 DOCSOC/ 1423520v7/022459 -0014 (i) Survival after Defeasance. Notwithstanding anything in this Trust Agreement to the contrary, the Rebate Requirement shall survive the payment in full or defeasance of the Certificates. ARTICLE IX THE TRUSTEE Section 9.01. Appointment of Trustee. (a) Appointment. Trustee, a national banking association organized under the laws of the United States, is hereby appointed Trustee by the Corporation and the City. (b) Qualifications. The Corporation and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, California, Santa Ana, California, or Los Angeles, California capable of exercising trust powers in the State of California, with a combined capital (exclusive of borrowed capital) and a surplus of at least Seventy -Five Million Dollars ($75,000,000), or be a member of a bank holding company system, which shall have a combined capital and surplus of at least Seventy -Five Million Dollars ($75,000,000), and subject to supervision or examination by federal or state authority, so long as any Certificates are Outstanding. If such bank, corporation or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to then for the purpose of this Section the combined capital and surplus of such bank, corporation or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (c) Removal. So long as there is no Event of Default, the City may remove the Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto. (d) Resignation. The Trustee may, upon written notice to the City and the Corporation, resign; provided that such resignation shall not take effect until the successor Trustee is appointed as provided in this Section 9.01. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee. In the event the City does not name a successor Trustee within thirty (30) days of receipt of notice of the Trustee's resignation, then the Trustee may petition a federal or state court to seek the immediate appointment of a successor Trustee and be reimbursed by the City for all costs incurred in connection therewith. (e) Successor. Any successor Trustee shall be a bank, corporation or trust company meeting the qualifications as set forth in Subsection (b) above. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Owners at their respective addresses set forth on the Certificate registration books maintained pursuant to Section 2.12. Section 9.02. Merger or Consolidation. Any company or banking association into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a 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 9.01, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. 36 D O C S O C/ 1423 5 20v7/022459 -001.4 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, facsimile, request, consent, direction, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of this Trust Agreement, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may, in the absence of bad faith on its part, accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. In the event the Trustee shall make any investigation into the content of any such certifications, the Trustee shall not thereby be deemed to have expanded the scope of its duties. (b) Reliance Upon Opinions of Counsel. The Trustee may consult with its counsel or counsel to the City with regard to legal questions and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith in accordance therewith. Before being required to take any action, the Trustee may require an opinion of Independent Counsel acceptable to the Trustee which opinion shall be made available to the other parties hereto upon request, which counsel may be counsel to any of the parties hereto, or a verified certificate of any party hereto, or both, concerning the proposed action and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken by the Trustee in reliance thereon and the City shall promptly reimburse the Trustee for such costs. (c) Reliance Upon Requested Certificates. Whenever in the administration of its duties under this Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed), in the absence of bad faith on its part, shall be deemed to be conclusively proved and established by the certificate of the City Representative or the Corporation Representative and such certificate shall be full warranty to the Trustee for any action taken or suffered under the provisions of this Trust Agreement in reliance thereon, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable, provided however that the duties and obligations of the Trustee shall not be deemed expanded thereby. Section 9.04. Rights of the Trustee. (a) Ownership of Certificates. The Trustee may become an Owner with the same rights it would have if it were not Trustee; may acquire and dispose of other bonds or evidence of indebtedness of the City with the same rights it would have if it were not the Trustee; and may act as a depository for and permit any of its officers or directors to act as a member of or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of the majority in principal amount of the Certificates then Outstanding. (b) Attorneys, Agents, Receivers. The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, or receivers, shall not be responsible for the actions or omissions of such attorneys, agents or receivers if 37 DOC SOC/ 1423520v7/022459 -0014 appointed by it with reasonable care, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. (c) Funds and Accounts. In addition to the funds and accounts established or required to be established pursuant to this Trust Agreement, the Trustee may establish such additional funds and accounts as it deems necessary or appropriate to perform its duties hereunder, and shall have the right to close such accounts in its discretion. Section 9.05. Standard of Care. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall only perform those duties specifically set forth herein and no implied duties, covenants or obligations whatsoever shall be read into this Trust Agreement. In the event of and during the continuance of an Event of Default, the Trustee shall exercise such care in performing its duties hereunder as a prudent person would exercise under the circumstances in the conduct of its own affairs. No action by the Trustee shall be construed or deemed to expand the limitations on the scope of the Trustee's duties. The Trustee shall not be considered in breach of or in default in its obligations hereunder in the event of enforced delay ( "unavoidable delay ") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. Section 9.06. Compensation of the Trustee. As an Additional Payment under Section 4.11 of the Lease, the City shall, from time to time, pay such amounts and reimburse such expenses (including, without limitation, legal fees and expenses) as are specified in any written agreement with the City and, on demand, pay to the Trustee to the extent not covered by such agreement reasonable compensation for its services and the services of any accountants, consultants, attorneys and other experts as may be engaged by the Trustee to provide services under this Trust Agreement pursuant to a written agreement between the City and the Trustee. Further, in the event of a default hereunder, the City agrees that the Trustee's fees and costs shall be deemed to be a substantial contribution to the trust and bankruptcy estate and /or administrative expenses in a bankruptcy, if applicable. The City's obligation hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates or resignation and removal of the Trustee. Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, interest on any Certificate, upon the trust estate for the foregoing fees, charges and expenses incurred by it. Section 9.07. Indemnification of Trustee. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors, agents, and employees hannless from and against (whether or not litigated) all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Premises by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under this Trust Agreement and any other agreement made and entered into for purposes of the Leased Premises, (iii) any act of the City or of 38 DOCSOC/1423520v7/022459 -0014 - any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (iv) any act of any assignee of, or purchaser from, the City or of any of its or their agents, contractors, servants, employees or licensees with respect to the Leased Premises, (v) the construction or acquisition of the Project or the expenditure of Project Costs, (vi) the exercise and performance by the Trustee of its powers and duties hereunder, the Lease, the Site Lease, the Assignment Agreement or any related document hereto or thereto, (vii) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates or this Trust Agreement, or (viii) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made in light of the circumstances in which they were made, not misleading in any official statement or other disclosure document utilized in connection with the sale of the Certificates. The indemnification set forth in this Section 9.07 shall extend to the Trustee's officers, agents, employees, successors and assigns. No indemnification will be made under this Section or elsewhere in this Trust Agreement or other agreements for willful misconduct or negligence by the Trustee, its officers, agents, employees, successors or assigns. The City's obligations hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates, or the resignation or removal of the Trustee. In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity, and all persons, including, without limitation, the Owners, Corporation and the City, having any claim against the Trustee arising from the Trust Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment, except as otherwise provided herein or where the Trustee has breached its standard of care as described in Section 9.05 hereof. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates. No provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder or in the exercise of any of its rights or powers. The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Certificates at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or in the exercise of any right hereunder. In the event of conflicting instructions hereunder, the Trustee shall have the right to decide the appropriate course of action, or shall follow the direction of the group of Owners holding the largest aggregate principal amounts of Certificates, and be protected in following either course of action. The Trustee is authorized and directed to execute, in its capacity as Trustee, the Assignment Agreement. Every provision of this Trust Agreement, the Lease, the Site Lease and the Assignment Agreement relating to the conduct or liability of the Trustee shall be subject to the provisions of this Trust Agreement, including without limitation, this Article IX. The Trustee shall have no responsibility or liability with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed in any respect relating to the Certificates. 39 DOCSOC/ 1423 520v7/022459 -0014 The Trustee shall not to be deemed to have knowledge of any Event of Default hereunder or under the Lease unless it has actual knowledge thereof at its Principal Office. Before taking any action under Article XHI or this Article at the request of the Owners, the Trustee may require that a satisfactory indemnity bond be furnished by the Owners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken. The permissive right of the Trustee to do things enumerated in this Trust Agreement shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful default. The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. The Trustee shall not be accountable for the use or application by the City of any of the Certificates or the proceeds thereof or for the use or application of any money paid over by the Trustee in accordance with the provisions of this Trust Agreement. The Trustee agrees to accept and act upon instructions or directions pursuant to this Trust Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City or the Corporation elects to give the Trustee e -mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City and the Corporation agree to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. Section 9.08. Trustee's Disclaimer of Warranties. THE TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages, in connection with or arising out of the Lease, the Site Lease, the Assignment Agreement or this Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. 40 DOCSOC/ 1423520v7/022459 -0014 ARTICLE X MODIFICATION OR AMENDMENT OF AGREEMENTS Section 1.0.01. Amendments Permitted. (a) With Consent. This Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any dine, with notice to any rating agency then rating the Certificates by a Supplemental Agreement or amendment thereto which shall become effective when the written consents of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in Section 10.03 hereof, shall have been filed with the Trustee. No such modification or amendment shall: (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificates being affected, or (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 10.01 without the prior written consent of the Owners of all Certificates then outstanding. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest evidenced by the Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in Section 10.02 hereof. (b) Without Consent. This Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a Supplemental Agreement or amendments thereto or a supplement or amendment to the Lease, without the consent of any such Owners, but only to the extent permitted by law and only: (i) to add to the covenants and agreements of the City hereunder, (ii) to cure, correct or supplement any ambiguous or defective provision contained herein or therein, (iii) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable (which may be based upon opinions as provided in Section 9.03(b)), shall not materially adversely affect the interest of the Owners, 41 DOCSOC/ 1423520v7/022459 -0014 (iv) to substitute the Leased Premises, or a portion thereof, in accordance with Sections 3.5 and 7.12 of the Lease, (v) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest component of 2010A Lease Payments and the interest payable with respect to the 2010A Certificates and to maintain the federal subsidy with respect to the City's obligations to pay the Interest Component with respect to the 2010B Lease Payments under the Lease, (vi) to add to the rights of the Trustee, (vii) to maintain the rating or ratings assigned to the Certificates, or (viii) to provide for the execution and delivery of Additional Certificates in accordance with the provisions of Section 2.12 hereof. No such modification or amendment, however, shall modify any of the rights or obligations of the Trustee without its written assent thereto. Any such Supplemental Agreement shall become effective upon execution and delivery by the parties hereto or thereto as the case may be. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest with respect to the 2010A Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in Section 10.02 hereof. Section 10.02. Procedure for Amendment with Written Consent of the Owners. This Trust Agreement or the Lease may be amended by Supplemental Agreement as provided in this Section 10.02 in the event the consent of the Owners is required pursuant to Section 10.01(a) hereof. A copy of the form of such Supplemental Agreement, together with a request to the Owners for their consent thereto, shall be mailed by the Trustee to each Owner of a Certificate at his address as set forth in the Certificate registration books maintained pursuant to Section 2.09 hereof, but failure to receive copies of such Supplemental Agreement and request so mailed shall not affect the validity of the Supplemental Agreement when assented to as in this Section provided. Such Supplemental Agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in Section 10.03 hereof) and notices shall have been mailed as hereinafter in this Section provided. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Certificates shall have filed their consent to such Supplemental Agreement, the Trustee shall mail a notice to the Owners of the Certificates in the manner hereinbefore provided in this Section for the mailing of such Supplemental Agreement, stating in substance that such Supplemental Agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in this Section (but failure to 42 DO CS OC/ 1423520v7/022459 -0014 mail copies of said notice shall not affect the validity of such Supplemental Agreement or consents thereto). A record, consisting of the papers required by this Section to be filed with the Trustee, shall be proof of the matters therein stated until the contrary is proved. The Trustee may obtain and conclusively rely on an opinion of counsel with regard to such matters. Section 10.03. Disqualified Certificates. Certificates or Additional Certificates owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action or any calculation of Outstanding Certificates or Additional Certificates provided for in this Trust Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Trust Agreement; except that in determining whether the Trustee shall be protected in relying upon any such approval or consent of an Owner, only Certificates that the Trustee actually knows to be owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall be disregarded unless all Certificates are so owned, held by or for the account of, in which case such Certificates shall be considered Outstanding for the purpose of such determination. The City or the Trustee may adopt appropriate regulations to require each Owner, before his consent provided for in this Article X shall be deemed effective, to reveal if the Certificates or Additional Certificates as to which such consent is given are disqualified as provided in this Section 10.03 hereof. Upon request of the Trustee, the City and Corporation shall specify to the Trustee those Certificates and Additional Certificates disqualified pursuant to this Section and the Trustee may conclusively rely on such certificate. Section 10.04. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective pursuant to this Article X, this Trust Agreement or the Lease, as the case may be, shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties hereto or thereto and all Owners of Certificates Outstanding, as the case may be, shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Agreement shall be deemed to be part of the terms and conditions of this Trust Agreement or the Lease, as the case may be, for any and all purposes. Section 10.05. Endorsement or Replacement of Certificates Delivered After Amendments. The City may determine that Certificates delivered after the effective date of any action taken as provided in this Article X shall bear a notation, by endorsement, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Outstanding Certificate at such effective date and presentation of his Certificate for such purpose at the Principal Office, a suitable notation shall be made on such Certificate. The City may determine that new Certificates, so modified as in the opinion of the Trustee is necessary to conform to such Owner's action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Certificate then Outstanding, such new Certificate shall be exchanged in the Principal Office without cost to such Owner, for a Certificate of the same character then Outstanding, upon surrender of such Certificate. Section 10.06. Amendatory Endorsement of Certificates. Subject to Section 10.01 hereof, the provisions of this Article X shall not prevent an Owner from accepting any amendment as to the 43 DO CSOC/ 1423 520x7/022459 -0014 particular Certificates held by him, provided that due notification thereof is made on such Certificates. Section 10.07. Copies of Amendments Delivered to Rating Agencies. Copies of any modifications or amendments to this Agreement, the Lease, the Site Lease or the Assignment Agreement shall be delivered by the City to any rating agency then rating the Certificates at least 10 days prior to the effective date thereof. ARTICLE XI COVENANTS; NOTICES Section 11.01. Compliance With and Enforcement of the Lease. The City covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The Corporation covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Corporation thereunder. The Corporation and the City, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Leased Premises, which may or can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee. Section 11.02. Payment of Taxes. The City shall pay all taxes as provided in Section 7.7(b) of the Lease. Section 11.03. Observance of Laws and Regulations. The City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the City, including its right to exist and carry on business as a municipal corporation, to the end that such rights, privileges and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. Section 11.04. Prosecution and Defense of Suits. The City shall promptly, and also upon request of the Trustee or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Premises, whether now existing or hereafter developing and shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose. Section 11.05. City Budgets. In accordance with Section 4.7 of the Lease, the City Representative shall certify to the Trustee on or before August 1 of each year that the City has included all Lease Payments (other than Lease Payments of advance rental), Additional Payments due under the Lease in the Fiscal Year covered by its annual budget and the amount so included. If the City fails to certify that it has included all such Lease Payments and Additional Payments in such annual budget, the Trustee shall promptly provide the City written notice specifying that the City has 44 DOCSOC/ 14235200/022459 -0014 failed to observe and perform its covenant and agreement in such Section 4.7 and requesting that such failure be remedied within 30 days, or such failure shall constitute an Event of Default under Section 91(b) of the Lease. The Trustee shall forward a copy of such notice to the Corporation. Upon receipt of such notice, the City shall notify the Trustee in writing of the proceedings proposed to be taken by the City, and shall keep the Trustee advised in writing of all proceedings thereafter taken by the City. Section 11.06. Further Assurances. The Corporation and the City will make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confirming unto the Owners the rights and benefits provided herein. Section 11.07. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Trust Agreement, failure of the City to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section and the Continuing Disclosure Agreement. 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 City or Corporation for Trustee Performance. Except as expressly provided herein, neither the City nor the Corporation shall have any obligation or liability to any other parties hereto or to the Owners with respect to the performance by the Trustee of any duty imposed upon it under this Trust Agreement. (a) No Investment Advice. The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates. (b) Sufficiency of this Trust Agreement or Lease Payments. The Trustee makes no representations as to the validity or sufficiency of the Certificates, shall incur no responsibility or liability in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall not be responsible or liable for the sufficiency or enforceability of the Lease, the Site Lease or the Assignment Agreement. The Trustee shall not be liable for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in this Trust Agreement), its right to receive moneys pursuant to said Lease, or the value of or title to the Leased Premises. 45 DOCSOC/ 1423 520v7/022459 -0014 (c) Actions of Corporation and City. 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 perfonmance of the duties and obligations expressly imposed upon it hereunder as provided in Section 9.05. (d) Recitals and Agreements of Corporation and City. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, covenants and agreements of the City or the Corporation (as the case may be), and the Trustee assumes no responsibility for the correctness of the same. Section 12.03. Limitation of Rights to Parties and Certificate Owners. Nothing in this Trust Agreement or in the Certificates expressed or implied is intended or shall be construed to give any person other than the City, the Corporation, the Trustee and the Owners, any legal or equitable right, remedy or claim under or in respect of this Trust Agreement or any covenant, condition or provision hereof; and all such covenants, conditions and provisions are and shall be for the sole and exclusive benefit of the City, the Corporation, the Trustee and the Owners. Section 12.04. No Liability of Corporation to the Owners. Except as expressly provided herein, the Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect to the observance or performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by this Trust Agreement. ARTICLE XIII EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS Section 13.01. Assignment of Rights. The parties hereto acknowledge that pursuant to the Assignment Agreement the Corporation has transferred, assigned and set over to the Trustee for the benefit of the Owners, certain of the Corporation's rights under the Lease. Section 13.02. Events of Default. (a) Remedies. If an Event of Default shall happen, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything herein or in the Lease to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. Section 9.2 of the Lease is hereby incorporated by reference. (b) Actual Knowledge. The Trustee shall not be deemed to have knowledge of any Event of Default unless and until the trust officer responsible for the administration of this Trust Agreement shall have actual knowledge thereof, or shall have received written notice thereof at the Principal Office. 46 D OC SOC/ 1423520v7/022459 -0014 Section 13.03. Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article XIII or of Article 1X of the Lease, shall be deposited into the Lease Payment Fund and be applied by the Trustee after payment of all amounts due and payable under Sections 9.06 and 9.07 hereof and Section 4.11 of the Lease in the following order upon presentation of the Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid - First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties and obligations hereunder, including reasonable compensation to its agents, attorneys and counsel and then to any such amounts incurred by the Owners; Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installment, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Third Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be sufficient to pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference. Section 13.04. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or in the Lease, or in aid of the execution of any power herein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties hereunder; provided that such written request shall not be otherwise than in accordance with provisions of law and this Trust Agreement and that the Trustee shall have the right to decline to follow any such written request if the Trustee shall be advised by counsel that the action or proceeding so requested may not be taken lawfully or if the Trustee in good faith shall determine that the action or proceeding so requested would be unjustly prejudicial to the Certificate Owners not a party to such written request or expose the Trustee to liability. In no event shall counsel to the Trustee be deemed counsel to the Owners, and any communications between the Trustee and its counsel shall be deemed confidential and privileged. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Certificates or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners of the Certificates so affected. Section 13.05. Non- Waiver. Nothing in this Article XIII or in any other provision of this Trust Agreement or in the Certificates shall affect or impair the obligation of the City to pay or 47 DOC SOC/ 1423 520v7/022459 -0014 prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any _ such Event of Default or an acquiescence therein, and every power and remedy given by this Article XIII to the Trustee or to the Owners may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners. Section 13.06. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise. Section 13.07. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it shall have full power, in the exercise of its discretion for the best interest of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the 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' Ri2ht to Sue. No Owner of any Certificate executed hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) there shall have been a default in the payment of such Owner's proportionate interest in the Lease Payments as the same become due. Such notification, request, tender of indemnity, refusal or omission, and default are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under this Trust Agreement, except in the manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this Section or any other provision of this Trust Agreement. M DOCSOC /1423 520v7/022459 -0014 ARTICLE XIV MISCELLANEOUS Section 14.01. Defeasance (a) Methods. If and when any Outstanding Certificates shall be paid and discharged in any one or more of the following ways: (i) Payment or Prepa ment: 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: by depositing with the Trustee, in trust, an amount of cash which (together with cash then on deposit in the Lease Payment Fund together with the interest to accrue thereon, in the event of payment or provision for payment of all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including all principal and interest and premium, if any; or (iii) Government Obligations: by irrevocably depositing with the Trustee, in trust, Government Obligations together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon (and, in the event of payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease Payment Fund together with the interest to accrue thereon), be fully sufficient to pay and discharge such Certificates (including all principal and interest represented thereby and prepayment premiums if any) at or before their maturity or prepayment date; and all other amounts due hereunder have been paid in full, then, notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Corporation, the Trustee and the City with respect to such Certificates shall cease and terminate, except only the rights of the Trustee under Sections 9.06 and 9.07 hereof, and the obligation of the City and the Corporation to comply with the provisions of Sections 8.07 and 8.08 hereof and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City from funds deposited pursuant to paragraphs (ii) and (iii) of this Section, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to paragraphs (ii) and (iii) of this Section, the Certificates shall continue to represent direct and proportionate interests of the Owners thereof in applicable Lease Payments under the Lease. (b) Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to one of the procedures described in paragraphs (a)(i) through (a)(iii) of this Section, which are not required for the payment to be made to the Owners, shall be paid over to the City, after the payment of any amounts due to the Trustee pursuant to Sections 9.06 and 9.07 hereof and any other Additional Payments due under the Lease. (c) Surviving Provisions. Notwithstanding the satisfaction and discharge hereof, the Trustee shall retain such rights, powers and privileges hereunder as may be necessary or convenient for the payment of the principal, interest and prepayment premium, if any, on the Certificates and for the registration, transfer and exchange of the Certificates. 49 DOCS OC/ 142352Ov7/022459 -0014 (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, in form and substance acceptable to the City of a nationally recognized firm of certified public accountants, verifying that the Government Obligations and cash, if any, satisfy the requirements of Section 14.01(a) above, (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, and (iii) a copy of an opinion of Special Counsel, dated the date of such defeasance and addressed to the Trustee, and the City, in form and substance acceptable to the City, to the effect that such Certificates are no longer Outstanding under the Trust Agreement. Section 14.02. Non - Presentment of Certificates. In the event any Certificate shall not be presented for payment when the principal with respect thereto becomes due, either at maturity, or at the date fixed for prepayment thereof, if moneys sufficient to pay such Certificate shall have been deposited in the Prepayment Fund or Lease Payment Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such Certificate shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such Certificate who shall thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his or her part under this Trust Agreement or on, or with respect to, said Certificate. Any moneys so deposited with and held by the Trustee not so applied to the payment of Certificates within two (2) years after the date on which the same shall have become due shall be paid by the Trustee to the City, free from the trusts created by this Trust Agreement. Prior to forwarding any such moneys to the City, the Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial newspaper of general circulation in New York, New York. In addition, Trustee shall be indemnified from and against any and all liabilities to third parties resulting from its actions under this Section. Thereafter, Owners shall be entitled to look only to the City for payment, and then only to the extent of the amount so repaid by the Trustee. The City shall not be liable for any interest on the sums paid to it pursuant to this section and shall not be regarded as a trustee or trustees of such money. Section 14.03. Acquisition of Certificates by City. All Certificates acquired by the City, whether by purchase, gift or otherwise, shall be surrendered by the City to the Trustee for cancellation. Section 14.04. Records. The Trustee shall keep complete and accurate records of all moneys received and disbursed by it under this Trust Agreement until four years after no Certificate is Outstanding (or such longer period as required by the Trustee's policies and procedures, or by applicable law), which shall be available for inspection by the City, the Corporation and any Owner, or the agent of any of them, at any time during regular business hours upon reasonable prior notice. Section 14.05. Notices. Except as specifically provided otherwise in this Trust Agreement, all written notices to be given under this Trust Agreement shall be given by mail or personal delivery to the party. entitled thereto at its address set forth below, or at such address as the party may provide to the other party in writing from time to time. Notice shall be deemed to have been received upon the earlier of actual receipt or five Business Days after deposit in the United States mail, in certified form, postage prepaid or, in the case of personal delivery, upon delivery to the address set forth below: 50 DOCS OC/ 1423520v7/022459 -0014 If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: City Manager If to the Corporation: Newport Beach Public Facilities Corporation 3300 Newport Boulevard Newport Beach, California 92663 Attention: Secretary If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 700 S. Flower St., Ste. 500 Los Angeles, CA 90017 Attention: Corporate Trust Department If to S &P: Standard & Poor's Ratings Services 55 Water Street New York, New York 10004 Attention: Public Finance Department If to Moody's Moody's Investors Service 7 World Trade Center 250 Greenwich Street New York, NY 10007 Attention: Structured Finance Group - Fully Supported If to Fitch: Fitch Ratings, Inc. One State Street Plaza New York, New York 10004 Attention: Public Finance Department, Municipal Structured Finance Group Section 14.06. Governing Law. This Trust Agreement shall be construed and governed in accordance with the laws of the State. Section 14.07. Binding Effect: Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Whenever in this Trust Agreement either the Corporation, the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof and all the covenants and agreements in this Trust Agreement contained by or on behalf of the Corporation, the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 14.08. Execution in Counterparts. This Trust Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same agreement. 51 DOC SOC/1423520v7/022459 -0014 Section 14.09. Headings. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Trust Agreement. All references herein to "Articles ", "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Trust Agreement; and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or subdivision hereof. Section 14.10. Waiver of Notice. Whenever in this Trust Agreement the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 14.11. Separability of Invalid Provisions. In case any one or more of the provisions contained in this Trust Agreement or in the Certificates shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability shall not affect any other provision of this Trust Agreement, and this Trust Agreement shall be construed as if 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 any one or more sections, paragraphs, sentences, clauses or phrases of this Trust Agreement may be held illegal, invalid or unenforceable. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK) 52 DOCSOC /1423 520v7/022459 -0014 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: % s lets:° ° uthorized'Officer NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: ATTEST: Secretary Chief Financial Officer CITY OF NEWPORT BEACH By: Its: ATTEST: City Clerk S -1 DOCSOC/ 1423520/022459 -0014 City Manager IN WFFNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. ATTEST: Secr ry ATTEST: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: Authorized Officer NEWPORT BEACH PUBLIC FACILITIES CORPORATION C By: i Its: Chief Fin n ialOfftcer CITY OF NEWPORT BEACH By: its. UAX Its: Ci anager oC1 t- City Clerk S -1 D O C SO C/ 1423 520/022459 -0014 [Trust Agreement Signature Pages Continued] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: David R. Hunt, City Attorney y APPROVED AS TO FORM: SPECIAL COUN EL: By:� tradling Yocca Carlson & Rauth, a Professional Corporation S -2 DOCSOC/ 1423 5201022459 -0014 EXHIBIT A -I FORM OF 2010A CERTIFICATE R- $ UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE TRUST AGREEMENT) TO THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTERESTHEREIN UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH CERTIFICATE OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Evidencing the Fractional Interest of the Owner Hereof In 2010A Lease Payments to be Made by the CITY OF NEWPORT BEACH As Rental for Certain Leased Premises Pursuant to a Lease/Purchase Agreement With the NEWPORT BEACH PUBLIC FACILITIES CORPORATION INTEREST RATE REGISTERED OWNER: PRINCIPAL AMOUNT: MATURITY DATE July 1, CEDE & CO. DELIVERY DATE CUSIP November 30, 2010 651779_ NO /100 DOLLARS THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns, as the Registered Owner of this Certificate of Participation (the "Certificate ") is the owner of a fractional and undivided interest in the right to receive certain 2010A Lease Payments thereof under and as defined in that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation') and the City of Newport Beach, a chartered city organized and existing under and by virtue of the laws and Constitution of the State of California (the "City "), which 2010A Lease A -1 -1 DOCSOC/ 1423520v7/022459 -0014 Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "). The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the 2010A Lease Payments designated as principal coming due during the preceding twelve months, and to receive on July 1 and January 1 of each year (the "Payment Dates ") until payment in full of said portion of principal, the Registered Owner's portion of the 2010A Lease Payments designated as interest coming due during the six months immediately preceding each of the Payment Dates provided that interest with respect hereto shall be payable from the Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is executed during the period from the day after the fifteenth day of the month preceding a Payment Date (the "Record Date ") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (ii) unless this Certificate is executed on or prior to June 15, 2011, in which event interest shall be payable from the Dated Date hereof. The portion of the Lease Payments designated as interest is computed on the basis of a 360 -day year of twelve 30 -day months and is the result of the multiplication of the aforesaid portion of the Lease Payments designated as principal by the rate per annum identified above. Said amounts are payable in lawful money of the United States of America. The amount representing principal payable at maturity or upon prepayment in whole or in part is payable to the Registered Owner upon presentation and surrender of this Certificate at the Principal Office. The amounts representing interest are payable by check mailed by the Trustee by first class mail to the Registered Owner hereof as of the Record Date preceding the Payment Date at his address as it appears on the registration books of the Trustee. Interest with respect to any Certificates may, at the option of any Owner of Certificates in an aggregate principal amount of $1,000,000 or more evidenced by the written request of such Owner to the Trustee, be paid to such Owner by wire transfer to the bank and account number on file with the Trustee as of the Record Date. This Certificate is one of the $20,085,000 aggregate principal amount of Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Certificates ") which have been executed and delivered by the Trustee pursuant to the terms of a Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among the Trustee, the Corporation and the City. Concurrently, with the execution and delivery of the Certificates, the Trustee will execute the $106,575,000 aggregate principal amount of the Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates ") pursuant to the terms of the Trust Agreement. The City is authorized to enter into the Lease and the Trust Agreement under the Constitution and laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the City under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The City is obligated to pay 2010A Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The obligation of the City to pay the 2010A Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay 2010A Lease Payments does not constitute a debt of the City, the State of California or any of its political A -1 -2 DOCSOC/ 1423 520x7/022459 -0014 subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. The City's obligation to pay 2010A Lease Payments may be completely or partially abated during any period in which, by reason of noncompletion of the Project by the date specified in the Lease or material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use and right of possession by the City of the Leased Premises. Failure of the City to pay 2010A Lease Payments during any such period shall not constitute a default under the Lease, the Trust Agreement or this Certificate. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least a majority in aggregate principal amount of the Certificates and the 2010B Certificates then Outstanding, and may be amended, without such consent of the Registered Owners under certain circumstances. No such modification or amendment shall (i) extend or have the effect of extending the maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates and 2010B Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, (iii) modify any of the rights or obligations of the Trustee without its written assent thereto, or (iv) amend the section of the Trust Agreement dealing with permitted amendments thereof without the prior written consent of the owners of all Certificates and 2010B Certificates. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a new Certificate or Certificates, of an authorized denomination or denominations, for the same aggregate principal amount, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate principal amount of Certificates of other authorized denominations as prescribed in the Trust Agreement. The City, the Corporation, and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to transfer any Certificate selected for prepayment or be required to transfer any Certificate during the period in which the Trustee is selecting Certificates for prepayment or after notice of prepayment has been given in accordance with the Trust Agreement. The Certificates are subject to prepayment, on any date, in whole or in part, from Net Proceeds deposited by the Trustee in the Prepayment Fund established under the Trust Agreement at least forty-five (45) days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the dated fixed for prepayment, without premium. In the event that Net Proceeds are to be applied to the prepayment of Certificates when Certificates, 2010B Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of Certificates, 2010B Certificates and Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment. A -1 -3 DOCSOC/ 1423 520v7/022459 -0014 The Certificates are not subject to optional prepayment prior to maturity. As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owner of this Certificate, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest shall cease to accrue with respect hereto from and after the date fixed for prepayment. The City has certified that all acts, conditions and things required by the statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. Terms used herein which are not otherwise defined shall have the respective meanings assigned thereto in the Trust Agreement. The Trustee has no obligation or liability to the Registered Owners to make payments of principal or interest with respect to this Certificate except from 2010A Lease Payments paid to the Trustee and from the various funds and accounts established under the Trust Agreement. The Trust Agreement provides that the recitals of facts, covenants and agreements in this Certificate shall be taken as statements, covenants and agreements of the City, and the Trustee assumes no responsibility for the correctness of the same. The Trustee has executed this Certificate solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. A -1 -4 DOC S OC/ 1423520v7/022459 -0014 IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement. Date of Execution: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: Authorized Officer [FORM OF ASSIGNMENT] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (print or typewrite name, address, including postal zip code, and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed NOTICE: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or such other guarantee program acceptable to the Trustee. DOCSOC/ 1423520v7/022459 -0014 NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. A -1 -5 EXHIBIT A -2 FORM OF 2010B CERTIFICATE R- $ UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE TRUST AGREEMENT) TO THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH CERTIFICATE OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Evidencing the Fractional Interest of the Owner Hereof In 2010B Lease Payments to be Made by the CITY OF NEWPORT BEACH As Rental for Certain Leased Premises Pursuant to a Lease/Purchase Agreement With the NEWPORT BEACH PUBLIC FACILITIES CORPORATION INTEREST RATE REGISTERED OWNER: PRINCIPAL AMOUNT: MATURITY DATE July 1, CEDE & CO. DELIVERY DATE CUSIP November 30, 2010 651779_ NO /100 DOLLARS THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns, as the Registered Owner of this Certificate of Participation (the "Certificate ") is the owner of a fractional and undivided interest in the right to receive certain 2010B Lease Payments thereof under and as defined in that certain Lease/Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation ") and the City of Newport Beach, a chartered city organized and existing under and by A -2 -1 DOCSOC/ 1423 520v7/022459 -0014 virtue of the laws and Constitution of the State of California (the "City "), which 2010B Lease Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "). The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the 2010B Lease Payments designated as principal coming due during the preceding twelve months, and to receive on January 1 and July 1 of each year (the "Payment Dates ") until payment in full of said portion of principal, the Registered Owner's portion of the 2010B Lease Payments designated as interest coming due during the six months immediately preceding each of the Payment Dates provided that interest with respect hereto shall be payable from the Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is executed during the period from the day after the fifteenth day of the month preceding a Payment Date (the "Record Date ") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (ii) unless this Certificate is executed on or prior to June 15, 2011, in which event interest shall be payable from the Dated Date hereof. The portion of the 2010B Lease Payments designated as interest is computed on the basis of a 360 -day year of twelve 30 -day months and is the result of the multiplication of the aforesaid portion of the 2010B Lease Payments designated as principal by the rate per annum identified above. Said amounts are payable in lawful money of the United States of America. The amount representing principal payable at maturity or upon prepayment in whole or in part is payable to the Registered Owner upon presentation and surrender of this Certificate at the Principal Office. The amounts representing interest are payable by check mailed by the Trustee by first class mail to the Registered Owner hereof as of the Record Date preceding the Payment Date at his address as it appears on the registration books of the Trustee. Interest with respect to any Certificate may, at the option of any Owner of Certificates in an aggregate principal amount of $1,000,000 or more evidenced by the written request of such Owner to the Trustee, be paid to such Owner by wire transfer to the bank and account number on file with the Trustee as of the Record Date. This Certificate is one of the $106,575,000 aggregate principal amount of Certificate of Participation 2010B (Taxable) (Civic Center Project) (the "Certificates ") which have been executed and delivered by the Trustee pursuant to the terms of a Trust Agreement dated as of October 1, 2010 (the "Trust Agreement "), by and among the Trustee, the Corporation and the City. Concurrently, with the execution and delivery of the Certificates, the Trustee will execute the $20,085,000 aggregate principal amount of the Certificate of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") pursuant to the terms of the Trust Agreement. The City is authorized to enter into the Lease and the Trust Agreement under the Constitution and laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the City under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The City is obligated to pay 2010B Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The obligation of the City to pay the 2010B Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay 2010B A -2 -2 DOCS OC/ 1423 520v7/022459 -0014 Lease Payments does not constitute a debt of the City, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. The City's obligation to pay 2010B Lease Payments may be completely or partially abated during any period in which, by reason of noncompletion of the Project by the date specified in the Lease or material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use and right of possession by the City of the Leased Premises. Failure of the City to pay 2010B Lease Payments during any such period shall not constitute a default under the Lease, the Trust Agreement or this Certificate. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least a majority in aggregate principal amount of the Certificates and the 2010A Certificates then Outstanding, and may be amended, without such consent of the Registered Owners under certain circumstances. No such modification or amendment shall (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates and 2010A Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (iii) modify any of the rights or obligations of the Trustee without its written assent thereto or (iv) amend the section of the Trust Agreement dealing with permitted amendments thereof without the prior written consent of the owners of all Certificates and 2010A Certificates. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Off-ice, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a new Certificate or Certificates, of an authorized denomination or denominations, for the same aggregate principal amount, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate principal amount of Certificate of other authorized denominations as prescribed in the Trust Agreement. The City, the Corporation, and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to transfer any Certificate selected for prepayment or be required to transfer any Certificate during the period in which the Trustee is selecting Certificates for prepayment or after notice of prepayment has been given in accordance with the Trust Agreement. The Certificates are subject to prepayment, on any date, in whole or in part, from Net Proceeds deposited by the Trustee in the Prepayment Fund established under the Trust Agreement at least forty -five (45) days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the dated fixed for prepayment, without premium. In the event that Net Proceeds are to be applied to the prepayment of Certificates when 2010A Certificates, Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of 2010A Certificates, Certificates and A -2 -3 DOCSOC/ 1423520v7/022459 -0014 Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment. Extraordinary Optional Prepa ment. The 2010E Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event (as defined in the Trust Agreement), as a whole or in part, on any Business Day and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price (as defined in the Trust Agreement). Optional Prepayment with Make -Whole Payment. The 2010B Certificates will be subject to prepayment prior to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price (as defined in the Trust Agreement). The Certificates maturing July 1, 2030 (the "2030 Term Certificates ") are subject to prepayment in part pro rata among Owners, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2030 Tenn Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2030 Term Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2030 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Date Sinking Account (July I) Payment 2024 $ 2,620,000 2025 2,580,000 2026 2,555,000 2027 2,530,000 2028 2,510,000 2029 2,505,000 2030* 2,500,000 * Final Maturity The Certificates maturing July 1, 2040 (the "2040 Tenn Certificates ") are subject to prepayment in part pro rata among Owners, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2040 Term Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2040 Term Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2040 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. A -2 -4 DOCSOC/ 1423520v7/022459 -001.4 Mandatory Prepayment Sinking Account Mandatory Prepayment SinkingAecount Date (July 1) Payment Date (July 1) Payment 2024 $ 890,000 2033 $ 5,265,000 2025 1,095,000 2034 5,510,000 2026 1,295,000 2035 5,770,000 2027 1,495,000 2036 6,035,000 2028 1,700,000 2037 6,320,000 2029 1,900,000 2038 6,615,000 2030 2,100,000 2039 6,920,000 2031 4,810,000 2040* 7,245,000 2032 5,035,000 * Final Maturity As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owner of this Certificate, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest shall cease to accrue with respect hereto ftom and after the date fixed for prepayment. The City has certified that all acts, conditions and things required by the statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. Terms used herein which are not otherwise defined shall have the respective meanings assigned thereto in the Trust Agreement. The Trustee has no obligation or liability to the Registered Owners to make payments of principal or interest with respect to this Certificate except from 2010B Lease Payments paid to the Trustee and from the various funds and accounts established under the Trust Agreement. The Trust Agreement provides that the recitals of facts, covenants and agreements in this Certificate shall be taken as statements, covenants and agreements of the City, and the Trustee assumes no responsibility for the correctness of the same. The Trustee has executed this Certificate solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. A -2 -5 DOCS OC/14235200/022459 -0014 IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement. Date of Execution: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: A -2 -6 D OCSOC/ 1423 520v7/022459 -0014 Authorized Officer [FORM OF ASSIGNMENT] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (print or typewrite name, address, including postal zip code, and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed NOTICE: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or such other guarantee program acceptable to the Trustee. DOCSOC/ 1423520v7/022459 -0014 NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. A -2 -7 EXHIBIT 13-1 FORM OF WRITTEN DELIVERY COST REQUISITION Trustee, as Trustee RE: Disbursement from the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City of Newport Beach Certificates of Participation, 2010A and 2010B (Civic Center Project), dated as of November 1, 2010 (the "Agreement'), by and among you, as trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") REQUISITION NO. You are hereby instructed to pay to the City, or to at $ as a Delivery Cost from the Project Fund as provided in Section 3.03 of the Agreement. This Delivery Cost has been properly incurred, is a proper charge against the Project Fund and has not been the basis of any previous disbursements. The amount remaining in the Project Fund, together with interest earnings on the Project Fund plus investment earnings on other funds that will be transferred into the Project Fund, will, after payment of the amount set forth in this requisition, be sufficient to pay all remaining Delivery Costs and Project Costs as presently estimated. Very truly yours, City Representative B -1 -1 DOCSOC/ 1423 520v7/022459 -0014 EXHIBIT B -2 FORM OF WRITTEN PROJECT COST REQUISITION Trustee, as Trustee RE: Disbursement from the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City of Newport Beach Certificates of Participation, 2010A and 2010B (Civic Center Project), dated as of November 1, 2010 (the "Agreement"), by and among you as trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") REQUISITION NO. You are hereby instructed to pay to the City, or to at $ as a Project Cost from the Project Fund as provided in Section 3.03 of the Agreement. This Project Cost has been properly incurred, is a proper charge against the Project Fund and has not been the basis of any previous disbursements. The amount remaining in the Project Fund, together with other moneys available to the City and together with interest earnings on the Project Fund plus investment earnings on other funds that will be transferred into the Project Fund, will, after payment of the amount set forth in this requisition, be sufficient to pay all remaining Delivery Costs and Project Costs as presently estimated. Very truly yours, City Representative B -2 -1 DO C SOC/1423520v7/022459 -0014 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement, dated as of November 1, 2010 (the "Agreement'), by and between the City of Newport Beach (the "City") and Digital Assurance Certification, L.L.C. (the "Dissemination Agent'), is executed and delivered in connection with the $20,085,000 aggregate principal amount of City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) (the "2010A Certificates ") and the $106,575,000 aggregate principal amount of City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Certificates) (Civic Center Project) (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") executed and delivered pursuant to the Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement'), by and among the City, the Newport Beach Public Facilities Financing Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). Capitalized terms used in this Agreement which are not otherwise defined in the Trust Agreement shall have the respective meanings specified above or in Article IV hereof. The City and the Dissemination Agent agree as follows: ARTICLE I The Undertaking Section 1.1. Pumose. This Agreement is being executed and delivered solely to assist the Underwriter in complying with subsection (b)(5) of the Rule. Section 1.2. Annual Financial Information. (a) The City shall provide Annual Financial Information with respect to each fiscal year of the City, commencing with fiscal year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the MSRB. (b) The City shall provide, in a timely manner, notice of any failure of the City to provide the Annual Financial Information by the date specified in subsection (a) above to the MSRB. Section 1.3. Audited Financial Statements. If not provided as part of Annual Financial Information by the date required by Section 1.2(a) hereof, the City shall provide Audited Financial Statements, when and if available, to the MSRB. Section 1.4. Material Event Notices. (a) If a Material Event occurs, the City shall provide, in a timely manner, notice of such Material Event to (i) the MSRB and (ii) the Dissemination Agent. (b) Any notice of a defeasance of Certificates shall state whether the Certificates have been escrowed to maturity or to an earlier redemption date and the timing of such maturity or redemption. (c) The Dissemination Agent shall promptly advise the City whenever the Dissemination Agent has actual notice of an occurrence which, if material, would require the 1 City to provide notice of a Material Event hereunder; provided, however, that the failure of the Dissemination Agent so to advise the City shall not constitute a breach by the Dissemination Agent of any of its duties and responsibilities under this Agreement. Section 1.5. Additional Information. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of Material Event hereunder, in addition to that which is required by this Agreement. If the City chooses to do so, the City shall have no obligation under this Agreement to update such additional information or include it in any future Annual Financial Information or notice of a Material Event hereunder. Section 1.6. Additional Disclosure Obligations. The City acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 as amended, and Rule lOb -5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the City and that, under some circumstances, compliance with this Agreement without additional disclosures or other action may not fully discharge all duties and obligations of the City under such laws. Section 1.7. No Previous Non -Com 1p iance. The City represents that in the previous five years it has not failed to comply in all material respects with any previous undertaking in a written contract or agreement specified in paragraph (b)(5)(i) of the Rule. ARTICLE H Operating Rules Section 2.1. Reference to Other Filed Documents. It shall be sufficient for purposes of Section 1.2 hereof if the City provides Annual Financial Information by specific reference to documents (i) available to the public on the MSRB Internet Web site (currently, www.emma.msrb.org) or (ii) filed with the SEC. The provisions of this Section shall not apply to notices of Material Events pursuant to Section 1.4 hereof. Section 2.2. Submission of Information. Annual Financial Information may be set forth or provided in one document or a set of documents, and at one time or in part from time to time. Section 2.3. Dissemination Agents. The City may from time to time designate an agent to act on its behalf in providing or filing notices, documents and information as required of the City under this Agreement, and revoke or modify any such designation. Digital Assurance Certification, L.L.C. is hereby appointed the initial dissemination agent hereunder. Section 2.4. Transmission of Notices, Documents and Information. (a) Unless otherwise required by the MSRB, all notices, documents and information provided to the MSRB shall be provided to the MSRB's Electronic Municipal Markets Access (EMMA) system, the current Internet Web address of which is www.emma.msrb.org. Pj (b) All notices, documents and information provided to the MSRB shall be provided in an electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 2.5. Fiscal Year. (a) The City's current fiscal year is July 1 to June 30, and the City shall promptly notify (i) the MSRB and (ii) the Dissemination Agent of each change in its fiscal year. (b) Annual Financial Information shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. ARTICLE III Effective Date Termination Amendment and Enforcement Section 3.1. Effective Date; Termination. (a) This Agreement shall be effective upon the issuance of the Certificates.. (b) The obligations of the City and the Dissemination Agent under this Agreement shall terminate upon a legal defeasance, prior redemption or payment in full of all of the Certificates. (c) This Agreement, or any provision hereof, shall be null and void in the event that the City (1) delivers to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that those portions of the Rule which require this Agreement, or such provision, as the case may be, do not or no longer apply to the Certificates, whether because such portions of the Rule are invalid, have been repealed, or otherwise, as shall be specified in such opinion, and (2) delivers copies of such opinion to the MSRB. Section 3.2. Amendment. (a) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates (except to the extent required under clause (4)(ii) below), if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the City or the type of business conducted thereby, (2) this Agreement as so amended would have complied with the requirements of the Rule as of the date of this Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the same effect as set forth in clause (2) above, (4) either (i) the City shall have delivered to the Dissemination Agent an opinion of Counsel or a determination by an entity, in each case unaffiliated with the City (such as counsel or the Dissemination Agent), addressed to the City and the Dissemination Agent, to the effect that the amendment does not materially impair the interests of the holders of the Certificates or (ii) the holders of the Certificates consent to the amendment to this Agreement pursuant to the same procedures as are required for amendments to the Trust Agreement with consent of holders of 3 Certificates pursuant to the Trust Agreement as in effect at the time of the amendment, and (5) the City shall have delivered copies of such opinions) and amendment to the MSRB. (b) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) an amendment to the Rule is adopted, or a new or modified official interpretation of the Rule is issued, after the effective date of this Agreement which is applicable to this Agreement, (2) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that performance by the City and the Dissemination Agent under this Agreement as so amended will not result in a violation of the Rule and (3) the City shall have delivered copies of such opinion and amendment to the MSRB. (c) This Agreement may be amended by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that the amendment is permitted by rule, order or other official pronouncement, or is consistent with any interpretive advice or no- action positions of Staff, of the SEC, and (2) the Dissemination Agent shall have delivered copies of such opinion and amendment to the MSRB. (d) To the extent any amendment to this Agreement results in a change in the type of financial information or operating data provided pursuant to this Agreement, the first Annual Financial Information provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (e) If an amendment is made pursuant to Section 3.2(a) hereof to the accounting principles to be followed by the City in preparing its financial statements, the Annual Financial Information for the fiscal year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. Section 3.3. Benefit; Third -Party Beneficiaries; Enforcement. (a) The provisions of this Agreement shall constitute a contract with and inure solely to the benefit of the holders from time to time of the Certificates, except that beneficial owners of Certificates shall be third -party beneficiaries of this Agreement. The provisions of this Agreement shall create no rights in any person or entity except as provided in this subsection (a) and in subsection (b) of this Section. (b) The obligations of the City to comply with the provisions of this Agreement shall be enforceable (i) in the case of enforcement of obligations to provide financial statements, financial information, operating data and notices, by any holder of Outstanding Certificates, or by the Dissemination Agent on behalf of the holders of Outstanding Certificates, 4 or (ii) in the case of challenges to the adequacy of the financial statements, financial information and operating data so provided, by the Dissemination Agent on behalf of the holders of Outstanding Certificates; provided, however, that the Dissemination Agent shall not be required to take any enforcement action except at the direction of the holders of not less than a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided the Trust Agreement) who shall have provided the Dissemination Agent with adequate security and indemnity. The holders' and Trustee's rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the City's obligations under this Agreement. in consideration of the third -party beneficiary status of beneficial owners of Certificates pursuant to subsection (a) of this Section, beneficial owners shall be deemed to be holders of Certificates for purposes of this subsection (b). (c) Any failure by the City or the Dissemination Agent to perform in accordance with this Agreement shall not constitute a default or an Event of Default under the Trust Agreement, and the rights and remedies provided by the Trust Agreement upon the occurrence of a default or an Event of Default shall not apply to any such failure. (d) This Agreement shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Agreement shall be instituted in a court of competent jurisdiction in the State; provided, however, that to the extent this Agreement addresses matters of federal securities laws, including the Rule, this Agreement shall be construed in accordance with such federal securities laws and official interpretations thereof. ARTICLE IV Definitions Section 4.1. Definitions. The following terms used in this Agreement shall have the following respective meanings: (1) "Annual Financial Information" means, collectively, (i) updated versions of the following financial information and operating data contained in the tables with the following headings in Appendix A to the Official Statement, for each applicable fiscal year of the City, as follows: (A) City of Newport Beach General Fund Balance Sheets; (B) City of Newport Beach General Fund Statement of Revenues, Expenditures and Change in Fund Balance; (C) City of Newport Beach General Fund Budgets; (D) City of Newport Beach Selected Major Revenue Sources; (E) City of Newport Beach Property Tax Rates; (F) City of Newport Beach Assessed Valuation; (G) City of Newport Beach Property Tax Levies and Collections; (H) City of Newport Beach Fifteen Principal Taxpayers; (1) City of Newport Beach Employee Labor Organizations; (J) City of Newport Beach PERS Annual Pension Costs; (K) City of Newport Beach PERS Schedule of Funding Progress; (L) City of Newport Beach Annual OPEB Cost and Net OPEB Obligation; (M) City of Newport Beach Long Term Debt of the City; (1) City of Newport Beach Estimated Direct and Overlapping Debt; and (0) City of Newport Beach Schedule of Investments; and (ii) the information regarding amendments to this Agreement required pursuant to Sections 3.2(d) and (e) of this Agreement. Annual Financial Information shall include Audited Financial Statements, if available, or Unaudited Financial Statements. The descriptions contained in Section 4.l(1)(i) hereof of financial information and operating data constituting Annual Financial Information are of general categories of financial information and operating data. When such descriptions include information that no longer can be generated because the operations to which it related have been materially changed or discontinued, a statement to that effect shall be provided in lieu of such information. Any Annual Financial Information containing modified financial information or operating data shall explain, in narrative form, the reasons for the modification and the impact of the modification on the type of financial information or operating data being provided. (2) "Audited Financial Statements" means the annual financial statements, if any, of the City, audited by such auditor as shall then be required or permitted by State law or the Trust Agreement. Audited Financial Statements shall be prepared in accordance with GAAP applicable to governmental entities; provided, however, that pursuant to Sections 3.2(a) and (e) hereof, the City may from time to time, if required by Federal or State legal requirements, modify the accounting principles to be followed in preparing its financial statements. The notice of any such modification required by Section 3.2(a) hereof shall include a reference to the specific Federal or State law a regulation describing such accounting principles, or other description thereof. (3) "Counsel' means nationally recognized special counsel or counsel expert in federal securities laws. (4) "GAAP" means generally accepted accounting principles as prescribed from time to time for governmental units by the Governmental Accounting Standards Board, the Financial Accounting Standards Board, or any successor to the duties and responsibilities of either of them. (5) "Material Event' means any of the following events with respect to the Certificates, whether relating to the City or otherwise, if material: (i) principal and interest payment delinquencies; (ii) non - payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax - exempt status of the Certificates; (vii) modifications to rights of Certificateholders; (viii) bond calls (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Certificates; and (xi) rating changes. (6) "MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section 1513(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Agreement. (7) "Official Statement' means the Official Statement dated November 17, 2010 of the City relating to the Certificates. (8) "Rule" means Rule 15c2 -12 promulgated by the SEC under the Securities Exchange Act of 1934 (17 CFR Part 240, §240.15c2 -12), as amended, as in effect on the date of this Agreement, including any official interpretations thereof issued either before or after the effective date of this Agreement which are applicable to this Agreement. (9) "SEC" means the United States Securities and Exchange Commission. (10) "Unaudited Financial Statements" means the same as Audited Financial Statements, except that they shall not have been audited. 7 ARTICLE V Miscellaneous Section 5.1. Duties, Immunities and Liabilities of the Dissemination Agent under this Agreement. The Dissemination Agent shall have only such duties under this Agreement as are specifically set forth in this Agreement, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct in the performance of its duties hereunder. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. Section 5.2. Counter. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have each caused this Agreement to be executed by their duly authorized representatives, and the City has caused its corporate seal to be hereunto affixed and attested by an authorized representative, all as of the date first above written. [SEAL] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: `r�dBulvgd r� Hawkins Delafield & Wood LLP CITY OF NEWPORT BEACH By: (--- U:��6 An Authorized Representative DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Dissemination Agent C IN WITNESS WHEREOF, the parties have each caused this Agreement to be executed by their duly authorized representatives, and the City has caused its corporate seal to be hereunto affixed and attested by an authorized representative, all as of the date first above written. [SEAL] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: In Hawkins Delafield & Wood LLP CITY OF NEWPORT BEACH An Authorized Representative DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Dissemination Agent EXECUTION COPY AGENCY AGREEMENT by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION and CITY OF NEWPORT BEACH Relating to $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) and $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010E (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Dated as of November 1, 2010 DOCSOC/ 1423 567v5/022459 -0014 AGENCY AGREEMENT THIS AGENCY AGREEMENT (the "Agency Agreement"), dated as of November 1, 2010, is entered into by and between NEWPORT BEACH PUBLIC FACILITIES CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "Corporation "), and the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City "); WITNESSETH: WHEREAS, the Corporation and the City have entered into a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the Corporation has leased to the City certain real property and the existing improvements thereon (the "Leased Premises ") in connection with the execution and delivery of the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "); and WHEREAS, the Corporation desires to appoint the City as its agent for the purposes of the acquisition, construction, delivery and installation of the improvements to be constructed with the proceeds of the Certificates (collectively, the "Project "); and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Agency Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Agency Agreement; NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: Section 1. City to Act as Agent for the Corporation. The Corporation hereby appoints the City as its agent in connection with the acquisition, construction, delivery and installation of the Project.. The City, as the agent of the Corporation for the foregoing purpose, shall cause the acquisition, construction, delivery and installation of the Project to be completed on or before the dates set forth in Section 3 of this Agency Agreement and otherwise in accordance with the Lease and all other laws applicable to the Project. The appointment by the Corporation of the City as its agent as provided in this Section and the acceptance by the City of such appointment results in the assumption by the City of duties, responsibilities and liabilities which are separate and apart from its duties, responsibilities and liabilities under the Lease, and such assignment does not include or transfer to the City any of the rights of the Corporation under the Lease which have been assigned by the Corporation to the Trustee pursuant to the Assignment Agreement. It is recognized by the parties that the Corporation has appointed the City for the purposes specified in this Agency Agreement, rather than appoint DOCSOC/ 1423567v5/022459 -0014 another firm or entity for said purposes, based upon the Corporation's and the City's determination that the City is suitable to perform the duties, responsibilities and liabilities delegated to and assumed by it pursuant to this Agreement due to the expertise, knowledge and ability of the City's personnel with respect to similar undertakings. Section 2. Acceptance. The City, for one dollar ($1.00) and other good and valuable consideration in hand received, does hereby accept the foregoing appointment as agent of the Corporation for the purposes set forth in Section 1 hereof. Section 3. Time of Completion. The construction and equipping of the Project shall be completed on or prior to December 1, 2013. Each construction contractor hired by the City shall be required to provide payment and performance bonds in amounts equal to the maximum price under its contract. Section 4. Construction and Acquisition of the Project. The City agrees to oversee the construction, acquisition, delivery and installation of the Project in accordance with the following terms: (a) Construction and Completion. The City agrees to proceed with all due diligence to complete the construction, acquisition, delivery and installation of the Project. The City shall comply with all statutes and laws applicable to the performance of its obligations hereunder, including all public laws applicable thereto and all laws regarding the approval, acquisition and construction of public projects by cities in the State of California. The City shall make certain that each contract relating to the Project is awarded in accordance with applicable law and contains a scheduled completion date which requires completion on or before the scheduled completion date' referred to in Section 3 above; (b) Change Orders. Subject to any other restrictions imposed upon the City, the City may approve any changes to the Project so long as any change does not, and all such changes as a whole do not, (i) substantially alter the nature of the Project, (ii) delay the completion of the Project beyond its scheduled completion date, or (iii) increase the total Project Costs to an amount in excess of the amount in the 2010A Account or the 2010B Account of the Project Fund unless the City has sufficient reserves in an amount equal to such excess or unless there has been deposited with the City a certificate of a City Representative, together with a revised construction budget demonstrating that the total amount on deposit to pay for the Project is adequate to allow the completion of the Project as planned; (c) Payment of Project Costs. Payment of the portion of the Project Costs being financed by the City shall be made from moneys deposited in the 2010A Certificates Account or in the 2010E Certificates Account of the Project Fund and from moneys on deposit in certain City reserves, and shall be disbursed for such purpose in accordance and upon compliance with the Trust Agreement. Neither the Corporation nor the City shall be liable for the payment of Costs of the Project other than from amounts on deposit in the 2010A Certificates Account or the 2010B Certificates Account of the Project Fund; (d) Unexpended Monies. The City agrees that unexpended moneys remaining in the 2010A Certificates Account or in the 2010B Certificates Account of the Project Fund shall, upon 2 DOCSOC/ 1423567v5/022459 -0014 payment in full of all Costs of the Project, be applied solely in accordance with the provisions of the Trust Agreement; and (e) Partial Invalidity. I£ any one or more of the terms, provisions, covenants or conditions of this Agency Agreement shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Agency Agreement shall be affected thereby, and each provision of this Agency Agreement shall be valid and enforceable to the fullest extent permitted by law. Section 5. Applicable Law. This Agency Agreement shall be governed by and construed in accordance with the laws of the State. Section 6. Representatives. Whenever under the provisions of this Agency Agreement the approval of the Corporation or the City is required, or the Corporation or the City is required to take some action at the request of the other, such approval or such request shall be given for the Corporation by an Authorized Representative of the Corporation and for the City by an Authorized Representative of the City and any party hereto shall be authorized to rely upon any such approval or request. Section 7. Notices. All notices or other communications hereunder shall be sufficiently given and shall be deemed to have been received five days after deposit in the United States mail in registered or certified form, postage prepaid: If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: City Manager If to the Corporation: Newport Beach Public Facilities Corporation c/o City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: Secretary If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attention: Corporate Trust Department The Corporation, the City and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices or other communications will be sent. Section 8. Captions. The captions or headings in this Agency Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provision or section of this Agency Agreement. 3 DOCSOC/ 1423 567v5/022459 -0014 Section 9. 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 10. Amendment. The terms of this Agency Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever, except by written instrument signed by the Corporation and the City, with the prior written consent of the Trustee for the Certificates. The City hereby irrevocably appoints the Authorized Representative of the City to act as its attorney -in -fact for purposes of providing the foregoing consent. Section 11. Definitions. Capitalized terms not otherwise defined herein shall have the definitions set forth in the Trust Agreement or the Lease. [REMAINDER OF PAGE INTENTIONALLYLEFT BLANK] DOC SOC/1423567v5/022459 -0014 IN WITNESS WHEREOF, the parties hereto have executed this Agency Agreement as of the day and year first written above. CITY OF NEWPORT BEACH By: Ca U City ger ATTEST: By: U` City Clerk ATTEST: By:� Sec t NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Chief Fia 'alOfficer S -1 DOCSOC11423567/022459 -0014 [Agency Agreement Signature Pages Continues] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: _ David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By: 4L Stradling Yocca Carlson & Rauth, a Professional Corporation S -2 D OCSOC/1423567/022459 -0014 ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of October 29, 2010 (this "Agreement "), is by and between the City of Newport Beach (the "City ") and U.S. Bank National Association (formerly known as U.S. Bank Trust National Association), acting in its capacity as escrow agent (the "Escrow Agent ") pursuant to this Agreement; WITNESSETH: WHEREAS, the City has previously authorized the sale and delivery of the City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "Library COPs ") pursuant to a Trust Agreement dated as of July 1, 1998, among the City, Newport Beach Public Facilities Corporation and U.S. Bank National Association, as trustee (the "Trustee ") (the "Trust Agreement "). WHEREAS, the City has determined that it is in the City's best interest to defease the Library COPs by depositing funds with the Escrow Agent. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the City and the Escrow Agent agree as follows: SECTION 1. Deposit of Moneys. The City hereby deposits with the Escrow Agent $3,525,858, together with $565,655 held on deposit in the reserve fund for the Library COPs to be held in irrevocable escrow by the Escrow Agent separate and apart from other funds of the City and the Escrow Agent in a fund hereby created and established and to be known as the `Escrow Fund," and to be applied solely as provided in this Agreement. Such moneys are at least equal to an amount sufficient to pay the principal amount of Library COPS together with accrued interest thereon and redemption premium, if any, thereon through December 1, 2010 (the "Redemption Date "). SECTION 2. Use and Investment of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees: (a) such moneys in an amount equal to $4,091,513 shall be held in a separate segregated trust account for the purpose of defeasing the Library COPs; (b) to hold such moneys uninvested as cash; (c) to make the payments required under Section 3(a) hereof at the times set forth in Section 3(a) hereof. SECTION 3. Payment of Defeased Certificates. (a) Payment. "Defeased Certificates" shall mean the Library COPS being defeased pursuant to this Agreement. The Escrow Agent shall transfer from the Escrow Fund to the Trustee the amounts sufficient to pay the principal and interest with respect to the Defeased Certificates until maturity. Such transfers shall constitute the respective payments of the principal of and interest on the Defeased Certificates due from the City. (b) Unclaimed Moneys. Any moneys remaining in the Escrow Fund established hereunder after December 1, 2010 (aside from unclaimed monies) which are in excess of the amount needed to pay owners of the Defeased Certificates payments of principal and interest and redemption premium, if any, with respect to the Defeased Certificates or to pay any amounts owed to the Escrow Agent shall be immediately transferred by the Escrow Agent to the City and deposited by the City in the debt service fund relating to the Library COPs. (c) Priority of Payments. The holders of the Defeased Certificates shall have a first lien on the moneys in the Escrow Fund which are allowable and sufficient to pay the Defeased Certificates until such moneys are used and applied as provided in this Agreement. Moneys held in the Escrow Fund are irrevocably pledged only to the holders of the Defeased Certificates. (d) Termination of Obli ag rion. Upon deposit of the moneys set forth in Section 1 hereof with the Escrow Agent pursuant to the provisions of Section 1 hereof, all obligations of the City with respect to the Defeased Certificates shall cease and terminate, except only the obligation to make payments therefor from the moneys provided for hereunder. SECTION 4. Performance of Duties. The Escrow Agent agrees to perform the duties set forth herein. SECTION 5. Indemnity. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of its Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds and any payment, transfer or other application of moneys by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the City shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligent or willful misconduct of the Escrow Agent's respective successors, assigns, agents and employees or the breach by the Escrow Agent of the terms of this Agreement. In no event shall the City or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this section. The indemnities contained in this section shall survive the termination of this Agreement. SECTION 6. Responsibilities of the Escrow Agent. The Escrow Agent and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys deposited therein, the sufficiency of the moneys deposited in Escrow Fund to accomplish the refunding and defeasance of the Defeased Certificates or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non - negligent act, non - negligent omission or non - negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statements of the City and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the moneys deposited in Escrow 2 DOCS OC/ 1439066v4/022459 -0014 Fund to accomplish the refunding and defeasance of the Defeased Certificates or to the validity of this Agreement as to the City and, except as otherwise provided herein, the Escrow Agent shall incur no liability with respect thereto. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection with respect to any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter may be deemed to be conclusively established by a certificate signed by an authorized officer of the City. The City acknowledges that to the extent regulations of the Comptroller 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 specifically waives receipt of such confirmations to the extent permitted by law. The Escrow Agent will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Escrow Agent hereunder. SECTION 7. Substitution of Funds. Upon compliance with the conditions hereinafter set forth on or prior to December 1, 2010, the City shall have the power to deposit the proceeds of refunding certificates of participation in the Escrow Fund in an amount equal to $3,525,858. The foregoing may be effected only: (i) if the amounts of and dates on which the anticipated transfers from the Escrow Fund to the Trustee for the payment of the principal of and/or redemption price of and/or interest with respect to the Defeased Certificates will not be diminished or postponed thereby; (ii) the Escrow Agent shall receive the unqualified opinion of nationally recognized municipal bond counsel to the effect that such substitution would not adversely affect the exclusion from gross income for federal income tax purposes of interest with respect to the Defeased Certificates, and that the conditions of this Section 7 as to the disposition and substitution have been satisfied and that the substitution is permitted by this Agreement. Upon such substitution, the $3,525,858 deposited by the City in the Escrow Fund shall be paid to the City free and clear of any trust, lien, pledge or assignment securing such Defeased Certificates or otherwise existing under this Agreement. SECTION 8. Irrevocable Instructions as to Notice. The Escrow Agent hereby acknowledges that upon the funding of the Escrow Fund as provided in this Agreement and the giving of irrevocable instructions to provide notice as provided in the Irrevocable Instructions and Request to Escrow Agent attached hereto as Schedule A (constituting all of the conditions precedent to the defeasance of the Defeased Certificates), the Defeased Certificates shall be paid in accordance with the terms of the Trust Agreement and all obligations of the City with respect to the Defeased Certificates shall cease and terminate. SECTION 9. Amendments. This Agreement is made for the benefit of the City and the holders from time to time of the Defeased Certificates and it shall not be repealed, revoked, altered or amended without the written consent of all such holders, the Escrow Agent and the City; provided, however, but only after the receipt by the Escrow Agent of an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the Certificates and the Defeased Certificates will not be adversely affected for federal income tax purposes, that the City and the Escrow Agent may, without the consent of, or notice to, such holders, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Agreement for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this 3 DOCSOC/1439066v4/022459 -0014 Agreement; (ii) to grant to, or confer upon, the Escrow Agent for the benefit of the holders of the Defeased Certificates any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Agent; and (iii) to include under this Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized municipal bond attorneys with respect to compliance with this Section 10, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the holders of the Defeased Certificates or that any instrument executed hereunder complies with the conditions and provisions of this Section 9. In the event of any conflict with respect to the provisions of this Agreement, this Agreement shall prevail and be binding. SECTION 10. Term. This Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either (i) the date upon which the Defeased Certificates has been paid in accordance with this Agreement or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Agent pursuant to Section 3(b) of this Agreement. SECTION 11. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien nor will it assert a lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered by the Escrow Agent under this Agreement. SECTION 12. Resignation or Removal of Escrow Agent. (a) The Escrow Agent may resign by giving notice in writing to'the City, a copy of which shall be sent to DTC. The Escrow Agent may be removed (1) by (i) filing with the City an instrument or instruments executed by the holders of at least 51% in aggregate principal amount of the Defeased Certificates then remaining unpaid, (ii) sending notice at least 60 days prior to the effective date of said removal to DTC, and (iii) the delivery of a copy of the instruments filed with the City to the Escrow Agent or (2) by a court of competent jurisdiction for failure to act in accordance with the provisions of this Agreement upon application by the City or the holders of 5% in aggregate principal amount of the Defeased Certificates then remaining unpaid. (b) If the position of Escrow Agent becomes vacant due to resignation or removal of the Escrow Agent or any other reason, a successor Escrow Agent may be appointed by the City. The holders of a majority in principal amount of the Defeased Certificates then remaining unpaid may, by an instrument or instruments filed with the City, appoint a successor Escrow Agent who shall supersede any Escrow Agent theretofore appointed by the City. If no successor Escrow Agent is appointed by the City or the holders of such Defeased Certificates then remaining unpaid, within 45 days after any such resignation or removal, the holder of any such Defeased Certificates certificate or any retiring Escrow Agent may apply to a court of competent jurisdiction for the appointment of a successor Escrow Agent. The responsibilities of the Escrow Agent under this Escrow Agreement will not be discharged until a new Escrow Agent is appointed and until the cash and investments held under this Escrow Agreement are transferred to the new Escrow Agent. 4 DOCSOC/ 1439066v4/022459 -0014 SECTION 13. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the City or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. SECTION 14. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. SECTION 15. Governing Law. This Agreement shall be construed under the laws of the State of California. SECTION 16. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Agreement, shall be a legal holiday or a day on which banking institutions in the city in which is located the principal office of the Escrow Agent are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Agreement, and no interest shall accrue for the period after such nominal date. SECTION 17. Assignment. This Agreement shall not be assigned by the Escrow Agent or any successor thereto without the prior written consent of the City. SECTION 18. Moody's; Standard & Poor's. The City agrees to provide Standard & Poor's, a Division of the McGraw -Hill Companies, 55 Water Street, 45`h Floor, New York, New York 10041, and Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street, 23rd Floor, New York, New York 10007, and FGIC, Risk Management, 125 Park Avenue, New York, New York 10017 prior notice of each amendment entered into pursuant to Section 10 hereof and a copy of such proposed amendment, and to forward a copy (as soon as possible) of (i) each amendment hereto entered into pursuant to Section 9 hereof, and (ii) any action relating to severability or contemplated by Section 13 hereof. SECTION 19. Reorganization of Escrow Agent. Notwithstanding anything to the contrary contained in this Agreement, any company into which the Escrow Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which the Escrow Agent is a party, or any company to which the Escrow Agent may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Agent without execution or filing of any paper or any paper or further act, if such company is eligible to serve as Escrow Agent. 5 DOCSOC/1439066v4/022459 -0014 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers and attested as of the date and year first written above. APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY By David R. Hunt City Attorney ATTEST: By: Leilani I. Brown City Clerk CITY OF NEWPORT BEACH, A California municipal corporation By:- (! t �t7't D ve Zrff City Manager U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent By: Authorized Officer SCHEDULE A IRREVOCABLE INSTRUCTIONS AND REQUEST TO TRUSTEE AND ESCROW AGENT $7,330,000 CITY OF NEWPORT BEACH REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 1998 (CENTRAL LIBRARY BUILDING PROJECT) WRITTEN REQUEST OF THE CITY OF NEWPORT BEACH TO U.S. BANK NATIONAL ASSOCIATION, REGARDING REDEMPTION NOTICE City Certifications Pursuant to Section 4.3 of the Trust Agreement dated as of July I, 1998 (the "Trust Agreement "), among the City, the Newport Beach Public Facilities Corporation (the "Corporation ") and U.S. Bank National Association, as trustee (the "Trustee "), the undersigned, a duly appointed officer of the City, hereby certifies that I have reviewed the Trust Agreement and the sections thereof relating to the defeasance of the Defeased Certificates and I have made an examination of the provisions of the Trust Agreement and of related facts as is necessary in my opinion in connection with the submission of this written request. 2. Written Request On behalf of the City, I hereby inform you that the City has irrevocably elected and directed the Trustee to redeem on December 1, 2010 the Defeased Certificates, under the terms and conditions set forth in the Trust Agreement, and that upon deposit of the obligations and moneys required to be deposited by the City with U.S. Bank National Association (the "Escrow Agent") pursuant to that certain Escrow Agreement dated as of October 29, 2010 between the City and the Escrow Agent and satisfaction of the requirements of Section 4.3 of the Trust Agreement which is occurring on the date hereof, the City's obligation to make lease payments pursuant to the Project Lease between the Corporation and the City, dated as of July 1, 1998 (the "Lease ") shall cease and terminate as provided in Section 14.1 of the Trust Agreement. I further irrevocably instruct the Trustee to do as follows with respect to the Defeased Certificates: (a) To send, postage prepaid, via first class mail, a notice of redemption and defeasance to the owners of the Defeased Certificates and to the Bond Insurer as defined in the Trust Agreement. Schedule A -I DOCS OC/ 1439066v4/022459 -0014 (b) To pay from funds on deposit in the Escrow Fund on December 1, 2010 the principal, interest and redemption premium, if any, with respect to the Defeased Certificates. THE CITY OF NEWPORT BEACH City nager Receipt acknowledged and consented to: U.S. BANK NATIONAL ASSOCIATION, as Trustee and Escrow Agent By: `°" l - Authokized Officer Schedule A -2 INSTRUCTIONS AND REQUEST TO TRUSTEE CITY OF NEWPORT BEACH REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 1998 (CENTRAL LIBRARY BUILDING PROJECT) October 27, 2010 1. City Certifications In connection with the submission of this written request to U.S. Bank National Association (the "Trustee "), pursuant to Section 4.3 of the Trust Agreement dated as of July 1, 1998 (the "1998 Certificates Trust Agreement'), among the City of Newport Beach (the "City "), Newport Beach Public Facilities Corporation and U.S. Bank Trust National Association, as Trustee, the undersigned, a duly appointed officer of the City, hereby certifies that I have reviewed the 1998 Certificates Trust Agreement and the sections thereof relating to the redemption of the City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates ") and I have made an examination of the provisions of the 1998 Certificates Trust Agreement and of related facts as is necessary in my opinion in connection with the submission of this written request. 2. Written Request of the Trustee The City requests the Trustee: (a) To send, postage prepaid, via first class mail, a notice of redemption to the owners of the 1998 Certificates no later than November 1, 2010 to redeem all of the 1998 Certificates on December 1, 2010 (the "Redemption Date ") at a redemption price equal to 100% of the principal amount of the 1998 Certificates, without premium, plus accrued interest due thereon to the Redemption Date (the "Redemption Price "). The redemption shall be conditioned upon the availability of funds for the purpose of such redemption being deposited in the Redemption Fund established under the 1998 Certificates Trust Agreement. (b) Take or cause to be taken all action necessary to cause the funds held pursuant to the 1998 Certificates Trust Agreement in the Reserve Fund to be transferred to the Redemption Fund (c) Take or cause to be taken all further action necessary on the part of the Trustee to call and redeem the 1998 Certificates on the Redemption Date as provided herein. (d) To accept the deposit of proceeds of refunding certificates of participation on or prior to the Redemption Date in exchange for funds deposited with the Trustee in accordance with the provisions of section 7 of the Escrow Agreement. The City agrees to pay all costs and expenses incurred by the Trustee in connection with such redemption, if any. The City agrees to reimburse the Trustee for all out -of- pocket costs and expenses incurred by the Trustee related to or arising from the sending of and rescission or cancellation of the notice of redemption with respect to the 1998 Certificates. The City further agrees to indemnify and hold the Trustee, its officers, directors, employees and agents harmless from and against all claims, costs, expenses, losses and liabilities of any kind whatsoever, including, without limitation, fees and DOCS OC/ 1434936v4/024642 -0003 expenses of legal counsel, incurred by the Trustee related to or arising from the cancellation or rescission of the notice of redemption with respect to the 1998 Certificates. These instructions, upon acknowledgment of receipt and acceptance of the terms hereof by the Trustee, shall constitute a binding irrevocable agreement between the City and the Trustee. CITY OF NEWPORT BEACH By: 61 �U'/) � �� 11171 d Ci ` anger Receipt acknowledged and agreed to: U.S. BANK NATIONAL ASSOCIATION, as Trustee By. Authori ed Officer 2 DOCSOC/1 43493 6v4/024642-0003 CALCULATION AGENCY AGREEMENT This Calculation Agency Agreement (the "Agreement "), entered into as of the 30`s day of November, 2010 by and between the City of Newport Beach (the "Issuer ") and The Bank of New York Mellon Trust Company, N.A., a national banking association, as calculation agent (the "Calculation Agent'). WITNESSETH: WHEREAS, the Issuer has issued its Certificates of Participation described in Exhibit A attached hereto (the "Certificates "); and WHEREAS, the Issuer is authorized to enter into this Agreement with the Calculation Agent for the preparation and submittal of Internal Revenue Service Form 8038 -CP in connection with credit payments with respect to the Certificates payable pursuant to the American Recovery and Reinvestment Act of 2009 or the Hiring Incentives to Restore Employment Act (or other laws passed by the United States Congress with respect to direct pay bonds); and NOW, THEREFORE, intending to be legally bound, the Issuer and the Calculation Agent agree as follows: Section 1. Appointment and Acceptance. The Issuer hereby appoints The Bank of New York Mellon Trust Company, N.A. as calculation agent for the Certificates, and the Calculation Agent accepts such appointment, acknowledging the duties, obligations and responsibilities of the Calculation Agent as set forth herein. Section 2. Documents to be Filed with the Calculation Agent. The Issuer shall provide to the Calculation Agent in connection with its appointment hereunder, (i) a copy of the executed Form 8038 -B filed in connection with the execution and delivery of the Certificates, (ii) an incumbency certificate listing the officers of the Issuer authorized to act on behalf of the Issuer under this Agreement and (iii) such other instruments, opinions and certificates as the Calculation Agent may reasonably request. Section 3. Duties of the Calculation Agent. The Calculation Agent shall act as calculation agent for the Certificates and in such capacity it shall: (a) not less than 45 and not more than 90 days prior to each interest payment date for the Certificates, perform the calculations necessary to complete Form 8038 -CP requesting payment to the Issuer of a credit equal to 35% of the interest payable on the Certificates for the period ending on each such interest payment date; (b) secure the signature of an authorized officer of the Issuer on each such Form 8038 -CP; and (c) file each Form 8038 -CP with the Department of the Treasury at the Internal Revenue Service Center, Ogden, Utah 84201 -0020 (unless notified by the Issuer or the Internal Revenue Service in writing of a change of address therefor) not less than 45 and not more than 90 days prior to each interest payment date for the Certificates. DOCSOC/1444565v3/022459 -0014 Section 4. Compensation; Indemnification. The Issuer agrees to pay the Calculation Agent fees as set forth in Exhibit B attached hereto and made a part hereof, and, if applicable, to reimburse the Calculation Agent for its out -of- pocket expenses (including, without limitation, legal and accounting fees and expenses). The Issuer assumes full responsibility and, to the extent permitted by law, will indemnify the Calculation Agent and its officers, directors, agents and employees and save it and them harmless from and against any and all actions or suits, whether groundless or otherwise, and from and against any and all losses, liabilities, costs and expenses (including attorneys' fees and expenses) arising out of the agency relationship created by this Agreement, unless such losses, liabilities, costs and expenses shall have been finally adjudicated to have resulted from the bad faith or gross negligence of the Calculation Agent. The provisions of this Section 4 shall survive the Calculation Agent's resignation or removal, or the termination of this Agreement. Section 5. Instructions From the Issuer; Advice of Counsel. At any time the Calculation Agent may apply to any duly authorized representative of the Issuer for instructions, and shall have the right, but not the obligation, to consult with counsel of its choice at the reasonable expense of the Issuer and shall not be liable for action taken or omitted to be taken either in accordance with such instruction or such advice of counsel, or in accordance with any opinion of counsel to the Issuer addressed to the Calculation Agent. Section 6. Concerning the Calculation Agent. The Calculation Agent shall have only those duties as are specifically provided herein, which shall be deemed purely ministerial in nature, and shall have the right to perform any of its duties hereunder through agents, attorneys, custodians or nominees. The Calculation Agent shall neither be responsible for, nor chargeable with, knowledge of the terms and conditions of any other agreement, instrument or document in connection herewith, including without limitation the document pursuant to which the Certificates were issued. The Calculation Agent shall not be answerable for other than its gross negligence or willful misconduct. The Calculation Agent shall have no responsibility for the payment of debt service with respect to the Certificates. The Calculation Agent shall be protected in acting upon any paper or document believed by it to be genuine and to have been signed by the proper person or persons and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Issuer. The Calculation Agent shall not be under any obligation to prosecute any action or suit in respect of the agency relationship which, in its sole judgment, may involve it in expense or liability. In any action or suit the Issuer shall, as often as requested, reimburse the Calculation Agent for any expense or liability growing out of such action or suit by or against the Calculation Agent in its agency capacity; provided, however, that no such reimbursement shall be made for any expense or liability arising as a result of Calculation Agent's gross negligence or willful misconduct. The Calculation Agent's liability with respect to matters relating to its performance as Calculation Agent shall be limited to an amount equal to the amount of its annual administration fee. The Calculation Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fire; flood; wars; terrorism; military disturbances; sabotage; epidemic; riots; interruptions; loss or malfunctions of utilities, computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authority or governmental action; it being understood that Calculation Agent shall use commercially reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as 'soon as reasonably practicable under the circumstances. 2 DOCSOC/ 1444565v3/022459 -0014 Anything in this Agreement to the contrary notwithstanding, in no event shall the Calculation Agent be liable for special, punitive, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Calculation Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. The Calculation Agent agrees to accept and act upon instructions or directions pursuant to this Agreement sent by unsecured e -mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that the Issuer shall provide to the Calculation Agent an incumbency certificate listing designated persons authorized to provide such instructions, which incumbency certificate shall be amended whenever a person is to be added or deleted from the listing. If the Issuer elects to give the Calculation Agent e -mail or facsimile instructions (or instructions by a similar electronic method) and the Calculation Agent in its discretion elects to act upon such instructions, the Calculation Agent's understanding of such instructions shall be deemed controlling. The Calculation Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Calculation Agent's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Issuer agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Calculation Agent, including without limitation the risk of the Calculation Agent acting on unauthorized instructions, and the risk or interception and misuse by third parties. Any banking association or corporation into which the Calculation Agent may be merged, converted or with which the Calculation Agent may be consolidated, or any banking association or corporation resulting from any merger, conversion or consolidation to which the Calculation Agent shall be a party, or any banking association or corporation to which all or substantially all of the corporate trust business of the Calculation Agent shall be transferred, shall succeed to all the Calculation Agent's rights, obligations and immunities hereunder without the execution or filing of any paper or any further act on the part of the parties hereto, anything herein to the contrary notwithstanding. Section 7. Notices. Until changed by notice in writing, communications between the parties shall be delivered to: If to Issuer: City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92663 Attn: City Manager If to the Calculation Agent: The Bank of New York Mellon Trust Company, N.A. 700 S. Flower Street, Suite 500 Los Angeles, CA 90017 Attn: Corporate Trust Section 8. Destruction of Records, Instruments and Papers. The Calculation Agent may retain in its files records, instruments, and papers maintained by it in relation to its agency as long as the Calculation Agent shall consider that such retention is necessary. 3 DOCSOC/1444565v3/022459 -0014 Section 9. Resignation or Removal of the Calculation Agent. Any time, other than on a day during the sixty (60) day period preceding any periodic payment date for Issuer's Certificates, the Calculation Agent may resign by giving at least forty -five (45) days' prior written notice to Issuer; and the Calculation Agent's agency shall be terminated and its duties shall cease upon expiration of such forty -five (45) days or such lesser period of time as shall be mutually agreeable to the Calculation Agent and the Issuer. At any time, following at least sixty (60) days' prior notice (or such lesser period of time as shall be mutually agreeable to the Calculation Agent and the Issuer) the Calculation Agent may be removed from its agency by the Issuer. Such removal shall become effective upon the expiration of the sixty (60) day or agreed lesser time period, and upon payment to the Calculation Agent of all amounts payable to it in connection with its agency. In such event, the Calculation Agent shall deliver to the Issuer copies of pertinent records then in the Calculation Agent's possession which are reasonably requested by the Issuer. Section 10. Effectiveness and Term. Subject to the provisions of Section 4 hereof, this Agreement shall remain in effect and the agency established by this Agreement shall continue until (i) terminated by mutual agreement of the Issuer and the Calculation Agent, (ii) the resignation or removal of the Calculation Agent pursuant to Section 9 hereof, or (iii) after all Certificates have been retired or defeased. Section 11. Jury Trial Waiver. To the extent permitted by law, each party hereto hereby agrees not to elect a trial by jury of any issue triable of right by jury, and waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist with regard to this Agreement, or any claim, counterclaim or other action arising in connection herewith. This waiver of right to trial by jury is given knowingly and voluntarily by each party, and is intended to encompass individually each instance and each issue as to which the right to a trial by jury would otherwise accrue. Section 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 4 DOC SOC/ 14445650 /022459 -0014 IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed by their duly authorized officers as of the date first above written. CITY OF NEWPORT BEACH By: G..e 1 Name: Davi kiff Title: City Manager THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Calculation Agent Bv: Name: Greg Chenail Title: Vice President DOC SOC/ 1444565v3/022459 -0014 IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed by their duly authorized officers as of the date first above written. CITY OF NEWPORT BEACH Bv: Name: David Kiff Title: City Manager THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Calculation Agent Name: Greg Title: Vim DOCSOC/ 1444565v3/022459 -0014 EXHIBIT A DESCRIPTION OF CERTIFICATES The $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) A -1 ROCS OC/ 1444565v3/022459 -0014 EXHIBIT B FEESCHEDULE Calculation Agent For Preparation of Form 8038 -CP BAB CALCULATION AGENT $250 per year This fee is payable in advance for the year and shall not be prorated. This fee includes the calculation of debt service and the filing of form 8038 CP by the trustee for Build America Bonds. B -1 DOCSOC/1444565v3 /022459 -001.4 t;CRTIII�(A r1TY GLLftK 0` fHE GC�i �i OFt�L- �d19U41� �:�+Ch RESOLUTION NO. 2010-65 oaTe i� J=u A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH REGARDING ITS INTENTION TO ENABLE REIMBURSEMENT OF INTERIM EXPENDITURES FROM PROCEEDS OF A POSSIBLE FUTURE DEBT ISSUANCE FOR CIVIC CENTER PROJECT WHEREAS, the City of Newport Beach ( "City ") intends to finance the costs of site preparation and construction of a new City Hall, Park, and Parking Structure, all positioned in relationship with the existing Newport Beach Central Library located on approximately 19 acres of land located at 1100 Avocado Avenue, 1300 Avocado Avenue and 1450 Avocado Avenue, and the expansion and improvement of the Newport Beach Central Library at 1000 Avocado Avenue, in connection with the foregoing improvements (the "Project'); WHEREAS, the City intends to finance the Project or portions of the Project with the proceeds of obligations, the interest upon which is excluded from gross income for federal income tax purposes, (the "Obligations "); and WHEREAS, prior to incurring Obligations the City desires to incur certain expenditures with respect to the Project from available monies of the City, which expenditures are desired to be reimbursed by the City from a portion of the proceeds of the Obligations; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Newport Beach hereby resolve, order and determine as follows: 1. The City hereby states its intention and reasonably expects to reimburse Project costs incurred prior to the incurrence of the Obligations with proceeds of the Obligations. 2. The reasonably expected maximum principal amount of the Obligations is $150,000,000.00. 3. This resolution is being adopted on or prior to the date (the 'Expenditures Date or. Dates ") that the City will expend monies for the portion of the Project costs to be reimbursed from proceeds of the Obligations. 4. The expected date of incurrence of the Obligations will be within eighteen months of the later of the Expenditures Date or Dates or the date the Project is placed in service; provided the reimbursement may not be made more than three years after the original expenditure is paid. 5. Proceeds of the Obligations to be used to reimburse Project costs are not expected to be used directly or indirectly to pay debt service with respect to any obligation (other than to pay current debt service coming due within the next succeeding one year period on any tax - exempt obligation of the City (other than the Obligation)) or to be held as a reasonably required reserve or replacement fund with respect to a obligation of the City or any entity related in any manner to the City, or to reimburse any expenditure that was originally paid with the proceeds of any obligation, or to replace funds that are or will be used in such manner. DOCSOC/ 1413530v2/022459 -0014 - 6. The resolution is consistent with the budgetary and financial circumstances of the City, as of the date hereof. No monies from sources other than the Obligation are, or are reasonably expected to be reserved, allocated on a long -term basis, or otherwise set aside by the City (or any related parry) pursuant to its budget or financial statement. To the best of our knowledge, this City Council is not aware of the previous adoption of official intents by the City that have been made as a matter of course for the purpose of reimbursing expenditures and for which tax exempt obligations have not been issued. The limitations described in Section 2 and Section 3 do not apply to (a) costs of issuance of the Obligations, (b) an amount not in excess of the lesser of $100,000 or five percent (5 %) of the proceeds of the Obligations, or (c) any preliminary expenditures, such as architectural, engineering, surveying, soil testing, and similar costs other than land acquisition, site preparation, and similar costs incident to commencement of construction, not in excess of twenty percent (20 %) of the aggregate issue price of the Obligations that finances the Project for which the preliminary expenditures were incurred. 8. This resolution is adopted as official action of the City in order to comply with Treasury Regulation 1.150 -2 and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of City expenditures incurred prior to the date of incurrence of the Obligations, is part of the City's official proceedings, and will be available for inspection by the general public at the main administrative office of the City. All the recitals in this Resolution are true and correct and the City Council of the City of Newport Beach so finds, determines and represents. ADOPTED, this 22nd day of June, 2010 ATTEST: CITY CLERK DOCSOC/1413530v2/022459 -0014 MAYOR 2 STATE OF CALIFORNIA } COUNTY OF ORANGE } as. CITY OF NEWPORT BEACH } I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2010 -65 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 22nd day of June, 2010, and that the same was so passed and adopted by the following vote, to wit: Ayes: Selich, Rosansky, Henn, Webb, Gardner, Daigle, Mayor Curry Noes: None Absent: None Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 23rd day of June, 2010. Aow'0� - City Clerk Newport Beach, California (Seal) l� T City of Newport Beach City Council Minutes June 22, 2010 VIII. RN X GS mi. INVOCATION -Mr. Frank Carpenter PRESENTATION Flag Presentation - Gary Tegel and Justin Power of the Utilities Department, who served in Kuwait and Iraq, thanked the City for their support and presented the City Manager and Mayor with a flag and employer support certificate. Council Member Webb thanked them and stated that it takes a lot of courage to fight for our Country and Mayor Curry thanked them for making the City proud. NOTICE TO THE PUBLIC CITY COUNCIL ANNOUNCEMENTS OR MATTERS WHICH COUNCIL MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION ACTION OR REPORT (NON- DISCUSSION ITEM) Mayor Curry announced that Council will not discuss the Hoag Development Agreement and noted that the item will be brought back to Council on July 27, 2010. Mayor Pro Tem Henn announced that on Friday; July 18, 2010, he and Mayor Curry attended the Nautical Museum's Grand Opening where they revealed their latest exhibit called Sea of Adventure and invited residents to visit. He also announced that a safety zone has been established for the 4th of July Celebration and that the Police will be proactive in educating visitors and residents in advance of the. changes. He noted that the City is taking a positive step forward for a fun and safe 4th of July. Council Member .Daigle stated that residents' number one concern is police protection: She thanked Police Chief Luman and staff for their recent accomplishments in the department stating that the crime rate has decreased and the number of arrests has increased, the response system has been updated, a critical incident manual and a windshield survey was developed, a new manual called the Lexipol was implemented, training bulletins are being utilized, promotion testing for all ranks are being conducted, the Command staff is unified, a Facebook site was established, best practice standards were implemented, and the budget is under control. Council Member Gardner asked staff to come back with a proposal for a Bicycle Committee. She stated that their mission will be to implement the proposals of the Bicycle Task Force and act as a liaison in regional bicycle matters. Council Member Webb announced that he will be the Grand Marshal of the Parade of Bicycles on July 3, 2010, at Mariners Park at 10:30 a.m. and invited residents to attend. Mayor Curry announced that on June 11, 2010, he participated in the Chamber of Commerce Annual Citizen's of the Year dinner honoring Rod Rodheim for his lifetime of service to. the City, attended the United States Conference of Mayors in Oklahoma City, visited Newport Coast Elementary School, held a Meet the Mayor session on Saturday, June 18, and invited residents to attend a Civic Center Open House on Tuesday, June 29, 2010 in the Friends-Room at the Central Library from 4:00 p.m: to 7:00 p.m. where staff will be available to answer questions and provide the schedule of the new project. CONSENT CALENDAR A. READING OFMINUTESIORDINANCES AND RESOLUTIONS Volume 59 - Page 512 City of Newport Beach City Council Minutes June 22, 2010 1. MINUTES OF THE SPECIAL MEETING OF JUNE 2, 2010, AND ADJOURNED REGULAR MEETING AND REGULAR MEETING OF JUNE 8, 2010. [100 -20101 Waive reading of subject minutes, approve as written, and order filed. 2. READING OF ORDINANCES AND RESOLUTIONS. Waive reading in full of all ordinances and resolutions under consideration, and direct City Clerk to read by title only. B. RESOLUTIONS FOR ADOPTION 3. ACCEPTANCE OF THE CALIFORNIA DEPARTMENT OF ALCOHOL BEVERAGE CONTROL 2010/2011 GRANT TO SUPPLEMENT THE POLICE DEPARTMENT'S 'ONGOING EFFORT IN ADDRESSING ALCOHOL- RELATED PROBLEMS AT RETAIL ALCOHOL ESTABLISHMENTS.. [100 -2010] a) Accept the California Department of Alcohol Beverage Control (ABC) 2010/2011 Grant Assistance Program (GAP) Grant Award in, the total amount of $26,318 to supplement the Police Department's ongoing effort in addressing alcohol - related problems at retail alcohol establishments; b). authorize the Administrative Service Director to establish revenue and expenditure accounts in the General Fund to facilitate the administration of . these funds; and c) adopt Resolution No. 2010 -64 _ accepting the GAP Grant Award on behalf of the City - 4. BOND REIMBURSEMENT• AUTHORIZATION FOR CIVIC CENTER EXPENDITURES. [100 -2010] Adopt Resolution No. 2010 -65 that reaffirms the City's intent to'reimburse itself for project costs incurred prior to possible future debt issuance for the Civic Center project. C. CONTRACTS AND AGREEMENTS 5. LEGAL ADVERTISING BID FOR FISCAL YEAR 2010 -2011. [100 -2010] Accept the bid of The Daily Pilot and authorize a purchase order for the one- year period of fiscal year 2010 -2011. 6, AUTHORIZATION TO CONTINUE A CONTRACT WITH VAN SCOYOC ASSOCIATES REGARDING ADVOCACY FOR DREDGING PROJECTS: LOWER NEWPORT BAY AND THE SANTA ANA RIVER MARSH/NEWPORT. SLOUGH (C11032). [381100 -2010] Authorize the City Manager to enter into a Professional Services Agreement of up to $60,000 for one year with Van Scoyoc Associates to advocate for dredging the Lower Bay and the Santa Ana River Marsh. 7. APPROVAL OF AMENDMENT NO. 1 TO PROFESSIONAL SERVICES. AGREEMENT WITH.'MCO - ADVANCED DOCUMENT IMAGING SOLUTIONS FOR.HISTORICAL DOCUMENT DIGITAL ARCHIVING SERVICES (C- 4122). [381100 -2010] Approve Amendment No. 1 to Professional Services Agreement with MCO - Advanced Document Imaging Solutions for historical document digital archiving services to increase the contract amount by $26,000 and to extend the term of the contract sto June 30, 2012. 8. APPROVAL OF SOFTWARE LICENSE AND PROFESSIONAL SERVICES AGREEMENT WITH NORTHROP GRUMMAN {C- 4566). Volume 59 -Page 513 City of Newport Beach City Council Minutes June 22, 2010 [381100 -2010] a) Approve an expenditure of $121,547 to upgrade the Police Department's Computer Automated Dispatch (CAD) software from Windows 2000 Operating System to Windows XP Professional; b) authorize a single - source contract. with Northrop Grumman (formerly PRC), the product manufacturer of the Police Department's CAD System; and c) authorize the Mayor to execute a Software License and Professional Services Agreement contract with the vendor as approved as to form by the Office of the City Attorney. 9. NEWPORT COAST COMMUNITY CENTER AUDIOVISUAL EQUIPMENT (C -4189) - AWARD OF CONTRACT. [381100 -20101 a) Approve the project drawings and specifications; b) award the contract (C -4139) to GMF Sound, Inc. for the total bid price of $119,793, and authorize the Mayor and the City Clerk to execute the contract; and c) establish an amount of $11,979 (10 %) to cover the cost of unforeseen work. 10. REGISTRATION. SOFTWARE UPGRADE WITH ACTIVE NETWORK TO PROVIDE RECREATION CLASS REGISTRATION, MEMBERSHIP, POINT OF SALE AND. FACILITY RESERVATION SERVICES (C- 4567). [381100 -20101 a) Authorize the waiver of Council Policy F -5, the adopted purchasing guidelines; and authorize the Recreation and Senior Services Director and the City Attorney, or his designee, to negotiate with the sole source vendor The Active Network (TAN) for maintenance support and hosting data to upgrade the existing software of Recware Safari to ActiveNet which provides online, recreation class registration; membership, and facility reservation services' b) 'approve a three -year contract, with option to renew annually after the first three years with TAN; and c) authorize the City Manager to negotiate and execute contract extensions at the end of the initial three -year contract on a year -to -year basis. 11. AMENDMENT NO. 1 TO CONTRACT WITH GC ENVIRONMENTAL, INC. FOR MAINTENANCE/REPAIR SERVICES FOR THE NEWPORT TERRACE LANDFILL GAS CONTROL SYSTEM (C4212). [381100-20101 a) Approve Amendment No. 1 to the Contract with GC Environmental, Inc. (GCE) in the amount of $66,206.00 for an additional one (1) year (FY 2010 - 2011) of Operation, Monitoring' and Maintenance (OM &M) of the Newport Terrace Landfill Gas Control System (System). 14. APPROVAL OF A FIVE YEAR AGREEMENT WITH THE COUNTY OF ORANGE FOR :MO.ORING.MANAGEMENT SERVICES IN NEWPORT HARBOR (C- 4569). [381100 -20101 a) Approve and authorize the Mayor and City Clerk to execute. a. Cooperative Agreement with the County of Orange for mooring management in Newport Harbor for five years; b) approve Budget Amendment No. IOBA -055 for FY 2009/10 for the Cooperative Agreement for $180,000 from Unappropriated Reserves (Tidelands) to account #2371 -8080 (Professional and Technical. Services). 15. SECOND AMENDMENT TO PROFESSIONAL SERVICES AGREEMENT WITH ANCHOR QEA, L.P. FOR FINAL ENGINEERING EVALUATION DESIGN AND PERMITTING SUPPORT FOR THE RHINE CHANNEL CONTAMINATED SEDIMENT CLEANUP PROJECT (C4304). [381100 20101 a) approve Amendment No. 2 to the Professional Services Agreement. with Anchor QEA, L.P. to prepare the final engineering evaluation, design ani Volume 59 - Page 514 City of Newport Beach City Council Minutes June 22, 2010 permitting support for the Rhine Channel project; and b) approve Budget Amendment No. IOBA -054 for the scope of work for $307,460 and for permit fees and air quality mitigation credits for $71,035 from Unappropriated Reserves (Tidelands) to Capital Improvement Project 47231- C4402001 (Newport Harbor Dredging Project). D. MISCELLANEOUS 16. PLANNING COMMISSION AGENDA FOR JUNE 17, 2010. [100 -20101 Receive and file written report_ 17. APPOINTMENT OF DANA SMITH AS ALTERNATE BOARD MEMBER TO METRO CITIES FIRE AUTHORITY. [100 -20101 Appoint Assistant City Manager Dana Smith as the Newport Beach Alternate Member of the Metro Cities Authority Board of Directors. 18. 2010 DRINKING WATER' QUALITY REPORT ON PUBLIC HEALTH GOALS. [100 -20101 Receive and file. Motion by Mayor Pro Tem Henn, seconded by Council Member Rosansky to approve the Consent Calendar, except for the items removed (12 & 13); and noting that Item 15 (Professional Services Agreement with Anchor..QEA, L.P. for Final Engineering Evaluation, Design and Permitting Support for the Rhine Channel Contaminated Sediment Cleanup Project) has a new project schedule attached to the report. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council. Member Rosansky, Mayor Pro Tem Henn, Mayor Curry, Council Member Webb, Council Member Gardner, Council Member Daigle XIII. ITEMS REMOVED FROM THE CONSENT CALENDAR 12. MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF NEWPORT BEACH AND THE ORANGE COUNTY MUSEUM OF ART_(OCMA) TO CREATE A SCULPTURE PARK AT THE CIVIC CENTER '(C- 4568). [381100 -20101 Council Member Rosansky requested a brief presentation from staff. City Manager Kiff stated that the agreement is to approve a sculpture garden at the new Civic Center Park project which will allow placement of temporary and permanent art and he briefly discussed the art sites and proposal. In response to Council Member Webb's question, City Manager Kiff stated the OCMA will make their recommendations to the Arts Commission who in turn will present follow up recommendations to Council. In response to Mayor Pro'Tem Henn's question, City Manager Kiff clarified that the art areas controlled by the-City will have more public traffic than the areas controlled by OCMA. In response to Council Member Selich's question, City Manager Kiff clarified that recommendations for the maintenance of the sculpture garden will be brought to Council as a part of the budget. Mayor Curry expressed siupport'for -the agreement stating that the City has the opportunity to use one of the most;prestigious art collections, noted that the Volume 59 - Page 515 RESOLUTION NO. 2010-123 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH APPROVING THE ESCROW AGREEMENT, APPROPRIATING FUNDS AND AUTHORIZING THE CITY MANAGER TO TAKE ALL NECESSARY ACTIONS IN CONNECTION THEREWITH WHEREAS, the City of Newport Beach (the "City") has previously caused to be sold and delivered the City of Newport Beach Certificates of Participation, Series 1998 (Central Library Building Project) (the "Library COP's"), pursuant to the terms of a Trust Agreement dated as of June 1, 1998 (the "1998 Trust Agreement"); and WHEREAS, the City Council by adoption of this resolution finds that it is in the best interests of the City to defease the Library OOP's by depositing cash in accordance with the Escrow Agreement and to redeem the Library COP's on December 1, 2010. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach that: Section 1. The Escrow Agreement between the City and the Trustee in substantially the form submitted at this meeting and made a part hereof as though set forth in full herein is hereby approved. The Mayor of the City and/or the City Manager of the City are hereby authorized and directed to execute the Escrow Agreement in the form presented at this meeting with such changes, insertions and omissions as may be approved by the Mayor or City Manager, said execution being conclusive evidence of such approval.' Section 2. The appropriation of $3,630,000 is hereby approved. The City Manager is authorized and directed to cause such funds to be deposited in accordance with the Escrow Agreement. Section 3. The Mayor, the City Manager and any other proper officer of the City, acting singly, be and each of them hereby is authorized and directed to execute and deliver any and all documents and instruments, including any agreements with the Trustee relating to the Escrow Agreement, and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by the Escrow Agreement and this Resolution. Pa o E: 0 f u u u J' tit U G Section 4. This Resolution shall take effect immediately upon adoption. ADOPTED, SIGNED AND APPROVED this 26th day of October, 2010. Mayor ATTEST: �& ^^dd'' p �� City Clerk STATE OF CALIFORNIA } COUNTY OF ORANGE CITY OF NEWPORT BEACH } I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2010 -123 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 26th day of October, 2010, and that the same was so passed and adopted by the following vote, to wit: Ayes: Selich, Rosansky, Henn, Webb, Gardner, Daigle Noes: None Absent: Mayor Curry Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 27th day of October, 2010. a- MN ' City Clerk Newport Beach, California (Seal) City of Newport Beach City Council Minutes October 26, 2010 xtjI� decreased from 700 -800 beds to 200 -250 beds. He pledged that Council will continue to work to make the situation better. Jim Mosher believed that the City is not following Charter Sections 407, 412 and 421. 17. DEFEASANCE OF THE 1998 LIBRARY CERTIFICATES OF PARTICIPATION. [100 -20101 City Manager Kiff reviewed the recommendations outlined in the staff report. Motion by Council Member Rosanskv, seconded by Council Member Webb to a) adopt Resolution No. 2010 -123 authorizing the defeasance of the 1998 Library Certificates of Participation; b) authorize staff to execute the Escrow Agreement substantially to form; and c) approve Budget Amendment No. IIBA -014 appropriating an additional $3,630,0.00 from General Fund appropriations reserves to defease the 1998 Library Certificates of Participation. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council Member Rosansky, Mayor Pro Tem Henn, Council Member Webb, Council Member Gardner, Council Member Daigle Absent: Mayor Curry 18. TRANSFER OF DEVELOPMENT RIGHTS IN NORTH NEWPORT CENTER PLANNED COMMUNITY (PA2010 -122). [100 -20101 Acting Planning Director Campbell. reported that the transfer does not increase the total square footage in Newport Center and there is no traffic impact. Dan Miller, The Irvine Company, stated that the transfer is needed in order to finalize drawings prior to pulling a building permit. He indicated that this probably will not be the last of the square footage transfers, but assured Council that the area will not have an increase in square footage. Motion by Council Member Gardner, seconded by Council Member Webb to adopt Resolution No. 2010 -124 which approves a) a transfer of development rights in the North Newport Center Planned Community for 1) 75,878 square feet of general office from Block 100 to San Joaquin Plaza and 2) 45,236 square feet of general office from Block 100 to Block 600, and b) the relocation of 430 unbuilt residential units from San Joaquin Plaza to Block 500. Laura Curran requested that more descriptive diagrams be included in the staff reports. The motion carried by the following roll call vote: Ayes: Council. Member Selich, Council Member Rosansky, Mayor Pro Tem. Henn, Council Member Webb, Council Member Gardner, Council Member Daigle Absent: Mayor Curry XVIII. MOTION FOR RECONSIDERATION - None CEii {FIE S A TAIL .ND CORRECT COPY I CITY CTEPI( P THE CfP' OP NEWPORT BEACH Volume 59 - Page 616 10 DATE: RESOLUTION NO. 2010-126 CERTIFIED P, A TPUD 1�COMECT �t� CRT C! ERK OF THE UP( OF NEFVPORT BEACH DATE: I + ( �q la v_ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE PREPARATION, SALE AND DELIVERY OF NOT TO EXCEED $128 MILLION PRINCIPAL AMOUNT OF CERTIFICATES OF PARTICIPATION, SERIES 2010 (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) AND APPROVING CERTAIN DOCUMENTS AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City of Newport Beach (the "City: ") and the Newport Beach Public Facilities Corporation (the "Corporation ") have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project"); and WHEREAS, the City and the Corporation desire to enter into a Site Lease dated as of November 1, 2010 (the "Site Lease ") and a Lease/Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the City, as agent of the Corporation, shall cause the acquisition, improvement and equipping of a new Civic Center, as described therein (collectively, the "Civic Center Project" and together with the Central Library Project, the "Project ") and whereby the City shall refinance the Central Library Project, and the City has agreed to lease the Leased Premises (defined below) from the Corporation, the forms of which have been presented to this City Council at the meeting of which the Resolution has been adopted; and WHEREAS, in order to finance the Project, the City and the Corporation desire to authorize the sale of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") evidencing fractional interests in the 2010A Lease Payments made by the City under the Lease, and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the Series 2010A Certificates, the "Certificates ") each evidencing fractional interests in the 2010B Lease Payments made by the City under the Lease; and WHEREAS, Section 5450 et seq. of the California Government Code (the "Government Code ") provides statutory authority for pledging collateral for the payment of principal or prepayment price of, and interest on, any agreement, including certificates of participation, and the Government Code creates a continuing perfected security interest which shall attach immediately to such collateral irrespective of whether the parties to the pledge document have notice of the pledge and without the need for any physical delivery, recordation, filing or further act, and, therefore, the City and the Corporation hereby warrant and represent that pursuant to the Lease, the Trust Agreement, to be dated as of November 1, 2010, by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee ?'), the City and the Corporation (the "Trust Agreement"), DOCSOC/1 1 10296v4/022459-0014. - - . and the Government Code, the Trustee will have a first priority perfected security interest in the Lease Payments described in the Lease represented by the Certificates pursuant to the Government Code. WHEREAS, the City Council desires to consent to the assignment of certain of the Corporation's rights, title and interest in and to the Site Lease and the Lease Agreement, including the right to receive such lease payments from the City, to the Trustee pursuant to an Assignment Agreement, between the Corporation and the Trustee, to be dated as of November 1, 2010 (the "Assignment Agreement "), the form of which together with the form of the Trust Agreement have been presented to this City Council at the meeting at which this Resolution has been adopted; and WHEREAS, the City Council desires to approve the form of a Purchase Agreement (the "Purchase Agreement"), by and between the City and Stone & Youngberg LLC as representative of itself and E.J. Del Rosa & Co., Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Raymond James (collectively, the "Purchaser "), pursuant to which the Purchaser will agree to buy the Certificates on the terms and conditions set forth therein, the form of which has been presented to this City Council at the meeting at which this Resolution has been adopted; WHEREAS, the City Council desires to approve the form of a Preliminary Official Statement relating to the Certificates (the "Preliminary Official Statement") to be distributed to potential investors, for the purposes of facilitating the sale of the Certificates at the lowest feasible interest rate, the form of which has been presented to this City Council at the meeting at which this Resolution has been adopted; and WHEREAS, the City Council desires to approve the form of a Continuing Disclosure Agreement (the "Disclosure Agreement ") between the City and Digital Assurance Certificates, L.L.C., the form of which has been presented to this City Council at the meeting at which the Resolution has been adopted; and WHEREAS, the City Council desires to approve the form of an Agency Agreement between the City and the Corporation, the form of which has been presented to this City Council at the meeting at which the Resolution has been adopted. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach that: Section 1. Each of the foregoing recitals is true and correct. The City Council hereby Ands and determines that the total rental to be paid under the Lease Agreement does not exceed the fair rental value of the leased property identified in Exhibit A to the Lease (collectively, the "Leased Property"). 2 . DOCS OC/ 1110296A/022459 -0014 Section 2. This City Council hereby consents to the preparation, sale and delivery of the Certificates in an aggregate amount of not to exceed $128 million in accordance with the terms and provisions of the Trust Agreement, with the exact principal amount of each series of Certificates to be that determined necessary by the City Manager or the Director of Administrative Services to refund and defease the Prior Certificates, to pay the costs of the Civic Center Project and to pay all associated costs in connection therewith. The proceeds of the Certificates shall be expended to finance the costs of the Project and to refund and defease the Prior Certificates and to provide for a reserve fund, if any, and the costs of the preparation, sale and delivery of the Certificates. Section 3. The Bank of New York Mellon Trust Company, N.A. is hereby appointed as Trustee on behalf of the owners of the Certificates, with the duties and powers of such Trustee as set forth in the Trust Agreement. Section 4. The forms of the Site Lease, the Lease Agreement, the Trust Agreement, the Disclosure Agreement, the Agency Agreement and the Assignment Agreement presented at this meeting are hereby approved. Each of the Mayor, the City Manager, the Director of Administrative Services and the City Clerk is hereby authorized for and in the name of the City to execute the Site Lease, the Lease Agreement, the Disclosure Agreement, the Agency Agreement and the Trust Agreement in substantially the forms hereby approved, with such additions thereto and changes therein as are recommended or approved by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Special Counsel to the City ("Special Counsel "), or the City Attorney and the officer or officers executing the same, including all changes necessary to reflect the purchase of bond insurance as described in Section 5 below. Approval of such changes shall be conclusively evidenced by the execution and delivery of the foregoing documents by one or more of the authorized officers. The Mayor, the City Manager, the Director of Administrative Services and the City Clerk each is hereby authorized to execute, acknowledge and deliver any and all documents required to consummate the transactions contemplated by the Site Lease, the Lease Agreement, the Disclosure Agreement, the Trust Agreement, the Agency Agreement and the Assignment Agreement. Section 5. The form of the Purchase Agreement presented at this meeting and the sale of the Certificates pursuant thereto are hereby approved, and each of the Mayor, the City Manager and the Director of Administrative Services is hereby authorized to evidence the City's acceptance of the terms and provisions of the Purchase Agreement by executing and delivering the Purchase Agreement in the form presented to the City at this meeting, with such additions thereto and changes therein as are recommended or approved by Special Counsel or the City Attorney and the officers executing the same. Approval of such additions and changes shall be conclusively evidenced by the execution and delivery of the Purchase Agreement; provided, however, that the Purchase Agreement shall be signed only if the aggregate principal amount of the Certificates does not exceed $128 million and the Purchaser's discount (exclusive of original issue discount and any bond insurance premium) with respect to the Certificates does not exceed 0.70% of the aggregate principal amount of the Certificates. The City Manager or the Director of Administrative Services, or their designees, are authorized to reject any terms presented by the Purchaser if determined not to be in the best interest of the City. Section 6. The form of the Certificates as set forth in the Trust Agreement (as the Trust Agreement may be modified pursuant to Section 4 hereof) are hereby approved. 3 DOCSOC/1110296v4/022459 -0014 Section 7. The form of the Preliminary Official Statement presented at this meeting is hereby approved, and the Preliminary Official Statement may be distributed to prospective purchasers in the form so approved, together with such additions thereto and changes therein as are determined necessary by the Director of Administrative Services, or his designee, to make such Preliminary Official Statement final as of its date for purposes of Rule 15c2 -12 of the Securities and Exchange Commission. Each of the Mayor and the City Manager is hereby authorized to execute a final Official Statement in the form of the Preliminary Official Statement, together with such changes as are determined necessary by the Director of Administrative Services, or his designee, and the officer executing the same to make such Official Statement complete and accurate as of its date. The Purchaser is further authorized to distribute the final Official Statement for the Certificates to the purchasers thereof upon its execution by an officer of the City as described above. The City Manager, the Director of Administrative Services and their written designees are hereby authorized and directed to take whatever steps are necessary to comply with the requirements of Rule 15c2 -12 applicable to the Certificates following their execution and delivery. Section 8. The Mayor, the City Manager, the Director of Administrative Services and the City Clerk are hereby authorized, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary and advisable in order to consummate the sale and delivery of the Certificates and otherwise effectuate the purposes of this Resolution (including but not limited to the execution and delivery of a Calculation Agent Agreement with the Trustee, any consents or agreements to remove encumbrances to title with respect to the Leased Property and to substitute, remove or add property to the Leased Property that is determined by the City Manager to be in the best interests of the City), including the refunding and defeasance of the Prior Certificates, and such actions previously taken by such officers are hereby ratified and confirmed. In the event the Mayor is unavailable or unable to execute and deliver any of the above - referenced documents, any other member of the City Council may validly execute and deliver such document, and, in the event the City Clerk is unavailable or unable to execute and deliver any of the above - referenced documents, any deputy clerk may validly execute and deliver such document in her place. -4- DOCSOC/1110296v4/022459 -0014 Section 9. This Resolution shall take effect from and after its date of adoption. ADOPTED, SIGNED AND APPROVED this 9th day of November, Mayor of the City of Newport Beach ATTEST: 4uk-, City Clerk of the City of Newport Beach APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: n By: Ll-d David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By:��' /'� Brian Forbath, Stradling Yocca Carlson & Rauth, a Professional Corporation STATE OF CALIFORNIA } COUNTY OF ORANGE CITY OF NEWPORT BEACH } I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2010 -126 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 9th day of November, 2010, and that the same was so passed and adopted by the following vote, to wit: Ayes: Selich, Rosansky, Henn, Webb, Gardner, Daigle, Mayor Curry Noes: None Absent: None Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 10th day of November, 2010. I R111 City Clerk Newport Beach, California rWp N (Seal) p Im les 0 City of Newport Beach City Council Minutes November 9, 2010 XVIII. S16. Joe McCarthy expressed his concern with public safety and relayed an incident when he was attacked by dogs on the beach and questioned if the leash law will be enforced. Nancy Morran- Sanchez noted that the dog owners need to comply with the leash law and expressed support for the recommendation. Michael Hoerning suggested not establishing a time restriction during the winter Shirley Reinker stated that she was able to get 347 signatures in support of not having a time restriction during the winter. Jim Uer expressed support for the proposed amendment. Sean Pence expressed concern relative to the increased amount of animal waste on the beaches and the potential for diminishing the beach's beauty. He noted that dogs still attack children even when on a leash. Motion by Council Member Webb, seconded by Mavor Pro Tern Henn to a) approve the Parks, Beaches and Recreation Commissions recommendation to amend Section 7.04.030 of Title 7 of the Newport Beach Municipal Code pertaining to animals on the beaches, as follows: 1) "Oceanfront Beaches" - change the current hours that animals are prohibited on oceanfront beaches from 9:00 a.m. to 5:00 p.m. to 10:00 a.m. to 4:30 p.m. year- round; 2) "Harbor/Bay Front Beaches" - current hours will remain prohibiting animals from 9:00 a.m. to 5:00 p.m.; 3) that the City Council approves changing the term of "Community Services Department" to the current name of "Recreation and Senior Services Department;" and 4) that the City Council approves changing "guide" dogs to "service" dogs as defined under the American with Disabilities Act (ADA) so as to include all service dogs that assist the disabled; and b) introduce Ordinance No. 2010 -25 amending Section 7.04.030, of Title 7 of Newport Beach Municipal Code, pertaining to Animals Prohibited on Public Beaches, and pass to second reading on November 23, 2010. Council Member Gardner asked if Council wanted to consider banning animals on harbor/bay beaches. Council Member Webb believed that the City should continue to monitor those locations and possibly do something in the future, but not at this time. Mayor Curry thanked PB &R. He suggested that there be more accessibility to dog bags at the streetends and other locations. In response to Council Member Rosansky's questions, City Manager Kiff indicated that he can provide information to Council regarding how the City enforces its codes. Mayor Pro Tern Henn noted that the evidence is also in the Citizen Survey that was just released. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council Member Rosansky, Mayor Pro Tem, Henn, Mayor Curry, Council Member Webb, Council Member Gardner, Council Member Daigle AUTHORIZATION FOR 2010 CIVIC CENTER FINANCING DOCUMENTS. [100- 2010] City Manager Kiff utilized a PowerPoint presentation to discuss the project phase all-in estimates, all-in construction document phase, and highlight the Civic Center component costs. Administrative Services Director McCraner discussed the financing team, provided Volume 59 - Page 630 City of Newport Beach City Council Minutes November 9, 2010 the financing overview which is not to exceed $128 million, reported on the Certificates of Participation (COP), and discussed which City facilities will be included in the "leased premises" list. She reported that the financing structure contemplates using both Tax - Exempt Series A (COPs) and Taxable Series B [taxable COPs sponsored by the federal Build America Bonds (BABs) program]. She reviewing the financing estimates and reported on what will be included in the Preliminary Official Statement (POS). She emphasized that financing the project in this manner will save the City millions of dollars over the life of the COPs. She discussed the City's opportunity to use BAB money and highlighted the Facilities Replacement Plan. She reported that three independent rating agencies gave the City the highest bond rating and COP rating available, and noted that Civic Center project financing can be viewed at www.newportbeachca.govfbonds. City Manager Mff provided an outline of the project milestones and a summary, and highlighted the recommendations outlined in the staff report. In response to Mayor Pro Tern Henn's question, City Manager Kiff indicated that the bridge over San Miguel is not included in the estimates, but they could go out to bid and Council can decide if they want to include it in the project. Motion by Council Member Webb, seconded by Council Member Rosanskv to a) adopt Resolution No. 2010 -126 authorizing the preparation, execution, and delivery of the 2010 Certificates of Participation (COPs) in an amount not to exceed $128 million and authorizing the execution and delivery of certain documents and directing certain actions in connection with the issuance, sale and delivery of said COPs; b) approve Budget Amendment No. 11BA -017 appropriating funds necessary for the first principal and interest installments due through July 1, 2011, and additional funds estimated for the underwriter's discount and cost of issuance; and c) approve the two Mutual Understandings and the Amendment of Declaration of Special Land Use Restrictions with The Irvine Company. Council Member Gardner indicated that it would be ideal to already have the final bids and firm costs before issuing bonds; however, due to the timing for the BABs that is not an option. She asked what would happen to the money if the price was lower. City Manager Kiff indicated that Council will need to decide what to do if the proceeds were above the projections. He stated that staff would recommend looking at the next project on the Facilities Finance Plan and reported that bond counsel agreed that this would be an appropriate use. Council thanked and congratulated the financing team, staff, Building Committee, and Finance Committee, and emphasized the amount of money the City will be saving by financing in this manner. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council Member Rosansky, Mayor Pro Tem. Henn, Mayor Curry, Council Member Webb, Council Member Gardner, Council Member Daigle Mayor Curry recessed the City Council meeting at 9:28 p.m. to hold the special meeting of the Newport Beach Public Facilities Corporation. SPECIAL MEETING OF THE NEWPORT BEACH PUBLIC FACILITIES CORPORATION PFC -1. ROLL CALL Present: Council Member Selich; Council Member Rosansky; Mayor Pro Tern Henn; Mayor Curry; Council Member Webb; Council Member Gardner; Council Volume 59 - Page 631 REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission 915 Capitol Mall, Room 400, Sacramento, CA 95814 RECD BY CDIAC 09/28/2010 P.O. Box 942809, Sacramento, CA 94209 -0001 Tel.: (916) 653 -3269 Fax: (916) 654 -7440 Completion and lonely submittal of this form to the California Debt and Investment Advisory Commission (CDIAC) at the above address will assure your compliance with existing Califomia State law and will assist in the maintenance of a complete database ofpublic debt in California. Thank you for your cooperation.' ISSUERtNAnIE Newport Beach (If pool bond, list participants) ISSUE NAME 2010 Tax Exemot Ref COPS Series A Please specify type /name of project. Civic Center /Central Library PROPOSED SALE DATE 11/1712010 PRINCIPAL TO BE SOLD S 12000000 IS ANY PORTION OF THE DEBT FOR REFUNDING ?2 Q No @', Yes, proposed amount for refunding S 10500000 Issuer Contact First Name David MiddleName Last Name Klff Title City Manager E -mail Address 330 Newport Boulevard Addr. Cont. Addr. cont. Addr. cont. City Newport Beach State CA Zip Code 92663 Phone 949 6443000 Extension ISSUER LOCATED IN Orange COUNTY Filing Contact : Name of Individual (representing (Oj Bond Counsel (�,) Financial Advisor C) Lead Underwriter ) who completed this form and may be contacted for information. Name David Middle Name R Last Name MCEwen Firm/Agency Stradling Yocca Carlson & Rauth Address 660 Newport Ctr Or Ste 1600 Addr. Cont. Addr. cont. Addr. coat. city Newport Beach State CA Zip Code 92660 Phone 949 7254162 Extension E -mail dmcewen @sycr.com Send acknowledgement to: Sheila Baldwin E-mail sbaldwin @sycr.com FINANCING PARTICIPANTS: BOND COUNSEL Stradling Yocca Carlson & Rauth FINANCIAL ADVISOR Fieldman Rolapp &Associates UNDERWRITF,R \PURCHASER Stone &Youngberg IS THE INTEREST ON THE DEBT TAXABLE? Under State law: (!� No (tax - exempt) (`j Yes (taxable) Under Federal law: (Oj No (tax - exempt Yes (taxable) If the issue is federally tax-exempt, is interest a specific preference item for the purpose of alternative minimum tax? ('; Yes, preference item *) No, not a preference item TYPE OF SALE: (-} Competitive (0— Negotiated l Section R855(k) oj(he Caljiornia Government Coda regaires the issuer ofany proposed nea public debt issue to give i,, into notice oJ'lhe proposed sale to the CDIAC no has, Oran 30 days p-iar to the sale. Under Califomia Go.. .... ear Code Section 8855(/), "The Issuer ofmiy neiv public debt issrre shall, not hater ohnn 45 days after ehe signing ofdo, band purchase contmet in a negotiated or private financing, eraser the acceptance ofa bid in a cone dtive offering, sabntll a report offlnal sale and oJJlctah siarenvern ro the Catmnissian The Commission may regnn a inforeennon to be submi led in the report ojJbvah sale flew is considered appopnive. 2 Section 53583(c)(2)(B) of the California Government Code requires that any local agency selling refunding bonds at private sale or on a negotiated basis shall send a written statement, within me weeks after the bonds are sold, to the CDIAC explaining the reasons why the local agency determined to sell the bonds at private sale or on a negotiated basis instead oral public sale. TYPE OF DEBT INSTRUMENT NOTE (7 Bond anticipation (BAN) (7 Other note (Please specify below.) (OTHN) ( Grant anticipation (GAN) Revenue anticipation (RAN) Q Tax allocation (TALN) ('r Tax and revenue anticipation (TRAN) (j Tax anticipation (TAN) (') Commercial paper(CP) T Certificates of participation /leases (COP /L) ('') Other (Please specify below.) (0TH) Please specify if "Other note /Other bond /Other" was checked SOURCE(S) OF REPAYMENT BOND Conduit revenue (Private obligor) (CRB) (; General obligation (GOB) (� Limited tax obligation(LTOB) (^ Other bond (Please specify below.) (OTHB) C;, Public lease revenue (PLRB) Revenue (Pool) (RB) t J Revenue (Public enterprise) (PERB) O Sales tax revenue (STRB) (',� Special assessment (SAB) (j Tax allocation (TAB) PURPOSE(S) OF FINANCING r Cash flow, interim financing (CFIF) �j Project, interim financing (PIF) F-1 College /university housing (CUH) j- Multifamily housing (MFH) F7! Single- family housing (SFH) �'— Health care facilities (HCF) rl Hospital (HOSP) F_ Other /multiple health care purposes (equipment; etc.)(OMHC) F-', College /university facility (CUF) rj K -12 school facility (KSCH) r-! Other /multiple educational uses (equipment, etc.) (OMED) F; Student Loans (SLC) F-, Redevelopment, multiple uses (RD) Commercial development (CMDV) Industrial development (INDV) r Pollution control (PC) - Please specify type /name of project if different from above rl Airport (APRT) (7 Bridges and highways (BRHI) Convention center (CCTR) Equipment(EQUP) �',, Flood control /storm drainage (FLDS) F[ Multiple capital improvements and public works (MCAP) rl Other capital improvements and public works (OCAP) �I Parking (PRKG) F- Parks /Open space(PRKO) r' Ports and marinas (PRTS) Power generations /transmission(PWR) rj Prisons /jails /correctional facilities (PRSN) R Public building (PB) rj Public transit(PTR) rj Recreation and sports facilities (RCSP) rj Seismic safety improvments /repair(SSI) F- Solid waste recovery facilities (SWST) Street construction and improvements (SCI) r' Wastewater collection and treatment (WSTW) rl Water supply /storage /distribution (WTR) f—_ funds (IPF) r',_ Other than listed above(OTH) pmpose pMoms Bond proceeds(BDPR) C Property tax revenues(PRTX) ri General fund of issuing jurisdiction(GNFD) Public enterprise revenues (PER) r Grants (GRNT) rj Sales tax revenues (SATR) Intergovernmental transfers other than grants (ITGV) rj Special ssessments (SA) F-1 obligations (LOB) Ci, Special tax revenues (SPTR) F- Other (Please specify.) (OTHS) rI Tax - increment (TI) F-!. Private obligor payments (POP) Please specify if "Other" was checked PURPOSE(S) OF FINANCING r Cash flow, interim financing (CFIF) �j Project, interim financing (PIF) F-1 College /university housing (CUH) j- Multifamily housing (MFH) F7! Single- family housing (SFH) �'— Health care facilities (HCF) rl Hospital (HOSP) F_ Other /multiple health care purposes (equipment; etc.)(OMHC) F-', College /university facility (CUF) rj K -12 school facility (KSCH) r-! Other /multiple educational uses (equipment, etc.) (OMED) F; Student Loans (SLC) F-, Redevelopment, multiple uses (RD) Commercial development (CMDV) Industrial development (INDV) r Pollution control (PC) - Please specify type /name of project if different from above rl Airport (APRT) (7 Bridges and highways (BRHI) Convention center (CCTR) Equipment(EQUP) �',, Flood control /storm drainage (FLDS) F[ Multiple capital improvements and public works (MCAP) rl Other capital improvements and public works (OCAP) �I Parking (PRKG) F- Parks /Open space(PRKO) r' Ports and marinas (PRTS) Power generations /transmission(PWR) rj Prisons /jails /correctional facilities (PRSN) R Public building (PB) rj Public transit(PTR) rj Recreation and sports facilities (RCSP) rj Seismic safety improvments /repair(SSI) F- Solid waste recovery facilities (SWST) Street construction and improvements (SCI) r' Wastewater collection and treatment (WSTW) rl Water supply /storage /distribution (WTR) f—_ funds (IPF) r',_ Other than listed above(OTH) pmpose pMoms CERTIFICATE OF MAILING $12,000,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) I, Sheila L. Baldwin, of Stradling Yocca Carlson & Rauth, A Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, hereby state and certify that for and on behalf of the City of Newport Beach, and on the date hereof, I electronically filed a Report of Proposed Debt Issuance relating to the above - captioned financing with the California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, California 95814 (www.treasurer.ca.gov /cdiae), a true copy of which Report is attached hereto. Dated: September 27, 2010 Sheila L. Baldwin STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation DOC SOC /13 8768v 1. /022000 -0000 Acknowledgement of Report of Proposed Debt Issuance Baldwin, Sheila L. From: Field, Jeff [Jeff. Field @treasurer.ca.gov] Sent: Tuesday, September 28, 2010 11:21 AM To: Baldwin, Sheila L. Subject: Acknowledgement of Report of Proposed Debt Issuance Page 1 of 1 The California Debt and Investment Advisory Commission acknowledges receipt of the following proposed debt issuance: CDIAC Nbr: 2010 -1287 Issuer: Newport Beach Project: Civic Center /Central Library Proposed Amount: $12000000.00 Proposed Sale Date: 11/17/2010 Date Notice Received: 09/27/2010 In order to access and electronically file the Report of Final Sate through CDIAC's website, you will need the following information: CDIAC Nbr: 2010 -1287 Password: 38700 This information is unique to this filing and must be used for any subsequent reporting under this CDIAC number. 10/5/2010 Bill Lockyer ' STATE OF CALIFORNIA State Treasurer and Chair CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION 915 CAPITOL MALL ROOM 400 PO BOX 942809 SACRAMENTO CA 94209 -0001 TELEPHONE: (916) 653 -3269 FAX: (916) 654 -7440 September 29, 2010 TO: Sheila L Baldwin Stradling Yocca Carlson & Rauth 660 Newport Ctr Dr Suite 1600 Newport Beach, CA 92660 s v, '' FROM: ' t ell, Executive Director 4' RE: ACKNOWLEDGEMENT OF REPORT OF PROPOSED DEBT ISSUANCE California Government Code Section 8855 requires written notice to be given to the California Debt and Investment Advisory Commission (CDIAC) no later than 30 days prior to the proposed sale of any public agency debt issue. CDIAC acknowledges receipt of your notice of the following proposed debt issuance: CDIAC Num ber: Issuer: Project: Proposed Amount: Proposed Sale Date: Date Notice Recieve d: 2010 -1287 Newport Beach Civic Center /Central Library $12,000,000 November 17, 2010 September 27, 2010 Issuers may electronically file the Report of Final Sale through CDIAC's website, using the following information: CDIAC Number: 2010 -1287 Password: 38700 A CDIAC Number and Password will be provided for each electronic filing of the Report of Proposed Debt Issuance. This information is unique to this filing and must be used for any subsequent reporting under this CDIAC Number. Please submit the Report of Final Sale and the Official Statement/Offering Memorandum or other Bond Documents in accordance with Government Code Section 8855 on this issue within 45 days of the signing of the bond purchase contract or the acceptance of a bid to purchase the debt, to www. treasurer .ca.gov /cdiac /reporting.asp under the heading "Reporting Forms ". Official Statements /Offering Memorandums or other Bond Documents can be sent by e -mail to CDIAC _issuance @treasurer.ca.gov. Any questions regarding reporting requirements may be directed to CDIAC's Data Unit at (916) 653 -3269. Cc: David Kiff City Manager REPORT OF FINAL, SALE For Office Use Only California Debt and Investment Advisory Commission 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209 -0001 Tel.: (916) 653 -3269 FAX: (916) 654 -7440 Under California Government Code Section 8855(1), "The issuer of any new public debt issue shall, not later than 45 days after the signing of the bond purchase contract in a negotiated or private financing, or after the acceptance of a bid in a competitive offering, submit a report of final sale and official statement to the Commission. The CDIAC #: 2010 -1287 Commission may require information to be submitted in the report of final sale that is considered appropriate." ISSUER NAME: (If pool bond, list participants) ISSUE NAME: Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) IF THIS IS A POOLED FINANCING, WHICH ISSUANCE STATUTE IS IT AUTHORIZED UNDER? ❑ 1) Marks -Roos Local Bond Pooling Act ❑ 2) JPA Law ❑ 3) Installment Sales Agreement, Lease... ❑ 4) Housing Revenue Bond Law & Industrial Development Bond Law ❑ 5) Other WILL A VALIDATION ACTION BE PURSUED: ❑ No ❑ Yes ❑ Unknown ACTUAL SALE DATE: November 17, 2010 PRINCH'AL SOLD: $ 20,085,000 IS ANY PORTION OF THE DEBT FOR REFUNDING?' ❑ No ® Yes, refunding amount (including costs) $ 3 730329.65 Issuer Contact: Name: David Kiff Title: City Manager Address: 3300 Newport Boulevard, Newport Beach, California 92663 Phone: (949) 644 -3000 ISSUER LOCATED IN Orange COUNTY Filing Contact: Name of Individual (representing: ® Bond Counsel, ❑ Issuer, ❑ Financial Advisor, or ❑ Lead Underwriter) who completed this form may be contacted for information: Name: David R. McEwen, Esq. Finn /Agency: Stradling Yocca Carlson & Ramli Address: 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660 Phone: (949) 725 -4000 E -mail: dmeewen&sycr.com Send acknowledgementicopies to: Sheila L. Baldwin at Stradling Yocca Carlson & Rauth Name of individual to whom an invoice for the CDIAC issue fee should be sent:z Name: William Huck Finn: Stone & Youngberg LLC Address: 4350 La Jolla Villaee Drive, Suite 140, San Diego, California 92122 Phone: (858) 795 -8701 I Section 53583(c)(2)(B) of the California Govennneof Cade requires thin any loco! agency selling refunding birds of private sale or on a negotiated basis .shall send a writlen statement, within two weeks after the bonds are sold, to the CDIAC explaining the reasons wiry the local agency determined to sell the bonds at a private sale or on a negotiated basis instead ofat public sale. 2 This fee is anthorized by Section 8856 of the California Government Code and is charged to the lead underwriter or purchaser of the issue. 777e fee is administratively set by the Commission. The current fee schedule may be obtained from CDIAC. Rev. 1/2001 DOCSOC/1446323v 1 /022459 -001.4 CDIAC: Report of Final Sale Pa Re 2 FINANCING PARTICIPANTS (Firm name) OFFICE LOCATION (City /State) FINANCIAL ADVISOR: Fieldman, RoIMI2 & Associates Irvine, California LEAD UNDERWRITER/PURCHASER: Stone & Youngbere LLC San Dieeo, California BOND COUNSEL: Stradline Yocca Carlson & Rauth Newoort Beach. California TRUSTEE/PAYING AGENT: The Bank of New York Mellon Trust Comnanv_ N.A. Los Angeles, California MATURITY SCHEDULE IS THE INTEREST ON THE DEBT EXEMPT FROM TAXATION? ❑ Attached M Included in Official Statement MATURITY STRUCTURE Under State Law: ❑ No (taxable) M Yes (tax- exempt) M Serial (S) ❑ Term (T) Under Federal Law: ❑ No (taxable) M Yes (tax - exempt) ❑ Serial and term bonds or two or more term (B) If the issue is federally tax - exempt, is interest a specific preference item for the purpose of alternative minimum tax? ❑Yes MNo FINAL MATURITY DATE: Julv 1, 2019 FIRST OPTIONAL CALL DATE: n/a INTEREST TYPE: ❑ NIC M TIC ❑ Variable SENIORISUBORDINATE STRUCTURE ❑ Yes M No INTEREST COST: 2.444076 % (all -In) OFFICIAL STATEMENT /OFFERING MEMORANDUM: CAPITAL APPRECIATION BOND: ❑ Yes M No M Enclosed ❑ None prepared WAS THE ISSUE INSURED OR GUARANTEED? ISSUANCE COSTS AND FEES: M No ❑ Bond Insurance (1) ❑ Letter of Credit (L) ❑ State Intercept Program (T) ❑ Other (0) GUARANTOR: ENHANCEMENT EXPIRATION DATE: INDICATE CREDIT RATING: (For example, "AAA" or "Aaa") ❑ Not Rated M Rated Standard & Poor's: Fitch: AA+ Moody's: Aa2 Other: REASON FOR NEGOTIATED REFUNDINGS If the issue is a negotiated refunding, indicate the reason(s) why the bonds were issued at a private or negotiated versus a competitive sale. ❑ (1) Timing of the sale provided more flexibility than a public sale ❑ (2) More cost savings were expected to be realized than a public sale ❑ (3) More flexibility in debt structure was available than a public sale ❑ (4) Issuer able to work with participants familiar with issue /r than a public sale M (5) All of the above ❑ (6) Other (please specify) Rev. 112001 DOCSOC/ 1446323 v 1 /022459 -0014 A) Management Fee B) Total Takedown C) Underwriter Expenses Underwriter Spread or Discount D) Bond Counsel E) Disclosure Counsel F) Financial Advisor G) Rating Agency H) Credit Enhancement I) Trustee Fee J) Other Expenses Total Issuance Costs K) ORIGINAL ISSUE PREMIUM L) ORIGINAL ISSUE DISCOUNT M) NET ORIGINAL ISSUE DISCOUNT /PREMIUM $ n/a $ 110,467.50 $ 16253.85 $ 9,514.45 $ 15 857.41 $ 23.177.84 $ 28,70L10 $ 94,004.65 $ 1.155.299.55 FOR OFFICE USE ONLY FEE: $ CERTIFICATE OF MAILING $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) 1, Sheila L. Baldwin, of Stradling Yocca Carlson & Rauth, A Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, hereby state and certify that for and on behalf of the City of Newport Beach, and on the date hereof, I have caused to be mailed a Report of Final Sale relating to the above - captioned financing, postage prepaid, to the California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, California 95814, (www.treasurer.ca.gov /cdiae) a true copy of which Report is attached hereto. Dated: February 9, 2011 Sheila L. Baldwin STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation CD1AC Number: 2010 -1287 DOCSOC /138768v 1/022000 -0000 REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission CDIAC #2010 -1527 915 Capitol Mall, Room 400, Sacramento, CA 95814 ReC'd 9/29/2010 P.O. Box 942809, Sacramento, CA 94209 -0001 Tel.: (916) 653 -3269 Fax: (916) 654 -7440 Completion and timely submittal of this form to the California Debt and Investment Advisory Commission (CDIAC) at the above address will toone your compliance with existing Califomia State law and will assist in the maintenance of a complete database ofpu lic debt in California. Thank you for your cooperation.l ISSUER NAME City of Newport Beach (If pool bond, list participants) Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) ISSUE NAME tr -�,. �,. __ ,,_4_, Please specify type /name of project: PROPOSED SALE DATE 11/17/2010 IS ANY PORTION OF THE DEBT FOR REFUNDING ?s ( No C) Yes, proposed amount for refunding $ Issuer Contact First Name David Middle Name Title City Manaaer Address 330 Newport Beach Boulevard Addr. cont. City Newport Beach state CA Phone (949) 644 -3000 Extension zip Code 92663 Filing Contact: Name of Individual ( representing r) Bond Counsel who completed this form and may be contacted for information. Name David Middle Name R. FirMAgency Stradling Yocca Carlson & Rauth Address 660 Newport Center Drive PRINCIPAL TO BE SOLD$ 130, 000, 000.00 Last Name Ki f f E -mail Addr. Cont. Addr. Cont. ISSUER LOCATED IN Orange COUNTY (') Financial Advisor (7) Lead Underwriter ) Last Name MCEwen Addncom. Suite 1600 Addr. cont. Addr. Cont. City Newport Beach state CA zip Code 92660 Phone (949) 725 -4000 Extension E -mail Send acknowledgement to: Sheila Baldwin E -mail FINANCING PARTICIPANTS: BONDCOUNSEL Stradling Yocca Carlson & Rauth FINANCIAL ADVISOR Fieldman, Rolapp & Associates UNDERwtuTERU'URCHASER Stone & Youngberg LLC dmcewen @sycr.com sbaldwin @sycr.com IS THE INTEREST ON THF. DEBT TAXABLE? Under State law: (A) No (tax - exempt) (-') Yes (taxable) Under Federal Into (-) No (tax-exempt Yes (taxable) If the issue is federally tax - exempt, is interest a specific preference item for the purpose of alternative minimum tax? 0 Yes, preference item L3, No, not a preference item TYPE OF SALE: G Competitive (Pil Negotiated 1 Section 8855(k) ofihe California Goveran e... Code requres the issuer ofmry proposed new public debt issue to give va ban notice o'be proposed,rale to the CDIAC no later than 30 days prior to the sate Under California Goonomern Code Section 8855(!), "The issuer tfany new pnbfie debt issue shall, not late Aran 45 days afer the signing of[he bond purchro, contract in a negotiated or private financing, or after the acceptance ofa bid in a competitive offering, submit a report offlnal.sale and official statement to the Connntrvia.. The Commission may require information to be submitted in the report offcal sale that is considered appropriate. Section 53583(c)(2)(B) of the California Government Code requires that arty local agency selling refunding bonds at private sale or on a negotiated basis shall send a written statement, within two weeks after the bonds are sold, to the CDIAC explaining the reasons why the local agency determined to sell the bonds at private sale or on a negotiated basis instead of at public sale. TYPE OF DEBT INSTRUMENT NOTE () Bond anticipation (BAN) Q Other note (Please specify below.) (OTHN) (, Grant anticipation (GAN) () Revenue anticipation (RAN) () Tax allocation (TALN) () Tax and revenue anticipation (TRAN) (j Tax anticipation (TAN) () Commercial paper (CP) C',, Certificates of participation /leases (COP /L) (j Other (Please specify below.) (OTH) Please specify if "Other note /Other bond /Other" was checked SOURCE(S) OF REPAYMENT r Bond proceeds (BDPR) r General fund of issuing jurisdiction(GNFD) ri Grants (GRNT) Intergovernmental transfers other than grants (ITG1A rf Local obligations (LOB) Other (Please specify.) (OTHS) C Private obligor payments (POP) Please specify if "Other" was checked PURPOSE(S) OF FINANCING j-j Cash flow, interim financing (CFIF) f-1 Project, interim financing (PIF) ji; College /university housing (CUH) ri Multifamily housing (MFH) rl Single- family housing (SFH) r' Health care facilities (HCF) f i Hospital (HOSP) j7[ Other /multiple health care purposes (equipment; etc.)(OMHC) rj College /university facility (CUF) r; K -12 school facility (KSCH) rl Other /multiple educational uses (equipment, etc.) (OMED) F, Student Loans(SLC) r Redevelopment, multiple uses (RD) r Commercial development (CMDV) C.i Industrial development (INDV) (-I Pollution control (PC) BOND (j Conduit revenue (Private obligor) (CRB) Q General obligation (GOB) Q Limited tax obligation(LTOB) Other bond (Please specify below.) (OTHB) Q Public lease revenue (PLRB) () Revenue (Pool) (RB) () Revenue (Public enterprise) (PERB) (�> Sales tax revenue (STRB) Q Special assessment (SAB) Tax allocation (TAB) F, Property tax revenues (PRTX) �1 Public enterprise revenues (PER) rl, Sales tax revenues (SATR) r Special ssessments (SA) n Special tax revenues (SPTR) Tax - increment (TI) Airport (APRT) ❑ Bridges and highways (BRHI) rj Convention center (CCTR) rj Equipment (EQUP) r Flood control /storm drainage (FLDS) rj Multiple capital improvements and public works (MCAP) r Other capital improvements and public works (OCAP) )Xi Parking (PRKG) r� Parks /Open space (PRKG) r Ports and marinas (PRTS) ri Power generations /transmission(PWR) r Prisons /jails /correctional facilities (PRSN) 17 Public building (PB) rl Publictransit(PTR) ❑ Recreation and sports facilities (RCSP) j—j Seismic safety improvments /repair (SSI) Solid waste recovery facilities (SWST) Street construction and improvements (SCI) r Wastewater collection and treatment (WSTW) r Water supply /storage /distribution (WTR) rj Insurance/pension funds (IPF) rj Other than listed above(OTH) Please specify type /name of project if different from above Civic Center P nmaweaadraaas CERTIFICATE OF MAILING $130,000,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) I, Sheila L. Baldwin, of Stradling Yocca Carlson & Rauth, A Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, hereby state and certify that for and on behalf of the City of Newport Beach, and on the date hereof, I electronically filed a Report of Proposed Debt Issuance relating to the above - captioned financing with the California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, California 95814 (www.treasurer.ca.gov /cdiae), a true copy of which Report is attached hereto. Dated: September 29, 2010 Sheila L. Baldwin STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation D O C S O C/ 13 8768 v 1 /022000 -0000 Bill Lockyer a, av<'I I STATE OF CALIFORNIA State Treasurer and Chair CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION 915 CAPITOL MALL ROOM 400 PO BOX 942809 SACRAMENTO CA 94209 -0001 TELEPHONE: (916) 653 -3269 FAX: (916) 654 -7440 November 16, 2010 TO: Sheila L Baldwin Stradling Yocca Carlson & Rauth 660 Newport Ctr Dr Suite 1600 Newport Beach, CA 92660 FROM: NJ " �(a'Pbe'", Executive Director 101 RE: ACKNOWLEDGEMENT OF REPORT OF PROPOSED DEBT ISSUANCE California Government Code Section 8855 requires written notice to be given to the California Debt and Investment Advisory Commission (CDIAC) no later than 30 days prior to the proposed sale of any public agency debt issue. CDIAC acknowledges receipt of your notice of the following proposed debt issuance: CDIAC Num ber: 2010 -1527 Issuer: Newport Beach Project: Civic Center Series B Build America Bonds Proposed Amount: $130,000,000 Proposed Sale Date: November 17, 2010 Date Notice Recieved: September 29, 2010 Issuers may electronically file the Report of Final Sale through CDIAC's website, using the following information: CDIAC Number: 2010 -1527 Password: 38700 A CDIAC Number and Password will be provided for each electronic filing of the Report of Proposed Debt Issuance. This information is unique to this filing and must be used for any subsequent reporting under this CDIAC Number. Please submit the Report of Final Sale and the Official Statement/Offering Memorandum or other Bond Documents in accordance with Government Code Section 8855 on this issue within 45 days of the signing of the bond purchase contract or the acceptance of a bid to purchase the debt, to www. treasurer .ca.gov /cdiae /reporting.asp under the heading "Reporting Forms ". Official Statements /Offering Memorandums or other Bond Documents can be sent by e -mail to CDIAC_issuance @treasurer.ca.gov. Any questions regarding reporting requirements may be directed to CDIAC's Data Unit at (916) 653 -3269. Cc: David Kiff City Manager REPORT OF FINAL SALE For Office Use Only California Debt and Investment Advisory Commission 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209 -0001 Tel.: (916) 653 -3269 FAX: (916) 654 -7440 Under California Government Code Section 8855(i), "The issuer of any new public debt issue shall, not later than 45 days after the signing of the bond purchase contract in a negotiated or private financing, or after the acceptance of a bid in a competitive offering, submit a report of 'final sale and official statement to the Commission. The CDIAC #: 2010 -1527 Commission may require information to be submitted in the report of final sale that is considered appropriate." ISSUER NAME: City of Newport Beach (If pool bond, list participants) ISSUE NAME: Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) IF THIS IS A POOLED FINANCING, WHICH ISSUANCE STATUTE IS IT AUTHORIZED UNDER? ❑ 1) Marks -Roos Local Bond Pooling Act ❑ 2) JPA Law ❑ 3) Installment Sales Agreement, Lease... ❑ 4) Housing Revenue Bond Law & Industrial Development Bond Law ❑ 5) Other WILL A VALIDATION ACTION BE PURSUED: ❑ No ❑ Yes ❑ Unknown ACTUAL SALE DATE: November 17, 2010 PRINCIPAL SOLD: $ 106,575,000 IS ANY PORTION OF THE DEBT FOR REFUNDING ?' M No ❑ Yes, refunding amount (including costs) $ Issuer Contact: Name: David Kiff Title: City Manager Address: 3300 Newport Boulevard, Newport Beach, California 92663 Phone: _(949) 644 -3000 I ISSUER LOCATED IN Orange COUNTY Filing Contact: Name of Individual (representing: ® Bond Counsel, ❑ Issuer, ❑ Financial Advisor, or ❑ Lead Underwriter) who completed this form may be contacted for information: Name: David R. McEwen, Esg Firm/Agency: Stradling Yocca Carlson & Rauth Address: 660 Newport Center Drive Suite 1600 Newport Beach California 92660 Phone: (949) 725 -4000 E -mail: dmcewengsycr.com Send acknowledgement/copies to: Sheila L. Baldwin at Stradling Yocca Carlson & Rauth Name of individual to whom an invoice for the CDIAC issue fee should be sent:2 Name: William Huck Firm: Stone & Youngberg LLC Address: 4350 La Jolla Village Drive, Suite 140 San Diego, California 92122 Phone: (858) 795 -8701 I Section 53583(c)(2)(B) of the California Government Code requires that airy lnaal agency selling refunding bonds at private sale or on a negotiated basis shall send a written statement, wijbin two weeks offer the bonds are sold, to the CDIAC explaining the reasons why the local agency denninined to ,sell the bonds at a private sale or art a negotiated basis instead ofat public sale. 2 This fee is authorized by Section 8856 of the California Government Code and is chmged to the lead underwriter or purchaser of Jre issue. The fee is adminisb atively set by the Connuissio n. The current fee schedule may be obmined fi onr CDIAC. Rev. I /2001 DOCSOC/ 1446324v 1 /022459 -0014 CDIAC: Report of Final Sale Page 2 FINANCING PARTICIPANTS (Firm name) OFFICE LOCATION (City/State) FINANCIAL ADVISOR: Fieldman. Rolapp & Associates Irvine. California LEAD UNDERWRITER/PURCHASER: Stone & Youngberg LLC _ San Diego. California BOND COUNSEL: Stradling Yocca Carlson & Rauth Newport Beach, California TRUSTEE/PAYING AGENT: 'the Bank of New York Mellon Trust Comnanv. N A Los Angeles. California MATURITY SCHEDULE IS THE INTEREST ON THE DEBT EXEMPT FROM TAXATION? ❑ Attached ® Included in Official Statement MATURITY STRUCTURE Under State Law: ❑ No (taxable) ® Yes (tax - exempt) ❑ Serial (S) ❑ Term (T) Under Federal Law: ® No (taxable) ❑ Yes (tax- exempt) ® Serial and term bonds or two or more tern (B) If the issue is federally tax- exempt, is interest a specific preference item for the purpose of alternativemimmum tax? ❑ Yes ❑ No FINAL MATURITY DATE: July 1, 2040 FIRST OPTIONAL CALL DATE: On any Business Date at the option of the City SENIOR/SUBORDINATE STRUCTURE ❑ Yes ® No OFFICIAL STATEMENT /OFFERING MEMORANDUM: ® Enclosed ❑ None prepared WAS THE ISSUE INSURED OR GUARANTEED? ® No ❑ Bond Insurance (1) ❑ Letter of Credit (L) ❑ State Intercept Program (T) ❑ Other (0) GUARANTOR: ENHANCEMENT EXPIRATION DATE: INDICATE CREDIT RATING: (For example, "AAA" or "Aaa ") ❑ Not Rated ® Rated Standard & Poor's: AA+ Fitch: AA+ Moody's: Aa2 Other: REASON FOR NEGOTIATED REFUNDINGS If the issue is a negotiated refunding indicate the reason(s) why the bonds were issued at a private or negotiated versus a competitive sale. ❑ (1) Timing of the sale provided more flexibility than a public sale ❑ (2) More cost savings were expected to be realized than apublic sale ❑ (3) More flexibility in debt structure was available than a public sale ❑ (4) Issuer able to work with participants familiu with issue /r than a public sale ❑ (5) All of the above ❑ (6) Other (please specify) Rev. 1/2001 DOCSOC/1 446324v 1/022459 -0014 INTEREST TYPE: ❑ NIC ®TiC ❑ Variable INTEREST COST: 4587896 % (all -In) CAPITAL APPRECIATION BOND: ❑ Yes ®No ISSUANCE COSTS AND FEES: A) Management Fee B) Total Takedown C) Underwriter Expenses Underwriter Spread or Discount $ 586.162.50 D) Bond Counsel $ 86246.15 E) Disclosure Counsel $ 50.485.55 F) Financial Advisor G) Rating Agency 14) Credit Enhancement 1) Trustee Fee J) Other Expenses Total Issuance Costs K) ORIGINAL ISSUE PREMIUM L) ORIGINAL ISSUE DISCOUNT M) NET ORIGINAL ISSUE DISCOUNT/PREMIUM $ 84.142.59 $ 12298616 $ 1.500.00 $ 153.446 95 $ 498.807 40 FOR OFFICE USE ONLY FEE: $ CERTIFICATE OF MAILING $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) I, Sheila L. Baldwin, of Stradling Yocca Carlson & Rauth, A Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, hereby state and certify that for and on behalf of the City of Newport Beach, and on the date hereof, 1 have caused to be mailed a Report of Final Sale relating to the above - captioned financing, postage prepaid, to the California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, California 95814, (www.treasurer.ca.gov /cdiac) a true copy of which Report is attached hereto. Dated: February 9, 2011 Sheila L. Baldwin STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation CDIAC Number: 2010 -1527 D 0 CS O C /13 8768 v l /022000 -0000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) and City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Rule 15c2 -12 Certificate The undersigned hereby certifies and represents that she is a duly appointed and acting authorized officer of the City of Newport Beach, California (the "City "), and as such is duly authorized to execute and deliver this certificate and further hereby certifies and reconfirms on behalf of the City as follows: (1) This certificate is delivered in connection with the offering and execution and delivery of the above - referenced certificates of participation (the "Certificates ") in order to enable the Underwriters of the Certificates to comply with Securities and Exchange Commission Rule 15c2 -12 under the Securities Exchange Act of 1934 ( as amended, the "Rule "). (2) In connection with the offering and sale of the Certificates, there has been prepared a Preliminary Official Statement dated November 10, 2010 setting forth information concerning the Certificates and the City (the "Preliminary Official Statement'). (3) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final within the meaning of the Rule. (4) As used herein, "Permitted Omissions" shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Certificates depending on such matters, all with respect to the Certificates. IN WITNESS WHEREOF, the undersigned has executed this certificate as of this 10a' day of November, 2010. CITY OF NEWPORT BEACH By: c� Davi Kiff City Manager $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE CITY The undersigned hereby states and certifies that: 1. I am the duly appointed, qualified and acting City Clerk of the City of Newport Beach, a chartered city and municipal corporation duly organized and existing under the Constitution and laws of the State of California (the "City "), and, as such, I am familiar with the facts herein certified and am authorized to certify the same. 2. At all times pertinent to the execution and delivery of the above - captioned certificates of participation (the "Certificates "), the City Council and certain City Officials are as follows: CITY COUNCIL Name Title Keith D. Curry Mayor Michael F. Henn Mayor Pro Tern Steven Rosansky Councilmember Don Webb Councilmember Leslie J. Daigle Councilmember Edward D. Selich Councilmember Nancy Gardner Councilmember CITY OFFICIALS Name Title David Kiff City Manager Tracy McCraner Director of Administrative Services /Treasurer Dan Matusiewicz Deputy Director of Administrative Services /Treasurer David R. Hunt City Attorney Leilani 1. Brown City Cleric DOCSOC/1445072v3/022459 -0014 3. Pursuant to Resolution No. 2010 -126 adopted by the City Council of the City on November 9, 2010, the following officials are duly authorized to execute documents on behalf of the City in connection with the execution and delivery of the Certificates and the signatures of each are true and correct specimens of their genuine signatures: Name Keith D. Curry David Kiff Tracy McCraner Leilani L Brown 4. City will- adoption [SEAL] Dated: 1\ Title Signature Mayor'/ City Manager 7� Director of Administrative Services /Treasurer f City Clerk Resolution No. 2010 -126 adopted on November 9, 2010 by the City Council of the sates, has not been amended, modified or rescinded since its date of effect as of the date hereof. CITY OF NEWPORT BEACH air P Its: City Clerk The undersigned Deputy City Clerk of the City of Newport Beach hereby certifies that the above signature is the true and correct signature of the City Clerk of the City of Newport Beach. of the City of Newport Beach 2 DOCSOC/ 1445072v3/022459 -0014 $20,085,000 $106,575,000 CITY OF NEWPORT BEACH CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY (CIVIC CENTER PROJECT/ TAXABLE DIRECT PAY BUILD AMERICA BONDS) CENTRAL LIBRARY REFUNDING) (CIVIC CENTER PROJECT) CLOSING CERTIFICATE OF THE CITY The undersigned, City Manager of the City of Newport Beach (the "City "), hereby certifies that: 1. The City is a chartered city and a municipal corporation duly organized and existing under the Constitution and laws of the State of California with full right, power and authority to execute, deliver and perform its obligations under (i) the Purchase Contract dated November 17, 2010 (the "Purchase Contract "), by and between Stone & Youngberg LLC, as Representative of the Underwriters listed therein, (ii) the Site Lease dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Newport Beach Public Facilities Corporation (the "Corporation "), (iii) the Lease/Purchase Agreement dated as of November 1, 2010 (the "Lease Agreement "), by and between the City and the Corporation, (iv) the Agency Agreement dated as of November 1, 2010 (the "Agency Agreement'), by and between the City and the Corporation, (v) the Escrow Agreement dated as of October 29, 2010 (the "Escrow Agreement), by and between the City and U.S. Bank National Association, (vi) the Trust Agreement dated as of November 1, 2010 (the "Trust Agreement'), by and among The Bank of New York Mellon Trust Company, N.A., as Trustee, the Corporation and the City and (vii) the Continuing Disclosure Agreement dated as November 1, 2010 (the "Continuing Disclosure Agreement," and collectively with the Purchase Contract, the Site Lease, the Lease Agreement, the Agency Agreement, the Escrow Agreement and the Trust Agreement, collectively, the "City Documents "), by and between the City and Digital Assurance Certification, L.L.C., as Dissemination Agent. 2. By official action of the City, the City Council through the adoption of Resolution No. 2010 -123 on October 26, 2010 and Resolution No. 2010 -126 on November 9, 2010 (the "Resolution "), has duly authorized and approved the execution and delivery of and the performance by the City of the obligations on its part contained in the City Documents, and, as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. The City is in compliance in all material respects with the terms of the City Documents. 3. The representations and warranties of the City contained in the Purchase Contract with respect to the execution and delivery by the City of the above - captioned certificates of participation (the "Certificates "), are true and correct in all material respects on and as of the date of hereof as if made on the date of the hereof. 4. The exceptions set forth in the title insurance policies issued by Fidelity National Title Company do not materially impair the use of the Leased Premises for the purposes for which they are, or may reasonably be expected to be held. 5. This certificate is being delivered in satisfaction of the conditions of Section 9(1)(1 5) of the Purchase Contract. DOCSOC/ 1445072v3/022459 -0014 All capitalized terms used herein and not defined shall have the meanings given them in the Purchase Contract. Dated: November 30, 2010 CITY OF NEWPORT BEACH By: C,- 1Uk Its: City anager DOCSOC /1445072v3/022459 -001.4 $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) INSTRUCTIONS TO TRUSTEE The undersigned hereby states and certifies to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), in its capacity under the Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among the Trustee, the City of Newport Beach (the "City") and the Newport Beach Public Facilities Corporation (the "Corporation "), that: 1. The undersigned is the City Manager of the City with authority to instruct the Trustee regarding the application and disbursement of the proceeds of and the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project), in the aggregate principal amount of $20,085,000 and City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project), in the aggregate principal amount of $106,575,000 (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates ") to be executed and delivered pursuant to the Trust Agreement. 2. The Trustee is hereby authorized and directed to execute the Certificates in an aggregate principal amount of $126,660,000 and to deliver the Certificates as FAST Agent for The Depository Trust Company for credit to the account of Stone & Youngberg LLC, as Representative of itself and the underwriters (collectively, the "Underwriter ") upon receipt of the purchase price of the 2010A Certificates, in an aggregate amount of $21,129,832.05 (consisting of the principal amount of $20,085,000, plus original issue premium of $1,155,299.55, and less an Underwriter's discount of $110,467.50) and the purchase price of the 2010B Certificates, in an aggregate amount of $105,988,837.50 (consisting of the principal amount of $106,575,000 less an Underwriter's discount of $586,162.50). The Trustee is instructed to deposit and transfer or to cause the deposit of the net proceeds as follows: 2010A Certificates of Participation $ 17,509,969.90 shall be deposited in the 2010A Account of the Project Fund 94,004.65 shall be deposited in the Delivery Costs Subaccount of the 2010A Account of the Project Fund to pay Delivery Costs related to the 2010A Certificates 3,525,857.50 shall be transferred to the Escrow Agent for deposit in the Escrow Fund $ 21,129,832.05 TOTAL 2010A PROCEEDS RECEIVED DOCS OC/ 1445072v3/022459 -0014 2010B Certificates of Participation $ 105,490,030.10 shall be deposited in the 2010B Account of the Project Fund 498,807.40 shall be deposited in the Delivery Costs Subaccount of the 2010B Account of the Project Fund to pay Delivery Costs related to the 2010B Certificates $ 105,988,837.50 TOTAL 2010B PROCEEDS RECEIVED All capitalized terms used herein and not defined shall have the meanings given them in the Trust Agreement. Dated: November 30, 2010 DOCSOC /] 445072v3/022459 -001.4 CITY OF NEWPORT BEACH By: Its: City Vf ia ages $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) WRITTEN DELIVERY COSTS REQUISITION To: The Bank of New York Mellon Trust Company, N.A., as Trustee Re: Disbursement from the Delivery Costs Account of the 2010A Account of the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) dated as of November 1, 2010 (the "Trust Agreement'), by and among you, as Trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City „) REQUISITION NO.1 Upon presentation of an invoice, you are hereby instructed to pay to the parties in an amount not in excess of the amount listed on Schedule I attached hereto, as a Delivery Cost from the Delivery Costs Account of the 2010A Account of the Project Fund as provided in Section 3.03 of the Trust Agreement. These Delivery Costs have been properly incurred, are a proper charge against the Delivery Costs Account of the 2010A Account of the Project Fund and have not been the basis of any previous disbursements. On June 15, 2011, or upon the earlier written request of a City Representative, all amounts remaining in the Delivery Costs Account of the 2010A Account of the Project Fund shall be transferred by the Trustee to the 2010A Account of the Project Fund. 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 OF NEWPORT BEACH By: CA Its: City Manager DOCS OC/ 1445072v3/022459 -0014 cY�]I��ff11�1 2010A ESTIMATED DELIVERY COSTS Payee Stradling Yocca Carlson & Rauth The Bank of New York Mellon Trust Company, N.A. Moody's Investor Services Standard & Poor's Ratings Services Purpose Special Counsel Fees and Expenses Trustee Fee and Trustee Counsel Fee and Expenses Rating Agency Fee Rating Agency Fee Fitch Ratings Rating Agency Fee Image Master Printing and Mailing of Preliminary Official Statement and Official Statement Fidelity National Title Company Hawkins Delafield & Wood LLP U.S. Bank National Association City of Newport Beach City of Newport Beach City of Newport Beach City of Newport Beach TOTAL DOCSOC/ 1445072v3/022459 -0014 Title Insurance Premium Disclosure Counsel Fees and Expenses Escrow Bank Fees Reimbursement for Appraisal Services Reimbursement for Financial Advisor Fees and Expenses Reimbursement for Data Collected for Credit Presentation Reimbursement for Travel Expenses SCHEDULE I -1 Amount $ 16,253.85 500.00 9,540.46 6,501.54 7,135.84 630.47 9,234.72 9,514.45 650.00 7,294.41 15,857.41 W111; 245.96 $ 83.415.11 $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010E (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) WRITTEN DELIVERY COSTS REQUISITION To: The Bank of New York Mellon Trust Company, N.A., as Trustee Re: Disbursement from the Delivery Costs Account of the 2010E Account of the Project Fund pursuant to Section 3.03 of the Trust Agreement related to the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) dated as of November 1, 2010 (the "Trust Agreement'), by and among you, as Trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City") REQUISITION NO.1 Upon presentation of an invoice, you are hereby instructed to pay to the parties in an amount not in excess of the amount listed on Schedule I attached hereto, as a Delivery Cost from the Delivery Costs Account of the 2010B Account of the Project Fund as provided in Section 3.03 of the Trust Agreement. These Delivery Costs have been properly incurred, are a proper charge against the Delivery Costs Account of the 2010B Account of the Project Fund and have not been the basis of any previous disbursements. On June 15, 2011, or upon the earlier written request of a City Representative, all amounts remaining in the Delivery Costs Account of the 2010B Account of the Project Fund shall be transferred by the Trustee to the 2010B Account of the Project Fund. 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 OF NEWPORT BEACH By: G.. "- Its: City nager DOC SOC/1445072v3/022459 -0014 SCHEDULEI 2010B ESTIMATED DELIVERY COSTS Payee Stradling Yocca Carlson & Rauth The Bank of New York Mellon Trust Company, N.A. Fieldman, Rolapp & Associates Moody's Investor Services Standard & Poor's Ratings Services Purpose Special Counsel Fees and Expenses Trustee Fee and Trustee Counsel Fee and Expenses Financial Advisor Fees and Expenses Rating Agency Fee Rating Agency Fee Fitch Ratings Rating Agency Fee Image Master Printing and Mailing of Preliminary Official Statement and Official Statement Fidelity National Title Company Hawkins Delafield & Wood LLP City of Newport Beach City of Newport Beach City of Newport Beach City of Newport Beach TOTAL DOCSOC/ 1445072v3/022459 -0014 Title Insurance Premium Disclosure Counsel Fees and Expenses Reimbursement for Appraisal Services Reimbursement for Financial Advisor Fees and Expenses Reimbursement for Data Collected for Credit Presentation Reimbursement for Travel Expenses Amount $ 86,246.15 1,500.00 25,306.50 50,623.54 34,498.46 37,864.16 3,345.38 49,001.28 50,485.55 38,705.59 58,836.09 294.00 1.291.30 $ 437.998.00 $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) TAX CERTIFICATE The City of Newport Beach (the "Issuer ") hereby makes the following representations of facts and expectations and covenants to comply with the requirements of this Tax Certificate in connection with the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Obligations "). These representations and covenants are in furtherance of the covenants contained in Section 8.07 of the Trust Agreement dated as of November 1, 2010 (the "Issuance Document "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Newport Beach Public Facilities Corporation (the "Corporation ") and the Issuer, and in part are made pursuant to Section 1.141- 2(d)(2) and Section 1.148- 2(b)(2) of the Treasury Regulations. Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings set forth in the Issuance Document. I. General Matters. (a) Authority for Issuance. The undersigned and other officers and members of the Issuer are charged with the responsibility of authorizing and requesting the execution and delivery of the Obligations. The Obligations are being executed and delivered pursuant to the laws of the State of California. (b) Sale of Obligations. The Obligations are being delivered to Stone & Youngberg LLC, acting on behalf of itself and as representative (the "Representative ") of E.J. De La Rosa & Co., Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James (collectively, the "Underwriters ") on the date hereof. (c) Purpose of Obligations. The Obligations are being sold and delivered for the purpose of (i) providing for the acquisition, improvements and equipping a new Civic Center (the "2010 Project"), (ii) currently refunding the City's outstanding Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "Current Refunded Obligations ") and (iii) paying costs of issuance with respect to the Obligations (the "Issuance Costs "). The Current Refunded Obligations were executed and delivered to advance refund the Issuer's Certificates of Participation, Series 1992 (the "1992 Bonds "). The 1992 Bonds were issued for new money purposes (the "1992 Project, which together with the 2010 Project, is referred to as the "Project "). (d) Nature of Issue. All the Obligations are being sold and issued at the same time, have been sold pursuant to the same plan of financing, and are reasonably expected to be paid from DOCSOC /1450646v 1/022459 -0014 substantially the same source of funds. On the date hereof, the Issuer is also delivering its $106,575,000 Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Taxable Certificates "). The Taxable Certificates will be considered a separate issue of certificates from the Obligations. Other than the Taxable Certificates, no other governmental bonds not described above which are reasonably expected to be paid from substantially the same source of funds are being sold or issued at substantially the same time as the sale or issue date of the Obligations and sold pursuant to the same plan of financing as the Obligations. The Obligations are a single issue of bonds for certain federal income tax purposes relating to the exclusion from gross income of interest on the Obligations. (e) Purpose of Tax Certificate. The Issuer is executing this Tax Certificate (including all exhibits hereto) with the understanding and acknowledgement that Stradling Yocca Carlson & Rauth, a Professional Corporation ( "Special Counsel ") will rely on the representations and certifications made in this Tax Certificate (including all exhibits hereto) in rendering its opinion that interest on the Obligations is excluded from gross income for federal income tax purposes, and the execution of this Tax Certificate is necessary to ensure that interest on the Obligations is excluded from gross income for federal income tax purposes. IL Private Activity. (a) Governmental Use of Proceeds. Except as provided below, absent an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the Obligations will not be adversely affected for federal income tax purposes, the Issuer will not allow any of the proceeds of the Obligations, or any refinanced obligations thereof, or any of the facilities financed or refinanced with such obligations to be used in the trade or business of any nongovernmental persons (other than in their roles as members of the general public) and will not loan any of the proceeds of the Obligations or any refinanced obligations to any nongovernmental persons. In furtherance of the foregoing, the Issuer represents the following with respect to the use of proceeds of the Obligations and the facilities financed and refinanced therewith. (b) In General. No more than 10% of the, proceeds of the Obligations or the Project (based on the cost of the components of the Project or, with respect to a unitary structure, on the relative fair rental value of such components) has been or will be used in the aggregate for any activities that constitute a "Private Use" (as such term is defined in Section (e) below). No more than 10% of the principal of or interest on the Obligations, under the terms thereof or any underlying arrangement, has been or will be secured by any interest in property (whether or not the Project) used for a Private Use or in payments in respect of property used for a Private Use, or will be derived from payments in respect of property used for a Private Use. (c) No Private Loan Financing. No more than the lesser of 5% of the proceeds of the Obligations or $5,000,000 will be used to make or finance loans to any person other than to a state or local governmental unit (other than loans to finance any governmental tax or assessment of general application for a specific essential governmental function or loans that are used to acquire or carry Nonpurpose Investments (as such term is defined below)). (d) No Disproportionate or Unrelated Use. No more than 5% of the proceeds of the Obligations or the Project has been or will be used for a Private Use that is unrelated or 2 DOCSOC/1450646v1/022459 -0014 disproportionate to the governmental use of the proceeds of the Obligations (an "Unrelated or Disproportionate Use "), and no more than 5% of the principal of or interest on any of the Obligations has been or will be, under the terms of the Obligations or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use that is an Unrelated or Disproportionate Use or in payments in respect of property used or to be used for a Private Use that is an Unrelated or Disproportionate Use. (e) Definition of Private Use. For purposes of this Tax Certificate, the term "Private Use" means any activity that constitutes a trade or business that is carried on by persons or entities other than governmental entities. The leasing of property financed or refinanced with proceeds of the Obligations or the use by or the access of a person or entity other than a governmental unit to property or services on a basis other than as a member of the general public shall constitute a Private Use. (f) Management and Service Contracts. With respect to management and service contracts, the determination of whether a particular use constitutes Private Use under this Tax Certificate shall be determined on the basis of applying the relevant sections of the Treasury Regulations and Revenue Procedure 97 -13. As of the date hereof, no portion of the proceeds derived from the sale of the Obligations is being used to provide property subject to contracts or other arrangements with persons or entities engaged in a trade or business (other than governmental units) that involve the management of property or the provision of services with respect to property financed or refinanced by proceeds of the Obligations that do not comply with the standards of the Treasury Regulations or Revenue Procedure 97 -13. III. Arbitrage Certifications. The following states the expectations of the Issuer with respect to the amount and uses of the proceeds of the Obligations and certain other monies or property: (a) Source and Use of Funds. The total proceeds to be derived by the Issuer from the sale of the Obligations, in the aggregate amount of $21,129,832.05 (representing $20,085,000.00 face amount of the Obligations, plus original premium of $1,155,299.55, and less Underwriter's discount of $110,467.50) are expected to be needed and fully expended as follows: (i) $94,004.65 of such proceeds will be deposited in the Delivery Costs Subaccount of the 2010A Account of the Project Fund and, together with investment earnings thereon, will be expended to pay Issuance Costs within one year of the date hereof; (ii) $17,509,969.90 of such proceeds will be deposited in the 2010A Account of the Project Fund; and (iii) $3,525,857.50 of such proceeds will be deposited in the Escrow Fund and will be utilized to prepay the Current Refunded Obligations on December 1, 2010. 3 DOCS OC/ 1450646v 1/022459-0014 (b) Refunding Plan (i) Current Refunding Escrow Fund. $3,525,857.50 of proceeds of the Obligations, together with $565,655.00 previously held in the Reserve Fund with respect the Current Refunded Obligations, will be utilized to repay the Current Refunded Obligations, including accrued interest thereon on December 1, 2010. (ii) Purpose of Refunding. The Obligations are being executed and delivered for purposes of providing present value debt service savings to the Issuer. The refunding of the Current Refunded Obligations does not involve a device employed to obtain a material financial advantage. (iii) Other Monies. Other than as described above, no unexpended proceeds exist with respect to the Current ,Refunded Obligations. (c) Over - Issuance. The total proceeds to be received by the Issuer from the sale of the Obligations, together with anticipated investment earnings thereon, do not exceed the total amount necessary for the purposes described above. (d) Temporary Period. The Issuer has entered or will enter within six months of the date hereof a binding obligation to expend at least five percent (5 1/o) of the new money proceeds of the Obligations on the Projects. Work on the construction and installation of the Projects will proceed with due diligence to the completion thereof, and at least eighty -five percent (85 %) of the new money proceeds derived from the sale of the Obligations will be expended within three years of the date hereof on the Projects. (e) Reimbursement. No costs paid prior to the date hereof are being reimbursed with proceeds of the Obligations. (t) Funds and Accounts. The Issuance Document creates and establishes the following funds and accounts with respect to the Obligations: (i) the Project Fund, and within such fund, (A) the 2010A Account and within such account, (1) the Delivery Costs Subaccount; (ii) the Prepayment Fund, and within such fund, - (A) the 2010A Account; (iii) the Lease Payment Fund, and within such fund, (A) the 2010A Account and within such account, (1) the Interest Subaccount; (iv) the Net Proceeds Fund; and DOCSOC /1450646v 1 /022459 -0014 (v) the 201 OA Account of the Rebate Fund. (g) Sinking Funds. (i) Bona Fide Debt Service Funds. The 2010A Account of the Lease Payment Fund (other than the Interest Subaccount held therein) and the 2010A Account of the Prepayment Fund (to the extent such funds will be depleted at least one time each year) (the "Bona Fide Debt Service Fund "), will be used primarily to achieve a proper matching of revenues (and certain other monies) and payments of principal and interest with respect to the Obligations within each year. Amounts deposited in the Bona Fide Debt Service Fund will be depleted at least once a year except for a reasonable carryover amount, if any, which, in the aggregate, will not exceed the greater of (i) one year's earnings on such fund for the immediately preceding bond year, or (ii) one - twelfth of the annual debt service with respect to the Obligations for the immediately preceding bond year. (ii) Reserved. (iii) No Other Proceeds. Other than the Bona Fide Debt Service Fund, there are no funds or accounts of the Issuer established pursuant to the Issuance Document, or otherwise, that are reasonably expected to be used for the payment of principal and interest with respect to the Obligations or that are pledged as collateral for the Obligations and for which there is a reasonable assurance that amounts on deposit therein will be available for the payment of principal and interest with respect to the Obligations if the Issuer encounters financial difficulties. The term of the Obligations is not longer than is reasonably necessary for the governmental purpose of the issue, and the weighted average maturity of the Obligations does not exceed 120 percent of the average reasonably expected economic life of the financed and refinanced Project. (h) Rebate Liability Account. Amounts deposited in the Rebate Fund are to assist the Issuer with compliance of Section 148(f) of the Code. (i) Investment. The proceeds derived from the sale of the Obligations and the amounts on deposit in the aforementioned funds and accounts may be invested as follows: (i) Amounts deposited in the Bona Fide Debt Service Fund may be invested at an unrestricted yield for a period not in excess of 13 months from the date of deposit of such amounts to such funds. Amounts described in the previous sentence that may not be invested at an unrestricted yield pursuant to such Subparagraph shall be invested either at a yield not in excess of the yield on the Obligations or in "Fax- Exempt Obligations" (as defined in Section IV hereof). (ii) Proceeds of the Obligations held to pay Project costs and Issuance Costs, or in the Rebate Fund may be invested at an unrestricted yield for a period of three years from the date hereof. (iii) Investment earnings on obligations acquired with the amounts described in Subparagraph (ii) may be invested at an unrestricted yield for a period not to exceed the applicable period described in Subparagraph (ii) or one year from the date of receipt, whichever period is longer. 5 DOC SOC/ 1450646v 1/022459-0014 (iv) Other than an amount not to exceed $100,000.00, amounts described in Subparagraphs (ii) and (iii) above that may not be invested at an unrestricted yield pursuant to such Subparagraph and any monies held in the Net Proceeds Fund shall be invested either at a yield not in excess of the yield on the Obligations or in Tax - Exempt Obligations. (v) Amounts held in the Escrow Fund and in the Rebate Fund (not described above) may be invested at an unrestricted yield. (vi) Absent an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the Obligations will not be adversely affected for federal income tax purposes, amounts held in the Net Proceeds Fund will be invested at a yield not in excess of the yield on the Obligations. 0) Yield. For purposes of this Section III of this Tax Certificate, yield is calculated as set forth in Section 148 of the Code and Section 1.148 -4 of the Treasury Regulations. Thus, yield generally means that discount rate which when used in computing the present value of all unconditionally payable payments representing principal, interest, and the fees of qualified guarantees paid and to be paid with respect to the Obligations produces an amount equal to the issue price of the Obligations. The issue price of the Obligations is $21,240,299.55 which is equal to the initial offering price of the Obligations to the public (excluding bond houses, brokers and similar persons acting in the capacity of purchasers or wholesalers) at which a substantial amount (at least 10 percent) of each maturity of the Obligations was or is reasonably expected to be sold, as represented by the Underwriter in Exhibit C. Certain certifications relating to the computation of the yield with respect to the Obligations are contained in Exhibit C. The yield on the Obligations, calculated as described above, is not more than 2.185672 percent. Yield with respect to the obligations allocable to proceeds of the Obligations, is that discount rate which when used in computing the present worth of the payments of principal and interest with respect to the obligations produces an amount equal to the purchase price of the obligation. (k) No Artifice or Device. The Obligations are not and will not be part of a transaction or series of transactions (i) that attempts to circumvent the provisions of Section 148 of the Code, or any successor thereto, and the regulations promulgated thereunder or under any predecessor thereto, enabling the Issuer or any related person to exploit the difference between tax - exempt and taxable interest rates to gain a material financial advantage, and (ii) that increases the burden on the market for tax - exempt obligations in any manner, including, without limitation, by selling bonds that would not otherwise be sold, or selling more bonds, or issuing bonds sooner, or allowing bonds to remain outstanding longer, than otherwise would be necessary. IV. Rebate Compliance. (a) Covenants. The Issuer hereby covenants to comply with the rebate requirements of Section 148(f) of the Code. The Issuer acknowledges that the United States Department of the Treasury has issued certain regulations with respect to certain requirements relating to compliance with Section 148(f) of the Code. The Issuer covenants that it will detennine precisely what is required with respect to Section 148(f) of the Code and will comply with any requirements applicable to the Obligations. DOCSOC/1450646vt/022459 -0014 The Issuer acknowledges that, to the extent that an exception to the rebate requirements of Section 148(f) of the Code is not available with respect to the Obligations, under Section 148(1) of the Code, the federal government must be paid the sum of (i) the excess of the amount earned on all "nonpurpose investments" with respect to the Obligations over the amount that would have been earned had such investments been invested at a rate equal to the yield with respect to the Obligations, plus (ii) any income attributable to the excess described in (i) (the "Rebate Requirement'). The Issuer acknowledges that currently, unless an exception to the Rebate Requirement is available, compliance with Section 148(f) of the Code generally involves a multi -step process: (1) ascertaining the funds (the "Gross Proceeds ") and investments (the "Nonpurpose Investments ") subject to the Rebate Requirement of Section 1480 of the Code after applying, if applicable, a universal cap with respect to the Obligations (the "Universal Cap "), (2) creating an investment history cash flow report with respect to the investment of Gross Proceeds of the Obligations, (3) determining the yield with respect to the Obligations (the "Yield "), (4) future valuing receipts and payments in the cash flow report (including certain deemed receipts and payments) using the Yield as the discount factor, and (5) determining the amount of rebatable arbitrage with respect to the Obligations and paying the appropriate amount to the United States Treasury. See Treas. Reg. §§ 1.148 -0 through 1.148 -11, 1.149(d) -1, and 1.150 -1 for rules with respect to rebate compliance methodology. See Subparagraph (b)(i) below for a description of Nonpurpose Investments with respect to the Obligations, Subparagraph (b)(ii) below for a description of Gross Proceeds of the Obligations, Subparagraph (b)(iii) below for the description of a Universal Cap with respect to the Obligations, Subparagraph (b)(iv) below for a description of Yield with respect to the Obligations for purposes of compliance with Section 148(1) of the Code, and Subparagraph (d) with respect to permitted investment of Gross Proceeds. The Issuer also acknowledges that additional or different requirements may be applicable to the Obligations if certain exceptions are satisfied. See Paragraph (c) herein. (b) Operative Terms. (i) Nonpurpose Investments. Subject to the limitation in Subparagraph (b)(iii) below, Nonpurpose Investments are generally securities, obligations, annuity contracts or any other investment -type property that are not acquired to carry out the governmental purpose of the Obligations that are allocated to Gross Proceeds. However, Nonpurpose Investments do not include: (A) United States Treasury - State and Local Government Series, Demand Deposit Securities; or (B) tax - exempt obligations. The term "tax- exempt obligations" for the purposes of this Tax Certificate includes (i) obligations the interest on which is excludable from gross income for federal income tax purposes, and not treated as an item of tax preference under Section 57(a)(5)(C) of the Code, (ii) an interest in a regulated investment company to the extent that at least ninety -five percent (95 %) of the income to the holder of the interest is excludable from gross income under Section 103 of the Code, and (iii) a certificate of indebtedness issued by the United States Treasury pursuant to the State and Local Government Series program described in 31 CFR Part 344. 7 DOCSOC /1450646v 1/022459 -0014 (ii) Gross Proceeds. Subject to the limitation in Subparagraph (b)(iii) below, "Gross Proceeds" with respect to the Obligations means: (A) amounts actually or constructively received from the sale (or other disposition) of the Obligations; (B) amounts actually or constructively received from investing amounts described in (A); (C) amounts (other than proceeds derived from the sale of the Obligations) that are reasonably expected to be or are in fact used to pay debt service with respect to the Obligations; (D) amounts pledged as security for the payment of debt service with respect to the Obligations or otherwise serving as a reserve fund with respect to the Obligations; (E) "transferred proceeds" of the Obligations; and (F) any other amounts which are replacement proceeds of the Obligations within the meaning of Treasury Regulation § 1.148 -1(c). (iii) Universal Can. Except as provided below, in no event shall the value of Nonpurpose Investments allocated to Gross Proceeds of the Obligations exceed the Universal Cap of the Obligations computed in accordance with Section 1.148 -6 of the Treasury Regulations. The Universal Cap of the Obligations is equal to the value of the outstanding Obligations computed in accordance with Section 1.148 -4 of the Treasury Regulations. The value of a Nonpurpose Investment on a date allocated to Gross Proceeds of the Obligations for this purpose is equal to the value of such investment in accordance with Treasury Regulation § 1.148 -5(d). The Universal Cap value and the value of Nonpurpose Investments are to be computed as of the first day of each bond year that commences after the second anniversary of the issue date and if the applicable obligations, are a refunding issue, as of each date that, without regard to the Universal Cap, proceeds of any refunded issue become "transferred proceeds" of the Obligations within the meaning of Section 1.148 -9 of the Treasury Regulations (a "Cap Computation Date "). Amounts described in Subparagraph (c)(i) are not subject to the Universal Cap. Between Cap Computation Dates, Nonpurpose Investments cease to be allocated to the Obligations to the extent they are expended or otherwise cease to be allocated to the Obligations under Section 1.148 -6 of the Treasury Regulations. To the extent Nonpurpose Investments cease to be allocated to the obligations of an Obligations, other investments become so allocated up to the amount of the unused Universal Cap, computed in accordance with Section 1.148 -6 of the Treasury Regulations. If on a Cap Computation Date Nonpurpose Investments have a value in excess of the Universal Cap, an amount of such investments necessary to eliminate that excess ceases to be allocated to the Obligations. Nonpurpose Investments cease to be allocated to the Obligations in the following order, within the meaning of Section 1.148 -6 of the Treasury Regulations: 8 DOCS OC/ 1450646v 1/022459-0014 (1) first, amounts held in a sinking fund, pledged fund, or reserve or replacement fund for the Obligations (other than proceeds derived from the sale of the Obligations), (2) second, transferred proceeds, (3) third, proceeds derived from the sale of the Obligations and earnings thereon, all within the meaning of Section 1.148 -6 of the Treasury Regulations, and (4) A failure to do a Universal Cap calculation on a Cap Computation Date will not result in noncompliance with Section 148(f) of the Code if, in the absence of that failure, the Obligations would have satisfied the Rebate Requirement. (iv) Yield See Section III hereof. (c) Rebate Exception. (i) Bona Fide Debt Service Funds. The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to amounts earned on funds in the Bona Fide Debt Service Funds. (ii) Expenditure Exceptions. There are three expenditure exceptions from the Rebate Requirement - the "Two -Year Exception," the "Six -Month Exception," and the "Eighteen -Month Exception." The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to that portion of the proceeds of the Obligations described in each applicable Subclause (1) below of each Clause (A), (B), and (C), if the applicable requirements set forth in each applicable Subclause (2) below are satisfied of each Clause (A), (B), and (C). (A) Two -Year Exception. (1) The portion of the "available construction proceeds" (as defined below) of the Obligations at least 75 percent of which are to be used for construction expenditures (including reconstruction and rehabilitation) with respect to property that is to be owned by a governmental unit or an organization described in Section 501(c)(3) of the Code and exempt from federal income tax under Section 501(a) of the Code is described in this Subclause. The term "available construction proceeds" means an amount equal to the portion of the issue price (as defined in Section III of this Tax Certificate) of the Obligations described in this Subclause, increased by earnings thereon. Available construction proceeds do not include amounts to be used to pay Issuance Costs of the Obligations. (2) This exception will be treated as being satisfied if at least 10% of the available construction proceeds of the Obligations are expended for the governmental purposes of the Obligations within the six -month period beginning on the date of issue of the Obligations, at least 45% of such 9 DOCSOC /1450646v 1/022459-0014 amounts are expended for the governmental purposes of the Obligations within the one -year period beginning on the date of issue of the Obligations, at least 75% of such amounts are expended for the governmental purposes of the Obligations within the 18 -month period beginning on the date of issue of the Obligations, and all of such amounts are expended for the governmental purposes of the Obligations within the two -year period beginning on the date of issue of the Obligations. The requirement that 100% of the available construction proceeds of the Obligations be expended within two years may be reduced to not below 95% provided that the amount not expended is held by the Issuer for a period not exceeding one year as a "reasonable retainage" as required or permitted by construction contracts with contractors. The requirement that 100% of the Gross Proceeds be expended within two years may be reduced by an amount equal to the lesser of 3% of the issue price of the Obligations or $250,000.00 if the Issuer exercised due diligence to complete the Project. (B) Six -Month Exception. The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to the portion of the proceeds of the Obligations described in Subclause (1) below if the requirements described in Subclause (2) below are satisfied. (1) All Gross Proceeds of the Obligations (other than "transferred proceeds" of the Obligations, and amounts described in Subparagraph (c)(i) of this Section IV of this Tax Certificate), are described in this Subclause. (2) This exception will be treated as having been satisfied if all Gross Proceeds of the Obligations subject to this exception are expended for the governmental purposes of the Obligations no later than the day that is six months after the date of issue of the Obligations. (C) Eighteen -Month Exception. The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to the portion of the proceeds of the Obligations described in Subclause (1) below if the requirements described in Subclause (2) below are satisfied. (1) All Gross Proceeds of the Obligations allocable to new money purposes that may be invested at an unrestricted yield, including reasonably expected investment earnings as of the date hereof (other than amounts described in Subparagraph (c)(i) of this Tax Certificate) are described in this Subclause. (2) This exception will be treated as being satisfied if at least 15% of such monies are expended for the governmental purposes of the Obligations within the six -month period beginning on the date of issue of the Obligations, at least 60% of such monies are expended for the governmental purposes of the Obligations within the one -year period beginning on the date of issue of the Obligations, and 100% of such monies are expended for the governmental purpose of the Obligations within the 18 -month period beginning on the date of issue of the Obligations. The requirement that 100% 10 DOCS OC/ 145 0646v 1 /022459 -0014 of the Gross Proceeds be expended within 18 months may be reduced to not below five percent (5 %) of the proceeds derived from the sale of the Obligations subject to this exception that is retained for reasonable business purposes relating to the property financed with the Obligations provided such monies are expended within 30 months of the issue date of the Obligations. Additionally, the requirement that 100% of the Gross Proceeds be expended within 18 months may be reduced by an amount equal to the lesser of 3% of the issue price of the Obligations or $250,000.00 if the Issuer exercised due diligence to complete the Project. (ii) Exnectations. The Issuer reasonably expects that at least seventy -five percent of the proceeds of the Obligations deposited in the Project Fund, and earnings thereon, are expected to be used for Project construction expenditures. (iii) Elections. (1) Seventy -Five Percent Test. Pursuant to Treasury Regulation § 1.148- 7(f)(1)(i), the Issuer expressly elects to satisfy the requirements of Section 148(0(4)(Q(iv)(I) of the Code based upon its reasonable expectations. (2) Penalty in Lieu of Rebate. Pursuant to Section 148(f)(4)(C)(vii) of the Code, the Issuer may elect, on the date hereof, to pay a penalty (the "1 %z% Penalty "), with respect to each six -month period after the date the Obligations are issued, equal to 1'/2 percent of the amount of available construction proceeds (as described above), which as of the close of the six -month period are not spent as required by Paragraph (c)(ii)(A)(2). The 1%% Penalty shall cease to apply: (A) if the available construction proceeds are expended, (B) if a special three percent penalty (the "3% Penalty ") is paid in accordance with Section 148(f)(4)(C) of the Code, or (C) after the latest maturity date of any Obligation (including any refunding bond). All penalties are to be paid to the United States not later than 90 days after the period to which the penalty relates. The Issuer expressly does not elect to pay the penalty described in Section 148(f)(4)(C)(vii) of the Code in lieu of the Rebate Requirement described in Section 148(f)(2) of the Code, the 3% Penalty described in Section 148(f)(4)(C)(viii) of the Code, or to terminate the 1' /z% Penalty pursuant to Section 148(f)(4)(C)(ix) of the Code. Additionally, the Issuer expressly does not elect to exclude earnings on any reasonably required reserve fund as available construction proceeds pursuant to Section 148(t)(4)(C)(vi)(N) of the Code. (3) Bifurcation. The Issuer expressly does not elect to treat the issue of Obligations as separate bond issues for purposes of Section 148(f)(4) of the Code other than between new money and refunding purposes. (d) Prohibited Investments and Dispositions. The Issuer acknowledges that compliance with Section 148(1) of the Code may involve taking no action to artificially reduce the Rebate Requirement by the manner of investing Gross Proceeds. The Issuer covenants that absent an opinion of nationally recognized bond counsel that the exclusion from gross income of interest with 11 DOCSO C/1450646v 1 /022459 -0014 respect to the Obligations will not be adversely affected, it wilt comply with the rules of this Subsection to assure compliance with Section 148(f) of the Code. (i) No Nonpurpose Investment may be acquired with Gross Proceeds for an amount in excess of the fair market value of such Nonpurpose Investment. No Nonpurpose Investment may be sold or otherwise disposed of for an amount Less than the fair market value of the Nonpurpose Investment. (ii) The fair market value of any Nonpurpose Investment is the price which a willing buyer would pay to a willing seller to acquire the Nonpurpose Investment in a bona fide, arm's - length transaction, with no amounts to artificially reduce or increase the yield on the Nonpurpose Investment. Fair market value generally is determined on the date on which a contract to purchase or sell the Nonpurpose Investment becomes binding (i.e., the trade date rather than the settlement date). The purchase or sales price of a Nonpurpose Investment is not adjusted (except as provided below) to take into account any administrative costs of the Nonpurpose Investment. For calendar year 2010, a brokerage commission or similar fee for an investment contract is included as a receipt with respect to the investment contract and for investments for a yield restricted defeasance escrow to the extent the commission exceeds the lesser of (A) $35,000.00 and (B) .2% of the computational base or, if more, $4,000; provided, a brokers fee or similar fee is included as a receipt to the extent all brokers fees or similar fees of the issue of Bonds exceed $99,000.00. For purposes of this Tax Certificate "computational base" means (A) for a guaranteed investment contract, the amount of Gross Proceeds to be deposited in the contract, and (B) for investments (other than guaranteed investment contracts) to be deposited in a yield restricted defeasance escrow, the amount of Gross Proceeds initially invested in those investments. For subsequent calendar years, the dollar limits described in this Subsection may be increased for cost-of-living adjustments. See Treas. Reg. § 1.148- 5(e)(2)(iii). Certain administrative costs, including reasonable direct administrative costs, other than carrying costs, such as brokerage commissions or selling commissions, but not legal and accounting fees, recordkeeping, custody and similar costs, may be taken into account in computing the Rebate Requirement with respect to investments. See Treas. Reg. § 1.148 -5. General overhead costs and similar indirect costs of the Issuer such as employee salaries and office expenses and costs of computing rebatable arbitrage may not be taken into account. The following provisions provide guidelines as to when the Nonpurpose Investment will be deemed to be acquired for its fair market value. Other methods may be used, however, to establish fair market value. (iii) Nonpurpose Investments that are investment contracts and investments purchased for a yield restricted defeasance escrow will be considered acquired and disposed of for an amount equal to the fair market value of such obligations if the following requirements are satisfied: (A) The Issuer makes a bona fide solicitation for the purchase of the investment. A bona fide solicitation is a solicitation that satisfies all of the following requirements: (1) The bid specifications are in writing and are timely forwarded to potential providers. 12 DOC SOC/1 450646v 1 /022459 -0014 (2) The bid specifications include all material terms of the bid. A term is material if it may directly or indirectly affect the yield or the cost of the investment. (3) The bid specifications include a statement notifying potential providers that submission of a bid is a representation that the potential provider did not consult with any other potential provider about its bid, that the bid was determined without regard to any other formal or informal agreement that the potential provider has with the Issuer or any other person (whether or not in connection with the bond issue), and that the bid is not being submitted solely as a courtesy to the Issuer or any other person for purposes of satisfying the requirements of paragraph (13)(1) or (2) below. (4) The terms of the bid specifications are commercially reasonable. A term is commercially reasonable if there is a legitimate business purpose for the term other than to increase the purchase price or reduce- the yield of the investment. For example, for solicitations of investments for a yield restricted defeasance escrow, the hold firm period must be no longer than the Issuer reasonably requires. (5) For purchases of guaranteed investment contracts only, the terms of the solicitation take into account the Issuer's reasonably expected deposit and drawdown schedule for the amounts to be invested. (6) All potential providers have an equal opportunity to bid. For example, no potential provider is given the opportunity to review other bids (i.e., a last look) before providing a bid. (7) At least three reasonably competitive providers are solicited for bids. A reasonably competitive provider is a provider that has an established industry reputation as a competitive provider of the type of investments being purchased. (B) The bids received by the Issuer meet all of the following requirements: (1) The Issuer receives at least three bids from providers that the Issuer solicited under a bona fide solicitation meeting the requirements of paragraph (A) of this section and that do not have a material financial interest in the issue. A lead underwriter in a negotiated underwriting transaction is deemed to have a material financial interest in the issue until 15 days after the issue date of the issue. In addition, any entity acting as a financial advisor with respect to the purchase of the investment at the time the bid specifications are forwarded to potential providers has a material financial interest in the issue. A provider that is a related party to a provider that has a material financial interest in the issue is deemed to have a material financial interest in the issue. 13 DOCSOC/ 1450646vl/022459 -0014 (2) At least one of the three bids described in paragraph (B)(1) of above is from a reasonably competitive provider, within the meaning of paragraph (A)(7) of this section. (3) If the Issuer uses an agent to conduct the bidding process, the agent did not bid to provide the investment. (C) The winning bid meets the following requirements: (1) Guaranteed investment contracts. If the investment is a guaranteed investment contract, the winning bid is the highest yielding bona fide bid (determined net of any broker's fees). (2) Other investments. If the investment is not a guaranteed investment contract, the following requirements are met: a. The winning bid is the lowest cost bona fide bid (including any broker's fees). The lowest cost bid is either the lowest cost bid for the portfolio or, if the Issuer compares the bids on an investment -by- investment basis, the aggregate cost of a portfolio comprised of the lowest cost bid for each investment. Any payment received by the Issuer from a provider at the time a guaranteed investment contract is purchased (e.g., an escrow float contract) for a yield restricted defeasance escrow under a bidding procedure meeting the requirements of paragraph (iii) is taken into account in determining the lowest cost bid. b. The lowest cost bona fide bid (including any broker's fees) is not greater than the cost of the most efficient portfolio comprised exclusively of State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt. The cost of the most efficient portfolio of State and Local Government Series Securities is to be determined at the time that bids are required to be submitted pursuant to the terms of the bid specifications. C. If State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt are not available for purchase on the day that bids are required to be submitted pursuant to terms of the bid specifications because sales of those securities have been suspended, the cost comparison of (C)(2)(b) is not required. (D) The provider of the investments or the obligor on the guaranteed investment contract certifies the administrative costs that it pays (or expects to pay, if any) to third parties in connection with supplying the investment. 14 DOC SOC/1450646v 1 /022459 -0014 (E) The Issuer retains the following records with the bond documents until three years after the last outstanding bond is redeemed: (1) For purchases of guaranteed investment contracts, a copy of the contract, and for purchases of investments other than guaranteed investment contracts, the purchase agreement or confirmation. (2) The receipt or other record of the amount actually paid by the Issuer for the investments, including a record of any administrative costs paid by the Issuer, and the certification under paragraph (D) above. (3) For each bid that is submitted, the name of the person and entity submitting the bid, the time and date of the bid, and the bid results. (4) The bid solicitation form and, if the terms of the purchase agreement or the guaranteed investment contract deviated from the bid solicitation form or a submitted bid is modified, a brief statement explaining the deviation and stating the purpose for the deviation. For example, if the Issuer purchases a portfolio of investments for a yield restricted defeasance escrow and, in order to satisfy the yield restriction requirements of Code Section 148, an investment in the winning bid is replaced with an investment with a lower yield, the Issuer must retain a record of the substitution and how the price of the substitute investment was determined. If the Issuer replaces an investment in the winning bid portfolio with another investment, the purchase price of the new investment is not covered by the safe harbor unless the investment is bid under a bidding procedure meeting the requirements of paragraph (iii). (5) For purchases of investments other than guaranteed investment contracts, the cost of the most efficient portfolio of State and Local Government Series Securities, determined at the time that the bids were required to be submitted pursuant to the terms of the bid specifications. (iv) Nonpurpose Investments that are certificates of deposit with a fixed interest rate, a fixed principal payment schedule, a fixed maturity, and a substantial penalty for early withdrawal, will be considered acquired for their fair market value if the following requirements are satisfied: (A) the yield on the certificate of deposit is not less than the yield on reasonably comparable direct obligations of the United States; and (B) the yield on the certificate of deposit is not less than the highest yield that is published or posted by the provider to be currently available from the provider on comparable certificates of deposit offered to the public. (v) Except as otherwise provided in paragraph (d), any Nonpurpose Investment that is not of a type traded on an established securities market, within the meaning of Code §1273, shall be rebuttably presumed to be acquired or disposed of for an amount in excess of the fair market value of the Nonpurpose Investment. 15 DOCSOC/ 1450646v 1 /022459 -0014 (vi) The fair market value of a United States Treasury obligation that is purchased directly from the United States Treasury is its purchase price. (e) Certificate Year. For purposes of this Certificate, Certificate Year ends on each July 1 and begins on each July 2; provided that the first Certificate Year begins on the date hereof and the last Certificate Year ends on the date no Obligations are outstanding. V. Recordlceeping and Allocation. (a) Recordkeenine. The Issuer will maintain or cause to be maintained sufficient records to support compliance with the provisions of this Tax Certificate and to support the exclusion from gross income of interest on the Obligations for federal income tax purposes, including, but not limited to, the following: (i) basic records relating to the Obligations (e.g., indenture, loan agreement, and opinions); (ii) documentation evidencing expenditure of Obligation proceeds; (iii) documentation evidencing use of Obligation financed property (e.g., management and service contracts); (iv) documentation evidencing sources of payment and security for Obligations ; and (v) documentation pertaining to the investment of Obligation proceeds (including rebate calculations). In particular, the Issuer will maintain or cause to be maintained detailed records with respect to each security, obligation, annuity contract, or an other investment -type property allocated to Gross Proceeds, including: (i) purchase date, (ii) purchase price, (iii) information establishing fair market value on the date such investment is allocated to Gross Proceeds, (iv) any accrued interest paid, (v) face amount, (vi) coupon rate, (vii) periodicity of interest payments, (vii) disposition price, (ix) any accrued interest received, and (x) disposition date. The Issuer shall establish separate sub - accounts or take other accounting measures in order to account fully for all Gross Proceeds. The Issuer shall maintain books and records with respect to the allocation of Gross Proceeds in accordance with this Tax Certificate. All records required to be maintained pursuant to this Tax Certificate must be kept as long as the Obligations are outstanding plus three years after all Obligations are retired, and with respect to obligations refunded by the Obligations, for the same period required for the Obligations. (b) Allocation. The Issuer may use any reasonable, consistently applied accounting method to account for Gross Proceeds of the Obligations in accordance with Treasury Regulation § 1.148 -6; for purposes of allocating Gross Proceeds to capital expenditures intended to be financed pursuant to this Tax Certificate after the date of issue of the applicable tax- exempt obligation, and paid to unrelated third parties ( "Qualified Capital Expenditures "), the Issuer may use the following 16 DOC S OC/1450646v 1 /022459 -0014 accounting methods: "specific tracing," "gross- proceeds- spent - first," "first -in, first- out," or a ratable allocation method. The Issuer covenants to consult with nationally recognized bond counsel with respect to the applicable method of allocation of Gross Proceeds to expenditures that are not Qualified Capital Expenditures. In addition, the accounting method applied must account uniformly for (i) Gross Proceeds commingled with other moneys in excess of $25,000 and such other commingled moneys and (ii) Gross Proceeds for each fiscal year or interim fiscal period therein during which the issue is outstanding. Another accounting method may, however, be utilized for moneys if it is for a bona fide purpose unrelated to federal income tax restrictions. I£ Gross Proceeds are commingled with other moneys (other than in an open -end regulated investment company) in an amount in excess of $25,000 (a "Commingled Fund "), the following additional requirements must be satisfied. First, all payments and receipts with respect to investments in the Commingled Fund must be allocated among the different moneys ratably based upon either (i) average daily balances during a "Computation Period" (as defined below) or (ii) the average of the beginning and ending balances of the amounts in the Commingled Fund for a Computation Period that does not exceed one month. A Commingled Fund may use as its Computation Period any consistent time period within its fiscal year that does not exceed three months. Not less frequently than at the end of each Computation Period, the Commingled Fund must compute and allocate to different types of moneys all payments, receipts, income, gain or losses realized, and expenditures. Second, except as provided below, the Commingled Fund must treat all of its investments as if sold at fair market value on the last day of the fiscal year or as of the last day of each Computation Period, and so allocate net gains or losses from such deemed sales (the "Mark -to- Market Requirement "). A Commingled Fund need not satisfy the Mark -to- Market Requirement if (i) the remaining weighted average maturity of all investments held by the Commingled Fund during a fiscal year does not exceed eighteen months and such investments consist exclusively of debt obligations, (ii) the Commingled Fund serves as a common reserve fund or sinking fund for two or more issues of the same issuer or (iii) the Issuer (and any related party) do not own more than twenty -five percent of beneficial interests in the Commingled. Fund. Common reserve funds or sinking funds for two or more issues must be ratably allocated (not less frequently than once every five years and on each date a new issue is added or retired (if relative original principal amounts are used to so allocate)) in accordance with (i) the value of the bonds under Treasury Regulation § 1.148 -4(e), (ii) the relative amounts of the remaining maximum annual debt service payable on the issues, or (iii) the relative original stated principal amounts of the outstanding issues. Notwithstanding any other provision of this Tax Certificate, the allocation methodology applied must be consistent for all purposes of this Tax Certificate. The issuer must account for the allocation of Gross Proceeds to expenditures not later than eighteen months after the later of the date the expenditure is paid and the date the applicable Project is placed in service and in any event, by the date sixty days after the fifth anniversary of the issue date of the Obligations or the date 60 days after the retirement of the Obligation if earlier. VI. Miscellaneous. (a) Federal Guarantee. The Issuer will not invest any of the proceeds of the Obligations in a manner which would result in the Obligations being considered "federally guaranteed" within the meaning of Section 149(b) of the Code, except as permitted therein (i.e., will not cause interest with respect to the Obligations to be included in gross income for federal income tax purposes). 17 DOCSOC /1450646v 1/022459 -0014 (b) Information Reporting. Attached as Exhibit D is a copy of the Form 8038 -G filed with respect to the Obligations. (c) No Pooline. The Issuer does not expect to use and will not use the proceeds of the Obligations, to make or finance loans to two or more ultimate borrowers. (d) Hedge Bonds. As of the date of issuance of the Current Refunded Obligations, or obligations refunded thereby, the Issuer reasonably expected to expend at least 85% of the proceeds derived from the sale of those obligations (less amounts deposited in the reasonably required reserve funds for the obligations) on the costs of the projects financed by those obligations within three years of the date of issuance of those obligations. Not more than 50% of the proceeds of the Current Refunded Obligation (or obligations refunded thereby) will be (or have been) invested at a guaranteed rate of return for a term of four years or more. Not more than 50% of the new money proceeds of the Obligations will be invested at a guaranteed rate of return for four years or more. 18 DOCSOC /1450646v 1/022459 -0014 VII. Concluding Matters. (a) Reliance. The expectations of the Issuer concerning certain uses of Obligation proceeds and certain other moneys described herein and other matters are based in whole or in part upon representations of other parties as set forth in this Tax Certificate or the exhibits attached hereto. The Issuer is not aware of any facts or circumstances that would cause it to question the accuracy or reasonableness of any representations made in this Tax Certificate or exhibits attached hereto. (b) Corporation. The undersigned is an authorized representative of the Issuer, and is acting for and on behalf of the Issuer in executing this Tax Certificate. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change the expectations as set forth herein, and said expectations are reasonable. (c) Amendment. Notwithstanding any provision of this Tax Certificate, the Issuer may amend this Tax Certificate and thereby alter any actions allowed or required by this Tax Certificate if such amendment is based on an opinion of bond counsel that the exclusion from gross income of interest with respect to the Obligations will not be adversely affected. Dated: November 30, 2010 CITY OF NEWPORT BEACH By: Davi iff City Manager S -I DOCSOC/ 1450646/022459 -0014 EXHIBIT A DESCRIPTION OF PROJECT COSTS PAID OR TO BE PAID FROM PROCEEDS OF THE OBLIGATIONS New Monev The Project consists of those capital facilities described as The Civic Center Project in the Official Statement for the Obligations. A -1 DOCSOC/ 145 0646v 1/022459 -0014 EXHIBIT B Reserved B -1 DOCSOC/ I 450646v 1/022459-0014 EXHIBIT C $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) CERTIFICATE OF THE UNDERWRITERS Stone & Youngberg LLC, acting on behalf of itself and as representative (the "Representative ") of E.J. De La Rosa & Co., Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James (collectively, the "Underwriters ") has acted as the Underwriter of the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Obligations "), and hereby certifies and represents the following, under penalties of perjury, based upon the information available to it: A. Issue Price. I. As of the date the purchase agreement was entered into by the Issuer and the Underwriters with respect to the Obligations (the "Sale Date "), the Underwriters reasonably expected to sell at least 10 percent of each maturity of the Obligations to the general public (excluding bond houses, brokers, or similar persons acting in the capacity of underwriter or wholesalers) in a bona fide public offering at the prices listed on Schedule A. 2. In our opinion, and based upon our estimate as of the date hereof, the offering prices of the Obligations set forth in Schedule A are within a reasonable range of, and should reflect, the fair market prices for such Obligations as of the Sale Date. 3. As of the date of execution of the attached Tax Certificate, all of the Obligations have actually been offered to the general public at the prices listed in Schedule A. 4. As of the Sale Date at least 10% of each maturity of the Obligations were sold or were reasonably expected to be sold at the prices referred to in Schedule A. B. Arbitrage Yield. We have calculated the arbitrage yield with respect to the Obligations to be 2.185672 %, in accordance with the instructions provided by Special Counsel in Section II1O of the Tax Certificate. C -1 DOCSOC /1450646v1 /022459 -0014 To the best of our understanding of the computational methodology imposed by section 148 of the hrtenial Revenue Code of 1986 (the "Code ") and CDIAC, the computation of the yield of the Certificates for purposes of Section 148 of the Code and for purposes of federal tax Form 8038 -G, the weighted average maturity of the Certificates for purposes of federal tax Form 8038 -G and the CDIAC net interest calculation for purposes of reporting to the State of California, are all set forth in Schedule A. However, notwithstanding the foregoing, we remind you that we are not accountants or actuaries, no are we engaged in the practice of law. Accordingly, while we believe the calculations described above to be correct, we do not warrant them to be so. The Underwriters understand that Bond Counsel will rely upon this certificate, among other thing, in reaching its conclusion that the Bonds do not constitute "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended, provided, however, that nothing herein represents our interpretation of any laws, in particular, regulations under Section 148 of the Internal Revenue Code. All terms not defined herein have the meanings ascribed to those terms in the attached Tax Certificate. Dated: November 30, 2010 STONE & YOUNGBERG LLC, as Representative of the Underwriters //,) ✓ �— By: �C� Its: Authorized Representative C -2 DOCS OC /1450646/022459 -0014 SCHEDULE A Price of Obligations Offered or Reasonably Expected to be Offered to the General Public in a Bona Fide Public Offering Maturity Date Principal (July 1) Amount Interest Rate Price Serial COPS 2011 $ 1,740,000 2.000% 100.788 2012 2,690,000 3.000 103.219 2013 2,775,000 3.000 104.386 2014 2,860,000 3.000 104.609 2015 2,940,000 4.000 108.721 2016 3,060,000 4.000 108.588 2017 3,185,000 4.000 107.543 2018 410,000 4.000 105.971 2019. 425,000 4.000 104.130 Schedule A DOCSOC/1450646v 1/022459 -0014 EXHIBIT D INFORMATION REPORTING FORM 8038 -G D -1 DOCSOC/ 1450646v I /022459 -0014 Acknowledgement Copy Please Return with Rei Date ® information Return for Tax-Exempt Governmental Obligations Form ® Under Internal Revenue Code section 149(e) OMB No. 1545 -0720 (Rev. May 2010) D See separate Instructions. Department real R of the Treasury Caution: If the issue price is under $100,000, use Form 8038-GO. Internal Revenue Service K:FMMW Reoortina Authority If Amended Return check here ® I I 1 Issuer's name 2 Issuer's employer identification number (EIN) City of Newport Beach 95 6000751 3 Number and street (or P.O. box if mail is not delivered to street atldress) Roam /suite 4 Report number (For IRS Use Only) 3300 Newport Boulevard 15 15 1 ,j 5 City, town, or post office, state, and ZIP code 6 Date of issue Newport Beach, California 92658 -8915 21,240,299 55 November 30, 2010 7 Name of issue 8 CUSIP number Certificates of Participation 2010A (Tax Exempt) (Civic Center Proj /Central Library Re undi ng) 651779BRO 9 Name and title of officer of the issuer or other person whom the IRS may call for more information 10 Telephone number of officer or other persor David Kiff, City Manager I ( 949 ) 644 -3000 NKYM Tvoe of Issue (enter the issue price) See instructions and attach schedule 11 12 13 14 15 16 17 18 19 20 Education . . . . Health and hospital . . . . . . . . . . . . . . . . . . . Transportation . . . . . . . . . . . . . . . . . Public safety . . . . . . . . . . . . . . . . . Environment (including sewage bonds). .. . Housing . . . . . . . . . . . . . . . . Utilities . . . . . . . . . . . . . . . . Other, Describe It, If obligations are TANS or RANs, check only box 19a . . . . . . If obligations are BANS, check only box 196 If obligations are in the form of a lease or installment sale, check box . . . . . . . , . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . ®❑ ®❑ . . . . . le- ❑ 11 12 13 14 15 16 17 18 21,240,299 55 �^fn'" ' ,„ � , ,,;t N c" Description of Obligations. Complete for the entire issue for which this form is being filed. (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity (d) Weighted average maturity (e) Yield 21 71112019 $ 21,240,299.55 1 $ 20,085,000.00 4.0737 years 2.1857 % Uses of Proceeds of Bond Issue (including underwriters' discount) 22 23 24 25 26 27 28 29 30 Proceeds used for accrued interest. . . . . . . . . . . . . . . . . . . . . Issue price of entire issue (enter amount from line 21, column (b)) Proceeds used for bond issuance costs (including underwriters' discount) 24 204,472 15 Proceeds used for credit enhancement . . . . . . . . . . . 25 00-: Proceeds allocated to reasonably required reserve or replacement fund . 26 00 Proceeds used to currently refund prior issues . . . . . . . . . 27 3,525,857 50 Proceeds used to advance refund prior issues . . . . . . 28 00 Total (add lines 24 through 28) . . Nonrefund1n roceeds of the issue subtract line 29 from line 23 and enter amount here 22 00 23 21,240,299 55 " 3,730,329 65 s''a 29 30 17,509,969 90 Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . ® 4.8286 years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . , ® n/a years 33 Enter the last date on which the refunded bonds will be called (MM /DD/YYYY) ® 1210112010 34 Enter the date(s) the refunded bonds were issued ® (MM /DD/YYYI) 0811211998 For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. cat. No. 63773s Form 8038 -G (Rev. 5 -2010) YI z010 GDE Form 8038 -G 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) . . . 35 I I Do 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract " (GIC) (see instructions) . . . . . . . . . . . . . . . . . . . . 36a 00 b Enter the final maturity date of the GIC ® Pula 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other .';. governmental units . . . . . . . . . . . . . . . . . . . . . . . . . . 37a 00 b If this issue is a loan made from the proceeds of another tax - exempt issue, check box ® ❑ and enter the name of the issuer ® rha and the date of the issue 6 n/a 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(111) (small issuer exception), check box Is ❑ 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . . ® ❑ 40 If the issuer has identified a hedge, check box . . ... . . . . . . . . . . . . . . . . . . . . ® ❑ Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge Signature an d belief, they are true, correct, and complete. I further declare that] consent to the IRS's disclosure of the issuer's return information, as necessary to process this return, to the person that I have authorized above. and � Consent 1 k 7.x/2 C,_ u—'Y ; \ I t unit n to natrid Kiff City Mnnanar Y Sigmialre of issuer's authorized representative Date IF Type or print name and title Preparer's Date // Check if Preparer's SSN or PTIN Paid Prepa�rer e signature /$(2 GD self - employed ❑ Use Only Onlys Firm's name or radling Yocca Carlson & Rauth EIN 95 3347002 U yours if self - employed), address. and ZIP code 660 Newport Center Dr, Ste 1600, Newport Beach, I Phone no. ( 949) 725.4237 Form 8038 -G (Rev. 5-2010) CERTIFICATE OF MAILING $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) I, Sheila L. Baldwin, of Stradling Yocca Carlson & Rauth, A Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, hereby state and certify that for and on behalf of the City of Newport Beach, and on the date hereof, I caused to be mailed a Form 8038 -G, Information Return for Tax - Exempt Governmental Obligations relating to the above - captioned financing, postage prepaid, to the Internal Revenue Service Center, Ogden, Utah 84201, a true copy of which Form is attached hereto. Dated: December 16, 2010 d Sheila L. Baldwin STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation DOCSOC /138768v 1/022000-0000 A. Hecewed Dy(Please Pnnt Cleany) ' B. Date of Delivery C. :Signature - x - Agent ❑Addressee D Is delivery address different from item 17 - - ❑ Yes IIYES, enterdelivery address below: E:1 No o LINE I- I Internal Revenue Service Center Ogden, Utah 84201 WALZ TO REORDER GO TO POSTAL SOLUiIONSr"' www.walzpostal.com OR CALL 1 -800- 882 -3811 (Newport Beach 2010A) Domestic Return Receipt O 0 z In0 x x a m Me I EXHIBIT E [Reserved] E -1 DOCSOC/ 1450646v1/022459 -0014 $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) TAX CERTIFICATE The City of Newport Beach (the "Issuer ") hereby makes the following representations of facts and expectations and covenants to comply with the requirements of this Tax Certificate in connection with the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Obligations "). These representations and covenants are in furtherance of certain covenants contained in a Trust Agreement dated as of November 1, 2010 (the "Issuance Document ") entered into by and among the Issuer and The Bank of New York Mellon Trust Company, N.A., as Trustee, and Newport Beach Public Facilities Corporation, and in part are made pursuant to Section 1.141- 2(d)(2) and Section 1.148- 2(b)(2) of the Treasury Regulations. This certificate also serves to document the Issuer's written procedures with respect to ensuring compliance with federal income tax restrictions with respect to the Obligations. Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings set forth in the Issuance Document. I. General Matters. (a) Authority for Issuance. The undersigned and other officers and members of the Issuer are charged with the responsibility of authorizing and requesting the execution and delivery of the Obligations. (b) Sale of Obli atg ions. The Obligations are being delivered to Stone & Youngberg LLC, acting on behalf of itself and as representative (the "Representative ") of E.J. De La Rosa & Co., Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James (collectively, the "Underwriters ") on the date hereof. (c) Purpose of Obligations. The Obligations are being sold and delivered for the purpose of (i) financing capital costs as more fully described in Exhibit A attached hereto (individually a "Project" and together, the "Projects "), and (ii) paying costs of issuance with respect to the Obligations (the "Issuance Costs "). (d) Nature of Issue — Build America Bonds (Direct Pa, ent ). The Issuer hereby makes an irrevocable election to have Section 54AA and Section 54AA(g) of the Code apply to the Obligations such that they constitute Build America Bonds (Direct Payment). The Obligations are being sold and issued at the same time, have been sold pursuant to the same plan of financing, and are reasonably expected to be paid from substantially the same source of funds. Accordingly, the Obligations are a single issue of obligations for certain federal income tax purposes relating to the exclusion from gross income of interest on the Obligations. On the date hereof, the Issuer is also issuing its (i) $20,085,000 Certificates of Participation 2010A (Tax - Exempt) (Civic Center 1 DOCSOC /1450924v 1/022459 -0014 Project /Central Library Refunding) (the "Other Bonds "), which will be treated as a separate issue from the Obligations. Other than the Other Bonds, no other governmental obligations which are reasonably expected to be paid from substantially the same source of funds are being sold or issued at substantially the same time and sold pursuant to the same plan of financing as the Obligations. (e) Federal Payments. Section 54AA(g) of the Code authorizes Build America Bonds (Direct Payment) to receive a refundable credit (the "Credit Payment ") under Section 6431 of the Code provided the restrictions of this Tax Certificate are complied with. Instructions regarding receiving the Credit Payment are contained in Exhibit D attached hereto. 11. Private Activity. (a) Governmental Use of Proceeds. Except as described in (b), (c), or (d) below, absent an opinion of nationally- recognized bond counsel that the treatment of the Obligations as Build America Bonds (Direct Payment) for purposes of Section 54AA(g) and Section 6431 will not be adversely affected, the Issuer will not allow proceeds of the Obligations, or any refinanced obligations thereof, or any of the facilities financed or refinanced with such obligations to be used in the trade or business of any nongovernmental persons (other than in their roles as members of the general public) and will not loan such proceeds of the Obligations or any refinanced obligations to any nongovernmental persons. In furtherance of the foregoing, the Issuer represents the following with respect to the use of proceeds of the Obligations and the facilities financed therewith. (b) In General. G) No more than 10% of the proceeds of the Obligations or the portion of the Projects financed by such Obligations, (based on the cost of the components of the applicable portion of the Projects or, with respect to a unitary structure, on the relative fair rental value of such components) has been or will be used in the aggregate for any activities that constitute a "Private Use" (as such term is defined in Section (e) below). No more than 10% of the principal of or interest on the Obligations, under the terms thereof or any underlying arrangement, has been or will be secured by any interest in property (whether or not the Projects) used for a Private Use or in payments in respect of property used for a Private Use, or will be derived from payments in respect of property used for a Private Use. Private Use existing with respect to the Projects as of the date hereof (or presently contemplated) is as follows: None. (c) No Private Loan Financing. G) No proceeds of the Obligations will be used to make or finance loans to any person other than to a state or local governmental unit (other than loans to finance any governmental tax or assessment of general application for a specific essential govenunentat function or loans that are used to acquire or carry Nonpurpose Investments (as such term is defined in Section 1V(a) below)). 2 DOC S OC/1450924v 1 /022459 -0014 (d) No Disproportionate or Unrelated Use. (i) No more than 5% of the proceeds of the Obligations (or the applicable portion of the Projects financed thereby) has been or will be used for a Private Use that is unrelated or disproportionate to the governmental use of the proceeds of the Obligations (an "Unrelated or Disproportionate Use "), and no more than 5% of the principal of or interest on the Obligations, has been or will be, under the terms of the Obligations or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use that is an Unrelated or Disproportionate Use or in payments in respect of property used or to be used for a Private Use that is an Unrelated or Disproportionate Use. (e) Definition of Private Use. For purposes of this Tax Certificate, the term "Private Use" means any activity that constitutes a trade or business that is carried on by persons or entities other than a "governmental person," which is defined within Treasury Regulation Section 1.141 -1(b) as a state or local governmental unit or any instrumentality thereof. "Governmental person" does not include the United States or any agency or instrumentality thereof. The leasing of property financed or refinanced with proceeds of the Obligations or the use by or the access of a person or entity other than a governmental unit to property or services on a basis other than as a member of the general public shall constitute a Private Use. Private Use may also result from certain management and service contracts as described in paragraph (f) below. (f) Management and Service Contracts. With respect to management and service contracts, the determination of whether a particular use constitutes Private Use under this Tax Certificate shall be determined on the basis of applying the relevant sections of the Treasury Regulations and Revenue Procedure 97 -13 as clarified by Revenue Procedure 2001 -39. As of the date hereof, no more than the permissible amount allowed in (b) above is being used (or will be used) to provide property subject to contracts or other arrangements with persons or entities engaged in a trade or business (other than governmental units) that involve the management of property or the provision of services with respect to property financed or refinanced by proceeds of the Obligations that do not comply with the standards of the Treasury Regulations or Revenue Procedure 97 -13 as clarified by Revenue Procedure 2001 -39. (g) $15,000,000 Limit. Absent an opinion of nationally recognized bond counsel, in no event will the amount of Private Use allocable to proceeds of the Obligations (or the applicable portion of the Projects so financed) exceed $15,000,000. III. Arbitrage Certifications. The following states the expectations of the Issuer with respect to the amount and uses of the proceeds of the Obligations and certain other monies or property: (a) Source and Use of Funds. The total proceeds to be derived by the Issuer from the sale of the Obligations, in the aggregate amount of $105,988,837.50 (representing $106,575,000.00 face amount of the Obligations, less Underwriters' discount of $586,162.50) are expected to be needed and fully expended as follows: 3 D O C S 0 C/ 1450924v 1 /022459 -0014 (i) $498,807.40 of such proceeds will be deposited in the Delivery Costs Subaccount and, together with investment earnings thereon, will be expended to pay Issuance Costs; and (ii) $105,490,030.10 of such proceeds will be deposited in the Project Fund to finance the Project. Therefore, 100 percent of the excess of the sale proceeds of the Obligations less amounts used to pay ,Issuance Costs, will be allocated to capital expenditures. (b) Over- Issuance. The total proceeds to be received by the Issuer from the sale of the Obligations, together with anticipated investment earnings thereon, do not exceed the total amount necessary for the purposes described above. (c) Temporary Period. The Issuer has entered or will enter within six months of the date hereof a binding obligation to expend at least five percent (5 %) of the proceeds of the Obligations on the Projects. Work on the construction and installation of the Projects will proceed with due diligence to the completion thereof, and at least eighty -five percent (85 %) of the proceeds derived from the sale of the Obligations will be expended within three years of the date hereof on the Proj ects. (d) Reimbursement (i) On June 22, 2010 (the "Official Action Date "), the Issuer declared a reasonable intention (the "Official Action ") to reimburse payment for certain costs with proceeds of the Obligations, which is attached hereto as Exhibit B; (ii) The Issuer has actually paid $16,563,093 of expenditures described in Exhibit B (the "Reimbursed Costs "). (iii) Except for certain preliminary costs including architectural, engineering, surveying, soil testing, reimbursement bond issuance, and similar costs that are incurred prior to commencement of acquisition, construction, or rehabilitation of the Project, other than land acquisition, site preparation, and similar costs incident to commencement of construction (the "Preliminary Costs ") and costs described in Subclause (x) below, the date hereof is within eighteen months of the later of the applicable date each Reimbursed Cost was paid and the date the property with respect to the Reimbursed Cost was placed in service; provided such date is no more than three years from the date the applicable expenditure was paid; (iv) all the Reimbursed Costs consist of capital expenditures or Issuance Costs; (v) the Official Action contains a general functional description of the projects allocable to the Reimbursed Costs and a statement of the maximum principal amount of Obligations to be issued for such reimbursement purpose; (vi) the reimbursement for the Reimbursement Costs is consistent with the budgetary and financial circumstances of the Issuer, the Issuer reasonably expected to reimburse such expenditures with proceeds of a borrowing, and no funds from sources other than the Obligations have been, are, or are reasonably expected to be, reserved, allocated on a 4 DOCSOC/ 1 450924v 1 /022459 -0014 long -term basis, or otherwise set aside by the Issuer or a related entity with respect to the expenditure to be reimbursed; (vii) within the past three calendar years, the Issuer has not failed to reimburse itself for expenditures for which it had declared an official intent to reimburse (other than for those expenditures it still expects to so reimburse); (viii) Obligation proceeds utilized to reimburse the Issuer will not be used directly or indirectly within one year of the date hereof to "refund" an issue, to create or increase the balance in a "sinking fund" (other than a bona fide debt service fund) or reserve fund or to replace funds that have been, are being, or will be used for sinking fund or reserve fund purposes, or to reimburse any person for any expenditure or payment that was originally paid with any proceeds of any obligation of the Issuer (other than a borrowing by the Issuer from one of its own funds or the funds of a related party); (ix) the Reimbursed Costs were all incurred no earlier than 60 days before the adoption of the Official Action (except for Preliminary Costs and costs described in Subclause (x) below). The Preliminary Costs do not exceed in the aggregate 20 percent of the issue price of the portion of the Obligations that financed the Project; and (x) notwithstanding the restrictions in (iii) through (ix), the Issuer may reimburse itself for Issuance Costs and an amount of costs not in excess of the lesser of $100,000.00 or 5% of the proceeds of the Obligations. (e) Funds and Accounts. The Issuance Document creates and establishes the following funds and accounts for the Obligations: (i) the Project Fund, a included within, (A) the Delivery Costs Subaccount, and (B) the 2010B Account; (ii) the Prepayment Fund; (iii) the Lease Payment Fund; (iv) the Net Proceeds Fund; and (v) the Rebate Fund. (f) Sinking Funds. (i) Bona Fide Debt Service Funds. The Lease Payment Fund and Prepayment Fund (to the extent such amounts will be depleted each year) for the Obligations (collectively, the `Bona Fide Debt Service Funds "), will be used primarily to achieve a proper matching of revenues (and certain other monies) and payments of principal and interest with respect to the Obligations within each year. Amounts deposited in the Bona Fide Debt Service Funds will be depleted at least once a year except for a reasonable carryover amount, if any, which, in the aggregate, will not exceed the greater of (i) one year's DOCSOC /1450924v 1/022459-0014 earnings on such funds for the immediately preceding Bond Year, or (ii) one - twelfth of the annual debt service with respect to the Obligations for the immediately preceding Bond Year. (ii) Reserved. (iii) No Other Proceeds. Other than the Bona Fide Debt Service Funds, there are no funds or accounts of the Issuer, established pursuant to the Issuance Document, or otherwise, that are reasonably expected to be used for the payment of principal and interest with respect to the Obligations or that are pledged as collateral for the Obligations and for which there is a reasonable assurance that amounts on deposit therein will be available for the payment of principal and interest with respect to the Obligations if the Issuer encounters financial difficulties. There are no amounts held under any agreement to maintain amounts at a particular level for the direct or indirect benefit of the holders of the Obligations or guarantor of the Obligations, if any, excluding for this purpose amounts in which the Issuer (or a substantial beneficiary) may grant rights that are superior to the rights of the holders of the Obligations or guarantor of the Obligations, if any, and amounts that do not exceed reasonable needs for which they are maintained and as to which the required level is tested no more frequently than every six months and that may be spent without any substantial restriction other than a requirement to replenish the amount by the next testing date. The term of the Obligations is not longer than is reasonably necessary for the governmental purpose of the issue, and the weighted average maturity of the Obligations does not exceed 120 percent of the average reasonably expected economic life of the Projects. (g) Rebate Liability Account. Amounts deposited in the Rebate Fund are to assist the Issuer with compliance of Section 148(f) of the Code. (h) Investment. The proceeds derived from the sale of the Obligations and the amounts on deposit in the aforementioned funds and accounts may be invested as follows: (i) Proceeds derived from the sale of the Obligations held in the Project Fund, Delivery Costs Subaccount, or in the Rebate Fund, may be invested at an unrestricted yield for a period of three years from the date hereof. (ii) Investment earnings on obligations acquired with the amounts described in Subparagraph (i) may be invested at an unrestricted yield for a period not to exceed the applicable period described in Subparagraph (i) or one year from the date of receipt, whichever period is longer. (iii) Amounts described in Subparagraphs (i) or (ii) above that may not be invested at an unrestricted yield pursuant to such Subparagraphs shall be invested either at a yield not in excess of the composite yield on the Obligations plus 1 /8th of one percentage point or in Tax - Exempt Obligations (as defined in Section IV hereof); provided that an amount equal to or less than $100,000 may be invested at an unrestricted yield. (iv) Amounts deposited in the Bona Fide Debt Service Funds may be invested at an unrestricted yield for a period not in excess of 13 months from the date of deposit of such amounts to such funds. Amounts described in the previous sentence that may not be invested at an unrestricted yield pursuant to such Subparagraph shall be invested either at a yield not in excess of the composite yield on the Obligations or in Tax - Exempt Obligations. DOCSOC/1450924v11022459 -0014 (v) Amounts held in the Rebate Fund (not described above) may be invested without regard to yield. (vi) Absent an opinion of nationally recognized bond counsel that the treatment of the Obligations as Build America Bonds (Direct Payment) for purposes of Section 54AA(g) and Section 6431 will not be adversely affected, amounts held in the Net Proceeds Fund and Prepayment Fund (not described above) will be invested at a yield not in excess of the yield on the Obligations. G) Yield. For purposes of this Section III of this Tax Certificate, yield is calculated as set forth in Section 148 and Section 6431(c) of the Code and Section 1.148 -4 of the Treasury Regulations. Thus, yield generally means that discount rate which when used in computing the present value of all unconditionally payable payments representing principal, interest, and the fees of qualified guarantees paid and to be paid with respect to the Obligations reduced by the Credit Payment allowed under Section 6431 of the Code, produces an amount equal to the issue price of the Obligations. The issue price of the Obligations is $106,575,000.00 which is equal to the initial offering price of the Obligations to the public (excluding bond houses, brokers and similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount (at least 10 percent) of the Obligations was or is reasonably expected to be sold, as represented by the Underwriters in Exhibit C attached hereto. Yield with respect to the obligations allocable to proceeds of the Obligations, is that discount rate which when used in computing the present worth of the payments of principal and interest with respect to the Obligations produces an amount equal to the purchase price of the Obligations. The yield on the Obligations is 4.508761 %. (1) Absent an opinion of nationally recognized bond counsel that the qualification of the Obligations to receive the Credit Payment will not be adversely affected, the Issuer will not enter into any hedge with respect to the Obligations. None of the Obligations bears interest at increasing interest rates (i.e., a stepped coupon bond). 0) No Artifice or Device. The Obligations are not and will not be part of a transaction or series of transactions (i) that attempts to circumvent the provisions of Section 148 of the Code, or any successor thereto, and the regulations promulgated thereunder or under any predecessor thereto, enabling the Issuer or any related person to exploit the difference between tax- exempt and taxable interest rates to gain a material financial advantage, and (ii) that increases the burden on the market for tax - exempt obligations in any manner, including, without limitation, by selling bonds that would not otherwise be sold, or selling more bonds, or issuing bonds sooner, or allowing bonds to remain outstanding longer, than otherwise would be necessary. IV. Rebate Compliance. (a) Covenants. The Issuer hereby covenants to comply, with the rebate requirements of Section 148(f) of the Code. The Issuer acknowledges that the United States Department of the Treasury has issued certain regulations with respect to certain requirements relating to compliance with Section 148(f) of the Code. The Issuer covenants that it will determine, or will cause to be determined, precisely what DOCSOC/ 1450924v l /022459 -0014 is required with respect to Section 148(f) of the Code and will comply with any requirements applicable to the Obligations. The Issuer acknowledges that, to the extent that an exception to the rebate requirements of Section 148(f) of the Code is not available with respect to the Obligations, under Section 148(f) of the Code, the federal government must be paid the sum of (i) the excess of the amount earned on all Nonpurpose Investments (as defined in the following paragraph) with respect to the Obligations over the amount that would have been earned had such investments been invested at a rate equal to the yield with respect to the Obligations, plus (ii) any income attributable to the excess described in (i) (the "Rebate Requirement "). The Issuer acknowledges that currently, unless an exception to the Rebate Requirement is available, compliance with Section 148(f) of the Code generally involves a multi -step process: (1) ascertaining the funds (the "Gross Proceeds ") and investments (the "Nonpurpose Investments ") subject to the Rebate Requirement of Section 148(f) of the Code after applying, if applicable, a universal cap with respect to the Obligations (the "Universal Cap "), (2) creating an investment history cash ,flow report with respect to the investment of Gross Proceeds of the Obligations, (3) determining the composite yield with respect to the Obligations (the "Yield "), (4) future valuing receipts and payments in the cash flow report (including certain deemed receipts and payments) using the Yield as the discount factor, and (5) determining the amount of rebatable arbitrage with respect to the Obligations and paying the appropriate amount to the United States Treasury. See Treas. Reg. §§ 1.148 -0 through 1.148 -11, 1.149(d) -1, and 1.150 -1 for rules with respect to rebate compliance methodology. See Subparagraph (b)(i) below for a description of Nonpurpose Investments with respect to the Obligations, Subparagraph (b)(ii) below for a description of Gross Proceeds of the Obligations, Subparagraph (b)(iii) below for the description of a Universal Cap with respect to the Obligations, Subparagraph (b)(iv) below for a description of Yield with respect to the Obligations for purposes of compliance with Section 148(f) of the Code, and Subparagraph (d) and (e) with respect to allocating Gross Proceeds, recordkeeping, and permitted investment of Gross Proceeds. The Issuer shall pay to the United States Treasury out of amounts in the Rebate Fund: (i) not later than 60 days after the end of (a) the fifth Bond Year and (b) each applicable fifth Bond Year thereafter, an amount equal to 90% of the Rebate Requirement calculated as of the end of the Bond Year; and (ii) not later than 60 days after the payment of all the Obligations an amount equal to 100% of the Rebate Requirement calculated as of the end of such applicable Bond Year, and any income attributable to the Rebate Requirement, computed in accordance with Section 148(f) of the Code. Each payment required to be made shall be made to the Internal Revenue Service at the address required for such submission at the time on or before the date on which such payment is due and shall be accompanied by Internal Revenue Service Form 8038 -T. The Issuer also acknowledges that additional or different requirements may be applicable to the Obligations if certain exceptions are satisfied. See Paragraph (c) herein. 8 DOCSOC /1450924v 1/022459 -0014 (b) Operative Terms. (i) Nonpurpose Investments. Subject to the limitation in Subparagraph (b)(iii) below, Nonpurpose Investments are generally securities, obligations, annuity contracts or any other investment -type property that are not acquired to carry out the govermnental purpose of the Obligations that are allocated to Gross Proceeds. However, Nonpurpose Investments do not include: (A) United States Treasury - State and Local Government Series, Demand Deposit Securities; or (B) tax - exempt obligations. The term "tax- exempt obligations" for the purposes of this Tax Certificate includes (i) obligations the interest on which is excludable from gross income for federal income tax purposes, and not treated as an item of tax preference under Section 57(a)(5)(C) of the Code, (ii) an interest in a regulated investment company to the extent that at least ninety -five percent (95 %) of the income to the holder of the interest is excludable from gross income under Section 103 of the Code and is not treated as an item of tax preference under Section 57(a)(5)(C) of the Code, and (iii) a certificate of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series program described in 31 CFR Part 344. (ii) Gross Proceeds. Subject to the limitation in Subparagraph (b)(iii) below, "Gross Proceeds" with respect to the Obligations means: (A) amounts actually or constructively received from the sale (or other disposition) of the Obligations; (B) amounts actually or constructively received from investing amounts described in (A); (C) amounts (other than proceeds derived from the sale of the Obligations) that are reasonably expected to be or are in fact used to pay debt service with respect to the Obligations; (D) amounts pledged as security for the payment of debt service with respect to the Obligations or otherwise serving as a reserve fund with respect to the Obligations; (E) "transferred proceeds" of the Obligations; and (F) any other amounts which are replacement proceeds of the Obligations within the meaning of Treasury Regulation § 1.148 -1(c). (iii) Universal Cap. Except as provided below, in no event shall the value of Nonpurpose Investments allocated to Gross Proceeds of the Obligations exceed the Universal Cap of the Obligations computed in accordance with Section 1.148 -6 of the Treasury Regulations. The Universal Cap of the Obligations is equal to the value of the outstanding Obligations computed in accordance with Section 1.148 -4 of the Treasury Regulations. The value of a Nonpurpose Investment on a date allocated to Gross Proceeds of the Obligations DOCSOC/ 1450924v 1/022459-0014 for this purpose is equal to the value of such investment in accordance with Treasury Regulation § 1.148 -5(d). The Universal Cap value and the value of Nonpurpose Investments are to be computed as of the first day of each bond year that commences after the second anniversary of the issue date and if the applicable obligations, are a refunding issue, as of each date that, without regard to the Universal Cap, proceeds of any refunded issue become "transferred proceeds" of the Obligations within the meaning of Section 1.148 -9 of the Treasury Regulations (a "Cap Computation Date "). Amounts described in Subparagraph (c)(i) herein are not subject to the Universal Cap. Between Cap Computation Dates, Nonpurpose Investments cease to be allocated to the Obligations to the extent they are expended or otherwise cease to be allocated to the Obligations under Section 1.148 -6 of the Treasury Regulations. To the extent Nonpurpose Investments cease to be allocated to Obligations, other investments become so allocated up to the amount of the unused Universal Cap, computed in accordance with Section 1.148 -6 of the Treasury Regulations. If on a Cap Computation Date Nonpurpose Investments have a value in excess of the Universal Cap, an amount of such investments necessary to eliminate that excess ceases to be allocated to the. Obligations. Nonpurpose Investments cease to be allocated to the Obligations in the following order, within the meaning of Section 1.148 -6 of the Treasury Regulations: (1) first, amounts held in a sinking fund, pledged fund, or reserve or replacement fund for the Obligations (other than proceeds derived from the sale of the Obligations ), (2) second, transferred proceeds, and (3) third, proceeds derived from the sale of the Obligations and earnings thereon, all within the meaning of Section 1.148 -6 of the Treasury Regulations. A failure to do a Universal Cap calculation on a Cap Computation Date will not result in noncompliance with Section 148(t) of the Code if, in the absence of that failure, the Obligations would have satisfied the Rebate Requirement. (iv) Yield. See Section III hereof. (c) Rebate Exception. (i) Bona Fide Debt Service Funds. The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to amounts earned on funds in the Bona Fide Debt Service Funds. (ii) Expenditure Exceptions. There are three expenditure exceptions from the Rebate Requirement - the "Two -Year Exception," the "Six -Month Exception," and the "Eighteen -Month Exception." The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to that portion of the proceeds of the Obligations described in each applicable Subclause (1) below of each Clause (A), (B), and (C), if the applicable requirements set forth in each applicable Subclause (2) below are satisfied of each Clause (A), (B), and (C). 10 DOCS OC/ 1450924v I /022459 -0014 (A) Two -Year Exception. (1) The portion of the "available construction proceeds" (as defined below) of the Obligations at least 75 percent of which are to be used for construction expenditures (including reconstruction and rehabilitation) with respect to property that is to be owned by a governmental unit or an organization described in Section 501(c)(3) of the Code and exempt from federal income tax under Section 501(a) of the Code is described in this Subclause. The term "available construction proceeds" means an amount equal.to the portion of the issue price (as defined in Section III of this Tax Certificate) of the Obligations described in this Subclause, increased by earnings thereon. Available construction proceeds do not include amounts to be used to pay Issuance Costs of the Obligations. (2) This exception will be treated as being satisfied if at least 10% of the available construction proceeds of the Obligations are expended for the governmental purposes of the Obligations within the six -month period beginning on the date of issue of the Obligations, at least 45% of such amounts are expended for the governmental purposes of the Obligations within the one -year period beginning on the date of issue of the Obligations, at least 75% of such amounts are expended for the governmental purposes of the Obligations within the 18 -month period beginning on the date of issue of the Obligations, and all of such amounts are expended for the governmental purposes of the Obligations within the two -year period beginning on the date of issue of the Obligations. The requirement that 100% of the available construction proceeds of the Obligations be expended within two years may be reduced to not below 95% provided that the amount not expended is held by the Issuer for a period not exceeding one year as a "reasonable retainage" as required or permitted by construction contracts with contractors. The requirement that 100% of the Gross Proceeds be expended within two years may be reduced by an amount equal to the lesser of 3% of the issue price of the Obligations or $250,000 if the Issuer exercised due diligence to complete the Projects. (B) Six -Month Exception. The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to the portion of the proceeds of the Obligations described in Subclause (1) below if the requirements described in Subclause (2) below are satisfied. (1) All Gross Proceeds of the Obligations (other than "transferred proceeds" of the Obligations, and amounts described in Subparagraph (c)(i) of this Section IN of this Tax Certificate), are described in this Subclause. (2) This exception will be treated as having been satisfied if all Gross Proceeds of the Obligations subject to this exception are expended for the governmental purposes of the Obligations no later than the day that is six months after the date of issue of the Obligations. DOCSOC/1 450924v l /022459 -0014 (C) Eighteen -Month Exception. The Issuer will be relieved of the obligation to pay the Rebate Requirement with respect to the portion of the proceeds of the Obligations described in Subclause (1) below if the requirements described in Subclause (2) below are satisfied. (1) All Gross Proceeds of the Obligations allocable to new money purposes that may be invested at an unrestricted yield, including reasonably expected investment earnings as of the date hereof (other than amounts described in Subparagraph (c)(i) of this Tax Certificate), are described in this Subclause. (2) This exception will be treated as being satisfied if at least 15% of such monies are expended for the governmental purposes of the Obligations within the six -month period beginning on the date of issue of the Obligations, at least 60% of such monies are expended for the governmental purposes of the Obligations within the one -year period beginning on the date of issue of the Obligations, and 100% of such monies are expended for the governmental purpose of the Obligations within the 18 -month period beginning on the date of issue of the Obligations. The requirement that 100% of the Gross Proceeds be expended within 18 months may be reduced to not below 95% of the proceeds of the Obligations derived from the sale of the Obligations provided that the amount not expended is held by the Issuer for a period not exceeding 30 months of the issue date of the Obligations as a "reasonable retainage." Additionally, the requirement that 100% of the Gross Proceeds be expended within 18 months may be reduced by an amount equal to the lesser of 3% of the issue price of the Obligations or $250,000 if the Issuer exercised due diligence to complete the Projects. (iii) Expectations. The Issuer reasonably expects that at least seventy -five percent of the proceeds of the Obligations deposited in the Project Fund, and earnings thereon, are expected to be used for construction expenditures for the 'Projects. (iv) Elections. (A) Seventy -Five Percent Test. Pursuant to Treasury Regulation § 1.148- 7(f)(1)(i), the Issuer expressly elects to satisfy the requirements of Section 148(0(4)(C)(iv)(I) of the Code based upon its reasonable expectations. (B) Penalty in Lieu of Rebate. Pursuant to Section 148(f)(4)(C)(vii) of the Code, the Issuer may elect, on the date hereof, to pay a penalty (the "P /2% Penalty "), with respect to each six -month period after the date the Obligations are issued, equal to I %2 percent of the amount of available construction proceeds (as described above), which as of the close of the six -month period are not spent as required by Paragraph (c)(ii)(A)(2). The 1 Y2% Penalty shall cease to apply: (A) if the available construction proceeds are expended, (B) if a special three percent penalty (the "3% Penalty ") is paid in accordance with Section 148(f)(4)(C) of the Code, or (C) after the latest maturity date of any Obligation (including any refunding 12 DOC SOC/ 1450924v 1 /022459 -0014 bond). All penalties are to be paid to the United States not later than 90 days after the period to which the penalty relates. The Issuer expressly does not elect to pay the penalty described in Section 148(0(4)(C)(vii) of the Code in lieu of the Rebate Requirement described in Section 148(f)(2) of the Code, the 3% Penalty described in Section 148(f)(4)(C)(viii) of the Code, or to terminate the 1 %2% Penalty pursuant to Section 148(f)(4)(C)(ix) of the Code. Additionally, the Issuer expressly does not elect to exclude earnings on any reasonably required reserve fund as available construction proceeds pursuant to Section 148(f)(4)(C)(vi)(IV) of the Code. (C) Bifurcation. The Issuer expressly does not elect to bifurcate the Obligations for purposes of Section 148(f)(4) of the Code. (d) Prohibited Investments and Dispositions. The Issuer acknowledges that compliance with Section 148(f) of the Code may involve taking no action to artificially reduce the Rebate Requirement by the manner of investing Gross Proceeds. The Issuer covenants that absent an opinion of nationally recognized bond counsel that the exclusion from gross income of interest with respect to the Obligations will not be adversely affected, it will comply with the rules of this Subsection to assure compliance with Section 148(1) of the Code. (i) No Nonpurpose Investment may be acquired with Gross Proceeds for an amount in excess of the fair market value of such Nonpurpose Investment. No Nonpurpose Investment may be sold or otherwise disposed of for an amount less than the fair market value of the Nonpurpose Investment. (ii) The fair market value of any Nonpurpose Investment is the price which a willing buyer would pay to a willing seller to acquire the Nonpurpose Investment in a bona fide, arm's - length transaction, with no amounts to artificially reduce or increase the yield on the Nonpurpose Investment. Fair market value generally is determined on the date on which a contract to purchase or sell the Nonpurpose Investment becomes binding (i.e., the trade date rather than the settlement date). The purchase or sales price of a Nonpurpose Investment is not adjusted (except as provided below) to take into account any administrative costs of the Nonpurpose Investment. For calendar year 2010, a brokerage commission or similar fee for an investment contract and for investments for a yield restricted defeasance escrow is included as a receipt to the extent the commission exceeds the lesser of (A) $35,000 and (B) 0.2% of the computational base or, if more, $4,000; provided, a brokers fee or similar fee is included as a receipt to the extent all brokers fees or similar fees of the issue of Obligations exceed $100,000. For purposes of this Tax Certificate "computational base" means (A) for a guaranteed investment contract, the amount of Gross Proceeds to be deposited in the contract, and (B) for investments (other than guaranteed investment contracts) to be deposited in a yield restricted defeasance escrow, the amount of Gross Proceeds initially invested in those investments. For subsequent calendar years, the dollar limits described in this Subsection may be increased for cost -of- living adjustments. See Treas. Reg. § 1.148- 5(e)(2)(iii). Certain administrative costs, including reasonable direct administrative costs, other than carrying costs, such as brokerage commissions or selling commissions, but not legal and accounting fees, recordkeeping, custody and . similar costs, may be taken into account in computing the Rebate Requirement with respect to investments. See Treas. Reg. § 1.148 -5. General overhead costs and similar indirect costs of the Issuer such as employee salaries and office expenses and costs of computing rebatable arbitrage may not be taken into account. 13 DOC SOC/1450924v 1 /022459 -0014 The following provisions provide guidelines as to when the Nonpurpose Investment will be deemed to be acquired for its fair market value. Other methods may be used, however, to establish fair market value. (iii) Nonpurpose Investments that are investment contracts will be considered acquired and disposed of for an amount equal to the fair market value of such obligations if the following Subsections are satisfied: (A) The Issuer makes, or causes to be made, a bona fide solicitation for the purchase of the investment. A bona fide solicitation is a solicitation that satisfies all of the following requirements: (1) The bid specifications are in writing and are timely forwarded to potential providers. (2) The bid specifications include all material terms of the bid. A term is material if it may directly or indirectly affect the yield or the cost of the investment. (3) The bid specifications include a statement notifying potential providers that submission of a bid is a representation that the potential provider did not consult with any other potential provider about its bid, that the bid was determined without regard to any other formal or informal agreement that the potential provider has with the Issuer or any other person (whether or not in connection with the bond issue), and that the bid is not being submitted solely as a courtesy to the Issuer or any other person for purposes of satisfying the requirements of paragraph (13)(1) or (2) below. (4) The terms of the bid specifications are commercially reasonable. A term is commercially reasonable if there is a legitimate business purpose for the term other than to increase the purchase price or reduce the yield of the investment. For example, for solicitations of investments for a yield restricted defeasance escrow, the hold film period must be no longer than the Issuer reasonably requires. (5) For purchases of guaranteed investment contracts only, the terms of the solicitation take into account the Issuer's reasonably expected deposit and drawdown schedule for the amounts to be invested. (6) All potential providers have an equal opportunity to bid. For example, no potential provider is given the opportunity to review other bids (i.e., a last look) before providing a bid. (7) At least three reasonably competitive providers are solicited for bids. A reasonably competitive provider is a provider that has an established industry reputation as a competitive provider of the type of investments being purchased. 14 DO CSOC/ 1450924v 1/022459-0014 (B) The bids received by the Issuer meet all of the following requirements: (1) The Issuer receives at least three bids from providers that the Issuer solicited under a bona fide solicitation meeting the requirements of paragraph (A) of this section and that do not have a material financial interest in the issue. A lead underwriter in a negotiated underwriting transaction is deemed to have a material financial interest in the issue until 15 days after the issue date of the issue. In addition, any entity acting as a financial advisor with respect to the purchase of the investment at the time the bid specifications are forwarded to potential providers has a material financial interest in the issue. A provider that is a related party to a provider that has a material financial interest in the issue is deemed to have a material financial interest in the issue. (2) At least one of the three bids described in paragraph (13)(1) of above is from a reasonably competitive provider, within the meaning of paragraph (A)(7) of this section. (3) If the Issuer uses an agent to conduct the bidding process, the agent did not bid to provide the investment. (C) The winning bid meets the following requirements: (1) Guaranteed investment contracts. if the investment is a guaranteed investment contract, the winning bid is the highest yielding bona fide bid (determined net of any broker's fees). (2) Other investments. If the investment is not a guaranteed investment contract, the following requirements are met: a. The winning bid is the lowest cost bona fide bid (including any broker's fees). The lowest cost bid is either the lowest cost bid for the portfolio or, if the Issuer compares the bids on an investment -by- investment basis, the aggregate cost of a portfolio comprised of the lowest cost bid for each investment. Any payment received by the Issuer from a provider at the time a guaranteed investment contract is purchased (e.g., an escrow float contract) for a yield restricted defeasance escrow under a bidding procedure meeting the requirements of paragraph (iii) is taken into account in determining the lowest cost bid. b. The lowest cost bona fide bid (including any broker's fees) is not greater than the cost of the most efficient portfolio comprised exclusively of State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt. The cost of the most efficient portfolio of State and Local Government Series Securities is to be determined at the time 15 D O C S O C/ 145 0924v 1 /022459 -0014 that bids are required to be submitted pursuant to the terms of the bid specifications. C. If State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt are not available for purchase on the day that bids are required to be submitted pursuant to terms of the bid specifications because sales of those securities have been suspended, the cost comparison of (C)(2)(b) is not required. (D) The provider of the investments or the obligor on the guaranteed investment contract certifies the administrative costs that it pays (or expects to pay, if any) to third parties in connection with supplying the investment. (E) The Issuer retains or causes to be retained the following records with the bond documents until three years after the last outstanding bond is redeemed: (1) For purchases of guaranteed investment contracts, a copy of the contract, and for purchases of investments other than guaranteed investment contracts, the purchase agreement or confirmation. (2) The receipt or other record of the amount actually paid by the Issuer for the investments, including a record of any administrative costs paid by the Issuer, and the certification under paragraph (D) above. (3) For each bid that is submitted, the name of the person and entity submitting the bid, the time and date of the bid, and the bid results. (4) The bid solicitation form and, if the terms of the purchase agreement or the guaranteed investment contract deviated from the bid solicitation form or a submitted bid is modified, a brief statement explaining the deviation and stating the purpose for the deviation. For example, if the Issuer purchases a portfolio of investments for a yield restricted defeasance escrow and, in order to satisfy the yield restriction requirements of Code Section 148, an investment in the winning bid is replaced with an investment with a lower yield, the Issuer must retain a record of the substitution and how the price of the substitute investment was determined. If the Issuer replaces an investment in the winning bid portfolio with another investment, the purchase price of the new investment is not covered by the safe harbor unless the investment is bid under a bidding procedure meeting the requirements of paragraph (iii). (5) For purchases of investments other than guaranteed investment contracts, the cost of the most efficient portfolio of State and Local Government Series Securities, determined at the time that the bids were required to be submitted pursuant to the terms of the bid specifications. (iv) Nonpm-pose Investments that are certificates of deposit with a fixed interest rate, a fixed principal payment schedule, a fixed maturity, and a substantial penalty for early 16 DOC SOC/ 1450924v 1 /022459 -0014 withdrawal, will be considered acquired for their fair market value if the following requirements are satisfied: (A) the yield on the certificate of deposit is not less than the yield on reasonably comparable direct obligations of the United States; and (B) the yield on the certificate of deposit is not less than the highest yield that is published or posted by the provider to be currently available from the provider on comparable certificates of deposit offered to the public. (v) Except as otherwise provided in paragraph (d), any Nonpurpose Investment that is not of a type traded on an established securities market, within the meaning of Section 1273 of the Code, shall be rebuttably presumed to be acquired or disposed of for an amount in excess of the fair market value of the Nonpurpose Investment. (vi) The fair market value of a United States Treasury obligation that is purchased directly from the United States Treasury is its purchase price. (e) Bond Year. For purposes of this Tax Certificate, Bond Year ends on each July 1 and begins on each July 2 provided that the first Bond Year begins on the date hereof and the last Bond Year ends on the date no Obligations are outstanding. V. Recordkeeping and Allocation. (a) Recordkeeping. Based, in part, upon the representations of the Issuer, the Issuer will maintain or cause to be maintained sufficient records to support compliance with the provisions of this Tax Certificate and to support the qualification of the Obligations for the Credit Payment for federal income tax purposes, including, but not limited to, the following: (i) transcript documentation relating to the Obligations (e.g., indenture, leases and opinions); (ii) documentation evidencing expenditure of Obligation proceeds; (iii) documentation evidencing use of Obligation financed property (e.g., management and service contracts); (iv) documentation evidencing sources of payment and security for Obligations; and (v) documentation pertaining to the investment of Obligation proceeds (including rebate calculations). In particular, Issuer will maintain or cause to be maintained detailed records with respect to each security, obligation, annuity contract, or an other investment -type property allocated to Gross Proceeds, including: (i) purchase date, (ii) purchase price, (iii) information establishing fair market value on the date such investment is allocated to Gross Proceeds, (iv) any accrued interest paid, (v) face amount, (vi) coupon rate, (vii) periodicity of interest payments, (viii) disposition price, (ix) any 17 DOCSOC /1450924v 1/022459-0014 accrued interest received, and (x) disposition date. The Issuer shall establish separate sub - accounts or take other accounting measures in order to account fully for all Gross Proceeds. The Issuer shall maintain books and records with respect to the allocation of Gross Proceeds in accordance with this Tax Certificate. All records required to be maintained pursuant to this Tax Certificate must be kept as long as the Obligations are outstanding plus three years after all Obligations are retired, and with respect to obligations refunded by the Obligations, for the same period required for the Obligations. (b) Allocation. The Issuer may use any reasonable, consistently applied accounting method to account for Gross Proceeds of the Obligations in accordance with Treasury Regulation § 1.148 -6; for purposes of allocating Gross Proceeds to capital expenditures intended to be financed pursuant to this Tax Certificate after the date of issue of the applicable tax- exempt obligation, and paid to unrelated third parties ( "Qualified Capital Expenditures "), the Issuer may use the following accounting methods: "specific tracing," "gross- proceeds - spent- first," "first -in, first- out," or a ratable allocation method. The Issuer covenants to consult with nationally recognized bond counsel with respect to the applicable method of allocation of Gross Proceeds to expenditures that are not Qualified Capital Expenditures. In addition, the accounting method applied must account uniformly for (i) Gross Proceeds commingled with other moneys in excess of $25,000 and such other commingled moneys and (ii) Gross Proceeds for each fiscal year or interim fiscal period therein during which the issue is outstanding. Another accounting method may, however, be utilized for moneys if it is for a bona fide purpose unrelated to federal income tax restrictions. If Gross Proceeds are commingled with other moneys (other than in an open -end regulated investment company) in an amount in excess of $25,000 (a "Commingled Fund "), the following additional requirements must be satisfied. First, all payments and receipts with respect to investments in the Commingled Fund must be allocated among the different moneys ratably based upon either (i) average daily balances during a "Computation Period" (as defined below) or (ii) the average of the beginning and ending balances of the amounts in the Commingled Fund for a Computation Period that does not exceed one month. A Commingled Fund may use as its Computation Period any consistent time period within its fiscal year that does not exceed three months. Not less frequently than at the end of each Computation Period, the Commingled Fund must compute and allocate to different types of moneys all payments, receipts, income, gain or losses realized, and expenditures. Second, except as provided below, the Commingled Fund must treat all of its investments as if sold at fair market value on the last day of the fiscal year or as of the last day of each Computation Period, and so allocate net gains or losses from such deemed sales (the "Mark -to- Market Requirement"). A Commingled Fund need not satisfy the Mark -to- Market Requirement if (i) the remaining weighted average maturity of all investments held by the Commingled Fund during a fiscal year does not exceed eighteen months and such investments consist exclusively of debt obligations, (ii) the Commingled Fund serves as a common reserve fund or sinking fund for two or more issues of the same issuer, or (iii) the Issuer does not own more than twenty -five percent of beneficial interests in the Commingled Fund. Common reserve funds or sinking funds for two or more issues must be ratably allocated (not less frequently than once every five years and on each date a new issue is added or retired (if relative original principal amounts are used to so allocate)) in accordance with (i) the value of the bonds under Treasury Regulation § 1.148 -4(e), (ii) the relative amounts of the remaining maximum annual debt service payable on the issues, or (iii) the relative original stated principal amounts of the outstanding issues. Notwithstanding any other provision of this Tax Certificate, the allocation methodology applied must be consistent for all purposes of this Tax Certificate. The Issuer must account for the allocation of Gross Proceeds to expenditures not later than eighteen months after the later of the date the expenditure is paid and the date the Projects are placed 18 DOCSOC/1450924v1 /022459 -0014 in service and in any event, by the date sixty days after the fifth anniversary of the issue date of the Obligations or the date 60 days after the retirement of the Obligation if earlier. VI. Miscellaneous. (a) Federal Guarantee. The Issuer will not invest any of the proceeds of the Obligations in a manner which would result in the Obligations being considered "federally guaranteed" within the meaning of Section 149(b) of the Code, except as permitted therein (i.e., will not cause interest with respect to the Obligations to be included in gross income for federal income tax purposes). Information Reporting. Attached as Exhibit is a copy of the Form 8038 -B filed with respect to the Obligations. (b) No Pooling. The Issuer does not expect to use and will not use the proceeds of the Obligations, to make or finance loans to two or more ultimate borrowers. (c) Hedge Bonds. Not more than fifty percent of the proceeds will be invested at a guaranteed rate of return for a term of four years or more. * # W 19 DOCSOC /1450924v 1 /022459 -0014 VII. Concluding Matters. (a) Reliance. The expectations of the Issuer concerning certain uses of the proceeds of the Obligations and certain other moneys described herein and other matters are based in whole or in part upon representations of other parties as set forth in this Tax Certificate or the exhibits attached hereto. The Issuer is not aware of any facts or circumstances that would cause it to question the accuracy or reasonableness of any representations made in this Tax Certificate or exhibits attached hereto. (b) Authority. The undersigned is an authorized representative of the Issuer, and is acting for and on behalf of the Issuer in executing this Tax Certificate. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change the expectations as set forth herein, and said expectations are reasonable. (c) Amendment. Notwithstanding any provision of this Tax Certificate, the Issuer may amend this Tax Certificate and thereby alter any actions allowed or required by this Tax Certificate if such amendment is based on an opinion of bond counsel to the effect that the character of the Obligations as direct pay Build America Bonds, for purposes of Section 54AA, 54AA(g), and 6431 of the Code will not be adversely affected. Dated: November 30, 2010 CITY OF NEWPORT BEACH By: � C-- U--A /\',\ David tiff, City Manager \J S -1 DOCSOC/14509241022459 -0014 EXHIBIT A DESCRIPTION OF PROJECT A portion of the capital costs of the project described under the caption "TAE PROJECT" in the Official Statement for the Obligations. Exhibit A -1 DOC S OC/ 1450924v 1/022459 -0014 I0.4 :1113Ya:3 REL4BURSEMENT RESOLUTION Exhibit B -1 DOCSOC/ 1450924v1/022459 -0014 RESOLUTION NO. 2010-65 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH REGARDING ITS INTENTION TO ENABLE .REIMBURSEMENT OF INTERIM EXPENDITURES FROM PROCEEDS OF A POSSIBLE FUTURE DEBT ISSUANCE FOR CIVIC CEN'T'ER PROJECT WHEREAS, the City of Newport Beach ( "City') intends to fmance the costs of site preparation and construction of a new City Hall, Park, and Parking Structure, all positioned in relationship with the existing Newport Beach Central Library located on approximately 19 acres of land located at 1100 Avocado Avenue, 1300 Avocado Avenue and 1450 Avocado Avenue, and the expansion and improvement of the Newport Beach Central Library at 1000 Avocado Avenue, in connection with the foregoing improvements (the "Project'); WHEREAS, the City intends to finance the Project or portions of the Project with the proceeds of obligations, the interest upon which is excluded from gross income for federal income tax purposes, (the "Obligations "); and WHEREAS, prior to incurring Obligations the City desires to incur certain expenditures with respect to the Project from available monies of the City, which expenditures are desired to be reimbursed by the City from a portion of the proceeds of the Obligations; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Newport Beach hereby resolve, order and determine as follows: 1. The City hereby states its intention and reasonably expects to reimburse Project costs incurred prior to the incurrence of the Obligations with proceeds of the Obligations. 2. The reasonably expected maximum principal amount of the Obligations is $150,000,000.00. 3. This resolution is being adopted on or prior to the date (the "Expenditures Date or Dates ") that the City will expend monies for the portion of the Project costs to be reimbursed from proceeds of the Obligations. 4. The expected date of incurrence of the Obligations will be within eighteen months of the later of the Expenditures Date or Dates or the date the Project is placed in service; provided the reimbursement may not be made more than three years after the original expenditure is paid. 5. Proceeds of the Obligations to be used to reimburse Project costs are not expected to be used directly or indirectly to pay debt service with respect to any obligation (other than to pay current debt service coming due within the next succeeding one year period on any tax - exempt obligation of City (other than the Obligation)) or to be held as a reasonably required reserve or replacement fund with respect to a obligation of the City or any entity related in any manner to the City; or to reimburse any expenditure that was originally paid with the proceeds of any obligation, or to replace funds that are or will be used in such manner. D0CS0C/1413530v2/022459 -0014 Exhibit B -2 DOCSOCA 45 0924v 1/02245 9-0014 6. The resolution is consistent with the budgetary and financial circumstances of the City, as of the date hereof. No monies from sources other than the Obligation are, or are reasonably expected to be reserved, allocated on a long -tema basis, or otherwise set aside by the City (or any related party) pursuant to its budget or financial statement. To the best of our knowledge, this City Council is not aware of the previous adoption of official intents by the City that have been made as a matter of course for the purpose of reimbursing expenditures and for which tax exempt obligations have not been issued. 7. The limitations described in Section 2 and Section 3 do not apply to (a) costs of issuance of the Obligations, (b) an amount not in excess of the lesser of $100,000 or five percent (5 %) of the proceeds of the Obligations, or (c) any preliminary expenditures, such as architectural, engineering, surveying, soil testing, and similar costs other than land acquisition, site preparation, and similar costs incident to commencement of construction, not in excess of twenty percent (20 %) of the aggregate issue price of the Obligations that finances the Project for which the preliminary expenditures were incurred. 8. This resolution is adopted as official action of the City in order to comply with Treasury Regulation 1.150 -2 and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of City expenditures incurred prior to the date of incurrence of the Obligations, is part of the City's official proceedings, and will be available for inspection by the general public at the main administrative office of the City. All the recitals in this Resolution are true and correct and the City Council of the City of Newport Beach so finds, determines and represents. ADOPTED, this 22 "d day of June, 2010 ATTEST: �UVV� �UYV I CITY CLERK DOCSOC/1413530v2/022459 -0014 DOCS OC/ 1450924v 1 /022459 -0014 MAYOR 2 . Exhibit B -3 STATE OF CALIFORNIA } COUNTY OF ORANGE CITY OFNEWPORTBEACH } I, Lenard I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 201U5 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 22nd day of June, 2010, and that the same was so passed and adopted by the following vote, to wit: Ayes: Selich, Rosansky, Henn, Webb, Gardner, Daigle, Mayor Curry Noes: None Absent: None .Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 23rd day of June, 2010. City Clerk Newport Beach, California (Seal) ,;E 'R> Exhibit B -4 DOCSOC /1450924v 1/022459 -0014 - !� it ; \ \ / / § ERWIN- / / B AT ƒ\ \\ / / B w O O� N 0 N U H 5 O z° � o ,-. -., a c L �� o E a c 3 $ Q � m E`a E n G E w O O� N 0 N U H O z° � o ,-. -., w O O� N 0 N U H .., k W "> z a'� �LLLL o � Leo a n m n n "� N rvr°nry EXHIBIT C $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CERTIFICATE OF THE UNDERWRITERS Stone & Youngberg LLC, acting on behalf of itself and as representative (the "Representative ") of E.J. De La Rosa & Co., Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James (collectively, the "Underwriters ") of the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Obligations ") and hereby certifies and represents the following, based upon the information available to them, provided, however, that (i) the Underwriters express no view regarding the legal sufficiency or the correctness of any legal interpretation made by bond counsel, (ii) nothing herein represents the interpretation of the Underwriters of any laws, and in particular, regulations under the Code and (iii) the Underwriters express no view regarding the legal sufficiency of any representations made herein: A. Issue Price. 1. As of the date the purchase agreement was entered into by the Issuer and the Underwriters with respect to the Obligations (the "Sale Date "), the Underwriters reasonably expected to sell a substantial amount (at least 10 %) of each maturity of the Obligations to the general public (excluding bond houses, brokers, or similar persons, known to the Underwriters to be acting in the capacity of underwriters or wholesalers) in a bona fide public offering at the prices listed on Schedule A -1. 2. In our opinion, and based upon our estimate as of the sale date, the issue prices of the Obligations set forth in Schedule A are within a reasonable range of and should reflect, the fair market prices for such Obligations as of the Sale Date. 3. As of the date of execution of the attached Tax Certificate, all of the Obligations have actually been offered to the general public at the prices listed in Schedule A -1. 4. The first price at which at least 10% of each maturity of the Obligations has been sold to the general public is as described in Schedule A -1. 5. For the purpose of enabling the Issuer to perform due diligence in connection with prices at which the Obligations have been sold to the public we have provided information to the Issuer showing transactions in the Obligations through the date in which the first ten percent of each maturity of the Obligations was sold to the general public (excluding bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers). Exhibit C -1 D OCSOC/ 1450924v 1/022459-0014 B. Yield. The Underwriter has provided the attached schedules to the Issuer regarding computing Obligation yield and Schedules A -2 and A -3 to be attached to Form 8038 -B. To the best of our understanding of the computational methodology imposed by section 148 of the Internal Revenue Code of 1986 (the "Code ") and CDIAC, the computation of the yield of the Certificates for purposes of Section 148 of the Code and for purposes of federal tax Form 8038 -13, the weighted average maturity of the Certificates for purposes of federal tax Form 8038 -B and the CDIAC net interest calculation for purposes of reporting to the State of California, are all set forth in Schedules A -2 and A -3. However, notwithstanding the foregoing, we remind you that we are not accountants or actuaries, no are we engaged in the practice of law. Accordingly, while we believe the calculations described above to be correct, we do not warrant them to be so. The Underwriters understand that Bond Counsel will rely upon this certificate, among other thing, in reaching its conclusion that the Bonds do not constitute "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended, provided, however, that nothing herein represents our interpretation of any laws, in particular, regulations under Section 148 of the Internal Revenue Code. All terms not defined herein have the meanings ascribed to those terms in the attached Tax Certificate. Dated: November 30, 2010 STONE & YOUNGBERG LLC, as Representative of t he U erwriters By: Its: Authorized Representative Lxhibit C -2 DO CSOC/1450924x1/022459 -0014 SCHEDULE A -1 PRICE OF THE OBLIGATIONS OFFERED OR REASONABLY EXPECTED TO BE OFFERED TO THE GENERAL PUBLIC IN A BONA FIDE PUBLIC OFFERING $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Maturity Date Principal Amount Interest Rate Price Serial Certificates 07/01/2018 $ 2,900,000 4.451% 100.000% 07/01/2019 2,980,000 4.751 100.000 07/01/2020 3,065,000 5.051 100.000 07/01/2021 3,165,000 5.351 100.000 07/01/2022 3,275,000 5.601 100.000 07/01/2023 3,390,000 5.851 100.000 Term Certificate 07/01/2030 17,800,000 7.018 100.000 07/01/2040 70,000,000 7.168 100.000 Schedule A -1 DOCSOC /1450924vt /022459 -0014 SCHEDULE A -2 PROOF OF ARBITRAGE YIELD Date Debt Semce PROOF OFARBIIRACE IMD CITY OF NEWPORT BEACH 2010B ('Taxable BABS) Br'—aa Told PV Faviar Pa :eat Value rol)rmolo Q 4.5087605%. OVOV2011 623,73866 (218300.53) 405,430]3 0.996169934 403,876.50 02/0920/1 3,621,]08,38 (1,26],59]93) 2354,110.45 0.971205615 2,293,389.66 01/092012 3,621,]0830 (1,26]$9].93) 2,354,110A5 0.952727533 2,242,025.84 0710=2 3,621.]0838 (1$6],59].93) $354,110.45 0.931922954 2,193,3]8.]4 01/092013 3,621,]0838 (3(16],59].93) 2,554,11045 0.911181459 2,145,021.80 0efoluo3 3,621,]0838 (1,26] ,59]93) 2,354,110.45 0,891092838 2,097,730.96 01/0 @074 3871,7."3 (426],59]93) 2 ,554,110.45 0,8714400] ],051,482.44 0]/OVL014 3,621,908.38 (1,267,597.93) 2,354,110.45 4852234500 2,OM254.14 OI /072015 3,621,]0838 (1367 ,59793) 2354,110.45 0.833445470 1,96$022.69 06092015 3,621,90838 (1,267,59] 93) 2,354.1 IDA5 U.tl 150706]] 1918,766A0 011612016 3,621,70030 (1J67.599,93) 4354,110.45 0797100990 1,.76,463.71 07/072016 3,621,90038 (1,261,597.93) 2,35411045 0.799529476 1,85509A78 01/0332.17 3,621,70838 (l- 167,59793) 2354,110A5 0962341402 1,794635.06 0] /01209 3,621,]0830 (1,267,599.93) 2354.13045 0]45534235 1,755,06991 09072013 3.631,70830 (),561,597.93) 2354,130A5 0729097593 1,71637616 07,12018 6521,70838 0,267,599.93) 5,254,110.45 0.713023336 3,746303.16 OVOIh019 3557,160 &e (1,245,009.11) 2312,159.77 0697303464 1,612,277.02 O7mI2m9 6,537,168.88 (J.245,009.1 1) 5,292,159.77 0681930165 3,608,88330 0 'AM020 3,486,778.98 (1,220,231.64) 2,266,14634 0.666895799 1,51 1383.49 091012020 6,59,370.98 (1$20,232.64) 5,331.14634 0.652192890 3,476,935,94 ' 01/077021 3,400,972.40 (1,193,14034) 2,215,83206 0.639814134 1,413,289.01 07/0 @021 6,5]3,9]240 (1,193,140.34) 5380,83106 0.623752383 3,356306.82 01/07/2022 3.lbey2 83 (1,16 ;502,49) 2,160,79034 0.610000649 1,318,083.51 OAOIP. 6,599,292,83 (1,10,502.49) 5,435,79034 0.596552096 3,242.932.12 01101/2023 3,232,576.45 (3,131,40116) 2,101,174.69 OSM400040 1,225,825.40 07/01 /2029 6622,576.45 (I,IJ 1,40146) 5,491,174,69 0570537945 3,332,923.53 011012024 3,133,402,00 (1,096,69030) 2,036,711.30 0,55]959418 1,136,40212 07/0@024 6,643,402.00 (1,096,690]0) 5,546,71130 0,545658207 3,026,608.54 01/012025 3,009,568.60 (1,053,349.01) 1,956,21959 0.5336228199 1,043,893.94 071012025 6,684,568,60 (1,(43349,03) 5,621,219.59 0321M3413 2,918,0]4] 01/01/2026 2,8]9(191.60 (1,007,927.06) bl7l,864.54 0,510358003 955,321.05 07/012026 6,729,79160 (1,009,927.06) 5,721,064.54 0,499106250 2.855,81835 O1 /018@7 2,743,723.05 (96,30335) 1,703,420.50 0.480102562 090,492,11 07/0112027 6,768,71185 (96030335) 5,804420.50 0,471341470 2,]]2,599.98 09012023 2601,36535 (91,477,87) 1690,067,48 0.466.11625 789,330,118 07/012028 6,81136535 (91,4]],87) 5,900,887,48 0.456525198 2,693,90]3] 01 @12029 2,452,361.45 (850,326.51) 1,594,034.94 0,446469872 711,67423 091017029 6857,361.45 (850,32651) 5,999,034.94 0.436617845 2,619,285]1 09017030 2,296365.00 (.07,72715) 1,492,63725 0.426991826 639,343.90 09.'017030 6,89636540 (.07,72715) 60%2,633,23 0.417578029 2,54419.46 01/012031 2,133,376.00 (746,681,60) 1,306,694.40 0.408311716 566,286 M 07/012031 6,943,376.00 (746,681.60) 6,196694.40 0399368492 2, 474 ,764.50 01,372872 1,960,985.60 (686,34496) 1,274640.64 U39M6370t 491,82. ,17 09,17_032 6995,985,60 (686344.96) 6,309,640.64 0.381953027 2,409,90634 0MV2033 1,]50,533,20 (621,185.92) 1,151,345.28 0,373532191 432305.72 07/017033 7,045,53120 (623,18542) 642234528 0365299007 2,346,00.51 033012034 1,591,833.60 (559,341.76) 1,034,691.84 0357243383 369,63611 06017034 7,101833.60 (557J41.76) 6,544691.04 0.349367315 2386,501.42 01/0 @ms 1394,35510 (4.tl 024.32) 906,11088 0341664889 30,66144 071D17035 716435530 (488,024.32) 6,696,330,08 0334132279 2230,777,64 0//017036 1,187,558,40 (415,6454(1 773,912.96 0.326765735 252334]1 0710 @036 7,222,558.40 (415,645.4) 6,806,91296 0319561/41 2,175,228 Ol 01/092037 971,264,00 (339,44240) 631,321.60 03/25/6196 197,VB29 07,17_037 7,291,264.00 (339,942A0) 6,951321,60 0305626316 2,124,50611 0110IM38 74475520 (260,66432) 404,09088 0/98888239 144,689.01 07/01 12038 7359,155,20 (260,66432) 7099,090.80 0/92290714 2,075,055.4 01,17039 507,673.60 (177,685]6) 329,997.04 0/05854467 9432830 07,17039 7427673,60 (37{68576) 7,249,987.04 0279552296 2,026.750.74 01/017040 259,660.80 (91)88138) 168,979.52 03933091166 46,142,40 07/017040 7,504,660.00 (90,88138) 7,413,779,P_ 0,267361917 1,982160.82 258,84030634 (9392,&5038) 205,541.436.16 106,575,000.00 Proweds Summary Delm, B. 11902010 Yv velae 106,575,000.00 Tuget mryield e01em.flm 306,575,000.00 Note: Colwan labeled Txpwc - Aaolmi FeduW Sabddy m BABa, Nov 23, 2010 1751 all Prepared by Stone & Youngberg LLC: SD/KR Page 24 Schedule A -2 DOCSOC /1450924v4 /022459 -0014 SCHEDULE A -3 $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) FIXED RATE CERTIFICATES DEBT SERVICE SCHEDULE Interest Total Interest Credit Amount Payment Date Payable Expected (Form (Form 8038- (Form8038 -CP, Total Principal 8038 -CP, Earliest Date Bonds CP, line 18) line 19) Outstanding line 20a and 22) Can Be Called 01/01/2011 $ 623,738.66 $106,575,000 $ 218,308.53 On any date. 07/01 /2011 3,621,708.38 106,575,000 1,267,597.93 01/01/2012 3,621,708.38 1.06,575,000 1,267,597.93 07/01/2012 3,621,708.38 106,575,000 1,267,597.93 01/01/2013 3,621,708.38 106,575,000 1,267,597.93 07/01/2013 3,621,708.38 106,575,000 1,267,597.93 01/01/2014 3,621,708.38 106,575,000 1,267,597.93 07/01/2014 3,621,708.38 106,575,000 1,267,597.93 01/01/2015 3,621,708.38 106,575,000 1,267,597.93 07/01/2015 3,621,708.38 106,575,000 1,267,597.93 01/01/2016 3,621,708.38 106,575,000 1,267,597.93 07/01/2016 3,621,708.38 106,575,000 1,267,597.93 01/01/2017 3,621,708.38 106,575,000 1,267,597.93 07/01/2017 3,621,708.38 106,575,000 1,267,597.93 01/01/2018 3,621,708.38 106,575,000 1,267,597.93 07/01/2018 3,621,708.38 103,675,000 1,267,597.93 01/01/2019 3,557,168.88 103,675,000 1,245,009.11 07/01/2019 3,557,168.88 100,695,000 1,245,009.11 01/01/2020 3,486,378.98 100,695,000 1,220,232.64 07/01/2020 3,486,378.98 97,630,000 1,220,232.64 01/01/2021 3,408,972.40 97,630,000 1,193,140.34 07/01/2021 3,408,972.40 94,465,000 1,193,140.34 01/01/2022 3,324,292.83 94,465,000 1,163,502.49 07/01/2022 3,324,292.83 91,190,000 1,163,502.49 01/01/2023 3,232,576.45 91,190,000 1,131,401.76 07/01/2023 3,232,576.45 87,800,000 1,131,401.76 01/01/2024 3,133,402.00 87,800,000 1,096,690.70 07/01/2024 3,133,402.00 84,290,000 1,096,690.70 01/01/2025 3,009,568.60 84,290,000 1,053,349.01 07/01/2025 3,009,568.60 80,615,000 1,053,349.01 Schedule A-3 DOCSOC /1450924v 1/022459 -0014 01/01/2026 2,879,791.60 80,615,000 1,007,927.06 07/01/2026 2,879,791.60 76,765,000 1,007,927.06 01/01/2027 2,743,723.85 76,765,000 960,303.35 07/01/2027 2,743,723.85 72,740,000 960,303.35 01/01/2028 2,601,365.35 72,740,000 910,477.87 07/01/2028 2,601,365.35 68,530,000 910,477.87 01/01/2029 2,452,361.45 68,530,000 858,326.51 07/01/2029 2,452,361.45 64,125,000 858,326.51 01/01/2030 2,296,365.00 64,125,000 803,727.75 07/01/2030 2,296,365.00 59,525,000 803,727.75 01/01/2031 2,133,376.00 59,525,000 746,681.60 07/01/2031 2,133,376.00 54,715,000 746,681.60 01/01/2032 1,960,985.60 54,715,000 686,344.96 07/01/2032 1,960,985.60 49,680,000 686,344.96 01/01/2033 1,780,531.20 49,680,000 623,185.92 07/01/2033 1,780,531.20 44,415,000 623,185.92 01/01/2034 1,591,833.60 44,415,000 557,141.76 07/01/2034 1,591,833.60 38,905,000 557,141.76 01/01/2035 1,394,355.20 38,905,000 488,024.32 07/01/2035 1,394,355.20 33,135,000 488,024.32 01/01/2036 1,187,558.40 33,135,000 415,645,44 07/01/2036 1,187,558.40 27,100,000 415,645.44 01/01/2037 971,264.00 27,100,000 339,942.40 07/01/2037 971,264.00 20,780,000 339,942.40 01/01/2038 744,755.20 20,780,000 260,664.32 07/01/2038 744,755.20 14,165,000 260,664.32 01/01/2039 507,673.60 14,165,000 177,685.76 07/01/2039 507,673.60 7,245,000 177,685.76 01/01/2040 259,660.80 7,245,000 90,881.28 07/01/2040 259,660.80 0 90,881.28 Schedule A -3 DOCS OC/ 1450924v 1 /022459 -0014 EXHIBIT D $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CREDIT PAYMENT PROCEDURES Until further guidance is released, and in accordance with Notice 2009 -26 and Instructions for Form 8038 -CP, the Issuer shall follow the following procedures to request Credit Payment. The Issuer shall file Form 8038 -CP (attached), in accordance with the Instruction for Form 8038 -CP (attached) with respect to each interest payment on the Obligations, no earlier than 90 days and no later than 45 days before the applicable interest payment date on the Obligations. Form 8038 -CP shall be filed with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201 -0020. Assuming the Obligations are not refired early, the attached schedule has information which could be utilized to complete Part III, lines 18, 19, 20, 22, and 23; the Issuer will obtain expert advice regarding filing and completing Form 8038 -CP. Exhibit D -1 DOCSOC /1450924v 1/022459 -0014 Instructions for Form Departmentthe Treasury Internal Revenue Service 8038 -CP (Rev. June 2010) Return for Credit Payments to Issuers of Qualified Bonds Section references are terns Internal eligible to elect to receive direct payments Revenue Code unless otherwise noted. under section 6431(f). What's New Section 301 of P.L. 111 -147 (H.R. 2847), the Hiring Incentives to Restore Employment (HIRE) Act, provides that issuers of new clean renewable energy bonds, qualified energy conservation bonds, qualified zone academy bonds, and oualified school construction bonds credits under section 54A (specified tax credit bonds). For qualified school construction bonds and qualified zone academy bonds the amount of the refundable credit allowed is equal to the lesser of: 1. the amount of interest payable under such bond on such date, or 2. the amount of interest which would have been payable under such bond on such date If such interest were determined at the applicable credit rate determined under section 54A(b)(3). For qualified energy conservation bonds and new clean renewable energy bonds, the amount of the refundable credit allowed is equal to the lesser of: 1. the mount of interest payable under such bond on such date, or 2. 70% of the amount of interest which would have been payable under such bond on such date if such interest were determined at the applicable credit rate determined under section 54A(b)(3). For specified tax credit bonds with multiple bond maturities, the refundable credit payment is determined separately with respect to each maturity. The refundable credit payment for each maturity must be requested on a separate Form 8038 -OP. See instmctions for Part 111, lines 19a and 19c, if reporting specified tax credit bonds with multiple maturities. Note. Only issuers of specified tax credit bonds that qualify for, and have elected to receive, a refundable credit under section 6431(f) may file Form 8038 -CP. If the issuer of a specified tax credit bond makes the election under section 6431(5), the holder of the bond will not then be eligible to receive a tax credit under section 54A. Other tax credit bonds, including qualified forestry conservation bonds, clean renewable energy bonds, and Midwestern tax credit bonds, are not Reminders A direct deposit box was added to the Form 8038 -CP to allow issuers of bonds the choice of having their credit payment directly deposited into their account. General Instructions Purpose of Form The American Recovery and Reinvestment Act of 2009 (ARRA) created build America bonds and recovery zone economic development bonds. The HIRE Act provides for issuers to elect to issue specified tax credit bonds. The ARRA and the HIRE Act are referred to throughout these instructions as the Acts. Form 8038 -CP is used by issuers of build Amerca bonds and recovery zone economic development bonds who elect to receive a direct paymentfrom the Federal Government equal to a percentage of the interest payments on these bonds. For more information, see Notice 2009 -26. Form 8038 -CP is also used by issuers of specified tax credit bonds who elect to receive a direct payment from the Federal Government equal to a percentage of the interest payments on these bonds. For more information see Notice 2010 -35. Issuers of each issue of specified tax credit bonds must file a separate Form 8038 -CP to request payment of a refundable credit under 6431(f). Note. Each type of specified tax credit bond must be reported on a separate Form 8039 -CP. For specified tax credit bonds with multiple maturities, each maturity must be reported on a separate Form 8038 -CP. This return is to be filed only if, as i of Me date the form is filed, the issuer of the outstanding obligations) with respect to which this return is submitted has reasonably concluded that the obligation(s) meet all applicable requirements for the payment of the requested credit. Who Must File Issuers of qualified build America bonds, recovery zone economic development bonds, and specified tax credit bonds must submit this return to request credit payments payable under the Acts. Cat. No. 52942P Exhibit D-2 DOCSOC /1450924v l /022459 -0014 What To File The payment requested on Form 8038 -CP can only relate to the interest paid on a single bond issue. If the issue has both fixed rate and variable rate bonds, file a separate Form 8038 -CP for each type of bond. If a single bond issue constitutes both build Amerca bonds (Direct Pay) and recovery zone economic development bonds, file a separate Form 8038 -CP for each type of bond. Each issue consisting of a single maturity of specified tax credit bonds must also be reported on a separate Farm 8038 -CP. Issuers of specified tax credit bonds with multiple maturities must file a separate Form 8038 -CP for each bond maturity. If the information provided on the return relates to more than one bond issue, or in the case of specified tax credit bonds with multiple maturities relates to more than one maturity, or if the return is not completed in full, the credit payment may be delayed. In order to process the refundable credit payment, the IRS will correspond with either the designated contact person of the entity listed in Part I at the address listed in Part I, the issuer, or its designee listed in Part II, as necessary. When To File A Forth 8038 -CP filed with respect to fixed rate bonds must be filed no later than 45 days before the relevant interest payment date. Form 8038 -CP may not, however, be submitted earlier than 90 days before the relevant interest payment date. With respect to variable rate bonds when the issuer knows the interest payment amount 45 days prior to the interest payment date, Form 8038 -CP may be filed within the same timelines as fixed rate bonds (45 days before the relevant interest payment date but no earlier than 90 days before the relevant interest payment date). For variable rate bonds when the issuer does not know the interest payment amount 45 days prior to the interest payment date, the issuer must aggregate all credit payments on a quarterly basis and file a Form 8038 -CP for reimbursement in arrears no later than 45 days after the last interest payment date within the quarterly period for which reimbursement is being requested. Effective on its release, issuers of build America bonds, recovery zone economic development bonds, and specified tax credit bonds are required to submit this revised Form 8038 -CP to request payment of a refundable credit. Revised Form 8038 -CP will be processed on receipt for build America bonds and recovery zone economic development bonds. Processing of the revised Form 8038 -CP submitted for specified tax credit bonds will begin no later than July 12, 2010. The IRS will make timely refundable credit payments with respect to bond interest payment dates on specified tax credit bonds that are on or after September 1, 2010. Issuers of specified tax credit bonds with interest payment dates prior to September 1, 2010, see Notice 2010 -35 for more information. Where To File File Form 8038 -CP with the Department of the Treasury, internal Revenue Service Center, Ogden, UT 84201 -0050. Private delivery services. You can use certain private delivery services designated by the IRS to meet the 'timely mailing as timely filing/paying" me for tax returns and payments. These private delivery services include only the following: • DHL Express (DHL): DHL Same Day Service. • Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. The private delivery service can tell you howto get written proof of the mailing date. Other Forms That May Be Required For rebating arbitrage (or paying a penalty in lieu of arbitrage rebate) to the Federal Government, use Form 8038 -T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate. For the issuance of all build America bonds and recovery zone economic development bonds, use Form 8038 -B, Information Return for Build America Bonds and Recovery Zone Economic Development Bonds. The Form 8038 -B associated with a Form 8038 -CP filing must be filed at least 30 days priorto the submission of the First Forth 8038 -CP of the bond issue. For more information, see Notice 2009 -26. For reporting the issuance of all tax credit bonds, including specified tax credit bonds, use Form 8038 -TC, Information Return for Tax Credit Bonds and Specified Tax Credit Bonds. For specified tax credit bonds, the Form 8038 -TC associated with a Form 8038 -CP filing must be filed at least 30 days prior to the submission of the first Form 8038 -CP of the bond issue. For more information, see Notice 2010 -35. DOCSOC/1450924v1/022459 -0014 Note. Issuers of specified tax credit bonds must report on Form 8038 -TC. The IRS will not be able to process the related subsidy payment request submitted on Form 8038 -CP, unless Form 8038 -TO is filed for these bonds. Issuers that have filed Form 8038, Information Return for Tax - Exempt Private Activity Bond Issues, for an issue of specified tax credit bonds must refile on Form 8038 -TC prior to filing the initial Form 8038 -OP for these bonds. Rounding to Whole Dollars You may show amounts on this return as whole dollars. To do so, drop amounts less than 50 cents and increase amounts from 50 cents through 99 cents to the next higher dollar. Where the Requested Payment Will Be Sent The credit payment on line 22 will be sent by check to the entity that is to receive payment listed in Pad I at the address designated in Part I, unless the issuer has elected to have the payment deposited directly, in which case the payment will be directly deposited to the routing and account numbers listed on lines 25a and 25c. Note. If the entity listed in Part I is not the issuer, the account information (routing and account numbers listed on lines 25a and 25c) must be the account information of the entity listed in Part I. If the entity listed in Part I is the issuer, the account information must be the account information of the issuer. f If the amount of the credit payment requested is required to be offset against other outstanding taxes or obligations, then the credit payment to be received could be less lion the amount requested. For more information see Notices 2009 -26 and 2010.35. Questions on Filing Form 8038 -CP For specific questions on how to file Form 8038 -CP send an email to the IRS at: TaxExemptBondQuesdons @irs.go v and put "Form 8038 -CP Question" in the subject line. In the email include a description of your question, a return email address, the name of a contact person, and a telephone number. Specific Instructions Part ]—information on Entity That Is To Receive Payment of Credit and Communications Amended return. An issuer may file an amended return to change or add to the information reported on a previously filed return, with respect to a single issue for the same interest payment date. If you are filing to correct errors or change a previously filed return, check the Amended Return box in the heading of the return. -2- Exhibit D -3 The amended return must provide all the information reported on the original return, in addition to the new or corrected information. Attach an explanation of the reason for the amended return and write across the top, "Amended Return Explanation" Note. Do not check the Amended Return box if you are correcting prior filings of Form 8038 -CP by using lines 21 a or 21 b. Any corrections to Part III must be corrected by using the net adjustment lines 21a or 21 b. Such corrections must only be submitted on a subsequent Form 8038 -CP filed to request a credit payment. An amended return should only be filed: 1. To correct information in Parris I and II for Form 8038 -CP, or 2. If you previously filed a final return and need to make subsequent corrections to lines 21a or 216 only, then you should check the Amended Return box. Lint. Enter the name of the entity to which the requested refundable credit payment is to be paid. If the payment is to be made to the entity that issued the bonds, enter the name of that issuer. For build America bonds and recovery zone economic development bonds, the issuer's name should be identical to the name listed on Form 8038 -8, Part I, line 1. For specified tax credit bonds, the issuer's name should be identical to the name listed on Form 801 Part I, line 1. If the issuer authorized another entity (for example, a trustee bank) to receive the requested refundable credit payment on its behalf, enter the name of that entity. Note. The IRS will send payment only to the entity listed in Part I. By entering the name of an entity other than the issuer, the issuer consents to and authorizes the IRS to send the requested refundable credit payment directly to the entity listed in Part I. The issuer further consents to and authorizes the IRS to communicate directly with the entity listed in Part I and to disclose its return information to that entity, as necessary, in order to process the refundable credit payment. Line 2. Enter the employer identification number (EIN) of the entity identified in line 1. If the issuer is the entity listed in Part I, for build America bonds and recovery zone economic development bonds the issuers EIN should be identical to the EIN listed on Form 8038 -B, Part I, line 2. If the issuer is the entity listed in Part I, for specified tax credit bonds, the issuers EIN should be identical to the EIN listed on Form 8038 -TC, Part I, line 2. An entity that does not have an EIN should apply for one on Form SSA, Application for Employer Identification Number. You can get this forth on the IRS website at wi frs. ovor by calling 1- 800- TAX -FO ISM ' 1-8 - 829 - 3676). You may receive an El N by telephone by following the instructions for Form SS -4. Lines 5 and 6. If the issuer is not the entity listed in Part I, enter on line 5 the name and title, and on line 6, the phone number of the designated contact person for the entity named in Part I that is to receive payment of the credit (such as an employee of the trustee bank) that the IRS may call for more information. If the issuer is the entity listed in Pad I, eater on line 5 the name and title, and on line 6, the phone number of the designated contact person (such as an officer of the issuer, the legal representative of the issuer, or the paid preparer) whom the IRS may call for more information. Note. If the issuer on line 5 authorizes the IRS to call a person other than an officer of the issuer for more information, by signing this return the issuer's authorized representative consents to the disclosure of issuers return information to such person, as necessary to process this return. Part II— Reporting Authority Pad II should be completed in full if the issuer authorized the IRS to pay the requested refundable credit psych ntto another entity on its behalf (for example, a trustee bank). Lines 7 and e. If the issuers name is the same as line 1, enter "SAME" and skip lines 8, 9, 11, 15, and 16. If the issuer's name is notthe same as line 1, enterthe name, EIN, and complete address of the issuer of the bond issue. For build America bonds and recovery zone economic development bonds the issuers name and EIN should be identical to the name and EIN listed on Form 8038 -B, Part I, lines 1 and 2 filed with respect to the bond issue. For specified tax credit bonds, the issuers name and EIN should be identical to the name and EIN listed on Form 8038 -TC, Part I, lines i and 2 filed with respect to the bond issue. Line 10. This line is for IRS use only. Do not make any entries in this box. Line 12. Enter the issue date of the bond issue. For build America bonds and recovery zone economic development bonds, the issue date should be identical 10 the issue date listed on Form 8038 -B, Part I, line 7. For specified tax credit bonds, the issue date should be identical to the issue date listed on Form 8038 -TC, Part I, line 7. Linei3. Enter the name of the bond issue. The name of the bond issue should be identical to the name listed on Form 8038 -B, Pad I, line 8, filed with respect to the bond issue. If the bond issue is not named write "None." For specified tax credit bonds, the name of the bond issue should be identical to the name listed on Form 8038 -TC, Part I, line 8, filed with respect to the bond issue. Llri Enter the Committee on Uniform Securities Identification Procedures (CUSIP) number on the bond with the latest maturity. For build America bonds and recovery zone economic development bonds, the CUSIP number should be identical to the CUSIP number listed on Form 8038 -B, Part I, line 9, filed DOCSOC/ 1450924v1 /022459 -0014 for the bond issue. For specified tax credit bonds with a single maturity, the CUSIP number should be identical to the CUSIP number listed on Form 8038 -TC, Part I, line 9, filed for the bond issue. For specified tax credit bonds with multiple maturities, the CUSIP number should be the CUSI P for the corresponding maturity reported on this form. If the bond issue was not publicly offered and there is no assigned CUSIP number, write 'None." Lines 15 and 16. if the issuer is notthe entity listed in Part I, enter the name, ti and phone number of the officer of the issuer or other person (including legal representative or paid preparer) whom the IRS may call for more information. If the issuer is the entity listed in Part I, leave lines 15 and 16 blank. Note. If the issuer authorizes, on line 15, the IRS to call a person other than an officer of the issuer for more information, by signing this form the issuer's authorized representative consents to the disclosure of the issuer's return information to such person, as necessary to process this return. Line 17a. For build America bonds and recovery zone economic development bonds, check the type of issue that was identified in Part III, Purpose of Issue, of Form 6038 -8, for example, education, health and hospital, transportation, public safety, environment (including sewage bonds), housing, utilities, or other (with description). Do not check more than one type of issue; if the issuance is multipurpose, checkthe type of issue that is the largest portion of the issue price. Line 17b. For build America bonds and recovery zone economic development bonds, also enter the total issue price for the bond listed on Form 8038 -B, Part III, line 3 filed for the bond issue. For specified tax credit bonds, also enter the total issue price for the bond listed on Form 8038 -TC, Part III, line I filed for the bond issue. Lfnel7c. Checkthe box that applies to the bonds of the issue for which this return is submitted. Do not leave lines 12, 13, 14, 17a, 17b, and 17c blank, If these lines are left blank it will delay processing of this return. Part III — Payment of Credit Linela. Enter the interest payment date to which the requested refundable credit payment relates. An interest payment date is the date on which interest is payable by the issuer to the holders of the bonds. (For a variable rate issue, enter the last interest payment date applicable to the quarterly period to which this return relates.) For certain variable rate bonds the remarketing date or the date the interest rate is reset may not be the same date the interest is paid. Uncles. Enter the amount of interest payable to the holders of the bonds . on the interest payment date. The amount entered on line 19a can only relate to the -3- Exhibit D -4 interest payable on a single bond issue and the amount of interest allocahle to a single bond type (build America bond, recovery zone economic development bond, or a single type of specified tax credit bond). Issuers of specified tax credit bonds with multiple maturities must file a separate Form 8038 -CP for each bond maturity. Such issuers should enter the amount of interest payable on asingle maturity on the interest payment date. (See What To File.) Note. Credit payments are not allowed for preissuance accrued interest. Line 19b. For specified tax credit bonds only, enter the applicable credit rate. The applicable credit rate is the daily tax credit bond rate set by the Secretary under section 54A(b)(3) determined as of the first day on which there is a binding written contract for the sale or exchange of the bond. Carry the percent out to two decimal places, do not round (for example, 10.74 %). Such rate is published by the Bureau of Public Debt on its internet site for State and Local Government Series Securities at www. treasurydirect.gov. See Notice 20-09-71-5, 9-1 -5, which is on page 449 of Internal Revenue Bulletin 2009 -6 at w_ww�irs.gov/pub/ irs- irbs11rb09.O6.pdP. Line 19c. For specified tax credit bonds only, enter the amount of interest payable to the holders of the bonds on the interest payment date calculated using the applicable credit rate in the box on line 191h. Issuers of specified tax credit bonds with multiple maturities should enter the amount of interest payable to the holders of the bonds on the interest payment date calculated using the applicable credit rate in the box on line 19b for the single maturity they are reporting on this Form 8038 -CP under line 19a. Lines 20a and 20b. Far build America bonds and recovery zone economic development bonds enter the amount of the requested credit payment relating to the interest paid on the interest payment date. The amount reported on line 20a must equal W1. of the amount reported on line 19a or the amount on line 20b must equal 45% of the amount reported on line 19a. For specified tax credit bonds the amount of the refundable credit payment allowed under section 6431(1) for qualified zone academy bonds and qualified school construction bonds is the lesser of 100% of the amount of interest payable under the bond on such interest payment dale or 100% of the amount of interest which would have been payable under such bond on such date if such interest were determined at the applicable tax credit bond rate determined under section 54A(b)(3). For new clean renewable energy bonds and qualified energy conservation bonds, the amount of the refundable credit payment allowed under 6431(f) is the lesser of 100% of the amount of interest payable under the bond on such interest payment date or 70% of the amount of interest which would have been payable under such bond on such date if such interest were determined at the applicable tax credit band rate determined under section 54A(b)(3). For specified tax credit bonds enter the amount of the requested credit payment as follows: • Line 20c —new clean renewable energy bonds, enter the lesser of 100% of line Igo or 70% of line 19c, • Line 20d— qualified energy conservation bonds, enter the lesser of 100% of line 19a or 70°/ of line 190, - • Line20e— qualified zone academy bonds, enter 100% of the lesser of lines 1 go or 19c, and Line 20f— qualified school construction bonds, enter 100% of the lesser of lines 19a or 19c. Note. You may not have more than one entry on lines 20a, 20b, 20c, 20d, 20e, and 20f.. If the amount shown on lines 20a, 20b, 20c, 20d, 20e, and 20f does not equal the amount of the credit payment shown on the debt service schedule attached to the information return for the bonds filed separately with the IRS (Form 8038 -TC or Form 8038 -8), please attach an explanation and write across the top, "Explanation for difference in scheduled credit payment." For variable rate bonds, no explanation is required. Lines2laand2lb. Lines2laand2lb are available to correct prior mistakes with respect to credit payments related to prior filings of Form 8038 -CP for the respective issue. • If a prior credit payment amount was received that was less than the correct amount, then enter the amount on line 21 a that relates to the corresponding increase to this payment request. • If a prior credit payment amount was received that exceeded the correct amount for that payment, than enter the amount on line 21b that relates to the corresponding decrease to this payment request. • If there are both increase and decrease adjustments related to multiple prior payments, then net the amounts and include the corresponding amount in either line 21a or 21b as appropriate. If any amount is entered on either line 21 a or 21 b, attach an explanation and write across the top, "Explanation for Adjustment - Line 21 ai216" as to how the error occurred and what steps were taken to prevent similar errors from recurring. If an explanation is not attached, credit payment may be delayed. Line 22. Enter the amount of the credit payment to be received. Combine the amount in line 20a, lob, 20c, 20d, 20e, or 20f with the amount in either line 21a or 21 b, as applicable. Note. If an amount of the credit payment requested is required to be offset against other outstanding taxes or obligations, then the credit payment to be received could be less than the amount on line 22. DOCSOC/ I 450924 1 /022459 -0014 For more information, see Notices 2009 -26 and 2010 -35. Line 23. Check "Yes" or "No." Check "Yes" if the requested payment is the final payment of interest with respect to the bond issue. The final payment of interest is the last payment of interest prior to, or in conjunction with, the maturity or redemption of the issue. If a box is not checked, credit payments may be delayed. Line 24. lithe issuer completed Part I authorizing another entity (for example, a trustee bank) to receive the requested refundable credit payment on its behalf, check this box. Line 25. Complete lines 25a through 25c if you want the amount shown on line 22 directly deposited into your checking or savings account. Otherwise, we will send a check to the entity listed in Part I. The IRS is not responsible for a lost credit payment if you enter the wrong account information. Check with your financial institution to get the correcfACH (Automated Clearing House) routing and account numbers and to make sure your direct deposit will be accepted. If the direct deposit to your acccantis different from the amount you expected, you will receive an explanation in the mail about 2 weeks after your credit payment is deposited. Line 25a. The routing number must be nine digits. The first two digits must be 01 through 12 or 21 through 32. Otherwise, the direct deposit will be rejected and a check will be sent instead. If the entity listed in Part I is not the issuer (such as a trustee bank), askthat entity for the correct routing number. (See Where the Requested Payment Will Be Sent.) Line25b. Check the appropriate box for the Type of account. Do not check more than one box. If unknown, leave blank. Line 25c. The account number can be up to 17 characters (both numbers and letters). Include hyphens but omit spaces and special symbols. Enter the number from left to right and leave any unused boxes blank. Signature and Consent An officer of the issuer with authority to bind the issuer must sign Form 8038 -CP and any applicable certification. if the entity listed in Part I is not the issuer, the authority of the person signing this return must include the authority to bind the issuer, the authority to request that the IRS send the refundable credit payment to the entity identified in Pan I, and the authority to consent to the disclosure of return information necessary to process the refundable credit payment to the designated contact person(s) listed in Parts I and II on Form 8038 -CP, as applicable. Also print the name and title of the person signing Form 8038 -13P. Note. lithe issuer designates online 5 of Part I or line 15 of Part II a person -4- Exhibit D -5 otherthan an officerof the issuer as a contact person for the IRS to call for more information, by signing this return the issuers authorized representative consents to the disclosure of the issuers return information to such person, as necessary to process the refundable credit payment. Paid Preparer If an authorized officer of the issuer filled in this return, the paid preparer block should remain blank. Anyone who prepares the return but does not charge the issuer should not sign the return. Certain others who prepare the return should not sign. For example, a regular, full -lime employee of the organization, such as a clerk, secretary, etc., should not sign. Generally, anyone who is paid to prepare a return must sign it and fill in the other blanks in the Paid Preparer's Use Onlyarea of the return. The paid preparer must: • Sign the return In the space provided for the preparer's signature, • Enter the preparer information, and • Give a copy of the return to the issuer. Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this forth to carry out the Internal Revenue laws of the United States. You are required to give us the intonation. We need it to ensure that you are complying with these laws. Section 6109 requires paid prepares to provide their identifying number. You are not required to provide the information requested on aform that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to aionn or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The time needed to complete and file this forth will vary depending on individual circumstances. The estimated average time is: Recordkeeping ... .. .... 6hr., 13 min. Looming about the law or the form ................. 12 min. Preparing, copying, assembling, and sending the form to the IRS.......... 18 min. If you have comments concerning the accuracy of these time estimates or suggestions for making this to" simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR -6526, Washington, DC 20224. Do not send the form to this address. Instead, see Where To File on page 2. Faun 8038-CP Return for Credit Payments - tRev. June 2010) OMB No. 1545-2142 g;� egrra, -a,- to Issuers of Qualified Bonds I= Information on Entity That Is To Receive Payment of Credit and Communications Check box if Amended Return lo n 1 Name of entity that is to receive payment of the credit 1 2 Employer identification number (EIN) 3 Number and street (or P.O. box no, if mail is not delivered to street address) 4 City, town, or post office, state, and ZIP code Room /suite 5 Name and title of designated contact person whom the IRS may call for more information 6 Telephone number of officer or legal representative ( ) 7 Issuer's name (if same as line 1, enter 'SAME" end adp lines 6, 9, 11, 15, and 16) a EIN 9 Number and street (or P.O. box no, if mail is not delivered to street address) Roam /suite 10 Report number (For IRS Use Only) B 11 City, town, or post office, state, and ZIP code 12 Date of issue (MM/DDNYYY) 13 Name of Issue f4 GUSIP number (See inehvctlons.) 15 Name and title of officer or other person wham the IRS may call for more [at .un.ran 16 Telephone number of officer or other person to call 17a Type of issue t For build America bonds and recovery zone economic development bonds, check the applicable box (see instructions) c Check aoolieable box ► I I Variable rate bond I 1 Fixed rate bond RM� '*d` e °e,.i1M'.1`Ii.�D ti 18 Interest payment date to which this payment of credit relates (MWDD/YYYY) 7 y tIlNMA,`M'•�'IW y ':,'y"'"'sf. Direct Deposit 19a Interest payable to bondholders on the interest payment date . . . . . Is for speclfled tax credit bonds only, enter the applicable credit rate determined under Sec. 54A(b)p) ❑ ❑. ❑ ❑ % 19a c Account number E� _ XS m ,a?,,..;:n,..;...,F,ELI , c For specified tax credit bonds only, enter the interest that would be payable to bondholders on the interest Under penalties of perjury, I declare that 1 have examined this return, and accompanying schedules and statements, and to the best of my knowledge Signature payment date calculated using the applicable credit rate (see instructions) . . . . . . . . . . 19c designated contact poraaMtd Ilowd above in Parts I and 11, as applicable. Consent ' Signature of Issuer Date Type or print name and title 20 Amount of credit payment to be received as of the Interest payment date (complete only line 20a, 20b, 20c, 20d, 20e, or 20f): r Preparers signature self- employed ❑ Use Only a Build America bonds. Multiply line 19a by 35% (0.35) . . . . . . . . . . . . . . . . 20a 206 I Phone no. ( ) Is Recovery zone economic development bonds. Multiply line 19a by 45% (0.45) . . . . . . . . 20c c New clean renewable energy bonds enter the lesser of line 19a or 709/ of line 19c . . . . . . 20d or Qualified energy conservation bonds enter the lesser of line 19a or 70% of line 19G 20e e Qualified zone academy bonds enter the lesser of lines 19a or 19c got f Qualified school construction bonds enter the lesser of lines Ida or 19c 21 Adjustment to previous credit payments (complete line 21a OR line 21b only):x.,_^°y'v s a Net increase to previous payments (attach explanation) . . . . . . . . . 1a 21b ) Is Net decrease to previous payments (attach explanation) . . . . . . . . . . . . . . . 22 22 Amount of credit payment to be received. Combine either line 20a, 20b, 20c, 20d, 20e, or 20f with line 21a or line 21b . . . Yes ❑ No ► ❑ 11 23 Is this the final interest payment date? . . . . . . . . . . . . . . . . . 24 If the orativ identified in Part I is not the iesi wr nheok thm hnz For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions. Cat. Mo. 5201 DE 13, V , 14JVJG4 y 1( VGGVJ>'VVIY Form 3038 -CP (Rev. 6 -2010) 25 Enter direct deposit information below: ��',^a., go Direct Deposit a Routing number / b Type: ❑ Checking ❑ Savings ,mg, e'N I n c Account number t v'v 'L, su' Under penalties of perjury, I declare that 1 have examined this return, and accompanying schedules and statements, and to the best of my knowledge Signature and beret, they are kue, correct, and complete. I further declare that I authorize the IRS to send the requested refundable credit payment to the entity identified In Part I, and I consent to the disclosure of the issuer§ return Infouned n, as necessary to process the refundable credit payment, to the and designated contact poraaMtd Ilowd above in Parts I and 11, as applicable. Consent ' Signature of Issuer Date Type or print name and title Paid e . Date Protons's SSN or PTIN hock if r Preparers signature self- employed ❑ Use Only ""'a name (cr EIN Yours it self-employed), address and ZIP code I Phone no. ( ) For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions. Cat. Mo. 5201 DE 13, V , 14JVJG4 y 1( VGGVJ>'VVIY Form 3038 -CP (Rev. 6 -2010) EXHIBIT E FORM 8038 -B Exhibit E -1 DOCSOC! 1450924v l /022459 -0014 Instructions for Form 8038 ®B linter al Reveof the Treasury nue Service (Rev. January 2010) Information Return for Build America Bonds and Recovery Zone Economic Development Bonds Section references are to the Internal Revenue Code unless otherwise noted. General Instructions What's New The American Recovery and Reinvestment Act of 2009 created three types of build America bonds. Section 54AA added both Tax Credit and Direct Pay build America bonds. Section 14000 -2 added recovery zone economic development bonds, a form of Direct Pay build America bonds. Notice 2009 -26 required that, subject to updated IRS information reporting forms or procedures, all three types of build America bonds issued were to be reported on Form 8038 -G, Information Return for Tax- Exempt Governmental Obligations. Purpose of Form Beginning February 2010, Form 8038 -B is to be used by issuers of build America bonds (Tax Credit), build America bonds (Direct Pay), and recovery zone economic development bonds to provide the IRS with the information required by section 149(e). Who Must File Governmental issuers of build America bonds and recovery zone economic development bonds must file a separate Form 8038 -B for each issue of build America bonds and recovery zone economic development bonds issued after February 2010. Note. Build America bonds (Tax Credit), build America bonds (Direct Pay), and recovery zone economic development bonds must each be reported on a separate Form 8038 -6. This instruction applies regardless of whether the single issue consists of variable rate, fixed rate, or both variable rate and fixed rate bonds. When To File File Form 8038 -B on or before the 15th day of the 2nd calendar month after the close of the calendar quarter in which the bond was issued. Form 8038 -6 may not be filed before the issue date and must be completed based on the facts as of the issue date. For build America bonds (Direct Pay) and for recovery zone economic development bonds, Form 8038 -6 must be filed at least 30 days prior to the submission of the first Form 8038 -CP, Return for Credit Payments to Issuers of Qualified Bonds, that is filed to request payment with respect to an interest payment date for that issue. Failure to complete the form including the attached schedules may result in a delay in processing this form. All attached schedules must include the issuers name and El Nat the top. Late tiling. An issuer maybe granted an extension of time to file Form 8038 -6 under Rev. Proc. 2002 -48, 2002-37 I.R.B. 531. Type or print at the top of the form, "Request for Relief under Section 3 of Rev. Proc. 2002 -48." See Rev. Proc. 2002 -48 for complete information on requirements for an extension of time to file Form 8038 -B. Note. If Form 8038 -8 is filed late, it still must be filed 30 days prior to the submission of the first Form 8038 -CP for that issue. Where To File File Form 8038 -B and any attachments with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201 -0020. Private delivery services. You can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing /paying" rule for tax returns and payments. These private delivery services include only the following: • DHL Express (DHL): DHL Same Day Service. s Federal Express (FedEx): Fed Ex Priority Overnight, Fed Ex Standard Overnight, FedEx 2Day, Fed Ex International Priority, and Fed Ex International First. • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. The private delivery service can tell you how to get written proof of the mailing date. Other Forms That May Be Required For issuers who elect under section 6431 to receive a direct payment from the Federal Government equal to a percentage of the interest payment, the payment must be requested on Form 8038 -CP. Each Form 8038 -CP can only relate to the interest paid on a single bond issue. For rebating arbitrage (or paying a penalty in lieu of arbitrage rebate) to the Gat. No. 54165A Exhibit E -2 DOCS OC/1450924v 1 /022459 -0014 Federal Government, use Form 8038 -T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate. If the bond issue consists of both tax- exempt bonds and build America bonds, the issuer must report the tax- exempt portion on Form 8038 -G and the build America bond portion on Form 8038 -B. Rounding to Whole Dollars You should report the money items on this return as whole dollars. To do so, drop amounts less than 50 cents and increase amounts from 50 cents through 99 cents to the next higher dollar. Questions on Filing Form 5039 -B For specific questions on how to file Form 8038 -B send an email to the IRS at: TaxExemptSondQuestions@irs.gov and put "Form 8038 -B Question" in the subject line. In the email include a description of your question, a return email address, the name of a contact person, and a telephone number. Definitions Build America bond (Tax Credit). This is an issue of taxable state or local governmental bonds (excluding private activity bonds under section 141) as defined in section 54AA(d) that provides a tax credit to the holder of the bond. Build America bond (Direct Pay). This is an issue of taxable state or local governmental bonds (excluding private activity bonds under section 141) as defined in section 54AA(g), the issuer of which elects to receive a refundable credit under section 6431 in lieu of tax credits to the holder of the bond. Recovery zone economic development bond. This is an issue of taxable state or local governmental bonds that meets the requirements under section 14000 -2 that may be used to finance certain qualified economic development purposes as defined under section 14000 -2(c), the issuer of which receives a refundable credit under section 6431. Arbitrage rebate. The issuer of a build America bond or recovery zone economic development bond must rebate to the United States arbitrage profits earned from investing proceeds of the bond in higher yielding nonpurpose investments. See section 148(f). Gross proceeds. Gross proceeds means any proceeds and replacement proceeds of an issue as defined under Regulations section 1.148 -1(b). Sale proceeds. Sale proceeds are determined under Regulations section 1.148 -1(b) as any amount actually or constructively received from the sale of the issue, including amounts used to pay underwriters' discount or compensation and accrued interest other than pre - Issuance accrued interest. Sale proceeds also include, but are not limited to, amounts derived from the sale of a night that is associated with a bond, and that is described in Regulations section 1.148- 4(b)(4). Sale proceeds shall also include the proceeds from the sale of credit strips. Also, see Regulations section 1.148- 4(h)(5) treating amounts received upon the termination of certain hedges as sale proceeds. Issue. Generally, bonds are treated as pad N the same issue if they are issued by the same issuer, on the same date, and in a single transaction, or series of related transactions. Even if pad of the same issue, build America bonds (Direct Pay), build America bonds (Tax Credit), and recovery zone economic development bonds must each be fled on a separate Form 8036 -B. Issue price. The issue price of obligations is generally determined under Regulations section 1.148 -1(b). Thus, when issued for rash, the issue pots is the price at which a substantial annum of the obligations are sold to the public. To determine the issue price of an obligation issued for property, see sections 1273 and 1274 and the related Regulations. Specific Instructions Part I— Reporting Authority Amended return. An issuer mayfile an amended return to change or add to the information reported on a previously filed return for the same date of issue. If you are filing to correct errors or change a previously filed return, check the 'Amended Return' box in the heading of the form. The amended return must provide all the intonation reported on the original retum, in addtlion to the new or corrected information. Attach an explanation of the reason for the amended return and write across the top, Amended Return Explanation." Failure to attach an explanation may result in a delay in processing this form. Line 1. The issuer's name is the name of the entity issuing the bonds, not the name of the entity receiving the benefit of the financing. For a lease or installment sale, the issuer is the lessee or the purchaser. Line2. An issuer that does not have an employer identification number (EIN) should apply for one on Form SSA, Application for Employer identification Number. You can get this ton on the IRS webstle at www.irs.gov or by calling 1 -800- TAX -FORM (1 -800- 829 - 3676). You may receive an EIN by telephone by following the instructions for Form SS -4. Line 3. If the issuer wishes to authorize a person other than an officer of the issuer (including a legal representative or paid prepared) to communicate with the IRS and whom the IRS may contact vimth respect to this return (including in writing or by telephone), enter the name of such person here. The person listed in line 3 must be an individual. Do not enter the name and title of an officer of the issuer here (use line 10 for that purpose). Note. By authorizing a person other than an authorized officer of the issuer to communicate with the IRS and whom the IRS may contact with respect to this return, the issuer authorizes the IRS to communicate directly with the individual entered in line 3 and consents to disclose the issuer's return information to that individual, as necessary, in order to process this return. Line 4. This foals icrlRS readily. Do not make any entries in this box. Lines 5 and 6. If you listed in line 3 a person other than an officer of the issuer (inducing a legal representative or paid praparer) to communicate with the IRS and whom the IRS may contact with respect to this return, enter the number and street (or P.O. Box if mail is not delivered to street address), city, town, or post office, state, and ZIP code of that person, Otherwise, enter the issuers number and street (or P.O. Box if mail is not delivered to street address), city, town, or post office, state, and ZIP code. Lfne7. The date of issue is generally the date on which the issuer exchanges the bonds fri underwriter's (or other purchaser's) funds. For a lease or Installment sale, enter the date interest stairs to acerue in an MMIDD/YYYY format. Line 8. If there is no name of the issue, please provide other identification of the issue. Line 9. Enter the Committee on Uniform Securities Identification Procedures (CUSIP) number of the latest maturity on line 9. Attach a schedule with a complete list of CUSIP numbers for each bond. If some or all of the tax credits are stooped, attach a schedule with the name of each purchaser of the tax credit bonds or tax credit steps, each purchaser's EIN, and the CUSIP numbers associated with the bands and the stripped tax credits. if the issue does not have a CUSIP number, write, 'None." If the issue either has no CUSIP number or is privately placed, attach a schedule with each purchaser's EIN, name, and address. Llri Enter the name and title of the officer of the issuer whom the IRS may call for more information. if the issuer designates a person in line 3 (such as a legal representative or paid prepared) with whom the IRS may communicate with respect to this return, leave line 10 blank. Linell. Enter the telephone number of the person whom the IRS may contact for more information identified in line 3 or line 10, as applicable. Part II —Type of Bonds Elections referred to in Part 11 are made on the anginal bond documents, not on this form. Line 1. You must identify the type of bonds issued by checking the corresponding box. If box 1b or lc is checked, complete lines 2 and 3. Line2. Enter the first interest payment date. An interest payment date is the date on which interest is payable by the governmental issuer to the holders of the bonds. (For variable rate issues, enter the last interest payment date applicable to the quarterly period for which the first 8038 -CP for the issue will relate.) Eater the date in an MMIDDJYYYY format. Line3. Check the box indicating the interest payment date frequency. In addition, issuers of build America bonds (Direct Pay) and recovery zone economic development bonds must attach a debt sundae schedule to the Form 8038 -B which contains the information described below for the bond issue: 1. Forfixed -rate bonds, attach complete debt service schedule tilled 'Fixed Rate Bond -Debt Service Schedule" that provides a list of each interest payment date, the total interest payable on such date, the total principal amount of bonds expected to be outstanding on such date, the credit payment expected to be requested from the IRS on such date, and the earliest date that the bonds can be called. 2. For variable rate bonds, attach a debt service schedule tilted "Variable Rate Bond -Debt Service Schedule" that provides a list of each interest payment date, the total principal amount of bonds expected to be outstanding on such date, and a description of how interest on the bonds is computed. Note. If the bond issue reported on Form 8038 -B constitutes both fixed rate bonds and variable rate bonds, both the fixed rate and variable rate bonds must be reported on the same Form 8038 -B; however, separate debt service schedules, as described above, must be entered for each of the bonds. Credit payments are not allowed for preissuance accmed interest. Failure to provide the applicable debt service schedules may result in a delay in processing the return. Part III— Purpose of Issue Line 1. For build America bonds identify the purpose of issue and enter the portion of the issue once allocable to each type of project expenditure. The portion of the issue price allocated to each type of project expenditure should include a pro rata allocation of proceeds representing such items as costs of issuance or a reasonably required reserve. For example, if 6D% of the principal amount of the band issue is for education purposes Exhibit E -3 DOCSOC /1450924v 1 /022459 -0014 and 40% of the principal amount of the bond issue is for public safety purposes, the proceeds used for items such as costs of issuance or a reasonably required reserve should be allocated 60% to education and 40% to public safety. Line th is to be used solely to identify the portion of the issue price allocated to a purpose other than those listed in lines 1a through 1g. Lines 1a through 1 h must equal the total issue price in line 3. Attach a schedule listing names and EINs of organizations that are to use proceeds of these obligations if different from those of the issuer. Also indicate whether each organization listed on the schedule is a government or private entity. Failure to attach the schedule may result in a delay in processing the return. Line2. For recovery zone economic development bonds identify the purpose of issue and enter the portion of the issue price allocable to each type of expenditure. The portion of the issue price allocated to each type of project expenditure should include a pro rata allocation of proceeds representing such items as costs of issuance or a reasonably required reserve. For example, if 60% of the principal amount of the bond issue is for capital expenditures purposes and 40% of the principal amount of the bond issue is for job training purposes, the proceeds used for items such as costs of issuance or a reasonably required reserve should be allocated 60% to capital expenditures and 40% to job training. Line 2d is to be used solely to identify the portion of the issue price allocated to a purpose other than those listed in lines 2a through 2c. Lines 2a through 2d must equal the total issue price in line 3. Attach a schedule listing names and EINs of organizations that are to use proceeds of these obligations if different from those of the issuer. Also indicate whether each organization listed on the schedule is a government or private entity. Failure to attach the schedule may result in a delay in processing the return. Line 3. See Issue Price under Definitions on page 2. For build America bonds, the amounts under lines is through 1h, or for recovery zone economic development bonds, the amounts under lines 2a through 2d must total the issue price of the entire issue entered in line 3. Note. Build America bonds (Tax Credit), build America bonds (Direct Pay), and recovery zone economic development bonds must each be filed on a separate Form 8038 -6 regardless of whether or not they constitute a single issue. Line 4. If obligations are Tax Anticipation Notes (TANS) or Revenue Anticipation Notes (RANs), check box 4a. If obligations are Bond Anticipation Notes (BANs), check box 41b. Do not check both boxes. Line 5. Check this box if property other than cash is exchanged for the obligation, DOCSOC /1450924v 1/022459 -0014 for example, acquiring a police car, a fire truck, or telephone equipment through a series of monthly payments. (This type of obligation is sometimes referred to as a ,'municipal lease .') Also check this box if real property is directly acquired in exchange for an obligation to make periodic payments of interest and principal. Do not check this box if the proceeds of the obligation are received in the form of cash, even if the term "lease" is used in the title of the issue. Part IV- Description of Obligations Line 1. The stated redemption price at maturity of the entire issue is the sum of the stated redemption prices at maturity of each bond issued as part of the issue. For a lease or installment sate, write "N/ A." Line 2. Enter the last date on which any of the bonds will mature. Enter the date in an MIAIDD/YYYY format. Line 3. The weighted average maturity is the sum of the products of the issue price of each maturity and the number of years to maturity (determined separately for each maturity and by taking into account mandatory redemptions), divided by the issue price of the entire issue (from Part III, line 3). For a lease or installment sale, enter the total number of years the lease or installment sale will be outstanding. Carry the year out to two decimal places, do not round (for example, 10.72). Line4. The yield is generally the discount rate that when used to compute the present value of all payments of principal and interest to be paid on the obligation produces an amount equal to the issue price, including accrued interest. See Regulations section 1.148 -4 for specific miss to compute the yield on an issue. If the issue is a variable rate issue, leave blank. For other than variable rate issues, carry the yield out to four decimal places, do not round (for example, 5.3125 %). If reporting build America bonds (Direct Pay) or recovery zone economic development bonds, the yield is reduced by the amount of credit payments received under section 6431. If reporting build America bonds (Tax Credit) and the issue is a lease or installment sale, enter the effective rate of interest being paid. Part V- Use of Proceeds of Issue Fora lease or installment sale, write "N/A" in the space to the right of the title for Part V. Line 1. See Sale Proceeds under definitions on page 2. Line 2. Estimate reasonably expected investment proceeds on the sales proceeds in line 1. Line 3. Enter the amount of pre- issuance interest accrued from the date the bonds are dated to the date of issue. -3- Exhibit E -4 Line 4. Enter the amount of the proceeds (including accrued interest) that will be used to pay bond issuance costs, including underwriter's fees, fees for trustees, and bond counsel. Note. Costs of issuance are limited to not more than 2 percent of sale proceeds for build America bands (Direct Pay) and recovery zone economic development bonds. Line 5. Enter the amount of the proceeds that will be used to pay fees for credit enhancement that are taken into account in determining the yield on the issue for purposes of section 148(h), for example, bond insurance premiums and certain fees for letters of credit. Line 6. Enter the amount of the proceeds that will be allocated to a reasonably required reserve fund. See funding limitations for such a reserve under Regulations section 1.148 -2(f). Line 9. Enter the amount of the proceeds that will be used to pay principal, interest, orcall premium on any other issue of bonds within 90 days of the date of issue. Note. This line applies only to build America bonds (Tax Credit). Line 10. Enter the amount of the proceeds that will be used to pay principal, interest, or call premium on any other issue of bonds after 90 days of the date of issue, including proceeds that will be used to fund an escrow account for this purpose. Note. This line applies only to build America bonds (Tax Credit). Part VI- Description of Refunded Bonds Complete this part only if the bonds are to be used to refund a prior issue of governmental bonds. Note. According to Notice 2009 -26 and Notice 2009 -50, build America bonds (Direct Pay) generally may not be issued to refinance capital expenditures in "refunding issues` as defined in Regulations section 1.150 -1. However, refinancing of certain short term indebtedness with build America bonds (Direct Pay) and recovery zone economic development bonds is not treated as a refunding. Lines 1 and 2. The remaining weighted average maturity is determined without regard to the refunding. The weighted average maturity is determined in the same manner as for Part IV, line 3. Line 3. Enter the last date on which any of the bonds being refunded will be called. Enter the date in an MM /DD/YYYY format. Line 4. If more than a single issue of bonds will be refunded, enter the date of issue of each of the issues to be refunded on a schedule. Enter the date in an MM/ DD/YYYY format. If the schedule is not attached, it may result in a delay in processing the return. Part VII— Miscellaneous Line 1. Enter the amount of volume cap allocated to the issue of recovery zone economic development bonds. Attach a copy of the certification of the volume cap allocation by the state, county, or large municipality. For build America bonds, - enter the amount of i state volume cap allocated to the issue under section 141(b)(5), if applicable. For recovery zone economic development bonds, attach a separate statement indicating the amount of state volume cap allocated to the issue under section 141(b)(5), it applicable. Also attach a copy of the certification of the recovery zone designation by the state, county, or large municipality. Failure to attach the required certifications will delay the processing of this return. Line 2. See Gross Proceeds under Definitions on page 1. If any portion of the gross proceeds of the issue is or will be invested in a guaranteed investment contract (GIC), as defined in Regulations section 1.148 -1(b), enter the amount of the gross proceeds so invested, as well as the final maturity date of the GIC and the name of the providerof such contract. Enter the final maturity date in an MM /DD/ YYYY format on fine 2b. Attach additional sheets if necessary. Note. A GIC includes any nonpurpose investment that has specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate, and also includes any agreement to supply investments on two or more dates (for example, a forward supply contract). Line 3. Enter the amount of proceeds of this issue used to fund a loan to another governmental unit. Line 4. If this issue is a loan of proceeds from another govemmental issue, check box 4a and enter the date of issue, EIN, and name of the issuer of the master pool obligation. Enter the issue date in an MM/ DDNYYY format on line 4b. Line 5. Check this box if the issuer has identified a hedge on its books and records in accordance with Regulation sections 1.148- 4(h)(2)(viii) and 1.148- 4(h)(5) that require an issuer of bonds to identify a hedge in order for it to be included in bond yield calculations for purposes of section 148. If the box on line 5a is checked, enter the name of the hedge provider on line 5b, the type of the hedge on line 5c, and the term of the hedge to the nearest tenth of a year (for example, 2.4 years) on line 5d. Attach additional sheets, if necessary. Line 6. In determining 'd the issuer has super- integrated a hedge, apply the rules of Regulations section 1.148- 4(h)(4). If the hedge is super - integrated, check the box. Line 7. Check this box if the issue is a construction issue as defined in Regulations section 1.148 -7(f) and an irrevocable election to pay a penalty in DOCSOC /1450924vl /022459 -0014 lieu of arbitrage rebate has been made on or before the date the bonds were issued. The penalty is payable with a Form 8038 -T for each 6 -month period after the date the bonds are issued. Do not make any payment of penalty in lieu of arbitrage rebate with Form 8038 -B. See Rev. Proc. 92 -22, 1992 -1 C.B. 736 for rules regarding the "election document." Line 8. An issue is an issue of on activity bonds if the issuer takes a deliberate action. Regulations section 1.141- 2(d)(3) defines a deliberate action as any action taken by the issuer that is within its control, regardless of whether such act was intended to violate the private business use test or the private loan financing test. Regulations section 1.141 -12 sets forth certain remedial actions that prevent a deliberate action with respect to property financed by an issue from causing that issue to meet the private business use test or the private loan financing test. Check the box if the issuer has established written procedures to ensure timely remedial action with respect to all nonqualified bonds in accordance with Regulations section 1.141 -12 or other additional remedial actions authorized by the Commissioner under Regulations section 1.141- 12(h). Line 9. Check the box if the issuer has established written procedures to ensure that the bonds comply with the arbitrage yield restriction and rebate requirements of section 148. Signature and Consent An authorized representative of the issuer must sign Form 8038 -B and any applicable certification. Also print the name and title of the person signing Form 8038 -B. The authorized representative of the issuer signing this form must have the authority to consent to the disclosure of the issuer's return information, as necessary to process this return, to the person(s) that have been designated in Form 8038 -B. Note. If the governmental issuer in Part I, line 3 authorizes the IRS to communicate (including in writing and by telephone) with a person otherthan an officer of the issuer, by signing this town, the issuers authorized representative consents to the disclosure of issuer's return information, as necessary to process this return, to such person. Paid Preparer If an authorized officer of the issuer filled in this return, the paid preparer's space should remain blank. Anyone who prepares the return but does not charge the organization should not sign the return. Certain others who prepare the return should not sign. For example, a regular, full -time employee of the issuer, such as a clerk, secretary, etc., should not sign. Generally, anyone who is paid to prepare a return must sign it and fill in the -4- Exhibit E -5 other blanks in the Paid Preparers Use Only area of the return. The paid preparer must: • Sign the return in the space provided for the preparer's signature, • Enter the proposer information, and • Give a copy of the return to the issuer. Part Vtll— Consent to Disclosure of Certain Information From This Return Line 1. The IRS is considering publishing a list of tax credit bonds in order to assist in applicable reporting requirements. If the issuer of a build America bond (Tax Credit) consents to the IRS's publication, through a website or other publication, of its name and address, EIN, name and description of the bond issue, date of issuance, CUSIP number, issue price, final maturity date, and stated redemption price at maturity, in order to assist the IRS in the proper reporting of interest, tax credits, or other benefits under section 6049. and the Regulations thereunder, check the box next to "YES" on line 1. Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws. Section 6109 requires paid preparers to provide their identifying number. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is: Recordkeeping ......... 16 hrs., 1 min. Learning about Lhe Is or the form ................. 1 hr., 29 min. Preparing, copying, assembling, and sending the form to the IRS.......... 1 hr., 49 min. If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR -6526, Washington, DC 20224. Do not send the form to this address. Instead, see Where To File on page 1. Acknowledgement Copy Please Return with ee F t },ri, Form 803800 information Return for Build America Bonds and Recovery Zone (January 2010) Economic Development Bonds OMB No. 1545 -2161 Department of the Treasury ® Under Internal Revenue Code section 149(e) Internal Revenue Service ® See separate instructions. ReDortinq Authority Check if Amended Return ® n 1 Issuer's name 2 Issuer's employer identification number (EIN) City of Newport Beach 95- 6000751 3 Name of person (other than issuer) with whom the IRS may communicate about this return (see instructions) 4 Report number (For IRS Use Only) 5 Number and street (or P.O. Box if mail is not delivered to street address) 3300 Newoort Boulevard 6 City, town, or post office, state, and ZIP code 7 Date of issue (MM /DD/YYYY) Newport Beach, California 92663 1 1/ 3 0/ 2 0 1 0 8 Name of issue 9 CUSIP number Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds)(Civic Center Proj) I 651779CB4 10 Name and title of officer of issuer whom the IRS may call for more information (see instructions) 11 Telephone numberof off seror other person (Re instructions) David Kiff, City Manager 949 -644 -3000 MEOW Tvpe of Bonds (see instructions, if the box on line 1 b or 1 c is checked, complete lines 2 and 3) 1 a Build America bonds (Tax Credit) (section 54AA(a)) . . . . . . . . . . . . . . . . . . . . . . . U b Build America bonds (Direct Payment) (sections 54AA(g) and 6431) . . . . . . . . . . . . . . . . . . 0 c Recovery zone economic development bonds (Direct Payment) (sections 14000 -2 and 6431) . . . . . . . . . ❑ 2 Enter the first interest payment date (MM /DD/YYYY) ® 0 1 / 0 1 /2 0 1 1 3 Interest payment date frequency: (Check box) (see instructions and attach debt service schedule) a ❑ annual, b 121 semi-annual, c ❑ quarterly, d ❑ monthly, or e ❑ other f If line 3e above is checked, please describe the payment frequency: Purpose of Issue 1 For a build America bond, identify the purpose of issue and enter the issue price. (see instructions and attach schedule) Amount (Whole Dollars) is a Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lb b Health and hospital . . . . . . . . . . . . . . . . . . . . . . . . . 1c c Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1d d Public safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . le e Environment (including sewage bonds) . . . . . . . . . . . . . . . . . . if f Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1g g Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 1h 106,575,000.00 In Other description ® Miscellaneous Public Improvements 2 a b c d _ _____ - _-- _____- ______ ______ _ ___ _ ___ _____. For a recovery zone economic development bond, identify the purpose of issue and enter the Issue price. (see instructions and attach schedule) r^a- � r 3 r Capital expenditures relating to property located in the zone ,lr'_L.T. j Public infrastructure and construction of public facilities ; r of I Job training and educational programs M ry 1 �,�. . . Other description . . . . . . . . . . . . . . . . . `. `. 2a 2b 2c 2d 3 106,575,000.00 3 4 5 Total issue price (Part III, lines 1a through 1 h or lines 2a through -2d) : - -- ._ If obligations are TANS or RANs, check only box 4a ® 01 If obligatg lansfare;,BANs„check only box 4b If obligations are in the form of a lease or installment sale, cheoz �°""` 4°°° -- ^ - - - -• ® ❑ Description of Obligations (Complete for.the entire issue for which this form is being filed.) 1 Stated redemption price at maturity . . . . . . . . . . . . . . . . . . . . . 1 106,575,000.00 2 3 4 5 Final maturity date (MM /DD/YYYY) . . . . . . . . . . 0 7/ 0 1 /2 0 4 0''' Weighted average maturity . . . . . . . . . . . . 02 ao .® ©years Yield . . . . . . . . . . . . . . [o] ®_a] ro� ® ®e /a If the issue is a variable rate issue, check box Sa ® ❑ Please indicate the frequency rates are reset 5b .. ,. . I> For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 53393K Form 5038 -B (1 -2010) Form 8038 -e (1 -2010) Page 2 Use of Proceeds of Issue Amount (Whole Dollars) 1 Sales proceeds . . . . . . . . . . . . . . . . . . 2 Expected investment proceeds . . . . . . . . . . . . . . . . . . . 3 Proceeds used for accrued interest . . . . . . . . . . . . . . . . . . . . . 4 Proceeds used for bond issuance cost (including underwriter's discount) . . . . . . . . . 5 Proceeds used for credit enhancement . . . . . . . . . . . . . . . . . . . . 6 Proceeds allocated to a reasonably required reserve fund . . . . . . 7 Proceeds used for capital expenditures . . . . . . . . . . . . . . . 8 Proceeds used for working capital expenditures . . . . . . . . . . . . . . . . . 9 Proceeds used to currently refund prior issues . . . . . . . . . . . . 10 Proceeds used to advance refund prior issues . . . . . . . . . . . . . . . . . 1 106,575,000.00 ? 500'000-00 3 -0- 4 1,084,970.00 5 -0. 6 -0- 7 105,990,030.00 8 -0- 9 -0- 10 -:11-- 1 Enter the amount of the volume cap allocated to the issue (see instructions) (attach volume cap certification) 1 -6- '2a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (GIG) . . . . . . . . . . . . . . . . . . . . . . . . 2a -0- b Enter the final maturity date of the GIG (MM /DD/YYYY) ® / / ,e c Enter the name of the GIG provider ® . 3 Proceeds of this issue that are to be used to make loans to other governmental units . 3 -0- 4a if this issue is a loan made from the proceeds of another issue, check box ® ❑ and enter the following information: b Enter the issue date of the master pool obligation (MM /DD/YYYY) ® c Enter the EIN of the issuer of the master pool obligation I* d Enter the name of the issuer of the master pool obligation III 5a If the issuer entered into a hedge, check box ® El and enter the following information: b Name of hedge provider ®>.- �.o-,.._..., c Type of hedge ® d Term of hedge ® I------- --- .,_w_._.,__.,�'..°-° _ 6 If the issuer has superintegrated the hedge, check box 0- 1:1 q7 7 If the issuer elected to pay a penalty in lieu of arbitrage rebate, check box li* f- 2 jo 10 8 If the issuer has established written procedures to ensure that all nonquailfied bonds of this issue are remediated In accordance . with the requirements under Regulations section 1.141-12, check box Ii. ❑✓ �r._-� - ° --.� _. 9 If the issuer has established written procedures to monitor the requirements of section 148. check box�P_. `- s i Under penalties of perjury, I declare that I have examined this return, and accompanying schedules and statements, and to the best of my knowledge and— belief, they are true, correct, and complete. I further declare that I consent to the IRS's disclosure of the issuer's return information, as necessary to process Signature the return, to the persons) that I have authorized! above. and Consenter `� n 11/30/10 Dave Kiff, City Manager Signature of issuer's authorized aep}4sentative Date Type or print name and title Paid Date uneek u I signal er's / I Preparer's SSN or PTIN f) self - signature /Z.. _- (L p y d ❑ Preparers ' Fim s name (or 4Stl occa Carlson 8 Rauth Use Only si EIN 95- 3347002 address, and ZIP code ® 660 Newport Center Dr, Ste 1600, Newport Beach, CA 92660 Phone no (949) 725 -4237 1 For build America bonds that provide a tax credit to bondholders, does the issuer give the IRS consent to publish, through a website or in a publication, its name and address, employer identification number, name and description of bond issue, date of issuance, CUSIP number, issue price, final maturity date, and stated redemption price at maturity, to assist in the proper reporting of interest, tax credits, or other benefits under section 6049 and Regulations thereunder? . . . . . . ® ❑ yes ❑ No Under penalties of perjury, I declare that I am an officer of the above named issuer and that I am authorized to give consent on behalf of the above named issuer for the IRS to publish the items of information described in line 1 of Part VIII of this form to assist in the reporting obligations under section 6049. Sign Here *No more than Date and title Form (1 -2010) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) FIXED RATE BONDS DEBT SERVICE SCHEDULE Interest Total interest CreditAmount Payment Date Payable Expected (Form (Form 8038- (Form 8038 -CP, Total Principal 8038 -CP, CP, line IS) line 19) Outstanding line 20a and 22) 01/01/2011 $' 623,738.66 $106,575,000 $ 218,308.53 07/01/2011 3,621,708.38 106,575,000 1,267,597.93 01/01/2012 3,621,708.38 106,575,000 1,267,597.93 07/01/2012 3,621,708.38 106,575,000 1,267,597.93 01/01/2013 3,621,708.38 106,575,000 1,267,597.93 07/01/2013 3,621,708.38 106,575,000 1,267,597.93 01/01/2014 3,621,708.38 106,575,000 1,267,597.93 07/01/2014 3,621,708.38 106,575,000 1,267,597.93 01/01/2015 3,621,708.38 106,575,000 1,267,597.93 07/01/2015 3,621,708.38 106,575,000 1,267,597.93 01/01/2016 3,621,708.38 106,575,000 1,267,597.93 07/01/2016 3,621,708.38 106,575,000 1,267,597.93 01/01/2017 3,621,708.38 106,575,000 1,267,597.93 07/01/2017 3,621,708.38 106,575,000 1,267,597.93 01/01/2018 3,621,708.38 106,575,000 1,267,597.93 07/01/2018 3,621,708.38 103,675,000 1,267,597.93 01/01/2019 3,557,168.88 103,675,000 1,245,009.11 07/01/2019 3,557,168.88 100,695,000 1,245,009.11 01/01/2020 3,486,378.98 100,695,000 1,220,232.64 07/01/2020 3,486,378.98 97,630,000 1,220,232.64 01/01:/2021 3,408,972.40 97,630,000 1,193,140.34 07/01%2021 3,408,972.40 94,465,000 1,193,140.34 01/01/2022 3,324,292.83 94,465,000 1,163,502.49 07/01/2022 3,324,292.83 91,190,000 1,163,502.49 01/01/2023 3,232,576.45 91,190,000 1,131,401.76 07/01/2023 3,232,576.45 87,800,000 1,131,401.76 01/01/2024 3,133,402.00 87,800,000 1,096,690.70 07/01/2024, 3,133,402.00 84,290,000 1,096,690.70 01/01/2025 3,009,568.60 84,290,000 1,053,349.01 07/01/2025 3,009,568.60 80,615,000 1,053,349.01 01/01/2026 2,879,791.60 80,615,000 1,007,927.06 07/01/2026 2,879,791.60 76,765,000 1,007,927.06 01/01/2027 2,743,723.85 76,765,000 960,303.35 07/01/2027 2,743,723.85 72,740,000 960,303.35 01/01/2028 2,601,365.35 72,740,000 910,477.87 D O C S O C/ 145 0 924v 1 /02 245 9 -0014 Earliest Date Bonds Can Be Called On any date. Interest Totallnterest CreditAmount Payment Date Payable Expected (Form (Form 8038- (Farm 8038 -CP, Total Principal 8038 -CP, CP, line 18) line 19) Outstanding line 20a and 22) 07/01/2028 2,601,365.35 68,530,000 910,477.87 01/01/2029 2,452,361.45 68,530,000 858,326.51 07/01/2029 2,452,361.45 64,125,000 858,326.51 01/01/2030 2,296,365.00 64,125,000 803,727.75 07/01/2030 2,296,365.00 59,525,000 803,727.75 01/01/2031 2,133,376.00 59,525,000 746,681.60 07/01/2031 2,133,376.00 54,715,000 746,681.60 01/01/2032 1,960,985.60 54,715,000 686,344.96 07/01/2032 1,960,985.60 49,680,000 686,344.96 01/01/2033 1,780,531.20 49,680,000 623,185.92 07/01/2033 1,780,531.20 44,415,000 623,185.92 01/01/2034 1,591,833.60 44,415,000 557,141.76 07/01/2034 1,591,833.60 38,905,000 557,141.76 01/01/2035 1,394,355.20 38,905,000 488,024.32 07/01/2035 1,394,355.20 33,135,000 488,024.32 01/01/2036 1,187,558.40 33,135,000 415,645.44 07/01/2036 1,187,558.40 27,100,000 415,645.44 01/01/2037 971,264.00 27,100,000 339,942.40 07/01/2037 971,264.00 20,780,000 339,942.40 01/01/2038 744,755.20 20,780,000 260,664.32 07/01/2038 744,755.20 14,165,000 260,664.32 01/01/2039 507,673.60 14,165,000 177,685.76 07/01/2039 507,673.60 7,245,000 177,685.76 01/01/2040 259,660.80 7,245,000 90,881.28 07/01/2040 259,660.80 0 90,881.28 DOCSOC/1450924vl/022459 -0014 s -- Earliest Date Bonds Can Be Called On any date. CERTIFICATE OF MAILING $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) I, Sheila L. Baldwin, of Stradling Yocca Carlson & Rauth, A Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, hereby state and certify that for and on behalf of the City of Newport Beach, California, and on the date hereof, I caused to be mailed a Form 8038 -B, Information Return for Build America Bonds and Recovery Zone Economic Development Bonds relating to the above - captioned financing, postage prepaid, to the Internal Revenue Service Center, Ogden, Utah 84201, a true copy of which Form is attached hereto. Dated: December 16, 2010 Sfieila L. Baldwin STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation D O C S O C/ 13 8768 v l /022000 -0000 2. "Article Number Yes D. Is delio If YES, Internal Revenue Service Center Ogden, Utah 84201 I I PS Form 3811, February 2003 i TO REORDER GO TO www.walzpostal.com POSIALSO MONS� OR CALL 1- 800.882 -3811 by (Please Prinl Clearly) B Date of DeWary - ED Agent ❑Addresseo address different from Item 17 ❑Yes der delivery address below: 71 No 'n O O 211CD /ia z v "m a m (Newport Beach 2010B) ; Domestic Return Receipt $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CERTIFICATE REGARDING INSURANCE The undersigned hereby states and certifies as follows: 1. He is the City Manager of the City of Newport Beach (the "City ") and is knowledgeable with respect to the matters set forth herein. 2. He has reviewed the provisions of Article V of the Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation and the City. 3. Attached hereto are copies of the certificates of insurance evidencing the coverage required by Article V of the Lease. 4. Based upon a review of the Lease and the attached certificates, the City considers that the requirements of Article V of the Lease are satisfied as of the date hereof. Dated: November 30, 2010 DOCSOC/ 1445072v3/022459 -0014 CITY OF NEWPORT BEACH By: G— Its: City Minager ACORD CERTIFICATE OF LIABILITY INSURANCE iii23i2o 0 PRODUCER (714)221 -1800 FAX: (714)221 -4196 Brown 6 Brown of California, Inc. 500 N. State College Blvd. Suite 400 Orange CA 92868 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. INSURERS AFFORDING COVERAGE NAIC# INSURED City of Newport Beach Newport Beach Public Entities Corporation PO Box 1766 Newport Beach CA 92658 -8915 INSURERA: Travelers Property 25674 INSURER B: Travelers Property 25674 INSURER C: Safety National Casualty 15105 INSURE ID:ASOh Specialty Insurance 21199 IN SURER E:Allied World Assurance 10690 OVERAGES THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. AGGREGATE LIMITS SHOWN MAY HAVE BEE N REDUCED BY PAID CLAIMS. INBR WSRO TYPE OF INSURANCE POLICY NUMBER DATE MMIDDMI POLICY MN➢DDIYVN LIMITS A GENERAL LIABILITY X COMMERCIAL GENERAL LIABILITY CLAIMS MADE ❑ OCCUR GPO6302159 3/1/2010 3/1/2011 EACH OCCURRENCE $ 1,000,000 pFEMISES Eaocco ence $ 300,000 MED EXP (Any one Person) $ excluded PERSONAL B ADV INJURY S 1,000,000 GENERAL AGGREGATE $ 1,000,000 GEN'L AGGREGATE X1 POLICY U MIT APPLIES PER JE C- F1 LOC PRODUCTS - CO PIO AGG $ 1,000,000 A AUTOMOBILE X X X LIABILITY ANY AUTO ALLONMEDAUTOS SCHEDULEDAUTOS HIREDAUTOS NON- OWNEDAUTOS GPD6302159 3/1/2010 3/1/2011 COMBINED SINGLE LIMIT (Ea accident) $ 1,000,000 BODILY INJURY (Per person) $ BODILY INJURY (Peraccident) S PROPERTY DAMAGE (Per accident) $ GARAGELIABILITY ANY AUTO AUTO ONLY - EA ACCIDENT $ OTHERTHAN EA ACC AUTO ONLY AGG $ A EXCESSIUMBRELLA LIABILITY _X1 OCCUR F-1 CLAIMS MADE DEDUCTIBLE RETENTION GP06302159 3/1/2010 3/1/2011 GACH OCOURRENGE $ 9,000,000 AGGREGATE $ 9,000,000 $ $ C WORKERS COMPENSATION AND EMPLOYERS' LIABILITY ANY PROPRIETORIPARTNER /EXECUTIVE OFFICERIMEMBER EXCLUDED? If yes, describe under SPECIAL PROVISIONS bal SP2WR7CA 3/1/2009 3/1/2011 X WC STATUS OTH- T RY LIMIT E E.L. EACHACCIDENT $ 1,000,000 E.L . DISEASE - EA EMPLOYEE $ 1,000,000 E.L. DISEASE - POLICY LIMIT $ 1,000,000 D E OTHER Excess Liab. Excess Liah. uxP003215401 03053646 3/1/2010 3/1/2010 3/1/2011 3/1/2011 $15M xs $10M $25M xs $25m DESCRIPTION OF OPERATIONS ILOCATIONSNEHICLESIEXCLUSIONS ADDED BY ENDORSEMENTISPECIAL PROVISIONS The Bank of New York Mellon Trust Company is Additional Insured, as their interest may apply. ( *10 day notice for non- payment of premium.) CERTIFICATE HOLDER CANCELLATION ACORD 25 (2001108) © ACORD CORPORATION 1988 INS025 (0108).Ma Page 1 of 2 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE The Bank of New York Mellon EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL Trust Company 30* DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT Corporate Trust Department 700 S. Flower Street FAILURE TO DO BO SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE Suite 500 INSURER ITS AGENTS OR REPRESENTATIVES. AUTHORIZED REPRESENTATIVE Los Angeles, CA 90017 Mark Zahoryin /MROSS�` ^'� ACORD 25 (2001108) © ACORD CORPORATION 1988 INS025 (0108).Ma Page 1 of 2 IMPORTANT If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). DISCLAIMER The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon. ACORD 25 (2007108) INS025 (moe).oea Page 2 of 2 ADDITIONAL COVERAGES Ref # Description Commercial Umbrella Aggregate Coverage Code Form No. Edition Date Limit 1 25,000,000 Limit 2 Limit Deductible Amount Deductible Type Premium Ref # Description Excess WC Coverage Code Form No. Edition Date Limits Limit Limit Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit Limit Limit Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit Limit Limit Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit 1 Limit 2 Limit 3 Deductible Amount Deductible Type Premium Ref# Description Coverage Code Form No. Edition Date Limit 1 Limit 2 Limit3 Deductible Amount Deductible Type Premium Ref # Description Coverage Code For No. Edition Date Limit 1 Limit 2 Limit3 Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit 1 Limit 2 Limit 3 Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit 1 Limit 2 Limit 3 Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit 1 Limit 2 Limit 3 Deductible Amount Deductible Type Premium Ref # Description Coverage Code Form No. Edition Date Limit 1 Limit 2 Limit 3 Deductible Amount Deductible Type Premium OFADTLCV Copyright 2001, AMS Services, Inc. '4C"R EVIDENCE OF PROPERTY INSURANCE DATE (MMIODI`rvYY) 11/23/2010 THIS EVIDENCE OF PROPERTY INSURANCE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE ADDITIONAL INTEREST NAMED BELOW. THIS EVIDENCE OF PROPERTY INSURANCE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. AGENCY AHC Nq E : (714)221 -1800 COMPANY Brown & Brown of California, Inc. Philadelphia Insurance Company 500 N. State College Blvd. PO Box 70251 Suite 400 Orange CA 92868 Philadelphia PA 19176 -0251 A/C No:(714)221 -4196 ADDRESS: MZahO in @bbsocal. com CODE: SUB CODE: cussT0%ER ID #: 00008233 INSURED LOANNUMBER POLICY NUMBER City of Newport Beach; Newport Beach Public Suite #500 PHPK536634 EFFECTIVE DATE EXPIRATION DATE CONTINUED UNTIL Facilities Corporation PO BOX 1768 3/1/2010 3/1/2011 1 TERMINATED IF CHECKED Newport Beach CA 92658 -6915 THIS REPLACES PRIOR EVIDENCE DATED: Properties Situated at: 870 Santa Barbara Dr., Newport Beach, CA; 868 Santa Barbara Dr., Newport Beach, CA; 124 Marine Ave., Newport Beach, CA; 1300 Irvine Ave., Newport Beach, CA; 1000 Avocado Ave., Newport Beach, CA; 800 Marguerite Ave, Corona Del Mar, CA; 6401 San Joaquin Rd., Newport Beach, CA; 20401 Acacia, Newport Beach, CA; THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OR ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS EVIDENCE OF PROPERTY INSURANCE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. PTUTLq'73�T�1.TYi : 17 7 ��I_ \iGl. COVERAGEIPERILS /FORMS AMOUNT OF INSURANCE DEDUCTIBLE Building Coverage - Special Form, Replacement Cost $66,900,000 $25,000 Loss of Rents Coverage - Annual $10,600,000 The Bank of New York Mellon - Extended period of 24 months applies to Loss of Rents coverage. Trust Company EQ and Flood - LOAN# Corporate Trust - Primary Policy(Lloyds of London WB0001929 3/1/2010 - 3/1/2011) $10,000,000 700 S. Flower Street - Excess Policy (Max Specialty MAX4XP0047312 3/1/2010 - 3/1/2011) $ 5,000,000 Suite #500 - Excess Policy (Empire Indemnity 311478JF1 3/1/2010 - 3/1/2011) $20,000,000 Mark Zahoryin /MROSS v Pusu+wu . Vllu,umua) *EQ and Flood Deductibles 10% Earthquake 2% Flood $25,000 All Other Perils CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL 30* DAYS WRITTEN NOTICE TO THE ADDITIONAL INTEREST NAMED BELOW, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES. ADDITIONAL INTEREST ACORD 27 (2006107) © ACORD CORPORATION 1993 -2006. All rights reserved. INS027 (200007)a The ACORD name and logo are registered marks of ACORD MORTGAGEE ADDITIONAL INSURED X The Bank of New York Mellon LOSS PAYEE Trust Company LOAN# Corporate Trust Department 700 S. Flower Street AUTHORIZED REPRESENTATIVE Suite #500 Los Angeles, CA 90017,. Mark Zahoryin /MROSS ACORD 27 (2006107) © ACORD CORPORATION 1993 -2006. All rights reserved. INS027 (200007)a The ACORD name and logo are registered marks of ACORD L; Blanket Issuer Letter of Representations (To be Completed by Issuerj CITY OF NEWPORT BEACH (California) ( \amr of tsuKj July 7,1995 lD.tei Attention: Underwriting Department — Eligibility The Depository Trust Company $6 Rater Street; 50th Floor New York, \`Y 10041 -0099 Ladies and Gentlemen: This letter sets forth our understanding with respect to all issues (the "Securities ") that Issuer shall. request be made eligible for deposit by The Depository Trust Company (' "DTC -). To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance with DTC's Rules with respect to the Setvrities, Issuer represents to DTC that Issuer will. comply with the requirements stated in DTC's Operational Arrangements, as they may be amended from time to time, Note: Schedule A contains statements tban DTC believes attvratel � describe DTC, the med,od of effecting book - entty transfers of securities distributed duwugit DTC, and certain related nuatem Received and Accepted: THE DEPOSITORY TRUST COM By. Vcry truly yours, City of Newport Beach ' � llssuerl G Bs: .- (Authaixd Oli'iceis Sigmmrrcl Dennis Danner Director.of Finance City of Newport Beach 3300 Newport Boulevard Newport Beach; CA 92660 (714) 644 -3173 SAMPLE OFFERING DOCUMENT LANGUAGE DESCRIBING BOOK- ENTRY -ONLY ISSUANCE (Prepared by DTO— bracketed material may be applicable only to certain issues) 1. The Depository Trust Company (-DTC"), New York, NY, will act as securities depository for the -name of -•' & Cc' • n' u• 1•! ! •1' -• - cunt,- certificate will be issued for [each issue oil the SLuities, (;achl in the aWreggate principal amount cfsuch issue, and will I!1! •1- - 1 •- -1 __ _ rt '. rl/ a L• • • n .u•o! .n• .• o••t. l certificate wiI .1 n respeetto any wY .1l o• ur• al amount ofsuch Im =• r l • •_ ' tust company • •sore• under - w York Banking Law a 'banking System, organization- wAhin the mewft of the New York Bankng layu; a member of the Federal Reserve a -clearing exporation"within the nrn 1• of the New York Uniform Commercial -• egistered pursuant to the provisions the Securities Exchange Art of •!- - •ua! m• _ .sun ur • - •n :. •.0 `- .11. Ir - n - 1111••!• 1 1 • Y✓. It• •tt't • 4 •.'.� Y •1• %+ I •Y 1r111. . - securities brokers 1 • dealers, banks; trust compames, I. ! • • 4 ations, and certain other Y1 .1 1 !' ✓.1 • !tt t Y FM 1 «' 0 ••1 \•Y ..••t 1 -V!• 1•in •i: - !• r1Y•.n n.. rI. n 1'1'JI •1 n..1 Y..1! W. W. `.IY 1!1• .n 11 mu-•• • YI . 1 - r• Y • n nea o • - Participants' records4 Beneficial Owners I confirmation m DTC 11 their • > I u • -- • Y• u w u. n •.!l K.Y••! -1! •]. •.• -«iAtla. « .IIY •n1.9. !•n11u' /1•L« • 1.111 iY- •.Y11.n •t • •J! •' I YI 1 � NI NI Y • t.:i :A1 !i1 :i 11 1 •!' • Y•.•11 .11 l • • •' 1 Y! 1• 11 .a w .. n •1 ' • � - !1 • ii11.. 1 ! 1 .• • il! • !! •.' •n 11 ' 111 •. • Yt1 :n ..Y11! •II • wl ! •Nt Nt Y. •'•4N ••• I - !lI. Y.I. •11 •I:.i 111. 111N ..n 1. 11 Y !•1•. -. i..Y' • • •1.' JI • ` ..In • •I.' .41• I `r•I! •1. t..• v. r ! •. c• :+! Y a . 1 rm • .., a:.• •a. �• • ru -.n r wo ` n u - ! .w - • � •u u�a 1 1• 1 • I u �- �v- • • 1 - r' 1 •a • u • Iv • Y• Y al o • L• • - • •1.- :A1 11! 4K • t N /!' LYU, • iY• • L} • t •t - 1.w1 ! •t � uY ! • • • '• 1 •�' rY• IIIY •1 Yt :.YI! 1 M! - Y i•1 • !1.«! 11 • •' •1 " i Al'\Y. • - •Y• I NII ..It wt•t�l• -11t• • !.'•I 1:} •! S. Conveyance of notices and otber communications by DTC to Direct Farticipants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [6. Redemption notices shall be sent to Cede & Co. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.] u • •a - w ••n.:. n - a• • • .: - al . - m • rl : u t1.- i « u 1 ' u«I4c .u• n :e. •! 1 a«w •1 •e- � um :.. •• 1 •- u.•- u ► � . ..w•r a «.m � 1 _ t • «nnuw a• 1« w • . 1! u - - 1 • .• 1 s 1 r•• 1 w .w• n a.� i 1 . u • 1 ,u w1, • • I _ • 111 uauw w!:.w i• 1 _ urls r,1«n• .•1 1• « •m +. - I.n1- 1 •'1 r1 ♦'111 Ir• �• ••M�' :w• «r!1 ..1• 1• •�� 1 • • .1 .r. 1 • • _ .• -•1 wlu n. • n ••t - n 1. • 1• �Ow • 1 . «:•CI. 4 1.11• - u ' 4.11 V • 11.1 • 1 • •1 .•�1 IL }t 1 1 1 u auw Cal WMI • - 1a 1.1 - a. r•v.�• a �1 ,mc - • •• 1 � 1/ I :! 1 1 . n > n IY. Ia � rn YI . JI •.61 1 u .. -JI cue a u n- I M r=.n 74 rn. Tr. -,- --.n Lr' au . t 1 1/ I 1 1 ••1 a n 1• nnwc, • w!n w - � 1 .4 ! 1 111 - •1 < YI•!11 11 11 - . r.Y - ♦'all- , i• 11 i.:•1 al 11I 11 1110•60 • • •It • •JIIa the Securities am • .11 V .-.1 e• Direct Paticipants on 1 10- DTC may discontinue • «II • its =vx= as securities &-pontory with respect 1• the Securities time • J •1 • �� •111.1 ." notice •1.- \ e the _ Under sI.YI YI «let It t,.' v. Iww>.w - •wl• Ir 1•rm �• 1 w- •n ✓.1- 4. 1 u • u. c• . l s •r l - The Issuer may decide to discontinue - 1 the e • • •. e n •l g 1l DTc (or w..n securities depository). ua: - u certificates 1- me c• M The information in tins section concerning _ DTC and DTCs, book-entry a •• • u 1 1 a 1. u- \ a•- 1- ••- 1 s - • 1 •- 1• •• 1 V 1 1 n. v- c• R -9 $425,000.00 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE TRUST AGREEMENT) TO THE REGISTRAR FOR REGISTRATION OF TRANSFER EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., I1,45 AN INTERESTHEREIN UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH CERTIFICATE OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Evidencing the Fractional Interest of the Owner Hereof In 2010A Lease Payments to be Made by the CITY OF NEWPORT BEACH As Rental for Certain Leased Premises Pursuant to a Lease/Purchase Agreement With the NEWPORT BEACH PUBLIC FACILITIES CORPORATION INTEREST RATE 4.00% MATURITY DATE July 1, 2019 DELIVERY DATE November 30, 2010 CUSIP 651779BRO REGISTERED OWNER: CEDE & CO. b' n PRINCIPAL AMOUNT: FOUR HUNDREDT Y-FIVE THOUSAND AND N01100 DOLLARS c_ THIS IS TO CERTIFY THAT the registered owner named above, or registered assigns, as the Registered Owner of this Certificate of Pa I icipation (the "Certificate ") is the owner of a fractional and undivided interest in the right to reFcive certain 2010A Lease Payments thereof under and as defined in that certain Lease /Purehase�A'greement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation') and the City of Newport Beach, a chartered city organized and existing under and by virtue of the laws and Constitution of the State of California (the "City "), which 2010A Lease Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"). DOCSOC/ 1450957v 1/022459 -0014 The Registered Owner of this Certificate is entitled to receive, subject to the terns of the Lease, on the maturity date specified above, the principal arnowit specified above, representing a portion of the 2010A Lease Payments designated as principal coming due during the preceding twelve months; and to receive on July 1 and January 1 of each year (the "Payment Dates ") until payment in full of said portion of principal, the Registered Owner's portion of the 2010A Lease Payments designated as interest coming due during the six months immediately preceding each of the Payrnent Dates provided that interest with respect hereto shall be payable from the Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is executed during the period from the day after the fifteenth day of the month preceding a Payment Date (the "Record Date ") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (ii) unless this Certificate is executed on or prior to June 15, 2011, in which event interest shall be payable from the Dated Date hereof. The portion of the Lease Payments designated as interest is computed on the basis of a 360 -day year of twelve 30-day months and is the result of the multiplication of the aforesaid portion of the Lease Payments designated as principal by the rate per annum identified above. Said amounts are payable in lawful money of the United States of Arnerica. 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 array 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 $20,085,000 aggregate principal amount of Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Certificates ") which have been executed and delivered by the Trustee pursuant to the terms of a Trust Agreement dated as of November 1, 2010 (the `Trust AgreemenP'), by and among the Trustee, the Corporation and the City. Concurrently, with the execution and delivery of the Certificates, the Trustee will execute the $106,575,000 aggregate principal amount of the Certificates of Participation 2010B (rederally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the `d2010B Certificates ") pursuant to the terins of the Trust Agreement. The City is authorized to enter into the Lease and the Trust Agreement under the Constitution and laws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the City wider the Lease, to all of the provisions of which Lease and Trust Agreement the .Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The City is obligated to pay 2010A Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to snake the necessary annual appropriations therefor. The obligation of the City to pay the 2010A Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay 2010A Lease Payments does not constitute a debt of the City, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. The City's obligation to pay 2010A Lease Payments may be completely or partially abated during any period in which, by reason of noncompletion of the Project by the date specified in the Lease or 2 DOCS OC/1450957v 1/022459 -0014 material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use and right of possession by the City of the Leased Premises.. Failure of the City to pay 2010A Lease Payments during any such period shall not constitute a default under the Lease, the Trust Agreement or this Certificate. To the extent and in the manner permitted by the terns of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least a majority in aggregate principal amount of the Certificates and the 2010B Certificates then Outstanding, and may be amended, without such consent of the Registered Owners under certain circumstances. No such modification or amendment shall (i) extend or have the effect of extending the maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates and 201013 Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, (iii) modify any of the rights or obligations of the Trustee without its written assent thereto, or (iv) amend the section of the Trust Agreement dealing with permitted amendments thereof without the prior written consent of the owners of all Certificates and 2010B Certificates. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a new Certificate or Certificates, of an authorized denomination or denominations, for the same aggregate principal amount, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate principal amount of Certificates of other authorized denominations as prescribed in the Trust Agreement. The City, the Corporation, and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to transfer any Certificate selected for prepayment or be required to transfer any Certificate during the period in which the Trustee is selecting Certificates for prepayment or after notice of prepayment has been given in accordance with the Trust Agreement. The Certificates are subject to prepayment, on any date, in whole or in part, from Net Proceeds deposited by the Trustee in the Prepayment Fund established under the Trust Agreement at least forty -five (45) days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the dated fixed for prepayment, without premium. In the event that Net Proceeds are to be applied to the prepayment of Certificates when Certificates, 2010B Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of Certificates, 2010.13 Certificates and Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment. The Certificates are not subject to optional prepayment prior to maturity. 3 DOCSOC/1450957v 1/022459 -0014 As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owner of this Certificate, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest shall cease to accrue with respect hereto from and after the date fixed for prepayment. The City has certified that all acts, conditions and things required by the statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time; form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. Terns used herein which are not otherwise defiled shall have the respective meanings assigned thereto in the Trust Agreement. The Trustee has no obligation or liability to the Registered Owners to make payments of principal or interest with respect to this Certificate except from 2010A Lease Payments paid to the Trustee and from the various funds and accounts established under the Trust Agreement. The Trust Agreement provides that the recitals of facts, covenants and agreements in this Certificate shall be taken as statements, covenants and agreements of the City, and the Trustee assumes no responsibility for the correctness of the salve. The Trustee has executed this Certificate solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement. Date of Execution: November 30, 2010 DOCSO Cl1450957v ] /022459 -0014 THE BANK OF NEW YORK MELLON TRUST COMP, By: Its: l_vl a ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (print or typewrite name, address, including postal zip code, and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed NOTICE: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or such other guarantee program acceptable to the Trustee. 5 DOCSO Cl 1450957v1/022459 -0014 NOTICE: The signature to. this assigi rent must correspond with the naive as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. STRADLING YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ORANGE COUNTY (949) ]25 -4000 ATTORNEYS AT LAW SAN DIEGO 669 NEWPORT CENTER DRIVE, SUITE 1690 (858) 926 -3000 NEWPORT BEACH, CA 92660 -6422 SAN FRANCISCO (415) 283 -2240 TELEPHONE (949) 125 -40130 SANTA BARBARA FACSIMILE (949) 125 -4100 (805) 130 -6600 SACRAMENTO (916) 449 -2350 November 30, 2010 City of Newport Beach Newport Beach, California Re: $20, 085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) Ladies and. Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon eertain representations of fact and certifications made by the Corporation and the City, the initial purchaser of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terns used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the, Trust Agreement, the Trustee has agreed to execute and deliver the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates "), which will evidence undivided proportionate interests in certain other lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010B Certificates or the 2010B Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement"), the Corporation has assigned to the Trustee the Corporation's right to receive 2010A Lease Payments from the City under the Lease. DOCS 0 C/14450570/022459 -0014 City of Newport Beach November 30, 2010 Page 2 Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay 2010A Lease Payments in accordance with the terns of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2010A Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, 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 minimum tax imposed on individuals and corporations and with respect to corporations will not be included as an adjustment in the calculation of alternate minimurn taxable income. (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. Original issue discount that accrues to a Certificate owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph (3) above) and is exempt from State of California personal income tax. DO CS 0 C/ 1445 057x3/022459 -0014 City of Newport Beach November 30, 2010 Page 3 (6) The amount by which a Certificate owner's original basis for determining loss on sale or exchange in a 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. The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to the delivery of the Certificates to assure that such 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 interest (and original issue discount) with respect to the Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The City and the Corporation have covenanted to comply with all such requirements. Except as expressly set forth in paragraphs (3), (4), (5) and (6), we express no opinion regarding any tax consequences with respect to the Certificates. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate executed by the City and other documents related to the Certificates may be changed and certain actions may be taken of omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax- exempt obligations. We express no opinion as to the effect on the tax consequences on and after the date on which any such change occurs or action is taken or omitted upon advice or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation,. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof We have not undertaken to determine, or to DOCS OC/1445057v3/022459 -0014 City of Newport Beach November 30, 2010 Page 4 inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted, DOCSO C/1445057v3/022459 -0014 R -8 $70,000,000.00 UNLESS THIS CERTIFICATE IS PRESENTED BY ANA UTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE TRUST AGREEMENT) TO THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITYAS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTERESTHEREIN UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH CERTIFICATE OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Evidencing the Fractional Interest of the Owner Hereof In 2010B Lease Payments to be Made by the CITY OF NEWPORT BEACH As Rental for Certain Leased Premises Pursuant to a Lease/Purchase Agreement With the NEWPORT BEACH PUBLIC FACILITIES CORPORATION INTEREST RATE MATURITY DATE DELIVERY DATE CUSIP 7.168% July 1, 2040 November 30, 2010 651779BZ2 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: SEVENTY MILLI0N)2ND N01100 DOLLARS THIS IS TO CERTIFY THAT the reg. #a}�d owner named above, or registered assigns, as the Registered Ownei of this Certificate ofnJ �'Eicipation (the "Certificate ") is the owner of a fiactional and undivided interest in the righ141-�Public yiIvceive certain 2010B Lease Payments thereof under and as defined in that certain Lease /Puise Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Be Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation ") and the City of Newport Beach, a chartered city organized and existing under and by virtue of the laws and Constitution of the State of California (the "City "), which 2010B Lease Payments and certain other rights and interests under the Lease have been assigned to The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "). DOCSOC /1450955v 1/022459 -0014 The Registered Owner of this Certificate is entitled to receive, subject to the terms of the Lease, on the maturity date specified above, the principal amount specified above, representing a portion of the 2010B Lease Payments designated as principal coming due during the preceding twelve months, and to receive on January 1 and July 1 of each year (the "Payment Dates ") until payment in full of said portion of principal, the Registered Owner's portion of the 2010B Lease Payments designated as interest coming due during the six months immediately preceding each of the Payment Dates provided that interest with respect hereto shall be payable from the Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is executed during the period from the day after the fifteenth day of the month preceding a Payment Date (the "Record Date ") to and including such Payment Date, in which event interest shall be payable from such Payment Date, or (ii) unless this Certificate is executed on or prior to June 15, 2011, in which event interest shall be payable firm the Dated Date hereof. The portion of the 2010B Lease Payments designated as interest is computed on the basis of a 360 -day year of twelve 30 -day months and is the result of the multiplication of the aforesaid portion of the 2010B Lease Payments designated as principal by the rate per annum identified above. Said amounts are payable in lawful money of the United States of America. The amount representing principal payable at maturity or upon prepayment in whole or in part is payable to the Registered Owner upon presentation and surrender of this Certificate at the Principal Office. The amounts representing interest are payable by check mailed by the Trustee by first class mail to the Registered Owner hereof as of the Record Date preceding the Payment Date at his address as it appears on the registration books of the Trustee. Interest with respect to any Certificate may, at the option of any Owner of Certificates in an aggregate principal amount of $1,000,000 or more evidenced by the written request of such Owner to the Trustee, be paid to such Owner by wire transfer to the bank and account number on file with the Trustee as of the Record Date. This Certificate is one of the $106,575,000 aggregate principal amount of Certificate of Participation 2010B (Taxable) (Civic Center Project) (the "Certificates ") which have been executed and delivered by the Trustee pursuant to the toms of a Trust Agreement dated as of October 1, 2010 (the "Trust Agreement'), by and among the Trustee, the Corporation and the City. Concurrently, with the execution and delivery of the Certificates, the Trustee will execute the $20,085,000 aggregate principal amount of the Certificate of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) (the "2010A Certificates ") pursuant to the terms of the Trust Agreement. The City is authorized to enter into the Lease and the Trust Agreement under the Constitution and Paws of the State of California. Reference is hereby made to the Lease and the Trust Agreement (copies of which are on file at the Principal Office) for a description of the terms on which the Certificates are delivered, the rights thereunder of the Registered Owners of the Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of the City under the Lease, to all of the provisions of which Lease and Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and agrees. The City is obligated to pay 2010B Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The obligation of the City to pay the 2010B Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay 2010B Lease Payments does not constitute a debt of the City, the State of California or any of its political subdivisions within the meaning of any Constitutional or statutory debt limitation or restriction. The City's obligation to pay 2010B Lease Payments may be completely or partially abated during any period in which, by reason of noncompletion of the Project by the date specified in the Lease or D OCSO C/ 145095 5v 1/022459 -0014 material damage, destruction, title defect, or taking by eminent domain or condemnation there is substantial interference with the use and right of possession by the City of the Leased Premises. Failure of the City to pay 2010E Lease Payments during any such period shall not constitute a default under the Lease, the Trust Agreement or this Certificate. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be amended by the parties thereto with the written consent of the Registered Owners of at least a majority in aggregate principal amount of the Certificates and the 2010A Certificates then Outstanding, and may be amended, without such consent of the Registered Owners rider certain circumstances. No such modification or amendment shall (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the thue of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Registered Owner of such Certificate being affected, or (ii) reduce or have the effect of reducing, the percentage of Certificates and 2010A Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (iii) modify any of the rights or obligations of the Trustee without its written assent thereto or (iv) amend the section of the Trust Agreement dealing with permitted amendments thereof without the prior written consent of the owners of all Certificates and 2010A Certificates. This Certificate is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, at the Principal Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a new Certificate or Certificates, of an authorized denomination or denominations, for the same aggregate principal amount, maturity and interest rate, will be delivered to the transferee. This Certificate also may be exchanged for a like aggregate principal amount of Certificate of other authorized denominations as prescribed in the Trust Agreement. The City, the Corporation, and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes whether or not this Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. The Trustee shall not be required to transfer any Certificate selected for prepayment or be required to transfer any Certificate during the period in which the Trustee is selecting Certificates for prepayment or after notice of prepayment has been given in accordance with the Trust Agreement. The Certificates are subject to prepayment, on any date, in whole or in part, from Net Proceeds deposited by the Trustee at the Prepayment Fund established under the Trust Agreement at least forty-five (45) days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the dated fixed for prepayment, without premium. In the event that Net Proceeds are to be applied to the prepayment of Certificates when 2010A Certificates, Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of 2010A Certificates, Certificates and Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment. Extraordinary Optional Prepayment. The 2010$ Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an 3 D0050C/ 1450955v 1 /022459 -0014 Extraordinary Event (as defined in the Trust Agreement), as a whole or in part, on any Business Day and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price (as defined in the Trust Agreement). Optional Pre gyment with Make -Whole Payment. The 2010B Certificates will be subject to prepayment prior to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price (as defined in the Trust Agreement). The Certificates maturing July 1, 2030 (the "2030 Tenn Certificates ") are subject to prepayment in part pro rata among Owners, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount [hereof to be prepaid, without premium; provided, however, that if some but not all of the 2030 Tenn Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2030 Tenn Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. III addition, in lieu of prepayment thereof, the 2030 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Date Sinking Account (July 1) Payment 2024 $ 2,620,000 2025 2,580,000 2026 2,555,000 2027 2,530,000 2028 2,510,000 2029 2,505,000 2030* 2,500,000 * Final Maturity The Certificates- maturing July 1, 2040 (the "2040 Term Certificates ") are subject to prepayment in part pro rata among Owners, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2040 Term Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2040 Tenn Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2040 Tenn Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. 4 DOC SOC/1450955v 1 /022459 -0014 Mandatory Prepayment SinkingAceount Mandatory Prepayment Sinking Account Date (July 1) Payment Date (July Z) . Payment 2024 $ 890,000 2033 $ 5,265,000 2025 1,095,000 2034 5,510,000 2026 1,295,000 2035 5,770,000 2027 1,495,000 2036 6,035,000 2028 1,700,000 2037 6,320,000 2029 1,900,000 2038 6,615,000 2030 2,100,000 2039 6,920,000 2031 4,810,000 2040* 7.245,000 2032 5,035,000 Final Maturity As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than 30 nor more than 60 days before the prepayment date, to the Registered Owner of this Certificate, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for prepayment. If this Certificate is called for prepayment and payment is duly provided therefor as specified in the Trust Agreement, interest shall cease to accrue with respect hereto from and after the date fixed for prepayment. The City has certified that all acts, conditions and things required by the statutes of the State of California and the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Certificate do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Certificate, and that the amount of this Certificate, together with all other Certificates executed and delivered under the Trust Agreement, is not in excess of the amount of Certificates authorized to be executed and delivered thereunder. Terms used herein which are not otherwise defined shall have the respective meanings assigned thereto in the Trust Agreement. The Trustee has no obligation or liability to the Registered Owners to make payments of principal or interest with respect to this Certificate except from 2010E Lease Payments paid to the Trustee and from the various funds and accounts established under the Trust Agreement. The Trust Agreement provides that the recitals of facts, covenants and agreements in this Certificate shall be taken as statements, covenants and agreements of the City, and the Trustee assumes no responsibility for the correctness of the same. The Trustee has executed this Certificate solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity. DOCSOCl1450955v 11022459 -0014 IN WITNESS WHEREOF, this Certificate has been executed and delivered by the Trustee, acting pursuant to the Trust Agreement. Date of Execution: November 30, 2010 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Its: Authorize Cc DO CS OCl1450955v1/022459 -0014 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (print or typewrite name, address, including postal zip code, and social security or other identifying number of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed NOTICE: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or such other guarantee program acceptable to the Trustee. 7 DOCSOC/1450955v1/022459 -0014 NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. STRADLING YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ORANGE COUNTY (949) 725 -4000 ATTORNEYS AT LAW SAN DIEGO 660 NEWPORT CENTER DRIVE, SUITE 1600 (358) 926 -3000 NEWPORT BEACH, CA 92660 -6422 SAN FRANCISCO (415) 283 -2240 TELEPHONE (949) 725 -4000 SANTA BARBARA FACSIMILE (949)725410D (605) 730 -6800 SACRAMENTO (916) 449 -2350 November 30, 2010 City of Newport Beach Newport Beach, California Re: $ 106, 575, 000 City of Newport Beach CertiftcatesofParticipation2010B (Federally Taxable Direct Pay BuildAmerica Bonds) (Civic Center Project) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchasers of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") which will evidence direct and undivided proportionate interests in certain other lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010A Certificates or the 2010A Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement "), the Corporation has assigned to the Trustee the Corporation's right to receive 2010B Lease Payments from the City under the Lease. DOCSOC /1445051 v3/022459 -0014 City of Newport Beach November 30, 2010 Page 2 Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay 2010B Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by Bankruptcy, insolvency; reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases' and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2010B Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in tine Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) evidenced by the Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) Except for certain exceptions, the difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. (6) The District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable as a part of the 2010B Lease Payments evidenced by Certificates on or about each interest payment date. The cash payment does not constitute a full faith D O C S O C/ 1445051 v3 /022459 -0014 City of Newport Beach November 30, 2010 Page 3 and credit guarantee of the United States Government, but is required to be paid by the United States Treasury under the American Recovery & Reinvestment Act of 2009. Except as expressly set forth in paragraphs (3), (4), (5) and (6), we express no opinion regarding any tax consequences with respect to the Certificates. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction, and express no opinion as to the enforceability of the choice of law provisions contained in the Trust Agreement. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. Any federal tax advice contained herein with respect to the Certificates is not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties under the Code. The federal tax advice contained herein with respect to the Certificates was written to support the promoting and marketing of the Certificates. Before purchasing any of the Certificates, all potential purchasers should consult their independent tax advisors with respect to the tax consequences relating to the Certificates and the taxpayer's particular circumstances. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Certificates or other offering material relaying to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully subnnitted7' zo �.J DOCSOC/ 1445 05 1 v3/022459 -0014 C;,= ;'PT!ricn,5A 5,i-tjAD L Cth• -i chi Clip C1 r( CLERK OF Till: cm Or NEv,,PNTTJ. ,Ti RESOLUTION NO. PFC2010 -1 j DATE: RESOLUTION OF THE BOARD OF DIRECTORS OF THE NEWPORT BEACH PUBLIC FACILITIES CORPORATION APPROVING THE EXECUTION AND DELIVERY OF DOCUMENTS IN CONNECTION WITH THE SALE AND DELIVERY OF NOT TO EXCEED $128 MILLION PRINCIPAL AMOUNT OF CERTIFICATES OF PARTICIPATION AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City of Newport Beach (the "City") and the Newport Beach Public Facilities Corporation (the "Corporation "), have previously entered into a Project Lease dated as of July 1, 1998 (the "1998 Lease ") relating to $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), the proceeds of which refunded certain certificates of participation, the proceeds of which financed the acquisition and construction of the City's Central Library (the "Central Library Project"); and WHEREAS, the City and the Corporation desires to enter into a Site Lease dated as of November 1, 2010 (the "Site Lease ") and a Lease/Purchase Agreement, dated as of November 1, 2010 (the "Lease "), whereby the City, as agent of the Corporation, shall cause the acquisition, improvement and equipping of a new Civic Center, as described therein (collectively, the "Civic Center Project" and together with the Central Library Project; the "Project') and whereby the City shall refinance the Central Library Project, and the City has agreed to lease the Leased Premises (defined below) from the Corporation; and WHEREAS, in order to finance the Project, the City and the Corporation desires to authorize the sale of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") evidencing fractional interests in the 2010A Lease Payments made by the City under the Lease, and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the Series 2010A Certificates, the "Certificates ") each evidencing fractional interests in the 2010B Lease Payments made by the City under the Lease; and WHEREAS, Section 5450 et seq. of the California Govemment Code (the "Government Code ") provides statutory authority for pledging collateral for the payment of principal or prepayment price of, and interest on, any agreement, including certificates of participation, and the Government Code creates a continuing perfected security interest which shall attach immediately to such collateral irrespective of whether the parties to the pledge document have notice of the pledge and without the need for any physical delivery, recordation, filing or further act, and, therefore, the City and the Corporation hereby warrant and represent that pursuant to the Lease, the Trust Agreement, to be dated as of November 1,2010, by and among The Bank of New York Mellon Trust Company, N.A., As trustee (the "Trustee "), the City and the Corporation (the "Trust Agreement"), and the Government Code, the Trustee will have a first priority perfected security interest in the Lease Payments described in the Lease represented by the Certificates pursuant to the Government Code. WHEREAS, the Board of Directors desires to consent to the assignment of certain of the Corporation's rights, title and interest in and to the Site Lease and the Lease Agreement, including the right to receive such lease payments from the City, to the Trustee pursuant to an Assignment DOMC/1432089v4/022459 -0014 Agreement, between the Corporation and the Trustee, to be dated as of November 1, 2010 (the "Assignment Agreement "), the form of which together with the form of the Trust Agreement have been presented to this Board of Directors at the meeting at which this Resolution has been adopted; and WHEREAS, the Board of Directors desires to approve the form of an Agency Agreement between the City and the Corporation, the form of which has been presented to this Board of Directors at the meeting at which the Resolution has been adopted. WHEREAS, the Board of Directors desires to approve the form of the Letter of Representations (the "Letter of Representations ") attached as Exhibit B to the Purchase Agreement (the "Purchase Agreement"), by and between the City and Stone & Youngberg LLC, as representative of itself and E.J. Del Rosa & Co., Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Raymond James (collectively, the "Purchaser "), pursuant to which the Purchaser will agree to buy the Certificates on the terms and conditions set forth therein, the form of which has been presented to this Board of Directors at the meeting at which this Resolution has been adopted. NOW THEREFORE, the Board of Directors of the Newport Beach Public Facilities Corporation does hereby RESOLVE, DETERMINE AND ORDER as follows: Section 1. The above recitals are all true and correct. Section 2. This Board of Directors hereby consents to the preparation, sale and delivery of the Certificates in an aggregate amount of not to exceed $128 million in accordance with the terms and provisions of the Trust Agreement, with the exact principal amount of each series of Certificates to be that determined necessary by the City Manager or the Administrative Director of the City to refund and defease the Prior Certificates, to pay the costs of the Projects and to pay all associated costs. The proceeds of the Certificates shall be expended to finance the costs of the Project and to refund and defease the Prior Certificates and to provide for a reserve fund, if any, and the costs of the preparation, sale and delivery of the Certificates. Section 3. The forms of the Letter of Representations, the Site Lease, the Lease Agreement, the Trust Agreement, the Agency Agreement and the Assignment Agreement presented at this meeting are hereby approved. Each of the Chairman of the Board of Directors, the President, Chief Financial Officer and the Secretary (each an "Authorized Officer ") is hereby authorized for and in the name of the City to execute the Site Lease, the Lease Agreement, the Disclosure Agreement, the Agency Agreement and the Trust Agreement in substantially the forms hereby approved, with such additions thereto and changes therein as are recommended or approved by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Special Counsel to the City ("Special Counsel "), or the City Attorney and the officer or officers executing the same, including all changes necessary to reflect the purchase of bond insurance as described in Section 5 below. Approval of such changes shall be conclusively evidenced by the execution and delivery of the foregoing documents by one or more of the authorized officers. Each Authorized Officer is hereby authorized to execute, acknowledge and deliver any and all documents required to consummate the transactions contemplated by the Site Lease, the Lease Agreement, Purchase Agreement, the Trust Agreement, the Agency Agreement and the Assignment Agreement. Section 4. Each of the Authorized Officers is hereby authorized, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary and advisable in order to consummate the sale and delivery of the Certificates and otherwise effectuate the purposes of this Resolution (including but not limited to the execution and delivery of any consents or agreements to remove encumbrances to title with respect to the real property identified in Exhibit A to the Lease and to substitute, remove or add property to Exhibit A to the Lease, the Site Lease and the Assignment Agreement that is determined by the President to be in the best interests of the Corporation), including the refunding and defeasance of the Prior Certificates, and such actions previously taken by such officers are hereby ratified and confirmed. In the event the Chairman of the Board of Directors is unavailable or unable to execute and deliver any of the above - referenced documents, any other Director of the Board of Directors may validly execute and deliver such document, and, in the event the Secretary is unavailable or unable to execute and deliver any of the above - referenced documents, any Assistant Secretary may validly execute and deliver such document in her place. Section 5. This Resolution shall take effect upon adoption. 3 PASSED, APPROVED AND ADOPTED this 9th day of November, 2010 by the following vote: AYES: Selich, Rosansky, Henn, Mayor Curry, Webb, Gardner, Daigle NOES: None ABSENT: None ABSTENTIONS: None ATTEST: Secretary APPROVED AS TO FORM: OFFICE OF THE CrTYj�ATTORNEY: By: kaL��t David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By_ Brian Forbath, Stradling Yocca Carlson & Rauth, a Professional Corporation 4 President of the 06ard of Directors STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF NEWPORT BEACH) WIP 4-0m &- I, r -'Town, Secretary of the Newport Beach Public Facilities Corporation, do hereby certify that the foregoing resolution was duly adopted by the Board of Directors of said Corporation at a regular meeting held on the 9th day of November, 2010 and that it was so adopted by the following vote: AYES: DIRECTORS: Selich, Rosansky, Henn, Mayor Curry, Webb, Gardner, Daigle NOES: DIRECTORS: None ABSENT: DIRECTORS: None ABSTAIN: DIRECTORS: None Secretary of the Newport Beach Public Facilities Corporation STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF NEWPORT BEACH) David A.k, I, beiix j' Secretary of the Newport Beach Public Facilities Corporation, do hereby certify that the above and foregoing is a full, true and correct copy of RESOLUTION NO. PFC2010 -1 of said Board, and that the same has not been amended or replaced. DATED: November 10, 2010 Secretary of the Newport Bach Public Facilities Corporation 6 �o City of Newport Beach City Council Minutes November 9, 2010 the financing overview which is not to exceed $128 million, reported on the Certificates of Participation (COP), and discussed which City facilities will be included in the "leased premises" list. She reported that the financing structure contemplates using both Tax - Exempt Series A (COPs) and Taxable Series B [taxable COPs sponsored by the federal Build America Bonds (BABs) program]. She reviewing the financing estimates and reported on what will be included in the Preliminary Official Statement (POS). She emphasized that financing the project in this manner will save the City millions of dollars over the life of the COPs. She discussed the City's opportunity to use BAB money and highlighted the Facilities Replacement Plan. She reported that three independent rating agencies gave the City the highest bond rating and COP rating available, and noted that Civic Center project financing can be viewed at www.newportbeachea.gov/bonds. City Manager Mff provided an outline of the project milestones and a summary, and highlighted the recommendations outlined in the staff report. In response to Mayor Pro Tem Henn's question, City Manager Kiff indicated that the bridge over San Miguel is not included in the estimates, but they could go out to bid and Council can decide if they want to include it in the project. Motion by Council Member Webb, seconded by Council Member Rosansky to a) adopt Resolution No. 2010 -126 authorizing the preparation, execution, and delivery of the 2010 Certificates of Participation (COPs) in an amount not to exceed $128 million and authorizing the execution and delivery of certain documents and directing certain actions in connection with the issuance, sale and delivery of said COPs; b) approve Budget Amendment No. 11BA -017 appropriating funds necessary for the frost principal and interest installments due through July 1, 2011, and additional funds estimated for the underwriter's discount and cost of issuance; and c) approve the two Mutual Understandings and the Amendment of Declaration of Special Land Use Restrictions with The Irvine Company. Council Member Gardner indicated that it would be ideal to already have the final bids and firm costs before issuing bonds; however, due to the timing for the BABs that is not an option. She asked what would happen to the money if the price was lower. City Manager Kiff indicated that Council will need to decide what to do if the proceeds were above the projections. He stated that staff would recommend looking at the next project on the Facilities Finance Plan and reported that bond counsel agreed that this would be an appropriate use. Council thanked and congratulated the financing team, staff, Building Committee, and Finance Committee, and emphasized the amount of money the City will be saving by financing in this manner. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council Member Rosansky, Mayor Pro Tem Henn, Mayor Curry, Council Member Webb, Council Member Gardner, Council Member Daigle Mayor Curry recessed the City Council meeting at 9:28 p.m to hold the special meeting of the Newport Beach Public Facilities Corporation. SPECIAL MEETING OF THE NEWPORT BEACH PUBLIC FACILITIES CORPORATION PFC -1. ROLL CALL Present: Council Member Selich; Council Member Rosansky; Mayor Pro Tem Henn; Mayor .Curry; Council Member Webb; Council Member Gardner; Council Volume 59 - Page 631 City of Newport Beach City Council Minutes November 9, 2010 Member Daigle PFC -2. NEWPORT BEACH PUBLIC FACILITIES CORPORATION : REFINANCE 1998 CENTRAL LIBRARY COPS AND FINANCE CIVIC CENTER PROJECT. ]401100- 2010J Motion by Council Member Webb, seconded by Mavor Pro Tem Henn to adopt Resolution No. PFC- 2010 -1 authorizing the Board of Directors of the Newport Beach Public Facilities Corporation to enter into a Lease Purchase Agreement and certain other documents with the City of Newport Beach (City), in connection with the execution and delivery of the 2010 Certificates of Participation in order to refinance the 1998 Central Library COPS and to finance the Civic Center project. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council Member Rosansky, Mayor Pro Tem Henn, Mayor Curry, Council Member Webb, Council Member Gardner, Council Member Daigle PFC -3. ADJOURNMENT - The Newport Beach Public Facilities Corporation adjourned at 9:29 p.m. back into the Regular Meeting of the City Council. All members of the City Council were in attendance for the remainder of the Regular Meeting. XVIII. CURRENT BUSINESS (continued) S17. NEWPORT BEACH CIVIC CENTER PROJECT - APPROVAL OF PROFESSIONAL SERVICES AGREEMENT WITH BOHLIN CYWINSKI JACKSON (BCJ) FOR CONSTRUCTION SUPPORT (C- 4527). [381100 -2010] City Manager Kiffprovided a staff report and discussed the not to exceed amount. In response to Council questions, Public Works Director Badum indicated that he will provide a breakdown of costs to clarify the discrepancy on page 3 of the staff report. City Manager Kiff indicated that BCXs costs have been fixed, but stated that the City has been demanding in terms of different designs and exploring new ways to make the project better, but staff will continue to do what it can to hold costs down. Motion by Council Member Webb, seconded by Council Member Gardner to a) approve a Professional Services Agreement with Bohlin Cywinski Jackson, of San Francisco, California, for the architectural design services including Construction Support at a not to exceed price of $3,935,112, and authorize the Mayor and City Clerk to execute the Agreement; and b) approve Budget Amendment No. IIBA -016 appropriating $3,935,112 from the Major Facilities Master Plan Fund to Newport Beach Civic Center Project Account No. 7410- C1002009. The motion carried by the following roll call vote: Ayes: Council Member Selich, Council Member Rosansky, Mayor Pro Tem Henn, Mayor Curry, Council Member Webb, Council Member Gardner, Council Member Daigle XIX. MOTION FOR RECONSIDERATION -None XK ADJOURNMENT - Adjourned at 9:35 p.m. in memory of Diane Coltrane The agenda for the Regular Meeting was posted on November 3, 2010, at 2:00 p.m. on the City Hall Bulletin Board located outside of the City of Newport Beach Administration Building. The supplemental agenda for the Regular Meeting and the agenda for the Volume 59 - Page 632 $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE CORPORATION The undersigned, Secretary of the Newport Beach Public Facilities Corporation (the "Corporation ") on behalf of the Corporation hereby states and certifies that: 1. He is the duly appointed, qualified and acting Secretary of the Corporation, a nonprofit public benefit corporation duly organized and existing under the laws of the State of Califomia, and, as such, is familiar with the facts herein certified and is authorized to certify the same. 2. Attached hereto as Exhibit A is a copy of the Bylaws of the Corporation as currently in effect. 3. Attached hereto as Exhibit B is a copy of the Articles of Incorporation of the Corporation as currently in effect and no action has been undertaken by the Corporation to further amend the Articles of Incorporation or to dissolve the Corporation. 4. Attached hereto as Exhibit C is a copy of the Statement of Information (Domestic Nonprofit Corporation) as currently in effect. 5. At the present time and at all times pertinent to the execution and delivery of the above - captioned certificates of participation (the "Certificates "), set forth below are the elected Board of Directors and officers of the Corporation: Name Office Keith D. Curry Michael F. Henn Steven Rosansky Don Webb Leslie J. Daigle Edward D. Selich Nancy Gardner Tracy McCraner Dave Kiff DOCS OC/ 1445072v3/022459 -0014 Chairman Vice Chairman Director Director Director Director Director Chief Financial Officer Secretary 6. Pursuant to Resolution No. PFC2010 -1 adopted by the Board of Directors of the Corporation on November 9, 2010 (the "Resolution "), the following officials are duly authorized to execute documents on behalf of the Corporation in connection with the execution and delivery of the Certificates and the signatures of each are true and correct specimens of their genuine signatures: Name Title Keith D. Curry Chairman Signature Tracy McCraner Chief Financial Officers 1 e VISA Dave Kiff Secretary 7. The Resolution has not been amended, modified or rescinded since its date of adoption and is in full force and effect as of the date hereof. Dated: November 30, 2010 NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: Its: Secre The undersigned, Chief Financial Officer of the Newport Beach Public Facilities Corporation, hereby certifies that the signature set forth above is the true and genuine signature of the duly appointed Secretary of the Corporation. Chief Financial 001cer of the Newport Beach Public Facilities Corpor tion D OCSOC/ 1445072v3/022459 -0014 BYLAWS OF V "` NEWPORT BEACH PUBLIC FACILITIES CORPORATION ARTICLE I. Name, Organization, Purpose and Principal Office SECTION 1.01. Name. The name of this corporation is CITY OF NEWPORT BEACH PUBLIC FACILITIES CORPORATION (hereinafter referred to as the "Corporation "). SECTION 1.02. Organization. Purpose and Use of Funds. The Corporation is a nonprofit public benefit corporation organized under the Nonprofit Corporation Law of the State of California to provide assistance to the City of Newport Beach, California, by, among other methods, acquiring, leasing, constructing or financing various public facilities, land, equipment and other improvements and property for the use, benefit and enjoyment of the public L_ (herein referred to as "public improvements "). The activities of the Corporation shall be limited to the activities described in its Articles of Incorporation. No gains, profits or dividends shall be distributed to any of the members of the Corporation; no part of the net earnings, funds or assets of the Corporation shall inure to the benefit of any member, shareholder, individual person, firm or corporation, excepting only the City of Newport Beach. SECTION 1.03. Principal Office. The principal office of the Corporation is hereby fixed and located at 3300 Newport Boulevard, (fir ,�; ; y7 • Mgr E;�'1 CY.cR:" OF TIiZ C OF tM1fJri347 Newport Beach, California, City Manager's Office. The Board of Directors is hereby granted full power and authority to change said principal office from one location to another in the City of Newport Beach. Any such change shall be noted by the Secretary opposite this section, but shall not be considered an amendment to these Bylaws. ARTICLE II. Members SECTION 2.01. Members. Pursuant to Section 5310 of the Government Code, the bylaws of a nonprofit corporation may provide that the corporation shall have no members. The Corporation shall have no members other than the Directors as specified by Article V of the Articles of Incorporation. ARTICLE III. Directors SECTION 3.01. Powers. Subject to limitation of the Articles of Incorporation, or the Bylaws, and of the California Nonprofit Corporation Law, and subject to the duties of Directors as prescribed by the Bylaws, all powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be controlled by, the Board of Directors. No Director shall be responsible for any error in judgment or for anything that he or she may do or refrain from doing in good faith. Without prejudice to such general powers, but subject to the'same limitations, it is hereby expressly declared that the Directors shall have all of the powers permitted by law, K including, but not limited to, the following powers, to wit: First - To select and remove all the other officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law or the Articles of Incorporation or Bylaws, fix their compensation and require from them security for faithful service; Second - To conduct, manage and control the affairs and business of the Corporation and to make such rules and regulations therefor not inconsistent with law or the Articles of Incorporation or Bylaws, as they may deem best; Third - To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the name of the Corporation, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor; Fourth - To purchase, rent or otherwise acquire, hold, maintain, lease, sell or otherwise dispose any real or personal property for the purposes of the Corporation. 3 t, l property for the purposes of the Corporation. SECTION 3.02. Number and Qualifications of Directors. The authorized number of Directors shall be seven (7) until changed by amendment of the Articles of Incorporation or by amendment of the Bylaws. SECTION 3.03. Selection and Term of Office. Directors of he Corporation shall be the members of the City Council of the City of Newport Beach or persons designated by the City Council, and no person shall be eligible to serve as a Director of the Corporation except a person initially approved by a resolution of 'the City Council. Unless a vacancy in the office occurs as herein provided, each Director shall hold office for the same term as the member of the City Council of the City. of Newport Beach nominating that Director or until a successor has been designated and has accepted the office. The member of the City Council of the City of Newport Beach nominating a Director of the Corporation may, with or without cause, remove that Director of the Corporation from office. SECTION 3.04. Vacancies. Subject to the provisions of Section 5226 of the California Nonprofit Corporation .Law, any Director may resign effective upon giving written notice to the President, the Secretary, or the Board, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be selected before such time, to take office when the resignation becomes effective. The Board of Directors may remove a Director for failing to 0 attend three consecutive meetings of the Board of Directors. A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation, or removal of any Director, or if the authorized number of Directors is increased. Vacancies in the Board shall be filed in the same manner as the Director whose office is vacant was selected. Each Director so selected shall hold office until the expiration of the term of the replaced Director and until a successor has been selected and has accepted the office. SECTION 3.05. Organization and Annual Meeting. The Board of Directors shall hold an annual meeting for the purpose of organization, selection of Directors and officers, and the transaction of other business. Annual meetings of the Board shall be held without call or notice on the second Monday of July at 2:00 o'clock p.m., local time; provided, however, should any said day fall upon a holiday observed by the Corporation at its principal office, then said meeting shall be held at the same time on the next day thereafter ensuing which is a full business day. SECTION 3.06. Regular Meetings. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the time and place of holding such meetings. Notice of regular meetings need not be given. SECTION 3.07. Special Meetings Notice Waiver. A special meeting of the Board of Directors shall be held whenever called by the President, or by a majority of the Directors. Written notice 61 of each such meeting shall be delivered personally or by mail to each Director to be received at least twenty -four (24) hours before the time of such meeting. The call and notice shall be posted at least twenty -four (24) hours prior to the special meeting in a location that is freely accessible to.the members of the public. Notice shall also be given to the City Council of the City of Newport Beach if the Directors or any of them are not members of the City Council. The call and notice shall signify the time and place of the special meeting and the business to be transacted. No other business shall be considered at such meetings by the'Board of Directors. Notice of Adjournment of a meeting need not be given to absent Directors if the time and place are fixed at the meeting adjourned. The transactions of any meeting of the Board of Directors, however called and noticed and wherever held, shall be as valid as though had at a meeting held after regular call and notice, if a quorum be present; provided, however, that before the meeting, each of the Directors not present signs a written waiver of notice and files said written waiver of notice with the Secretary; and provided further, that notice be given to each local newspaper of general circulation, radio or television station requesting notice in writing pursuant to Government Code Section 54956. All waivers, shall be filed with the corporate records and made a part of the minutes of the meeting. 9 SECTION 3.08. Adjourned meetings, Notice of Adjournment. The Board of Directors may adjourn any regular, adjourned regular, special or adjourned special meeting to a time and place specified in the order of adjournment. Less than a quorum may so adjourn from time to time. A copy of the order or notice of adjournment shall be conspicuously posted on or near the door of the place where the regular, adjourned regular, special or adjourned special meeting was held within twenty four hours after the time of adjournment. When a regular or adjourned regular meeting is adjourned as provided in this section, the resulting adjourned regular meeting is a regular meeting for all purposes. SECTION 3.09. Ouorum. A majority of the authorized number of Directors shall be necessary to constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present, shall be regarded as the act of the Board,of Directors unless a greater number be required by law or by the Articles of Incorporation. SECTION 3.10. Fees and Compensation. Directors shall receive no compensation or expenses for their services as Directors. SECTION 3.11. Ralph M. Brown Act. Notwithstanding any of the provisions of these Bylaws to the contrary, all meetings of Directors shall be subject to the Ralph M. Brown Act, commencing at Section 54940 of the Government Code of the State of California. 7 SECTION 3. 12.. Conduct of Meetings. The President or, in his absence, the Vice President, or a Chairman chosen by a majority of the Directors present, shall preside. Articles IV. Officers SECTION 4.01. Officers. The officers of the Corporation shall be the Chairman of the Board, a President, and a Chief Financial officer. The Corporation may also have, at the discretion of the Board of Directors, one or. more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,• and such other officers as may be appointed by the Board of Directors. One person may hold two or more offices, except that the offices of President and Secretary or President and Chief Financial Officer may not be combined. SECTION 4.02. Election. The Chairman of the Board and any Vice - Presidents shall be chosen annually by the Board of Directors and each shall hold office until the officer shall resign, be removed, or otherwise disqualified to serve, or the officer's successor shall be elected -and qualified. SECTION 4.03. Removal and Resignation. Vice - Presidents may resign, or may be removed, with or without cause, by the Board of Directors at any time. Vacancies caused by death, resignation or removal of any Vice - Presidents may be filled by appointment by the Board of Directors, or by the President until such appointment by the Board of Directors. M SECTION 4.04. President. The City Manager of the City of Newport Beach shall be the President of the Corporation and, subject to the control of the Board of Directors, shall be responsible for the management, supervision, direction and control of the affairs of the Corporation. SECTION 4.05. Vice - President. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice President shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or 'by the Bylaws. SECTION 4.06. Secretary. The Secretary shall be the City Clerk of the City of Newport Beach. The Secretary shall keep'at the principal office of the Corporation a book of minutes of all meetings of Directors and members, with the time and place of holding, how called or authorized, the notice thereof given, the names of those present or represented at member's meetings, and the proceedings thereof. SECTION 4.07. Chief Financial Officer. The Chief Financial Officer shall be the City Treasurer of the City of Newport Beach. The Chief Financial Officer shall keep and maintain adequate and correct books of account showing the receipts and disbursements of the Corporation, and an account of its cash and other assets, if W any. 'Such books of account shall at all reasonable times be open to inspection by any member or Director. The Chief Financial Officer shall deposit all moneys of the Corporation with such depositories as are designated by the Board of Directors, and shall disburse the funds of the Corporation as may be ordered by the Board of Directors, and shall render to the President or the Board of Directors, upon request, statements of the financial condition of the Corporation. SECTION 4.08. Subordinate Officers. Subordinate officers shall perform such duties as shall be prescribed from time to time by the Board of Directors or the President. Articles V. Miscellaneous SECTION 5.01. Execution of Documents. The Board of Directors may authorize any officer, agent or both -to enter into any contract or execute any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specif is instances; unless so authorized by the Board of Directors, no officer, agent or other person shall have any power or, authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. SECTION 5.02. Inspection of Bylaws. The Corporation shall keep in its principal office the original or a copy of these Bylaws, as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the members at all reasonable times during office hours. M SECTION 5.03. Annual Report. The annual report referred to in Section 6321 of the Government Code of the State of California is expressly dispensed with. SECTION 5.03. Fiscal Year. The fiscal year of the Corporation shall begin July 1 and end June 30 of each year, except the first fiscal year which shall run from the date of incorporation to June 30, 1992. SECTION 5.05. Dissolution. In the event of dissolution of the Corporation in any manner and for any cause, after the payment or adequate provision for the payment of all of its debts and liabilities, all of the remaining funds, assets and properties of the Corporation shall be paid or distributed to the City of Newport Beach, California. SECTION 5.06. Construction and Definitions: Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the Nonprofit Corporation Law of the State of California shall govern the construction of these Bylaws. If any section, subsection, sentence, clause or phrase of these Bylaws, or the application thereof, is contrary to the Nonprofit Corporation Law of the State of California the provisions of that law shall prevail. Without limiting the generality of the foregoing the masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term "person" includes a corporation as well as a natural person. Articles 9I. Amendments SECTION 6.01. Power of Directors. New Bylaws may be adopted or these Bylaws may be amended or repealed by a majority vote of the Board of Directors. t 12 n; i f1 SECRETARY OF S'TA'TE Y and correct. SedState Form CE -108 (rev. 4197) IN WITNESS WHEREOF, 1 execute this certificate and affix the Great Seal of the State of California this it' =i y1 098 Secretary of State 97 35082 The name of this corporation is: NEWPORT BEACH PUBLIC FACILITIES CORPORATION- Eke This corporation is a nonprofit public benefit corporation and is not organized for the private gain of any person. It is organized under the Nonprofit Public Benefit Corporation Law for public purposes. The specific public purposes for which the corporation is organized include the following: (a) To render financial assistance to the City of Newport Beach, California ( °City") by financing,.acquiring, constructing, improving, leasing and selling buildings, building improvements, equipment, electrical, water, sewer, road and other public improvements, lands. and any other real or person ;al property, tangible and intangible, for the benefit of residents of the City and surrounding areas; (b) To acquire by lease, purchase or otherwise, real or personal property, tangible or intangible, or any interest therein; to construct, reconstruct, modify, add to,. improve or otherwise acquire or. equip buildings, structures or improvements and (by sale, lease, sublease, leaseback, gift or otherwise) make any part of all or any such real.or personal property available to.or for the benefit of the public, the City, or any one or more i departments, commissions, or agencies of the City; Y (c), To promote the common good and general welfare of the City and the inhabitants thereof, and the governmental, commercial, industrial or other enterprises in the City and surrounding areas by financing. the acquisition of the real and personal property, tangible and intangible, as hereinabove described; a fro .(d) To borrow the necessary funds to pay the cost of financing, acquiring, constructing, replacing, establishing, 'improving, maintaining, equipping and operating such properties and facilities for the herein described purposes, the indebtedness for which borrowed money may, but need not, be evidenced by securities of this corporation of any kind or character issued at any one or more times, which may be either unsecured or secured by any mortgage, trust deed, pledge, encumbrance or other lien upon any part or all of the properties and assets. at any time then or thereafter owned or acquired by this corporation.. (a) To receive limited or conditional gifts or grarto in. trust, inter vivos, or.by way of testamentary devises, bequestj or grants in trust, or otherwise, .funds of all kinds including property, both real, personal and mixed, whether principal or income, tangible or intangible, present or future, vested or contingent, in order to carry on the purposes of this corporation. The general purposes and powers for which the corporation is organized are to have and exercise all rights and powers now or hereafter conferred on nonprofit corporations under the laws of the state of California; provided, however, that this corporation shall 2 . not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the specific and primary purposes of this corporation as set forth above. III. This Corporation is ogganized' and operated exclusively for civic purposes within the meaning of Section 501(c) (4) of the Internal Revenue Code of 1986, and under the direction of a group of public spirited citizens for the sole purpose of acquiring and constructing or. providing for the construction of Du-oiin improvements as a civic venture for and on behalf of the City. This corporation shsil ne•r,,r engage in any business or activity other than that necessary or convenient for or incidental to the carrying out of the purposeo set forth in Article II hereof. IV. No part of the net earnings, if any, of this corporation, either during its existence or upon its dissolution, shall ever inure to the benefit of any private individual, or any director, officer or member thereof, or any person, firm or corporation excepting only the City. No substantial part of the activities or this corporation shall Consist of carrying on propaganda, or otherwise attempting to influence legislation; nor shall it participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of any candidate for public office, The property, assets, profits and net revenues of this corporation are . irrevocably dedicated to the City; provided, however, that until all indebtedness of this 3 i �7k .1 #q Z� ��+:s..:1�:$. -&�.a `2 i`.vr;d'.b...<C ` a 4 corporation shall have been paid, such net revenues may be used for the purpose of paying, prepaying, or calling for redemption any i bonds, debentures, notes or other evidences of indebtedness issued to finance public improvements. Upon the dissolution, liquidation or winding up of this corporation, or upon abandonment, the assets of this corporation remaining after payment of all or provision for all debts or liabilities of this corporation . and after compliance with Chapters 15, 16. and 17 of the California Nonprofit Public Benefit Corporation Law shall be distributed to the City. V. The name and address in this state of the corporation's initial agent for service of process is: Dennis Danner, City Treasurer City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92659 -1768 V1. The number of directors of this corporation may be fixed by its bylaws. The persons who are directors of this corporation, from time to time, shall be its only members, and upon ceasing to be a director of this corporation any such person shall cease to be a member thereof. The members and directors of this corporation shall have no liability for dues'or assessments. V, a IN WITNESS WHEREOF, for the purpose of forming the Corporation under the law of the State of California, the undersigned has executed these Articles of Incorporation this day of 1992. i D dIS DINNER, IncozX-c%'ator DECLARATION I declare that I am the person who executed the above Articles of Incorporation, and that this instrument is my act and deed. Executed on 494th ZO 1992 at Newport Beach, Cr.1{.fcrnia. I declare under penalty or perjury that the foregoing is, true and correct. /J e.J� DEfiNIS DINNER, Incorporator 5 0iv72Cib' f, -State of California Califorl�ia Secretary of State Statement of Information (Domestic Nonprofit, Credit Union and Consumer Cooperative Corporations) - Filing Fee: $20.00. If amendment, see instructions. ENDORSED ® FILED IMPORTANT —READ INSTRUCTIONS BEFORE COMPLETING THIS FORM in the offlceof the Secretary ofState of the State of California 2 3 2010 NOV iV tl aD Ili 1. CORPORATE NAME _ Newport Beach Public Facilities Corporation C1821481 . - This Space for Filing Use Only Due Date: Complete Principal Office Address (Do not abbreviate the name of the city. Item 2 Cannot be a P.O. Box.) 2. STREET ADDRESS OF PRINCIPAL OFFICE IN CALIFORNIA, IF ANY CITY STATE ZIP CODE 3300 Newport Boulevard . Newport Beach CA 92663 3, MAILING ADDRESS OF THE CORPORATION, IF REQUIRED CITY STATE ZIP CODE Names and Complete Addresses of the Following Officers (The corporation must list these three officers. A Comparable title for the specific officer may be added; however, the preprinted lilies on this form must not be altered.) 4. CHIEF EXECUTIVE OFFICER! ADDRESS CITY STATE ZIP CODE Keith D, Curry 3300 Newport Boulevard Newport Beach CA 92663 5., SECRETARY ADDRESS CITY STATE ZIP CODE David Kiff 3300 Newport Boulevard Newport Beach CA 92663 6. CHIEF FINANCIAL OFFICER I ADDRESS CITY STATE ZIP CODE Tracy McCraner 3300 Newport Boulevard. Newport Beach. CA 92663 Agent for Service of Process (If the agent is an individual, the agent must reside in California and Item 6 must be completed with a California street address (a P.O. BDX address is not acceptable). If the agent is another corporaton, the agent must have on file with the California Secretary of State a certificate pursuant to California Corporations Code section 1505 and Item 8 must be left blank.) 7. NAME OF AGENT FOR SERVICE OF PROCESS Leilani I. Brown 8• STREET ADDRESS OF AGENT FOR SERVICE OF PROCESS IN CALIFORNIA, IF AN INDIVIDUAL CITY STATE ZIP CODE 3300 Newport Boulevard Newport Beach CA 92663 Davis-Stirling Common Interest Development Act (California Civil Code section 1350, at seq.) B. EjCheck here if the ooryoration is an association formed to manage a common interest development under the Davis - Stirling Common Interest Development Act and proceed to Items 10,11 and 12. NOTE: Corporations formed to manage a common interest development must also file a Statement by Common Interest. Development Association (Form SI -CID) as required by California Civil Code section 1363.6. Please see instructions on the reverse side of this form. 10• ADDRESS OF BUSINESS OR CORPORATE OFFICE OF THE ASSOCIATION, IF ANY - CITY STATE ZIP CODE 11. FRONT STREET AND NEAREST CROSS STREET FOR. THE PHYSICAL LOCATION OFTHE COMMON INTEREST DEVELOPMENT a -DIGIT ZIP CODE (Complete if the business orcorporate office is net on the site of the common interest development.) - 12. NAME AND ADDRESS OF ASSOCIATION'S MANAGING AGENT, IF ANY CITY STATE ZIP CODE 13. THE INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT. 11(22110- David Kiff Secretary DATE TYPEIPRIN7 NAME. OF PERSON COMPLETING FORM TITLE SIGNATURE SI -100 (REV IO12010) APPROVED BY SECRETARY OF STATE $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CLOSING CERTIFICATE OF THE CORPORATION The undersigned, Secretary of the Newport Beach Public Facilities Corporation (the "Corporation "), on behalf of the Corporation hereby represents and warrants that: 1. The Corporation is a public body, corporate and politic, duly organized and existing under the laws of the State of California, with full right, power and authority to execute, deliver and perform its obligations under (i) the Letter of Representations of the Corporation dated November 17, 2010 (the "Letter of Representations "), (ii) the Site Lease dated as of November 1, 2010 (the "Site Lease "), by and between the City of Newport Beach (the "City ") and the Corporation, (iii) the Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Corporation and the City, (iv) the Agency Agreement dated as of November 1, 2010 (the "Agency Agreement "), by and between the District and the Corporation, (v) the Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the District, and (vi) the Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement," and together with the Letter of Representations, the Site Lease, the Lease/Purchase Agreement, the Agency Agreement and the Trust Agreement, collectively, the "Corporation Documents "), by and between the Corporation and the Trustee. 2. The representations and warranties contained in the Corporation Documents are true and correct in all material respect as of the date hereof as if made on the date hereof, and the Corporation has complied with all the agreements, covenants and conditions to be complied with by the Corporation under the Corporation Documents as of the date hereof. 3. No litigation or proceeding is pending or threatened against the Corporation (a) to restrain or enjoin the execution and delivery of any of the Certificates or the collection of Lease Payments, (b) in any way contesting the validity of the Certificates or the Corporation Documents, or the authority of the Corporation to enter into the Corporation Documents, or (c) in any way contesting the powers of the Corporation in connection with any action contemplated by the foregoing agreements. 4. To the best knowledge of the undersigned, no event affecting the Corporation has occurred since the date of the Official Statement which should be disclosed in the Official Statement so that the Official Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and which has not been disclosed in a supplement or amendment to the Official Statement. DOC SOC/ 1445072v3/022459 -0014 All capitalized terms used herein and not defined shall have the meanings given them in the Corporation Documents. Dated: November 30, 2010 NEWPORT BEACH PUBLIC FACILITIES CORPORATION By: � C--1�\ Its: Secre ary 2 DOC SOC/ 1445072v3/022459 -0014 State of California Secretary of State CERTIFICATE OF STATUS ENTITY NAME: NEWPORT BEACH PUBLIC FACILITIES CORPORATION FILE NUMBER: C1821481 FORMATION DATE: 05/13/1992 TYPE: DOMESTIC NONPROFIT CORPORATION JURISDICTION: CALIFORNIA STATUS: ACTIVE (GOOD STANDING) I, DEBRA BOWEN, Secretary of State of the State of California, hereby certify: The records of this office indicate the entity is authorized to exercise all of its powers, rights and 'privileges in the State of California. No information is available from this office regarding the financial condition, business activities or practices of the entity. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this day of November 24, 2010. in e.— DEBRA BOWEN Secretary of State DMT NP -25 (REV 1/2007) - 08P 06 99731 STATE OF CALIFORNIA FRANCHISE TAX BOARD P.O. BOX 942857 SACRAMENTO, CA 94257 -0540 ENTITY STATUS Entity Name : NEWPORT BEACH PUBLIC FACILITIES CORPORATION Entity Number : 1821481 X 1. The above entity is in good standing with this agency. In Reply Refer To: 657 MRM Date :11/12/2010 Note: This letter does not reflect the entity's status with any other agency. X 2. This entity is currently exempt from tax under Revenue and Taxation Code Section 23701 U 3. Our records indicate the above entity is not through the Secretary of State to transact business in California. 4. The above entity was incorporated, qualified, organized, or registered through the Secretary of State on 5. The above entity has an unpaid liability of $ for account period(s) ending . X 6. Our records do not show that the above entity filed returns for account period(s) ending .06/10 7. The above entity was effective. 8. The above entity's current address on record with this agency is: 9. We do not have current information on the above entity. Comments: REPRESENTATIVE ASSISTANCE Telephone assistance is available from 7 a.m. until 8 p.m. Monday through Friday and from 8 a.m. until 5 p.m. on Saturdays. We may modify these hours without notice to meet operational needs. From within the United States, call .. ............................... (800) 852 -5711 From outside the United States, call (not toll- free) .............(916) 845 -6500 Website at: www.ftb.ca.gov Assistance for person with disabilities: We comply with the Americans with Disabilities Act. Persons with hearing or speech impairments please call TTY /TDD (800) 822 -6268. FTB 4263A (REV 05 -2002) $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) and $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) PURCHASE CONTRACT November 17.2010 City of Newport Beach 330 Newport Boulevard Newport Beach, CA 92658 -8915 Ladies and Gentlemen: Stone & Youngberg LLC, acting on behalf of itself and as Representative (the "Representative ") of the underwriter listed in Exhibit A hereto (collectively, the "Underwriters "), offers to enter into this Purchase Contract (the "Purchase Contract ") with you, the City of Newport Beach, California (the "City "), for the purchase by the Underwriters of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) in the aggregate principal amount of $20,085,000 (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $106,575,000 (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "). This offer is made subject to written acceptance by the City at or prior to 5:00 p.m., California time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriters upon notice delivered to the City at any time prior to the acceptance hereof by the City. Upon such acceptance this Purchase Contract shall be in full force and effect in accordance with its terms and shall be binding upon the City and the Underwriters. Section 1. Purchase and Sale. Upon the terms and conditions and in reliance on the representations, warranties and agreements herein set forth, the Underwriters hereby agree to purchase, and the City hereby agrees to execute and direct The Bank of New York Mellon Trust Company, N.A. (the "Trustee "), to authenticate and deliver to the Underwriters, all (but not less than all) of the $20,085,000.00 aggregate principal amount of the 2010A Certificates at the purchase price of $21,129,832.05 (representing the principal amount of the 2010A Certificates of $20,085,000.00, plus an original issue premium of $1,155,299.55 and less an underwriting discount of $110,467.50) (the "2010A Purchase Price ") and the $106,575,000.00 aggregate principal amount of the 2010B Certificates at the purchase price of $105,988,837.50 (representing the principal amount of the 2010B Certificates of $106,575,000.00, less an underwriting discount of $586,162.50 (the "2010B Purchase Price "). The Certificates shall be as described in the Official Statement and the Trust Agreement (each as herein defined) and shall be executed, delivered and secured under and pursuant to a Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement "), by and among the City, the Newport Beach Public Facilities Corporation (the "Corporation ") and the Trustee. The principal amounts, maturities and interest rates with respect to the Certificates are as set forth in Exhibit C hereto. The proceeds of the 2010A Certificates will be applied to prepay the outstanding City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), and finance a portion of the costs of the acquisition, improvement and equipping of a new City Hall (the "Civic Center Project "). The proceeds of the 2010B Certificates will be applied to provide additional financing for the Civic Center Project. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. Capitalized terms used and not defined herein have the meanings ascribed to them in the Trust Agreement or the herein referenced Lease, as applicable. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only. In connection with the prepayment of the 1998 Certificates and the financing of the Civic Center Project, the City will lease certain real property and all improvements thereon (the "Leased Premises "), to the Corporation pursuant to a Site Lease, dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Corporation. The City will sublease the Leased Premises from the Corporation pursuant to a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Corporation. The 2010A Certificates evidence fractional and undivided interests in certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. The 2010B Certificates evidence fractional and undivided interests in certain other lease payments (the "2010B Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to Lease as rental for the Leased Premises. Pursuant to an Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Trustee and the Corporation, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates all of the Corporation's rights, title, and interest under the Site Lease and all of the Corporation's rights, title and interest under the Lease (excepting only the Corporation's rights to indemnity and the payment of its fees and expenses), including the right to receive Lease Payments, Prepayments and Additional Payments from the City under the Lease or the Trust Agreement, as applicable. Pursuant to an Agency Agreement, dated as of November 1, 2010 (the "Agency Agreement "), by and between the City and the Corporation, the Corporation will appoint the City as its agent in connection with the acquisition, construction, delivery and installation of the Civic Center Project. PJ The City has designated and hereby designates the 2010B Certificates as "Build America Bonds" for purposes of the American Recovery and Reinvestment Act of 2009 signed into law on February 17, 2009 (the "Recovery Act ") and the 2010B Certificates will be issued as Build America Bonds. Upon delivery of the 2010A Certificates, a portion of the proceeds thereof will be deposited into that certain escrow fund established under an Escrow Agreement, dated as of October 29, 2010 (the "Escrow Agreement"), by and between the City and U.S. Bank National Association, as escrow agent thereunder (the "Escrow Agent "). Such amounts will be used by the Escrow Agent to prepay all of the outstanding 1998 Certificates in accordance with the terms and conditions of the Escrow Agreement and the trust agreement pursuant to which the 1998 . Certificates were executed and delivered. The execution and delivery of the Trust Agreement, the Certificates and certain matters relating thereto have been authorized by a resolution of the Corporation adopted on November 9, 2010 (the "Corporation Resolution ") and resolutions of the City adopted on October 27, 2010 and November 9, 2010 (collectively, the "City Resolution "). This Purchase Contract, the Trust Agreement, the Site Lease, the Lease, the Escrow Agreement, the Agency Agreement and the Continuing Disclosure Agreement, dated as of November 1, 2010 . (the "Continuing Disclosure Agreement "), by and between the City and Digital Assurance Certification, L.L.C., are referred to collectively herein as the "City Legal Documents." The Letter of Representations of the Corporation, set forth in Exhibit B hereto (the "Letter of Representations "), the Trust Agreement, the Site Lease, the Lease, the Assignment Agreement and the Agency Agreement are referred to collectively herein as the "Corporation Legal Documents ". The City Legal Documents and the Corporation Legal Documents are referred to collectively herein as the "Legal Documents ". Capitalized terms not otherwise defined herein shall have the meanings as defined in the Trust Agreement. Section 2. Delivery of the Official Statement and Other Documents. (a) The City, on behalf of itself and as agent for the Corporation, agrees to cause to be delivered to the Underwriters as many copies of the Official Statement (as hereinafter defined), signed on behalf of the City by the City Manager or any other duly authorized officer of the City, as the Underwriters shall reasonably request in order to comply with paragraph (b)(4) of Rule 15c2 -12 (the "Rule ") promulgated by the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and the rules of the Municipal Securities Rulemaking Board (the "MSRB "). The City agrees to deliver such Official Statements within seven (7) business days after the execution hereof, and no later than three (3) business days prior to the date of Closing (as hereinafter defined). (b) The City has previously authorized the approval of the Official Statement by execution thereof by a duly authorized officer of the City. The City executed and delivered to the Representative a certificate in the form of Exhibit D in connection with distribution of the Preliminary Official Statement dated November 10, 2010 with respect to the Certificates (together with the appendices thereto, any documents incorporated therein by reference and any supplements or amendments thereto, the "Preliminary Official Statement"). By execution of this Purchase Contract, the City confirms that the Preliminary Official Statement was deemed final for purposes of the Rule and represents that the information (excluding the statements and information under the caption "Book -Entry System," and in Appendix D — "Book -Entry System" and any information relating to the Underwriters provided by the Underwriters in writing for inclusion in the Preliminary Official Statement) contained in the Preliminary Official Statement was as of its date, and is as of the date hereof, true and correct in all material respects and such information did not and does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Preliminary Official Statement, with such changes and amendments as are mutually agreed to by the City, the Corporation and the Underwriters, including the cover page, inside cover page, the appendices and all information incorporated therein by reference, is herein referred to as the "Official Statement". (c) Prior to the 25 days after the Closing, but not thereafter, the City shall provide the Underwriters with such information regarding the City, its current financial condition and ongoing operations, as the Underwriters may reasonably request, if there are any unsold Certificates at Closing. Section 3. The Closing. At 8:00 a.m., California Time, on November 30, 2010, or at such other time or on such earlier or later date as the City and the Representative mutually agree upon, the City and the Trustee will deliver or cause to be delivered to the Representative the Certificates in book -entry form through or otherwise in care of the facilities of DTC, duly executed and authenticated, and the other documents hereinafter mentioned shall be delivered at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation in Newport Beach, California, or at such other location as shall have been mutually agreed upon by the City and the Representative. Subject to the terms and conditions hereof, the Representative will accept delivery of the Certificates and pay the Purchase Price thereof by federal funds to the order of the Trustee in an amount equal to the Purchase Price as set forth in Section 1 hereof (such delivery of and payment for the Certificates is herein called the "Closing "). Section 4. Public Offering. The Underwriters agree to make a bona fide public offering of all of the Certificates at their principal amount. The Underwriters reserve the right to change such initial public offering prices or yields as the Underwriters deem necessary following the initial public offering period in connection with the marketing of the Certificates. The City hereby authorizes the Underwriter to use the forms or copies of the Legal Documents and the Official Statement and the information contained therein in connection with the public offering and sale of the Certificates. Section 5. Liquidated Damages. In the event that the Underwriters fail (other than for a reason permitted by this Purchase Contract) to accept and pay for the Certificates at the Closing, the amount of 1% of the principal amount of the Certificates shall be full liquidated damages for such failure and for any and all defaults hereunder on the part of the Underwriters, and the acceptance of such amount shall constitute a full release and discharge of all claims and rights of the Trustee, the City and the Corporation, against the Underwriters. Full payment for liquidated damages shall be made in Clearinghouse funds within two business days of the day on which the Underwriters failed (other than for a reason permitted by this Purchase Contract) to accept and pay for the Certificates. 4 Section 6. City Representations, Warranties and Agreements. The City represents and warrants to the Underwriters as follows: (a) Due Organization and Operation: Legal, Valid and Binding Obligations. The City is a chartered city duly organized and operating pursuant to the Constitution and laws of the State of California and has all necessary power and authority to adopt the City Resolution, execute, deliver and perform its obligations under the Certificates, and to enter into and perform its duties under the City Legal Documents. The City Resolution has been adopted at a meeting of the City Council called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and is in full force and effect and has not been modified, amended or rescinded, and the City Legal Documents, when executed and delivered by the respective parties thereto, will constitute legal, valid and binding obligations of the City enforceable against the City in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought. (b) No Conflict. The adoption of the City Resolution and the execution and delivery of the City Legal Documents, and compliance with the provisions thereof, will not in any material respect conflict with, or constitute a breach of or default under, the City's duties under the City Legal Documents, the City Resolution or any law, administrative regulation, court decree, resolution, by -laws or other agreement to which the City is subject or by which it or any of its property is bound. (c) No Consents Required. After due inquiry, except as may be required under blue sky or other securities laws of any state, or with respect to any permits, consents or approvals heretofore received which are in full force and effect or the requirement for which is otherwise disclosed in the Official Statement, there is no consent, approval, authorization or other order of, or filing with, or certification by, any governmental authority, board, agency or commission or other regulatory authority having jurisdiction over the City, other than the approval and authorization of the City Council of the City (the "City Council "), required for the adoption of the City Resolution and execution and delivery of the City Legal Documents or the consummation by the City of the other transactions contemplated by the Certificates, the Official Statement, the City Resolution or the City Legal Documents. (d) No Litigation. There is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or, to the knowledge of the City, threatened against the City to restrain or enjoin the delivery of the Certificates or the payments to be made pursuant to the Lease, or in any way contesting or affecting the validity of the City Legal Documents, the City Resolution or the Certificates, or contesting the powers of the City to enter into or perform its obligations under any of the foregoing. (e) Official Statement Correct and Complete. The information (excluding the statements and information under the caption "Book -Entry System," and in Appendix D — "Book -Entry System" and any information relating to the Underwriters provided by the Underwriters in writing for inclusion in the Official Statement) contained in the Official Statement is as of the date hereof, and will be as of the Closing Date, true and correct in all 5 material respects and such information does not and will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (fl Blue Sky Cooperation. The City agrees to cooperate with the Underwriters in endeavoring to qualify the Certificates for offering and sale under the securities or Blue Sky laws of such jurisdictions of the United States as the Underwriters may request; provided, however, that the City shall not be required to execute a special or general consent to service of process in any jurisdiction in which it is not now so subject or to qualify to do business in any jurisdiction where it is not now so qualified. (g) Due Approval of Official Statement Distribution. By official action of the City prior to or concurrently with the execution hereof, the City has duly approved the distribution of the Preliminary Official Statement and the Official Statement, has duly adopted the City Resolution and has duly authorized and approved the execution and delivery of and the performance by the City of the obligations on its part contained in, the City Legal Documents and the consummation by it of all other transactions contemplated by the Official Statement and the City Legal Documents. (h) No Breach or Default. Except as described in the Official Statement, the City is not in breach of or in default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject which breach or default would have a material and adverse impact on the City's ability to perform its obligations under the Certificates or the City Legal Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (i) Agreement to Notify Representative Regarding Official Statement. Subject to Section 2(c) hereof, the City will advise the Representative promptly of any proposal to amend or supplement the Official Statement and will not effect any such amendment or supplement without the consent of the Representative. The City will advise the Representative promptly of the institution of any proceedings known to it seeking to prohibit or otherwise affect the use of the Official Statement in connection with the offering, sale or distribution of the Certificates. 0) Agreement to Amend Official Statement. If at any time from the date hereof to and including twenty -five (25) days after the end of the underwriting period in the reasonable opinion of the Representative, the Official Statement as then amended or supplemented includes an untrue statement of a material fact, or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City will prepare an amendment or supplement to the Official Statement; provided that all expenses thereby incurred (including printing expenses) will be paid for by the City. Unless otherwise notified in writing by the Representative on or prior to the date of Closing, the City may assume that the "end of the underwriting period" for the Certificates for all purposes of the Rule, is the date of Closing. In the event such notice is given in writing by the Representative, the Representative agrees to notify the City in writing following the occurrence of the "end of the underwriting period" as defined in the Rule for the Certificates. The "end of the underwriting period" as used in this Purchase Contract shall mean the date of Closing or such later date as to which notice is given by the Representative in accordance with the preceding sentence. (k) Amendments to Official Statement Correct and Complete. If the information contained in the Official Statement is amended or supplemented pursuant to the immediately preceding subparagraph, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date twenty -five (25) days after the end of the underwriting period, the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein) will be true and correct in all material respects and such information will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the information therein, in the light of the circumstances under which it was made, not misleading. if at any time prior to the earlier of (i) receipt of notice from the Representative pursuant to Section 2(c) hereof that Official Statements are no longer required to be delivered; and (ii) twenty -five (25) days after the end of the underwriting period, any event occurs with respect to the City as a result of which the Official Statement as then amended or supplemented might include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City shall promptly notify the Representative in writing of such event. Any information supplied by the City for inclusion in any amendment or supplement to the Official Statement will not contain any untrue or misleading statement of a material fact relating to the City or omit to state any material fact relating to the City necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that no representation and warranty is made concerning statements and information under Appendix D— "Book -Entry System" and any information relating to the Underwriters provided by the Underwriters in writing for inclusion in the Official Statement. (1) No Default. The City represents that it is not, and has not been at any time, in default as to principal or interest with respect to any indebtedness for borrowed money issued or guaranteed by it. (m) Agreement to Preserve Tax Exemption with respect to the 2010A Certificates. The City covenants that it will not take any action which would cause interest with respect to the 2010A Certificates to be subject to federal income taxation or California personal income taxes (other than to the extent the 2010A Certificates will be subject to federal income taxation as described under the caption "Tax Matters" in the Official Statement). (n) Agreement to Preserve State Tax Exemption and Federal Subsidy with respect to the 2010B Certificates. The City covenants that it will not take any action which would cause interest with respect to the 2010B Certificates to be subject to California personal income taxes or result in the loss of the Refundable Credits with respect to the 2010B Certificates. (o) City Financial Statements. The financial statements of, and other financial information regarding, the City in the Official Statement fairly present the financial condition and results of the operations of the City as of the dates and for the periods therein set forth and the audited financial statements have been prepared in accordance with generally accepted accounting principles as consistently applied. No consent is required from Mayer Hoffinan McCann P.C. for the City to include its June 30, 2009 Basic Financial Statements and Supplemental Data as Appendix B to the Official Statement. (p) Continuing Disclosure. The City has not failed in the past five years to comply in all material respects with any continuing disclosure undertakings with regard to the Rule to provide annual reports or notices of material events specified in such rule. Section 7. Letter of Representations. The Underwriters' obligations under this Purchase Contract are and shall be subject to the receipt of the Letter of Representations from the Corporation in substantially the form attached hereto as Exhibit B. Section 8. Underwriters' Representations. Warranties and Agreements. The Underwriters represent, warrant to and agree with the City that, as of the date of hereof and as of the Closing Date: (a) The execution and delivery hereof and the consummation of the transactions contemplated hereby do not and will not violate any of the prohibitions set forth in Rule G -37 promulgated by the MSRB; (b) All reports required to be submitted to the MSRB pursuant to Rule G -37 have been and will be submitted to the MSRB; (c) The Underwriters have not paid or agreed to pay, nor will they pay or agree to pay, any entity, company, firm, or person, other than a bona fide officer, agent or employee working for the Underwriters, any compensation, fee, gift or other consideration contingent upon or resulting from the award of or entering into this Purchase Contract; and Section 9. Conditions to the Obligations of the Underwriters. The Underwriters have entered into this Purchase Contract in reliance upon the representations, warranties and agreements of the City contained herein and of the Corporation contained in its Letter of Representations, the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing, the performance by the City of its obligations hereunder, and the performance by the Corporation of its obligations contained in its Letter of Representations, and the opinions of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( "Special Counsel "), the City Attorney, counsel to the Trustee, counsel to the City, counsel to the Corporation; Disclosure Counsel and counsel to the Underwriters described hereafter. Accordingly, the Underwriters' obligations under this Purchase Contract to purchase, to accept delivery of and to pay for the Certificates shall be conditioned upon and subject to (i) the performance by the City and the Trustee of their respective obligations to be performed hereunder and under such documents and instruments as RI shall reasonably be requested by the Underwriters or counsel to the Underwriters at or prior to the Closing, (ii) the execution and delivery by the Corporation of the Corporation Letter of Representations and the performance by the Corporation of its obligations thereunder at and prior to the Closing and (iii) the accuracy in all material respects, in the reasonable judgment of the Representative, of the representations and warranties of the City herein and shall also be subject to the following additional conditions: (a) Brine -down of Representations. The representations, warranties and agreements of the City and the Corporation contained herein shall be true, complete and correct on the date hereof and on and as of the date of the Closing. (b) Authorization, Execution and Delivery of Documents. At the Closing, the Legal Documents, the Certificates and the Official Statement shall have been duly authorized, executed and delivered by the respective parties thereto and the City Resolution and the Corporation Resolution shall have been duly adopted, in substantially the forms heretofore submitted to the Representative, with only such changes as shall have been agreed to in writing by the Representative, and said agreements and resolutions shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Representative, and each shall be in full force and effect. (c) No Amendment of Official Statement. At the Closing, the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Representative. (d) No Material Adverse Change. At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the operations of the City, from that set forth in the Official Statement that makes it, in the reasonable judgment of the Representative, impracticable to market the Certificates on the terms and in the manner contemplated by the Official Statement; (e) Marketability Adversely Affected. In the judgment of the Representative, between the date hereof and the Closing, the marketability of the Certificates at the initial offering prices set forth in the Official Statement shall not have been materially adversely affected by reason of any of the following: (1) Legislation, Judicial Decisions or Rulings. An amendment to the Constitution of the United States or the constitution of the State of California shall have been passed or legislation enacted, introduced in the Congress or in the legislature of the State of California or recommended for passage by the President of the United States, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made: (i) Regarding Federal Tax Exemption — by or on behalf of the Treasury Department of the United States or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon payments of the general character of the Lease Payments as would be received by the Trustee or upon such interest as would be received by the Owners of the 2010A Certificates; or (ii) Regarding State Tax Exemption — by or on behalf of the State of California or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of imposing California personal income taxation upon payments of the general character of the Lease Payments as would be received by the Trustee or upon such interest as would be received by the Owners of the Certificates; or (iii) Regarding Federal or State Tax Rates — by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or by or on behalf of the State of California or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of changing the federal or State of California income tax rates, respectively; or (iv) Regarding Federal Subsidy — by or on behalf of the Treasury Department of the United States or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of adversely impacting the availability of the Refundable Credits with respect to the 2010B Certificates; or (v) Regarding Securities Registration Exemption — by or on behalf of the U.S. Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter, to the effect that obligations of the general character of the Certificates, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended (the "Act "), or that the Trust Agreement is not exempt from qualification under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act "); (2) War. The United States' engagement, alone or as a participant, in an outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis the effect of which in the Representative's reasonable judgment makes it impracticable or impossible to proceed with the solicitation of offers to purchase the Certificates on the terms and in the manner contemplated by the Official Statement; (3) Banking Moratorium. The declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange; (4) Securities Exchange Restrictions. Trading generally shall have been suspended or materially limited on or by the New York Stock Exchange or other national securities exchange, or the imposition by the New York Stock Exchange or other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Certificates or obligations of the general character of the Certificates, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of, underwriters; (5) Regarding Federal Securities Laws. An order, decree or injunction of any court of competent jurisdiction, or order, ruling, regulation or official statement by the 10 Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, issued or made to the effect that the execution, delivery, offering or sale of obligations of the general character of the Certificates, or the execution, delivery, offering or sale of the Certificates, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of any federal securities law as amended and then in effect; (6) Official Statement Untrue or Incomplete. Any event occurring, or information becoming known which, in the reasonable judgment of the Representative, makes untrue in any material respect, any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (7) Certain Amendments to the Official Statement. An event described in Paragraph 60) hereof occurs prior to the Closing which, in the reasonable judgment of the Representative, requires or has required a supplement or amendment to the Official Statement; or (8) Action by Rating Agencies. Any downgrading, suspension or withdrawal, or any official statement as to a possible downgrading, suspension or withdrawal, of any rating by Moody's Investors Service ( "Moody's "), Standard & Poor's, a division of The McGraw -Hill Companies, Inc. ( "S &P "), or Fitch Ratings ( "Fitch ") of any obligations of the City (excluding obligations for which the City acts merely as a conduit issuer) including the Certificates. (f) At or prior to the Closing, the Representative shall have received the following documents, in each case satisfactory in form and substance to them and its counsel: (1) Opinion of Special Counsel. The approving opinion of Special Counsel in substantially the form included as Appendix E to the Official Statement, dated the date of Closing, addressed to the City and the Underwriters (or a reliance letter to the Underwriters); (2) Supplementary Opinion of Special Counsel. A supplementary opinion of Special Counsel in form and substance satisfactory to the Representative, dated the date of Closing, addressed to the Representative to the effect that: (i) Specified Sections of the Official Statement Connect and Complete — the statements contained in the Official Statement under the captions "the Certificates," "Security for the Certificates and Sources of Payment" (except for any information relating to DTC and its book -entry system), and "Tax Matters" and in Appendix E - "Form of Special Counsel Opinion" and Appendix C — "Summary of Principal Legal Documents" excluding any material that may be treated as included under such captions by cross - reference insofar as such statements expressly summarize certain provisions of the Certificates, the Trust Agreement, the Site Lease, the Lease, the Assignment Agreement and the opinion of Special 11 Counsel concerning certain federal tax matters relating to the Certificates, are accurate in all material respects; (ii) Due Execution and Delivery; Valid and Binding Agreements — the Purchase Contract has been duly executed and delivered by the City and (assuming due authorization, execution and delivery against the other parties thereto) is a valid and binding agreement of the City, except as limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against counties in the State of California, and except for any indemnification, contribution, penalty, choice of law, choice of forum or waiver provisions contained therein; and (iii) Securities Registration Exemption — the Certificates are not subject to the registration requirements of the Act and the Trust Agreement is exempt from qualification under the Trust Indenture Act; (3) Opinion of City Attorney. An opinion of the City Attorney, dated the date of Closing, in form and substance satisfactory to the Representative, addressed to the City, the Trustee and the Underwriters, to the effect that: (i) Due Organization and Existence — the City is a chartered city duly organized and validly existing under the Constitution and the laws of the State of California; (ii) Due Adoption — the City Resolution approving and authorizing the execution and delivery of the City Legal Documents and approving the Official Statement was duly adopted at a meeting of the City Council of the City which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and the City Resolution is in full force and effect and has not been amended or rescinded; (iii) No Litigation — except as disclosed in the Official Statement, there is no action, suit or proceeding pending or, to the best knowledge of such Counsel, threatened against the City to (i) restrain or enjoin the execution or delivery of any of the Certificates or the City Legal Documents, (ii) in any way contesting or affecting the validity of the Certificates, the City Legal Documents, the City Resolution or the authority the City to enter into the City Legal Documents, or (iii) in any way contesting or affecting the powers of the City in connection with any action contemplated by the Official Statement, the City Resolution or the City Legal Documents; (iv) No Conflict — the execution and delivery of the City Legal Documents, the adoption of the City Resolution, the approval of the Official Statement, and compliance with the provisions thereof and hereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party 12 or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject; (v) Due Authorization. Execution and Delivery: Legal, Valid and Binding Aueements — the City Legal Documents have been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the other parties thereto constitute legal, valid and binding agreements of the City enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally and by the application of equitable principles if equitable remedies are sought and by the limitations on legal remedies imposed on actions against counties in the State of California; (vi) No Consents Required — Official Statement. Citv Legal Documents — no authorization, approval, consent, or other order of the State of California or any other governmental authority or agency within the State of California, other than the City Council pursuant to the City Resolution, is required for the valid authorization, execution and delivery of the City Legal Documents and the approval of the Official Statement; and (vii) Official Statement — based upon examinations which he has made and his discussions in conferences with certain officials of the City and others with respect to the Official Statement and without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement (including the Appendices attached thereto), nothing has come to his attention which would lead him to believe that the Official Statement (other than financial and statistical data therein and incorporated therein by reference, and other than information relating to the DTC Book -Entry System, as to which no opinion need be expressed) as of its date and as of the date of Closing, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that no opinion is expressed concerning statements and information relating to DTC and its book -entry system; (4) Opinion of Counsel to the Corporation. An opinion of counsel to the Corporation (which may be counsel to the City), dated the date of Closing, in form and substance satisfactory to the Representative, addressed to the City, the Trustee and the Underwriters, to the effect that: (i) Due Organization and Existence — the Corporation is a nonprofit public benefit corporation duly organized and validly existing under and by virtue of the laws of the State of California; (ii) Full Power and Authority of the Corporation — the Corporation has full legal power and adequate authority to adopt the Corporation Resolution, to enter into the Corporation Legal Documents, and to own or lease its properties and to carry on its business as now conducted and as contemplated by the Legal Documents and the Official Statement; 13 (iii) Due Authorization, Execution and Delivery; Legal, Valid and Bindin¢ Agreements — the Corporation Resolution has been duly adopted by the Corporation at a meeting of the Board of Directors of the Corporation at which a quorum was present and acting throughout and is in full force and effect and the Corporation Legal Documents have been duly authorized by all necessary official action on the part of the Corporation, have been duly authorized, executed and delivered by the Corporation and, assuming due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding agreements of the Corporation, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally and by the application of equitable principles if equitable remedies are sought and by the limitations on legal remedies imposed on actions against counties in the State of California; (iv) Description of Corporation in the Official Statement Correct and Complete — the description of the Corporation in the Official Statement is correct and does not omit any statement necessary to make such description not misleading in any material respect; (v) No Litigation — except as disclosed in the Official Statement, there is no action, suit or proceeding pending or, to the best knowledge of such Counsel, threatened against the Corporation to (i) restrain or enjoin the execution or delivery of any of the Certificates or the Corporation Legal Documents, (ii) in any way contesting or affecting the validity of the Certificates, the Corporation Legal Documents, the Corporation Resolution or the authority the Corporation to enter into the Corporation Legal Documents, or (iii) in any way contesting or affecting the powers of the Corporation in connection with any action contemplated by the Official Statement, the Corporation Resolution or the Corporation Legal Documents; (vi) No Conflict — the execution and delivery of the Corporation Legal Documents, and the adoption of the Corporation Resolution, by the Corporation and performance by the Corporation of its obligations thereunder will not conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which the Corporation is a party or constitute a default thereunder; and (vii) No Consents Required — Official Statement, the Certificates — all consents, approvals, authorizations and orders of a governmental or regulatory authority, if any, which are required to be obtained by the Corporation for the consummation of the transactions contemplated by the Official Statement or as conditions precedent to the execution and delivery of the Certificates have been obtained (provided no opinion need be expressed as to any action required under state securities or blue sky laws in connection with the purchase or distribution of the Certificates by the Underwriters); (5) Opinion of Trustee's Counsel. An opinion of counsel to the Trustee, dated the date of Closing, in form and substance satisfactory to the Representative, addressed to the City, the Trustee and the Underwriters, to the effect that: 14 (i) Due Organization and Existence— the Trustee is a national banking association duly incorporated and validly existing under the laws of the United States of America, having full power and being qualified to enter into and to perform its duties as Trustee under the Trust Agreement and the Assignment Agreement; and (ii) Due Authorization, Execution and Delivery — the Trust Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Trustee and assuming due authorization, execution and delivery by the other parties thereto, constitute the legal, valid and binding obligations of the Trustee enforceable in accordance with their respective terms. (6) Defeasance Opinion. A defeasance opinion of Special Counsel, dated the date of Closing, addressed to the Underwriters, with respect to the 1998 Certificate in form and substance satisfactory to Escrow Agent; (7) Opinion of Disclosure Counsel. The opinion of Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, dated the date of Closing and addressed to the City, the Corporation and the Underwriters, to the effect that, on the basis of the information developed in the course of the performance of disclosure counsel services by such firm, considered in light of such firm's understanding of the applicable law and experience such firm has gained through its practice thereunder, such firm is of the opinion, subject to certain limitations, that as of the date of Closing such firm has no reason to believe that the Official Statement (excluding therefrom financial, engineering and statistical data, forecasts, projections, estimates, assumptions and expressions of opinions, and information relating to The Depository Trust Company and the book -entry only system, as to all of which such firm expresses no opinion) as of its date and as of the date of Closing contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (8) Opinion of Underwriter's Counsel. The opinion of Jones Hall, a Professional Law Corporation, San Francisco, counsel for the Underwriters, dated the date of Closing and addressed to the Underwriters, satisfactory in form and substance to the Representative; (9) Legal Documents. A copy of the certified transcript of the record of proceedings relating to the Certificates; (10) Official Statement. Two (2) copies of the Official Statement; (11) Trustee Resolution. A copy of the general resolution of the Trustee authorizing the execution and delivery of certain documents by certain officers of the Trustee, which resolution authorizes the execution and delivery of the Certificates and the Legal Documents to which the Trustee is a party; (12) Trustee's Representations, Warranties and Agreements. A certificate of the Trustee, dated the date of Closing, that as of the date of Closing: 15 (i) Due Organization and Existence - the Trustee is duly organized and existing as a national banking association under the laws of the United States of America, in good standing under the laws of the State, and has the full power and authority to enter into and perform its duties under the Legal Documents to which the Trustee is a party and to execute and deliver the Certificates to the Underwriters pursuant to the terms of the Trust Agreement; (ii) Due Authorization; Valid and Binding Obligations - the Trustee is duly authorized to enter into the Legal Documents to which it is a party; (iii) No Conflict - the execution and delivery by the Trustee of the Legal Documents to which the Trustee is a party, and compliance with the terms thereof, will not, in any material respect, conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties, which conflict breach or default would materially adversely affect the ability of the Trustee to perform its obligations under the Legal Documents to which the Trustee is a party or (except with respect to the lien of the Trust Agreement) result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Trustee; (iv) Consents — exclusive of federal or state securities laws and regulations, other than routine filings required to be made with governmental agencies in order to preserve the Trustee's authority to perform a trust business (all of which routine filing, to the best of the Trustee's knowledge, have been made), no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee is or will be required for the execution and delivery by the Trustee of the Legal Documents to which the Trustee is a party or the execution and delivery of the Certificates; and (v) No Litigation — to the best of the Trustee's knowledge, there is no litigation pending or threatened against or affecting the Trustee to restrain or enjoin the Trustee's participation in, or in any way contesting the powers of the Trustee with respect to the transactions contemplated by the Certificates, the Trust Agreement, the Assignment Agreement and the Continuing Disclosure Agreement; (13) Escrow Agent's Representations. Warranties and Agreements. A certificate of the Escrow Agent, dated the date of Closing, that as of the date of Closing: (i) Due Organization and Existence - the Escrow Agent is duly organized and existing as a national banking association under the laws of the United States of America, in good standing under the laws of the State, and has the full power and authority to enter into and perform its duties under the Escrow Agreement; (ii) Due Authorization: Valid and Binding Obligations - the Escrow Agent is duly authorized to enter into the Escrow Agreement; 16 (iii) No Conflict - the execution and delivery by the Escrow Agent of the Escrow Agreement, and compliance with the terms thereof, will not, in any material respect, conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Escrow Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Escrow Agent or any of its activities or properties, which conflict breach or default would materially adversely affect the ability of the Escrow Agent to perform its obligations under the Escrow Agreement or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Escrow Agent; (iv) Consents — exclusive of federal or state securities laws and regulations, other than routine filings required to be made with governmental agencies in order to preserve the Escrow Agent's authority to perform a trust business (all of which routine filing, to the best of the Escrow Agent's knowledge, have been made), no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Escrow Agent is or will be required for the execution and delivery by the Escrow Agent of the Escrow Agreement; and (v) No Litigation — to the best of the Escrow Agent's knowledge, there is no litigation pending or threatened against or affecting the Escrow Agent to restrain or enjoin the Escrow Agent's participation in, or in any way contesting the powers of the Escrow Agent with respect to, the transactions contemplated by the Escrow Agreement; (14) Resolutions. A certified copy of the City Resolution and a certified copy of the Corporation Resolution; (15) City Bring -Down Certificate. A certificate of an authorized officer of the City, dated the date of Closing, confirming as of such date the representations and warranties of the City contained in this Purchase Contract; (16) Corporation Bring -Down Certificate. A certificate of an authorized officer of the Corporation, dated the date of Closing, confirming as of such date the representations and warranties of the Corporation contained in its Letter of Representations; (17) Tax Certificates. Tax certification with respect to the 2010A Certificates and tax certification with respect to the 2010B Certificates, each by the City in form and substance acceptable to Special Counsel; (18) Ratings. Evidence from Moody's, Fitch and S &P that the Certificates have been rated "Aa2 ", "AA-P' and "AA + ", respectively, by such agencies; (19) Articles and 'Bylaws of the Corporation. Certified copies of each of the Articles of Incorporation and Bylaws of the Corporation; (20) Good Standing Certificates of the Corporation. Good standing certificates issued by the Secretary of State of the State of California and the California Franchise Tax Board, with respect to the Corporation; 17 (21) Blue Sky A copy of the Preliminary and Final Blue Sky Survey with respect to the Certificates; (22) Risk Mana erg Went. A certificate of an authorized officer of the City, dated the date of Closing, certifying that the insurance with respect to the Leased Premises as set forth in the Lease has been secured, together with certificates evidencing that the requisite level of "all risk" coverage and rental interruption insurance with respect to the Leased Premises has been secured; (23) Title Insurance. Evidence of the maintenance of title insurance on the Leased Premises issued by a company of recognized standing, duly authorized to issue the same, in form and amount set forth in the Lease; (24) CDIAC Notices. Evidence of required filings with the California Debt and Investment Advisory Commission; (25) Form 8038 -G. Evidence that the federal tax information 8038 forms have been prepared for filing; and (26) Miscellaneous. Such additional legal opinions, certificates, proceedings, instruments and other documents as Special Counsel and counsel for the Underwriters may reasonably request to evidence compliance with legal requirements, the truth and accuracy, as of the time of Closing, of the representations and warranties contained herein, in the Official Statement and in the Letter of Representations and the due performance or satisfaction by the Trustee, the Corporation and the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied. (g) All matters relating to this Purchase Contract, the Certificates and the sale thereof, the Official Statement, the Legal ,Documents and the consummation of the transactions contemplated by this Purchase Contract shall have been approved by the Representative and counsel for the Underwriters, such approval not to be unreasonably withheld. If the conditions to the Underwriters' obligations contained in this Purchase Contract are not satisfied or if the Underwriters' obligations shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriters nor the City shall have any further obligations hereunder except that the respective obligations of the City and the Underwriters set forth in Paragraph 11 hereof (relating to expenses) and Paragraph 12 hereof shall continue in full force and effect. Section 10. Conditions to the Obligations of the City. The performance by the City of its obligations hereunder is conditioned upon the performance by the Underwriters of their obligations hereunder and upon receipt by the City of opinions and certificates to be delivered at the date of Closing by persons and entities other than the City. Section 11. Expenses. (a) The City shall pay or cause to be paid from the proceeds of the Certificates or other funds available to it the expenses incident to the performance of its obligations 18 hereunder, including but not limited to: (i) the cost of printing and distribution of the Official Statement in reasonable quantities and all other documents (other than as set forth in the next succeeding paragraph) prepared in connection with the transactions contemplated hereby, including distribution costs and all mailing, including overnight and express delivery, costs; (ii) the fees and disbursements of the Trustee and Escrow Agent in connection with the execution and delivery of the Certificates; (iii) the fees and disbursements of Special Counsel, and any other experts or consultants retained by the City or the Corporation in connection with the transactions contemplated hereby; (iv) the costs related to obtaining ratings; (v) the cost of mailing or delivering the definitive Certificates; (vi) the fees and disbursements of disclosure counsel to the City; (vii) the fees and disbursements of the financial advisor to the City; and (viii) the fees and disbursements of any other experts, consultants or advisers retained by the City. (b) The Underwriters shall pay: (i) all advertising expenses in connection with the public offering of the Certificates; (ii) the fees and expenses of counsel to the Underwriters, including their fees in connection with the qualification of the Certificates for sale under the Blue Sky or other securities laws and regulations of various jurisdictions; (iii) California Debt and Investment Advisory Commission fees; and (iv) all other expenses incurred by it in connection with its public offering and distribution of the Certificates. Section 12. Notices. (a) Trustee. Any notice or other communication to be given to the Trustee under this Purchase Contract may be given by delivering the same in writing to The Bank of New York Mellon Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017, Attention: Corporate Trust Department. (b) Underwriters. Any such notice or other communication to be given to the Underwriters may be given by delivering the same to Stone & Youngberg LLC, 4350 La Jolla Village Drive, Suite 140, San Diego, CA 92122, Attention: Bill Huck, Managing Director. (c) Cam. Any notice or communication to be given the City under this Purchase Contract may be given by delivering the same to the City of Newport Beach, 330 Newport Boulevard, Newport Beach, CA 92658 -8915, Attention: David Kiff City Manager. All notices or communications hereunder by any party shall be given and served upon each other party. Section 13. City Acknowledgement. The City acknowledges and agrees that (i) the purchase and sale of the Certificates pursuant to this Purchase Contract is an arm's - length commercial transaction between the City and the Underwriters, (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriters are and have been acting solely as principals and are not acting as the agent or fiduciary of the City, (iii) the Underwriters have not assumed an advisory or fiduciary responsibility in favor of the City with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriters have provided other services or is currently providing other services to the City on other matters) and the Underwriters have no obligation to the City with respect to the offering 19 contemplated hereby except the obligations expressly set forth in this Purchase Contract and (iv) the City has consulted its own Legal, financial and other advisors to the extent it has deemed appropriate. Section 14. Counterparts. This Purchase Contract may be executed by anyone or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all of such counterparts shall together constitute one and the same instrument. Section 15. Successors and Assigns. This Purchase Contract will inure to the benefit of and be binding upon the parties and their successors (including any successors or assigns of the Underwriters), and will not confer any rights upon any other person. Section 16. Survival. The provisions of Section 9(g) shall survive termination or cancellation of this Purchase Contract. All representations, warranties, covenants and agreements by the City, the Corporation and the Underwriters in this Purchase Contract shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters and shall survive the delivery of and payment for the Certificates. Section 17. Governing Law. This Purchase Contract shall be governed by, and construed in accordance with, the laws of the State of California. Section 18. No Personal Liability. No officer of the City, the Corporation or designee thereof shall incur any personal liability for approving or executing this Purchase Contract, talking any action or omitting to take any action required or permitted hereunder or otherwise by reason of or in connection with the Certificates, the Legal Documents or any of the transactions or other matters contemplated by any of the foregoing. Section 19. Headings. The headings of the sections of this Purchase Contract are inserted for convenience only and shall not be deemed to be a part hereof. Section 20. Parties in hrterest; Force and Effect. This Purchase Contract is made solely for the benefit of the City and the Underwriters (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof All representations, warranties and agreements of the City or the Underwriters pursuant to this Purchase Contract shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Underwriters; (ii) delivery of and payment for the Certificates pursuant to this Purchase Contract; or (iii) termination of this Purchase Contract but only to the extent provided by the last paragraph of Section 9 hereof, regarding preconditions of Closing. Section 21. Entire Agreement. This Purchase Contract when accepted by you in writing as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the City and the Underwriters (including the successors or assigns thereof). No other person shall acquire or have any right hereunder or by virtue hereof. Section 22. Unenforceable Provisions. If any provision of this Purchase Contract shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such 20 circumstances shall not have the effect of rendering the provision in question invalid, inoperable or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Purchase Contract invalid, inoperative or unenforceable to any extent whatsoever. Acceptance of the terms of this Purchase Contract shall be signified by execution below by an authorized officer of the City and an authorized officer of the Representative. Accepted this 17th day of November, 2010 at _ p.m. Pacific Time: CITY OF NEWPORT BEACH IN David Kiff City Manager APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: LE Hawkins Delafield & Wood LLP Very truly yours, f STONE & YOUNOBERG L /ILC 0 21 Bill Huck Managing. Director Section 22. Unenforceable Provisions. If any provision of this Purchase Contract shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperable or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Purchase Contract invalid, inoperative or unenforceable to any extent whatsoever. Acceptance of the terms of this Purchase Contract shall be signified by execution below by an authorized officer of the City and an authorized officer of the Representative. Very truly yours, STONE & YOUNGBERG LLC M Accepted this 17th day of,t py&( -dtr, 2010 at _ a.m. /p.m. Pacific Time: CITY OF NEWPORT BEACH By: �1 C, David Kiff City Manager APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: BY u t, David R. Hunt, City Attorney W0111h APPROVED AS TO FORM: SPECIAL COUNSEL: By: Hawkins Delafield & Wood LLP 21 Bill Huck Managing Director circumstances shall not have the effect of rendering the provision in question invalid, inoperable or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Purchase Contract invalid, inoperative or unenforceable to any extent whatsoever. Acceptance of the terms of this Purchase Contract shall be signified by execution below by an authorized officer of the City and an authorized officer of the Representative. Accepted this 17th day of November, 2010 at _ p.m. Pacific Time: CITY OF NEWPORT BEACH to David Kiff City Manager APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By: 42WlGon 6'(ROa2wodur Hawkins Delafield & Wood LLP Very truly yours, STONE & YOUNGBERG LLC M 21 Bill Huck Managing Director EXHIBIT A THE UNDERWRITERS Stone & Youngberg LLC E.J. De La Rosa & Co., Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Raymond James A -1 EXHIBIT B LETTER OF REPRESENTATIONS OF THE NEWPORT BEACH PUBLIC FACILITIES FINANCING CORPORATION November 17, 2010 Stone & Youngberg LLC San Diego, California E.J. De La Rosa & Co., Inc. San Francisco, California Merrill Lynch, Pierce, Fenner & Smith Incorporated San Francisco, California Raymond James San Francisco, California Ladies and Gentlemen: The City of Newport Beach (the "City ") proposes to cause the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) in the aggregate principal amount of $20,085,000 (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $106,575,000 (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the City and the Newport Beach Public Facilities Corporation (the "Corporation "). In connection with the prepayment of the 1998 Certificates and the financing of the Civic Center Project, the City will lease certain real property and all improvements thereon, as more particularly described herein (the "Leased Premises "), to the Corporation pursuant to a Site Lease, dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Corporation. The City will sublease the Leased Premises from the Corporation pursuant to a Lease/Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Corporation. The 2010A Certificates evidence fractional and undivided interests in certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. The 2010B Certificates evidence fi-actional and undivided interests in certain other lease payments (the "2010B Lease Payments" and, together with the 2010A Lease Payments, the "Lease 'Payments ") to be made by the City pursuant to Lease as rental for the Leased Premises. Pursuant to an Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Trustee and the Corporation, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates all of the Corporation's rights, title, and interest under the Site Lease and all of the IN Corporation's rights, title and interest under the Lease (excepting only the Corporation's rights to indemnity and the payment of its fees and expenses), including the right to receive Lease Payments, Prepayments and Additional Payments from the City under the Lease or the Trust Agreement, as applicable. Pursuant to an Agency Agreement, dated as of November 1, 2010 (the "Agency Agreement "), by and between the City and the Corporation, the Corporation will appoint the City as its agent in connection with the acquisition, construction, delivery and installation of the Civic Center Project. The execution and delivery of the Trust Agreement, the Site Lease, the Lease, the Assignment Agreement, the Agency Agreement and the Certificates have been authorized by a resolution of the City (the "City Resolution ") and a resolution of the Corporation (the "Corporation Resolution ") and the Certificates shall be as described in, and shall be secured under and pursuant to the Trust Agreement. The Certificates shall be payable and shall be subject to prepayment as provided in the Trust Agreement. The Trust Agreement, the Site Lease, the Lease, the Assignment Agreement, the Agency Agreement and this Letter of Representations of the Corporation (the "Letter of Representations ") are referred to collectively herein as the "Corporation Legal Documents." Capitalized terms not otherwise defined herein shall have the meanings as defined in the Trust Agreement or the Lease, as appropriate. The Certificates are to be sold by the City pursuant to the Purchase Contract, dated November 17, 2010 (the "Purchase Contract "), by and between the City and Stone & Youngberg LLC, acting on behalf of itself and as Representative (the "Representative ") of the underwriter (collectively, the "Underwriters "). This Letter of Representations may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. To facilitate your entering into the Purchase Contract and to induce you to purchase the Certificates as contemplated therein, the Corporation hereby represents, warrants and agrees with you as follows: (a) Due Organization and Existence; Legal, Valid and Binding Obligations. The Corporation is a nonprofit public benefit corporation duly organized and validly existing pursuant to the laws of the State of California and has all necessary power and authority to adopt the Corporation Resolution and enter into and perform its duties under the Corporation Legal Documents, the Corporation Resolution has been adopted and has not been rescinded, and the Corporation Legal Documents, when executed and delivered by the respective parties thereto, will constitute legal, valid and binding obligations of the Corporation in accordance with their respective terms except as enforcement against the Corporation may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought. C (b) No Conflict. The adoption of the Corporation Resolution and the execution and delivery of the Corporation Legal Documents and compliance with the provisions thereof, will not in any material respect conflict with, or constitute a breach of or default under, the Corporation's duties under the Corporation Legal Documents, the Corporation Resolution or any law, administrative regulation, court decree, resolution, charter, by -laws or other agreement to which the Corporation is subject or by which it or any of its property is bound. (c) No Consents Required. Except as may be required under blue sky or other securities laws of any state, or except with respect to any permits or approvals heretofore received which are in full force and effect or the requirement for which is otherwise disclosed in the Official Statement, there is no consent, approval, authorization or other order of, or filing with, or certification by, any governmental authority, board, agency or commission or other regulatory authority having jurisdiction over the Corporation, required for the adoption of the Corporation Resolution and the execution, delivery and sale of the Certificates or the consummation by the Corporation of the other transactions contemplated by the Official Statement, the Corporation Resolution or the Corporation Legal Documents. (d) No Litigation. There is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or to the knowledge of the Corporation, threatened against the Corporation to restrain or enjoin the delivery of the Certificates, or the assignment of the payments to be made pursuant to the Lease or in any way contesting or affecting the validity of the Corporation Legal Documents, the Corporation Resolution or the Certificates or contesting the powers of the Corporation to enter into or perform its obligations under any of the foregoing. (e) Official Statement Correct and Complete. The information relating to the Corporation, its functions, duties and responsibilities contained in the Official Statement is, true and correct in all material respects and such information does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) Blue Sky Cooperation. The Corporation agrees to cooperate with the Underwriters in endeavoring to qualify the Certificates for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriters may request; provided, however, that the Corporation shall not be required to execute a special or general consent to service of process in any jurisdiction in which it is not now so subject or to qualify to do business in any jurisdiction where it is not now so qualified. (g) No Breach or Default. The Corporation is not in breach of or in default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, M bond, note, resolution, agreement or other instrument to which the Corporation is a party or is otherwise subject which breach or default would have a material and adverse impact on the Corporation's ability to perform its obligations under the Legal Documents to which the Corporation is a party, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (h) Agreement to Preserve Tax Exemption. The Corporation covenants that it will not take any action which would cause interest with respect to the 2010A Certificates to be subject to federal income taxation or California personal income taxes (other than to the extent the 2010A Certificates will be subject to federal income taxation as described under the caption "Tax Matters" in the Official Statement). (i) Agreement to Preserve Federal Subsidy. The Corporation covenants that it will not take any action which would cause interest with respect to the 2010B Certificates to be subject to California personal income taxes or result in the loss of the Refundable Credits with respect to the 2010B Certificates. Very truly yours, NEWPORT BEACH PUBLIC FACILITIES FINANCING CORPORATION By: In, C U David Miff Secretary APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By. David R. Hunt, City lAttorney U J 1 1 1 APPROVED AS TO FORM: SPECIAL COUNSEL: By: Hawkins Delafield & Wood UP Accepted and confirmed as of the date above written STONE & YOUNGBERG LLC M Authorized Representative M bond, note, resolution, agreement or other instrument to which the Corporation is a party or is otherwise subject which breach or default would have a material and adverse impact on the Corporation's ability to perform its obligations under the Legal Documents to which the Corporation is a party, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (h) Agreement to Preserve Tax Exemption. The Corporation covenants that it will not take any action which would cause interest with respect to the 2010A Certificates to be subject to federal income taxation or California personal income taxes (other than to the extent the 2010A Certificates will be subject to federal income taxation as described under the caption "Tax Matters" in the Official Statement). (i) Agreement to Preserve Federal Subsidy. The Corporation covenants that it will not take any action which would cause interest with respect to the 2010B Certificates to be subject to California personal income taxes or result in the loss of the Refundable Credits with respect to the 2010B Certificates. Very truly yours, NEWPORT BEACH PUBLIC FACILITIES FINANCING CORPORATION ME David Kiff Secretary APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By: dit ttU[ r o Glri 3 tl)XdLIP Hawkins Delafield & Wood LLP Accepted and confirmed as of the date above written STONE & YOUNGBERG LLC M Authorized Representative C bond, note, resolution, agreement or other instrument to which the Corporation is a party or is otherwise subject which breach or default would have a material and adverse impact on the Corporation's ability to perform its obligations under the Legal Documents to which the' Corporation is a party; and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (h) Agreement to Preserve Tax Exemption. The Corporation covenants that it will not take any action which would cause interest with respect to the 2010A Certificates to be subject to federal income taxation or California personal income taxes (other than to the extent the 2010A Certificates will be subject to federal income taxation as described under the caption "Tax Matters" in the Official Statement). (i) Agreement to Preserve Federal Subsidv. The Corporation covenants that it will not take any action which would cause interest with respect to the 2010B Certificates to be subject to California personal income taxes or result in the loss of the Refundable Credits with respect to the 2010B Certificates. Very truly yours, NEWPORT BEACH PUBLIC FACILITIES FINANCING CORPORATION M David ICiff Secretary APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: By: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: By: Hawkins Delafield & Wood Lup- Accepted and confirmed zs of the dat- bove written STONE � 'GB RG L Authorized Representative M1 EXHIBIT C MATURITY SCHEDULE $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Maturity Date Principal Interest (July 1) Amount Rate Yield 2011 $1,740,000 2.00% 0.65% 2012 2,690,000 3.00 0.95 2013 2,775,000 3.00 1.27 2014 2,860,000 3.00 1.67 2015 2,940,000 4.00 2.00 2016 3,060,000 4.00 2.35 2017 3,185,000 4.00 2.74 2018 410,000 4.00 3.11 2019 425,000 4.00 3.44 $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Maturity Date Principal Interest (July 1) Amount Rate Price 2018 $2,900,000 4.451% 100.00 2019 2,980,000 4.751 100.00 2020 3,065,000 5.051 100.00 2021 3,165,000 5.351 100.00 2022 3,275,000 5.601 100.00 2023 3,390,000 5.851 100.00 $17,800,000 7.018 %2010B Term Certificates due July 1, 2030 — Price: 100.00% $70,000,000 7.168% 201013 Term Certificates due July 1, 2040 — Priced: 100.00% C -1 EXHIBIT D City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) and City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Rule 15c2 -12 Certificate The undersigned hereby certifies and represents that she is a duly appointed and acting authorized officer of the City of Newport Beach, California (the "City "), and as such is duly authorized to execute and deliver this certificate and further hereby certifies and reconfirms on behalf of the City as follows: (1) This certificate is delivered in connection with the offering and execution and delivery of the above - referenced certificates of participation (the "Certificates ") in order to enable the Underwriters of the Certificates to comply with Securities and Exchange Commission Rule 15c2 -12 under the Securities Exchange Act of 1934 ( as amended, the "Rule "). (2) In connection with the offering and sale of the Certificates, there has been prepared a Preliminary Official Statement dated November 10, 2010 setting forth information concerning the Certificates and the City (the "Preliminary Official Statement'). (3) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final within the meaning of the Rule. (4) As used herein, "Permitted Omissions" shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Certificates depending on such matters, all with respect to the Certificates. IN WITNESS WHEREOF, the undersigned has executed this certificate as of this November 10, 2010. CITY OF NEWPORT BEACH By: David Kiff City Manager D -1 `a 0 U O m y C O oc c mt mor � N y O C N u3 c :1 o� TD C C >u a� E o- `o m o N � m E O ``'`O U = c n `m �s >> °d a U a a c � 3 s d 3 in `O mcr c E2 m 0 a N SO O E_ f0}L O U do °c N O_ ma EN c c a m c a .t U � C V O N or E or oY a, `o s m � T E w m m Ea m 2 Ad nn 5 m� V L 0 m O o ` Nc X Ea �o N O L C F m PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 10, 2010 RATINGS: Moody's: "Aa2" S&P:"AA +" Fitch: "AA +" See "Ratings" herein. NEW ISSUES - BOOK -ENTRY ONLY In the opinion of Shooting Yocca Carlson & Routh, a 1rrofessional Corporation, Newport Beach, California ("Special Counsel'), under existing statutes, regulations, ratings and judicial decisions, and assaming tine accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) evidenced by the 2010A Cortifccates is excluded from gross income for, federal income tar purposes and is not an item of tax preference for purposes of calculating the j'ederal alternative minimum tax imposed on individuals and eorpm'afions. In the further opinion of Special Counsel, the interest (and original issue discount) evidenced by the 2010A Certificates and 2010B Certificates is exempt from State of California personal income tax. See "TAX MATTERS" herein. CITY OF NEWPORT BEACH O ��W �R A CERTIFICATES OF PARTICIPATION $31,525,000* $93,415,000* « 2010A (TAX EXEMPT) 2010B (FEDERALLY TAXABLE DIRECT � "�� " °� (CIVIC CENTER PROJECT /CENTRAL PAY BUILD AMERICA BONDS) LIBRARY REFUNDING) (CIVIC CENTER PROJECT) Dated: Date of Delivery Due: July 1, as shown below The City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center ProjecllCentral Library Refunding) in the aggregate principal amount of $31,525,000* (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $93,415,000* (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among the City of Newport Beach (the "City "), the Newport Beach Public Facilities Corporation (the "Corporation") and The Bank of New York Mellon Trust Company, N.A, as trustee thereunder (the "Trustee "). The 2010A Certificates evidence fractional and undivided interests in the right to receive certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to a Lease/Purchase Agreement, dated as of November 1, 2010, by and between the City and the Corporation, pursuant to which the City will sublease from the Corporation certain real property and all the improvements thereon, as more particularly described herein. The 2010B Certificates evidence fractional and undivided interests in the right to receive certain other lease payments (the "201013 Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to the Lease. See "Security and Sources of Payment for the Certificates -Lease Payments" herein. The proceeds of the 2010A Certificates will be applied to prepay certain outstanding certificates of participation and finance a portion of the costs of the acquisition, improvement and equipping of a new Civic Center (the "Civic Center Project "), as described herein. The proceeds of the 2010B Certificates will be applied to provide additional bouncing acing for the Civic Center Project, as describedherein. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. See "Plan of Financing" and "Estimated Sources and Uses of Funds" herein. The City has designated the 2010B Certificates as "Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive periodic payments from the United States Treasury equal to 35% of the interest payable on the 2010E Certificates. See "The Certificates - Designation of the 2010B Certificates as Build America Bonds" herein. Interest represented by the Certificates is payable on January 1 and July 1 of each year, commencing on January 1, 2011. Principal installments due with respect to the Certificates are payable annually on July 1 of each year commencing July 1, 2011. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only, in denominations of $5,000, or any integral multiple thereof. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 20108 Certificates are payable directly to DTC by the Trustee from 2010E Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D - "Book -Entry System" attached hereto. The Certificates are subject to prepayment, as described herein. See "The Certificates - Optional Prepayment" and "The Certificates - Mandatory Prepayment" herein. MATURITY SCHEDULE (See inside cover) THE CITY IS OBLIGATED TO PAY LEASE PAYMENTS FROM ANY SOURCE OF LEGALLY AVAILABLE FUNDS, AND THE CITY HAS COVENANTED IN THE LEASE TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Certificates will be offered when, as and if executed, delivered, and received by the Underwriters, subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Certain legal matters will be passed upon for the City and the Corporation by David Hunt, City Attorney, and Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, and for the Underwriters by their counsel, Jones Hall, A Professional Law Corporation, San Francisco, California It is anticipated that the Certificates in definitive form will be available for delivery to DTC in New York, New York, on or about November 30, 2010. STONE &YOUNGBERG De La Rosa & Co. BofA Merrill Lynch Raymond James Dated: November _, 2010. * Preliminary, subject to change. MATURITY SCHEDULE` $31,525,000' CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Maturity Maturity Principal Interest Price or Date Principal Interest Price or Date (July 1) Amount Rate Yield CUSIP, (July 1) Amount Rate Yield CUSIP{ 2011 2017 2012 2018 2013 2019 2014 2020 2015 2021 2016 2037 $ _% 2010A Term Certificates due July 1, 20_— Priced to Yield: %— CUSIP,: $ _% 2010A Term Certificates due July 1, 20_ — Priced to Yield: %— CUSIP,: $93,415,000" CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Maturity Maturity Principal Interest Date Principal Interest Date (July 1) Amount Rate Price CUSIP, (July 1) Amount Rate Price CUSIP' 2022 2032 2023 2033 2024 2034 2025 2035 2026 2036 2027 2037 2028 2038 2029 2039 2030 2040 2031 $ % 2010B Term Certificates due July 1, 20 — Priced to Yield: %— CUSIP,: $ % 2010B Term Certificates due July 1, 20 — Priced to Yield: %— CUSIP,: ` Preliminary, subject to change. t Copyright, American Bankers Association. CUSIP data is provided by Standard & Poor's CUSIP Service Bureau, a Division of the McGraw -Hill Companies, Inc., and is set forth herein for convenience of reference only. The City, the Corporation and the Underwriter do not assume responsibility for the accuracy of such data. CITY OF NEWPORT BEACH ORANGE COUNTY, CALIFORNIA MAYOR AND CITY COUNCIL Keith D. Curry, Mayor, District 7 Michael F. Henn, Mayor Pro Tem, District 1 Steven Rosansky, Council Member, District 2 Rush Hill, Council Member, District 3 Leslie J. Daigle, Council Member, District A Edward D. Selich, Council Member, District 3 Nancy Gardner, Council Member, District 6 CITY STAFF David Kiff, City Manager David R. Hunt, City Attorney Leilani I. Brown, City Clerk Tracy McCraner, Director ofAdministrative Services/Treasurer Dan Matusiewiz, Deputy Director of Administrative Services /Treasurer Stephen Badum, Public Works Director David Webb, City Engineer NEWPORT BEACH PUBLIC FACILITIES CORPORATION Board of Directors Keith D. Curry, Chairman Michael F. Henn, Vice Chairman Leslie Daigle Nancy Gardner Steven Rosansky Edward D. Selich Don Webb David Kiff, Secretary Tracy McCraner, Chief Financial Officer Special Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Disclosure Counsel Hawkins Delafreld & Wood LLP Los Angeles, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Trustee The Bank of New York Mellon Trust Company, N.A. Los Angeles, California No dealer, broker, salesperson or other person has been authorized by the City or the Corporation to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Corporation. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale. This Official Statement is not a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been furnished by the City and by other sources which are believed to be reliable. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sate made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, the Corporation or any other parties described herein since the date hereof. All summaries of the Certificates, the Trust Agreement, the Lease, the Site Lease and the Assignment Agreement (each as described herein) and other documents summarized herein, are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. The City maintains a website at http: / /www.newportbeachea.gov. However, the information presented on such website is not part of this Official Statement, is not incorporated by reference herein and should not be relied upon in making an investment decision with respect to the Certificates. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. TABLE OF CONTENTS Page INTRODUCTION........................................................................................................... ............................... 1 General...................................................................................................................... ............................... 1 Security and Source of Payment for the Certificates ................................................. ............................... 2 TheCity ..................................................................................................................... ............................... 3 TheCertificates ......................................................................................................... ............................... 3 TaxMatters ................................................................................................................ ............................... 4 ContinuingDisclosure ............................................................................................... ............................... 4 Forward - Looking Statements .................................................................................... ............................... 4 Miscellaneous............................................................................................................ ............................... 4 THE LEASED PREMISES ............................................................................................. ............................... 5 PLAN OF FINANCING .................................................................................................. ............................... 7 General...................................................................................................................... ............................... 7 TheCivic Center Project ........................................................................................... ............................... 7 Prepayment of the 1998 Certificates ......................................................................... ............................... 8 ESTIMATED SOURCES AND USES OF FUNDS ....................................................... ............................... 9 THECERTIFICATES ..................................................................................................... ............................... 9 General...................................................................................................................... ............................... 9 Designation of the 2010B Certificates as "Build America Bonds" ........................... ............................... 9 Book -Entry System ................................................................................................. ............................... 10 OptionalPrepayment ............................................................................................... ............................... 10 MandatoryPrepayment ........................................................................................... ............................... 13 Selection of Certificates for Prepayment ................................................................. ............................... 14 Partial Prepayment of Certificates ........................................................................... ............................... 14 Noticeof Prepayment .............................................................................................. ............................... 15 SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT ............... ............................... 15 Pledgeand Security ................................................................................................. ............................... 15 Pledge of Refundable Credits to 2010B Certificates ............................................... ............................... 17 Assignment of Lease; Sublease of Leased Premises ............................................... ............................... 17 LeasePayments ....................................................................................................... ............................... 18 NoReserve Fund ..................................................................................................... ............................... 18 Insurance................................................................................................................. ............................... 18 Abatement............................................................................................................... ............................... 19 Substitution or Release of the Leased Premises... ..................................................................... ............ 19 AdditionalCertificates ............................................................................................ ............................... 20 Remedieson Default ............................................................................................... ............................... 20 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS...................................................................................................... ............................... 22 ArticleXIII A .......................................................................................................... ............................... 22 ArticleXIII B .......................................................................................................... ............................... 22 Proposition46 .......................................................................................................... ............................... 23 Proposition62 .......................................................................................................... ............................... 24 Proposition218 ........................................................................................................ ............................... 24 PropositionlA ......................................................................................................... ............................... 26 Proposition26 .......................................................................................................... ............................... 27 FutureInitiatives ...................................................................................................... ............................... 27 RISKFACTORS ........................................................................................................... ............................... 27 Nota Pledge of Taxes ............................................................................................. ............................... 27 (i) Additional Obligations of the City .......................................................................... ............................... 28 Default; Remedies Upon Default ............................................................................ ............................... 28 Limitationson Remedies ......................................................................................... ............................... 29 Abatement............................................................................................................... ............................... 30 Risk of Nonpayment of Refundable Credits ............................................................ ............................... 30 SeismicEvents ........................................................................................................ ............................... 30 THE CORPORATION .................................................................................................. ............................... 31 TAXMATTERS ............................................................................................................ ............................... 31 CERTAIN LEGAL MATTERS ..................................................................................... ............................... 34 FINANCIAL STATEMENTS ....................................................................................... ............................... 35 LITIGATION................................................................................................................. ............................... 35 UNDERWRITING........................................................................................................ ............................... 35 FINANCIALADVISOR ............................................................................................... ............................... 35 CONTINUING DISCLOSURE ..................................................................................... ............................... 36 RATINGS...................................................................................................................... ............................... 36 MISCELLANEOUS ...................................................................................................... ............................... 36 APPENDICES APPENDIX A CITY OF NEWPORT BEACH FINANCIAL INFORMATION AND REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMAIION .... ............................A -I APPENDIX B CITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE30, 2009 ........................................................................................... ............................B -1 APPENDIX C — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ........................ ............................... C -1 APPENDIX D — BOOK -ENTRY SYSTEM ......................................................................... ............................D -1 APPENDIX E — FORMS OF SPECIAL COUNSEL OPINIONS ..................................... ............................... E -I APPENDIX F — FORM OF CONTINUING DISCLOSURE AGREEMENT .................. ............................... F -1 (ii) CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION $31,525,000 $93,415,000' 2010A (TAX EXEMPT) 2010B (FEDERALLY TAXABLE DIRECT PAY (CIVIC CENTER PROJECT /CENTRAL BUILD AMERICA BONDS) LIBRARY REFUNDING) (CIVIC CENTER PROJECT) INTRODUCTION This introduction contains only a brief summary of certain terms of the Certificates being offered, and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of provisions of the Constitution and laws of the State of California and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Trust Agreement and the Lease (herein defined). See Appendix C — "Summary of Principal Legal Documents — Definitions" attached hereto. General This Official Statement, including the cover page, the inside cover page and the Appendices attached hereto (the "Official Statement'), provides certain information concerning the sale and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) in the aggregate principal amount of $31,525,000" (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $93,415,000 (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among the City of Newport Beach (the "City"), the Newport Beach Public Facilities Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). The proceeds of the 2010A Certificates will be applied to prepay the outstanding City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), and finance a portion of the costs of the acquisition, improvement and equipping of a new Civic Center (the "Civic Center Project'), as described herein. The proceeds of the 2010B Certificates will be applied to provide additional financing for the Civic Center Project, as described herein. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. See "Plan of Financing" and "Estimated Sources and Uses of Funds" herein. In connection with the prepayment of the 1998 Certificates and the financing of the Civic Center Project, the City will lease certain real property and all improvements thereon, as more particularly described herein (the "Leased Premises "), to the Corporation pursuant to a Site Lease, dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Corporation. The City will sublease the Leased Premises from the Corporation pursuant to a Lease /Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Corporation. The 2010A Certificates evidence the right to receive certain fractional and undivided interests in the right to receive certain lease payments (the Preliminary, subject to change. "2010A Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. The 2010B Certificates evidence fractional and undivided interests in the right to receive certain other lease payments (the "201013 Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. Security and Source of Payment for the Certificates Under the Lease, in consideration for the use and occupancy of the Leased Premises, the City has agreed to make certain payments designated as Lease Payments and certain other payments designated as Prepayments with respect to the Leased Premises (the "Prepayments "), in the amounts, at the times and in the manner set forth in the Lease. Lease Payments are scheduled to be sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. The City has covenanted in the Lease to take such action as may be necessary to include all Lease Payments and such amounts as shall be required for the payment of all administrative costs and charges (the "Additional Payments ") (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. Pursuant to an Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Trustee and the Corporation, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates all of the Corporation's rights, title, and interest under the Site Lease and all of the Corporation's rights, title and interest under the Lease (excepting only the Corporation's rights to indemnity, the payment of its fees and expenses and certain consents and approvals), including the right to receive Lease Payments, Prepayments and Additional Payments from the City under the Lease or the Trust Agreement, as applicable. See Appendix C — "Summary of Principal Legal Documents" attached hereto. THE CITY IS OBLIGATED TO PAY LEASE PAYMENTS FROM ANY SOURCE OF LEGALLY AVAILABLE FUNDS, AND THE CITY HAS COVENANTED IN THE LEASE TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The City's obligation to pay Lease Payments is, however, subject to abatement in the event of damage, destruction, condemnation or title defect that causes a substantial interference with the use and possession of all or a portion of the Leased Premises by the City. During periods of abatement, the City shall remain obligated to make Lease Payments and Additional Payments under the Lease, as an obligation of the City payable from a special fund, (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. See "Security and Sources of Payment for the Certificates — Lease Payments" and "— Abatement" herein. The City The City was incorporated under the general laws of the State on September 1, 1906. The City is located in the coastal center of the County of Orange (the "County "), approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. As of 2010, the City had a permanent population of 86,738, which typically grows to over 100,000 during the summer months, including 20,000 to 100,000 tourists daily. The City's adopted budget for Fiscal Year 2010 -11 (the "Fiscal Year 2010 -11 Adopted Budget ") is approximately $226.7 million, approximately $149.3 million of which relates to the City's General Fund. See Appendix A — "City of Newport Beach Financial Information and Regional Economic and Demographic Information" and Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached hereto. The Certificates The Certificates will be executed and delivered in the form of fully registered certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be dated their date of delivery (the "Delivery Date ") and mature on the dates set forth on the inside cover page hereof. The interest represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and 2010B Lease Payments, respectively, designated as interest components coming due on the Interest Payment Dates in each year (each an "Interest Component "). The principal represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and the 2010B Lease Payments, respectively, designated as principal components coming due on the applicable Interest Payment Dates in each year (each a "Principal Component "). Interest represented by the Certificates is payable on January 1 and July 1 of each year, commencing on January 1, 2011 (each, an "Interest Payment Date "). The City has designated the 2010B Certificates as "Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive periodic payments ( "Refundable Credits ") from the United States Treasury equal to 35% of the interest payable on the 2010B Certificates. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D — "Book -Entry System" attached hereto. The Certificates are subject to prepayment, as described herein. See "The Certificates — Optional Prepayment" and "The Certificates — Mandatory Prepayment" herein. 3 Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( "Special Counsel "), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) evidenced by the 2010A Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) evidenced by the 2010A Certificates and 2010B Certificates is exempt from State of California personal income tax. See "TAX MATTERS" herein. Continuing Disclosure The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System (the "Repository") for purposes of Rule 15c2- 12(b)(5) (the "Rule ") adopted by the Securities and Exchange Commission certain annual financial information and operating data and, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriters in complying with the Rule. See "Continuing Disclosure" herein for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement pursuant to which such reports are to be made. The City has complied in all material respects in the last five years with each of its previous undertakings with regard to the Rule to provide annual reports and notices of material events. Forward - Looking Statements Certain statements included or incorporated by reference in the Official Statement constitute "forward- looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. The achievement of certain results or other expectations contained in such forward - looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. Although such expectations reflected in such forward - looking statements are believed to be reasonable, there can be no assurance that such expectations will prove to be correct. Neither the City nor the Corporation is obligated to issue any updates or revisions to the forward - looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur, whether or not they prove to be correct. Miscellaneous The Certificates will be offered when, as and if issued, and received by the Underwriters, subject to the approval as to their legality by Special Counsel and certain other conditions. The description herein of the Trust Agreement, the Site Lease, the Lease and the Assignment Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and the information with respect thereto included in the aforementioned documents. See Appendix C — "Summary of Principal Legal Documents" attached hereto. Copies of the documents are on file and available for inspection at the Corporate Trust Office of the Trustee at The Bank of New York Mellon Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017. J The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Corporation since the date hereof. THE LEASED PREMISES Pursuant to the Site Lease, the City will lease to the Corporation the Leased Premises. Pursuant to the Lease, the Corporation will lease the Leased Premises back to the City, and the City will make Lease Payments in consideration for the use and occupancy of the Leased Premises. The Leased Premises will initially consist of nine separate properties with an estimated aggregate value of $128.9 million. Each of these Leased Premises is described below: Newport Coast Community Center. The Newport Coast Community Center (the "Community Center ") is a 16,865 square -foot facility located at 6401 San Joaquin Hills Road in Newport Coast. The Community Center includes two conference rooms, a banquet room, warming kitchen, gymnasium, library book drop, indoor /outdoor stage and large outdoor patio, and is situated on 133,548 square feet of land. Constructed in 2007, the Community Center is valued at approximately $17.6 million. OASIS Senior Center. The OASIS Senior Center (the "Senior Center ") consists of three single - story buildings connected by covered walkways. The wood framed, 36,467 square -foot facility is located at 800 Marguerite Avenue in Corona Del Mar, at the intersection of Marguerite Avenue and Fifth Avenue, on 169,884 square feet of land. This state -of -the -art facility was designed by Robert R. Coffee, Architect & Associates of Newport Beach and houses educational classrooms, art and crafts programs, health and fitness activities, social and assembly functions, and administrative offices. The Senior Center also includes meeting and services rooms, family rooms, a library, a computer room, an activities/banquet hall, walkways through the outdoor areas, various active and passive park amenities and a parking area. The Senior Center is valued at approximately $29.8 million. Central Library. The Central Library (the "Central Library ") is a two -story, 50,930 square -foot facility located at 1000 Avocado Avenue in Newport Beach, near the intersection of MacArthur Boulevard and Pacific Coast Highway, on 174,240 square feet of land (the "Central Library Site "). The Central Library was designed by Simon Martin -Vegue Winkelstein Moris of San Francisco in association with James L. Pirdy of Newport Beach and includes a children's room, a young adult area, a public meeting room and exhibit space for highlighting works of community artists. The Central Library houses current books, magazines, newspapers, sound and video recordings and various reference collections. The Central Library was constructed in 1997 with proceeds of the 1998 Certificates, all of which will be prepaid with a portion of the proceeds of the 2010A Certificates, as further described below. See "Plan of Financing — Prepayment of the 1998 Certificates" herein. The Central Library is valued at approximately $28.7 million, prior to the improvements to be financed with a portion of the proceeds of the Certificates. See "Plan of Financing - The Civic Center Project" herein. Mariners Library. The Donna and John Crean Mariners Branch Library (the "Mariners Library") is a one -story, 15,305 square -foot linear design built facility located at 1300 Irvine Avenue in Newport Beach on 64,355 square feet of land. The Mariners Library was designed by Thirtieth Street Architects of Newport Beach and serves as a public library for local residents and the school library for Mariners Elementary School. The Mariners Library features high ceilings and many windows to allow natural lighting in the main reading areas, which look out on Mariners Park. Highlights of the Mariners Library include the Friends Children's Room, the Teen Corner, separate computer centers for adults, teens, and children, self -serve checkout machines as well as a fully- staffed customer service desk, wireless Internet 5 access throughout facility, and the Vincent Jorgensen Room, with a student study center for after- school and community programs. Constructed in 2006, the Mariners Library is valued at approximately $10.1 million. Fire Station 3. Fashion Island Fire Station 3 ( "Fire Station 3 ") is a 13,605 square -foot facility located at 868 Santa Barbara Drive in Newport Beach. Fire Station 3 is a two -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room, a conference room, a communications room and dormitories on 49,380 square feet of land. Constructed in 1971, Fire Station 3 is valued at approximately $8.1 million. Fire Station 4. Balboa Island Fire Station 4 ( "Fire Station 4 ") is a 4,400 square -foot facility located at 124 Marine Avenue in Newport Beach. Fire Station 4 is a two -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room and a dormitory on 4,482 square feet of land. Constructed in 1994, Fire Station 4 is valued at approximately $3.9 million. Fire Station 7. Santa Ana Heights Fire Station 7 ( "Fire Station 7") is an 11,027 square -foot facility located at 20401 Acacia Avenue in Newport Beach. Fire Station 7 is primarily a single -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room, dormitories and a training room on 91,912 square feet of land. Constructed in 2007, Fire Station 7 is valued at approximately $11.3 million. Police Station. The Newport Beach Police Station (the "Police Station ") is a 47,964 square -foot facility located at 870 Santa Barbara Drive in Newport Beach, at the intersection of Jamboree Road and Santa Barbara Drive, on 118,152 square feet of land. The Police Station houses the Newport Beach Police Department and includes conference rooms, meeting and interrogation rooms, a training room, a kitchen, offices, a reference room, evidence and property rooms, a communications center, a command center, holding cells, a juvenile detention area, a fitness center, a shop a garage, an on -site fueling station and a roof -top helipad. Constructed in 1973, the Police Station is valued at approximately $19.4 million. Civic Center Site. The site for the Civic Center Project is located at 1100 Avocado Avenue, 1300 Avocado Avenue and 1450 Avocado Avenue in Newport Beach and consists of 698,331 square feet of land. The value of the Civic Center Site, under its current land use, has not been determined. See "Plan of Financing — The Civic Center Project" herein for a description of the improvements to be financed with a portion of the proceeds of the Certificates. Upon completion of the Civic Center Project, the City expects to exercise its option to release the Community Center, the Senior Center, the Mariners Library, Fire Station 3, Fire Station 4, Fire Station 7 and the Police Station from the lien of the Lease such that only Civic Center Project (consisting of the Central Library and the Civic Center Site, each as improved as described under "Plan of Financing — The Civic Center Project') will constitute the Leased Premises. See "Plan of Financing — The Civic Center Project' herein. The City is permitted to substitute other real property for all or a part of the Leased Premises upon compliance with all of the conditions set forth in the Lease and the Trust Agreement. See Appendix C — "Summary of Principal Legal Documents — The Lease — Substitution or Release of the Leased Premises" attached hereto. 11 PLAN OF FINANCING General The 2010A Certificates are being executed and delivered to prepay the 1998 Certificates currently outstanding in the principal amount of $3,990,000 and finance the acquisition, improvement and equipping of the Civic Center Project. The 2010B Certificates are being executed and delivered to provide additional financing for Civic Center Project. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. The Civic Center Project Project Components. The Civic Center Project consists of the design, construction and development or expansion of various public buildings and spaces on two parcels inland of the Newport Beach Central Library and bordered by Avocado Avenue and MacArthur Boulevard. In particular, the Civic Center Project includes: • Design and development of the City's fifth largest park on 16 -acres of land, which wilt include a dog park, a civic lawn for outdoor events, places for art, a restored wetlands, 1.23 miles of walking and viewing trails, a belvedere and other view opportunities, and restrooms. • Design and expansion of the Central Library by 17,000 square feet and effectively linking the Central Library and Civic Center. The expansion of the Central Library will include improvements to the children's programs room, reading rooms, a sound and video room, expansion of the restrooms and the addition of a cafe and credit union. • Design and construction 450 -space parking structure to accommodate up to 350 cars associated with the City office building and 100 cars associated with use for the Central Library. • Design and construction of an emergency readiness center to serve as the permanent home of the City's emergency response team. • Design and construction of a new community room that seats up to 150 persons and opens to an outside covered area. This new community room will be made available for lectures, arts programs, and other community events. • Design and construction of new City Council Chambers that seat up to 150 persons and double as community meeting space when not being used by the City Council or its commissions. • Design and construction of a new City office building that will house approximately 240 employees who work at City Hall and include a large "One Stop Shop" to improve customer service for persons seeking parking permits or getting planning or building approvals. The office building will replace the `old" City Hall, now located at 3300 Newport Boulevard on the Balboa Peninsula. The City Charter has been amended to direct that City Hall be moved to the location at 1100 Avocado Avenue. The City Council is exploring potential uses for the "old" City Hall site. • If construction costs permit, design and construction of a pedestrian bridge that would allow walkers to safely cross over San Miguel Avenue without impacting vehicular traffic. The City will seek to attain at least a Leadership in Energy and Environmental Design Silver designation for the Civic Center Project. To attain such designation, design of the Civic Center Project must include passive heating and cooling systems in the City office building, including a raised floor system and advanced lighting technologies, California- friendly landscaping in the main portion of the park, adjacent transit facilities and other means to increase the number of City workers who carpool, bike to work, or use alternative fuel vehicles and a building orientation that maximizes the ability for natural ventilation and natural light. Project Schedule. Design development has been completed. Construction documentation, site excavation and mass grading of over 280,000 cubic yards of dirt began in spring of 2010 and are expected to be completed by late 2010. The extensive earth removal is intended to assure that the parking structure and City office building stay below an approved "view plane" that protects the public's view of the harbor and ocean from MacArthur Boulevard. Construction of the parking structure is scheduled to begin in late 2010 and conclude by fall of 2011. Bidding and contact award for the park and building construction is expected to occur in late 2010, with construction scheduled to commence in early 2011 and project completion, park opening and City office building occupation scheduled for late 2012. Project Professionals. The City's design and engineering team will consist of Bohlin Cywinski Jackson, an architecture, planning and interior design firm, Peter Walker & Partners, landscape architects, and Arup, a firm of designers, planners, engineers, consultants and technical specialists. The City retained C.W. Driver to serve as the City's construction manager and LSA Associates to complete the environmental work for the Civic Center Project. Prepayment of the 1998 Certificates The 1998 Certificates were executed and delivered to prepay the City of Newport Beach Certificates of Participation, Series 1992, the proceeds of which were applied to the acquisition and construction of the Central Library. The City has deposited moneys into the Escrow Fund established under the Escrow Agreement, dated as of October 29, 2010 (the "Escrow Agreement "), by and between the City and U.S. Bank National Association (the "Escrow Agent "), as escrow agent thereunder in an amount, together with other moneys on deposit in the funds and accounts for the 1998 Certificates, is sufficient to prepay the 1998 Certificates on December 1, 2010 (the "Prepayment Date ") at the prepayment price of 100% (expressed as a percentage of the principal amount to be prepaid), plus accrued interest thereon to the Prepayment Date. Accordingly, the 1998 Certificates have been defeased pursuant to the defeasance provisions of the 1998 Trust Agreement. Upon execution and delivery of the 2010A Certificates and in accordance with the provisions of the Escrow Agreement, the City will replace $3,525,828 of the amounts heretofore deposited in the Escrow Fund with $3,525,828 of the proceeds of the 2010A Certificates and cause such proceeds to be used to defease the 1998 Certificates on the Prepayment Date. U ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Certificates, together with other moneys available therefor, are expected to be applied approximately as follows: 2010A Certificates 2010B Certificates Total Sources Principal Amount of Certificates $ $ Original Issue Premium Total Sources $ $ Uses: Project Fund $ $ Escrow Fund Costs of Issuancettl Total Uses $ $ Includes underwriting discount, rating agencies fees, financial advisor fees and expenses, title insurance fees, legal fees and expenses, trustee fees and expenses, printing costs and other costs of issuance, THE CERTIFICATES General The Certificates will be dated their Delivery Date and principal with respect to the Certificates will be payable on the dates set forth on the inside cover page of this Official Statement. The interest represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and 2010B Lease Payments, respectively, designated as the Interest Components coming due on the Interest Payment Dates in each year. The principal represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and the 2010B Lease Payments, respectively, designated as Principal Components coming due on the applicable Interest Payment Dates in each year. Interest with respect to the Certificates will be payable semiannually on each January 1 and July 1 of each year, commencing on January 1, 2011 and will be calculated on the basis of a 360 -day year of twelve 30 -day months. Each Certificate shall bear interest from the Interest Payment Date next preceding the date of execution thereof, unless (i) it is executed during the period from the day after the "Record Date" (being the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day) for an Interest Payment Date to and including such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is executed on or prior to the Record Date for the first Interest Payment Date, in which event interest shall be payable from the Delivery Date; provided, however, that if, at the time of execution of any Certificate interest with respect to such Certificate is in default, such Certificate shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Certificate. Designation of the 2010B Certificates as `Build America Bonds" The City has designated the 2010B Certificates as "Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive Refundable Credits from the United States Treasury equal to 35% of the interest payable on the 2010B Certificates. Pursuant to the Lease, all of the Refundable Credits received by the City are to be deposited to the 2010B Account of the Lease Payment Fund as a credit against the City's obligation to pay the Interest Component of the 2010B Lease Payments, and are pledged to the payment of the 2010B Certificates. The City is obligated to pay 2010B Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor, which applies regardless of receipt of the Refundable Credits. Book -Entry System The Certificates will be executed and delivered in the form of fully registered certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be delivered in fully registered form only, and, when issued, will be registered in the name of Cede & Co., as nominee of DTC, which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D — "Book -Entry System" attached hereto. Optional Prepayment` Optional Prepayment. The 2010A Certificates maturing on or after July 1, 2021 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 2020, at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the 2010A Lease Payments (in integral multiples of $5,000), at the prepayment price equal to the principal component to be prepaid, plus accrued interest to the date fixed for prepayment, without premium. In the event the City gives notice to the Trustee of its intention to exercise such optional prepayment, but fails to deposit with the Trustee on or prior to the prepayment date an amount equal to the prepayment price, the City is obligated to continue to pay the Lease Payments as if no such notice had been given. Extraordinary Optional Prepayment of 2010E Certificates. The 2010B Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event, as a whole or in part, on any date, and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. "Extraordinary Event" means (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such Sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the tax certificate for the 2010B Certificates, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated Preliminary, subject to change. 10 or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. Optional Prepayment of 2010B Certificates with Make -Whole Payment. Before July 1, 20_, the 2010B Certificates will be subject to prepayment pri or to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. "Make -Whole Prepayment Price" means the greater of (1) the original issue price (but not less than 100 %) of such Principal Component of the 2010B Lease Payments to be prepaid; or (2) the Principal Component of the 2010B Lease Payment to be prepaid plus the Make -Whole Premium, together, in each case, with accrued interest, if any, to the date fixed for prepayment of the 2010B Certificates. "Make -Whole Premium° means, with respect to any 2010B Certificate to be prepaid, an amount calculated by an Independent Banking Institution equal to the positive difference, if any, between: (a) the sum of the present values, calculated as of the date fixed for prepayment of (i) each Interest Component that, but for the prepayment, would have been payable with respect to the 2010B Lease Payment or portion thereof being prepaid on each regularly scheduled Lease Payment Date occurring after the date fixed for prepayment through the maturity date of the corresponding 2010B Certificate (excluding any accrued interest for the period prior to the date fixed for prepayment); plus (ii) the Principal Component that, but for such prepayment, would have been payable on the maturity date (or applicable mandatory sinking fund prepayment date or dates) with respect to the 2010B Certificate or portion thereof being prepaid; minus (b) the principal amount of the 2010B Lease Payment or portion thereof being prepaid. The present values of the Interest Components and Principal Components referred to in (a) above will be determined by discounting the amount of each such Interest Components and Principal Components from the date that each such payment would have been payable but for the prepayment to the date fixed for prepayment on a semiannual basis (assuming a 360 -day year consisting of twelve (12) 30 -day months) at a discount rate equal to the Comparable Treasury Yield, plus (1) with respect to a 2010B Certificate prepaid as described under "Extraordinary Optional Prepayment of 2010B Certificates ", _ basis points, or (2) with respect to a 2010B Certificate prepaid as described under the "Optional Prepayment of 2010B Certificates with Make - Whole Payment", basis points. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Comparable Treasury Issue" means, with respect to any prepayment date for a particular 2010B Certificate evidencing a 2010B Lease Payment, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid, and that 11 would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid. "Comparable Treasury Price" means, with respect to any prepayment date for a particular 2010B Certificate, either (a) the average of five Reference Treasury Dealer quotations for the date fixed for prepayment, after excluding the highest and lowest such quotations, and (b) if the Independent Banking Institution is unable to obtain five such quotations, the average of the quotations that are obtained. The quotations will be the average, as determined by the Independent Banking Institution, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of principal amount) quoted in writing to the Independent Banking Institution, at 5:00 p.m. New York City time on any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the City. If the City fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for prepayment, or if the Independent Banking Institution appointed by the City is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee. "Comparable Treasury Yield" means the yield which represents the weekly average yield to maturity for the preceding week appearing in the most recently published statistical release designated "H.15(519) Selected Interest Rates" under the heading "Treasury Constant Maturities," or any successor publication selected by the Independent Banking Institution that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity, for the maturity corresponding to the remaining term to maturity of the 2010B Certificate being prepaid. The Comparable Treasury Yield will be determined as of any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. If the H.15(519) statistical release sets forth a weekly average yield for United States Treasury securities that have a constant maturity that is the same as the remaining term to maturity of the 2010B Certificate being prepaid, then the Comparable Treasury Yield will be equal to such weekly average yield. In all other cases, the Comparable Treasury Yield will be calculated by interpolation on a straight -line basis, between the weekly average yields on the United States Treasury securities that have a constant maturity (i) closest to and greater than the remaining term to maturity of the 2010B Certificate being prepaid; and (ii) closest to and less than the remaining term to maturity of the 2010B Certificate being prepaid. Any weekly average yields calculated by interpolation will be rounded to the nearest 1 /100th of 1 %, with any figure of 1 /200th of 1% or above being rounded upward. If, and only if, weekly average yields for United States Treasury securities for the preceding week are not available in the H.15(519) statistical release or any successor publication, then the Comparable Treasury Yield will be the rate of interest per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) at the Comparable Treasury Price as of the date fixed for prepayment. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010B Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. 12 "Reference Treasury Dealer" means any firm, specified by the City from time to time, that is a primary United States Government securities dealer in the City of New York (a "Primary Treasury Dealer "); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. Mandatory Prepayment` Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof (the "Net Proceeds "), which the Trustee shall deposit in the Prepayment Fund at least 45 days prior to the date fixed for prepayment and credited towards the prepayment made by the City pursuant to the Lease, at a prepayment price equal to the principal amount thereof together with accrued interest to the date fixed for prepayment, without premium. Mandatory Sinking Account Payment. The 2010A Certificates maturing July 1, 20_ (the "20_ Term 2010A Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20 Term 2010A Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20 Term 2010A Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term 2010A Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Date Sinking (July 1) Account Payment Final Maturity The 2010B Certificates maturing July 1, 20 (the "20 Term 2010B Certificates ") are subject to prepayment in part by lot, on July I in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 20_ Term 2010B Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 20_ Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 20 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Preliminary, subject to change. 13 Mandatory Prepayment Date Sinking (July 1) Account Payment ' Final Maturity If prior to one of the mandatory prepayment dates specified above the City purchases any 20 Term 2010A Certificates or 20_ Term 2010B Certificates, then at least 45 days prior to the prepayment date the City shall notify the Trustee as to the principal amount purchased, and the amount of Certificates so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce the upcoming sinking account payment for the applicable maturity of the Certificates so purchased. Selection of Certificates for Prepayment If less than all of the 2010 Certificates are prepaid, the Trustee shall select the 2010 Certificates to be prepaid from all Certificates not previously called for prepayment (a) with respect to any extraordinary prepayment, among maturities of all 2010 Certificates and Additional Certificates on a pro rata basis as nearly as practicable, (b) with respect to any optional prepayment of 2010 Certificates, among maturities as directed by the City, (c) with respect to 2010A Certificates with the same maturity, by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair, and (d) with respect to 2010B Certificates with the same maturity, (i) if the 2010B Certificates are not book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid among the Owners of such 2010B Certificates on a pro rata basis as nearly as practicable, and (ii) if the 2010B Certificates are book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid on a pro rata pass - through distribution of principal basis in accordance with ETC procedures, provided that, so long as the 2010B Certificates are held in book -entry form, the selection for prepayment of such 2010B Certificates shall be made in accordance with the operational arrangements of ETC then in effect, and, if the ETC operational arrangements do not allow for prepayment on a pro rata pass - through distribution of principal basis, the 2010B Certificates will be selected for prepayment, in accordance with ETC procedures, by lot. It is the City's intent that the redemption allocations described herein with respect to the 2010B Certificates be made on a pro rata pass - through distribution of principal basis. However, the City can provide no assurance that ETC, the ETC Participants or any other intermediaries will allocate redemptions among Beneficial Owners on such basis. See Appendix D — "Book -Entry System" attached hereto. Partial Prepayment of Certificates Upon surrender by the Owner of a Certificate for partial prepayment at the principal office of the Trustee, payment of such partial prepayment of the principal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal in principal amount to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment shall be valid upon payment of the amount required to be paid to such Owner, and the City, the Corporation and the Trustee shall be released and discharged from all liability to the extent of such payment. 14 Notice of Prepayment When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstanding Certificates of a maturity are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, and (f) the original date of execution and delivery of the Certificates. Such notice shall further state that on the specified date there shall become due and payable upon each Certificate to be prepaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto shall cease to accrue and be payable. Such notice may specify that the prepayment of the Certificates to be prepaid is conditioned upon the timely receipt of funds required for such prepayment. Notice of such prepayment shall be sent by first class mail or delivery service postage prepaid, or by telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class mail, postage prepaid, to the Corporation and the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Notice having been given to the Owners of the Certificates as set forth above, and the moneys for the prepayment (including, the interest to the applicable date of prepayment), having, been set aside in the Prepayment Fund, the Certificates shall become due and payable on said date of prepayment, and, upon presentation and surrender thereof at the Principal Office, said Certificates shall be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to said date of prepayment. L% on the date of a prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as set forth above, then, from and after said date of prepayment, interest with respect to the Certificates to be prepaid shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of the Trust Agreement shall be cancelled upon surrender thereof and destroyed. SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT Pledge and Security Pursuant to the Trust Agreement, the Corporation and the City grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified in the Trust Agreement and in the Lease. Only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. Only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a 15 Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 2010B Account of the Prepayment Fund. Pursuant to the Trust Agreement, the 2010A Lease Payments and the 2010B Lease Payments are irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010A Certificates and 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement), respectively. Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to the Lease (the "Lease Proceeds ") are irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under the Trust Agreement, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. The pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with and subject to the terms of the Trust Agreement. The 2010A Certificates represent the aggregate principal components of the 2010A Lease Payments under the Lease and the 2010B Certificates represent the aggregate principal components of the 2010B Lease Payments under the Lease. The 2010A Certificates evidence the right to receive certain fractional and undivided interests in 2010A Lease Payments to be made by the City pursuant to the Lease and the 2010B Certificates evidence the right to receive certain fractional and undivided interests in 2010B Lease Payments to be made by the City pursuant to the Lease. The City is required under the Lease to make Lease Payments subject to the provisions of the Lease related to abatement. The City has covenanted in the Lease to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. Lease Payments are scheduled to be paid as set forth herein. See "— Lease Payments Schedule" herein. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The Trustee, pursuant to the Trust Agreement and the Assignment Agreement, will receive Lease Payments for the benefit of the Owners. Except as expressly provided in the Trust Agreement, the Trustee will not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City or the Corporation of the other agreements and covenants required to be performed by them, respectively contained in the Site Lease, the Lease or the Trust Agreement. Additional amounts payable by the City under the Lease include, among others, amounts sufficient to pay certain taxes, assessments, utility and other charges on the Leased Premises. 16 The Lease shall be deemed and construed to be a "net- net -net lease" and the City has agreed pursuant to the Lease that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided in the Lease. The Lease provides that the covenants on the part of the City contained therein shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the City. See Appendix C — "Summary of Principal Legal Documents — Lease" herein. Pledge of Refundable Credits to 2010B Certificates The Refundable Credits constitute amounts payable by the Federal government under Section 6431 of the Code, and which, in the case of the 2010B Certificates, the City has elected to receive under Section 54AA(g)(1) of the Code. Pursuant to the Lease, all of the Refundable Credits received by the City are to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments, and are pledged to the payment of the 2010B Certificates. The Lease provides that the City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any other action that would cause the City to lose the subsidy payments from the U.S. Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. Refundable Credits do not constitute a full faith and credit guarantee of the United States with respect to the 2010B Certificates, but are required to be paid by the U.S. Treasury under the American Recovery and Reinvestment Act of 2009 upon proper application by the City. Under the American Recovery and Reinvestment Act of 2009, the U.S. Treasury may offset any Refundable Credit to which the City is otherwise entitled against any other tax liability of the City payable to the U.S. Treasury, such as withholding or payroll taxes, or other penalties or interest that may be owed at any time to the U.S. Treasury. The American Recovery and Reinvestment Act of 2009 contains broad legislative regulatory authority to prescribe such regulations and other guidance as may be necessary or appropriate to carry out the provisions relating to the Build America Bonds and the Refundable Credits. The Internal Revenue Service and the U.S. Treasury will continue to consider the need to develop any special rules to adapt or tailor the procedural framework implementing provisions of the American Recovery and Reinvestment Act of 2009, and may promulgate further regulations. No assurance is given that the U.S. Treasury will make payment of the Refundable Credits in the amounts to which the City believes it is entitled, nor that such payments will be made in a timely manner. No assurance can be given that Congress will not amend or repeal provisions of the American Recovery and Reinvestment Act of 2009, which amendments could affect the payment of Refundable Credits. Assignment of Lease; Sublease of Leased Premises The Lease may be assigned by the City and all or a portion of the Leased Premises may be subleased by the City subject to the conditions set forth in the Lease, including the delivery of an opinion of Special Counsel to the effect that such assignment or sublease, as applicable, does not adversely affect the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to snake 2010B Lease Payments which have been 17 designated as Build America Bonds. For purposes of an assignment of the Lease, Special Counsel shall also opine that the assignment does not affect the validity of the Lease. If the Lease is assigned by the City or all or any portion of the Leased Premises is subleased by the City, the obligation to make Lease Payments under the Lease shall remain the obligation of the City. See Appendix C "Summary of Principal Legal Documents — Lease — Assignment and Subleasing" herein. Lease Payments The Lease requires the City to make Lease Payments on January 1 and July I of each year, beginning on January 1, 2011, and continuing until the end of the term of the Lease. Each Lease Payment shall be payable by the City to the Trustee, as assignee of the Corporation. The interest components of the Lease Payments payable by the City under the Lease shall be paid by the City as, and shall constitute interest paid on, the principal components of the Lease Payments payable by the City under the Lease. Lease Payments have been calculated to be at least sufficient to pay principal and interest components of the Certificates when due on each Interest Payment Date. A table of annual Lease Payments under the Lease is set forth below. LEASE PAYMENTS 2010A Certificates 2010B Certificates 2010A Lease Payments 2010B Lease Payments Total Base Fiscal Year Principal Interest Principal Interest Rental Ending Component Component Component Component(') Paymentstll(2) Includes the cash subsidy payments the City expects to receive from the United States Treasury, in an amount equal to 35% of the interest payable with respect to the 2010B Certificates. fs1 Amounts reflect the aggregate amount of scheduled Lease Payments under the Lease due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. No Reserve Fund There is no reserve fund for the Certificates. Insurance The Lease provides that the City shall maintain or cause to be maintained, throughout the term of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees, and 18 insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious mischief insurance. Pursuant to the Lease, the City shall also maintain workers' compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers' Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto (with provision for self - insurance). The Lease also provides that the City shall maintain or cause to be maintained on the Leased Premises rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24- month period, to insure against loss of rental income from the Leased Premises caused by perils covered by casualty and theft insurance. The City is not required to purchase or maintain earthquake insurance with respect to the Leased Premises. Pursuant to the Lease, the insurance for public liability and property damage insurance, worker's compensation and casualty and theft insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self - insurance by the City. See Appendix C — "Summary of Principal Legal Documents — Lease Agreement — Insurance" attached hereto. Abatement Except (i) to the extent that moneys derived from any person, including proceeds of rental interruption insurance, as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. In the event of abatement as described above, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds pursuant to the Lease, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Substitution or Release of the Leased Premises Pursuant to the Lease, the City shall have the right to substitute alternate real property for any portion of the Leased Premises or to release a portion of the Leased Premises from the lien of the Lease upon compliance with all of the conditions set forth in the Lease. Notwithstanding any substitution pursuant to the Lease, there shall be no reduction in or abatement of the Lease Payments due from the City 19 hereunder as a result of such substitution. After a substitution or release, the part of the Leased Premises for which the substitution or release has been effected shall be released from the leasehold under the Lease. The Lease further provides that, subject to certain conditions precedent, upon the filing by the City of a completion certificate with respect to the Project, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site (each as defined in the Lease), provided that the City certifies to the Trustee that at least 90% of the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. See Appendix C — `Summary of Principal Legal Documents — The Lease Agreement — Covenants with Respect to the Leased Premises — Substitution or Release of the Leased Premises" attached hereto. Additional Certificates In addition to the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the conditions set forth in the Trust Agreement, which are made conditions precedent to the preparation, execution and delivery of such Additional Certificates, including, but not limited to, (i) the parties to the Trust Agreement shall have executed a Supplemental Agreement setting forth the terms and provisions of such Additional Certificates and specification of whether such Additional Certificates are payable from the 2010A Lease Payments or 2010B Lease Payments and (ii) the Trustee shall have received a certificate of the City Representative that (1) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (2) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease). See Appendix C — `Summary of Principal Legal Documents — The Trust Agreement — The 2010 Certificates of Participation — Additional Certificates" attached hereto. Remedies on Default Events of Default Pursuant to the Lease, any one or more of the following shall be "events of default' thereunder: (a) failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; (b) failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed under the Lease or otherwise with respect thereto or in the Trust Agreement or in the Site Lease, subject to certain exceptions, and (c) the filing by the City of a case in bankruptcy or certain related events set forth in the Lease. Whenever any event of default under the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. No Termination; Repossession and Re -Lease on Behalf of the City. Pursuant to the Lease, in the event the Corporation does not elect to terminate the Lease in the manner described under "— Termination; Repossession and Re- Lease" herein, the Corporation may, with the consent of the City, which consent is 20 irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re- leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement. In the event that the liability of the City under this caption "— No Termination; Repossession and Re -Lease on Behalf of the City" is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies described under this caption "— No Termination; Repossession and Re -Lease on Behalf of the City ". Termination; Repossession and Re- Lease. Pursuant to the Lease, in the event of the termination of the Lease by the Corporation at its option and in the manner described in this paragraph on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. Pursuant to the Lease, the City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. 21 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIII A On June 6, 1978, California voters approved Proposition 13, adding Article XIII A to the California Constitution. Article XIII A, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975 -76 tax bill under `full cash value,' or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two- thirds of the votes cast by the voters voting on the proposition. Legislation enacted by the State Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation the following year. The City is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIII A effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIII B On November 6, 1979, California voters approved Proposition 4, which added Article XIII B to the California Constitution. In May 1990, the voters through their approval of Proposition 111 amended Article XIII B. Article XIII B of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the 1978 -79 Fiscal Year. Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to a governmental entity, or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and 22 disability insurance funds. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues and (iii) certain State subventions received by local governments. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years. As amended in May 1990, the appropriations limit for the County in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the County's option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ( "K -14 ") districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two -year periods. Any excess of the aggregate "proceeds of taxes" received by the County over such two -year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Article XIII B permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter - approved change can only be effective for a maximum of four years. The City Council adopted the annual appropriation limit for the Fiscal Year 2010 -11 of approximately $140.6 million. The limitation applies only to proceeds of taxes and therefore does not apply to service fees and charges, investment earnings on non - proceeds of taxes, fines, and revenue from the sale of property and taxes received from the State and federal governments that are tied to special programs. Based on the Fiscal Year 2010 -11 Adopted Budget, the funds subject to limitation total approximately $111.3 million (total General Fund budget minus non - proceeds of taxes and debt service) and are approximately $29.3 million below the Article XIII B limit. Proposition 46 On June 3, 1986, California voters approved Proposition 46, which added an additional exemption to the 1% tax limitation imposed by Article XIII A. Under this amendment to Article XIII A, local governments and school districts may increase the property tax rate above 1% for the period necessary to retire new general obligation bonds, if two- thirds of those voting in a local election approve the issuance of such bonds and the money raised through the sale of the bonds is used exclusively to purchase or improve real property. 23 Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election which (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two- thirds vote of the governmental entity's legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local government entity be approved by a two - thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A of the California Constitution, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988. On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a county -wide sales tax of one -half of one percent was a special tax that, under Section 53722 of the Government Code, required a two - thirds voter approval. Because the tax received an affirmative vote of only 54.1%, this special tax was found to be invalid. Following the California Supreme Court's decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ( "La Habra "). In this case, the court held that public agency's continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The City does not believe any of the taxes constituting City revenues are levied in violation of Proposition 62. Proposition 218 On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the "Right to Vote on Taxes Act" ( "Proposition 218 "). Proposition 218 added Articles XIII C and XIII D to the California Constitution and contained a number of interrelated provisions affecting the ability of local governments, including the City, to levy and collect both existing and future taxes, assessments, fees and charges. The City is unable to predict whether and to what extent Proposition 218 may be held to be constitutional or how its terms will be interpreted and applied by the courts. Proposition 218 could substantially restrict the City's ability to raise future revenues and could subject certain existing sources of revenue to reduction or repeal, and increase the City's costs to hold elections, calculate fees and assessments, notify the public and defend its fees and assessments in court. However, the City does not presently believe that the potential financial impact on the City as a result of the provisions of Proposition 218 will adversely affect the City's ability to pay its debt obligations and perform its other obligations payable from the General Fund as and when due. 24 Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City's General Fund, require a two - thirds vote. Further, any general purpose tax that the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election held within two years of November 5, 1996. The City has not enacted, imposed, extended or increased any tax without voter approval since January 1, 1995. These voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues through General Fund taxes, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure requirements. Article XIII C also expressly extends to voters the power to reduce or repeal local taxes, assessments, fees and charges through the initiative process, regardless of the date such taxes, assessments, fees or charges were imposed. This extension of the initiative power is not limited by the terms of Proposition 218 to fees imposed after November 6, 1996 and absent other legal authority could result in retroactive reduction in any existing taxes, assessments or fees and charges. SB 919 provides that the initiative powers extended to voters under Article XIlI C likely excludes actions construed as impairment of contracts under the contract clause of the United States Constitution. SB 919 provides that the initiative power provided for in Proposition 218 "shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after November 6, 1998, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights" protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City's General Fund. Further, "fees" and `charges" are not defined in Article XIII C or SB 919, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIII C as they do in Article XIII D. Accordingly, the scope of the initiative power under Article XIlI C could include all sources of General Fund monies not received from or imposed by the federal or State government or derived from investment income. The initiative power granted under Article XIII C of Proposition 218, by its terms, applies to all local taxes, assessments, fees and charges. The City is unable to predict whether the courts will ultimately interpret the initiative provision to be limited to property related local taxes, assessments, fees and charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges which are deposited into the City's General Fund. The City believes that in the event that the initiative power was exercised so that all local taxes, assessments, fees and charges which may be subject to the provisions of Proposition 218 are reduced or substantially reduced, the financial condition of the City, including its General Fund, would be materially adversely affected. As a result, there can be no assurances that the City would be able to pay the Certificates as and when due or any of its other obligations payable from the General Fund. Article XIII D of Proposition 218 adds several new requirements to make it more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. "Assessment" is defined in Proposition 218 and SB 919 as any levy or charge upon real property for a special benefit conferred upon the real property. This includes maintenance assessments imposed in County service areas and in special districts. In most instances, in the event that the City is unable to collect assessment revenues relating to specific programs as a consequence of Proposition 218, the City will curtail such services rather than use amounts in the General Fund to finance such programs. Accordingly, the City anticipates that any impact Proposition 218 may have on existing or future taxes, fees, and assessments will not adversely affect the ability of the City to pay the Certificates as and when due. However, no assurance can be given 25 that the City may or will be able to reduce or eliminate such services in the event the assessments that presently finance them are reduced or repealed. Article XIII D also adds several provisions, including notice requirements and restrictions on use, affecting "fees" and "charges" which are defined as "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service." The annual amount of revenues that are received by the City and deposited into its General Fund which may be considered to be property related fees and charges under Article XIII D of Proposition 218 is not substantial. Accordingly, presently the City does not anticipate that any impact Proposition 218 may have on future fees and charges will not adversely affect the ability of the City to pay the principal and interest with respect to the Certificates as and when due. However, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. Further, the fees and charges of the County's enterprise funds, including those which are not property related for purposes of Article XIII D of Proposition 218, may be determined to be fees and charges subject to the initiative power as provided in Article XIII C of Proposition 218, as described above. In the event that fees and charges cannot be appropriately increased or are reduced pursuant to the exercise of the initiative power, the City may have to choose whether to reduce or eliminate the service financed by such fees or charges or finance such service from its General Fund. Further, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. Additional implementing legislation respecting Proposition 218 may be introduced in the State legislature from time to time that would supplement and add provisions to California statutory law. No assurance may be given as to the terms of such legislation or its potential impact on the City. Proposition IA Proposition IA (2004), proposed by the State Legislature in connection with the 2004 -05 Budget Act and approved by the voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition IA (2004) generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two- thirds of both houses of the State Legislature. Proposition IA (2004) provides, however, that beginning in Fiscal Year 2008 -09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two - thirds of both houses of the State Legislature and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition IA (2004) also provides that if the State reduces the VLF rate below 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition IA (2004) requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. In Fiscal Year 2009 -10, the State borrowed approximately 8.0% of property tax revenues from counties, cities and special districts, totaling approximately $1.9 billion, which amount will be repaid 26 within three years of the borrowing pursuant to Proposition IA (2004). The City's share of the borrowing was approximately $6.2 million. The City recovered the fixll amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. Proposition 26 On November 2, 2010, voters approved Proposition 26, which amends the State Constitution to expand the definition of a tax so that certain fees and charges currently imposed by government will be subject to approval by two thirds of each house of the State Legislature or approval by local voters, as applicable. In addition, Proposition 26 requires a two- thirds approval by each of house the State Legislature to approve laws that increase taxes on any taxpayer, even if the law's overall fiscal effect does not increase State revenues. Proposition 26 also repeals recent State laws that conflict with the measure, unless approved again by two- thirds of each house of the State Legislature within one year of approval of Proposition 26. The State Legislative Analyst's Office ( "LAO ") states that Proposition 26 would make it more difficult for State and local governments to pass new laws that raise revenues and could reduce government revenues and spending statewide by up to billions of dollars annually compared to what otherwise would have occurred, particularly if the proposed voting requirements results in some proposes not being approved. There are several uncertainties regarding the terms of Proposition 26. Accordingly, the City can not presently estimate the potential impact Proposition 26 will have on the City's finances. However, the City believes that Proposition 26 will not adversely affect the ability of the City to pay the principal and interest with respect to the Certificates as and when due. Future Initiatives Article XIII A, Article XIII B, Article XIII C, Article XIII D and Propositions 62 and IA were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time, other initiative measures could be adopted, further affecting revenues of the City or the City's ability to expend revenues. The nature and impact of these measures cannot be predicted by the City. Text of the qualified statewide ballot measures may be found at the Secretary of State website, www.sos.ca.gov under the heading "Elections." An impartial analysis of the ballot measures is posted by the LAO at www.sao.ca.gov. The referenced information is prepared by the respective State agency maintaining the web site and not by the City, and the City can take no responsibility for the continued accuracy of the internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. RISK FACTORS The ability of the City to pay principal of and interest with respect to the Certificates depends primarily upon the receipt by the City of sufficient General Fund revenues. Some of the events which could prevent the City from receiving sufficient General Fund revenues to enable it to pay the principal of and interest on the Certificates are summarized below. The following description of risks is not intended to be an exhaustive list of the risks associated with the purchase of the Certificates and the order of the risks set forth below does not necessarily reflect the relative importance of the various risks. Not a Pledge of Taxes The obligation of the City to pay Lease Payments and Additional Payments under the Lease shall constitute a current expense of the City and shall not in any way be construed to be a debt of the City, or the State, or any political subdivision thereof, in contravention of any applicable constitutional or statutory 27 limitation or requirements concerning the creation of indebtedness by the City, the State, or any political subdivision thereof, nor shall anything contained in the Lease constitute a pledge of general revenues, funds or moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Lease Payments and Additional Payments under the Lease or an obligation of the City for which the city is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The City is currently liable on and may accrue other obligations payable from its general revenues. Such obligations, together with the Certificates, are payable from general revenues of the City without priority. Additional Obligations of the City The City has the capability to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased. The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Premises, taxes and other governmental charges levied against the Leased Premises) are payable from funds lawfully available to the City. In the event that the amounts which the City is obligated to pay in a fiscal year exceed the City's revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. Default; Remedies Upon Default Whenever any event of default under the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. Pursuant to the Lease, in the event the Corporation does not elect to terminate the Lease, the Corporation may, with the consent of the City, which consent is irrevocably given, repossess the Leased Premises and re -lease it, subject to the limitations set forth below with respect to the Central Library Site, for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The Lease provides that the obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. Pursuant to the Lease, the City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained in the Lease and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall 28 be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments under the Lease, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. Alternatively, pursuant to the Lease, in the event of the termination of the Lease by the Corporation at its option (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises, subject to the limitations set forth below with respect to the Central Library Site), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re- lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. Pursuant to the Lease, the City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner in the Lease expressly provided. Limitations on Remedies The rights of the Owners of the Certificates are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, and the obligations incurred by the City, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against counties in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. In addition, the portion of the Leased Premises consisting of the Central Library Site is subject to the conditions and restrictions set forth in that certain Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase (the "Declaration "), dated as of March 11, 1992, by and between the Irvine Company, as grantor (the "Declarant "), and the City, as grantee, pursuant to which the City was granted the Central Library Site. Pursuant to the Declaration, no portion of the Central Library Site or any improvements thereon shall be used for retail, commercial, quasi - retail or quasi - commercial facilities that materially compete with the retail and commercial facilities in the Newport Center, including the shopping center known as Fashion Island, or otherwise improved, developed, used, operated or maintained with any facilities or for any purpose whatsoever except as a public library with related parking unless expressly approved by the Declarant, which approval may be granted or withheld by the Declarant in its sole discretion. The Declaration also provides that, except for certain permitted 29 transfers to a governmental entity whose primary purpose is the maintenance and operation of public libraries and transfers in connection with the sale of public obligations, the Declarant has a right of first refusal with respect to all or any part of the Central Library Site determined to be transferred by the City. The Declaration further provides that upon any proposed, attempted or actual transfer in violation of the provisions of the Declaration and upon any violation of the restrictions set forth therein, the Declarant in its sole option and discretion shall be entitled to repurchase the Central Library Site. Abatement Except (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided in the Lease, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. Risk of Nonpayment of Refundable Credits No assurance is given that the U.S. Treasury will make payment of the Refundable Credits in the amounts to which the City believes it is entitled, nor that such payments will be made in a timely manner. The U.S. Treasury may offset any Refundable Credit to which the City is otherwise entitled against any other tax liability of the City payable to the U.S. Treasury. No assurance can be given that Congress will not amend or repeal provisions of the American Recovery and Reinvestment Act of 2009, which amendments could affect the payment of Refundable Credits. See "Security for the Certificates and Sources of Payment — Pledge of Refundable Credits to 2010B Certificates" herein. Seismic Events The Leased Premises is located within a seismically active area, and damage from an earthquake could be substantial. The City is not obligated under the Lease to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Premises and no assurance can be made that the City will procure and maintain, or cause to be procured and maintained, such insurance. There can be no assurance that earthquake insurance on the Leased Premises, if any, can be renewed or will be maintained by the City in the future, or will be available for payments in respect of the Certificates. If there is no earthquake insurance on the Leased Premises and if the Leased Premises is damaged in an earthquake, the Lease Payments would be subject to abatement. See "Risk Factors — Abatement' herein. The Leased Premises may also be at risk from other events of force majeure, such as damaging storms, floods, fires and explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional 30 information regarding the City's risk management programs, see Appendix A — "City of Newport Beach Financial Information and Regional Economic and Demographic Information — City of Newport Beach Financial Information — Risk Management" and Appendix C — `Summary of Principal Legal Documents — The Lease — Insurance" attached hereto. THE CORPORATION The Corporation was incorporated on March 9, 1992, and is a nonprofit public benefit corporation duly organized and existing under the California Nonprofit Public Benefit Corporation Law for the purpose, among other things, of rendering financial assistance to the City by financing, acquiring, constructing, improving, leasing and selling buildings, building improvements, equipment, electrical, water, sewer, road and other public improvements, lands and any other real or personal property, tangible and intangible, for the benefit of residents of the City and surrounding areas. The Corporation has no taxing authority. The Corporation has no liability to the Owners of the Certificates and has pledged none of its moneys, funds or assets toward the Lease Payments or Prepayments under the Lease, or toward the payment of any amount due in connection with the Certificates. The Corporation is a separate legal entity from the City. It is governed by a seven member Board of Directors (the "Board of Directors ") appointed by the City Council. The Corporation has no employees. All staff work is performed by employees of the City. The members of the Corporation's Board of Directors are the members of the City Council in their ex officio capacity. The Corporation has not entered into any material financing arrangements with respect to the Certificates other than those referred to in this Official Statement. Further information concerning the Corporation may be obtained from the Corporation's office at 3300 Newport Boulevard, Newport Beach, California, 92659 -1768. TAX MATTERS 20I0A Certificates. In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with respect to the 2010A Certificates is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, interest with respect to the 2010A Certificates is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, 2010A Certificate Owners should consult their tax advisors regarding whether interest with respect to the 2010A Certificates is included as an adjustment in the calculation of alternative minimum taxable income. The difference between the issue price of a 2010A Certificate (the first price at which a substantial amount of the 2010A Certificates of the same 2010And maturity is to be sold to the public) and the stated prepayment price at maturity with respect to the 2010A Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to an Owner of a 2010A Certificate (the "2010A Certificate Owner ") before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2010A Certificate Owner will increase the 2010A Certificate Owner's basis in the applicable 2010A Certificate. In the opinion of Special Counsel, original issue discount that accrues to a 2010A Certificate Owner is excluded from gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the 31 federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Special Counsel's opinion as to the exclusion from gross income of interest (and original issue discount) with respect to the 2010A Certificates is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City complies with all requirements of the Code, that must be satisfied subsequent to the execution and delivery of the 2010A Certificates to assure that the interest (and original issue discount) with respect to the 2010A Certificates will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) with respect to the 2010A Certificates to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the 2010A Certificates. The City has covenanted to comply with all such requirements. The amount by which a 2010A Certificate Owner's original basis for determining loss on sale or exchange in the applicable 2010A Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable 2010A Certificate premium, which must be amortized under Section 171 of the Code; such amortizable 2010A Certificate premium reduces the 2010A Certificate Owner's basis in the applicable 2010A Certificate (and the amount of tax - exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2010A Certificate premium may result in a 2010A Certificate Owner realizing a taxable gain when a 2010A Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2010A Certificate to the Owner. Purchasers of the 2010A Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable 2010A Certificate premium. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of tax - exempt bond issues, including both random and targeted audits. It is possible that the 2010A Certificates will be selected for audit by the IRS. It is also possible that the market value of the 2010A Certificates might be affected as a result of such an audit of the 2010A Certificates (or by an audit of similar bonds). Special Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax Certificate relating to the 2010A Certificates permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) with respect to the 2010A Certificates for federal income tax purposes if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Special Counsel has rendered an opinion that interest (and original issue discount) with respect to the 2010A Certificates is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2010A Certificates and the accrual or receipt of interest (and original issue discount) with respect to the 2010A Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2010A Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2010A Certificates. 32 A copy of the proposed form of opinion of Special Counsel with respect to the 2010A Certificates is set forth in Appendix E herein. 2010B Certificates. The 2010B Lease Payments evidenced by the 2010B Certificates have been designated as Build America Bonds for purposes of Section 54AA of the Code for which the City is allowed a refundable credit which, with respect to any interest payment date for the 2010B Certificates, is equal to 35 percent of the amount of interest evidenced by the 2010B Certificates on such date. The City will elect to receive a cash subsidy payment from the United States Treasury equal to thirty-five percent (35 %) of the interest payable by the City evidenced by the 2010B Certificates. UNDER NO CIRCUMSTANCES WILL THE OWNERS OF THE 2010B CERTIFICATES RECEIVE OR BE ENTITLED AT ANY TIME TO A CREDIT AGAINST THE TAX IMPOSED BY THE CODE. The City cannot ensure that it will receive such a refundable credit at any time and in any given amount. The cash subsidy payment with respect to the 2010B Certificates to which the City is entitled is treated by the Internal Revenue Service as a refund of a tax credit and such refund may be offset by the Department of the Treasury by any liability of the City payable to the Federal government, including in respect of any internal revenue tax (including any interest and penalties), past due child support, past due and legally enforceable debt due federal agencies, unemployment compensation debts, and past due legally enforceable state income tax debts. The payment of the cash subsidy payments do not represent a full faith and credit obligation or guarantee of the federal government and there can be no assurance that the subsidy payments will be timely received in any particular amount. In the opinion of Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest evidenced by the 2010B Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Code but is exempt from State of California personal income tax. Except for certain exceptions, the difference between the issue price of a 2010B Certificate (the first price at which a substantial amount of the 2010B Certificate of the same 2010And maturity is to be sold to the public) and the stated prepayment price at maturity with respect to such 2010B Certificate (to the extent the prepayment price at maturity is bigger than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method. The amount of original issue discount deemed received by the 2010B Certificate Owner will increase the 2010B Certificate Owner's basis in the 2010B Certificate. 2010B Certificate holders should consult their own tax advisors with respect to taking into account any original issue discount on the 2010B Certificates. 2010B Certificate holders that have a basis in the 2010B Certificates that is greater than the principal amount of such 2010B Certificates should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under Section 171 of the Code. The qualification of the 2010B Certificates and receipt of the refundable credit for purposes of Section 54AA of the Code is subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2010B Certificates to assure that the 2010B Lease Payments evidenced by 2010B Certificates qualify as Build America Bonds under Section 54AA for which the City has made an irrevocable election to receive a refundable credit. Failure to comply with such requirements of the Code might result in the City not receiving such a refundable credit, possibly retroactive to the date of issue of the 2010B Certificates. The City has covenanted to comply with all such requirements. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of bond issues, including both random and targeted audits. It is possible that the 2010B Certificates will be 33 selected for audit by the IRS. It is also possible that the market value of the 2010B Certificates might be affected as a result of such an audit of the 2010B Certificates (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, that Congress or the IRS might change the Code (or interpretation thereof) subsequent to the issuance of the 2010B Certificates to the extent that it adversely affects the status of the 2010B Lease Payments evidenced by 2010B Certificates as Build America Bonds for purposes of Section 54AA of the Code for which the Board is entitled to a refundable credit or the 2010B Certificate market value. It is possible that subsequent to the issuance of the 2010B Certificates there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state or local law) that affect the federal, state, or local tax treatment of the 2010B Certificates or the market value of the 2010B Certificates. No assurance can be given that subsequent to the issuance of the 2010B Certificates such changes or interpretations will not occur. The federal tax and State of California personal income tax discussion set forth above is included for general information only and may not be applicable depending upon an Owner's particular situation. The ownership and disposal of a 2010B Certificate and the accrual or receipt of interest with respect to a 2010B Certificate may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. ANY FEDERAL TAX ADVICE CONTAINED HEREIN WITH RESPECT TO THE 2010B CERTIFICATES IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE CODE. THE FEDERAL TAX ADVICE CONTAINED HEREIN WITH RESPECT TO THE 2010B CERTIFICATES WAS WRITTEN TO SUPPORT THE PROMOTING AND MARKETING OF THE 2010B CERTIFICATES. BEFORE PURCHASING ANY OF THE 2010B CERTIFICATES, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES RELATING TO THE 2010B CERTIFICATES AND THE TAXPAYER'S PARTICULAR CIRCUMSTANCES. A copy of the proposed form of opinion of Special Counsel with respect to the 2010B Certificates is set forth in Appendix E hereto. CERTAIN LEGAL MATTERS The validity of the Certificates and certain other legal matters are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Complete copies of the proposed forms of opinions of Special Counsel are contained in Appendix E hereto. Special Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City and the Corporation by David Hunt, City Attorney, and Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, and for the Underwriters by their counsel, Jones Hall, A Professional Law Corporation, San Francisco, California. Payment of the fees of Special Counsel, Disclosure Counsel and the Underwriter's counsel is contingent upon execution and delivery of the Certificates. Special Counsel and Disclosure Counsel represent the Underwriters on matters unrelated to the Certificates. 34 FINANCIAL STATEMENTS The general purpose financial statements of the City, pertinent sections of which are included in Appendix B to this Official Statement, have been audited by Mayer Hoffman McCann P.C. (the "Independent Auditors "), certified public accountants and management consultants, as stated in their report appearing in Appendix A. Independent Auditors has not consented to the inclusion of its report as Appendix B and has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Independent Auditors with respect to any event subsequent to its report dated December 18, 2009. LITIGATION No litigation is pending or, to the best knowledge of the City, threatened against the City or the Corporation concerning the validity of the Certificates. The City is not aware of any litigation pending or threatened questioning the political existence of the City or the Corporation or contesting the City's ability to cause the execution and delivery of the Certificates or pay the Lease Payments pursuant to the Lease. There are a number of lawsuits and claims pending against the City. Other than as described in Appendix A, the City does not believe that any of these proceedings could have a material adverse impact upon the financial condition of the City. UNDERWRITING The Certificates are being purchased by the underwriters named on the cover page hereof (the "Underwriters "). Pursuant to the Purchase Contract for the Certificates the Underwriters have agreed, subject to certain conditions, to purchase the 2010A Certificates at a price of $ (representing the principal amount of the 2010A Certificates, plus an original issue premium of $ , less an underwriting discount of S ...... . ) and the 2010B Certificates at a price of $ (representing the principal amount of the 2010B Certificates, less an underwriting discount of The Purchase Contract for the Certificates provides that the Underwriters will purchase all of the Certificates, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell the Certificates to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriters. The following two sentences have been provided by De La Rosa & Co., one of the underwriters for the Certificates. De La Rosa & Co., one of the Underwriters of the Certificates, has entered into separate agreements with Credit Suisse Securities USA LLC, UnlonBanc Investment Services LLC and City National Securities, Inc. for retail distribution of certain municipal securities offerings, at the original issue prices. Pursuant to said agreement, if applicable to the Certificates, De La Rosa & Co. will share a portion of its underwriting compensation with respect to the Certificates, with Credit Suisse Securities USA LLC, UnionBanc Investment Services LLC or City National Securities, Inc. FINANCIAL ADVISOR Fieldman, Rolapp & Associates, Irvine, California served as Financial Advisor to the City (the "Financial Advisor ") in connection with the issuance of the Certificates. The Financial Advisor is an independent financial advisory firm and is not engaged in the business of underwriting municipal bonds or other securities. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an 35 independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement (the "Disclosure Undertaking ") with Digital Assurance Certification, L.L.C., the City has agreed to provide, or cause to be provided, with respect to each fiscal year of the City, commencing with Fiscal Year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the Repository the audited financial statements, if available, or unaudited financial statements, and the annual financial information and operating data with respect to the City, for each fiscal year of the City, as described in Appendix A — "City of Newport Beach Information" attached hereto and specified in the Disclosure Undertaking. In addition, the City has agreed to provide, or cause to be provided, to the Repository in a timely manner notice of the following "Listed Events" if determined by the City to be material: (1) principal and interest payment delinquencies; (2) non - payment related defaults; (3) unscheduled draws on the debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax - exempt status of the security; (7) modifications to rights of security holders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities; and (11) rating changes. These covenants have been made in order to assist the Underwriters in complying with the Rule. The City has complied in all material respects in the last five years with each of its previous undertakings with regard to the Rule to provide annual reports and notices of material events. RATINGS Moody's Investors Service, Inc. ( "Moody's "), S &P and Fitch Ratings ( "Fitch ") have assigned ratings of "Aa2," "AA +" and "AA +," respectively, to the Certificates. Moody's, S &P and Fitch have also assigned issuer ratings of "Aaa, ", "AAA" and "AAA," respectively, to the City. Such ratings reflect only the views of such organizations and explanations of the significance of such ratings may be obtained only from the organizations at: Moody's Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007 -2796, telephone number (212) 553 -0317; Standard and Poor's Ratings Services, 55 Water Street, New York, New York 10041, telephone number (212) 438 -2000; and Fitch Ratings, One State Street Plaza, New York, New York 10004, telephone number (212) 908 -0500. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. MISCELLANEOUS The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF NEWPORT BEACH By: City Manager 36 APPENDIX A CITY OF NEWPORT BEACH FINANCIAL INFORMATION AND REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION CITY OF NEWPORT BEACH FINANCIAL INFORMATION ..................... General........................................................................ ............................... Government................................................................ ............................... Accounting and Financial Reporting ........................ ............................... BudgetProcess ........................................................... ............................... FinancialStatements .................................................... ............................... Recent Budget Results; Fiscal Year 2010 -11 Budget ............................ Major Revenues ......................................................... ............................... OtherFunds ................................................................ ............................... Reserves...................................................................... ............................... CapitalProjects .......................................................... ............................... LaborRelations .......................................................... ............................... Pension Benefits ......................................................... ............................... Other Post Employment Benefits ............................. ............................... RiskManagement ...................................................... ............................... Indebtedness............................................................... ............................... City Investment Policy .............................................. ............................... Litigation.................................................................... ............................... STATE OF CALIFORNIA BUDGET INFORMATION ............................ General........................................................................ ............................... Fiscal Year 2010 -11 State Budget ............................... ............................... Current and Future State Budgets ............................... ............................... REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION ..... Population................................................................... ............................... Employment............................................................... ............................... Median Household Income ....................................... ............................... Personal Income ......................................................... ............................... MajorEmployers ....................................................... ............................... Construction Activity ................................................ ............................... TaxableSales .............................................................. ............................... Foreclosure Activity .................................................. ............................... A -(i) (THIS PAGE INTENTIONALLY LEFT BLANK) CITY OF NEWPORT BEACH FINANCIAL INFORMATION General The City of Newport Beach (the "City ") was incorporated under the general laws of the State of California (the "State ") on September 1, 1906. The City is located in the coastal center of the County of Orange (the "County"), approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. As of 2010, the City had a permanent population of 86,738, which typically grows to over 100,000 during the summer months, including 20,000 to 100,000 tourists daily. The City's adopted budget for Fiscal Year 2010 -11 (the "Fiscal Year 2010 -11 Adopted Budget") is approximately $226.7 million, approximately $149.3 million of which relates to the City's General Fund. Government The City operates pursuant to a City Charter adopted in 1954. The City has a Council -Mayor form of government. City Council members are elected by district but voted on by the population as a whole, and serve four -year staggered terms. The City Council consists of the Mayor and six other members and is responsible for, among other things, policy- making, passing local ordinances, adopting the budget, appointing committees and hiring the City Manager, the City Attorney, and the City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day to day operations of the City and for appointing directors of departments. The City is a full service city providing its residents and visitors with the following services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check and code enforcement services; libraries and cultural and arts services; recreation and senior services; and water, wastewater, rubbish disposal, and street light utilities services. The City provides water and sewer service to most areas within City limits, but it does not provide gas, electrical, or other utility service. Public elementary and secondary education is provided by school districts, which are separate government entities. On November 2, 2010, the voters of the City approved various City Charter amendments that will, among other things, modify existing provisions of the City Charter relating to additional taxes, restrict oil operations, amend legal document publication requirements and franchise processes, increase formal bidding thresholds, adjust misdemeanor penalties, require redistricting appointments every ten years, amend the City's civil service system, repeal the Chamber of Commerce contribution limit, remove City contract term limitations, require voter approval for the sale of City -owned waterfront property and effect administrative changes to comply with State and federal law. The City Charter amendments will not adversely affect the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (collectively, the "Certificates ") and the transactions described in the forepart of this Official Statement. Accounting and Financial Reporting The City maintains its accounting records in accordance with generally accepted accounting principles applicable to governmental entities ( "GAAP ") and the standards established by the A -1 Governmental Accounting Standards Board ( "GASB "). At least quarterly, a report is prepared for the City Council to review fiscal performance to date against the budget. A comprehensive annual financial report ( "CAFR "), including the audited financial statements, is prepared annually in conformance with GAAP, as promulgated by the GASB. The City's financial statements are audited by an independent certified public accountant. The City's most recent financial statements for the Fiscal Year ended June 30, 2009 were audited by Mayer Hoffman McCann P.C. The City's audited financial statements, together with accompanying notes and opinions from the City's Independent Auditor, for the Fiscal Year ended June 30, 2009, are set forth in Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. The City's governmental funds, including the General Fund, use the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when both available and measurable. The City's enterprise and internal service funds are proprietary funds that use the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related goods or services are delivered. Budget Process The City prepares and adopts an annual budget as required by the City Charter. The budget is the operating and capital expenditure plan for the City for the fiscal year beginning on July 1 and ending on June 30 of the following year (the "Fiscal Year ") and serves as the foundation for the City's financial planning and control. The budget process commences in December when the Administrative Services Department prepares preliminary fund balance estimates for the current year and preliminary revenue estimates for the next fiscal year. In January, the Administrative Services Department prepares a budget calendar and issues budget instructions, including budget guidelines approved by the City Manager and appropriation limits, and expenditure detail to each department for use in preparation of the next year's City budget. The departments then submit revenue and expenditure appropriation requests that are summarized by the Administrative Services Department and presented to the City Manager for review. The City Manager then meets with each department and, together with the Administrative Services Department, prepares and submits to the City Council a proposed budget for the next fiscal year. Subsequent to City Council review, including as many budget study sessions as the City Council deems necessary, and prior to the budget's final adoption, the City Manager provides each City Council Member with an itemized list of all proposed changes to permit a roll call vote by the City Council on each item during the budget hearing at the regular City Council meeting. The City Council holds the budget hearing and adopts the budget on or before June 30 of each year, as required by the City Charter. The budget is prepared on a modified accrual basis with all appropriations lapsing at the close of the fiscal year. Any revisions that increase the total appropriations of any fund over $10,000 must be approved by the City Council. In the event of any shortfall in projected revenue, immediate steps are taken to mitigate the shortfall through the identification of alternative funding sources or freezing appropriations. Similarly, if expenditures are projected to exceed appropriations, steps are taken to freeze expenditures in other accounts within the affected department or to transfer available resources to offset the added expenditure requirement. A -2 Financial Statements Table A -1 below sets forth the audited General Fund Balance Sheet for Fiscal Years 2005 -06 through 2008 -09 and the unaudited General Fund Balance Sheet for Fiscal Year 2009 -10. ASSETS Cash and Investments Receivables Accounts Notes Interest Intergovernmental Receivables Due from Other Funds Due from Agency Fund Prepaid Items Inventory Total Assets LIABILITIES, EQUITY AND FUND BALANCES Liabilities: Accounts Payable Accrued Payroll Deposits Payable Unearned Revenue Unavailable Revenue Deferred Revenues Total liabilities Fund balances: Reserved: Unreserved: Designatedt'l Total Fund Balances Total Liabilities and Fund Balances TABLE A -1 CITY OF NEWPORT BEACH GENERAL FUND BALANCE SHEETS FIVE YEAR COMPARISON Fiscal Years 2005 -06 through 2009 -10 Fiscal Year Ended June 30, 2006 2007 2008 2009 2010 Audited Audited Audited Audited finnndited $ 51,002,231 $ 63,551,764 $ 75,278,961 $ 76,435,099 $ 70,382,742 3,620,532 50,000 1,497,197 6,366,265 3,309,485 865,350 211,746 $ 66,922,806 4,636,290 50,000 1,592,648 5,857,894 7,351,061 436,484 492,032 220,864 $ 84,189,037 6,291,724 50,000 1,827,739 5,552,883 3,297,073 127,836 229,546 $ 92,655,762 $ 5,164,274 $ 6,314,060 $ 5.,054,805 2,055,909 2,358,540 3,688,974 3,277,731 3,741,959 2,913,141 1,590,815 1,725,326 1,91 1,171 247,016 135,950 28,532 $ 12,335,745 $ 14,275,835 $ 1.3,596,623 $ 9,374,722 $ 7,487,498 $ 6,807,094 5,138,168 4,138,978 471,250 1,457,076 981,924 4,798,249 4,948,641 3,686,684 11,940,685 526,444 932,148 219,698 238,274 $92,261,418 $ 94,034,642 $ 3,478,489 $ 3,403,362 4.,083,477 4,204,908 2,992,328 2,339,224 1,907,895 1,904,552 188,265 25,000 $ 12,650,454 $ 11,877,046 $ 5,907,205 $ 5,472,481 45,212,339 62,425,704 72,252,045 73,703,759 76,685,115 $ 54,587,061 $ 69,913,202 $ 79,059,139 $ 79,610,964 $ 82,157,596 $ 66.922.806 $ 84.189.037 $ 92.655.762 $ 92.261.418 $ 94.034.642 O1 Pursuant to City practice, unreserved General Fund amounts are designated for contingencies, capital projects, appropriations and other special purposes. Such amounts are available to fund current obligations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B —"City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -3 Table A -2 below sets forth the audited General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for Fiscal Years 2005 -06 through 2009 -10 and the unaudited General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for Fiscal Year 2009 -10. TABLE A -2 CITY OF NEWPORT BEACH GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE FIVE YEAR COMPARISON Fiscal Years 2005 -06 through 2009 -10 Revenue: Taxes and Assessments Property Sales Sales Tax in -lieu Transient Occupancy Other Taxes Intergovernmental Licenses and Permits Charges for Services Fines and Forfeitures Investment Income Net Increase (Decrease) in Fair Value of Investments Property Income Donations Other Total Revenue Expenditures: Current General Government Public Safetytlt Public Works Community Development Community Services Capital Outlay Debt Service: Principal Interest and fiscal changes Total Expenditures Excess of revenue over expenditures (Table continued on next page) Fiscal Year Ended June 30, 2006 2007 2008 2009 2010 A,,ditod Anditod Anrliterl A,,ditod itnmalitod $ 57,888,545 $ 63,003,057 $ 67,388,838 $ 70,126,680 $ 71,999,679 21,465,557 21,088.,118 21,855,242 17,925,956 17,440,736 5,720,028 7,348,253 8,017,539 7,503,113 4,539,946 9,832,729 12,059,008 12,751,518 11,170,956 11,400,710 7,377,811 8,309,012 8,288,855 8,486,937 7,976,309 3,935,193 3,811,671 3,083,152 2,597,108 2,693,785 3,295,057 3,108,651 4,994,304 4,396,034 2,603,348 13,098,106 14,368,652 14,935,333 14,374,139 15,210,962 3,839,925 3,706,150 3,957,864 3,711,087 3,739,303 1,939,941 3,175,582 3,655,314 1,697,103 706,855 (715,615) (545,533) 508,485 1,096,848 707,200 6,224,093 6,471,129 6,603,973 6,552,603 6,080,577 605,271 1,323,550 1,202,474 261,357 124,703 1,040,158 1,967,465 1,458,770 234,573 1,690,499 $ 135.546.799 $ 149.194.765 $ 158.701.661 $ 150.134.494 $ 146.914.612 $ 12,457,334 $ 13,624,189 $ 14,425,553 $ 15,478,258 $ 15,086,125 47,971,940 50,424,717 53,650,324 57,285,811 56,108,046 22,446,976 24,403,360 25,454,281 26,220,846 25,681,411 7,299,573 7,223,202 7,769,980 8,302,214 8,097,847 10,950,588 11,749,016 12,639,243 13,281,963 13,109,514 6,510,325 10,368,748 10,455,571 5,910,047 8,627,010 -- 2,000,000 1,500,000 1,500,000 -- -- -- 142,500 71,250 -- $ 107,636,736 $ 119,793,232 $ 126,037,452 $ 128,050,389 $ 126,709,953 $ 27,910,063 $ 29,401,533 $ 32,664,209 $ 22,084,105 $ 20,204,659 A -4 (Table continued from prior page.) Fiscal Year Ended June 30, 2006 2007 2008 2009 2010 Audited Audited Audited Audited Unaudited Other Financing Sources (Uses): Transfers In $ 787,393 $ 1,027,127 $ 5,521,342 $ 690,013 $ 1,519,725 Transfers Outat (28,597,790) (20,102,519) (29,039,614) (22,222,293) (20,677,752) Issuance of debt -- 5,000,000 -- -- 1,500,000 Total Other Financing Sources (Uses) $ (27,810,397) $ (14,075,392) $ (23,518272) $ (21,532,280) $ (17,658,027) Net Change in Fund Balance 99,666 15,326,141 9,145,937 551,825 2,546,632 Fund Balances, Beginning $ 54,487,395 $ 54,587,051 $ 69,913,202 $ 79,059,139 $ 79,610,964 Fund Balance, Ending $ 54,587,061 $ 69,913,202 $ 79,059,139 $ 79,610,964 $ 82,157,596 on Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to the Police Department and the Fire Department. (2) Includes in each of the respective years a transfer from the General Fund to finance in part the maintenance and operations of the Tide and Submerged Land Fund (the "Tide Fund "), which were $15.2 million, $17.0 million, $17.4 million, $20.3 million and $20.1 million from Fiscal Years 2005 -06 through 2009 -10, respectively. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B — "City Financial Statements for the Fiscal Year Ended Jane. 30, 2009" attached to this Official Statement. Recent Budget Results; Fiscal Year 2010 -11 Budget Long -Term Financial Planning. The City undertakes financial planning with a long -term approach and has developed several master replacement plans for its critical assets and infrastructure, including major facilities, street pavement, water and sewer infrastructure, and City vehicles and heavy equipment. The City retains the services of actuaries to predict and fund long- term liabilities, including workers compensation, general claim liabilities, pension liabilities and post employment health care liabilities. Reserve levels and annual required funding contributions are set by City Council policy. See "City of Newport Beach Financial Information — Reserves" herein. Annual contribution rates for workers compensation and general liability are targeted to facilitate the accumulation of cash reserves to achieve at least a 75% "confidence funding level ", meaning that there is a 75% probability that the respective funds will have enough money to cover all benefits and claims that have been incurred in connection therewith. Except for the implied subsidy component of the City's post employment health care plan ( "OPEB liability "), the City's policy is to fund the cash subsidy of its OPEB liability and pension liabilities at 100% of the actuarially determined annual required contribution ( "ARC "). Because the City pays the entire ARC each year, its net pension and net OPEB obligation at the end of each year is $0 (except for the implied subsidy component of OPEB which is funded on a pay -as- you -go basis). See "City of Newport Beach Financial Information — Pension Benefits" and "City of Newport Beach Financial Information — Post- Employment Benefits" herein. To mitigate the rising cost of pension plans, the City has negotiated pension cost sharing agreements with certain employee associations and is reviewing the potential for additional contributions and the creation of a second tier of pension benefits for new employees. Fiscal Year 2008 -09 Results. As of the end of the Fiscal Year 2008 -09, the City's Governmental Funds reflected combined fund balances of $121 million, an increase of $4.1 million from the prior year. The General Fund represented $79.6 million or 65.7% of the combined fund balances of the Governmental Funds. The General Fund reflected an increase of $0.6 million in fund A -5 balance relative to the prior fiscal year, after a transfer of $22.2 million to other funds, which consisted of $20.3 million in routine transfers to subsidize the operations of the Tide Fund, a $0.5 million transfer to the Contributions Fund and $1.4 million in various nonrecurring transfers to other funds. At the end of Fiscal Year 2008 -09, unreserved fund balance for the General Fund was $73.7 million, or 57.6% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100 % of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. Fiscal Year 2009 -10 Results. As of the end of the Fiscal Year 2009 -10, the City's Governmental Funds reflected combined fund balances of $110.2 million, a decrease of $10.9 million from the prior year. The General Fund represented $82.2 million or 74.6% of the combined fund balances of the Governmental Funds. The General Fund balance continued its trend of gradual increase, reflecting an increase of $2.5 million in fund balance relative to the prior fiscal year, after a transfer of $20.7 million to other funds, which consisted of $20.1 million in routine transfers to subsidize the operations of the Tide Fund and a $0.5 million routine transfer to the Debt Service Fund. At the end of Fiscal Year 2009 -10, unreserved fund balance for the General Fund was $76.7 million or 61% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. To address an $8 million projected revenue shortfalls in Fiscal Year 2009 -10, the City Council took a series of corrective actions, including adopting its Fiscal Sustainability Plan, organizing a review to identify operation savings, deferring certain capital projects, renegotiating contracts and contracting for additional services and returning surplus reserves. The City also approved an Early Retirement Incentive Plan ( "ERIP "), which operates through the Public Agency Retirement Systems ( "PARS ") Supplemental Retirement Plan ( "SRP "). See "City of Newport Beach Financial Information — Pension Benefits — Public Agency Retirement System — Supplemental Retirement Plan" herein. The SRP offered through PARS allowed the City to set the payment, eligibility, and refilling based on the City's needs, and allowed the associated expense to be known and quantifiable. The benefit to the participating employee is paid through a 15 -year annuity of 7% of "final pay up" to $75,000 and 6% of amount of "final pay" over $75,000, and it complements and is in addition to an employee's CalPERS retirement benefit. The total estimated cost to fund the ERIP benefit is $862,359 for the first year and $819,241 per year for the next four years. After accounting for the costs of implementing the ERIP plan and the estimated reduction to the City payroll, the net savings are expected to reach nearly $3.1 million annually. Fiscal Year 2010 -11 Budget. The Fiscal Year 2010 -11 Adopted Budget was adopted by the City Council on June 22, 2010. Total City revenues, excluding internal premiums, are expected to decrease approximately 4.4% relative to Fiscal Year 2009 -10 actual revenues, from $210.8 million to $201.6 million. Total City expenditures, excluding internal charges but including debt service and capital projects, are $226.7 million. The General Fund portion included revenues of approximately $145.1 million and expenditures of approximately $149.3 million. In accordance with the normal practice of the City, the Fiscal Year 2010 -11 Adopted Budget has been adjusted to reflect carry -over appropriations from the prior fiscal year and program needs not included in the Fiscal Year 2010 -11 Proposed Budget. See Table A -3 herein. The City projects that Fiscal Year 2010 -11 General Fund revenues will decrease approximately $1.8 million from Fiscal Year 2009 -10 actual revenues. Property tax revenues, which account for approximately 49% of total General Fund revenues, are budgeted to decrease by approximately $1.4 million in Fiscal Year 2010 -11. However, updated assessed valuation information from the County Assessor's Office reflects a projected 0.27% increase in net taxable Gb value in the City. See "City of Newport Beach Financial Information — Major Revenues" herein. Sales tax and uniform transient occupancy tax ( "TOT ") are the next largest components of the City's General Fund. The Fiscal Year 2010 -11 sales tax estimate is $17.4 million, the same as Fiscal Year 2009 -10 actual sales tax receipts and approximately 3.1% lower than Fiscal Year 2008 -09 actual sales tax receipts. TOT revenues are estimated to be $11.6 million, an increase of 1.4% over the Fiscal Year 2009 -10 actual TOT receipts. The General Fund contains expenditures for all operating City departments, except for the Harbor Resources Division within the City Manager Department and the Oil and Gas Division of the Utilities Department, which are funded through the Tide Fund and the Water and Wastewater Divisions within the Utilities Department respectively. In Fiscal Year 2010 -11, the General Fund expenditures, net of the Tide Fund, including General Fund capital improvements, total $126.6 million, a decrease of $0.1 million, or 0.1% from Fiscal Year 2009 -10 General Fund actual expenditures. Excluding internal service premiums charged to fund insurance reserves, equipment maintenance and replacement, and post employment medical benefits, total expenditures are proposed to be approximately $226.7 million. The budget shortfall between total external revenues and expenditures is due to the timing of Capital Improvement Project ( "CIP ") revenues and expenditures. CIP projects often span one or more fiscal years and it is estimated that $29 million projects will be re- budgeted from a prior fiscal year because such projects were delayed or were only partially completed. These funds are reserved in a Capital Appropriations reserve, but when the appropriation is carried forward to the following year, this re- appropriation causes expenditures to exceed current year revenues. Funding for the Project. The City's Fiscal Year 2010 -11 Adopted Budget includes a set -aside of $31.3 million as part of its Facilities Replacement Program (the "Facilities Replacement Program ") to fund construction expenditures for the Civic Center Project, including a parking structure and library additions, which amount will be reimbursed from proceeds of the Certificates described in the forepart of this Official Statement. See "Reserves — Facilities Replacement Program" for a description of the City's Facilities Replacement Program. The Civic Center project has been reviewed in context of all critical City facility replacement plans. The City's facilities replacement policy limits General Fund annual contributions to debt service to not more that 5% of total General Fund operating budget in any one year. See "Plan of Financing — The Civic Center Project" in the forepart of this Official Statement. Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010- 11 Budget. On October 8, 2010, the Governor signed the 2010 Budget Act (the "2010 -11 State Budget Act ") to address a then - projected $19.3 billion shortfall in revenues. See "State of California Budget Information - Fiscal Year 2010 -11 State Budget" herein. The funding provisions included in the 2010 -11 State Budget Act are expected to have minor impacts on City operations. The City has reviewed the 2010 -11 Budget Act and reflected the reductions included therein in its Fiscal Year 2010 -11 Adopted Budget. The primary impact to the City from the 2010 -11 Budget Act is the delay of new Highway Users Tax Account payments. City monthly payments for the remainder of Fiscal Year 2010 -11 will be increased and adjusted to compensate for the deferral. Given the current state of the State's economy and the projected imbalance in the State's budget, the City cannot fully anticipate the impact of State's continuing budget challenges on the revenues or expenditures of the City. The City cannot predict the extent of any additional fiscal problems that will be encountered in this or in any future fiscal years, and, it is not clear what measures will be taken by the A -7 State or federal government to address the continuing economic downturn. Future State budgets could be affected by national economic conditions and the factors over which the City will have no control. Also, the City cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State's current and future budget deficits or the impact that such actions will have on the City's finances and operations. To the extent that the State budget process results in reduced revenues or increased expenses to the City, the City will be required to make adjustments to its budget. See "State of California Budget Information" herein. Future Budget Impacts. For Fiscal Year 2010 -11, the ERIP is expected to continue to provide operating savings. Notwithstanding the 13.3 % investment earnings realized on pension investments for Fiscal Year 2009 -10, the City is anticipating a significant increase in expenditures in Fiscal Year 2011 -12 as that is when the Fiscal Year 2008 -09 investment losses of 24% (approximately $119.8 million of the market value of assets and $102.9 million of the actuarial value of assets) in connection with pension are factored into the City's pension contribution rates. The City's total pension cost is expected to increase from a budgeted $19.8 million in Fiscal Year 2010 -11 to $21.6 million in Fiscal Year 2011 -12, $25.8 in Fiscal Year 2012 -13 and $28.8 million in Fiscal Year 2013 -14. The City currently has $5 million in its Reserve for PERS Rate Changes to help offset rate increases. See "City of Newport Beach Financial Information — Pension Benefits" herein. IMV Table A -3 below sets forth the City's original, adopted budget and actual budget results for Fiscal Years 2008 -09 and 2009 -10 and the adopted budget for Fiscal Year 2010 -11. Revenues Taxes and Assessments: Property Sales Sales Tax In-Lieu (2) Transient Occupancy Other taxes Intergovernmental Licenses and Permits Charges for Services Fines and Forfeitures Investment Income Net increase in Fair Value of Investments Property income Donations Other Total Revenues TABLE A -3 CITY OF NEWPORT BEACH GENERAL FUND BUDGETS(n Fiscal Years 2008 -09 through 2010 -11 Fiscal Year 2008 -09 Fiscal Year 2009 -10 Fiscal Year 2010 -11 Original City Council Original Estimated Original Budget Actual Budget Actual Budget $ 68,834,854 $ 70,126,680 $ 71,119,504 $ 71,999,679 $ 70,642,840 22,635,634 17,925,956 19,656,428 17,440, 736 17,374,734 8,258,065 7,503,113 7,690,691 4,539,946 6,392,273 13,014,079 11,170,956 13,000,000 11,400,710 11,555,034 8,018,514 8,486,937 7,634,000 7,976,309 8,410,800 2,407,991 2,597,108 2,051,200 2,693,785 1,840,272 5,968,653 4,396,034 2,947,790 2,603,348 2,663,975 15,280,400 14,374,139 14,380,989 15,210,962 13,878, 895 3,560,256 3,711,087 3,645,000 3,739,303 3,651,000 2,268,000 1,697,103 1,400,000 706,855 1,050,000 -- 1,096,848. -- 707,200 -- 6,117,202 6,552,603 6,018,404 6,080,577 7,232,797 112,500 261,357 100,000 124,703 50,000 564,715 234,573 495,600 1,690,499 383,050 $ 157,040,863 $ 150,134,494 $ 150,139,606 $ 146,914,612 $ 145,125,670 Expenditures: 19,690,333 General Government: 21,098,141 City Council $ 1,196,180 City Clerk 524,193 City Attorney 1,542,595 City Manager 1,810,465 Administrative Services 8,390,086 Human Resources 2,155,636 Total General Government $ 15,619,155 Public Safety: (3) 1,462,862 Police $ 37,936,468 Fire 19,540,265 Total Public Safety $ 57,476,733 Public. Works: 27,741,776 General Services $ 20,801,443 Public Works 5,250,308 Utilities 1,465,258 Total Public Works $ 27,517,008 Community Development: 3,119,410 Planning $ 4,060,682 Building 4,947,609 Code and Water Quality 3,324,759 Enforcement 439,401 Total Community Development $ 9,447,693 (Table continued on nest page.) 4,332,481 $ 1,188,990 469,507 2,097,159 1,779,540 7,889,562 2,053,500 $ 15.478.258 $ 1,279,250 381,140 2,403,871 1,619,706 8,156,605 2,357,506 $ 16.198.078 $ 1,163,486 382,393 2,688,217 1,163,956 7,356,232 2,331,841 $ 15.086.125 $ 1,047,612 500,270 2,379,426 1,809,249 7,824,501 2,321,792 $ 15,882,850 $ 36,646,654 $ 36,886,066 $ 35,374,156 $ 35,599,103 20,639,157 21,077,491 20,733,889 21,536,261 $ 57,285,811 $ 57,963,557 $ 56,108,045 $ 57,135,364 $ 19,690,333 $ 21,098,141 $ 19,445,196 $ 19,550,813 5,075,801 5,180,773 5,077,222 4,973,274 1,454,692 1,462,862 1,158,994 1,317,935 $ 26,220,846 $ 27,741,776 S 25,681,412 $ 25,842,022 $ 4,713,078 $ 3,119,410 $ 3,126,089 $ 3,066,495 3,324,759 4,858,614 4,408,216 4,332,481 264,377 430,204 563,542 266,882 $ 8,302,214 $ 8,408,228 $ 8,097,847 $ 7,665,858 A -9 (Table continued from prior page) Community Services: Library Services Recreation and Senior Services Total Community Services Capital Outlay Debt Service: Principal Interest and Fiscal Charges Total Debt Service Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses) Transfers In Transfers Out Issuance of Debt Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, Beginning Fund Balance, Ending Fiscal Year 2008 -09 Original Budget Actual $ 6,966,096 7,243,013. $ 14,209,109 14,270,981 $ 6,521,718 6,760,245 $ 13,281,963 5,910,047 Fiscal Year 2009 -10 Fiscal Year 2010 -11 Original Estimated Original Budget Actual Budget $ 6,629,814 $ 6,554,183 $ 6,562,723 7,161,164 6,555,331 7,652,175 $ 13,790,978 $ 13,109,514 $ 14,214,898 8,636,613 8,627,010 5,054,497 $ 1,500,000 $ 1,500,000 $ -- $ -- $ 750,000 71,250 71,250 -- -- 30,000 $ 1,571,250 $ 1,571,250 $ -- $ -- $ 780,000 $ 140,111,929 $ 128,050,389 $ 132,739,230 $ 126,709,953 $ 126,575,489 $ 16,928,934 $ 22,084,105 $ 17,400,376 $ 20,204,659 $ 18,550,181 $ 440,000 $ 690,013 $ 440,000 $ 1,519,725 $ 440,000 (20,884,284) (22,222,293) (20,701,193) (20,677,752) (51,728,627) -- -- -- 1,500,000 -- $ (20,444,284) $ (21,532,280) $ (20,261,193) S (17,658,027) $ (51,288,627) $ (3,515,350) $ 551,825 $ (2,860,817) $ 2,546,632 $ (32,738,446) $ 79,059,139 $ 79,059,139 $ 79,610,964 $ 79,610,964 $ 82,157,596 $ 75,543,789 S 79,610,964 $ 76,750,147 $ 82,157,596 $ 49,419,150 f o Net of year-end allocations of certain General Fund revenues to the Tide Fund for maintenance services. ('i Includes correction of $1.2 million Sales Tax In -Lieu overpayment as a result of a State error in Fiscal Year 2008 -09. (3) Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to each of the Police Department and the Fire Department. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09; Adopted Budgets of the City for Fiscal Years 2009 -10 and 2010 -1 l; City for actual revenues and expenditures for Fiscal Year 2009 -10. Major Revenues General. The City's General Fund and its activities are primarily supported by ad valorem property, sales and use taxes, and transient occupancy taxes, which account for approximately 73% of total General Fund revenues. Other revenue sources supporting General Fund activities include licenses, fees and permits, intergovernmental revenues, charges for services, fines, forfeitures and penalties, revenues from the use of money and property, contributions, and other miscellaneous revenues. A -10 Table A -4 below sets forth the City's total General Fund revenues for selected major revenue sources from Fiscal Years 2006 -07 through 2010 -11. Taxes and Assessments Revenue Category Property Tax Sales Tax Sales Tax in -lieu Transient Occupancy Other Intergovernmental Licenses and Pemuts Charges for Services Fines and Forfeitures Investment Income Net Increase (Decrease) in Fair Value of Investments Property Income Donations Other Total Source: City of Newport Beach. TABLE A -4 CITY OF NEWPORT BEACH SELECTED MAJOR REVENUE SOURCES Fiscal Years 2006 -07 through 2010 -11 2006 -07 2007-08 2008 -09 2009 -10 2010 -11 Actual Actual Actual Estimated Budgeted $ 63,003,057 $ 67,388,838 $ 70,126,680 $ 71,999,679 $ 70,642,840 21,088,118 21,855,242 17,925,956 17,440,736 17,374,734 7,348,253 8,017,539 7,503,113 4,539,946 6,392,273 12,059,008 12,751,518 11,170,956 11,400,710 11,555,034 8,309,012 8,288,855 8,486,937 7,976,309 8,410,800 3,811,671 3,083.,152 2,597,108 2,693,785 1,840.,272 3,108,651 4,994,304 4,396,034 2,603,348 2,663,975 14,368,652 14,935,333 14,374,139 15,210,962 13,878,895 3,706,150 3,957,864 3,711,087 3,739,303 3,651,000 3,175,582 3,655,314 1,697,103 706,855 1,050,000 (545,533) 508,485 1,096,848 707,200 -- 6,471,129 6,603,973 6,552,603 6,080,5777 7,232,797 1,323,550 1,202,474 261,357 124,703 50,000 1,967,465 1,458,770 234,573 1,690,499 383,050 $ 149,194,765 $ 158,701,661 $ 150,134,494 $ 146,914,612 $ 145,125,670 Property Taxes. Property tax receipts provide the largest tax revenue source of the City, contributing approximately $70.1 million and $72 million (or 47% and 49% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. Property tax receipts are expected to provide approximately $70.6 million (inclusive of property transfer taxes) or 49% of General Fund revenues for Fiscal Year 2010 -11. Ad valorem property taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date "). For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." One type of ad valorem property tax is the 1 percent ad valorem property tax levied by the County on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of "situs" growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which A -11 were developed to permit the levying of taxes for less than county-wide or less than city-wide special and school districts. Another type of ad valorem property tax is the ad valorem property levied by the County to pay debt service on voter - approved general obligation bonds. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one -half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax defaulted property is subject to sale by the Office of the County Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one -half percent per month begins to accrue on November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. The County employs an alternate method of property tax apportionment known as the "Teeter Plan ", pursuant to which the County apportions taxing agencies 100% of their levy (adjusted for roll changes) and retains all delinquent receivables. However, the City is not a participant in the Teeter Plan. Accordingly, the City receives its property tax receipts as described above and retains all delinquent receivables relating thereto. Property taxes allocated to the City include an amount to compensate cities for the loss of motor vehicle license fees. Motor Vehicle License Fees ( "VLF ") are levied as a percentage of an automobile's purchase price, subject to depreciation, and are paid annually to the California Department of Motor Vehicles at the time of registration. The fees are then forwarded to the State Controller's Office, which allocates the funds to local governments per capita on a monthly basis. Beginning in 1999, the VLF underwent a series of offsets that ultimately resulted in a 67.0% reduction in the effective VLF rate, from 2.0% of a vehicle's value to 0.65 %. To compensate cities and counties for the tax offset, the State began providing State General Fund revenue to cities and counties on a dollar- for - dollar basis, otherwise known as the VLF backfill. As part of the Fiscal Year 2005 State Budget agreement, the VLF rate was statutorily reduced to 0.65 %, eliminating the VLF backfill. Cities were compensated for the loss in VLF revenue with increased property tax revenues. Although the VLF rate has subsequently increased, the City does not share in this increase. The Fiscal Year 2010 -11 Adopted Budget includes $69.4 million in projected property tax revenues, excluding property tax transfer of $1.2 million, consisting of $62.6 million of 1% property tax levy and $6.8 million of "in -lieu of VLF" property tax revenue. Although the City has historically experienced steady growth in assessed valuation of 4% or more, the City assumed for purposes of the Fiscal Year 2010 -11 Adopted Budget that there would be a 0.25% decline in secured property taxes from the prior year, with contingencies for a decline of assessed valuation. According to updated assessed valuation information provided by the County Assessor's Office, the City A -12 experienced a year -to -year increase in net taxable value of $38.8 billion, an increase of 0.27% over Fiscal Year 2009 -10 values. A number of factors contributed to the slower growth in assessed valuation for the last several years, such as falling residential real estate prices and increased foreclosures. In addition, the increased number of reassessment applications to the Assessor's Office has contributed to increased refunds to homeowners and less revenue to the City. The 1.0% property tax levy is placed on the total assessed valuation of all commercial, residential, and industrial properties in the City. Due to the downturn on the real estate market, the average median home price decreased nearly 29.6 percent since 2007 through July 2010. In Fiscal Year 2009 -10, the State borrowed approximately 8.0% of property tax revenues from counties, cities and special districts, totaling approximately $1.9 billion, which amount will be repaid within three years, all in accordance with Proposition IA (2004) approved by voters in 2004. The City's share of the borrowing was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. See "Constitutional and Statutory Limitations on Taxes, Revenues and Appropriations — Proposition IA," in the forepart of this Official Statement. Table A -5 below sets forth the property tax rates for the City for the Fiscal Years 2005 -06 through 2010 -11. TABLE A -5 CITY OF NEWPORT BEACH PROPERTY TAX RATES Fiscal Years 2005 -06 through 2009 -2010 Total Direct Rate $1.040 $1.036 $1.035 $1.034 $1.038 In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: County of Orange Auditor Controller's Office. A -13 Fiscal Years 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 City Direct Rates(') City Basic Rates $1.000 $1.000 $1.000 $1.000 $1.000 Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water Districts 0.005 0.005 0.004 0.004 0.004 School Districts 0.0349 0.0315 0.0308 0.0302 0.0340 Total Direct Rate $1.040 $1.036 $1.035 $1.034 $1.038 In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: County of Orange Auditor Controller's Office. A -13 Table A -6 below sets forth the secured and unsecured assessed valuations for property in the City for the Fiscal Years 2006 -07 through 2010 -11. TABLE A -6 CITY OF NEWPORT BEACH ASSESSED VALUATION Fiscal Years 2006 -07 through 2010 -11 Fiscal Locally State Total Year([) Assessed Assessed Secured[')"' 2006 -07 $31,423,419,732 $ 53,310 $31,423,473,042 2007 -08 34,188,515,273 53,310 34,188,568,583 2008 -09 36,435,406,840 699,230 36,436,106,070 2009 -10 37,077,896,580 699,230 37,078,595,810 2010 -11 37,079,578,045 699,230 37,080,217,275 Unsecured Total Values (4) Values(" 1,569,867,249 $32,993,340,291 1,668,015,342 35,856,583,925 1,538,539,482 37,974,645,552 1,564,808,312 38,643,404,122 1,626,947,910 38,707,165,185 (0 As of January 1. (2) Totals do not equal sum of component parts due to independent rounding. (3) Represents Proposition 13 increases and decreases in taxable value of locally assessed real estate, excluding exempt properties such as churches, hospitals and schools. Consists of business personal property assessments, plus marine and aircraft assessments. Source: County of Orange Auditor Controller's Office. Table A -7 below sets forth property tax collections and delinquencies in the City as of June 30 for Fiscal Years 2005 -06 through 2009 -10. TABLE A -7 CITY OF NEWPORT BEACH PROPERTY TAX LEVIES AND COLLECTIONS Fiscal Years 2006 through 2010 2005 -06 Tax Percent of Delinquent Total Collections as of Levy Tax Fiscal Year Tax Levy June 30 Collected Collections([' 2005 -06 $47,286,816 $45,558,039 96.34% $ 728,365 2006 -07 70,194,492 68,820,402 98.04 808,765 2007 -08 69,315,117 68,242,326 98.45 846,904 2008 -09 71,006,357 70,879,909 99.82 (294,366) 2009 -10(2) 68,412,731 62,858,261 91.88 (1,227,109) Source: County of Orange Auditor Controller's Office. Negative numbers reflect property tax refunds allocated to the referenced year. (2) Net of amount property tax revenues borrowed by the State from the City, which was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. A -14 Table A -8 below sets forth the 10 largest taxpayers in the City as shown on the Fiscal Year 2009- 10 secured tax roll and the land use, the assessed valuation and the percentage of the City's total property tax revenues attributable to each such taxpayer. TABLE A -8 CITY OF NEWPORT BEACH TEN LARGEST TAXPAYERS Fiscal Year 2009 -10 Taxable Assessed Percentage of Property Owner Valuation Totalttl 1. The Irvine Company $1,845,922,190 4.78% 2. MacArthur Rockwell Semiconductor 145,017,612 0.38 3. Newport Bluffs LLC 138,143,707 0.36 4. Balboa Bay Club Inc. 128,568,741 0.33 5. 100 Bayview LLC 124,169,842 0.32 6. UDR Newport Beach North LP 117,788,896 0.30 7. Coronado South Apartments LP 114,618,841 0.30 8. Newport Healthcare Center 103,942,105 0.27 9. Jazz Semiconductor Inc. 103,174,333 0.27 10. HHR Newport Beach LLP 86,937,294 0.22 (') 2009 -10 Total City Assessed Valuation of $38,643,404,122. Source: County of Orange Assessor's Office. Sales Taxes. Sales tax receipts provided the second largest tax revenue source of the City, contributing approximately $17.9 million and $17.4 million (or 11.9% and 11.8% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. Sales tax receipts are expected to provide approximately 17.4 million or 12.0% of General Fund revenues for Fiscal Year 2010 -11. Collected at the point of sale, sales tax receipts are remitted to the State Board of Equalization, which allocates tax revenue owed to the City in the form of monthly payments. According to the Bradley - Burns Sales and Use Tax law, cities are to receive one cent of the total 8.25 cent statewide sales tax levied on each dollar of taxable sales. Sales tax also includes a half -cent tax approved by California voters in 1993 pursuant to Proposition 172 for the purpose of funding local public safety expenditures. Beginning in Fiscal Year 2004 -05, the City's sales tax revenues have included a reimbursement from property taxes that the City will receive as a result of the "triple flip ", the shift enacted by the State in Fiscal Year 2004 -05 pursuant to which local governments shift one- quarter of a cent of their Bradley - Burns Sales and Use Tax to the State in exchange for an equivalent amount of property tax. Once the State's Economic Recovery Bonds are repaid in full, local governments are expected to lose the property tax reimbursement, but will instead regain the one - quarter -cent sales tax that was diverted to the State by the triple -flip. This shift is different from the MVLF property tax swap which is considered to be a permanent shift of revenues from MVLF to property tax. The State may elect to repay its Economic Recovery Bonds prior to their expected payment date if sales tax revenues are sufficient to support such repayment. The timing of such repayment and the associated cessation of the property tax reimbursement and one - quarter -cent sales tax diversion are not expected to affect amounts available to repay the principal and interest with respect to the Certificates. A -15 The Fiscal Year 2010 -11 Adopted Budget includes $17.4 million in projected sales tax revenues, which excludes $6.4 million in triple flip reimbursements. Such amounts are in addition to $0.7 million in Proposition 172 safety sales tax revenue derived from a half -cent sales tax resulting from the passage statewide of Proposition 172 in November 1993, which must be used solely for local public safety purposes. Sales tax revenues are dependent on consumer behavior, which has been negatively affected by the current economic recession, falling home prices and tightening credit policies. Sales revenues have decreased from $21.9 million in Fiscal Year 2007 -08 to $17.4 million in Fiscal Year 2009 -10 and are projected to be $17.4 million in Fiscal Year 2010 -11 . Sales tax revenues are expected to increase as employment conditions improve and consumer confidence is restored. Safety sales tax receipts typically follow the same economic trends as sales tax receipts, but are distributed to cities based on a different allocation formula than the distribution of sales tax. The City can provide no assurance that actual sales tax receipts will not be materially less than projected. Transient Occupancy Tax. TOT receipts provided the third largest tax revenue source of the City, contributing approximately $11.2 million and $11.4 million (or 7.4% and 7.8% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. TOT receipts are expected to provide approximately $11.6 million or 8.0% of General Fund revenues for Fiscal Year 2010 -11. The TOT accrues to the City at a rate of 10% of room charges (with 18% of this collection going to the local CVB. The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of approximately twenty inns, motels, hotels and resorts and accounted for 91.3% of TOT revenues in Fiscal Year 2009 -10. The residential category is made up of approximately 700 vacation rentals represented 8.7% of TOT revenue in Fiscal Year 2009 -10. The Fiscal Year 2010 -11 Adopted Budget includes $11.6 million in projected TOT revenues, which reflects a $0.2 million increase over Fiscal Year 2009 -10 actual TOT receipts. Transient occupancy tax collections generally follow a similar trend as sales taxes. The recent hotel expansions and the addition of a new luxury resort within the City have mitigated some of the effects of negative economic conditions the last few years. Other Funds In addition to the City's General Fund, there are numerous other funds whose amounts are used to finance City expenditures, including capital improvements. The City's Special Revenue Funds are used to account for the proceeds of special revenue sources, which are legally restricted to expenditures for specific purposes. One such Special Revenue Fund is the City's Gas Tax Fund, which is funded by the State Gasoline Tax and can only be expended for street repair, construction, and maintenance. The City has many other special revenue funds that are included in its budget. The City employs Internal Service Funds to account for vehicle maintenance and replacement, as well as all compensated absences, general liability, workers' compensation, and other insurance payments. These internal service funds are funded by charging each of the operating departments a rate computed to support these activities. Further, the City's budget includes Enterprise Funds, which are used to account for City operations that are financed and operated in a manner similar to private business enterprises. The objective of segregating activities of this type is to identify the costs of providing the services, and to finance them through user charges. The two main City enterprise funds are the City's Water Fund and the Wastewater Fund. Both of these funds are financed by user charges to the customers (residents and businesses of Newport Beach). P None of the amounts in the City's Special Revenue Funds, Internal Service Funds or Enterprise Funds are pledged to repayment of the principal and interest with respect to the Certificates. Reserves Reserves /Designations of Fund Balance. The City has established a Reserves/Designations of Fund Balance policy, as amended through November 12, 2008 (the "Reserves Policy "), for the administration of financial reserves and fund balances. Reserves are to be funded at the levels specified in the Reserves Policy as part of the annual budget process. If operational or other considerations require the City Council to temporarily override the Reserve Policy during any fiscal year, the City Manager will recommend to the City Council a plan to restore any reserves falling below required minimum levels and reserve levels will be restored as soon as practical. If the reserve requirements set forth in the Reserves Policy are unmet in any fiscal year, the City Manager will recommend funding prioritization to the City Council as part of the Budget. The City Council decides whether to appropriate funds from reserve accounts. Reserve amounts will not be spent for any function other than the specific purpose of the reserve account from which they are drawn without specific direction in the annual budget resolution or by a separate City Council resolution approving that specific action. Each of the City's funds, including the General Fund, contains accounting reserves (non discretionary), contingency reserves, designated reserves (strategic savings) and stabilization reserves. Accounting reserves are established pursuant to GAAP and represent the unspendable portions of fund balance, such as inventories and long -term receivables, as well as funds that are legally restricted by some external source, such as debt service reserves and encumbrances. Contingency reserves represent funds for unexpected financial emergencies, such as the adverse impact of natural disasters. Designated reserves or strategic savings are designated for known or anticipated events that events require large, non - recurring financial outlay, such as the replacement of systems and equipment or major capital improvements. Stabilization reserves facilitate the orderly management of the operating budget by stabilizing revenues and expenditures within the context of large market fluctuations. The City's General Fund contains a contingency reserve with a target balance of not less than 12% of annual General Fund expenditures. Funds in this reserve cannot be used without the specific authorization of City Council. The General Fund contingency reserve is currently at the target balance set forth in the Reserves Policy. The City's General Fund also contains three stabilization reserves: an appropriations reserve that serves as a temporary repository for funds not yet fully appropriated in the annual budget; a reserve for capital projects, and a PERS rate reserve to help smooth (for internal budgeting purposes) the year -to -year fluctuations in PERS rates, which is accomplished by budgeting the normal cost of PERS rates and setting aside excess amounts when actual PERS rates are below budgeted levels and drawing on such amounts when actual PERS rates are above budgeted levels. Further, the City's General Fund includes a number of accounting reserves, such as those for debt service, long -term receivables and encumbrances, and a number of designated reserves, such as those for off - street parking, affordable housing, neighborhood enhancement and capital improvements See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Funding for the Project" herein. Facilities Replacement Program. The City has established a Facilities Replacement Program, as amended through August 11, 2009 (the "Facilities Replacement Policy "), to address the replacement or major renovation of existing physical infrastructure and the addition of new facilities. Funding for the program is derived from development fees, contributions from individuals and organizations within the community, annual budget appropriations from the General Fund, net A -17 proceeds of financings and investment earnings on temporarily idle funds. Program funds are used for actual site acquisition, design, construction, directly related costs and debt service expenses. Pursuant to the Facilities Replacement Policy, General Fund contributions to the Facilities Replacement Program should be in the range of 3.0% to 4.5% of the General Fund operating budget each year (exclusive of periodic year- end -close contributions of unexpended appropriations originally budgeted for other purposes or contributions of unexpected one -time revenues not specified for another purpose), but not in excess of 5.0% of the total General Fund operating budget, subject to certain limited exceptions. The Facilities Replacement Policy also provides that the final maturity for any borrowed funds shall not exceed 30 years or the projected life of the new facility, whichever is earlier. The City's Fiscal Year 2010 -11 budget includes a $31.3 million transfer to the Facilities Replacement Program to fund a set -aside for construction expenditures and debt service for the Civic Center Project, including a parking structure and library additions, which amount will be reimbursed from proceeds of the Certificates described in the forepart of this Official Statement. The projected General Fund Balance of $49.40 million, as set forth in the Fiscal Year 2010 -11 budget, is net of the foregoing set - aside. The City intends to reimburse itself for Civic Center Project expenditures from the proceeds of the Certificates. Other Reserves. The City has also established a number of other reserves pursuant to its reserves and funding policies, including reserves for the Tide Fund, the Permanent Endowment Fund (Robinson Skinner Annuity) for Newport Bay Dredging, the Water Fund, the Wastewater Fund and the Internal Service Fund (the "Internal Service Fund "). See "City of Newport Beach Financial Information — Risk Management" herein. In addition, the Reserves Policy sets forth the City's funding policies with respect pension benefits and OPEB. The City currently has $5 million in its Reserve for PERS Rate Changes to help offset rate increases. See "City of Newport Beach Financial Information — Pension Benefits" and "City of Newport Beach Financial Information — Other Post Employment Benefits" herein. The amounts in such funds, including the reserves therein, are not pledged for payment of the principal and interest with respect to the Certificates. Capital Projects The City's CIP serves as a plan for the provision of public improvements, special projects, on- going maintenance programs, and the implementation of the City's master plans. Projects in the CIP include improvements and major maintenance on arterial highways, local streets, and alleys; storm drain and water quality improvements; bay, pier, and beach improvements; park and facility improvements; water and wastewater system improvements; transportation safety and traffic signal improvements; and planning programs and studies. The proposed Fiscal Year 2010 -11 CIP consists of 51 projects representing nearly $24 million in new appropriations and more than $29 million in re- budgeted funds for a total CIP budget of $52,916,797. Major funding initiatives include Rhine Channel dredging, Big Canyon restoration, Jamboree Road Bridge widening and Jamboree Road improvements. Significant work continues on major facilities projects such as the Civic Center, Marina Park, and Sunset Ridge Park. Given the current fiscal climate, the development of the proposed CIP was limited to meeting Council priorities and master plan requirements. As a result, the Fiscal Year 2010 -11 CIP represents a 12.9% decrease in total funding compared to the adopted Fiscal Year 2009 -10 CIP. Essential projects were prioritized and summarized by available funds and presented to the City Council for consideration. Funding of capital projects is derived from multiple funding sources. IRK Labor Relations As of July 1, 2010, the City employs approximately 808 full -time and 135 full -time equivalent employees. The 135 full -time equivalent employee hours are staffed by approximately 479 part -time employees. The City has ten labor organizations which represent an aggregate 1,004 classified employees. The labor organizations are the Firefighters Association, the Fire Management Association, the Lifeguard Management Association, Police Association, Police Management Association, Association of Newport Beach Ocean Lifeguards, Newport Beach City Employees Association, Newport Beach Employees League, Professional and Technical Association, and Part - Time Unit (UPEC Local 777). The City has never experienced a strike or other work stoppage. Table A -9 below sets forth the City's employee labor organizations and their respective contract expiration dates. TABLE A -9 CITY OF NEWPORT BEACH EMPLOYEE LABOR ORGANIZATIONS As of June 30, 2010 (' Terms of expired contracts remain in effect until new contracts are executed Source: City of Newport Beach. Pension Benefits California Public Employees' Retirement System. The City contracts with, and contributes to, the California Public Employees' Retirement System ( "PEAS "), an agent multiple - employer public employee defined benefit pension plan, for certain defined pension benefits. PERS provides retirement and disability benefits, annual cost -of- living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Such information is not incorporated herein by reference. City safety employees and City non - safety employees participating in PERS are required to contribute 9% and 8 %, respectively, of their annual covered salary. Pursuant to the terms of labor contracts with safety employees, the City historically made the entire contribution required of City safety employees on their behalf and for their account. Effective December 19, 2009, February 27, 2010 and A -19 Approximate Number of Employees Contract Labor Organizations In Organization Expiration Date Newport Beach Firefighters Association 119 December 31, 2011 Fire Management Association 6 December 31, 2010 Lifeguard Management Association 17 December 31, 2011 Police Association 206 December 31, 2011 Police Management Association 33 December 31, 2011 Association of Newport Beach Ocean Lifeguards 197 April 30, 2011 Newport Beach City Employees Association 103 June 30, 201011 Newport Beach Employees League 156 June 30, 201011 Professional & Technical Association 91 June 30, 201011 Part-Time Unit (UPEC Local 777) 76 June 30, 201011 (' Terms of expired contracts remain in effect until new contracts are executed Source: City of Newport Beach. Pension Benefits California Public Employees' Retirement System. The City contracts with, and contributes to, the California Public Employees' Retirement System ( "PEAS "), an agent multiple - employer public employee defined benefit pension plan, for certain defined pension benefits. PERS provides retirement and disability benefits, annual cost -of- living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Such information is not incorporated herein by reference. City safety employees and City non - safety employees participating in PERS are required to contribute 9% and 8 %, respectively, of their annual covered salary. Pursuant to the terms of labor contracts with safety employees, the City historically made the entire contribution required of City safety employees on their behalf and for their account. Effective December 19, 2009, February 27, 2010 and A -19 July 3, 2010, members of the Newport Beach Firefighters Association, Newport Beach Lifeguard Management Association and Police Association and Police Management Association, respectively, will contribute 3.5% of base pay to offset the 9% PERS member contribution made by the City. Safety employees have also agreed to a PERS contract amendment that requires all new safety employees to pay 5.5% of the 9% PERS member contribution for their first five years of uninterrupted service. Since January 2008, pursuant to agreements with non - safety employees, the City has contributed 7% and non- safety employees have contributed 1% of the 8% non- safety employee required contribution. Non - safety employees also contribute 2.42% of the City's employer contribution. Benefit provisions and all other requirements are established by State statutes and City contracts with employee bargaining groups. The City's contributions to the PERS plan include the employer -paid member contribution described above and the actuarially determined annual required contribution ( "ARC "), which fluctuates each year based on an annual actuarial plan valuation. The ARC is calculated using the entry age actuarial cost method and consists of two components: the "normal cost ", which represents the portion of the actuarial present value of the benefits that the City and its employees will be expected to fund that are attributable to a current year's employment, and the amortized amount of the unfunded actuarial accrued liability ( "UAAL "). The amortization of the UAAL represents the current year's portion of the unfunded accrued costs (i.e., the UAAL) attributable to past years' employment. The UAAL is an estimate based on a series of assumptions that operate on economic and demographic data of the PERS plan membership and may increase or decrease as result of changes in actuarial assumptions (such as the assumed investment rate of return of 7.75 %, net of administrative expenses), benefit improvements and other experience that differ from that anticipated by the actuarial assumptions. This process is used to determine, as of the date of the calculation, how sufficient the assets in the PERS plan are to fund, as of the date of calculation, the accrued costs attributable to PERS plan participants. The funding sufficiency is typically expressed as the ratio of the valuation assets to the actuarial accrued liabilities. if the actuarially calculated funding level of a plan is less than 100 %, the plan has a UAAL. For a summary of principal assumptions and methods used to determine the ARC for the City's PERS plan for safety and non - safety employees, see Note 10 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". When measuring assets for determining the UAAL, many pension plans, including the City's PERS plan, "smooth" gains and losses to reduce volatility. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Pursuant to the Employer Rate Stability Policy (herein defined) adopted by PERS and the "fresh start" implemented in connection therewith, gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of approximately 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. Using a rolling 30 -year amortization period for measuring the actuarial accrued liability could result in the UAAL continuing to rise indefinitely even if the City were to contribute the full ARC in each year. Under certain circumstances, the City may be unable to effectively amortize the plan's UAAL. In April 2005, the PERS Board of Administration adopted its Employer Rate Stability Policy (the "Employer Rate Stability Policy "), which provided for, among other things, calculating the annual contribution amount with regard to gains and losses as a rolling 30 -year amortization of all remaining unamortized gains and losses (as opposed to recognizing 10% of annual gains and losses pursuant to prior policy) beginning with the actuarial valuation as of June 30, 2004. Pursuant to such policy change, multiple amortization bases (including those for benefit improvement or changes in actuarial methods or A -20 assumptions, which are typically less than 30 years) were combined into a single base (the gain and loss bases) and amortized over a rolling 30 -year period to effect a "fresh start" as of June 30, 2004. The Employer Rate Stability Policy did not affect other existing amortization bases for benefit improvements, assumptions changes and method changes. After accounting for the investment return of 16.7% for Fiscal Year 2003 -04 and the implementation of the Employer Rate Stability Policy and the fresh start, as of June 30, 2004, the City's non - safety plan had an actuarial value of assets of $140,911,426, a market value of assets of $138,642,729 and accrued liabilities of $151,246,453 and its safety plan had an actuarial value of assets of $200,715,264, a market value of assets of $197,605,409 and accrued liabilities of $250,554,103. As of June 30, 2004, as a result of the fresh start, $648,199 was credited to the non - safety plan and $437,343 was credited to the safety plan. As of June 30, 2008, the date of the most recent actuarial valuation prepared by PERS, a $775,562 credit was included in the calculation of the City's required contribution for the non - safety plan (which had accrued liabilities of $217.4 million) and a $554,430 credit was included in the calculation of the City's required contribution for the safety plan (which had accrued liabilities of $336.1 million) as a result of the fresh start. Beginning with the June 30, 2009 valuation, PERS will implement a 3 -year phase -in of the 24% investment losses experienced in Fiscal Year 2008 -09. The phased -in approach entails temporarily increasing the corridor limits for establishing the actuarial value of assets from 80 -120% of market value of assets to 60 -140% of market value on June 30, 2009 (which impacts the Fiscal Year 2011 -12 contribution rate), changing the corridor limits to 70 -130% of market value on June 30, 2010 (which impacts the 2012 -13 contribution rate) and returning to the 80 -120% of market value corridor limits for the actuarial value of assets on June 30, 2011 (which impacts contribution rates for Fiscal Year 2013 -14 and thereafter). According to PERS, the Fiscal Year 2008 -09 asset loss, isolated outside of the 80 -120% corridor, will be calculated amortized using a fixed 30 -year schedule. Temporary expansion of the corridor limits for the actuarial value of assets is expected to result in lower City pension contributions in the short-term and a higher UAAL in the long -term. The amortization periods and assumptions used by PERS are subject to change from time to time. The City cannot predict the nature or effect of such changes on the City's pension costs. For Fiscal Year 2009 -10, PERS experienced 13.3% earnings on pension investments. There is a lag between the point in time at which the actuary completes the actuarial valuation and the date that the contribution rates calculated in the valuation go into effect. This lag is typically two years. The actuarial valuation of the plan as of June 30, 2009, the most recent actuarial valuation provided by PERS, sets forth the employer contribution rates for Fiscal Year 2011 -12, which are 14.628% for non - safety employees (prior to application of cost - sharing arrangements) and 35.028% for safety employees (prior to application of cost - sharing arrangements) of annual covered payroll. After the application of cost - sharing arrangements, the employer contribution rates are 12.208% and 35.028% of annual covered payroll for non -safety employees and safety employees, respectively. The employer contribution rates for Fiscal Year 2010 -11 are 8.406% for non- safety employees (inclusive of applicable cost - sharing arrangements) and 30.202% for safety employees of annual covered payroll. Without the cost sharing agreement with non -safety employees, the contribution rate would have been 10.826% for non - safety employees. The City has included its ARC in the Fiscal Year 2010 -11 Adopted Budget. The employer contribution rate for Fiscal Year 2009 -10 was 7.734% for non -safety employees (inclusive of applicable cost - sharing arrangements) and 28.760% for safety employees of annual covered payroll. The employer contribution rate for Fiscal Year 2008 -09 was 9.055% for non - safety employees (inclusive of applicable cost - sharing arrangements) and 29.67% for safety employees of annual covered payroll. Under GASB 27, an employer reports an annual pension cost ( "APC ") equal to the ARC plus an adjustment for the cumulative difference between the APC and the employer's actual plan A -21 contributions for the year. The cumulative difference is called the net pension obligation ( "NPO "). Pursuant to the City's Reserves Policy, the City makes contributions to the plan equaling at least 100% of the ARC. Because the City pays the entire ARC each year, by definition, its NPO at the end of each year is $0. For more information on the City's pension plan and funding levels, see Note 10 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Table A -10 below sets forth the APC, percentage of APC contributed and NPO for Fiscal Years 2006 -07 through 2009 -10 and the estimated amounts for Fiscal Year 2010 -11. TABLE A -10 CITY OF NEWPORT BEACH PERS ANNUAL PENSION COSTS Fiscal Years 2006 -07 through 2010 -11 ($ in thousands) Annual City General % of Annual Pension Net Pension Fiscal Year Pension Costal Fund Portion Cost Contributed Obligation 2006 -07 $16,207 $15,363 100% $0 2007 -08 16,454 15,613 100 0 2008 -09 18,405 17,526 100 0 2009 -10t �1 17,822 17,072141 100 0 2010 -11(3) 19,819 18,99911 100 0 01 Includes City contribution and employer paid member contributions. t21 Actual; unaudited. t31 Projected; includes 0% vacancy assumption. (4) Does not reflect 3.5% of base pay (equal to $167,428) contribution by safety members of the Newport Beach Firefighters Association. ts1 Does not reflect budgeted 3.5% of base pay (equal to approximately $897,501) contribution by safety members of the Newport Beach Firefighters Association, Newport Beach Lifeguard Management Association and Police Association and Police Management Associations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2008- 09; City approved Budget for Fiscal Years 2009 -10 and 2010 -11. See Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -22 Table A -11 below sets forth the PERS schedule of funding progress for Fiscal Years 2004 -05 through 2008 -09. TABLE A -11 CITY OF NEWPORT BEACH PERS SCHEDULE OF FUNDING PROGRESS Fiscal Years 2004 -05 through 2008 -09 ($ in thousands) 2009(�) Miscellaneous $249,666 $207,818 $152,670 $ 41,849 83.2% 61.1% $42,893 97.566% Safety 366,918 274,649 200,974 92,269 74.9 54.8 30,253 304.991 Total $616,584 $482,469 $353,644 $134,118 78.2% 57.4% $73,146 183.357% Reflects the fresh start established as of June 30, 2004. (2) Decrease in market value for Fiscal Year 2008 -09 is attributable to the PERS investment loss of 24.0% in Fiscal Year 2008 -09. Does not reflect approximately $125 million of net unsmoothed losses for Fiscal Year 2008 -09. Source: California Public Employee's Retirement System Actuarial Reports for the respective Fiscal Years for market value of assets and Fiscal Year 2008 -09 data; City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09 for all other data for Fiscal Years 2004 -05 through 2007 -08. The City's pension costs are expected to substantially increase due to, among other things, the PERS investment losses of 24.0% in Fiscal Year 2008 -09, the significant increase in unfunded liability as a result of such losses, the greater longevity of plan members and lower than expected actual rates of return on investments. From Fiscal Year 2010 -11 to Fiscal Year 2014 -15, absent changes to the actuarial assumptions and City pension arrangements with employees, the City's pension contribution rates (inclusive of the employer -paid member contributions described herein) as a percentage of covered payroll is projected to increase from 15.4% to 26.8% (from $6.78 million to $12.91 million) for non- safety employees and from 35.7% to 57.7% (from $11.89 million to $19.12 million) for safety employees, and remain at this level for approximately 30 years. The City is exploring various options to address the A -23 Funded Status Entry Age Unfunded Valuation Normal Actuarial Market Liability Actuarial Annual UAAL as a Date Accrued Value of Value of (Excess Value of Market Covered Percentage (June 30) Liability Assets(l) Assets Assets) Assets(`) Value Payroll of Payroll 2005 Miscellaneous $161,371 $150,730 $155,028 $ 10,641 93.4% 96.1% $32,218 31.098% Safety 267,192 215,965 222,326 51,227 80.8 83.2 24,303 210.785 Total $428,563 $366,695 $377,354 $ 61,868 85.6% 88.1% 358,521 105.719% 2006 Miscellaneous $183,637 $163,158 $173,031 $ 20,479 88.8% 94.2% $37,224 55.016% Safety 296,420 231,701 246,396 64,719 78.2 83.1 26,053 248.413 Total $480,057 $394,859 $419,427 $ 85,198 82.3% 87.4% $63,277 134.643 % 2007 Miscellaneous $192,178 $178,524 $206,931 $ 13,654 92.9% 107.7% $36,795 37.108% Safety 308,552 250,062 292,102 58,490 81.0 94.7 25,035 233.633 Total $500,730 $428,586 $499,033 $ 72,144 85.6% 99.7% 361,830 116.681 ° /n 2008 Miscellaneous $217,378 $195,954 $199,722 $ 21,424 90.1% 91.9% $41,148 52.066% Safety 336,061 264,634 272,104 71,427 78.7 81.0 28,056 254.587 Total $553,439 $460,588 $471,826 $ 92,851 83.2% 85.3% 369,204 134.170% 2009(�) Miscellaneous $249,666 $207,818 $152,670 $ 41,849 83.2% 61.1% $42,893 97.566% Safety 366,918 274,649 200,974 92,269 74.9 54.8 30,253 304.991 Total $616,584 $482,469 $353,644 $134,118 78.2% 57.4% $73,146 183.357% Reflects the fresh start established as of June 30, 2004. (2) Decrease in market value for Fiscal Year 2008 -09 is attributable to the PERS investment loss of 24.0% in Fiscal Year 2008 -09. Does not reflect approximately $125 million of net unsmoothed losses for Fiscal Year 2008 -09. Source: California Public Employee's Retirement System Actuarial Reports for the respective Fiscal Years for market value of assets and Fiscal Year 2008 -09 data; City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09 for all other data for Fiscal Years 2004 -05 through 2007 -08. The City's pension costs are expected to substantially increase due to, among other things, the PERS investment losses of 24.0% in Fiscal Year 2008 -09, the significant increase in unfunded liability as a result of such losses, the greater longevity of plan members and lower than expected actual rates of return on investments. From Fiscal Year 2010 -11 to Fiscal Year 2014 -15, absent changes to the actuarial assumptions and City pension arrangements with employees, the City's pension contribution rates (inclusive of the employer -paid member contributions described herein) as a percentage of covered payroll is projected to increase from 15.4% to 26.8% (from $6.78 million to $12.91 million) for non- safety employees and from 35.7% to 57.7% (from $11.89 million to $19.12 million) for safety employees, and remain at this level for approximately 30 years. The City is exploring various options to address the A -23 projected cost increases, including the potential for negotiating additional employee contributions and the creation of a new tier of reduced pension benefits of new employees. If the City is unsuccessful in attaining such cost reductions, the City may make additional operations reductions, which may include furloughs and layoffs. For information regarding retirement plans, deferred compensation plans, defined contribution plans and post employment benefits, see "Summary Information" and Notes 9, 10 and 11 in Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. Public Agency Retirement System. Alternate Retirement Plan. The City entered into a defined contribution plan administrated by Public Agency Retirement System, a private administrator known, for all of its part-time employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75 %. The City's contributions for each employee and the interest thereon are fully vested immediately. There is no actuarial accrued liability attributable to past years' employment. For the year ended June 30, 2009, the City's covered payroll for employees participating in the plan was $2,919,260. Employees made contributions of $109,472 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,485,659 at June 30, 2009. For the year ended June 30, 2010, the City's covered payroll for employees participating in the plan was $2,963,120. Employees made contributions of $111,117 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,576,490 at June 30, 2010. The City's estimated covered payroll for employees participating in the plan during Fiscal Year 2010 -11 is $3,341,227 and employee contributions are budgeted at $125,296. Supplemental Retirement Plan. At its December 8, 2009 regular meeting, the City Council approved Resolution 2009 -90 authorizing its ERIP through PARS. The ERIP was one part of a multi - pronged approach to help close a projected deficit in the City's Fiscal Year 2009 -10 General Fund. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget —Fiscal Year 2009 -10 Results" herein. The ERIP provides participating employees with a supplement to their normal PERS retirement benefits through an additional payment from the City. Fifty -one employees elected to participate in the ERIP. Eligible retirees were given the option of receiving a direct lump sum payment, fixed term distribution or a lifetime benefit. To finance the ERIP, the City entered into a funding arrangement with a third party insurance company pursuant to which the City will make fixed annual payments in the amount of $819,241 per year for five years. Thereafter, the City will have no further funding obligation with respect to the ERIP. Laborer's International Union of North America. The City is the agent for employees to contribute funds to support a supplemental pension plan for some employee associations through contract with Laborer's International Union of North America ( "LIUNA'). The contract is funded at a fixed percentage of total compensation on a pay -as- you -go basis. The City is not contractually required to guarantee the level of the ultimate LIUNA benefit to retirees nor does it do so. Other Post Employment Benefits General. The City has established the City of Newport Beach Medical Expense Reimbursement Plan (the "Reimbursement Plan "). All employees and eligible retirees participate in the Reimbursement Plan through a Health Reimbursement Arrangement ( "HRA ") that is held in trust and A -24 managed by ING pursuant to IRS Revenue Ruling 2002 -41 (June 26, 2002) and IRS Notice 2002 -45 (June 26, 2002). The City is the sole employer for the Reimbursement Plan. As of June 30, 2009, the Reimbursement Plan had a total of 1,194 participants, consisting of 521 miscellaneous employees, 273 safety employees, and 400 retirees and their beneficiaries. As of June 30, 2010, the Reimbursement Plan had a total of 1,181 participants, consisting of 462 miscellaneous employees, 271 safety employees, and 448 retirees and their beneficiaries. For a description of the benefits provided pursuant to the Reimbursement Plan, see Note 11 of the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Defined Contribution Portion. The City established a defined contribution program within the Reimbursement Plan, effective January 2006 (the "New Plan "), that requires mandatory employee and employer contributions. Benefits depend solely on amounts contributed to the plan, plus investment earnings thereon, and the City has no further funding obligation to the New Plan once the contributions are made to the applicable employee's account. Participants in the New Plan include all employees hired after January 1, 2006, certain employees hired prior to this date and certain employees hired prior to January 1, 2006 that elected to fully convert ( "Fully Converted Participants ") to the New Plan. Consistent with agreements between the City and applicable employee labor contracts, the New Plan will be 100% funded, on an ongoing basis, as part of the annual budget process. Funds to cover this expenditure will be contained within the salary section of each department's annual operating budget. Defined Benefit Portion. Employees who retired prior to January 1, 2006 receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month (the "Old Plan "). The Old Plan is closed to new participants. The cost of the Old Plan is divided among the City, current employees and retirees. Prior to 2001, the Old Plan was largely funded on a pay -as- you -go basis and the City accrued unfunded liabilities. The City began funding its accrued liabilities in 2001. In 2008, such assets were placed in a pre- funding trust. The City intends to amortize the remaining unfunded liability within 20 years. See "— Funding" below. Hybrid Portion. Certain employees hired prior to January 1, 2006 had the option to retain a hybrid of the Old Plan or to fully convert to the New Plan. Employees electing to retain a hybrid of the Old Plan ( "Hybrid Participants ") participate in a program that requires mandatory defined contributions by employees and the City, as well as a defined benefit consisting of an ongoing contribution from the City to the participant's HRA account each month after retirement. These employees are also eligible to receive health care benefits under the City's group health care plans, provided they pay the City $100 per month, up until their retirement, to offset the unfunded portion of post employment health benefits existing at the inception of the plan. Funding. Employee and City contributions to the Reimbursement Plan are based on the participant's status as Fully Converted Participant, Hybrid Participant or retired participant. See Note 11 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Historically, Reimbursement Plan expenses were funded on a pay -as- you -go basis. In 2001, the City began setting aside amounts for its accrued liability. In 2008, the City entered into an agreement with the PERS as a participating employer in the Ca1PERS Employers Retirement Benefits Trust ( "CERBT ") to pre -fund future OPEB expenses and placed its previously accumulated cash reserves in the amount of $8.8 million in trust, reducing the City's unfunded accrued liability to $49.8 million. In Fiscal Year 2009 -10, the City contributed $2.02 million to the CERBT. For Fiscal Year 2010 -11, the City budgeted approximately $2.13 million contribution to the CERBT. As of June 30, 2010, the balance in the CERBT was approximately $6.79 million. A -25 Pursuant to the City's Reserve Policy, the City will pre -fund the "explicit subsidy" or cash subsidy portion of the actuarial accrued liability of the Old Plan over a 20 -year amortization period, or less. This amount will be based on the ARC determined by a biennial actuarial review, subject to review and analysis by the City. The annual target reserve balance will be established and maintained through the same process. Because one of the two health plans offered by the City is a non - community -rated plan and retirees are offered the same premium rates as active employees, GASB 45 requires that an "implied subsidy" (the difference between expected claims and premiums paid for retirees) be valued for the life of the retiree and accrued as a cost of the retiree health care plan. The City has elected to fund the implied subsidy on a pay -as- you -go basis since employer contributions to active and retiree medical plans are fixed, and significant uncertainty exists whether additional cash flows will occur in the future as a result of the implied subsidy. Pursuant to the City's Reserve Policy, the City will not separately fund any actuarially defined liability for "implied subsidy ". However, the City plans to meet all other contributions connected with this retiree benefit pursuant to GASH 45. Costs for administering the Old Plan are included in the Human Resources Department's annual operating budget. See Note 11 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". in connection with GASB 45 compliance, the City has calculated its net OPEB obligation ( "NOPEBO ") as of June 30, 2009 to be approximately $4.4 million. The NOPEBO is the cumulative difference between the City's annual OPEB cost and the City's contributions to OPEB in a particular year, including the OPEB liability or asset at transition, if any. Annual OPEB cost is equal to (i) the ARC for OPEB, (b) one year's interest on the NOPEBO from prior years (which the City determined to be $6.2 million at the beginning of Fiscal Year 2007 -08, the transition year, in accordance with GASB 45), and (c) an adjustment to the ARC for OPEB to offset the effect of actuarial amortization of past under- or over - contributions. The most recent actuarial valuation of the City's Reimbursement Plan was prepared as of June 30, 2008 (the "2008 OPEB Valuation ") for the purpose of determining the City's annual cost in accordance with GASB 45. The valuation reflected an entry age normal cost method and included a fixed 20 -year amortization period, a discount rate of 7.75% for the cash subsidy to be prefunded through the CERBT, a discount rate of 5% for the implied subsidy to be funded from the City's General Fund and projected salary increases of 3.25% per year. The 2008 OPEB Valuation also reflected the actuarial value of assets being established between 80 -120% of market value of assets and gains and losses in the actuarial value of assets being recognized over a 5 -year period. Further, the 2008 OPEB Valuation reflected the following unfunded liability amortization: the initial unfunded liability as of June 30, 2007 being amortized as a level percentage of pay over 20 years (with 17 years remaining as of June 30, 2010), benefit and assumption changes being amortized as a level percentage of pay over a fixed 20 years, gains and losses being amortized as a level percentage of pay over a rolling 15 years, experience gains and losses being amortized over a rolling 15 years. According to the 2008 OPEB Valuation, using the assumptions and methodology described above and consistent with GASH 45, the UAAL for OPEB for all retirees and participants was $40.2 million as of June 30, 2008 and projected to be $43.8 million as of June 30, 2009. The cash subsidy portion of the Reimbursement Plan had a funded status of 30.5% as of June 30, 2008. The implied subsidy portion reflected a funded status of 0% because that portion is funded on a pay -as- you -go basis. Pursuant to the 2008 OPEB Valuation, the City's ARC for Fiscal Year 2010 -11 is projected to be 6.4% of covered payroll, 0.1 % higher than the City's ARC for Fiscal Year 2009 -10. The next actuarial valuation of the City's Reimbursement Plan, dated as of June 30, 2010, is expected to be available in 2011. MR Table A -12 below sets forth the City's NOPEBO for Fiscal Years 2007 -08 through 2009 -10. TABLE A -12 CITY OF NEWPORT BEACH ANNUAL OPEB COST AND NET OPEB OBLIGATION Fiscal Years 2007 -08 through 2009 -10 ($ in thousands) 011I11FRIN Cash Subsidy Prefunding $2,629 Fiscal Year Net OPEB Annual Contributions Net OPEB and Obligation OPEB and Benefit Obligation Subsidy Amount (July 1) Costt'ltZl Payments (June 30) 011I11FRIN Cash Subsidy $6,200i" $2,629 $(8,829)tal $ Implied Subsidy 2,648 (427)(2) 2,221 Total $6,200 $5,277 $(9,256) $2,221 2008 -09 Cash Subsidy $ $2,720 $(2,720) $ Implied Subsidy 2,221 2,703 (516)«1 4,408 Total $2,221 $5,423 $(3,236) $4,408 2009 -10 Cash Subsidy $ $2,016 $(2,016) $ Implied Subsidy 4,408 2,477 (346) 6,472 Total $4,408 $4,493 $ 2,362 $6,472 nl Equal to the ARC for the applicable year as adjusted for expected interest on the NOPEBO and an amortization of the NOPEPO. (2) Over 95% of the annual OPEB cost is attributable to the City General Fund. ts7 Based on a prior period adjustment to the cash subsidy component of the NOPEBO. cal Equal to Fiscal Year 2007 -08 annual OPEB cost plus $6.2 million payment on prior period NOPEBO adjustment. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09. Risk Management The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. For general liability, the City has excess insurance coverage of $26 million per occurrence with a self - insured retention ( "SIR ") of $500,000 per occurrence. For workers' compensation and employer's liability insurance, the City has excess insurance coverage of $1,000,000 per occurrence with a $1,000,000 SIR. This coverage provides for work - related accidents and diseases. The Insurance Reserve Fund was established to account for costs associated with general liability and workers' compensation. The Insurance Reserve Fund is accounted for as an Internal Service Fund where assets are set aside for risk management, administration, claim settlements A -27 and benefit distribution. A premium is charged to each fund that accounts for part-time or full - time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. The total liability claims payable include $17,790,737 which represents the discounted present value at June 30, 2009; the claims were discounted using an interest rate of five percent. For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. Indebtedness General Obligation Debt. The City has no general obligation debt outstanding. Debt and Certificates of Participation. The City has no long -term or short tern bonded debt outstanding. The City has entered into lease arrangements with nonprofit public benefit corporations to finance capital projects, typically through the execution and delivery of certificates of participation. As of June 30, 2010, the City had $3.99 million of certificates of participation outstanding. Lease payments which secure these certificates of participation are paid from amounts in the City's General Fund, a portion of which is reimbursed with amounts from various other revenue sources. The City has no outstanding variable rate obligations and does not have an outstanding liquidity facility. Information on the City's long -term debt is in Note (6) of the Notes to the Financial Statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009." The $1.6 million water revenue bonds reflected in Note (6) have been repaid in full and are no longer outstanding. Estimated Direct and Overlapping Bonded Debt. Table A -13 below sets forth a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics Inc. and dated as of August 1, 2010. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. The Debt Report does not include the Certificates described in the forepart of this Official Statement. The Debt Report generally includes long -term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long -term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long -term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. I The City periodically issues special assessment or community facilities district bonds on behalf of petitioning developers or citizens when the City determines that the public facilities to be financed are of a defined, extraordinary benefit to the City. The City also issues revenue bonds on behalf of qualified borrowers from time to time. Although such obligations are included in the Debt Report, they are not secured by or payable from the City's General Fund or any other fund of the City. A -29 TABLE A -13 CITY OF NEWPORT BEACH ESTIMATED DIRECT AND OVERLAPPING DEBT (As of August 1, 2010) 2009 -10 Assessed Valuation: $38,643,404,122 Redevelopment Incremental Valuation: 894,901 662 Adjusted. Assessed Valuation: $37,748,502,460 OVERLAPPING TAX AND ASSESSMENT DEBT: %Applicable Debt 8/1/10 Metropolitan Water District 2.086% $ 5,511,629 Coast Community College District 35.120 114,761,226 Rancho Santiago Community College District 3.908 12,257,667 Laguna Beach Unified School District 15.236 4,997,408 Laguna Beach Unified School District Community Facilities District No. 98 -1 100. 9,680,000 Newport Mesa Unified School District 71.997 115,593,689 Newport Mesa Unified School District Community Facilities District No. 90 -1 100. 13,390,000 Santa Ana Unified School District 9.117 24,168,596 Irvine Ranch Water District Improvement Districts 16.895 -100. 47,315,471 Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 98 -1 100. 41,275,000 City of Newport Beach Special Improvement District No. 95 -1 100, 8,715,000 City of Newport Beach 1915 Act Bonds 100. 17,719,652 Orange County Assessment District No. 88 -1 100. 34,718,296 Orange County Reassessment District No. 99 -1R 100. 13,835,000 Orange County Assessment District No. 01 -1 100. 53,769,000 Orange County Reassessment District No. 0 1 - I R 100. 6,505.000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $524,212,634 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fond Obligations 10.080% $34,217,266 Orange County Pension Obligations 10.080 5,728,882 Orange County Board of Education Certificates of Participation 10.080 1,938,384 Municipal Water District of Orange County Water Facilities Corporation 11.918 1,682,822 South Orange County Community College District Certificates of Participation 3.105 539,494 Santa Ana Unified School District Certificates of Participation 9.117 4,918,963 Irvine Ranch Water District Certificates of Participation 11.436 9,737,182 City of Newport Beach Certificates of Participation 100. 3,990,000(1) TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $62,752,993 Less: MWDOC Water Facilities Corporation (100% supported) 1,682,822. TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $61,070,171 GROSS COMBINED TOTAL DEBT $586,965,627(2) NET COMBINED TOTAL DEBT $585,282,805 (1) Excludes issue to be sold and certificates of participation to be prepaid with a portion of the proceeds thereof. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. Ratios to 2009 -l0 Assessed Valuation Total Overlapping Tax and Assessment Debt ........................1.36% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($3,990,000) 0.01% Gross Combined Total Debt ......................... ..........................1.55% Net Combined Total Debt ....................... ............................... 1.55 % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6 /30/10: $0 Source: California Municipal Statistics Inc. A -30 City Investment Policy The City pools all cash and investments of all funds, except for bond or certificate of participation proceeds, which are invested pursuant to the terms of their respective issuing instruments. The City's Statement of Investment Policy, as amended through September 28, 2010 (the "Investment Policy "), provides for investment of the City's funds pursuant to City policies and codes, State statutes and Federal regulations in a manner designed to preserve security of principal, maintain sufficient liquidity and attain a benchmark rate of return commensurate with the City's investment risk constraints and the liquidity characteristics of the portfolio. The City Charter provides for investment of City funds by the Director of Finance, who is responsible for establishing and maintaining a system of internal controls designed to prevent losses of public funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets, or imprudent action by City employees and officers. Pursuant to the Investment Policy, the Director of Finance is also responsible for submitting to the City Council monthly reports on the investment earnings and performance results of the City's investment portfolio. The City's investment program is managed using the prudent investor standard set forth in Section 53600.3 of the California Government Code. Pursuant to the Investment Policy, the City may deposit and invest in U.S. Treasury issues, federal agency or federal instrumentality obligations, mortgage- backed securities and asset - backed securities, medium -term notes, municipal bonds, non - negotiable certificates of deposit, negotiable certificates of deposit, prime commercial paper, eligible banker's acceptances, repurchase agreements and reverse repurchase agreements, the State's local agency investment fund, county investment funds (excluding the Orange County Pool) and money market funds, subject to the provisions of Section 53601 of the California Government Code and the further conditions and restrictions of the Investment Policy. The Investment Policy provides that any security type or structure not specifically approved thereby is prohibited, including, but are not limited to, "exotic" derivative structures such as range notes, dual index notes, inverse floating rate notes, leveraged or de- leveraged floating rate notes, interest only strips that are derived from a pool of mortgages and any security that could result in zero interest accrual if held to maturity, or any other complex variable or structured note with an unusually high degree of volatility risk. The Investment Policy states that the portfolio shall be diversified, with investments matched with anticipated cash flow requirements and known future liabilities and no more than 5% of the City's portfolio being invested in the instruments of any one non - governmental issuer, subject to certain exceptions. To that end, the Investment Policy provides that the City will not invest in securities maturing more than five years from the date of trade settlement, unless the City Council has by resolution granted authority to make such an investment at least three months prior to the date of investment. The Investment Policy further provides that the City shall not purchase any security rated Al and / or A+ or below if that security has been placed on "credit watch" for a possible downgrade by a nationally recognized statistical rating organization. The City is not a party to any swap agreements and has not sustained losses from investment in any collateralized mortgage obligation. Table A -14 below sets forth the par value, market value, adjusted cost basis and percent of total investments for each category of the City's investments as of September 30, 2010. A -31 TABLE A -14 CITY OF NEWPORT BEACH SCHEDULE OF INVESTMENTS (As of September 30, 20 10) Source: City of Newport Beach Litigation The City is a defendant in lawsuits pertaining to various matters, including claims asserted which are incidental to performing routine governmental and other functions. This litigation includes, but is not limited to, actions commenced and claims asserted against the City arising out of alleged torts, alleged breaches of contracts, alleged violations of law, and condemnation proceedings. The City does not expect the aggregate amount of the uninsured liabilities of the City which may result from an adverse ruling in any or all of such claims to have a material adverse effect on its ability to pay principal and interest with respect to the Certificates when due. STATE OF CALIFORNIA BUDGET INFORMATION General The City derives certain of its revenues, including gas tax revenues and property tax transfers, from the State. Under certain circumstances, the State has borrowed or otherwise shifted revenues from local agencies, including the City, to the State. See "City of Newport Beach Financial Information - Recent Budget Results; Fiscal Year 2010 -11 Budget - Fiscal Year 2010 -11 Budget- Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" for a description of the primary impacts anticipated by the City. The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State Budget is regularly available at various State - maintained websites. Text of the budget may be found at the Department of Finance website, www.dof ca.gov, under the heading "California Budget." An impartial analysis of the budget is posted by the LAO at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Underwriters, and the A -32 Adjusted Cost % of Total Investment Type Par Value Market Value Value Investments Money Market Fund $ 2,676,723 $ 2,676,723 $ 2,676,989 1.88% U.S. Treasury Obligations 19,065,000 19,492,852 19,234,127 13.68 U.S. Agency 69,025,000 70,608,623 69,964,492 49.54 Mortgage Backed Securities 197,106 200,565 198,030 0.14 Local Agency Investment Fund 10,732,287 10,732,287 10,732,287 7.53 Corporate Note 32,645,000 33,935,421 33,818,357 23.81 Negotiable Certificates of Deposit 1,600,000 1,599,432 1,600,748 1.12 Foreign Bonds 585,000 591,148 593,406 0.41 Commercial Paper 2,700,000 2,700,000 2,700,016 1.89 Totals $139,226,116 $142,537,052 $141,518,452 100.00% Source: City of Newport Beach Litigation The City is a defendant in lawsuits pertaining to various matters, including claims asserted which are incidental to performing routine governmental and other functions. This litigation includes, but is not limited to, actions commenced and claims asserted against the City arising out of alleged torts, alleged breaches of contracts, alleged violations of law, and condemnation proceedings. The City does not expect the aggregate amount of the uninsured liabilities of the City which may result from an adverse ruling in any or all of such claims to have a material adverse effect on its ability to pay principal and interest with respect to the Certificates when due. STATE OF CALIFORNIA BUDGET INFORMATION General The City derives certain of its revenues, including gas tax revenues and property tax transfers, from the State. Under certain circumstances, the State has borrowed or otherwise shifted revenues from local agencies, including the City, to the State. See "City of Newport Beach Financial Information - Recent Budget Results; Fiscal Year 2010 -11 Budget - Fiscal Year 2010 -11 Budget- Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" for a description of the primary impacts anticipated by the City. The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State Budget is regularly available at various State - maintained websites. Text of the budget may be found at the Department of Finance website, www.dof ca.gov, under the heading "California Budget." An impartial analysis of the budget is posted by the LAO at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Underwriters, and the A -32 City and the Underwriters take no responsibility for the continued accuracy of the internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. Fiscal Year 2010 -11 State Budget On October 8, 2010, the Governor signed the 2010 -11 State Budget Act to address a then - projected $19.3 billion shortfall in revenues. The 2010 -11 State Budget Act estimates Fiscal Year 2009- 10 revenues and transfers of $86.92 billion, total expenditures of $86.35 billion and a year -end deficit of $4.80 billion, which included a negative $5.38 billion prior -year State General Fund balance, $6.34 billion withdrawal from the reserve for economic uncertainties and an allocation of $1.54 billion to the reserve for the liquidation of encumbrances. The 2010 -11 State Budget Act projects 2010 -11 revenues and transfers of $94.23 billion, total expenditures of $86.55 billion and a year -end surplus of $2.87 billion (net of the $4.80 billion deficit from Fiscal Year 2009 -10), of which $1.54 billion is budgeted to be reserved for the liquidation of encumbrances and $1.34 billion is budgeted to be deposited in a reserve for economic uncertainties. The 2010 -11 State Budget approves placement of a constitutional amendment on the State's reserve funds on the March 2012 ballot. If approved, the State would increase the maximum size of its Budget Stabilization Account from five percent to ten percent of annual State General Fund revenues and provide new requirements for depositing State funds into the Budget Stabilization Account. If the ballot measure were approved, the law would further restrict the State's ability to withdraw funds from its reserves. Certain of the features of the 2010 -11 State Budget Act affecting local agencies, including the City, include the following: 1. The 2010 -11 State Budget Act includes a $187.1 million General Fund decrease in funding resulting from the enrollment of seniors and people with disabilities in managed care and deferring a managed care payment for two -plan and geographic managed care counties. 2. The 2010 -11 State Budget includes a $84.5 million General Fund funding decrease resulting from freezing daily per diem hospital inpatient rates at existing levels. 3. The 2010 -11 State Budget includes a $365.9 million funding decrease from utilization of an advance of Temporary Assistance for Needy Families Block Grant funds for the quarter ending June 30, 2011 in lieu of General Fund. 4. The 2010 -11 State Budget includes a $300 million decrease in IHSS program, consisting of (1) using IHSS provider - generated revenue to draw down additional federal funds and offset General Fund expenditures in the program ($190 million), (2) imposing a 3.6% across - the -board reduction to the hours assessed for IHSS recipients ($35 million) and (3) reflecting an updated caseload estimate based on an actual decline in recipients as compared to the previous caseload projection ($75 million). 5. The 2010 -11 State Budget includes approximately $162.4 million funding decrease as a result of maintaining the level of Child Welfare Services program funding at Fiscal Year 2009 -10 budgeted levels, eliminating State funding for the Seriously Emotionally disturbed portion of the Foster Care program and reducing the reimbursement rates for license- exempt child care providers. 6. The 2010 -11 State Budget includes a one -time reduction of $365 million resulting from the suspension of most mandates not related to elections, law enforcement and property taxes. A -33 On October 8, 2010, the LAO released a report entitled "Major Features of the Legislature's 2010 -11 Budget" (the "2010 -11 LAO Budget Overview "), which provides an analysis by the LAO of the 2010 -11 State Budget. The 2010 -11 LAO Budget Overview is available on the LAO website at www.lao.ca.gov. Information on the website is not incorporated herein by reference. The 2010 -11 LAO Budget Overview states that more than two- third's of the budget solutions contained State Legislature's budget for 2010 -11 are one -time or temporary in nature. Accordingly, the LAO cautions that the State will continue to face sizable annual budget problems in Fiscal Year 2011 -12 and thereafter. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" herein for a description of the State budget's impact on the City. Current and Future State Budgets The City receives a significant portion of its funding from the State. Changes in the revenues received by the State can affect the amount of funding, if any, to be received from the State by the City and other counties in the State. The City cannot predict the extent of the budgetary problems the State will encounter in this Fiscal Year or in any future fiscal years, and, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of current and future State budget negotiations, the impact that such budgets will have on its finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -1 Budget — Fiscal Year 2010 -11 Budget — Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" herein for a description of the potential impact of the State budget on the City. REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION Set forth below is certain demographic information regarding the City and the County. This information is provided for informational purposes only and general background. The Certificates are not a debt of the County, the State, or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable thereon. As set forth under "The Certificates — Security for the Certificates" in the forepart of this Official Statement, the Certificates are secured by lease payments and prepayments to be made by the City pursuant to the terms of the Trust Agreement and the Lease. See "The Certificates" in the forepart of this Official Statement. Population The City is located in the coastal center of the County, approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. Table A -15 below sets forth the population of the City, the County and the State for calendar years 2006 through 2010. A -34 TABLE A -15 POPULATION GROWTH CITY OF NEWPORT BEACH, THE COUNTY OF ORANGE AND THE STATE OF CALIFORNIA (Calendar Years 2006 -2010) Calendar City of County of State of Year(` Newport Beach Orange California 2006 83,124 3,061,535 37,087,005 2007 83,564 3,077,656 37,463,609 2008 84,145 3,104,046 37,871,509 2009 86,145 3,134,858 38,255,508 2010 86,738 3,166,461 38,648,090 As of July I of the year shown. Reflects revised estimates as of May 2010. Source: California State Department of Finance, E4 Population Estimates for Cities, Counties and the State, 2001 -2010 with 2000 Benchmark A -35 Employment Table A -16 below sets forth the wage and salary employment in the County for calendar years 2005 through 2009. Service Providing is the largest employment sector in the County. TABLE A -16 ANNUAL AVERAGE INDUSTRY EMPLOYMENT COUNTY OF ORANGE (Calendar Years 2005 -2009) 2005 2006 2007 2008 2009 Total Farm 5,600 5,300 5,000 4,600 3,900 Total Nonfarm 1,491,000 1,518,900 1,515,500 1,481,600 1,371,400 Total Private 1,335,600 1,362,200 1,356,200 1,320,900 1,214,200 Goods Producing 283,500 289,900 284,000 265,900 228,600 Natural Resources and Mining 700 600 600 600 500 Construction 99,900 106,600 103,100 91,200 73,600 Manufacturing 182,900 182,700 180,400 174,100 154,500 Service Providing 1,207,400 1,229,000 1,231,500 1,215,700 1,142,800 Trade, Transportation and Utilities 269,800 272,800 277,000 271,600 250,000 Wholesale Trade 83,000 83,700 86,900 86,700 80,100 Retail Trade 158,100 160,800 161,200 155,600 141,900 Transportation, Warehousing and 28,700 28,200 28,900 29,300 27,900 Utilities Information 32,800 31,900 31,200 30,100 27,400 Financial Activities 138,400 138,200 127,700 113,100 105,600 Professional and Business Services 264,300 274,500 273,300 266,600 239,000 Educational and Health Services 133,500 137,700 142,600 150,700 151,100 Leisure & Hospitality 165,000 169,600 172,900 176,400 169,700 Other Services 48,400 47,700 47,400 46,500 42,800 Government 155,300 156,700 159,400 160,800 157,300 Total, All Industrieslll 1,496,500 1,524,300 1,520,500 1,486,200 1,375,400 The "Total All Industries" data is not directly comparable to the employment data found herein. Employment is reported by place of work; it does not include persons involved in labor management disputes. Figures are rounded to the nearest hundred. Totals may not equal sum of component categories due to independent rounding. Source: State of California, Employment Development Department, Industry Employment and Labor Force by Annual Average, March 2009 Benchmark. Table A -17 below sets forth the civilian labor force, employment, and unemployment in the City, the County and the State for calendar years 2005 through 2009. TABLE A -17 CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT(n CITY OF NEWPORT BEACH, COUNTY OF ORANGE AND THE STATE OF CALIFORNIA (Annual Averages for Calendar Years 2005 -2009) 01 Data Not Seasonally Adjusted. Source: State of California, Employment Development Department, based on March 2009 benchmark. The State of California Employment Development Department, Labor Market Information Division (the `EDD "), preliminarily estimates that, on a seasonally unadjusted basis, the civilian labor force in the City in September 2010 was 44,300, of which approximately 41,600 persons were employed. Based on preliminary estimates of the EDD as of October 22, 2010, the City's unemployment rate in September 2010 of 6.0 %, on a seasonally unadjusted basis, was below that of the County at 9.6 %, below that of the State at 12.2% and below that of the United States at 9.2 %. A -37 Calendar Year 2005 2006 2007 2008 2009 Civilian Labor Force City of Newport Beach Employed 43,800 44,500 44,500 44,100 41,500 Unemployed 1,000 900 1,100 1,500 2,500 City 2.3% 2.1% 2.4% 3.3% 5.7% County 3.8 3.4 3.9 5.3 9.0 California 5.4 4.9 5.3 7.2 11.4 01 Data Not Seasonally Adjusted. Source: State of California, Employment Development Department, based on March 2009 benchmark. The State of California Employment Development Department, Labor Market Information Division (the `EDD "), preliminarily estimates that, on a seasonally unadjusted basis, the civilian labor force in the City in September 2010 was 44,300, of which approximately 41,600 persons were employed. Based on preliminary estimates of the EDD as of October 22, 2010, the City's unemployment rate in September 2010 of 6.0 %, on a seasonally unadjusted basis, was below that of the County at 9.6 %, below that of the State at 12.2% and below that of the United States at 9.2 %. A -37 Median Household Income Table A -18 below sets forth the median household income for the City, the County and the State for calendar years 2005 through 2009. TABLE A -18 MEDIAN HOUSEHOLD INCOMElt1 CITY OF NEWPORT BEACH, COUNTY OF ORANGE, THE STATE OF CALIFORNIA AND THE UNITED STATES (Calendar Years 2005 -2009) Personal Income Table A -19 below sets forth the per capita personal income in the County and the State for calendar years 2005 through 2009: TABLE A -19 PER CAPITA PERSONAL INCOME COUNTY OF ORANGE AND THE STATE OF CALIFORNIAlt1121 (Calendar Years 2005 -2009) Calendar Year County of Orange (3) State of California 2005 $47,141 $38,767 2006 50,997 41,567 2007 52,009 43,402 2008 51,894 43,852 2009141 -- 42,325 Per capita personal income was computed using Census Bureau midyear population estimates. Estimates for 2005 -2008 reflect county population estimates available as of April 2008. 1 21 All state and local area dollar estimates are in current dollars (not adjusted for inflation). �) Reflects per capita personal income for the Santa Ana- Anaheim - Irvine, California Metropolitan Division. 141 County of Orange Per Capita Personal Income for Year 2009 not yet available. Source: Bureau of Economic Analysis, U.S. Department of Commerce. INt3 City of Newport County of State of United Year Beach Orange California States 2006 $103,068 $70,232 $56,645 $48,451 2007 110,511 73,263 59,948 50,740 2008 123,958 75,078 61,021 52,029 2009 104,435 71,865 58,931 50,221 2010 105,657 76,412 62,401 52,795 InflaT O�ted Dollars for each respective year. Source: U.S. Census Bureau - American Community Survey for Fiscal Years 2005 -06 through 2008 -09; Claritas for Fiscal Year 2009 -10. Personal Income Table A -19 below sets forth the per capita personal income in the County and the State for calendar years 2005 through 2009: TABLE A -19 PER CAPITA PERSONAL INCOME COUNTY OF ORANGE AND THE STATE OF CALIFORNIAlt1121 (Calendar Years 2005 -2009) Calendar Year County of Orange (3) State of California 2005 $47,141 $38,767 2006 50,997 41,567 2007 52,009 43,402 2008 51,894 43,852 2009141 -- 42,325 Per capita personal income was computed using Census Bureau midyear population estimates. Estimates for 2005 -2008 reflect county population estimates available as of April 2008. 1 21 All state and local area dollar estimates are in current dollars (not adjusted for inflation). �) Reflects per capita personal income for the Santa Ana- Anaheim - Irvine, California Metropolitan Division. 141 County of Orange Per Capita Personal Income for Year 2009 not yet available. Source: Bureau of Economic Analysis, U.S. Department of Commerce. INt3 Major Employers Table A -20 below sets forth the principal employers as of June 30, 2010 in the City: TABLE A -20 CITY OF NEWPORT BEACH PRINCIPAL EMPLOYERS(o (As of June 30, 2010) Name Hoag Memorial Hospital Conexant Systems Pacific Life Insurance Company Glidewell Laboratories City of Newport Beach US Bank B. Alan Whitson Company Newport-Mesa Unified School District Marriott Newport Beach Balboa Bay Club and Resort Fletcher Jones Motor Cars Island Hotel") Pimco Advisors Number Type of Business or Entity Employed Hospital and health care 4,001 Semiconductor solutions 1,650 Life insurance, investment 1,513 Dental 1,400 City government 940 Financial 883 Management Consulting company 750 Education 545 Hotel, resort 510 Hotel, resort 500 Automotive 500 Hotel, resort 500 Investment company 500 (o Figures reflect number of employees of each employer at the time the information was collected. (z> The Island Hotel was formerly the Four Seasons Hotel, Source: InfoGroup. A -39 Table A -21 below sets forth the largest employers within Orange County reported as of December 31, 2009: Name Walt Disney Co. University of California, Irvine St. Joseph Health System Boeing Co. Yom! Brands Inc. Target Corp. Supervalu hrc. Kaiser Permanente Memorial Health Services Inc. Bank of America Corp. Home Depot Inc. California State University, Fullerton The Kroger Co. Wells Fargo & Co. AT &T Inc. Hoag Memorial Hospital Presbyterian Wal -Mart Stores Inc. Cedar Fair LP United Health Group Inc. Tenet Healthcare Corp. Costco Wholesale CVS Caremark Corp. Edison International Automobile Club of Southern California Stater Bros, Holdings Inc TABLE A -21 COUNTY OF ORANGE LARGEST EMPLOYERSo) (As of December 31, 2009) Number of Business or Entity Employed Entertainment 19,800 Higher education and health care 19,279 Health care 10,929 Aerospace and communications 8,477 Fast food restaurants 7,000 Retail 6,226 Grocery retailer 5,923 Health care 5,598 Health care 5,533 Banking 5,450 Retail 5,000 Higher education 4,952 Grocery retailer 4,500 Banking 4,455 Telephone service 4,300 Hospital and health care 4,241 Retail 4,000 Entertainment 3,900 Health care 3,800 Health care 3,795 Discount retailer 3,663 Pharmacy 3,650 Utilities and investments 3,500 information systems, insurance and automotive assistance 3,300 Grocery retailer 3,115 1 �) Includes corporations, hospitals and universities. Excludes government entities and school and community college districts. Franchise operations are considered separately from their corporate chains. Source: Orange County Business Journal — 2010 Book of Lists. EMIN Construction Activity Table A -22 below sets forth building permit valuations and new housing units in the City for calendar years 2006 through 2010. TABLE A -22 CITY OF NEWPORT BEACH BUILDING PERMIT VALUATION AND NEW HOUSING UNITS Calendar Years 2006 -2010 Residential Single- Family Multi - Family Alteration/Additions Total: Non - Residential New Commercial New Industry Others �1 Alteration/Additions Total: Total All Industry: New Housing Units Single - Family Units Multi- Family Units Total: 2006 $ 82,967,310 7,450,000 56,805,626 $147,222,936 $ 36,300,000 0 37,093,731 53,803,425 $127.197.156 �,L 14,42U,117L 2007 $ 68,054,930 11,283,560 58,058,723 $137,397,213 $ 57,666,475 2,000,000 29,236,976 40,431,975 $129,335,426 $266,732,639 2008 $ 81,504,056 9,791,756 49,507,192 $140,803,004 $ 17,000,000 0 32,513,364 62,653,046 $112,166,410 2009 $ 44,246,031 3,287,177 38,080,919 $ 85,614,127 $ 22,177,120 0 9,866,091 40,201,278 $ 72,244,489 $252,969,414 5157,858,616 20101'1 $18,300,981 9,600,000 29,585,044 $18,846,025 $ 2,867,530 0 3,817,380 21,870,834 $28,555,744 $77,401,769 126 107 90 66 22 34 40 38 6 4 160 147 128 72 26 to Numbers reflect January through June 2010 only. (2) Other New Nonresidential includes churches and religious buildings, medical and institutional buildings, schools and educational buildings, agricultural buildings, residential garages, utilities buildings, and miscellaneous nonresidential structures. Source: Construction Industry Research Board. A -41 Taxable Sales Table A -23 below sets forth the taxable sales in the City for calendar years 2004 through 2008. Table A -24 below sets forth the taxable sales in the City for the first two quarters of calendar year 2009. Type of Business Retail Stores: Apparel Stores General Merchandise Stores Food Stores Eating and Drinking Places Home Furnishings and Appliances Building Materials and Farm Implements Auto Dealers and Auto Supplies Service Stations (2) Other Retail Stores (3) Retail Stores Totals All Other Outlets Total All Outlets TABLE A -23 CITY OF NEWPORT BEACH TAXABLESALES Calendar Years 2004 -2008 (In Thousands) 2004 2005 2006 2007P) 20080) $ 138,308 $ 159,346 $ 168,773 $ 172,604 $ 154,951 237,968 256,604 259,294 247,316 215,698 76,493 82,662 86,262 88,522 88,880 344,205 381,592 392,918 403,373 390,435 81,027 99,458 96,501 94,043 61,173 25,548 29,130 30,566 29,774 26,934 382,748 430,653 538,993 647,238 517,940 74,715 89,411 105,462 116,143 128,087 288,372 327,910 334,155 217,538 198,233 1,649,384 1,856,766 2,012,924 2,016,551 1,782,332 475,161 501,875 559,897 631,800 622,532 $2,124,545 $2,358,641 $2,572,821 $2,648,351 $2,404,864 In early 2007 the California State Board of Equalization began a process of converting business codes of sales and use tax permit holders to North American Industry Classification System Codes. As a result of the coding change process, industry data for 2007 and 2008 are not comparable with data from prior years. (Zl Prior to 2007, industry data for Service Stations were included in Automotive. (31 In 2007 and 2008, industry data for Specialty Stores were included in Other Retail Stores. Source: California Board of Equalization. TABLE A -24 CITY OF NEWPORT BEACH TAXABLESALES Calendar Year 2009, First and Second Quarter (In Thousands) Type of Business Retail and Food Services: Motor Vehicle and Parts Dealers Home Furnishings and Appliance Stores Building Materials and Garden Equipment and Supplies Food and Beverage Stores Gasoline Stations Clothing and Clothing Accessories Stores General Merchandise Stores Food Services and Drinking Places Other Retail Group Total Retail and Food Services All Other Outlets Totals All Outlets Source: California Board of Equalization. A -43 First Quarter Second Quarter 2009 2009 $115,984 $108,638 11,054 9,542 9,481 11,412 20,575 23,484 18,718 24,313 32,579 40,334 33,540 38,575 83,706 91,665 34,128 38,936 $359,765 $386,898 134,624 133,022 494 388 519 920 Foreclosure Activity Table A -25 below sets forth foreclosure activity in the City and the County for the calendar years 2005 through 2010: TABLE A -25 CITY OF NEWPORT BEACH AND COUNTY OF ORANGE FORECLOSURE ACTIVITY Calendar Years 2005 through 2010 Calendar Total Number of % of Total Year Foreclosures Housing Units Housing Units 2005 City 1 42,143 0.00 % County 152 1,013,634 0.01 2006 City 14 42,352 0.03 County 691 1,019,012 0.07 2007 City 40 42,580 0.09 County 4,223 1,025,302 0.41 2005 City 117 42,711 0.27 County 11,647 1,030,914 1.13 2009 City 141 43,477 0.32 County 8,502 1,035,536 0.82 20101° City 84 -- 0.09 County 4,839 0.27 Source: MDA DataQuick Information Systems. 0t Reflects data from January through July, 2010 ail APPENDIX B CITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2009 (THIS PAGE INTENTIONALLY LEFT BLANK) Oil A °° pL low a im" i 'I' 9 - �w ' p , 9I all ri;�' qi ii i 1 ie..i !�. - ii ar i r- �, Y � - _ �JP'ibk3 4 J ti#yL --jam' Comprehensive Annual Financial Reporl This page left blank intentionally. • ryv NI ,v t wp O\ FOR Comprehensive Annual Financial Report For the Year Ended June 30, 2009 Prepared by the Administrative Services Department Dennis C. Danner, Director Wpm- The City of Newport Beach was incorporated September 1, 1906 The present City Seal was adopted July 22, 1957 z M O v C n O M rn m El 0 z INTRODUCTORY SECTION This page left blank intentionally. CITY OF NEWPORT BEACH Comprehensive Annual Financial Report Year Ended June 30, 2009 TABLE OF CONTENTS INTRODUCTORY SECTION (Unaudited) Tableof Contents ......................................................................................... ..............................1 Letterof Transmittal ..................................................................................... ..............................5 GFOA Certificate of Achievement for Excellence in Financial Reporting ... .............................18 Listof City Officials ..................................................................................... .............................19 OrganizationChart ...................................................................................... .............................20 FINANCIAL SECTION Independent Auditors' Report ............................................................... .............................23 Management's Discussion and Analysis ............................................. .............................27 (Required Supplementary Information) Basic Financial Statements Government -wide Financial Statements: Statement of Net Assets .................................................................... .............................49 Statement of Activities ...................................................................... ............................... 50 Fund Financial Statements: Governmental Funds: BalanceSheet ................................................................................. .............................55 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets ............................................................ .............................56 Statement of Revenues, Expenditures and Changes in Fund Balances ...................... 57 Reconciliation of Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities ..............58 Budgetary Comparison Statements: GeneralFund ............................................................................ .............................59 Tide and Submerged Land Fund ............................................... .............................61 ContributionsFund .................................................................... .............................62 Proprietary Funds: Statement of Net Assets ............................................................... .............................65 Statement of Revenues, Expenses and Changes in Fund Net Assets .....................66 Statement of Cash Flows ........................................................... ............................... 67 Fiduciary Funds: Statement of Fiduciary Assets and Liabilities — Agency Funds ..... ............................... 71 Notes to the Financial Statements ..................................................... .............................75 Supplementary Schedules Non -Major Governmental Funds: Combining Balance Sheet .................................. ............................... ............................132 Combining Statement of Revenues, Expenditures and Changes in FundBalances ................................................... ............................... ............................140 Budgetary Comparison Schedules: StateGas Tax Fund ........................................... ............................... ............................147 Asset Forfeiture Fund ........................................ ............................... ............................148 OTS DUI Grant Fund ......................................... ............................... ............................149 182 JAGFund ........................................................... ............................... ............................150 Circulation and Transportation Fund .................. ............................... ............................151 Building Excise Tax Fund ................................... ............................... ............................152 Combined Transportation Fund ......................... ............................... ............................153 Arterial Highway Rehabilitation Fund ................. ............................... ............................154 Community Development Block Grant Fund ...... ............................... ............................155 Air Quality Management District Fund ............... ............................... ............................156 Environmental Liability Fund .............................. ............................... ............................157 Supplemental Law Enforcement Fund ............... ............................... ............................158 Traffic Congestion Relief Fund ........................... ............................... ............................159 Newport Coast Annexation Fund ....................... ............................... ............................160 Proposition 1B Transportation Fund .................. ............................... ............................161 Internal Service Funds: Combining Statement of Net Assets .................. ............................... ............................165 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets....... 166 Combining Statement of Cash Flows ................. ............................... ............................167 Fiduciary Funds: Combining Statement of Fiduciary Assets and Liabilities ................. ............................171 Statement of Changes in Fiduciary Net Assets ... ............................... ...........................172 STATISTICAL SECTION (Unaudited) Financial Trends: NetAssets by Component ........................................ ............................... ...........................175 Changesin Net Assets .............................................. ............................... ...........................176 Fund Balances of Governmental Funds ................... ............................... ............................178 Changes in Fund Balance of Governmental Funds . ............................... ............................179 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property ......... ............................181 Property Tax Rates, Direct and Overlapping Governments, Last Ten Fiscal Years ........... 182 Principal Property Taxpayers as of June 30, 2009 ... ............................... ...........................183 Property Tax Levies & Collections ........................... ............................... ............................184 Debt Capacity: Ratio of Outstanding Debt by Type .......................... ............................... ............................186 Outstanding Debt Serviced by the General Fund .... ............................... ............................188 Schedule of Direct and Overlapping Debt ................ ............................... ............................189 Computation of Legal Debt Margin .......................... ............................... ............................190 Revenue Bond Coverage, Last Ten Fiscal Years .... ............................... ............................192 Demographic and Economic Information Demographic and Economic Statistics, Last Ten Fiscal Years ............... ............................194 PrincipalEmployers ................................................. ............................... ............................195 Operating Information: Full Time City Employees by Function ..................... ............................... ............................197 Operating Indicators by Function ............................. ............................... ............................198 Capital Asset Statistics by Function ......................... ............................... ............................200 Water Sold by Customer Type ................................. ............................... ............................202 WaterRates ......................................................................................... ............................... 203 Major Water Customers ........................................... ............................... ............................204 This page left blank intentionally. CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES Dennis Danner, Director/ Treasurer December 18, 2009 Honorable Mayor and Members of the City Council, and Citizens of the City of Newport Beach Newport Beach, California The City Charter and California state law require that the City of Newport Beach issue annually a complete set of financial statements and that an independent firm of certified public accountants audit this report in conformance with generally accepted auditing standards (GAAS). The Comprehensive Annual Financial Report (CAFR) of the City of Newport Beach for the year ended June 30, 2009, is hereby submitted. The CAFR was prepared in conformance with generally accepted accounting principles (GAAP). The City's financial reporting is based upon all Governmental Accounting Standards Board (GASB) pronouncements as well as Financial Accounting Standard Board (FASB) statements and interpretations that were issued on or after November 30, 1989 that do not conflict with or contradict GASB pronouncements. This report consists of City management's representations concerning the finances of the City of Newport Beach. Responsibility for the accuracy and completeness of the data presented rests with the City. Management of the City is also responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the government are protected from loss, theft, or misuse, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. We believe the information presented in this report is complete and accurate in all material respects, and that it is reported in a manner designed to fairly present the financial position and results of operations of the various activities of the City of Newport Beach. The City of Newport Beach's financial statements have been audited by Mayer Hoffman McCann P.C., a firm of licensed certified public accountants. The goal of the audit was to provide reasonable assurance that the financial statements of the City of Newport Beach for the fiscal year ended June 30, 2009, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Newport Beach's financial statements for the year ended June 30, 2009, are fairly 3300 Newport Boulevard - Post Office Box 1768 - Newport Beach, California 92658 -8915 Telephone: (949) 644 -3127 • Fax: (949) 644 -3339 •Website: www.city.newport- beach.ca.us presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. A narrative introduction, overview, and analysis accompany the basic financial statements in the form of the Management's Discussion and Analysis (MD &A). The letter of transmittal is designed to complement the MD &A and should be read in conjunction with it. The City of Newport Beach MD &A can be found immediately following the report of the independent auditors and will provide further information regarding the format and content of this report. The notes to the financial statements contain a summary of significant policies and disclosures, including contingencies and subsequent events the reader should consider in assessing the financial condition of the City. PROFILE OF THE CITY The City of Newport Beach is located in the coastal center of Orange County, in the heart of Southern California, with Los Angeles County to the north and San Diego County to the south. There are currently 34 cities within the County offering one of the finest climates in the United States. Orange County is the third largest county in California trailing Los Angeles and San Diego and is the sixth largest county in the nation. The general vicinity of Newport Beach and the County of Orange relative to the counties of Los Angeles, San Bernardino, Riverside and San Diego is illustrated on the map below: Las Angeles ° County San Bernardino 0 County ©\ Riverside Orange County County NEWPORT REREN IV ° 5` Diego County The City of Newport Beach is one of Southern California's most scenic and dynamic communities. It surrounds Newport Bay, well known for its picturesque islands and one of the greatest natural yacht harbors in the world, accommodating over 9,000 boats of all types docked within its 21 square mile harbor area. This bay area and the ten miles of ocean beach offer outstanding fishing, swimming, surfing, and aquatic sports activities. The City has a permanent population of 86,252. During the summer months, the population grows to over 100,000 with 20,000 to 100,000 tourists daily. There are fine residential areas, modern shopping facilities, and a quality school system. A major campus of the University of California is located immediately adjacent to the City, and eight other colleges are within a 30 -mile radius. The following map illustrates the communities within the City of Newport Beach; the City's bay, recreational harbor and beachfront topography; and the City's location relative to the bordering cities of Costa Mesa to the north, Irvine to the east and Laguna Beach to the south. rte=. ima .1 N A. eevcn The City of Newport Beach was incorporated September 1, 1906. The current City Charter was adopted in 1954. The City operates under a Council- Manager form of government. Council Members are elected by district but voted on by the population as a whole, and serve four -year staggered terms. The governing council consists of the mayor and six other members and is responsible for among other things, policy- making, passing local ordinances, adopting the budget, appointing committees and hiring the City Manager, City Attorney, and City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day to day operations of the City, and for appointing heads of departments. The City of Newport Beach is a full service city providing its residents and visitors with the following functional services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check, and code enforcement services; libraries and cultural and arts services; recreation and senior services; and water, wastewater, rubbish disposal, and street light utility services. The City provides water and sewer service to most areas within City limits, but it does not provide gas, electrical, or other utility service. Public elementary and secondary education is provided by school districts, which are separate government entities. Component Unit: The City's financial statements present the financial activity of the City of Newport Beach (the primary government) and the Newport Beach Public Facilities Corporation (a component unit of the City). The Corporation is blended into the City's financial statements because of its operational and financial relationship with the City. Even though it is a legally separate organization, City of Newport Beach elected officials have continuing accountability for fiscal matters of the Corporation. Additional information about the Newport Beach Public Facilities Corporation and the reporting entity in general can be found in Footnote 1a of the notes to the financial statements. Budget: The annual budget serves as the foundation for the City of Newport Beach's financial planning and control. The Administrative Services Department, with City Manager direction, develops budget guidelines and appropriation limits for each department every year in January. The departments then submit revenue and expenditure appropriation requests which are summarized by the Administrative Services Department and presented to the City Manager for review. The City Manager then meets with each department and prepares a proposed budget document for the City Council. The City Council holds a budget hearing and adopts a budget on or before June 30, the close of the City's fiscal year. Budgets are adopted for the General Fund and Special Revenue Funds. The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which increase the total appropriations of any fund over $10,000 must be approved by the City Council. LOCAL ECONOMIC MIX From 1950 to 2009, the population of the City increased from 12,120 to 86,252. As vacant land becomes increasingly scarce, population growth is expected to flatten considerably as the City becomes relatively built -out. According to the Center for Demographic Research at California State University Fullerton, the City of Newport Beach will be home to an estimated 91,321 residents by the year 2015. Newport Beach's physical setting encompasses about 25.3 square miles of land, of which approximately 75% is developed and 25% is undeveloped including the City's coastal beaches used for recreation and open space. The developed land is 70% residential and 30% non - residential. Of the City's 41,850 residential dwelling units, 60% of the housing is single - family units and 40% is multi - family units. This current land use mix produces General Fund revenues of approximately $150 million. Tax revenues represent nearly 76.7% of all General Fund revenues while only 23.3% is generated by other revenue sources. The top three individual revenue sources, Property Taxes, Sales Taxes and Transient Occupancy Taxes (TOT), represent 71 % of all General Fund revenues. General Fund Revenues • Property Taxes A • Sales Taxes ■ Sales Tax In Lieu ■ Transient Occupancy Taxes ■ Other Taxes 7.5% 40 ■ All Other Sources 5.0% Property Taxes: Property taxes account for 46.7% of all General Fund revenues.. Property taxes generated with the City limits are distributed amongst various local governments. The City receives, on average, 16.5% of the property taxes paid by Newport Beach residents. The remainder goes to school districts, the County, and other government entities. Sales Taxes: In March of 2004, voters approved Proposition 57 which allowed the State to enact revenue swapping procedures commonly referred to as the "Triple Flip." In doing so, Sales Taxes were reallocated to cities in two separate revenue streams "Sales Taxes" and "Sales Taxes In Lieu" which impacted the timing and distribution method but did not materially impact the revenue category in total. Sales Taxes and sales taxes in lieu represent 16.9% of all General Fund revenues. The City's sales tax base is generated from a relatively diverse business community and is not dependent on any one merchant or industry. The following chart demonstrates the diversity of the City sales tax revenue. The largest segment, "Restaurants," accounts for 19.4% of total sales taxes and is represented by 311 restaurants. The next largest segment, "Auto Sales - New," accounts for 19.1% of total sales taxes and is represented by 9 dealerships. The "Other" categorization accounts for another 15.6% and is represented by 785 businesses. Sales Tax by Business Segment 2.2 8 6% .� 4.0% 4.7% 6.2% 7.6% 81% 10.1% ■ Restaurants - 311 ■ New Auto Sales - 9 ■ Leasing -64 • Miscellaneous Retail- 805 • Department Stores -19 • Apparel Stores - 178 • Service Stations - 21 • Food Markets -40 • Office Equipment -75 • Furniture / Appliance - 149 • Other -785 Transient Occupancy Taxes (TOT): The TOT accrues to the City at a rate of 10% of room charges (with 18% of this collection going to the local Conference and Visitors Bureau). The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of approximately twenty inns, motels, hotels and resorts and accounts for 89% of TOT revenues. The residential category is made up of some 700 vacation rentals representing only 11% of TOT revenue. Together, they account for nearly $11.2 million in annual TOT revenue. Annual Revenue Percent (In Millions) of Total Commercial Property: Inns, Motels and Hotels $10.0 89% Residential Property: Vacation Rentals $ 1.2 11% $11.2 100% ECONOMIC OUTLOOK & FACTORS EFFECTING FISCAL PLANNING U.S. Economy: In the fall of 2008, the national economy began a freefall which has continued through the second quarter of 2009. Current data and consensus amongst economists, however, suggest the national economy is stabilizing and the recovery has begun. During the third quarter of 2009, the Gross Domestic Product (GDP) turned around and grew at a rate of 3.5 %. Dampening this news is some speculation that the turn - around was largely bolstered by federal stimulus spending and the underlying recovery of the economy is occurring more modestly. As can been seen in the chart below, the California Legislative Analyst Office (LAO) projects the annualized real GDP growth to bottom -out at -2.5% in 2009 before slowly returning to modest growth of 2% in 2010 and 3% in 2011. 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 2004 1 2005 1 2006 U.S. Real GDP Growth 2007 1 2008 Est mated I Pro Projected I Projected 1- t5eries1l 3.6% 1 3.1% 1 2.9% 1 2.0% 1 0.4% 1 -2.5% 1 10% 1 3.0% 1 Source: LAO's Economic Forecast State of California Economic Recovery: Like the national economy, the State of California economy is in recovery. The pace of job losses has subsided and home sales are on the rise. The recession in California will likely end in 2009 but since the recession started earlier and fell sharper than the rest of the nation, the California economy has further to travel as demonstrated by the table below: Unemployment Rate (Percent)` Actual Estimated Forecast 2008 2009 2010 2011 2012 United States 5.8 9.2 10.0 9.4 8.5 California 7.2 11.7 12.1 11.3 10.2 * Source: LAO Economic Forecast California State Budget: The State budget is of great concern to all cities, including Newport Beach. The State's inability to achieve meaningful on -going budget solutions has resulted in massive lingering budget problems in the coming months and into the foreseeable future. As depicted by the following chart, the LAO projects a $6.3 billion deficit for 2009 -10 and a $14.4 billion shortfall between revenues and expenditures in 2010 -11 with similar projections for the succeeding years. State Budget Operating Shortfalls (In Billions) C: 5 Carry -In Deficit From Previous Year ■ Annual Operating Shortfall -10 15 -20 -25 2009 -10 2010 -11 2011 -12 2012 -13 2013 -14 2014 -15 Source: LAO's California Fiscal Outlook Considering the projected annual shortfalls, a plan that permanently addresses the State's structural deficit represents an enormous challenge and will require substantial ongoing solutions. LOCAL ECONOMY Local Impact of the State's Budget Crisis As the State's budget deficits continue to balloon, there is a considerable risk that the State may attempt to shift the burden to local governments by reallocating or permanently shifting revenues from local governments. In the early nineties, the State enacted a number of permanent revenue shifts from local governments to schools. The cumulative impact of the ERAF shifts I, II and III since 1993 have cost City of Newport Beach taxpayers in excess of $89 million. As a part of the State's 2009 -10 budget initiatives, the State acted to defer certain tax sources due to local governments including 8% of local property taxes, certain highway users taxes (gas tax) and traffic congestion relief taxes. The State took these actions to replace a portion of the shortfall in state revenues associated with current economic conditions. With regard to the property tax borrowing, legislation was signed into law on July 28, 2009 that enabled the State of California to borrow $6.2 million of property tax revenue due to the City in fiscal year 2009 -10. On November 10, 2009, the California Statewide Communities Development Authority (CSCDA) issued debt to provide to participating local governments, 100% of the property tax revenue that the State had been authorized to borrow. The bonds provide for the borrowed funds to be remitted to the participating local governments in two installments (on January 15, 2010 and on May 3, 2010). Although the 2009 -10 State budget actions thus far have largely represented short-term borrowings rather than permanent revenue shifts, we are very concerned that the State will continue to look at local government revenues sources as a means to resolve their staggering budget problems. Property Taxes: Unlike many cities, property taxes, not sales taxes, are the number one source of revenue for the City of Newport Beach, representing 46.7% of all General Fund revenues. Due to the limited supply of scenic coastal property and the unique access to the scenic Newport Bay and one of the best recreational yacht harbors, the Newport Beach community has been developed into in affluent residential neighborhoods (70 %) and high -end commercial districts (30 %). Despite the dramatic declines in the real estate market, sales data for the month of October, 2009, demonstrates the relatively high density of affluence throughout the residential communities. Median home sales prices in all areas of the City approach or exceed $1 million. CITY OF NEWPORT BEACH Median Home Sales* Comparitive Month Ending November * Source: DataQuick Information Systems Due to a vigorous demand for coastal property, the City has enjoyed long -term growth trends with its number one revenue source. Over a ten -year period, assessed valuation increased an average of 9.48% per annum and 6.76% over a twenty -year period. Since Californians passed Proposition 13 in 1978, assessed property value is reassessed to market value only when the property changes ownership. Otherwise, the assessed value grows by no more than 2% per year. This practice creates a constant lag and buffer between assessed and market values, effectively insulating the tax base from more erratic market value gyrations. Median Median Number of Number of Newport Beach Sales Price Sales Price Home Sales Home Sales Zip Code 2008 2009 2008 2009 92625 $ 3,000,000 $ 1,500,000 9 8 92660 $ 1,225,000 $ 1,061,250 8 33 92661 $ 3,450,000 $ 1,950,000 2 4 92663 $ 2,350,000 $ 810,000 1 18 92657 $ 1,393,000 $ 1,535,000 5 20 All Orange County $ 400,000 $ 432,000 2,177 2,528 * Source: DataQuick Information Systems Due to a vigorous demand for coastal property, the City has enjoyed long -term growth trends with its number one revenue source. Over a ten -year period, assessed valuation increased an average of 9.48% per annum and 6.76% over a twenty -year period. Since Californians passed Proposition 13 in 1978, assessed property value is reassessed to market value only when the property changes ownership. Otherwise, the assessed value grows by no more than 2% per year. This practice creates a constant lag and buffer between assessed and market values, effectively insulating the tax base from more erratic market value gyrations. Although assessed value growth has slowed for the last several years and will likely continue to decrease in 2010 -11, we are hopeful that assessed valuations will modestly rebound in years thereafter. 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% 20 Year Assessed Property Value Growth -Assessed Value Growth Trendline (3 Yr Average Growth ) m T rn rn rn m T ° N N N 2 N g4 N 4 N 4 N 4 N 4 N 0 N `The 2000 -03 datapoint was normalized to reduce the impact the Newport Coast Annexation had on the assessed valuation growth trendline. Although the City has normally been any able to rely on steady growth in assessed valuation of 4% or more, it is probable the City will build the 2010 -11 budget assumptions around a zero growth scenario with contingencies for a decline of assessed valuation. Sales and Transient Occupancy Revenues: Because sales tax and TOT revenues follow consumer behavior, they are much more volatile than property taxes. The current economic recession, falling home prices and tightening credit policies have significantly depressed consumer spending patterns. Sales taxes have contracted precipitously during 2008 -09 and are expected to continue to decline in 2009 -10 until employment conditions improve and consumer confidence is restored. Transient occupancy tax collections generally follow a similar trend as sales taxes but are somewhat muted due to recent hotel expansions and the addition of a new luxury resort. TOT revenues are currently expected remain at 2008 -09 revenue levels before modestly rebounding in 2010 -11. LONG TERM FINANCIAL PLANNING The City takes long -term financial planning seriously and has developed several master replacement plans for its critical assets and infrastructure including major facilities, street pavement, water and sewer infrastructure, and City vehicles and heavy equipment. The City retains actuaries to predict and fund long -term liabilities including workers compensation, general claim liabilities, pension liabilities and post employment health care liabilities. Reserve levels and annual required funding contributions are set by Council policy. In the case of workers compensation and general liability, annual contribution rates are targeted to accumulate cash reserves in excess of the $11.9 million and $5.9 million expected liability respectively, to achieve at least a 75% confidence funding level of $13.2 million and $6.1 million respectively. Except for the implied subsidy component of the City's post employment health care plan (OPEB liability), the City policy is to fund the cash subsidy of our OPEB liability of $ 2.7 million and pension liabilities of $18.4 million at 100% of the actuarially determined annual required contribution (ARC). Because the City pays the entire ARC each year, its net pension and net OPEB obligation at the end of each year is $0 (except for the implied subsidy component of OPEB which is funded on a pay -as- you -go basis). To mitigate the rising cost of pension plans, the City is actively pursuing cost sharing agreements with our employee associations pertaining to pension plans. Regarding OPEB plan liabilities, the City closed the defined benefit component of the OPEB plan to new participants in 2006. The new plan resembles a defined contribution style plan through which once the contribution is made the employee account, the employer has no further funding obligation to the plan. See footnotes 10 and 11 of the notes to the financial statements for further information on the funding status of the City's pension and OPEB plans. Stewardship: The City has long taken a conservative approach to forecasting revenues, often assuming a "worst case scenario." This fiscal conservatism has created a stable financial base. As a result, even in a downturn, the City of Newport Beach is able to maintain its services at a high level, while reducing expenses to accommodate reduced revenues. The City's fiscal discipline has allowed it to prepare balanced budgets and save, both during prosperous and difficult economic periods. While the current recession is much deeper than expected, management and the Council were able to act swiftly to trim the operating budget at the midpoint of the 2008- 09 fiscal year, averting a decline in the fund balance of the General Fund. The General Fund ended the year with a $79.1 million fund balance, a net increase of $552,000. Of this amount, $5.8 million is reserved and is not available to finance new activities because it has already been committed to fulfill contractual obligations or is otherwise legally restricted beyond the City Council's control. Within the Council's discretion, the City Council has designated $18.6 million for contingencies, $13.1 million for unspecified future appropriations, $4.7 million for capital projects that were not completed during the fiscal year, and $37.3 million designated for other special purposes including $25.0 million designated for the City's facilities replacement plan and $5.0 million designated to offset unexpected increases in PERS pension costs. 2009 -10 Cost Saving Measures: After the date of this report's balance sheet but prior to the issuance of this report, it became clear that deteriorating revenues would present budget short-falls in 2009 -10. With the approval of City Council, management initiated an Early Retirement Incentive Plan (ERIP) with intent to further trim the City's overall cost structure. A total of 51 people participated in the plan and this action is expected to save nearly $3.1 million annually. Additionally, the City has initiated a second phase restructuring effort to effect additional long -term cost savings and improved efficiencies. Major Initiative: While 2010 -11 will likely present another challenging budget year, plans for a new Civic Center Project, which includes a parking structure and library additions, are underway that will be integrated in a 16 -acre passive park with ocean views. The costs of the improvements are expected to exceed $100 million and will require bond financing. The Civic Center project has been reviewed in context of all critical City facility replacement plans and the City has judiciously set aside $25 million to pre -fund debt service and or construction expenditures. The City's facilities replacement policy limits General Fund contributions to debt service to not more that 5% of total General Fund expenditures in any one year as added measure to insure long -term sustainability and fiscal prudence. AWARDS AND ACKNOWLEDGMENTS Awards: The City has prepared a comprehensive annual financial report for the past 17 years. The City has received awards for excellence in financial reporting each of those years. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Newport Beach for its comprehensive annual financial report for the fiscal year ended June 30, 2008. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to conform to the Certificate of Achievement program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. Acknowledgments: Preparation of this report was accomplished through the efficient and dedicated services of virtually everyone in the City's Accounting Division and the Graphics and Print Services unit. In addition, members of the Administrative Services Department would like to thank the City Manager, and the Mayor and City Council for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. We would also like to thank our auditors, Mayer Hoffman McCann P.C., for their time and assistance in the preparation of the report. This report was completely prepared and published by City employees. ✓aC,.l David A Kiff City Manager / / Richard C. Kurth Acting Administrative Services Director Certificate of Achievement for Excellence in Financial Reporting Presented to City of Newport Beach California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive amoral financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. 1 IUNIRO SWCTAT3 �y! 140 ORPMTON President Executive Director L to R: Council Member Michael F. Henn, Mayor Pro Tern Keith D. Curry, Mayor Edward D. Selich, Council Members Leslie J. Daigle, Nancy Gardner, Steven Rosansky and Don Webb City Attorney David R. Hunt Sharon Wood........ Dave Kiff ............... Dennis C. Danner. Jay Elbettar .......... Steve Lewis .......... Mark Harmon........ Terri L. Cassidy .... Cynthia Cowell ..... David Lepo ........... John Klein ............. Steve Badum........ Laura Detweiler.... George Murdoch.. City Manager �- Homer L. Bludau City Clerk Leilani Brown ...........Assistant City Manager /Director of Community & Economic Development ........................................................... ............................... Assistant City Manager ............ ............................... .................Administrative Services Director /Treasurer ...................................................................... ............................... Building Director ................................................................................. ............................... Fire Chief ............................... ............................... ........................General Services Director ..................................................... ............................... Human Resources Director ................................. ............................... ........................Library Services Director .............................................. ............................... .......................Planning Director ............................................................................. ............................... Police Chief ..................................... ............................... .........................Public Works Director ............... ............................... .....................Recreation & Senior Services Director ....................................................................... ............................... Utilities Director ELECTORATE r BUILDING CODE 1 BOARD OF APPEALS r - - - - - --1 CIVIL SERVICE BOARD CITY CLERK L- - - - - -J r-- - - - -iJ PLANNING COMMISSION L- - - - - -J ASSISTANT CITY MANAGER crap —un vm emnomic oevalopmem Cafe EnbrremeM PLANNING Land Use and Development Long -Range Planning Planning Commission Support Housing Programs BUILDING Admirastration Plan CnecklPannit Servlcss Public Counter Inspections Use and Occupanry Residential Building Records FIRE Fire Suppression (Operations) ocean Lifeguards Training and Education Hering SMaterials Fare Prevention Junior Lifeguard Program Administration Emergency Medical Services POLICE Patrol Suppod Servlcss Trans Chief of Police Detective MAYOR a COUNCIL CITYATTORNEY CITY MANAGER ADMINISTRATIVE SERVICES Accounting /RaPomhoSudgeting Treasury Management Billing & Receivables PaymlgACCOUnts Payable Cashiering Gaoiphe is Information Systems Revenue Information Technology Purchasing&Warahousmg Printing &Postal Services O ELECTED OFFICIALS Fiscal Year 2008 -2009 r — — — — — — i BOARD OF LIBRARY TRUSTEES L- - - - - -J r PARKSBEACHESB 1 L RECREATION COMMISSION J r- - - - - -� CITY ARTS COMMISSION L- - - - - -J r- - - - - -� HARBOR COMMISSION ASSISTANT CITY MANAGER Haroor, Rea— Pubomnranmamn UTILITIES wafer Service Waslaidder Collection Electrical Services Oil & Gas Production Administration Street Lights GENERAL SERVICES Parka add Traea OParatbns Suppod Field Maintenance TraH¢ Signs &Markings Building Maintenance Refuse Collection Equipment Maintenance Recycling PUBLIC WORKS Engineering CIP Design & Construction IngaidnLeum Master Planning Divestment Be,.. TraRC Manning &Enginsenng Public Right of Way Permitting LIBRARY SERVICES Central Library & Brandi es Information & Reference Services Adult &Vouch Programs Ana CalWrai Services Literary Services Board of Library Trustees Supped City Ads Commission Support Sister City ASSOdation Suppod RECREATION & SENIOR SERVICES Yonth&Adult Sports Program. Senior Programs Services Playground/Park Development Special Events Facility ManagemenVRessnadare PIMP Commission Suppod HUMAN RESOURCES Recmronent General Liability Employstalabor Relations Benefits Adminentrdllon I ClassificaGOnlComperda ion Warkara Compensation Citywide Training Retiree Counseling& Benefits Civil Service Board Support Graveness& Disciplines r - - - -J 0 COUNCILAPPOINTED BOARDS & COMMISSIONS COUNGILAPPOINTED POSITIONS CITY DEPARTMENTS FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT Z O H U W U] J Q U Z Q Z Lz This page left blank intentionally. 22 Mayer Hoffman McCann P.C. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine. California 92612 949- 474 -2020 ph 949- 263 -5520 fx www.mhni- pc.com City COnitCil City of Newport Beach Newport Beach, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying basic financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fiutd information of the City of Newport Beach, California, as of and for the year ended June 30, 2009, which collectively comprise the City's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the City of Newport Beach's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted 0111- audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Arrcli/ ill'; .SICWCIar -[IS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining ftmd information of the City of Newport Beach, as of June 30, 2009, and the respective changes in financial position and cash flows, where applicable, of the City of Newport Beach, California and the respective budgetary comparison information for the general fund and major special revenue funds of the City for the Year then ended in conformity with accounting principles generally accepted in the United States of America. The information identified in the accompanying table of contents as nlcolcl,,enlew's cliscrnssion cacl clnah:.ris and regrrireel sit y /emeuf(Illy hi n-I larion is not a required part of the basic financial statements, but is supplementary information required by the accounting standards generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. PAI City Council City of Newport Beach Newport Beach, California Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Newport Beach's basic financial statements. The introductory section, combining and individual nonmajor fiord financial statements, schedules and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic Financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. In accordance with Gorei•nmeiu Amliiil {if Siemeklnh, we have also issued a report dated December 18, 2009 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmeni Auditing Sicrridcu•cls and should be considered in assessing the results of our audit. Irvine, California December 18, 2009 PZI FINANCIAL SECTION MANAGEMENTS DISCUSSION AND ANALYSIS 25 Z O_ H U W U1 J Q U Z Q Z Lz This page left blank intentionally. PQ dJ_1Z ETC] =1iLTI =l�111 1&111610111 *19[dki I_1IUL1I /_1AM11 This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents management's discussion and analysis of the City's financial performance during the fiscal year that ended on June 30, 2009. This analysis should be read in conjunction with the Transmittal Letter at the front of this report and the accompanying Basic Financial Statements. lyla_1Hd /_10 :110:11 Eel: 11 &9 Long -term Economic Resource (Government -wide) Focus — Economic resources are differentiated from financial resources in that the economic measurement focus measures changes in net assets as soon as the event occurs regardless of the timing of related cash flows. Therefore, this measurement focus includes both current spendable resources and fixed non - spendable assets, and long -term claims against these assets. The resulting net assets utilizing this measurement focus provides one measure of the City's overall long -term financial condition. • The assets of the City exceeded liabilities at the close of the most recent fiscal year by $2.322 billion. The vast majority of this figure is represented by illiquid capital assets including land and infrastructure. Capital assets net of accumulated depreciation and any related debt totaled $2.170 billion, while the remaining balance of net assets totaled $151.9 million. Of this amount, $107.7 million represents unrestricted net assets that may be used to meet the City's ongoing obligations to citizens and creditors for both governmental and business -type activities. • The City's total net assets increased $21.4 million (0.93 %) to $2.322 billion as a result of current year activities. The increase is partially attributable to donations totaling in the amount of $6.4 million associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed in the amount of $8.4 million by a developer as a condition of development in the Fashion Island area of the City (North Newport Center Development Agreement) and smaller capital projects. • The City's total debt decreased by $1.1 million, from $51.7 million to $50.6 million, during the current fiscal year. The decrease is the net result of regular debt service payments of $16.2 million combined with an increase in our estimate of our OPEB liability of $5.4 million. Short -term Financial Resources (Fund) Focus — The financial resources focus measures inflows of current spendable assets. The resulting net difference between current financial assets and current financial liabilities otherwise known as fund balance (or net working capital in the private sector) is a measure of the City's ability to finance activities in the near term. MA • At the close of the current fiscal year, the City's Governmental Funds reported a combined ending fund balance of $121 million, an increase of $4.1 million. Approximately $106.4 million is unreserved fund balance available to fund current obligations at the City Council's discretion. Of the $106.4 million unreserved fund balance, City Council has designated $18.6 million for contingencies, $13.1 for unspecified future appropriations, $4.7 million for capital projects that were not completed during the fiscal year, and $39.6 million designated for other special purposes including $25 million for facilities identified for replacement in the City's facilities replacement plan. The remaining $30.4 million is made up of smaller amounts designated across various funds. • The General Fund reported an increase of $0.6 million in fund balance after transferring $22.2 million to other funds. Of this transfer, $20.3 million represented a routine transfer to subsidize the operations of the Tide and Submerged Land Fund and a $0.5 million transfer to the Contributions Fund. The remaining $1.4 million represented various nonrecurring transfers to other funds. • At the end of the current fiscal year, unreserved fund balance for the General Fund was $73.7 million, or 57.6% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the comprehensive annual financial report contains the following information: Independent Auditors' Report, Management's Discussion and Analysis (this section), the Basic Financial Statements, and the Supplementary Information section, an optional section that presents combining and budgetary schedules for individual non - major funds. The Basic Financial Statements are comprised of three components: 1) Government -wide Financial Statements, 2) Fund Financial Statements and, 3) Notes to the Financial Statements. Management's Discussion and Analysis is intended to be an introduction to the Basic Financial Statements. 1- 7_F9[0lyh /_1.[d /_1I&IIF_AI=1dd=1ki IK Government -wide Financial Statements — The Government -wide Financial Statements are intended to provide a "Big Picture" view of the City as a whole using accounting methods similar to those used by private sector companies. The statement of net assets includes all of the City's assets (including non - spendable assets like streets, roads, and land rights) and liabilities (including long -term liabilities that may be paid over twenty or so more years). All of the current year revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. PU The two Government -wide Financial Statements report the City's net assets and how they have changed. Net assets — the difference between the City's assets and liabilities — is one way to measure the City's financial health, or position. Over time, increases or decreases in the City's net assets are an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the City, one should also consider additional non - financial factors such as changes in the City's property tax base and the condition of the City's roads. The Government -wide Financial Statements of the City are divided into two categories: Governmental Activities — This statement depicts the extent to which programs are self - supporting and the net amount provided by property taxes and other general revenues. Most of the City's basic services are included in this category, such as the public safety, public works, community development, community services and general administration. Taxes and other general revenues finance most of these activities. Business -type Activities — The City accounts for its Water and Wastewater utilities as business enterprises. The City charges fees to customers to recover the cost of providing Water and Wastewater services. Fund Financial Statements — Funds are accounting devices that the City uses to track and control resources intended for specific purposes. The Fund Financial Statements provide more detailed information about the City's most significant funds (major funds) but not the City as a whole. Some funds are required by State and Federal law or by bond covenants. Other funds are utilized simply to control and manage resources intended for particular purposes. The City utilizes three broad categories of funds: Governmental Funds — Governmental Funds are used to account for essentially the same functions reported as Governmental Activities in the Government -wide Financial Statements. However, unlike the Government -wide Financial Statements, Governmental Fund Financial Statements utilize the financial resources measurement focus and thus concentrate on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Consequently, the Governmental Fund Financial Statements provide a detailed short-term view that helps a reader determine whether there are more or fewer financial resources that can be spent in the near future to finance City programs. Also included in the Governmental Funds are Permanent Funds. These funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support City programs. Proprietary Funds — Services for which the City charges customers a fee are generally reported in Proprietary Funds (Enterprise Funds and Internal Service Funds). Like the Government -wide Financial Statements, these funds provide K01 both long and short -term financial information utilizing the economic resources measurement focus. The City's Enterprise Funds (Water and Wastewater Funds) are individual funds represented in the combined presentation of Business -type Activities in the Government -wide Financial Statements. The individual fund presentation provides more detailed information about each business segment, its operating statements, and statements of cash flow. The City also uses Internal Service Funds that are utilized to report and allocate the cost of certain centrally managed and operated activities (e.g. fleet maintenance, risk management, retiree insurance, etc.). Because the Internal Service Funds primarily serve the government, they are reported with Governmental Activities rather than the Business -type Activities in the Government -wide Financial Statements. Fiduciary Funds — The City utilizes Fiduciary Funds to account for assets held by the City in a trustee capacity, or as an agent for other governmental entities, private organizations, or individuals. All of the City's fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. We exclude these activities from the City's Government -wide Financial Statements because the City cannot use these assets to finance its operations. Notes to the Financial Statements — The financial statements also include the Notes to the Financial Statements that provide important narrative details about the information contained in the financial statements. Information contained in the Notes to the Financial Statements is critical to a reader's full understanding of the Government - wide and Fund Financial Statements. Supplementary Information — In addition to the required elements of the Basic Financial Statements, we have also included a Supplementary Information section, which includes budgetary and combining schedules that provide additional details about the City's non -major Governmental Funds, Internal Service Funds, and Fiduciary Funds. I: KSP /=1:Lhrd=1Z, 11 drdlU]=1yIZ /_1,I1113 /_1 W_1ki f_1WM1..1 Net Assets — Net assets may serve a useful indicator of a government's overall financial condition over time. The City's combined net assets for the year ended June 30, 2009, as shown in Table 1, were $2.322 billion, increasing $21.4 million over the prior year. 3b1 Current and other assets Capital assets Total assets Long -term liabilities outstanding Other liabilities Total liabilities Net assets Invested in capital assets, net of debt Restricted Unrestricted Total net assets Table 1 Net Assets (in thousands) Governmental Activities Business -Type Activities Total 2008 2009 2008 2009 2008 2009 $ 175,010 $ 182,934 $ 18,288 $ 15,234 $ 193,298 $ 198,168 2,070,835 2,084,794 108,954 108,642 2,179,789 2,193,436 2,245,845 2,267,728 127,242 123,876 2,373,087 2,391,604 48,600 49,009 3,095 1,585 51,695 50,594 17,527 16,594 3,194 2,346 20,721 18,940 66,127 65,603 6,289 3,931 72,416 69,534 2,050,925 2,061,636 40,989 44,213 87,803 96,276 $ 2,179,717 $ 2,202,125 107,314 108,510 13,639 11,435 $120,953 $ 119,945 2,158,239 2,170,146 40,989 44,213 101,442 107,711 $ 2,300,670 $ 2,322,070 Invested in Capital Assets - By far the largest component of net assets, $2.170 billion (93.4d/ %), reflects the City's investment in capital assets (e.g., land, buildings, infrastructure, and equipment) less accumulated depreciation and any related outstanding debt used to acquire those assets. The City's capital assets do not represent a financial resource and consequently are not readily available for funding current obligations. Restricted Assets - An additional portion of the City's net assets, $44.2 million (1.9 %), represents resources that are subject to external restrictions on how they may be used. Unrestricted Assets - The remaining balance of unrestricted net assets, $107.7 million (4.6 %), may be used to meet the City's ongoing obligations to citizens and creditors. • Overall, the City's net assets increased $21.4 million in the current fiscal year. The increase is partially attributable to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed by a developer as a condition of development in the Fashion Island area of the City (North Newport Center Development Agreement) and smaller capital projects. Other key financial activity for the year ended June 30, 2009, is shown in Table 2. 31 Table 2 Changes in Net Assets (in thousands) Governmental Activities - The cost of all governmental activities in the current fiscal year was $172.6 million. As shown in the statement of activities, $36.7 million of the cost was paid by those who directly benefited from the programs, $38 million was financed by contributions and grants received from other governmental organizations, developers, and property owners for both capital and operating activities, and $97.9 million was subsidized through general City revenues. Net assets for governmental activities of the City at the beginning of the year were $2.18 billion, and increased by $22.4 million by the end of the year. The increase is partially attributable to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed by a developer and smaller capital projects. 5% Governmental Activities Business -Type Activities Total 2008 2009 2008 2009 2008 2009 Revenues: Program Revenues: Charges for services $ 40,122 $ 36,739 $ 20,823 $ 20,446 $ 60,945 $ 57,185 Operating grants and capital contributions 15,779 13,404 - - 15,779 13,404 Capital grants and contributions 31,038 24,634 - - 31,038 24,634 General Revenues: Taxes: Property taxes 67,389 70,127 - - 67,389 70,127 Sales tax 21,855 17,926 - - 21,855 17,926 Sales tax in -lieu 8,018 7,503 - - 8,018 7,503 Transient occupancy taxes 12,751 11,171 - - 12,751 11,171 Other taxes 8,277 8,465 - - 8,277 8,465 Intergovernmental (Unrestricted): Motor Vehicle License Tax 373 356 - - 373 356 Investment related income 4,164 2,862 662 511 4,826 3,373 Miscellaneous 1,859 1,863 - - 1,859 1,863 Total revenues 211,625 195,050 21,485 20,957 233,110 216,007 Expenses: General government 15,557 16,431 - - 15,557 16,431 Public safety 75,821 79,301 - - 75,821 79,301 Public works 42,631 45,600 - - 42,631 45,600 Community development 10,053 10,284 - - 10,053 10,284 Community services 19,147 20,589 - - 19,147 20,589 Interest 532 437 - - 532 437 Water - - 20,148 18,211 20,148 18,211 Wastewater 3,423 3,753 3,423 3,753 Total expenses 163,741 172,642 23,571 21,964 187,312 194,606 Increases in net assets 47,884 22,408 (2,086) (1,007) 45,798 21,401 Net asset at beginning of year 2,131,833 2,179,717 123,039 120,953 2,254,872 2,300,670 Net assets at end of year $2,179,717 $ 2.202,125 $120,953 $ 119,946 $2,300,670 $2,322,071 Governmental Activities - The cost of all governmental activities in the current fiscal year was $172.6 million. As shown in the statement of activities, $36.7 million of the cost was paid by those who directly benefited from the programs, $38 million was financed by contributions and grants received from other governmental organizations, developers, and property owners for both capital and operating activities, and $97.9 million was subsidized through general City revenues. Net assets for governmental activities of the City at the beginning of the year were $2.18 billion, and increased by $22.4 million by the end of the year. The increase is partially attributable to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed by a developer and smaller capital projects. 5% The City is a full service city providing residents and visitors with the following functional services: General Government is comprised of six departments (City Council, City Clerk, City Manager, City Attorney, Human Resources, and Administrative Services) providing general governance, executive management, legal services, records management, risk management, finance, accounting, and information technology services. Public Safety is comprised of two departments (Police and Fire) providing general law enforcement, fire suppression and prevention services, paramedic and medical transport services, disaster preparedness, and ocean lifeguard services. Public Works is comprised of two departments (Public Works and General Services) providing engineering, construction and maintenance of public streets, highways, buildings, beaches, parks, and related infrastructure; as well as traffic engineering, street lighting, and trash disposal services. Community Development is comprised of two departments (Planning and Building) that provide planning and zoning services, economic development services, and building plan check and code enforcement services. Community Services is comprised of two departments (Library Services and Recreation & Senior Services) providing library services, cultural and arts programs, recreation services, and senior social and transportation services. Business Enterprise Operations are overseen by one department (Utilities) providing water and wastewater services. Each program's net cost (total cost less revenues generated by the activities) is presented in Tables 3 and 4. The net cost shows the extent to which the City's general taxes support each of the City's programs. 33 General government Public safety Public works Community development Community services Interest 50.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 Table 3 Governmental Activities (in thousands) 2008 Total Cost Net Cost of Service of Service $ 15,557 $ (12,376) 75,821 (57,155) 42,631 2,519 10,053 (4,456) 19,147 (4,801) 532 (533) $ 163,741 $ (76,802) 2009 Total Cost Net Cost of Service of Service $ 16,431 $ (13,773) 79,301 (62,513) 45,600 (14,666) 10,284 (5,431) 20,589 (1,045) 437 (437) $ 172,642 $ (97,865) Table 4 Program Expenses and Revenue - Governmental Activities Year Ended June 30, 2009 (in millions) General Public Safety Public Works Community Community Interest Government Development Services ■Total Expenses ■ Program Revenues Of the $97.9 million in program revenues that financed the governmental activities, $62.5 million was utilized for public safety, $13.8 million was utilized for general government, $14.7 million was utilized for public works, $5.4 million was utilized for community development, $1.0 million was utilized for community services and $437,207 was utilized for interest on long -term debt. The net cost of funding Public Works 34 activities increased dramatically over 2008 due to a decrease of $14.2 million (35.7 %) in operating and capital contributions and an increase of $3.0 million in expenses in various capital projects. Interest costs only represent 1/4 of 1% of total governmental activities. Table 5 Governmental Activities Year Ended June 30. 2009 Sources of Revenue 69 • Charges for Services • Contributions • Taxes • Other Functional Expenses M • General Government • Public Safety Public Works • Community Development Community Services Major Governmental Activities in the current fiscal year included the following: Revenues: • Excluding transfers, total program and general revenues in the current year amounted to $195 million. Of this amount, 38.3% represents program generated revenue (18.8% charges for services and 19.5% capital grants and contributions), while the remaining 61.7% represents general revenue sources (59.3% taxes and 2.4% from other sources). • The City reported capital contributions of $15.6 million in public works program revenues and $9.1 million in community services program revenues for a total of $24.6 million in capital contributions. The majority of these contributions are related to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts and the capital contributions of the two parcels of land noted above. • The $4.4 million decrease in General Revenues over the prior year is a combination of a few key factors: o In spite of the poor economy, the City, unlike most other cities, has enjoyed long -term stability in its number one revenue source at $70.1 million, due to a constant demand for coastal property. Over the past ten years, assessed values have increased an average of 9.48% per year. Assessed property values increased only 5.91% in the current year versus 8.7% in the prior year. Property tax collections, in total, including unsecured property and prior year collections, increased $2.7 million or 4.1 % in the current year. o At nearly $17.9 million and $11.2 million respectively, sales taxes and transient occupancy taxes represent the number two and three top individual revenue sources for the City. Due to the depressed economic activity, sales taxes decreased $3.9 million, or 17.9% from the prior year while transient occupancy taxes decreased $1.6 million or 12.4% from the prior year. o Investment income decreased $1.3 million or 31.3% over the prior year due to lower interest rates offset by an increase in fair value of investments in the current year. An increase in the fair value of investments usually occurs in a falling interest rate environment when the stated rate of return exceeds the current market rate. Expenses: • In the current year, expenses for all governmental activities totaled $172.6 million. Overall, an increase of $8.9 million (5.4 %) from the prior year, which can be attributed to the following factors: 0 • General Government expenses increased $0.9 million (5.6 %) when compared to the prior year due to anticipated costs related to reorganization and restructuring of a couple of divisions and the first time charge of annual OPEB cost to each department. • Public Safety expenses are up $3.5 million (4.6 %) in the current year. The increase is due an increase in PIERS rate, cost of living adjustments and the first time charge of annual OPEB cost to each department. • Public Works expenses were up $3.0 million (6.7 %) when compared to prior year due to an increase in repair and maintenance of City Streets, infrastructure and facilities and the first time charge of annual OPEB cost to each department. • Community Development expenses increased $0.2 million (2.3 %) in the current year, due to the first time charge of annual OPEB cost to each department. • Community Service expenditures were up $1.4 million (7.5 %) due to a full year's operating costs associated with the Central Library which opened the prior year, small staffing changes and an increase in operating costs related to fee based classes due to an increase in registration for Summer Camps, as well as the first time charge of annual OPEB cost to each department. Business -type Activities — Business -type activities are financed primarily by fees charged to external parties for goods and services. The City's two business -type activities, water and wastewater utilities, produced a $1.0 million decrease in net assets. The decrease in net assets was comprised of an operating loss of $1.2 million, non - operating revenues of $346,807, and an off - setting ($114,391) consolidation adjustment related to internal service fund activities. srl 20.000 18.000 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 Table 6 Program Expense & Revenue - Business -type Activities Year Ended June 30, 2009 (in millions) Water Wastewater ■ Total Expenses ■ Program Revenues Major Business -type Activities in the current fiscal year included the following: Water Of the $18.2 million in water related expenses, $7.5 million (41.2 %) is for the purchase of water, $4.0 million (22.0°/x) is for maintenance, supplies, and depreciation of the water system, $4.2 million (23.1 %) covers employee related costs, $1.7 million (9.3 %) is for professional services, and the remaining $0.8 million (4.4 %) is collectively attributable to other miscellaneous expenses, interest on outstanding debt, and loss on removal of capital assets. Wastewater Of the $3.8 million in wastewater related expenses, $1.5 million (39.5°/x) is for maintenance, supplies, and depreciation of the wastewater system, $1.5 million (40.4 %) is for employee related costs, and the remaining $755,518 (20.1%) is attributable to other individually insignificant expenses. 01.1 FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, the City uses fund accounting to highlight available financial resources and to ensure and demonstrate compliance with finance - related legal requirements. Governmental Funds — Utilizing the financial resources measurement focus, the City's Governmental Funds provide information on near -term inflows and outflows, and balances of spendable resources. This information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. Fund Balance — As of the end of the current fiscal year, the City's Governmental Funds reported combined fund balances of $121 million, an increase of $4.1 million from the prior year. The General Fund represented $79.6 million or 65.7% of the combined fund balances of the Governmental Funds. Reserved Fund Balance — The City has $14.7 million in fund balance that is reserved to indicate it is not available to finance new activities because it has already been committed: 1) to fulfill contractual obligations and purchase orders ($7.0 million), 2) for permanent endowment ($4.6 million), 3) as a reserve for affordable housing ($1.7 million), and 4) for a variety of other restrictions that make these resources unavailable for spending ($1.4 million). Unreserved Fund Balance — The remaining $106.4 million is classified as unreserved fund balance, which is available for spending at the City Council's discretion but may be designated for special purposes. Of the $106.4 million unreserved fund balance, City Council has designated $18.6 million for contingencies, $13.1 million for unspecified future appropriations, $4.7 million for capital projects that were not completed during the fiscal year, and $39.6 million designated for other special purposes including $25 million for facilities identified for replacement in the City's facilities replacement plan. The remaining $30.4 million is made up of smaller amounts designated across various funds. Major activities in the Governmental Funds in the current fiscal year included the following: The General Fund ended the year with a $79.6 million fund balance, a net increase of $0.6 million after transferring $22.2 million to other funds ($20.3 million represented a routine transfer to subsidize the operations of the Tide and Submerged Land Fund, $0.5 million transfer to the Contributions Fund and, $1.4 million represented various nonrecurring transfers to other funds). The net increase in fund balance of $0.6 million was substantially lower than last year's net change in fund balance of $9.1 million do to the poor economy resulting in $18.6 million reduced revenues. This was attributed to a significant drop of $4.4 million in sales tax and sales tax in -lieu, $1.6 million in Transient Occupancy Tax OR and $1.3 million in investment income and increase in fair value of investments. The decrease in above revenues did not result in a larger decrease in fund balance due healthy property taxes, a one- time developer contribution of $1.5 million (Hoag) and management action to impose budget reductions and improve fiscal discipline. • The activities of the Tide and Submerged Land Fund are routinely subsidized by the General Fund. At year end, the General Fund transferred sufficient resources ($20.3 million) to cover the Tide and Submerged Land Fund's deficit and other outstanding commitments and designations of fund balance. The Tide and Submerged Land Fund ended the current year with $0.6 million in fund balance. • The Contributions Fund reported revenues of $1.4 million and expenditures of approximately $1.0 million related to a variety of grants and cooperative agreements associated with water quality projects, street projects and park improvement projects. Proprietary Funds — The City's Proprietary Funds (Enterprise and Internal Service Funds) presented in the Fund Financial Statements section basically provide the same type of information in the Government -wide Financial Statements, but include individual segment information. Major activities in the Enterprise Funds in the current fiscal year included the following: • Net assets in the Water Fund decreased $0.8 million largely due to increase in cost of supplies. Net assets in Wastewater Fund decreased by $114,427. Unrestricted net assets at year end were $7.9 million for the Water Fund, and $3.6 million in the Wastewater Fund. • Other factors concerning the finances of these two funds have already been addressed above in the discussion of the City's business -type activities. Major activities in the Internal Service Funds in the current fiscal year included the following: • Net assets in the Internal Service Funds increased $1.3 million in the current year. The increase was primarily due to lower than expected operating costs. Ell] GENERAL FUND BUDGETARY HIGHLIGHTS Changes to Original Budget Final budgeted revenues for the General Fund decreased $0.4 million from the original budget during the year ended June 30, 2009. Significant factors contributing to this fluctuation are highlighted as follows: • Final budgeted intergovernmental revenues increased $0.6 million from the original budget and $0.4 million in unexpected other revenues due to unexpected timing differences associated with the collection of these revenue source, combined with a $1.3 million lower than anticipated license and permits revenue source due to the distressed economic activity. Final budgeted expenditures for the General Fund decreased $26.9 million from the original budget during the year ended June 30, 2009. Significant factors contributing to this fluctuation are highlighted as follows: • Budgeted expenditures for general government increased $0.5 million due to amendments for additional expenditures related to re- organization in the City Attorney's Office. • Public safety and public works functions were decreased by $18.3 million and $3.0 million respectively. This budget reduction was primarily due to a routine allocation of expenditures from General Fund cost centers to the Tidelands Fund for police, fire and beach maintenance services utilized in support of tidelands operations. • Final budgeted capital outlays from the General Fund decreased $6.1 million from the original budget during the year ended June 30, 2009, primarily due to budgetary reductions to reflect project timing differences which are re- budgeted in the following fiscal year for 1) Prop 50 Buck Gully Stabilization, 2) River Avenue Pedestrian Coastal Access Improvements, 3) Back Bay View Park Enhancement 4) Semeniuk Slough Dredging Project, 5) Police Facilities Generator Replacement, as well as 6) various smaller budgetary decreases.. • During the current year, final transfers out budgeted for the General Fund varied from the original budget by approximately $18.6 million primarily due to the expenditure allocation to the Tidelands Fund. Variance with Final Budget Actual revenues were $6.5 million below final budgeted revenues for the year ended June 30, 2009 due to the poor economic climate. Significant factors contributing to this unfavorable variance are summarized as follows: 41 • A $1.3 million favorable variance was realized due to higher than expected property taxes revenues. • Lower than expected sales tax and sales in -lieu due to the lower economy approximated $5.5 million. • Transient Occupancy tax revenues were lower than expected at $1.8 million. • A $0.5 million favorable variance was realized due to an increase in the fair value of investments measured at end of year. • Licenses and permits and charges for services were lower than expected at a little over $1.0 million. Actual General Fund expenditures of $128 million were significantly less than final budgetary estimates of $135.5 million. Significant factors contributing to this $7.4 million favorable variances are summarized as follows: • A $2.2 million favorable variance was realized from capital improvement projects that were deferred to next year. • A total of $5.2 million in favorable variances was realized in Public Safety, Public Works, Community Development, Community Services and General Government due to managerial action to reduce operating expenditures, increased fiscal discipline, personal turnover and temporary vacancies. In spite of the $6.5 million lower than expected revenues, conservative budgeting, managerial action, increased fiscal discipline, timing of expenditures and other favorable variances contributed to the $0.6 million net increase in General Fund, fund balance. [•1_1;211 IF_1W_F'19= 1tr_1�U 717 - 11 r_191iJI1ki 16111:71%1[0]k Capital Assets The City's investment in capital assets for governmental and business -type activities as of June 30, 2009, amounts to $2.193 billion (net of accumulated depreciation). This investment is comprised of a broad range of capital assets including land, buildings, machinery and equipment, park facilities, road improvements, storm drains, piers, oil wells, sound walls and bridges. The total net increase (including additions and deletions) of $13.6 million represents a 0.6% increase over last year. The $13.6 million net increase is the result of additions of $17.2 million, and deletions of $3.6 million. EM Table 7 Capital Assets at Year End (net of depreciation, in thousands) Major capital asset events during the current fiscal year included the following: • The City capitalized $17.2 million in capital assets in the current year. Of the $17.2 million, $8.4 million was contributed by a private developer, $7.3 million paid for through current year expenses and the remaining $1.5 million represents additions from work in progress started in previous years. • Of the $17.2 million capitalized as governmental assets in the current year, $1.4 million represents additions from work in progress started in previous years. Of the ($136,438) capitalized in the current year as business -type assets, $1.2 million represented additions for infrastructure consisting of major repairs and upgrades to the water mains and water wells. Additional information on the City's capital assets can be found in Note (5) of the Notes to the Financial Statements. Long -term Debt At the end of the current fiscal year, the City had total long -term debt outstanding of $50.6 million for all governmental and business -type activities. 43 Governmental Activities Business -Type Activities Total 2008 2009 2008 2009 2008 2009 Land $ 1,807,381 $ 1,815,781 $ 2,016 $ 2,016 $ 1,809,397 $ 1,817,797 Structures 54,641 54,515 94 89 54,735 54,604 Equipment 8,964 8,365 28 107 8,992 8,472 Infrastructure 194,541 192,966 106,503 105,515 301,044 298,481 Work in progress 5,307 13,167 313 915 5,620 14,082 Totals $ 2,070,834 $ 2,084,794 $ 108,954 $ 108,642 $ 2,179,788 $ 2,193,436 Major capital asset events during the current fiscal year included the following: • The City capitalized $17.2 million in capital assets in the current year. Of the $17.2 million, $8.4 million was contributed by a private developer, $7.3 million paid for through current year expenses and the remaining $1.5 million represents additions from work in progress started in previous years. • Of the $17.2 million capitalized as governmental assets in the current year, $1.4 million represents additions from work in progress started in previous years. Of the ($136,438) capitalized in the current year as business -type assets, $1.2 million represented additions for infrastructure consisting of major repairs and upgrades to the water mains and water wells. Additional information on the City's capital assets can be found in Note (5) of the Notes to the Financial Statements. Long -term Debt At the end of the current fiscal year, the City had total long -term debt outstanding of $50.6 million for all governmental and business -type activities. 43 Certificates of participation Note payable Pre - annexation agreement CDBG Loan Purchase Installment Agreement Revenue bonds Claims and judgments Workers' compensation payable Compensated absences Net OPEB Obligation Totals Table 8 Outstanding Debt at Year -End (in thousands) Governmental Activities 2008 2009 $ 4,665 $ 4,335 $ 1,298 1,120 10,800 9,600 2,056 1,972 1,500 - 5,614 5,898 11,334 11,893 9,113 9,784 2,221 4,408 $ 48,601 $ 49,010 Business -Type Activities 2008 2009 3,095 1,585 $ 3,095 $ 1,585 Total 2008 2009 $ 4,665 $ 4,335 1,298 1,120 10,800 9,600 2,056 1,972 1,500 - 3,095 1,585 5,614 5,898 11,334 11,893 9,113 9,784 2,221 4,408 $ 51,696 $ 50,595 The City's total debt decreased $1.1 million during the current fiscal year. The cumulative decrease is the net result of regular debt service payments, offsetting increases in claims and judgments payable of $3.7 million, compensated absences payable of $2.8 million, and $5.4 million in net OPEB obligation. The net OPEB obligation of $4.4 million resulted in the City's election not to fully fund the implicit subsidy associated with GASB 45 and the City's post employment Retiree Medical plan. Additional information on the City's long -term debt and OPEB Obligation can be found in Note (6) and Note (11) of the Notes to the Financial Statements. FACTORS AFFECTING NEXT YEAR'S BUDGET • Each January, the City Council establishes priorities for the coming year(s). The financial implications of these priorities are considered when the budget is developed. The 2009 priorities include an aggressive array of goals including minimizing the adverse impacts of John Wayne airport, improving organizational performance, maintaining a balanced budget, reviewing facility replacements needs, enforcing group homes regulations, the alignment of City regulations to the City's General Plan, the implementation of an effective traffic management plan, the schematic design of a new civic center, the development of additional park improvements, the implementation of various water quality projects and the development of a lower bay dredging strategy. • After the date of this report's balance sheet but prior to the issuance of this report, it became clear that deteriorating revenues would present budget shortfalls in 2009- 10. Management expects that the growth of property tax revenues will continue to decline in 2009 -10 and 2010 -11. Management also expects that Sales taxes and 44 transient occupancy tax revenues will continue to decline in 2009 -10 before modestly rebounding in 2010 -11. Management has also been advised by CalPERS that pension costs are likely to increase substantially by 2011 -12 due to recent losses in the equities markets. • As the depth of the recession began to unfold, management acted to reduce operating budgets across the board in 2008 -09 and again in 2009 -10. In reaction to the mounting adverse budget factors mentioned above, management initiated an Early Retirement Incentive Plan (ERIP) with intent to further trim the City's overall cost structure. A total of 51 people participated in the plan and this action is expected to save nearly $3.1 million annually. Additionally, the City has initiated a second phase restructuring effort to affect additional long -term cost savings and improved efficiencies. • With the adoption of the 2008 cost study and Fee Schedule, Council directed staff to implement a 3 -year phasing to full cost recovery for several services with fees that exceeded $100 and the increase resulting from the fee study that increased the charge by 100% or more. The second of the three phases was approved by Council on September 8, 2009. Although the third and final phasing of fees was scheduled for June of 2010, the City's recent budget challenges precipitated the need to implement the final phasing ahead of schedule. The final phasing for the fee based services to full cost recovery was implemented on December 8, 2009. . CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Administrative Services Department, 3300 Newport Boulevard, Newport Beach, CA 92663 -3884, (949) 644 -3126. The City's Budgets, Comprehensive Annual Financial Reports as well as other City financial information can be found on the City's website at: www. NewportBeachCA .gov /financialinfo. [ti This page left blank intentionally. ER FINANCIAL SECTION 13OVERNMENT-WIDE FINANCIAL STATEMENTS EVA z a p U W Ln J Q U z Q z Lz This page left blank intentionally. m CITY OF NEWPORT BEACH Statement of Net Assets June 30, 2009 Assets: Cash and investments (note 4) Receivables: Accounts Interest Intergovernmental receivables Cash with fiscal agent (note 4) Internal balances Investment in joint venture (note 15) Prepaid items Inventory Capital assets, (note 5): Non - depreciable Depreciable Accumulated depreciation Total assets Liabilities: Accounts payable Accrued salaries and benefits Accrued interest payable Deposits payable Unearned revenue Noncurrent liabilities (note 6): Due within one year Due in more than one year Total liabilities Net Assets: Invested in capital assets, net of related debt Restricted for: Community development Public safety Public works Community services Debt Service Permanent Funds: Nonexpendable Expendable Unrestricted Total net assets Governmental Business -type Activities Activities Total $ 158,886,013 $ 9,232,552 $ 168,118,565 8,539,107 4,585,201 13,124,308 1,457,076 - 1,457,076 6,929,611 - 6,929,611 3,141,141 1,453,268 4,594,409 61,331 (61,331) - 2,684,052 - 2,684,052 756,887 25,000 781,887 479,429 - 479,429 1.,828,948,445 2,931,603 1,831,880,048 402, 845, 037 156, 499, 811 559, 344, 848 (146,999,476) (50,789,321) (197,788,797) 2,267,728,653 123,876,783 2,391,605,436 6,550,159 2,085,543 8,635,702 4,164,978 159,517 4,324,495 110,599 65,393 175,992 3,150,496 35,663 3,186,159 2,618,216 - 2,618,216 9,179, 844 1,585,000 10, 764, 844 39,829,591 - 39,829,591 65,603,883 3,931,116 69,534,999 2,061,635,642 108,510,361 2,170,146,003 6,630,169 - 6,630,169 425,558 - 425,558 24,887,385 - 24,887,385 5,904,067 - 5,904,067 565,778 - 565,778 4,629,781 - 4,629,781 1,170,009 - 1,170,009 96,276,381 11,435,306 107,711,687 $ 2,202,124,770 $ 119,945,667 $ 2,322,070,437 See accompanying notes to basic financial statements C['] Functions /Programs Primary government: Governmental activities: General government Public safety Public works Community development Community services Interest on long -term debt Total governmental activities Business -type activities: Water Wastewater Total business -type activities Total primary government CITY OF NEWPORT BEACH Statement of Activities Year Ended June 30, 2009 18,210,789 16,966,621 3,753,042 3,479,565 21,963,831 20,446,186 16,966,621 3,479,565 20,446,186 $ 194,606,218 $ 57,185,067 $ 13,404,286 $ 24,633,716 $ 95,223,069 See accompanying notes to basic financial statements 41] General revenues: Taxes: Property tax Sales tax Sales tax in -lieu Transient occupancy tax Business license tax Franchise tax Other taxes Intergovernmental (Unrestricted): Motor vehicle license tax Investment income Net increase in fair value of investments Other Total general revenues Change in net assets Net assets at beginning of year Net assets at end of year Program Revenues Operating Capital Total Charges for Grants and Grants and Program Expenses Services Contributions Contributions Revenues $ 16,430,529 $ 2,543,880 $ 113,453 $ - $ 2,657,333 79,301,600 14,757,266 2,031,427 - 16,788,693 45,600,429 5,532,871 9,841,795 15,559,572 30,934,238 10,283,528 4,852,534 - - 4,852,534 20,589,094 9,052,330 1,417,611 9,074,144 19,544,085 437,207 172,642,387 36,738,881 13,404,286 24,633,716 74,776,883 18,210,789 16,966,621 3,753,042 3,479,565 21,963,831 20,446,186 16,966,621 3,479,565 20,446,186 $ 194,606,218 $ 57,185,067 $ 13,404,286 $ 24,633,716 $ 95,223,069 See accompanying notes to basic financial statements 41] General revenues: Taxes: Property tax Sales tax Sales tax in -lieu Transient occupancy tax Business license tax Franchise tax Other taxes Intergovernmental (Unrestricted): Motor vehicle license tax Investment income Net increase in fair value of investments Other Total general revenues Change in net assets Net assets at beginning of year Net assets at end of year Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -type (1,244,168) Activities Activities Total $ (13,773,196) $ - $ (13,773,196) (62,512,907) - (62,512,907) (14,666,191) - (14,666,191) (5,430,994) - (5,430,994) (1,045,009) - (1,045,009) (437,207) (437,207) (97,865,504) - (97,865,504) - (1,244,168) (1,244,168) (273,477) (273,477) - (1,517,645) (1,517,645) $ (97,865,504) $ (1,517,645) $ (99,383,149) 70,126,680 - 70,126,680 17,925,956 - 17,925,956 7,503,113 - 7,503,113 11,170,956 - 11,170,956 4,273,642 - 4,273,642 3,961,634 - 3,961,634 230,115 - 230,115 356,237 - 356,237 1,764,827 374,893 2,139,720 1,096,848 135,789 1,232,637 1,862,977 - 1,862,977 120,272,985 510,682 120,783,667 22,407,481 (1,006,963) 21,400,518 2,179,717,289 120,952,630 2,300,669,919 $ 2,202,124,770 $ 119,945,667 $ 2,322,070,437 See accompanying notes to basic financial statements 51 This page left blank intentionally. M FINANCIAL SECTION z a p U W U1 FUND J Q FINANCIAL STATEMENTS C] z GOVERNMENTAL FUNDS Q z Lz :Yc3 GOVERNMENTALFUNDS Major Funds The General Fund is used to account for fiscal resources which are dedicated to governmental operations of the City, and not required to be accounted for in another fund. The Tide and Submerged Land Fund is a Special Revenue Fund used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas. The Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific streets, highway, construction, or water quality projects. Non -major Funds Non -major governmental funds are those governmental funds which do not meet the criteria of a major fund. For reporting purposes in this section, they are combined together as Other Governmental Funds. 54 CITY OF NEWPORT BEACH Governmental Funds Balance Sheet June 30, 2009 See accompanying notes to basic financial statements :M Tide and Other Submerged Governmental Assets General Land Contributions Funds Totals Cash and investments $ 76,435,099 $ 772,983 $ 2,791,078 $ 39,400,427 $ 119,399,587 Receivables: Accounts 5,138,168 885,493 1,089,597 535,802 7,649,060 Interest 1,457,076 - - - 1,457,076 Intergovernmental receivables 4,798,249 - 1,545,308 586,054 6,929,611 Cash with fiscal agent - - - 3,141,141 3,141,141 Due from other funds (note12) 3,686,684 - - - 3,686,684 Prepaid items 526,444 - - 68,864 595,308 Inventory 219,698 - 219,698 Total assets $ 92,261,418 $ 1,658,476 $ 5,425,983 $ 43,732,288 $ 143,078,165 Liabilities and Fund Balances Liabilities: Accounts payable $ 3,478,489 $ 822,219 $ 164,914 $ 1,485,755 $ 5,951,377 Accrued payroll 4,083,477 38,125 - - 4,121,602 Deposits payable 2,992,328 158,168 - - 3,150,496 Unearned revenue 1,907,895 - 490,790 219,531 2,618,216 Unavailable revenue 188,265 - 2,151,546 539,323 2,879,134 Due to otherfunds (note 12) 3,224,497 3,224,497 Total liabilities 12,650,454 1,018,512 2,807,250 5,469,106 21,945,322 Fund balances: Reserved for encumbrances 3,474,339 351,012 641,469 2,505,461 6,972,281 Reserved for debt service - - - 565,778 565,778 Reserved for permanent endowment - - - 4,629,781 4,629,781 Reserved for affordable housing 1,686,724 - - - 1,686,724 Reserved for prepaid items 526,444 - - 137,728 664,172 Reserved for inventories 219,698 - - - 219,698 Reserved for long -term receivable - - - - - Unreserved: Designated for special purposes 37,329,671 288,952 1,977,264 - 39,595,887 Designated, reported in: Special revenue funds - - - 21,625,824 21,625,824 Capital projects funds - - - 11,393,179 11,393,179 Permanent funds - - - 1,170,009 1,170,009 Designated for contingencies 18,614,125 - - - 18,614,125 Designated for capital projects 4,661,307 - - - 4,661,307 Designated for appropriations 13,098,656 - - - 13,098,656 Undesignated, reported in: Special Revenue Funds - - - (42,849) (42,849) Capital projects funds (3,721,729) (3,721,729) Total fund balances 79,610,964 639,964 2,618,733 38,263,182 121,132,843 Total liabilities and and fund balances $ 92,261,418 $ 1,658,476 $ 5,425,983 $ 43,732,288 $ 143,078,165 See accompanying notes to basic financial statements :M CITY OF NEWPORT BEACH Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2009 Fund balances of governmental funds $ 121,132,843 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets net of accumulated depreciation have not been included as financial resources in governmental fund activity. Amount excludes capital assets from internal service funds which are added below. 2,077,985,878 Long term debt that have not been reported in the governmental fund activity. Amounts exclude long -term debt activity from internal service funds which have been added below: Certificates of participation payable (4,335,000) Note payable (1,119,613) Pre - annexation agreement (9,600,000) CDBG loan (1,972,000) Accrued interest payable for the current portion of interest due on long -term debt has not been reported in the governmental funds. (110,599) Some of the revenue will be collected after year -end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. 2,879,134 Internal service funds are used by management to charge the costs of certain activities, such as self- insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The assets (including capital assets) and liabilities of the internal service funds must be added to the statement of net assets. 14,518,744 Investment in joint ventures is not a current financial resource and therefore not reported in the governmental funds. 2,684,052 Internal balance created by the consolidation of internal service fund activities related to enterprise funds is not reported in the governmental funds. 61,331 Net assets of governmental activities $ 2,202,124,770 See accompanying notes to basic financial statements .31 CITY OF NEWPORT BEACH Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year Ended June 30, 2009 See accompanying notes to basic financial statements AA Tide and Other Submerged Governmental General Land Contributions Funds Totals Revenues Taxes and assessments: Property tax $ 70,126,680 $ - $ - $ - $ 70,126,680 Sales tax 17,925,956 - - - 17,925,956 Sales tax in -lieu 7,503,113 - - - 7,503,113 Transient occupancy tax 11,170,956 - - - 11,170,956 Othertaxes 8,486,937 - - 497,932 8,984,869 Intergovernmental 2,597,108 28,084 1,165,289 7,644,404 11,434,885 Licenses and permits 4;396,034 1,311,650 - 175,831 5,883,515 Charges for services 14,374,139 123,981 - - 14,498,120 Fines and forfeitures 3,711,087 1,704 - 859,820 4,572,611 Investment income 1,697,103 174,585 134,463 1,239,526 3,245,677 Net increase in fair value of investments 1,096,848 - 50,543 324,944 1,472,335 Property income 6,552,603 7,479,739 - - 14,032,342 Donations 261,357 - 83,882 6,414,901 6,760,140 Other 234,573 280 8,266,161 8,501,014 Total revenues 150,134,494 9,120,023 1,434,177 25,423,519 186,112,213 Expenditures Current: General government 15,478,258 89,396 - - 15,567,654 Public safety 57,285,811 20,989,574 - 278,959 78,554,344 Public works 26,220,846 3,989,965 - 408,594 30,619,405 Community development 8,302,214 396,565 - 1,272,757 9,971,536 Community services 13,281,963 1,921,292 - 2,282,350 17,485,605 Capital outlay 5,910,047 2,845,548 1,016,199 16,230,545 26,002,339 Debt service (note 6): Principal 1,500,000 178,641 - 1,614,000 3,292,641 Interest and fiscal charges 71,250 58,421 - 353,237 482,908 Total expenditures 128,050,389 30,469,402 1,016,199 22,440,442 181,976,432 Excess (deficiency) of revenues over expenditures 22,084,105 (21,349,379) 417,978 2,983,077 4,135,781 Other financing sources (uses) Transfers in (note 13) 690,013 20,314,554 550,000 1,799,799 23,354,366 Transfers out (note 13) (22,222,293) (1,132,073) (23,354,366) Total other financing sources (uses) (21,532,280) 20,314,554 550,000 667,726 Net change in fund balances 551,825 (1,034,825) 967,978 3,650,803 4,135,781 Fund balances, beginning 79,059,139 1,674,789 1,650,755 34,612,379 116,997,062 Fund balances, ending $ 79,610,964 $ 639,964 $ 2,618,733 $ 38,263,182 $ 121,132,843 See accompanying notes to basic financial statements AA CITY OF NEWPORT BEACH Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmenal Funds to the Statement of Activities Year ended June 30, 2009 Net change in fund balances - total governmental funds $ 4,135,781 Amounts reported for governmental activities in the statement of activities differ from the amounts reported in the statement of activities because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 14,776,239 Payment of debt service principal is an expenditure in the governmental funds, but the repayment reduces long -term liabilities in the statement of net assets. 3,292,641 Accrued Interest for debt service. This is the net change in accrued interest for the current period. 45,701 Some of the revenue will be collected after year -end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds.This is the net change in unearned revenue for the current period. (1,316,358) Internal service funds are used by management to charge the costs of certain activities, such as self- insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The net revenue of the internal service funds is reported in the statement of activities. 1,270,633 Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. 88,453 Internal balance created by the consolidation of internal service funds activities related to enterprise funds is reflected as a reduction of revenues in the statement of activities. 114,391 Change in net assets of governmental activities $ 22,407,481 See accompanying notes to basic financial statements A -1 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement For the Year Ended June 30, 2009 *01 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Taxes and assessments: Property $ 68,634,854 $ 68,834,854 $ 70,126,680 $ 1,291,826 Sales 22,635,634 22,635,634 17,925,956 (4,709,678) Sales tax in -lieu 8,258,065 8,258,065 7,503,113 (754,952) Transient occupancy 13,014,079 13,014,079 11,170,956 (1,843,123) Othertaxes 8,018,514 8,018,514 8,486,937 466,423 Intergovernmental 2,407,991 2,987,018 2,597,108 (389,910) Licenses and permits 5,968,653 4,654,553 4,396,034 (258,519) Charges for services 15,280,400 15,159,700 14,374,139 (785,561) Fines and forfeitures 3,560,256 3,559,756 3,711,087 151,331 Investment income 2,268,000 2,200,000 1,697,103 (502,897) Net increase in fair value of investments - - 1,096,848 1,096,848 Property income 6,117,202 6,117,202 6,552,603 435,401 Donations 112,500 165,632 261,357 95,725 Other 564,715 1,009,135 234,573 (774,562) Total revenues 157,040,863 156,614,142 150,134,494 (6,479,648) Expenditures General government: City council 1,192,209 1,250,334 1,188,990 61,344 City clerk 514,666 501,794 469,507 32,287 City attorney 1,519,339 2,014,073 2,097,159 (83,086) City manager 1,766,292 1,810,784 1,779,540 31,244 Administrative services 8,300,454 8,201,874 7,889,562 312,312 Human resources 2,117,864 2,135,600 2,053,500 82,100 Total General government 15,410,824 15,914,459 15,478,258 436,201 Public safety: Police 45,350,802 37,631,910 36,646,654 985,256 Fire 31,719,460 21,103,782 20,639,157 464,625 Total Public safety 77,070,262 58,735,692 57,285,811 1,449,881 Public works: General services 23,278,717 20,775,294 19,690,353 1,084,941 Public works 5,678,355 5,201,951 5,075,801 126,150 Utilities 1,449,748 1,455,830 1,454,692 1,138 Total Public works 30,406,820 27,433,075 26,220,846 1,212,229 *01 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement (continued) Other financing sources (uses) Transfers in - 240,000 690,013 Variance with Transfers out (3,270,713) (21,872,292) (22,222,293) Final Budget Total other financing Budgeted Amounts Positive Original Final Actual (Negative) Community development: Net change in fund balance Planning 3,985,078 4,898,875 4,713,078 185,797 Building 4,828,319 4,028,264 3,324,759 703,505 Code and Water Quality Enforcement 819,233 427,107 264,377 162,730 Total Community development 9,632,630 9,354,246 8,302,214 1,052,032 Community services: Library Services 6,857,928 7,087,294 6,521,718 565,576 Recreation and senior services 7,169,052 7,238,170 6,760,245 477,925 Total Community services 14,026,980 14,325,464 13,281,963 1,043,501 Capital outlay 14,270,981 8,123,225 5,910,047 2,213,178 Debt service: Principal 1,500,000 1,500,000 1,500,000 - Interest and Fiscal Charges 71,250 71,250 71,250 Total Debt Service 1,571,250 1,571,250 1,571,250 - Total expenditures 162,389,747 135,457,411 128,050,389 7,407,022 Excess (deficiency) of revenues over expenditures (5,348,884) 21,156,731 22,084,105 927,374 Other financing sources (uses) Transfers in - 240,000 690,013 450,013 Transfers out (3,270,713) (21,872,292) (22,222,293) (350,001) Total other financing sources (uses) (3,270,713) (21,632,292) (21,532,280) 100,012 Net change in fund balance (8,619,597) (475,561) 551,825 1,027,386 Fund balance, beginning 79,059,139 79,059,139 79,059,139 Fund balance, ending $ 70,439,542 $ 78,583,578 $ 79,610,964 $ 1,027,386 [Y1] CITY OF NEWPORT BEACH Tide and Submerged Land Budgetary Comparison Statement For the Year Ended June 30, 2009 Expenditures General government - 89,396 89,396 Variance with Public safety - 20,989,574 20,989,574 Final Budget Public works Budgeted Amounts 4,031,928 Positive 41,963 Original Final Actual (Negative) Revenues Community development - 396,565 396,565 Intergovernmental $ - $ - $ 28,084 $ 28,084 Licenses and permits 1,314,100 1,314,100 1,311,650 (2,450) Charges for services 120,700 120,700 123,981 3,281 Fines and forfeitures 500 500 1,704 1,204 Investment income 68,000 68,000 174,585 106,585 Property income 8,843,302 8,843,302 7,479,739 (1,363,563) Other - - 280 280 Total revenues 10,346,602 10,346,602 9,120,023 (1,226,579) Expenditures General government - 89,396 89,396 - Public safety - 20,989,574 20,989,574 - Public works 696,482 4,031,928 3,989,965 41,963 Community services 2,035,450 2,264,102 1,921,292 342,810 Community development - 396,565 396,565 - Capital outlay 3,077,800 3,546,522 2,845,548 700,974 Debt service: Principal 178,641 178,641 178,641 - Interest and fiscal charges 58,421 58,421 58,421 Total expenditures 6,046,794 31,555,149 30,469,402 1,085,747 Excess (deficiency) of revenues over expenditures 4,299,808 (21,208,547) (21,349,379) (140,832) Other financing sources (uses) Transfers in Transfers out Total other financing sources (uses) Net change in fund balance Fund balance, beginning Fund balance, ending 20,314,554 (4,811,660) 20,314,554 - (4,811,660) 20,314,554 20,314,554 - (511,852) (893,993) (1,034,825) (140,832) 1,674,789 1,674,789 1,674,789 $ 1,162,937 $ 780,796 $ 639,964 $ (140,832) GYI CITY OF NEWPORT BEACH Contributions Fund Budgetary Comparison Statement For the Year Ended June 30, 2009 Expenditures: Capital outlay 5,783,841 1,751,966 1,016,199 735,767 Excess (deficiency) of revenues over expenditures (4,965,041) (63,148) 417,978 481,126 Other financing sources (uses): Transfers in - - 550,000 550,000 Transfers out - - - - Net change in fund balance (4,965,041) (63,148) 967,978 1,031,126 Fund balance, beginning 1,650,755 1,650,755 1,650,755 - Fund balance (deficit), ending _L 314,286j $ 1,587,607 $2,618,733 $ 1,031,126 I.% Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 718,800 $ 1,358,893 $ 1,165,289 $ (193,604) Investment income 100,000 100,000 134,463 34,463 Net increase in fair value of investments - - 50,543 50,543 Donations 229,925 83,882 (146,043) Total revenues 818,800 1,688,818 1,434,177 (254,641) Expenditures: Capital outlay 5,783,841 1,751,966 1,016,199 735,767 Excess (deficiency) of revenues over expenditures (4,965,041) (63,148) 417,978 481,126 Other financing sources (uses): Transfers in - - 550,000 550,000 Transfers out - - - - Net change in fund balance (4,965,041) (63,148) 967,978 1,031,126 Fund balance, beginning 1,650,755 1,650,755 1,650,755 - Fund balance (deficit), ending _L 314,286j $ 1,587,607 $2,618,733 $ 1,031,126 I.% FINANCIAL SECTION z a p U W U7 FUND Q FINANCIAL STATEMENTS U z PROPRIETARY FUNDS Q z Li k3 PROPRIETARY FUNDS Business -type Activities The Water Fund is a Major Fund used to account for the operations of the City's water utility, a self - supporting activity which is entirely financed though user charges. The Wastewater Fund is a Major Fund used to account for the operations of the City's wastewater system, a self- supporting activity which is entirely financed through user charges. Governmental Activities The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. [Y! CITY OF NEWPORT BEACH Proprietary Fund Statement of Net Assets June 30, 2009 Assets Current assets: Cash and investments Receivables: Accounts Inventories Prepaid items Total current assets Non - current assets: Cash with fiscal agent Capital assets (note 5): Land Structures Equipment Infrastructure Work in progress Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets Liabilities Current liabilities: Accounts payable Accrued payroll Deposits payable Accrued interest payable Bonds payable (note 6) Due to general fund Workers' compensation - current General liability - current Compensated absences - current Total current liabilities Non - current liabilities (note 6): Workers' compensation General liability Compensated absences Net OPEB obligation Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Unrestricted Total Net Assets Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net assets of business -type activities Enterprise Funds Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds $ 6,270,034 $ 2,962,518 $ 9,232,552 $ 39,486,426 3,828,721 756,480 4,585,201 890,047 - - - 259,731 25,000 25,000 161,579 10,123,755 3,718,998 13,842,753 40,797,783 1,453,268 - 1,453,268 - 2,016,450 - 2,016,450 - 205,793 - 205,793 - 291,888 - 291,888 22,691,452 113,407,961 42,594,169 156,002,130 - 856,774 58,379 915,153 - (37,707,738) (13,081,583) (50,789,321) (15,883,324) 79,071,128 29,570,965 108,642,093 6,808,128 80,524,396 29,570,965 110,095,361 6,808,128 90,648,151 33,289,963 123,938,114 47,605,911 1,993,217 92,326 2,085,543 598,782 114,625 44,892 159,517 43,376 65,369 24 65,393 - 35,663 - 35,663 - 1,585,000 - 1,585,000 - - - - 462,187 - - - 2,973,250 - - - 2,446,253 1,939,662 3,793,874 137,242 3,931,116 8,463,510 - - - 8,919,750 - - - 3,451,484 - - - 7,844,423 4,408,000 - - - 24,623,657 3,793,874 137,242 3,931,116 33,087,167 78,939,396 29,570,965 108,510,361 6,808,128 7,914,881 3,581,756 11,496,637 7,710,616 $ 86,854,277 $33,152,721 120,006,998 $ 14,518,744 (61,331) $ 119,945,667 See accompanying notes to basic financial statements M& CITY OF NEWPORT BEACH Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2009 Enterprise Funds Operating revenues: Charges for sales and services: Water sales Sewer service and connection fees Retiree Reimbursements Employee Contributions Other Total operating revenues Operating expenses: Purchase of water Salaries and benefits Depreciation Professional services Maintenance and supplies System maintenance Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences OPEB ARC - Cash subsidy OPEB ARC - Implied subsidy Other Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net increase in fair value of investments (Loss) on removal of capital assets Interest expense Other fiscal charges Total nonoperating revenues Change in net assets Net assets, beginning of year Net assets, end of year Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net assets of business -type activities 7,512,251 - 4,174,246 Governmental 1,524,328 566,216 Total Activities 946,137 521,593 Enterprise Internal Service Water Wastewater Funds Funds 13,248,111 $ 14,518,744 $ 16,878,661 $ - $ 16,878,661 $ - - 3,471,388 3,471,388 - - - - 1,043,956 - - - 376,538 87,960 8,177 96,137 18,063,845 16,966,621 3,479,565 20,446,186 19,484,339 7,512,251 - 4,174,246 1,515,122 1,524,328 566,216 1,707,249 357,418 946,137 521,593 1,517,701 394,593 7,512,251 5,689,368 1,520,219 2,090,544 1,846,971 2,064,667 51,067 1,467,730 615,644 1,912,294 - - 481,805 - - 3,216,337 - - - 3,589,622 - - - 2,158,082 - - - 2,720,000 - - - 2,703,000 579,643 369,068 948,711 962,128 17,961,555 3,724,010 21,685,565 19,864,875 (994,934) (244,445) (1,239,379) (380,536) 284,300 90,593 96,364 39,425 (87,306) - (71,325) (5,242) 216,789 130,018 (778,145) (114,427) 87,632,422 33,267,148 $ 86,854,277 $ 33,152,721 See accompanying notes to basic financial statements 141 374,893 1,158,180 135,789 504,028 (67,308) (11,039) (71,325) (5,242) 346,807 1,651,169 (892,572) 1,270,633 13,248,111 $ 14,518,744 (114,391) $ (1,006,963) CITY OF NEWPORT BEACH Proprietary Fund Statement of Cash Flows For the Year ended June 30, 2009 Cash flows from operating activities: Cash received from customers or user departments Cash payments to employees for services Cash payments to suppliers for goods and services Cash received (payments made) for other operating activities Net cash provided by operating activities Cash flows from noncapital financing activities: Cash received from other funds Net cash provided by nonoapital financing activities Cash flows from capital related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Principal payments oa long -term liabilities Interest paid on long -term liabilities Other fiscal charges Net cash (used) for capital related financing activities Cash flows from investing activities: Interest on investments Net cash provided by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of cash equivalents to the statement of net assets Cash and investments reported on statement of net assets Cash and investments with fiscal agent reported on statement of net assets Cash and cash equivalents Reconciliation of operating income to net cash used for operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash used for operating activities: Depreciation (Increase) decrease in accounts receivable Decrease in inventories Decrease in prepaid items Increase (decrease) in accounts payable and accrued payroll (Decrease) in accrued interest payable (Decrease) in deposits payable Increase in workers' compensation Increase in general liability Increase In compensated absences Increase in net OPEB obligation Total adjustments Net cash used for operating activities Non -cash investing, capital and financing activities: Net increase in fair value of investments (Loss) on disposal of capital assets Total of non -cash activities Enterprise Funds Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds $ 16,720,552 $ 3,439,020 $ 20,159,572 $ 18,680,521 (4,159,992) (1,505,555) (5,665,547) (5,656,950) (12,545,229) (1,276,990) (13,822,219) (7,591,634) (491,683) (360,891) (852,574) 733,134 (476,352) 295,584 (180,768) 6,165,071 (825,707) (825,707) (1,807,268) (58,379) (1,865,647) (1,140,877) - (151,039) - - 100,035 (1,510,000) 790,933 - (1,510,000) - (71,325) - (71,325) - (5,242) (5,242) (814,417) (3,393,835) (58,379) (3,452,214) (1,040,842) 111,081 (33,220) - 380,664 130,018 510,682 1,662,208 380,664 (7,070) 130,018 510,682 1,662,208 - - 559,000 (3,489,523) 367,223 (3,122,300) 5,960,730 11,212,825 - 2,595,295 13,808,120 33,525,696 670,990 $ 7,723,302 $ 2,962,518 $ 10,685,820 $ 39,486,426 2,187,000 518,582 540,029 $ 6,270,034 $ 2,962,518 $ 9,232,552 39,486,426 1,453,268 $ (180,768) $ 1,453,268 $ 96,364 $ 7,723,302 $ 2,962,518 $ 10,685,820 $ 39,486,426 $ (994,934) $ (244,445) $ (1,239,379) $ (380,536) 1,524,328 566,216 2,090,544 1,846,971 (151,039) (32,368) (183,407) 790,933 89,867 - 5,553 (814,417) 6,181 (808,236) 111,081 (33,220) - (33,220) - (7,070) - (7,070) - - - - 559,000 - - - 284,212 - - - 670,990 2,187,000 518,582 540,029 1,058,611 6,545,607 _L_(476 352) $ 295,584 $ (180,768) $ 6,165,071 $ 96,364 $ 39,425 $ 135,789 $ 507,028 (87,308) (87,308) $ (11,039) $ 9,056 $ 39,425 $ 48,481 $ 495,989 See accompanying notes to basic financial statements M -A This page left blank intentionally. Y3 FINANCIAL SECTION z a p U W U1 FUND J Q FINANCIAL STATEMENTS U z FIDUCIARY FUNDS Q z 17L FIDUCIARY FUNDS Agency Funds, a type of Fiduciary Funds, are used to account for assets held by the City as an agent for other government entities, private organizations, or individuals. Fill CITY OF NEWPORT BEACH Agency Funds Statement of Fiduciary Assets and Liabilities June 30, 2009 Assets Totals Cash and investments (note 4) $ 3,873,419 Cash with fiscal agent (note 4) 4,101,765 Prepaid expenses 2,194 Intergovernmental receivable 80,000 Total assets $ 8,057,378 Liabilities Due to bondholders $ 6,759,807 Due to others 259,607 Due to ILJAOC 1,037,964 Total liabilities $ 8,057,378 See accompanying notes to basic financial statements 71 This page left blank intentionally. �a FINANCIAL SECTION NOTES TO THE FINANCIAL STATEMENTS F&I z a p U W U1 J Q U z Q z LL This page left blank intentionally. ME CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (1) Summary of Significant Accounting Policies The basic financial statements of the City of Newport Beach (the "City ") have been prepared in conformity with generally accepted accounting principles ( "GAAP ") as applicable to government units. The Governmental Accounting Standards Board ( "GASB ") is the accepted standard - setting body for establishing governmental accounting and financial reporting principles. a. Reporting Entity The City of Newport Beach was incorporated on September 1, 1906. The current City Charter was adopted in 1954. The City operates under a Council- Manager form of government and provides the following services: public safety (police, fire, and marine), highway and streets, cultural and recreation, public improvements, planning and zoning, utilities, and general administrative services. The financial statements present the financial activity of the City of Newport Beach (the primary government) and its component unit. The component unit discussed below is included in the City's reporting entity because of the significance of its operational or financial relationship with the City. This entity is legally separate from the City. However, the City of Newport Beach's elected officials have continuing full or partial accountability for fiscal matters of the component unit. The financial reporting entity consists of: (1) the City, (2) organizations for which the City is financially accountable, and (3) organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issue bonded debt without approval by the primary government. In a blended presentation, a component unit's balances and transactions are reported in a manner similar to the balances and transactions of the City. Component units are presented on a blended basis when the component unit's governing body is substantially the same as the City's or the component unit provides services almost entirely to the City. Blended Component Unit The financial statements of the City of Newport Beach include the financial activities of the Newport Beach Public Facilities Corporation (the "Corporation "). The Corporation was formed on March 9, 1992, for the purpose of assisting the City of Newport Beach in the financing of public improvements, including a public library. The Corporation is governed by a Board of Directors comprised of seven individuals appointed by the City Council of the City of Newport Beach. The Corporation's financial data and transactions are included in the debt service r!.", CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 fund. Separate financial statements are not prepared for the Corporation. The debt service fund is used solely to account for the activities of the Corporation and contains no other City debt financing activities. b. Basis of Accounting and Measurement Focus The basic financial statements of the City are composed of the following: Government -wide financial statements Fund financial statements Notes to the financial statements Financial reporting is based upon all GASB pronouncements, as well as the FASB Statements and Interpretations, APB Opinions, and Accounting Research Bulletins that were issued on or after November 30, 1989 that do not conflict with or contradict GASB pronouncements. Government -wide Financial Statements Government -wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business -type activities of the primary government (including its blended component units). The City of Newport Beach has no discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City. Government -wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long -term) economic resources and obligations of the reporting government are reported in the government -wide financial statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. Program revenues include charges for services, special assessments, and payments made by parties outside of the reporting government's citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. r[:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Amounts paid to acquire capital assets are capitalized as assets in the government -wide financial statements, rather than reported as an expenditure. Proceeds of long -term debt are recorded as a liability in the government -wide financial statements, rather than as another financing source. Amounts paid to reduce long -term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. Fund Financial Statements The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be 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. Governmental 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. Fund financial statements for the primary government's governmental, proprietary, and fiduciary funds are presented after the government -wide financial statements. These statements display information about major funds individually and non -major funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds. Fiduciary funds of the City primarily represent assets held by the City in a custodial capacity for other individuals or organizations. Governmental Funds In the fund financial statements, governmental funds are presented using the modified- accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City uses an availability period of 60 days. Sales taxes, property taxes, franchise taxes, gas taxes, motor vehicle license fee, transient occupancy taxes, grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period to the extent normally collected within the availability period. Other revenue items are considered to be measurable and available when cash is received by the City. Revenue recognition is subject to the measurability and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange MA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 transaction upon which they are based takes place. Imposed non - exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government - mandated and voluntary non- exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of "available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Non - current portions of long -term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources," since they do not represent net current assets. Recognition of governmental fund type revenue represented by non - current receivables is deferred until they become current receivables. Non- current portions of other long -term receivables are offset by fund balance reserve accounts. Revenues, expenses, gains, losses, assets, and liabilities resulting from non - exchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non - current liabilities. Since they do not affect net current assets, such long -term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long -term debt are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long -term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. F&I CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Proorietary & Fiduciary Funds The City's enterprise and internal service funds are proprietary funds. In the fund financial statements, proprietary and fiduciary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or non - current) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net assets. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non - operating revenues, such as subsidies, taxes, and investment earnings result from non - exchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the proprietary fund financial statements, rather than reported as expenditure. Proceeds of long -term debt are recorded as a liability in the proprietary fund financial statements, rather than as other financing source. Amounts paid to reduce long -term indebtedness of the proprietary funds are reported as a reduction of the related liability, rather than as expenditure. Agency funds are custodial in nature (assets equal liabilities) and do not involve the recording of City revenues and expenses. C. Fund Classifications The City utilizes the following broad categories of funds: Major Funds Major funds are those funds which are either material or of particular importance. Major Governmental Funds — Governmental funds are generally used to account for tax supported activities. The following governmental funds met the criteria of a major fund: General Fund The General Fund is the general operating fund of the City. It is used to account for all activities, except those required to be accounted for in another fund. Viol CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Tide and Submerged Land The Tide and Submerged Land Fund is used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas. Contributions Fund The Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific street or highway construction projects. Major Proprietary Funds — Proprietary funds are used to report an activity for which a fee is charged to external users to recover the cost of operation. Water Fund The Water Fund is an enterprise fund used to account for the activities associated with the transmission and distribution of potable water by the City to its users. Wastewater Fund The Wastewater Fund is an enterprise fund used to account for the activities associated with providing sewer services by the City to its users. Internal Service Funds — The Internal Service Funds are used to account for the City's self- insured general liability and workers' compensation, compensated absences, retiree insurance, and the cost of maintaining and replacing the City's rolling stock fleet. City departments are the primary users of these services and are charged a fee on a cost reimbursement basis. Fiduciary Funds — The Fiduciary Funds are used to account for assets held by the City as an agent for property owners with special assessments, local businesses in business improvements districts, and other individuals who have made miscellaneous special deposits with the City. d. Cash and Investments For purposes of the statement of cash flows, cash and cash equivalents are defined to be cash on hand, demand deposits and highly liquid investments with a maturity of three months or less from the date of purchase. For financial statement presentation purposes, cash and cash equivalents are shown as cash and investments and restricted cash and investments in the proprietary funds. tit] rai f. CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investments Investments are generally stated at fair value. Cash and investments are pooled to maximize investment yields. The net change in fair value and interest earned on the investments is allocated to the respective funds based on each fund's average monthly cash and investments balance. The City's investment in LAIF is $20,381,833 at June 30, 2009. This investment value is based on information provided by the State Treasurer's Office. The carrying value of the City's position in the fund is materially consistent with the fair value of the fund shares. This pool is under the regulatory oversight of the State Treasurer's Office. The LAIF Board consists of five members as designated by Statute. The Chairman is the State Treasurer, or his designated representative. Two members qualified by training and experience in the field of investment of finance, and two members who are treasurers, finance or fiscal officers or business managers employed by any County, City or local district or municipal corporation of this state, are appointed by the State Treasurer. The term of each appointment is two years, or at the pleasure of the appointing authority. Intergovernmental Receivables Intergovernmental receivable s project billings, and pending government agencies. As of $6,929,611. Inventories represent grant reimbursement requests, capital transfers of taxes and fees collected by other June 30, 2009, the balance of this account was Inventories are valued at cost, which approximates market, using the first -in, first - out method. The City follows the consumption method for inventory control. The costs of governmental fund type inventories are recorded as expenditures when consumed. g. Capital Assets Capital assets, which include land, structures, equipment, and infrastructure assets, are reported in the applicable governmental or business -type activities columns in the Government -wide Financial Statements. Capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Equipment purchased in excess of $5,000 is capitalized if it has an expected useful life of three years or more. Building, infrastructure, and improvements are capitalized if cost is in excess of ty CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 $30,000. The cost of normal maintenance and repairs that do not add to the value of the asset's lives are not capitalized. The City chose to value and report on infrastructure assets in their entirety (e.g. Prior to 1980). Major capital outlay for capital assets and improvements are capitalized as projects are constructed. For debt - financed capital assets, interest incurred during the construction phase is reflected in the capitalization value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets acquired through lease obligations are valued at the present value of future lease payments at the date acquired. Contributed capital assets are valued at their estimated fair market value at the date of contribution. Capital assets used in operations are depreciated over their estimated useful lives using the straight -line method in the government -wide financial statements and in the fund financial statements of the proprietary funds. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheet. The range of lives used for depreciation purposes for each capital asset class as follows: Structures 30 -75 years Equipment 3 -15 years Infrastructure 20 -75 years h. Claims and Judgments The City accounts for material claims and judgments and associated legal and administrative costs when it is probable that the liability claim has been incurred and the amount of the loss can be reasonably estimated. The City records the estimated loss liabilities in the Internal Service Fund. Included therein are claims incurred but not reported, which consists of (a) known loss events expected to be presented as claims later, (b) unknown loss events that are expected to become claims, and (c) expected future development on claims already reported. This is based upon historical actual results that have established a reliable pattern supplemented by specific information about current matters. Small dollar claims and judgments are recorded as expenditures when paid. Property Taxes The assessment, levy, and collection of property taxes are the responsibility of the County of Orange. The City records property taxes as revenue when received from the County, except at year -end, when property taxes received within 60 days are accrued as revenue. Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien date March 1 I.% CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Levy date July 1 Due dates November 1 — 1st installment March 1 — 2nd installment Collection dates December 10 — 1" installment April 10 — 2 "d installment j. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and limited amounts of earned but unused sick leave benefits, which will be paid to employees upon separation from City service. Beginning in fiscal year 1990, the City adopted a general leave plan to replace the traditional vacation and sick leave plan. The City uses a general leave plan which permits a maximum of three years' accrual for every employee, above which the excess is paid out as current compensation. All employees hired prior to January 1, 1990, were given the option of remaining in the traditional vacation and sick leave plan or enrolling in the general leave plan. All employees hired on or after January 1, 1990, are automatically enrolled in the general leave plan. Compensated absences are accrued in the Compensated Absence Internal Service Fund when employee services have been rendered and when it becomes probable that the City will compensate the employees for benefits through paid time off or cash payments at termination or retirement. Benefits that have been earned but are not yet available for use because employees have not met certain conditions are accrued to the extent it is probable that the employees will meet the conditions for compensation in the future. k. Unearned Revenue Unearned revenues are those where asset recognition has been met, but the revenue recognition criteria have not been met. MCI (2) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Reconciliation of Government -wide and Fund Financial Statements a. Explanation of Differences Between Governmental Funds Balance Sheet and the Statement of Net Assets The "total fund balances' of the City's governmental funds $121,132,843 differs from "net assets" of governmental activities $2,202,124,770 reported in the statement of net assets. This difference primarily results from the long -term economic focus of the statement of net assets versus the current financial resources focus of the governmental fund balance sheets. Capital Related Items When capital assets (property, plant, and equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the City as a whole. Cost of capital assets $2,209,102,030 Accumulated depreciation (131,116.152) Total capital assets, net* $2 077 985,878 *Amount excludes net capital assets of $6,808,128 from Internal Service funds. Long -term Debt Transactions Long -term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities (both current and long -term) are reported in the statement of net assets. Balances at June 30, 2009 were: Certificates of participation $ 4,335,000 Note payable 1,119,613 Pre - annexation agreement 9,600,000 CDBG Loan 1.972.000 Total $17.026.613 Dyll CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Accrued Interest Accrued liabilities in the statement of net assets differ from the amount reported in governmental funds due to accrued interest on outstanding debt payable (see Note 6). Accrued interest added 1110 599 Investment in Joint Venture Investment in joint ventures is not a current financial resource and hence reported only in the statement of net assets. Net equity in joint venture $2 684 052 Unavailable Revenue Some of the revenue will be collected after year -end, but is not available soon enough to pay for current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. Unavailable revenue $2.879.134 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities (such as equipment management and self- insurance authorities) to individual funds. The assets (including capital assets) and liabilities of the internal service funds are included in governmental activities in the statement of net assets, because they primarily serve governmental activities of the City. Internal Service Funds $14.518.744 Reclassifications and Eliminations Interfund balances must generally be eliminated in the government -wide statements, except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once — in the function in which they are allocated. Investments in joint ventures are not a current financial resource and are not reported in the governmental funds. Therefore, it is added for the statement of net assets. Interfund balance created due to the consolidation of internal service activities to governmental and enterprise funds is not reported in the fund statements and must be added to the statement of net assets. ft.", CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Explanation of Differences betweeen Government Funds Balance Sheet and the Statement of Net Assets Assets Cash and investments Receivables: Accounts Notes Interest Intergovernmental receivables Cash with fiscal agent Interfund balances Investment in joint venture Prepaid items Inventory Capital assets Accumulated depreciation Total assets Liabilities and Fund Balances / Net Assets Liabilities: Accounts payable Accrued payroll Accrued interest payable Deposits payable Claims payable Workers' compensation payable Compensated absences payable Unearned revenue Unavailable revenue Due to other funds Long -term liabilities Total liabilities Fund balances / net assets Total liabilities and and fund balances / net assets Total Capital Long -term Governmental Related Accumulated Debt Funds Items Depreciation Transactions $ 119,399,587 $ - $ - $ - 7,649,060 - - - 1,457,076 - - - 6,929,611 - - - 3,141,141 - - - 3,686,684 - - - 595,308 - - - 219,698 - - - - 2,209,102,030 - - - (131,116,152) - $ 143,078,165 $ 2,209,102,030 $ (131,116,152) $ - $ 5,951,377 - - - 4,121,602 - - - 3,150,496 - - - 2,618,216 - - - 2,879,134 - - - 3,224,497 - - - - - 17,026,613 21,945,322 - - 17,026,613 121,132,843 2,209,102,030 (131,116,152) (17,026,613) $ 143,078,165 $ 2,209,102,030 $ (131,116,152) $ - i� CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investment Internal Reclassifications - Interest in Joint Unavailable Service and Statement of Pavable Venture Revenue Funds Eliminations Net Assets $ - $ - $ - $ 39,486,426 $ - $ 158,886,013 - - - 890,047 - 8,539,107 - - - - - 1,457,076 - - - - - 6,929,611 - - - - - 3,141,141 - - - - (3,625,353) 61,331 - 2,684,052 - - - 2,684,052 - - - 161,579 - 756,887 - - - 259,731 - 479,429 - - - 22,691,452 - 2,231,793,482 24,623,657 (15,883,324) - (146,999,476) $ - $ 2,684,052 $ - $ 47,605,911 $ (3,625,353) $ 2,267,728,653 $ - - - $ 598,782 - $ 6,550,159 - - - 43,376 - 4,164,978 110,599 - - - - 110,599 - - - - - 3,150,496 - - - 2,446,253 - 2,446,253 - - - 2,973,250 - 2,973,250 - - - 1,939,662 - 1,939,662 - - - - - 2,618,216 - - (2,879,134) - - - - - - 462,187 (3,686,684) - - - - 24,623,657 - 41,650,270 110,599 - (2,879,134) 33,087,167 (3,686,684) 65,603,883 (110,599) 2,684,052 2,879,134 14,518,744 61,331 2,202,124,770 $ - $ 2,684,052 $ - $ 47,605,911 $ (3,625,353) $ 2,267,728,653 �7 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 b. Explanation of Differences between Enterprise Funds and Government - wide Statement of Net Assets Total net assets of the City's Enterprise Funds of $120,006,998 differs from net assets of the business -type activities of $119,945,667 reported in the government -wide statement of net assets. The difference, $61,331, results from the consolidation of internal service fund activities related to the enterprise funds. Explanation of Differences between Enterprise Funds and Government -wide Statement of Net Assets Total Internal Government wide Enterprise Service Statement of Assets Funds Funds Net Assets Cash and investments Receivables: Accounts Cash with fiscal agent Interfund balances Prepaid items Capital assets, net Total assets Liabilities and Fund Balances / Net Assets Liabilities: Accounts payable Accrued payroll Accrued interest payable Liabilities from restricted assets Noncurrent liabilities: Due within one year Due in more than one year Total liabilities $ 9,232,552 $ $ 9,232,552 4,585,201 4,585,201 1,453,268 1,453,268 - (61,331) (61,331) 25,000 25,000 108,642,093 108,642,093 $ 123,938,114 $ (61,331) $ 123,876,783 $ 2,085,543 $ $ 2,085,543 159,517 159,517 35,663 35,663 65,393 65,393 1,585,000 1,585,000 3.931.116 3.931.116 Net Assets Invested in capital assets, net of related debt $ 108,510,361 - $ 108,510,361 Unrestricted 11,496,637 (61,331) 11,435,306 $ 120,006,998 $ (61,331) $ 119,945,667 1.1.1 C. CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities The "net change in fund balances" for governmental funds $4,135,781 differs from the "change in net assets" for governmental activities $22,407,481 reported in the statement of activities. The differences arise primarily from the long -term economic focus of the statement of activities versus the current financial resources focus of the governmental funds. The effect of the difference is illustrated below. Capital Related Items When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. In governmental funds, significant maintenance projects are reclassified as functional expenses in the statement of net assets. Also, contributed capital is not recorded in governmental funds; therefore it is added for the statement of net assets. Capital outlay Net change to Internal Service Fund capital assets Capital Contribution Net change in capital related items Depreciation expense Deletions to accumulated depreciation Net change in accumulated depreciation I -R] $17,509,910 (4,395,327) 8,400,000 V1514 583 ($8,151,807) 1,413,463 W7 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Long -Term Debt Transactions Repayment of debt service is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. Issuance of debt is reported as an other financing source in governmental funds, thus increasing fund balance. For the City as a whole, however, the principal payments reduce the liabilities, and proceeds from long term debt increase liabilities in the statement of net assets. Certificates of Participation $ 330,000 Note payable 178,641 Pre - annexation agreement 1,200,000 CDBG loan 84,000 Purchase agreement 1,500.000 Total principal payments made $3,292,641 Accrued Interest Interest accrued on outstanding debt payable is not recorded as an expenditure in governmental funds, and, thus has been added to the statement of activities. Net change in accrued interest $45-701 Investment in Joint Venture Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. Net change in investment in joint venture $88.453 Unavailable Revenue Some of the revenue will be collected after year -end, but is not available soon enough to pay for current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. Net change in unavailable revenue $1.316.358 1111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities, such as equipment management and self- insurance activities, to individual funds. The adjustments for internal service funds "closes' those funds by reimbursing or charging additional amounts to participating departments in individual funds for costs over or under charged for those activities. Net change in Internal Service Funds $1270.633 Reclassification and Eliminations Interfund balances must generally be eliminated in the government -wide financial statements, except for net residual amounts due between governmental and business -type activities. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once — in the function in which they are allocated. Amounts involving fiduciary funds should be reported as external transactions. 1.1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities Revenues: Taxes and assessments Intergovernmental Licenses and permits Charges for services Fines and forfeitures Investment income Net increase in fair value of investments Property income Share of joint venture net gain Donations Contributed capital Loss on sale of capital assets Other Total revenues Expenditures: Current: General government Public safety Public works Community development Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenses Otherfinancing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances / net assets Total Capital Long -term Governmental Related Accumulated Debt Funds Items Depreciation Transactions $ 115,711,574 $ - $ - $ - 11,434,885 - - - 5,883,515 - - - 14,498,120 - - - 4,572,611 - - - 3,245,677 - - - 1,472,335 - - - 14,032,342 - - - 6,760,140 - - - 8,400,000 - - 8,501,014 186,112,213 8,400,000 15,567,654 - 313,265 - 78,554,344 1,140,876 (646,514) - 30,619,405 3,254,451 5,598,925 - 9,971,536 - 110,144 - 17,485,605 - 1,362,524 - 26,002,339 (17,509.,910) - - 3,292,641 - - (3,292,641) 482,908 181,976,432 (13,114,583) 6,738,344 (3,292,641) 23,354,366 - (23,354,366) 4,135,781 21,514,583 (6,738,344) 3,292,641 Fund balances /net assets beginning of year 116,997,062 2,187,587,447 (124,377,808) (20,319,254) Fund balances /net assets end of year $ 121,132,843 $ 2,209,102,030 $ (131,116,152) $ (17,026,613) I'M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investment 400,347 Internal Reclassifications 176,848 Accrued in Joint Unavailable Service and Statement of Interest Venture Revenue Fund Eliminations Activities $ - $ - $ - $ - $ - $ 115,711,574 - - (1,316,358) - - 10,118,527 - - - - - 5,883,515 - - - - 114,391 14,612,511 - - - - - 4,572,611 - - - - - 3,245,677 - - - 1,158,180 - 2,630,515 - - - 504,028 - 14,536,370 - 88,453 - - - 88,453 - - - - - 6,760,140 - - - - - 8,400,000 - - - (11,039) - (11,039) 8,501,014 88,453 (1,316,358) 1,651,169 114,391 195,049,868 - - - 149,263 400,347 16,430,529 - - - 76,045 176,848 79,301,599 - - - (54,372) 6,182,021 45,600,430 - - - 81,865 119,983 10,283,528 - - - 127,735 1,613,230 20,589,094 - - - - (8,492,429) - (45,701) - - - 437,207 (45,701) 380,536 $ (110,599) 172,642,387 - - - - (23,354,366) - 23,354,366 45,701 88,453 (1,316,358) 1,270,633 114,391 22,407,481 (156,300) 2,595,599 4,195,492 13,248,111 (53,060) 2,179,717,289 $ (110,599) $ 2,684,052 $ 2,879,134 $ 14,518,744 $ 61,331 $ 2,202,124,770 10191 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 d. Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities The change in net assets for the City's enterprise funds ($892,572) differs from the change in net assets of the business -type activities ($1,006,963) reported in the government -wide statement of activities. The difference, ($61,331), results from the consolidation of internal service fund activities related to the enterprise funds. Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities Nonoperating revenues (expenses) Investment income Total Internal Business -type activities Loss on removal of capital assets Enterprise Service Statement of Other Funds Fund Activities Operating revenues: Charges for sales and services: Water sales $ 20,350,049 S - $ 20,350,049 Other 96,137 - 96,137 Total operating revenues 20,446,186 - 20,446,186 Operating expenses: Purchase of Water 7,512,251 - 7,512,251 Salaries and wages 5,689,368 - 5,689,368 Depreciation 2,090,544 - 2,090,544 Professional Services 2,064,667 - 2,064,667 Maintenance and supplies 1,467,730 114,391 1,582,121 System maintenance 1,912,294 - 1,912,294 Other 948,711 - 948,711 Total operating expenses 21,685,565 114,391 21,799,956 Operating income (1,239,379) (114,391) (1,353,770) Nonoperating revenues (expenses) Investment income 374,893 Net decrease in fair value of investments 135,789 Loss on removal of capital assets (87,308) Interest expense (71,325) Other (5,242) Total nonoperating revenues (expenses) 346,807 Change in net assets Net assets, beginning of year (892,572) (114,391) 374,893 135,789 (87,308) (71,325) (5,242) 346,807 (1,006,963) 120,899,570 53,060 120,952,630 Net assets, end of year $ 120,006,998 $ (61,331) $ 119,945,667 1411 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (3) Budgetary Control and Compliance The City adheres to the following general procedures in establishing the budgetary data reflected in the financial statements: During April, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted at City Council meetings to obtain taxpayer comments. Prior to July 1, the budget is legally adopted through passage of an appropriation resolution. • Budgets are adopted on an annual basis consistent with generally accepted accounting principles for General and Special Revenue Funds. • The City of Newport Beach does not present budget information on Capital Projects Funds since the City approved project - length budgets. These project - length budgets authorize total expenditures over the duration of a construction project rather than year -by -year budgeting. • The City of Newport Beach does not present budget information on Debt Service and Permanent Funds since the City is not required to and does not adopt an annual budget. • The budget is formally integrated into the accounting system and employed as a management control device during the year. • The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which alter the total appropriations of any fund must be approved by City Council. • At fiscal year -end, budget appropriations lapse. Budget appropriations for incomplete capital projects are re- budgeted in the following fiscal year by Council action and are included in the revisions noted above. Projects that are not started during the budget year are reevaluated in the following year. • Encumbrances represent commitments related to unperformed contracts for goods and services. The City utilizes an encumbrance system as a management control technique to assist in controlling expenditures. Under this system, encumbrance accounting for the expenditure of funds is recorded in order to indicate outstanding commitments and is employed in the governmental fund types. Encumbrances outstanding at year -end are reported as reservations of fund balances since they do not constitute expenditures or liabilities. Encumbrances and their related budgets are honored in the subsequent year to fulfill these commitments and are presented in the original adopted budget. F:7.", (4) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Expenditures exceeded appropriations in the following non -major governmental funds. Anoropriations Expenditures Justice Assistance Grant $ - $ 6,403 Arterial Highway Rehabilitation $ 291,342 $ 320,319 The following funds reported deficit fund balances: Special Revenue Funds OTS DUI Grant $ 42,489 Capital Proiects Marine Science Center $ 420,148 City Hall Improvements $ 1,750,813 Misc SAH Projects $ 417,721 Marina Park $ 857,392 Sunset Ridge Park $ 243,301 Police Facility $ 2,175 Lifeguard Headquarters $ 30,179 Internal Service Funds Compensated Absences $ 6,606,339 Retiree Insurance $ 4,152,916 Variance $ (6,403) $ (28,977) The City's intentions are to eliminate deficit fund balances through future grant funding, other future revenue sources, or interfund transfers. Cash and Investments Cash and investments as of June 30, 2009 are classified in the accompanying financial statements as follows: Statement of net assets: Cash and investments Cash with fiscal agent Fiduciary funds: Cash and investments Cash with fiscal agent Total cash and investments $ 168,118,565 4,594,409 3,873,419 4,101,765 $ 180,688,158 Cash and investments as of June 30, 2009 consist of the following: is-11 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Cash on hand $ 40,226 Deposits with financial institutions (783,218) Investments 181,431,150 Total cash and investments $ 180,688,158 Investments Authorized by the California Government Code and the Entity's Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code (or the City's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City's investment policy, where more restrictive) that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions to Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity of Portfolio* in One Issuer Local Agency Bonds 5 years 15% None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptances 180 days 30% 10% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 1 year 30% 10% Repurchase Agreements 30 days None None Reverse Repurchase Agreements 30 days 10% of base value None Medium -Term Notes 4 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass - Through Securities 5 years 20% None County Pooled Investment Funds N/A 5% None Local Agency Investment Fund (LAIF) N/A None None JPA Pools (other investment pools) N/A None None * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions to CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee (i.e. fiscal agent) are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. F.I:1 Maximum Maximum Percentage Investment Authorized Investment Type Maximum Maturity Allowed in One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities None None None Banker's Acceptances 30 days - 360 days None None Commercial Paper 180 days - 270 days None 10% Money Market Mutual Funds N/A None None Investment Agreements None None None Certificates of Deposit None None None Demand Deposits 30 days - 360 days None None Time Deposits 30 days - 360 days None None Local Agency Bonds None None None Forward Delivery Agreement None None None Forward Purchase and Sale Agreement None None None Corporate Notes None None None Repurchase Agreements None None None Local Agency Investment Fund N/A None None Municipal Obligations None None None County Pooled Investment Funds N/A None None F.I:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity: Investment Tvoe Money Market Funds U.S. Treasury Notes U.S. Agencies Corporate Notes Municipal Bond Commercial Paper LAIF Foreign Bonds Mortgage - backed Securities Cash with Fiscal Agent: Money Market Funds Investment Agreements Total $ 5,321,323 $ 5,321,323 $ - $ - $ - $ 5,321,323 21,542,294 1,133,585 20,408,709 - - 21,542,294 85,142,487 28,192,164 50,351,181 6,599,142 - 85,142,487 33,287,090 11,709,214 20,260,262 1,317,614 - 33,287,090 1,797,420 1,797,420 - - - 1,797,420 1,598,383 1,598,383 - - - 1,598,383 20,381,833 20,381,833 - - - 20,381,833 3,092,958 844,600 2,248,358 - - 3,092,958 571,188 571,188 - - - 571,188 7,515,598 7,515,598 1,180,576 - 7,515,598 $ 181,431,150 $ 79,065,308 $ 93,268,510 $ 7,916,756 $ 1,180,576 $ 181,431,150 * Investment agreements are recorded at cost (not fair value) because these agreements represent nonparticipating contracts that are nonnegotiable and whose redemption terms do not consider market rates. Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations As of June 30, 2009 the City did not have any investments (including investments held by fiscal agent) whose fair values were highly sensitive to interest rate fluctuations. 1.0101 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Mlnlmum Evenu t Legal From Falr Value Ra0n9 Bled..,. Auk AA+ AA AF A+ A A- A -1+ A_1 BBB Investment Tyoe Morrey Market 1-da 5,321323 A $ - $ illo,B90 $ 11.5. T—, NSes 21,..2291 NIA 12392030 2,8255]4 US. Agencies 85,143,487 NIA - 80.060.414 Corad,ate NWes 33,287,090 A - 5,011.408 Municipal Bond 1.797,420 AA - - Commerclol Paper 1598.333 A-1 - - trcslA9encylnvesimentFund 2o.3Bt &13 NIA - - Ford, Son. 3,092,958 NIA - 827,000 Mot19a9 ... SttvMks 571,188 AA4 - 571,188 Cash with Fladal Aped, Money Merkel Funds 7,515,598 A - 7,515,598 1—..nt Agreements 1,i BC,576 NIA - - $ 181.431,150 5 12392A30 3 79,712,072 $ Concentration of Credit Risk 894,022 8.908.073 1,425,351 3.510502 5,20,010 7,310.914 812,072 805.380 600,294 1.BS5,664 %180.578 N01 Reeled $ 5,228433 8520893 24,188,051 992.080 79BSB2 799,821 - - - 20,381933 The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer that represent 5% or more of total City's investments are as follows: Issuer Investment Type Reported Amount FFCB Federal agency securities $ 14,210,531 FHLB Federal agency securities $ 18,845,749 FHLMC Federal agency securities $ 31,293,903 FNMA Federal agency securities $ 20,828,402 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker - dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool 111I87 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2009, none of the City's deposits with financial institutions in excess of federal depository amounts were held in uncol lateral ized accounts. As of June 30, 2009, City investments in the following investment types were held by the same broker - dealer (counterparty) that was used by the City to buy the securities: Investment Type Money Market Funds U.S. Treasury Notes U.S. Agencies Corporate Notes Mortgage backed Securities Foreign Bonds Commercial Paper Reported Amount $ 4,835,107 2,625,574 35,663,772 12,162,146 571,188 3,092,958 1,598,383 For investments identified herein as restricted cash with fiscal agent, the fiscal agent selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. 1[111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (5) Capital Assets Capital asset activity for the year ended June 30, 2009 was as follows: Governmental Activities: Beginning Balance Balance Additions Deletions June 30, 2009 Non - depreciable: Land and rights of way $ 1,807,381,269 $ 8,400,000 $ - $ 1,815,781,269 Work in progress 5,307,333 9,237,529 (1,377,686) 13,167,176 Depreciable: Structures 67,059,241 1,219,856 68,279,097 Equipment 26,860,316 1,667,335 (766,850) 27,760,801 Infrastructure 303,296,714 6,762,876 (3,254,451) 306,805,139 2,209,904,873 27,287,596 (5,398,987) 2,231,793,482 Less accumulated depreciation for: Structures (12,418,643) (1,345,618) - (13,764,261) Equipment (17,896,022) (2,224,188) 724,052 (19,396,158) Infrastructure (108,755,273) (6,428,972) 1,345,188 (113,839,057) (139,069,938) (9,998,778) 2,069,240 (146,999,476) Net Capital Assets $ 2,070,834,935 $ 17,288,818 _L _(L329,747 $ 2,084,794,006 111M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Business -type Activities: Non - depreciable: Land Work in progress Depreciable: Structures Equipment Infrastructure Less accumulated depreciation for: Structures Equipment Infrastructure Net Beginning Governmental Business -type Balance Balance Additions Deletions June 30, 2009 $ - Public safety 1,268,732 - $ 2,016,450 $ - $ - $ 2,016,450 312,949 690,663 (88,459) 915,153 205,793 - - 205,793 185,521 106,367 566,216 291,888 154,975,054 1,157,076 (130,000) 156,002,130 157,695,767 1,954,106 (218,459) 159,431,414 (112,175) (5,145) (117,320) (157,445) (27,499) - (184,944) (48,471,849) (2,057,900) 42,692 (50,487,057) (48,741,469) (2,090,544) 42,692 (50,789,321) $ 108,954,298 (136,438) _§_J175,7671 $ 108,642,093 Depreciation expense was charged in the following functions in the Statement of Activities: 111191 Governmental Business -type Activities Activities General government $ 313,265 $ - Public safety 1,268,732 - Public works 6,944,113 - Community development 110,144 - Community service 1,362,524 - Water - 1,524, 328 Wastewater - 566,216 $ 9,998,778 $ 2,090,544 111191 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (6) Long -Term Debt Changes in Long -Term Liabilities Long -term liability for the year ended June 30, 2009, was as follows: Amounts Beginning Ending Due Within Balance Additions Deletions Balance One Year Governmental activities: Certificates of participation payable $ 4,665,000 $ - $ (330,000) $ 4,335,000 $ 345,000 Note payable 1,298,254 - (178,641) 1,119,613 186,679 Pre - annexation agreement 10,800,000 - (1,200,000) 9,600,000 1,200,000 CDBG Loan 2,056,000 - (84,000) 1,972,000 89,000 Purchase Agreement Payable 1,500,000 - (1,500,000) - - Workers' compensations payable 11,334,000 3,216,337 (2,657,337) 11,893,000 2,973,250 Claims and judgements payable 5,613,525 3,678,834 (3,394,622) 5,897,737 2,446,253 Compensated absences 9,113,095 2,828,270 (2,157,280) 9,784,085 1,939,662 Net OPEB obligation 2,221,000 5,423,000 (3,236,000) 4,408,000 - Total governmental activities 48,600,874 15,146,441 (14,737,880) 49,009,435 9,179,844 Business -type activities: Water Revenue Bonds payable 3,095,000 - (1,510,000) 1,585,000 1,585,000 Total $ 51,695,874 $ 15,146,441 $ (16,247,880) $ 50,594,435 $ 10,764,844 Internal service funds predominantly serve the governmental funds. Accordingly, long- term liabilities for them are included as part of the above totals for governmental activities. Also, liabilities for workers' compensation, claims and judgments, compensated absences, and net OPEB obligation are typically liquidated from the Internal Service funds through resources collected from individual funds. 1[1111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Governmental Activities • Certificates of Participation In Fiscal Year 1998 -99, the Newport Beach Public Facilities Corporation issued $7,330,000 of Refunding Certificates of Participation to advance refund the 1992 Certificates of Participation used to finance the construction of the Central Library. The refunding was undertaken to reduce total debt service payments over the next twenty years by $690,228 and resulted in an economic gain of $495,745. The Refunded Certificates were executed and delivered pursuant to the Prior Trust Agreement. The City has previously entered into a project lease with the Newport Beach Public Facilities Corporation to lease certain property, facilities, improvements, and equipment. The lease payments made by the City are held by a trustee who makes semi - annual payments on the Certificates of Participation. The lease payments began May 15, 1994, and are in amounts sufficient to cover the payment of principal and interest of the Certificates. The 1998 Certificates consist of $2,995,000 of Serial Certificates with interest rates from 3.6% to 4.55% and $4,335,000 of Term Certificates with interest rates from 5.05% to 5.15 %. Interest on the Certificates is payable semiannually on June 1 and December 1 of each year. Future principal payments range from $345,000 to $535,000 through June 1, 2019. Principal payments are payable annually on June 1 of each year. At June 30, 2009, the City has a required cash reserve balance for debt service of $565,778, which is recorded as a restricted asset and reservation of fund balance in the Debt Service Fund. The outstanding balance at June 30, 2009, amounted to $4,335,000. The annual amortization requirements of the Certificates of Participation are as follows: Year Ending 563,025 June 30 Principal 2010 345,000 2011 360,000 2012 380,000 2013 400,000 2014 420,000 2015 -2019 2,430,000 $ 4,335,000 • Note Payable Interest Total 220,448 565,448 203,025 563,025 184,845 564,845 165,655 565,655 145,455 565,455 386,435 2,816,435 $ 1,305,863 $ 5,640,863 Note payable consists of a note to the California Department of Boating and Waterways in 1987 for a loan in the amount of $3,300,000. The note is payable in thirty annual principal and interest installments of $237,062 at 4.5% rate of interest 1[11.1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 beginning August 1, 1987. The outstanding balance at June 30, 2009, amounted to $1,119,613. The annual amortization requirements for the Note Payable are as follows: Year Ending June 30 2010 2011 2012 2013 2014 2015 -2016 Principal 186,679 195,080 203,859 213,032 222,609 98,354 $ 1,119,613 Interest 50,383 41,982 33,203 24,030 14,443 6,688 $ 170,729 Newport Coast Pre - Annexation Agreement Payable Total 237,062 237,062 237,062 237,062 237,052 105,042 $ 1,290,342 In conjunction with the January 1, 2002, annexation of Newport Coast, the City entered into an agreement payable with the Newport Coast Committee for a total of $18,000,000 to reduce property owner assessments used to finance certain road and street improvements. The principal -only agreement which began in the 2003 fiscal year, is payable over a period of fifteen years in equal installments of $1,200,000. The outstanding balance at June 30, 2009, amounted to $9,600,000. • CDBG Loan In fiscal year 2003, the City received $2,400,000 in Section 108 loan proceeds to assist with the funding for the Balboa Village Improvement Program. The loan is collateralized by future Community Development Block Grant allocations with an average interest rate of 6.5 %. Future principal payments range from $89,000 to $208,000 through June 30, 2023. The outstanding balance at June 30, 2009, amounted to $1,972,000. The annual amortization requirements for the CDBG Loan are as follows: Year Ending June 30 Principal Interest 2010 89,000 108,535 2011 95,000 104,345 2012 102,000 99,653 2013 108,000 94,485 2014 116,000 88,722 2015 -2019 706,000 334,880 2020 -2023 756,000 95,595 $ 1,972,000 $ 926,215 f[oIl Total 197,535 199,345 201,653 202,485 204,722 1,040,880 851,595 $ 2,898,215 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 • Purchase Agreement Payable In Fiscal Year 2007, the City entered into an agreement with the California Department of Transportation (CalTrans) for the purchase of a 15.05 -acre parcel of land at the corner of Superior Avenue and Coast Highway. The purchase price was $5 million, to be paid in three installments with a 4.75% interest. The loan has been paid off and there is no outstanding balance at June 30, 2009. • Claims and Judgments The City retains the risk of loss for general liability and workers' compensation claims as described in note (8). These amounts represent estimates of amounts to be paid for reported general liability and workers' compensation claims including incurred - but- not - reported claims based upon past experience, modified for current trends and information. While the ultimate amount of losses incurred through June 30, 2009, is dependent on future developments, based upon information from the City's attorneys, the City's claims administrators and others involved with the administration of the programs, City management believes the accrual is adequate to cover such losses. The estimated liability at June 30, 2009, for general liability amounted to $5,897,737 and for workers' compensation was $11,893,000. • Compensated Absences The City's policies relating to compensated absences are described in Note (1). This liability, to be paid in future years from available and future resources, at June 30, 2009, is $9,784,085. • Net OPEB Obligation (NOO) The net OPEB obligation is the difference between the ARC and the actual contributions made. The City has elected to fund the cash subsidy portion $2.72 million of the ARC. As for the implied subsidy $4.408 million, the City has elected to fund it on a pay -as- you -go basis, thus resulting in net OPEB obligation of $4.408 million. Business -type activities • Water Revenue Bonds In Fiscal Year 1998 -99, the City issued $14,225,000 of Refunding Water Revenue Bonds to refund the 1994 Water Revenue Bonds used to finance the construction and acquisition of water storage and transmission facilities. The refunding was undertaken to reduce total debt service payments over a ten -year period by $481,153 and resulted in an economic gain of $418,469. The bonds are secured by a pledge of net revenues of the water fund. The 1998 Serial Bonds bear interest ranging from 3.6% to 4.5 %. At June 30, 2009, the City has a required cash reserve balance of $1,453,768 which is recorded as cash with fiscal agent. Ten annual 111YA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 principal payments are payable on August 1, and semiannual interest payments are payable on February 1 and August 1. At June 30, 2009, the outstanding principal balance was $1,585,000. The City's rate covenant requires a coverage ratio of at least 125 %. For the year ended June 30, 2009, the rate covenant was 52 %. The annual amortization requirements for the Water Revenue Bonds are as follows: Year Ending June 30 2010 (7) Limited Obligation Bonds Principal Interest Total $ 1,585,000 $ - $ 1,585,000 Special Assessment Districts Bonds The City has issued certain Assessment District and Community Facilities District Bonds. Although the City collects and disburses funds for these districts, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds, and therefore the bonded indebtedness is not shown in the financial statements of the City. The City holds reserve funds on behalf of bondholders; the assets are recorded in the Special Assessment Agency Fund. Bonds outstanding at June 30, 2009, for each district under the Bond Acts of 1911 and 1915, and other special assessments, are as follows: Bonds Outstanding Assessment District Original Issue June 30, 2009 No. 68 Newport Shores 3,813,562 2,860,000 No. 69 West Newport 4,978,498 3,660,000 No. 70 Bay Shores 1,380,996 955,000 No. 71 Balboa Boulevard 796,942 260,000 No. 74 Island Avenue 222,629 130,000 No. 75 Balboa Business 821,204 615,000 No. 78 Little Balboa Island 1,348,196 720,000 No. 79 Beacon Bay 1,215,134 665,000 No. 82 Corona del Mar 274,967 170,000 No. 86 Balboa Peninsula 300,174 175,000 No. 92 Coast Highway 1,425,000 1,425,000 No. 99 -2 Ocean Front 1,953,952 1,953,952 No. 101 Central Balboa 2,467,597 2,467,597 No. 95 -1 CIOSA Refunding Series A 15,495,000 9,390,000 1[11:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Other Limited Obligation Bonds The City has issued revenue bonds for the purpose of advancing the net proceeds of the bonds to Hoag Memorial Hospital Presbyterian for the purposes of financing the acquisition, construction and equipping of health facilities located within the City. The bonds are limited obligations of the City payable from payments required to be made by Hoag Memorial Hospital. The City is not obligated to pay the principal or interest of the bonds except from payments made by Hoag, and neither the faith and credit nor the taxing power of the City is pledged to the payment of the principal and interest on the bonds. Bonds outstanding at June 30, 2009, are as follows: Series 2008C Series 2008D Series 2008E Series 2009A Series 2009B Series 2009C Series 2009D Series 2009E $70,095,000 $80,000,000 $90,000,000 $66,835,000 $36,605,000 $36,605,000 $35,490,000 $35,490,000 The revenue bonds are subject to, at the option of Hoag Memorial Hospital Presbyterian, optional and mandatory tender for purchase. If no tender or purchase is made, varying redemption payments on the 2008 Series bonds commence on December 1, 2012, and are required to be made through December 1, 2028. For the 2009 Series bonds, varying redemption payments commence on December 1, 2014, and are required to be made through December 1, 2038. (8) Risk Management — General Liability and Workers' Compensation The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. For general liability, the City has excess insurance coverage of $26 million per occurrence with a self- insured retention (SIR) of $500,000 per occurrence. For workers' compensation and employer's liability insurance, the City has excess insurance coverage of $1,000,000 per occurrence with a $1,000,000 SIR. This coverage provides for work - related accidents and diseases. 1111:] CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 The Insurance Reserve fund was established to account for costs associated with general liability and workers' compensation. The Insurance Reserve fund is accounted for as an internal service fund where assets are set aside for risk management, administration, claim settlements and benefit distribution. A premium is charged to each fund that accounts for part-time or full -time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. The total liability claims payable include $17,790,737 which represents the discounted present value at June 30, 2009; the claims were discounted using an interest rate of five percent. For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City's general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $54,472,396 at June 30, 2009. ff[e7 General Liability Workers' Compensation June 30, 2008 June 30, 2009 June 30, 2008 June 30, 2009 Unpaid claims, beginning of fiscal year $ 4,837,048 $ 5,613,525 $ 11,442,000 $ 11,334,000 Incurred claims (including IBNR) 3,371,513 3,589,622 2,339,836 3,216,337 Claim payments (2,595,036) (3,305,410) (2,447,836) (2,657,337) Unpaid claims, end of fiscal year $ 5,613,525 $ 5,897,737 $ 11,334,000 $ 11,893,000 For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City's general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $54,472,396 at June 30, 2009. ff[e7 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (10) Pension Plan Plan Descriotion - Defined Benefit Plan The City contributes to the California Public Employees Retirement System (PERS), an agent multiple - employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost -of- living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Funding Policy Participants are required to contribute 8% (9% for safety employees) of their annual covered salary. The City makes the contribution required of City safety employees on their behalf and for their account. In January 2008, non - safety employees modified their PERS benefits and agreed to contribute 1 % of the required 8% of annual salary for the participant contribution and 2.42% of the City's employer contribution which is discussed below. Benefit provisions and all other requirements are established by State statues and City contract with employee bargaining groups. Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer's actual plan contributions for the year. The cumulative difference is called the net pension obligation (NPO). The ARC for the period July 1, 2008 to June 30, 2009 has been determined by an actuarial valuation of the plan as of June 30, 2005. The contribution rate indicated for the period is 9.055% for non - safety employees and 29.67% for safety employees of annual covered payroll. Without the cost sharing agreement with non - safety employees, the contribution rate would be 11.475% for non - safety employees. In order to calculate the dollar value of the ARC for inclusion in financial statements prepared as of June 30, 2009, the contribution rate is multiplied by the payroll of covered employees that were paid during the period from July 1, 2008 to June 30, 2009. 111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Annual Pension Cost For 2009, the City's annual pension cost of $18,405,078 for PERS was equal to the City's required and actual contributions. A summary of principle assumptions and methods used to determine the annual required contribution is shown below: Payroll Growth 3.25% Individual Salary A merit scale varying by Growth duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Safety Plan June 30, 2006 Entry Age Actuarial Cost Method Level Percent of Payroll 31 Years as of the Valuation Date 15 -Year Smoothed Market 7.75% (net of administrative expenses) 3.25% to 13.15% depending on age, service, and type of employment 3.00% 3.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. IBM Miscellaneous Plan Valuation Date June 30, 2006 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Average Remaining 27 Years as of the Valuation Period Date Asset Valuation Method 15 -Year Smoothed Market Actuarial Assumptions: Investment Rate of 7.75% (net of administrative Return expenses) Projected Salary 3.25% to 14.45% depending Increases on age, service, and type of employment Inflation Rate 3.00% Payroll Growth 3.25% Individual Salary A merit scale varying by Growth duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Safety Plan June 30, 2006 Entry Age Actuarial Cost Method Level Percent of Payroll 31 Years as of the Valuation Date 15 -Year Smoothed Market 7.75% (net of administrative expenses) 3.25% to 13.15% depending on age, service, and type of employment 3.00% 3.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. IBM CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 THREE -YEAR TREND INFORMATION FOR PERS ($ Amount in Thousands) Fiscal Annual Pension Year Cost (APC) 6/30/07 $16,207 6/30/08 $16,454 6/30/09 $18,405 Percentage of Net Pension APC Contributed Obligation 100% $0 100% $0 100% $0 The Schedule of Funding Progress, below, shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. The Schedule of Funding Progress, below, presents multiyear trend information about whether the actuarial value of the plan assets is increasing or decreasing overtime, relative to the actuarial accrued liability for benefits. SCHEDULE OF FUNDING PROGRESS FOR PERS ($ Amount in Thousands) 06/30/2008 Misc. $ 217,378 Entry Age $ 21,424 Unfunded 52.066% Safety 336,061 264,634 71,427 78.7% 81.0% 28,056 Normal Actuarial Liability $ 92,851 83.2% 85.3% $ 69,204 Annual More current information regarding actuarial data Valuation Accrued Value of (Excess Covered UAAL as a Date Liability Assets Assets) Funded Status Payroll % of Payroll AVA Market (A) (B) (A - B) (B /A) Value (C) [(A -B) / C] 06/30/2006 Misc. $ 183,637 $163,158 $ 20,479 88.8% 94.2% $ 37,224 55.016% Safety 296,420 231,701 64,719 78.2% 83.1% 26,053 248.413% Total $ 480,057 $394,859 $ 85,198 82.3% 87.4% $ 63,277 134.643% 06/30/2007 Misc. $ 192,178 $178,524 $ 13,654 92.9% 107.7% $ 36,795 37.108% Safety 308,552 250,062 58,490 81.0% 94.7% 25,035 233.633% Total $ 500,730 $428,586 $ 72,144 85.6% 99.7% $ 61,830 116.681% 06/30/2008 Misc. $ 217,378 $195,954 $ 21,424 90.1% 91.9% $ 41,148 52.066% Safety 336,061 264,634 71,427 78.7% 81.0% 28,056 254.587% Total $ 553,439 $460,588 $ 92,851 83.2% 85.3% $ 69,204 134.170% More current information regarding actuarial data is not yet available from PERS. 113 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Plan Description - Defined Contribution Plan Pursuant to City Council Resolution No. 91 -106, the City entered into a defined contribution plan administrated by the private administrator known as Public Agency Retirement System ( "PARS ") for all of its part-time employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75 %. The City's contributions for each employee (and interest earned by the accounts) are fully vested immediately. For the year ended June 30, 2009, the City's covered payroll for employees participating in the plan was $2,919,260. Employees made contributions of $109,472 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,485,659 at June 30, 2009. (11) Post Employment Health Care Benefits (OPEB) The following description of the City of Newport Beach Medical Expense Reimbursement Plan (the "Plan ") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. Plan Description Effective January 2006, the City and employee associations agreed to major changes in the Post Employment Healthcare Plan. All employees and eligible retirees will participate in a Health Reimbursement Arrangement ( "HRA ") sponsored by the City, held in trust and managed by ING (Trustee), under IRS Revenue Ruling 2002 -41 (June 26, 2002) and IRS Notice 2002 -45 (June 26, 2002). All employees hired after January 1, 2006, and certain employees hired prior to this date, as well as employees who elected to fully convert (Fully Converted) to a defined contribution formula, participate in a program that requires mandatory employee and employer contributions. However, once these contributions have been made to the employee's account, the City has no further funding obligation to the Plan on their behalf. Certain employees hired prior to January 1, 2006, had the option to retain a hybrid of the former defined benefit Plan, or to fully convert to the new Plan. Employees electing to retain a hybrid of the former defined benefit formula (Hybrid) participate in a program requiring mandatory defined contributions by employees and employer, as well as a defined benefit consisting of an ongoing contribution, from the City to the participant's HRA account, each month after retirement. Additionally, these employees are eligible to receive health care benefits under the City's group health care plans. However, in order to receive these benefits these employees are required to pay the City $100 per month, 114 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 up until their retirement, to offset the unfunded portion of post employment health benefits existing at the inception of the Plan. Employees who retired prior to January 1, 2006, continue to receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month. The defined benefit portion of the plan is closed to new participants. The City of Newport Beach is the sole employer for the Plan. Total participants involved in the plan were 1,194 as of June 30, 2009, consisting of 521 miscellaneous employees, 273 safety employees, and 400 retirees and their beneficiaries. Benefits Provided The City provides post - employment medical, dental and vision benefits to its retirees, the same benefits as those afforded to active employees, with the general exception that once a retiree becomes eligible for Medicare (that is, reaches age 65), he or she must join a Medicare HMO or a Medicare Supplement plan, with Medicare becoming the primary payor. Employees become eligible to retire and receive City -paid healthcare benefits upon attaining age 50 (safety) or age 55 (miscellaneous) and 5 years of covered PERS service or upon disability before age 50. The payment of benefits, for the purpose of reimbursing eligible health care expenses, cease upon the earliest of the following: (1) the date of the participant's, their spouse's, or qualified dependant's death; (2) the date the balance of any fully converted participant account reaches zero, if no further contributions will be made to said account; or (3) the date of termination of the Plan. Plan Contributions Contributions to the Plan are based on the participant's status as "Fully Converted" or "Hybrid" as described above. All employees contribute 1% of their annual salary. Fully Converted employees also receive a contribution from the City of $1.50 per month for each year of service and age, after five years of employment. Additionally, Fully Converted employees who previously participated in the defined benefit program receive a one -time contribution from the City upon retirement. This contribution consists of $100 per month for every month paid into the defined benefit program, up to a maximum of 180 months. Further, the City contributes a percentage of any flexible leave bank conversions. The percentage contributed to the HRA account is based on the bargaining unit each employee is associated with. Hybrid employees receive a one -time contribution of $75 per month for every month paid into the defined benefit program, up to a maximum of 180 months. For Hybrid employees, the City also contributes a percentage of any flexible leave bank conversions. The percentage contributed to the HRA account is based on the bargaining unit each employee is associated with. Upon retirement, Hybrid employees receive a defined benefit consisting of a monthly contribution, made by the City, to the participant's HRA account of approximately $400. II&I CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Employees who retired prior to January 1, 2006, continue to receive a defined benefit consisting of a monthly contribution, made by the City, to the participant's HRA account each month of approximately $400 (approximately $425 for certain retired Police employees). The defined benefit component of the plan is closed to new participants; however, an actuarial valuation is utilized to determine the accrued liability and funding requirements associated with this component of the plan. Actuarial Valuation, Assumptions and Methods Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial assets, consistent with the long -term perspective of the calculations. Valuation Date: June 30. 2008 Actuarial Cost Method: Entry Age Normal Cost Method (same as CaIPERS) Amortization Method: Level percent of payroll over fixed 20 years Amortization Period: Level contribution amount over fixed 20 years Projected Salary Increases: 3.25% per year Discount Rate: 7.75 % for cash subsidy, pre- funding through CalPERS OPEB Trust 5% for implied subsidy, no pre- funding, benefits paid from the City's General fund 1111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Implied Subsidy Because one of the two health plans offered by the City is a non - community -rated plan and retirees are offered the same premium rates as active employees, GASB 45 requires that an implied subsidy (the difference between expected claims and premiums paid for retirees) be valued for the life of the retiree and accrued as a cost of the retiree health care plan. The City has elected to fund the implied subsidy on a pay -as- you -go basis since employer contributions to active and retiree medical plans are fixed, and significant uncertainty exists whether additional cash flows will occur in the future as a result of the implied subsidy. Two -Year Annual Required Contribution (ARC) Trend The 2008 -09 Annual Required Contribution (ARC) includes the Normal Cost plus a 20 -year amortization of the Unfunded AAL (in 000's): 1irA Current Year Annual ARC As Beginning Actual OPEB Percentage Covered a %of Ending Balance ARC Contributiion Obligation Contributed Payroll Payroll Balance Cash Subsidy $ - $ 2,720 $ 2,720 $ - 100% $ 56,527 4.8% $ - Implied Subsidy 2,221 2,703 516 2,187 19.1% 56,527 4.8% 4,408 Net OPEB Obligation $ 2,221 $ 56,527 9.6% $ 4,408 $ 5,423 $ 3,236 $ 2,187 59.7% 1irA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Two -Year Net OPEB Obligation (NOO) Trend The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the entire ARC, then the NOO would equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for the purpose of GASB 45. The June 30, 2009, NOO is determined as follows (in 000's): Prefunding Contributions & Benefit Fiscal Year July 1, NOO AOC Payments June 30, NOO 2007/08 Cash Subsidy $ 6,200 ' $ 2,629 $ (8,829)2 $ - Implied Subsidy Amortization %of 2,648 (427) 3 on NOO 2,221 Total $ 6,200 $ 5,277 $ - $ (9,256) $ 2,221 2008/09 111 (142) 2,703 4.8% Total $5,454 $ 111 Cash Subsidy $ - $ 2,720 $ (2,720) $ - Implied Subsidy 2,221 2,703 (516) ° 4,408 Total $ 2,221 $ 5,423 $ (3,236) $ 4,408 1 - Based on a prior period adjustment to the cash subsidy component of the NOO 2 - 2007 -2008 AOC and $6.2 million payment on retroactive NOO 3 - 2007 -2008 estimated implied subsidy 4 - 2008 -2009 estimated implied subsidy Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a Net OPEB Obligation (NOO) at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2008 -09 AOC is determined as follows (in 000's): III AOC as Interest Amortization %of ARC on NOO of NOO Total AOC Payroll Cash Subsidy $ 2,720 $ - $ - $ 2,720 4.8% Implied Subsidy 2,734 111 (142) 2,703 4.8% Total $5,454 $ 111 $ (142) $ 5,423 9.6% III CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Two -Year Funding Status Trend The schedule below shows the actuarial accrued liability (AAL), actuarial value of assets, funded status, and the relationship of the unfunded actuarial accrued liability (UAAL) to payroll as of the most recent valuation date. (12) Interfund Receivables and Pavables At June 30, 2009, interfund receivables and payable were as follows: Actuarial Actuarial Unfunded Internal Service Funds Annual UAAL as Valuation Accrued Value of AAL Funded Covered a % of Date Liability Assets (UAAL) Status Payroll Payroll 06/30/2006 Cash Subsidy $29,639 $ - $29,639 0.0% $54,748 54.1% Implied Subsidy 26,409 - 26,409 0.0% $54,748 48.2% Total $56,048 $ - $56,048 0.0% $54,748 102.4% 06/30/2008 Cash Subsidy $28,842 $ 8,785 $20,057 30.5% $56,527 35.5% Implied Subsidy 20,173 - 20,173 0.0% $56,527 35.7% Total $49,015 $8,785 $40,230 0.0% $56,527 71.2% (12) Interfund Receivables and Pavables At June 30, 2009, interfund receivables and payable were as follows: The above balances are primarily due to reclassification of negative cash balance in the city wide cash pool. 11K Due from Due to General Fund $ 3,686,684 $ - Internal Service Funds 462,187 Nonmajor Funds 3,224,497 Total $ 3,686,684 $ 3,686,684 The above balances are primarily due to reclassification of negative cash balance in the city wide cash pool. 11K CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (13) Interfund Transfers Interfund transfers at June 30, 2009, consisted of the following: Total $ 690,013 $ 20,314,554 $ 550,000 $ 1,799,799 $ 23,354,366 The City typically uses transfers to fund ongoing subsidies. The general fund transferred $20,314,554 to subsidize for the maintenance and operation of the Tide and Submerged Land Fund. As required by the pre- annexation agreement, interest accrued in the amount of $439,355 in the Newport Coast Annexation fund, is due to and was subsequently transferred to the General Fund. (14) Reserved and Designated Fund Balances The City has set up "reserves" of fund equity to segregate fund balances which are not appropriable for expenditure in future periods, or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The following provides explanations as to the nature and purpose of each reserve and designation. Reserved for encumbrances Amounts reserved for encumbrances are commitments for materials and services on purchase orders and contracts that are legally committed but not expended by fiscal year end. Reserved for debt service This account sets aside a portion of fund balance to meet the annual debt service requirements. Reserved for permanent endowment This account reflects a permanent endowment established for the maintenance and dredging of Upper Newport Bay. IWel Transfers In Tide and Submerged Contributions Non -Major General Fund Land Fund Funds Total 5 O General Fund $ - $ 20,314,554 $ 550,000 1,357,739 $ 22,222,293 Iu m Non -Major Funds $ 690,013 442,060 12132,073 Total $ 690,013 $ 20,314,554 $ 550,000 $ 1,799,799 $ 23,354,366 The City typically uses transfers to fund ongoing subsidies. The general fund transferred $20,314,554 to subsidize for the maintenance and operation of the Tide and Submerged Land Fund. As required by the pre- annexation agreement, interest accrued in the amount of $439,355 in the Newport Coast Annexation fund, is due to and was subsequently transferred to the General Fund. (14) Reserved and Designated Fund Balances The City has set up "reserves" of fund equity to segregate fund balances which are not appropriable for expenditure in future periods, or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The following provides explanations as to the nature and purpose of each reserve and designation. Reserved for encumbrances Amounts reserved for encumbrances are commitments for materials and services on purchase orders and contracts that are legally committed but not expended by fiscal year end. Reserved for debt service This account sets aside a portion of fund balance to meet the annual debt service requirements. Reserved for permanent endowment This account reflects a permanent endowment established for the maintenance and dredging of Upper Newport Bay. IWel CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Reserved for affordable housing This account reflects amounts collected from developers to build affordable housing to all income levels in compliance with State planning laws. Reserved for prepaid items This account reflects prepaid items which are not available, spendable resources. Reserved for inventories This account reflects the value of inventories purchased by the City but not yet issued to the operating departments. Reserved for Iona -term receivable This account reflects the value of the note receivable which is not an available and spendable resource. Designated for special purposes This account reflects funds that have been designated for special projects which vary in nature. Designated for contingencies Contingency designations represent funds for unexpected emergencies. Designated for capital projects This account reflects unspent appropriations committed to capital projects in the prior year. Designation for appropriations This account reflects unspent appropriations that may be utilized to augment the operating budget. (15) Joint Venture Agreements Bonita Canyon Public Facilities Financing Authority The Bonita Canyon Public Facilities Financing Authority (Authority) is a joint venture formed by the City of Newport Beach, Irvine Unified School District, and Newport -Mesa Unified School District. The Authority's Board is comprised of two members appointed by each of the member agencies. The Authority created Community Facilities District 98 -1 to finance public facilities that will benefit the properties within their boundaries. The Authority issued $45,000,000 of special tax bonds that will be repaid by special assessments; the City is not obligated in any manner to repay the bonds. The Authority paid the City $30,577,712 (81.7 %) to pay for the costs of acquiring and constructing public facilities including parks and road improvements. At June 30, 2009, the contributions from property owners are held in trust as cash with fiscal agent totaling $1,005,565. The City does not make any annual contributions to this joint venture. The 121 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 City does not include the Authority as a component unit, as the City is not financially accountable for the Authority's activities and the Authority is not fiscally dependent on the City. The City's equity interest in this joint venture is not readily determinable. Complete separate financial statements can be obtained at the Newport Mesa Unified School District, 2985 Bear Street, Suite 8M, Costa Mesa, California. Air Borne Law Enforcement The City is a participant in a joint venture agreement with the City of Costa Mesa for the operation of the Air Borne Law Enforcement program (ABLE). The oversight Board consists of the Chiefs of Police of Costa Mesa and Newport Beach and one appointee for each Member Agency for a total of four Board Members. The cities have a 50% interest in the venture, with each city having provided an initial investment of two helicopters and related equipment. The City of Newport Beach's cost of participating in the ABLE program is recorded in the General Fund, which provides for the maintenance and operation of the program as well as replacement of capital equipment used in the operation of the program. Annually, the amounts paid by the City to this joint venture are approximately $1,000,000. Operation costs are offset by fees collected from surrounding cities that may subscribe to regular patrol or request assistance on an as- needed basis. Shared equally between the cities of Newport Beach and Costa Mesa, the City's share of net income from subscribers and other cities amounts to $70,378 for fiscal year 2008- 09. The City's 50% interest in the net equity of this joint venture at June 30, 2009, amounts to $2,539,841. Complete separate financial statements can be obtained at the City of Costa Mesa at 77 Fair Drive, Costa Mesa, California. Metro Cities Fire Authority The City of Newport Beach is a member of a joint venture agreement with the cities of Anaheim, Fountain Valley, Fullerton, Garden Grove, Huntington Beach, and Orange for the operation of a communication network to provide fire suppression, emergency medical assistance, and rescue services. The oversight board consists of one voting member and one alternate appointed by the governing body of each member agency. The City of Newport Beach's costs are based each fiscal year upon the number of recorded incidents attributable to the City divided by the recorded incidents attributable to all members during the year and, are recorded in the General Fund as an expenditure for service. Upon termination of the agreement, the proceeds from the sale of the property and assets of the joint venture will be paid to each member agency pursuant to their fair share percentage. Annually, the amounts paid by the City to this joint venture are approximately $529,488. The City's 10.83% interest in the net equity of this joint venture at June 30, 2009, amounts to $144,211. Complete separate financial statements can be obtained at the Metro Cities Fire Authority offices at 201 S. Anaheim Boulevard, Suite 302, Anaheim, California. Integrated Law and Justice Agency of Orange County The City is a participant in a joint venture agreement with the several other public agencies of Orange County for the operation of the Integrated Law and Justice Agency IP% CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 of Orange County ( ILJAOC). The Integrated Law and Justice Agency of Orange County went into effect fiscal year 2007. The ILJAOC consists of 23 member agencies with an oversight board consisting of 12 members from the participating member agencies. The City acts as a treasurer for the ILJAOC and as such the activities of the ILJAOC are recorded in an Agency Fund. Annually, each member agency pays a percentage of the operating and replacement costs for the ILJAOC. The City's annual contribution and interest in the net equity of this joint venture at June 30, 2009, was immaterial. Complete separate financial statements can be obtained at the City of Newport Beach, 3300 Newport Boulevard, Newport Beach, California. (16) Commitments and Contingencies Claims and Judgments Numerous claims and suits have been filed against the City in the normal course of business. The estimated liability under such claims, based upon information received from the City Attorney, contracted attorneys and the Risk Manager, has been estimated and recorded as accrued claims and judgments payable (See Note 6). Circulation Improvement and Open Space Agreement The City entered into a Circulation Improvement and Open Space Agreement ( CIOSA) with a developer whereby the City received a loan of $14,395,572 to be used only for certain transportation and circulation improvements. The City agreed to match the contribution (without interest) by pledging 50% of future Fair Share Fees (developer impact fees) which are recorded in the Circulation and Transportation Special Revenue Fund. During the year ended June 30, 2009, the City received $859,820 of Fair Share Fees, and $429,910 was paid to the CIOSA Construction capital projects fund. Through June 30, 2009, $3,975,365 of Fair Share Fees has been paid. No additional liability has been recorded, because any future repayment is uncertain; any amounts not contributed by February 20, 2016, will be forgiven. Newport Coast Pre - Annexation Agreement In Fiscal Year 2001 -02, the City entered into a Pre - Annexation Agreement with the Newport Coast Committee that stipulated certain terms and conditions for the annexation of property collectively known as Newport Coast. In conjunction with the annexation, the City also agreed to sell the water service rights for the annexed area to Irvine Ranch Water District for $25.0 million. Among other basic provisions, the Pre - Annexation Agreement stipulates specific requirements for the use of proceeds from the sale of the water rights to Irvine Ranch Water District. The City has entered into an agreement to reimburse Newport Coast residents $18.0 million of the $25.0 million for certain public road and street improvements previously financed by property owner assessments. The assessment 123 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 debt relief will be provided to Newport Coast residents in equal installments of $1.2 million over 15 years. The remaining $7.0 million was used in locating, planning, and constructing a Community Center within the annexed area. Contractual commitments Construction and contractual commitments for major construction projects are as follows: Oasis Senior Center Rebuild Civic Center Kings Road /Kings Place Pavement Reconstruction Sunset Ridge Park Bay Knolls and Mariners Community Slurry Seal (17) Subsequent Events Limited Obligation Bond Issue Total Project Project To Date Unexpended Budget Expenditures Commitments $19,440,842 $2,219,776 $12,406,841 7,099,486 1,694,415 5,465,839 800,000 71,839 703,244 851,083 274,194 586,329 830,000 13,225 523,565 Subsequent to year end the City has issued certain limited obligation, 1915 Act assessment district improvement bonds listed as follows: District Name Par Value Issue Date Assessment District 103 Peninsula Point $3,295,700 October 2, 2009 The bonds are issued in serial maturities over fifteen years ranging from 1.5% to 4.1 %. The proceeds of these bonds, together with certain investment earnings, and certain monies will be used to finance the cost of the undergrounding power, telephone and cable facilities. Bond proceeds will also be used to establish a debt service reserve fund and to pay the costs of issuance of the Bonds. The aggregate assessed value levied in the district exceeds $168 million. Although the City will be collecting and disbursing funds for these districts, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds. Sale of Proposition 1A Receivable The emergency suspension of Proposition 1A was passed by the Legislature and signed by the Governor as ABX4 14 and ABX4 15 as part of the 2009 -10 budget package on July 28, 2009. Under the provision, the State will borrow 8% of the amount of property tax revenue apportioned to cities, counties and special districts. The state will be irzl CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 required to repay those obligations plus interest by June 30, 2013. The City of Newport Beach share of the State borrowing amounts to nearly $6.2 million. Authorized under ABX4 14 and ABX4 15, the Proposition 1A Securitization Program was instituted by California Communities to enable Local Agencies to sell their respective Proposition 1A Receivables to California Communities. Under the Securitization Program, California Communities simultaneously purchased the Proposition 1A Receivables, issued bonds ( "Prop 1A Bonds ") and will provide each local agency with the cash proceeds in two equal installments, on January 15, 2010 and May 3, 2010. The purchase price paid to the local agencies will equal 100% of the amount of the property tax reduction. All transaction costs of issuance and interest will be paid by the State of California. The City has no obligation on the bonds and no credit exposure to the State. Eariv Retirement Incentive Proaram (ERIP In October, 2009, the City Council approved Resolution 2009 -73 authorizing an Early Retirement Incentive Program (ERIP) to eligible employees, under the condition the program would meet the immediate and future fiscal, managerial and operational goals of the City to help mitigate declining General Fund revenues and institute long -term structural changes to avert future budget shortfalls and ensure that the City remains financially sound. There were 166 employees who met the following eligibility requirements: • Full -time, miscellaneous (non- safety) employee • 50 years of age or older as of January 31, 2010 • Eligible to retire from PERS with at least five years of service • Have at least three years of service with the City as of January 31, 2010 • Would actually retire from the PIERS system • Not the City Manger, City Clerk, or the City Attorney A total of 51 people participated and were approved by the Council for the Early Retirement Incentive Program through the Public Agency Retirement Systems ( "PARS ") Supplemental Retirement Program ( "SRP "). The Supplemental Retirement Plan offered through PARS allowed the City to set the payment, eligibility, and refilling based on the City's needs, as well as allowing the expense to be known and quantifiable. The benefit to the participating employee is paid via a 15 -year annuity of 7% of Final Pay up to $75,000 and 6% of amount of Final Pay over $75,000, and it complements and is in addition to an employee's CalPERS retirement benefit. The total estimated cost to fund the ERIP benefit approximates $950,000 for the first five years. After considering the costs of implementing the ERIP plan and the estimated reduction to the City payroll, the net savings are expected to reach nearly $3.1 million annually. irk? CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Financial Markets A number of financial institutions have reported financial difficulties as an indirect result of delinquencies associated with home mortgages. The full ramifications of this are not determinable at this time and it's not possible to determine with certainty all of the institutions that might be impacted by current market conditions. IMI FINANCIAL SECTION z a p U W U1 J Q U z Q z_ SUPPLEMENTARY 1L INFORMATION NON-MAJOR GOVERNMENTALFUNOS IBM NON -MAJOR GOVERNMENTAL FUNDS Non -major Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources which are legally restricted to expenditures for specified purposes. The City of Newport Beach Special Revenue Funds are as follows: The State Gas Tax Fund accounts for all State Gas Tax related revenues and expenditures, including street repair, construction, and maintenance. State law requires that these funds be used exclusively for maintenance of the street and highway system. The Asset Forfeiture Fund was established to account for all revenues resulting from the seizure of assets in conjunction with criminal cases (primarily drug trafficking). It is the City's policy that all such funds shall be used for enhancement of law enforcement programs. The Office of the Traffic Safety DUI Grant Fund (OTS) is used to account for federal funding of the Selective Traffic Enforcement Program (STEP). These funds are used exclusively for DUI enforcement. The Justice Assistance Grant Fund (JAG) is used to account for federal support of law enforcement activities. The Circulation and Transportation Fund is used to account for fair share revenues collected from developers and restricted for capital improvement projects meeting the circulation element of the City's General Plan. The Building Excise Tax Fund is used to account for revenues received from builders or developers on building or remodeling projects within the City. Expenditures from this fund are used exclusively for public safety, libraries, parks, beaches, or recreational activities. The Combined Transportation Fund is used to account for the revenues and expenditures of funds received from the Orange County Combined Transportation Funding Program. Expenditures from this fund are used exclusively for transportation related purposes. The Arterial Highway Rehabilitation Fund is used to account for federal funds available through the Federal Highway Administration Arterial Highway Rehabilitation Program to share the cost of rehabilitating certain arterial roadways in the City. The Community Development Block Grant Fund is used to account for revenues and expenditures relating to the City's Community Development Block Grant program. These funds are received from the Federal Department of Housing and Urban Development and must be expended exclusively on programs for low or moderate income individuals /families. The Air Quality Management District Fund is used to account for revenues received from the South Coast Air Quality Management District restricted for the use of reducing air pollution. The Environmental Liability Fund is used to account for solid waste fees restricted for mitigation of future environmental liability relating to the handling of solid waste. The Supplemental Law Enforcement Services Fund (SLESF) is used to account for revenues received from the county to be used exclusively for front line law enforcement services. iW:3 The Traffic Congestion Relief Fund is used to account for all revenues received from the State Treasury related to Assembly Bill 2928. State law requires that these funds be used exclusively for maintenance or reconstruction costs on public streets and roads. The Newport Coast Annexation Fund is used to account for revenues and expenditures related to the Newport Coast Annexation Agreement. The Prop 1 B Fund is used to account for all revenues and expenditures related to the Prop 1 B fund. State law requires that these funds be used exclusively for all transportation related projects, including state highway safety and rehabilitation projects, local street and road improvements, congestion relief, traffic reduction and traffic safety. Non -major Debt Service Funds Debt Service Funds are used to account for debt service transactions including revenue collections and payments of principal and interest on long -term obligations of the City. The City of Newport Beach Debt Service Fund is as follows: The Library COP Fund is used to account for the debt service transactions related to the Certificates of Participation used to finance the construction of the Central Library. Non -major Capital Projects Funds Capital Projects Funds are used to account for resources used for the acquisition and construction of capital facilities by the City, except those financed by Enterprise Funds. The City of Newport Beach Capital Projects Funds are as follows: The Assessment District Fund is used to account for the receipt and expenditure of funds received from 1911 Act and 1915 Act Assessment Districts for capital improvement projects. The CIOSA Construction Fund is used to account for the receipt and expenditure of funds for the Circulation Improvement and Open Space Agreement (CIOSA). The improvements include street and frontage improvements. The Bonita Canyon Development Fund is used to account for the receipt and expenditure of funds for the Bonita Canyon Public Facilities Agreement. The improvements include certain public parks and recreation facilities, and street improvements and facilities. The Oil Spill Remediation Fund is used to account for the receipt of the settlement proceeds from the American Trader Company. These funds must be used on projects affecting the areas damaged by the spill. The Fire Station 7 Fund is used to account for the property acquisition, design and construction of a new fire station which will replace a temporary fire station that provides service in the northern part of the city. The Marine Science Center Fund is used to account for the design and construction of a new Marine Science Center. The City Hall Improvement Fund is used to account for the design and construction of a new Civic Center Complex. Ino] The Mariners Library Fund is a Special Revenue Fund used to account for revenues and expenditures of funds for the Mariners Library Capital Project. The Oasis Senior Center Fund is used to account for revenues and expenditures associated with the development and construction of the Oasis Senior Center. The Misc. Santa Ana Heights Projects Fund is used to account for various grants and projects associated with providing public works, parks and recreation opportunities within the part of the City known as Santa Ana Heights. The Marina Park Fund is used to account for the design and construction of the Marina Park. The Sunset Ridge Park Fund is used to account for the design and construction of the Sunset Ridge Park. The Police Facility Fund is used to account for expenditures for the future space needs expected of the existing facility buildings, including detailed facility planning and budgetary guidelines for possible building rehabilitation and /or expansion projects. The LG Headquarters Fund is used to account for expenditures for the future space needs expected of the existing headquarters buildings, including detailed facility planning and budgetary guidelines for possible building rehabilitation and /or expansion projects. Non -major Permanent Funds Permanent Funds are used to report resources that are legally restricted for the extent that only earnings, not principal, may be used for purposes that support the reporting government's programs. The City of Newport Beach Permanent Fund is as follows: The Bay Dredging Fund is used to account for the receipt of permanent endowments intended to fund the ongoing cost of maintaining and dredging of the Upper Newport Bay. The Ackerman Fund is used to account for the receipt of permanent endowments intended as follows: 75% of the fund's investment proceeds will be used for the purchase of High Tech Library Equipment while the remaining 25% will be used for Scholarships for needy students. IBhl This page left blank intentionally. 131 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 119% Special Revenue Circulation State Asset OTS and Gas Tax Forfeiture DUI Grant JAG Transportation Assets Cash and investments $ 2,765,000 $ 229,869 $ - $ - $ 2,046,113 Receivables: Accounts - 1,918 - - - Intergovernmental receivables - 55,209 - - Cash with fiscal agent - - - - - Prepaid items - - - - - Total Assets $ 2,765,000 $ 286,996 $ $ $ 2,046,113 Liabilities and Fund Balances Liabilities: Accounts payable $ 447 $ - $ - $ - $ 28,285 Unearned revenue - - - - - Unavailable revenue - - - - - Due to other funds - - 42,849 - - Total Liabilities 447 - 42,849 - 28,285 Fund balances: Reserved for encumbrances 542,837 - - - 250,620 Reserved for debt service - - - - - Reserved for permanent endowment - - - - - Reserved for prepaid items - - - - - Unreserved: Designated for special purposes 2,221,716 286,996 - - 1,767,208 Undesignated - - (42,849) - - Total fund balances 2,764,553 286,996 (42,849) - 2,017,828 Total liabilities and fund. balances $ 2,765,000 $286,996 $ - $ - $ 2,046,113 119% Special Revenue Building Arterial Community Air Quality Excise Combined Highway Development Management Environmental Tax Transportation Rehabilitation Block Grant District Liability $ 277,417 $ 3,974,325 $ - $ - $ 465,418 $ 3,034,533 - - - - - 5,826 - 325,018 - 32,013 - - - - - - - 68,864 $ 277,417 $ 4,299,343 $ $ 32,013 $ 465,418 $ 3,109,223 $ 14,882 $ 120,036 $ - $ 22,130 $ 3,045 $ 17,978 - 219,531 - - - - - 142,682 - - - - - - - 9,883 - - 14,882 482,249 - 32,013 3,045 17,978 14,448 1,424,406 - - - 3,609 - - - - - 137,728 248,087 2,392,688 - - 462,373 2,949,908 262,535 3,817,094 - - 462,373 3,091,245 $ 277,417 $ 4,299,343 $ - $ 32,013 $ 465,418 $ 3,109,223 (continued) 133 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 (continued) 134 Special Revenue Supplemental Traffic Newport Law Congestion Coast Prop 1B Enforcement Relief Annexation Transportation Assets Cash and investments $ - $ 241,817 $ 9,600,000 $ 1,303,377 Receivables: Accounts - - - - Intergovernmental receivables - 173,814 - - Cash with fiscal agent - - - - Prepaid items - - - - Total Assets S - S 415,631 $ 9,600,000 $ 1,303,377 Liabilities and Fund Balances Liabilities: Accounts payable $ - $ 22,160 $ - $ - Unearned revenue - - - - Unavailable revenue - - - - Due to other funds - - - - Total Liabilities - 22,160 - - Fund balances: Reserved for encumbrances - - - - Reserved for debt service - - - - Reserved for permanent endowment - - - - Reserved for prepaid items - - - - Unreserved: Designated for special purposes - 393,471 9,600,000 1,303,377 Undesignated - - - - Total fund balances - 393,471 9,600,000 1,303,377 Total liabilities and fund balances $ - $ 415,631 $ 9,600,000 $ 1,303,377 134 Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill COP District Construction Development Remediation Fire Station 7 $ - $ 1,665,194 $ 1,935,818 $ - $ - $ 52,318 - 41,417 - - - - 565,778 1,569,798 - 1,005,565 - - $ 565,778 $ 3,276,409 $ 1,935,818 $ 1,005,565 $ $ 52,318 $ - $ 65,704 $ - $ - $ - $ - - - - 27,603 - - - 65,704 - 27,603 - - - 259,052 10,489 - - - 565,778 - - - - - - 2,951,653 1,925,329 977,962 - 52,318 565,778 3,210,705 1,935,818 977,962 - 52,318 $ 565,778 $ 3,276,409 $ 1,935,818 $ 1,005,565 $ - $ 52,318 (continued) 1611 Assets Cash and investments Receivables: Accounts Intergovernmental receivables Cash with fiscal agent Prepaid items Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Unearned revenue Unavailable revenue Due to other funds Total Liabilities Fund balances: Reserved for encumbrances Reserved for debt service Reserved for permanent endowment Reserved for prepaid items Unreserved: Designated for special purposes Undesignated Total fund balances Total liabilities and fund. balances CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 (continued) Marine City Hall Mariners Oasis Science Center Improvements Library Senior Center e m m a nA„ „oo 90,000 $ 9u,000 $ $ $ 8,UU9,U88 $ 3,435 $ 523,725 506,713 1,227,088 b1U,148 1,fbU,813 (420,148) (1,750,813) 90,000 $ 11911 $ 523,171 b",1 /1 5,485,917 5,485,917 - $ - $ b,0U9,U88 Misc Marina Sunset Police Lifeguard SAH Projects Park Ridge Park Facility Headquarters 396,641 - - - - .n oao,ov i y y a Y $ 190 $ 51,375 $ 74,842 $ - $ 14,000 396,641 - - - - 417,531 806,017 168,459 2,175 16,179 814,362 857,392 243,301 2,175 30,179 (417,721) (857,392) (243,301) (2,175) (30,179) (417,721) (857,392) (243,301) (2,175) (30,179) $ 396,641 $ - $ - $ - $ - (continued) `KrI Assets Cash and investments Receivables: Accounts Intergovernmental receivables Cash with fiscal agent Prepaid items Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Unearned revenue Unavailable revenue Due to other funds Total Liabilities Fund balances: Reserved for encumbrances Reserved for debt service Reserved for permanent endowment Reserved for prepaid items Unreserved: Designated for special purposes Undesignated Total fund balances Total liabilities and fund balances CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 (continued) Permanent Fund Total Other Ackerman Governmental Bay Dredging Donation Funds $ 4,658,653 $ 1,141,487 $ 39,400,427 - - 535,802 - - 586,054 - - 3,141,141 - - 68,864 $ 4,658,653 $ 1,141,487 $ 43,732,288 350 $ 1,485,755 - 219,531 539,323 - 3,224,497 350 5,469,106 - - 2,505,461 - - 565,778 3,857,000 772,781 4,629,781 - - 137,728 801,653 368,356 34,189,012 - - (3,764,578) 4,658,653 1,141,137 38,263,182 $ 4,658,653 $ 1,141,487 $ 43,732,288 161.1 This page left blank intentionally. ISM) Revenues: Othertaxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning Fund balances (deficit), ending CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 State Gas Tax 1,731,934 83,831 31,511 Special Revenue Asset OTS Forfeiture DUI Grant 105,045 239,948 6,191 1,893 JAG 13,825 1,847,276 113,129 239,948 13,825 25,329 165,564 6,403 1,865,666 - - - 1,865,666 25,329 165,564 6,403 (18,390) 87,800 74,384 7,422 (160,000) (160,000) (178,390) 87,800 74,384 7,422 2,942,943 199,196 (117,233) (7,422) $ 2,764,553 $ 286,996 $ (42,849) $ - IE,9] Special Revenue Circulation Building Arterial Community Air Quality and Excise Combined Highway Development Management Environmental Transportation Tax Transportation Rehabilitation Block Grant District Liability $ - $ - $ - $ - $ - $ - $ 497,932 - - 1,730,412 670,918 551,715 98,737 - - 175,831 - - - - - 859,820 - - - - - - 76,637 7,256 123,062 - - 12,920 87,991 28,807 2,728 46,257 - - 4,857 32,930 965,264 185,815 1,899,731 670,918 551,715 116,514 618,853 - 16,705 123,878 - - - 124,479 - - 587,483 182,508 1,710,197 309,661 164,809 - 67,382 - - - - 84,000 - - 112,253 587,483 182,508 1,710,197 309,661 485,541 16,705 191,260 377,781 3,307 189,534 361,257 66,174 99,809 427,593 (509,910) (509,910) (132,129) 3,307 9,355 (10,658) - (10,658) 9,355 189,534 350,599 75,529 99,809 427,593 2,149,957 259,228 3,627,560 (350,599) (75,529) 362,564 2,663,652 $ 2,017,828 $ 262,535 $ 3,817,094 $ $ - $ 462,373 $ 3,091,245 (continued) MINI CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 (continued) Special Revenue Supplemental Traffic Newport Law Congestion Coast Prop 1B Enforcement Relief Annexation Transportation Revenues: Othertaxes $ - $ - $ - Intergovernmental 81,004 718,852 - Licenses, permits and fees - - - Fines and forfeitures - - - Investment income 659 3,247 381,234 Net increase in fair value of investments - 1,221 58,121 Donations - - - Other 1,252,014 37,266 14,008 81,663 723,320 439,355 1,303,288 Expenditures: Current: Public safety 81,663 - - Public works - - - Community development - - - Community services - - - Capital outlay - 333,884 - Debt service: Principal - - 1,200,000 Interest and fiscal charges - Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances (deficit), ending 1,354,500 81,663 333,884 1,200,000 1,354,500 389,436 (760,645) (51,212) (439,355) (439,355) 389,436 (1,200,000) (51,212) 4,035 10,800,000 1,354,589 $ - $ 393,471 $ 9,600,000 $ 1,303,377 1EK Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill COP District Construction Development Remediation Fire Station 7 $ - S - S - S - S - S - 22,023 2,286 75,889 3,322 700 2,318 - 12,183 28,525 - - - - 8,073,604 - 190,500 - - 22,023 8,088,073 104,414 193,822 700 2,318 268,011 - 6,708,317 997,208 330,000 - - 240,984 570,984 6,708,317 1,265,219 10,051 27,620 10,051 27,620 (548,961) 1,379,756 (1,160,805) 193,822 (9,351) (25,302) 548,750 764,634 429,910 548,750 764,634 429,910 (211) 2,144,390 (730,895) 193,822 (12,150) (12,150) (21,501) (25,302) 565,989 1,066,315 2,666,713 784,140 21,501 77,620 $ 565,778 $ 3,210,705 $ 1,935,818 $ 977,962 $ - $ 52,318 (continued) 1061 CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 (continued) Revenues: Othertaxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Excess (deficiency) of revenues over expenditures Capital Projects Marine City Hall Mariners Science Center Improvement Library 5 S S 450,000 22,313 2,057 474,370 216,843 1,694,416 216,843 1,694,416 257,527 (1,694,416) Other financing sources (uses): Transfers in 47,150 Transfers out - Total other financing sources (uses) 47,150 Net change in fund balances 304,677 (1,694,416) Oasis 119,886 6,392,588 6,512,474 2,282,350 2,282,350 4,230,124 4,230,124 Fund balances, beginning (724,825) (56,397) - 1,255,793 Fund balances (deficit), ending _L __L420,1481 _L _L,750.8131 $ - $ 5,485,917 1011 Capital Projects Misc Marina Sunset Police Lifequard SAH Projects Park Ridge Park Facility Headquarters $ 135,715 717,558 243,301 2,175 30,179 135,715 717,558 243,301 2,175 30,179 (135,715) (717,558) (243,301) (2,175) (30,179) (135,715) (717,558) (243,301) (2,175) (30,179) (282,006) (139,834) - - - $ (417,721) _L __L857,3921 $ (243,301) $ (2,175) $ (30,179) (continued) 145 CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 (continued) Revenues: Othertaxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances (deficit), ending Permanent Funds Total Other Ackerman Governmental Bay Dredging Donation Funds S - $ - $ 497,932 - - 7,644,404 - 175,831 - 859,820 142,243 50,565 1,239,526 61,903 - 324,944 - - 6,414,901 - - 8,266,161 204,146 50,565 25,423,519 278,959 - 408,594 19,350 1,272,757 - 2,282,350 16,230,545 1,614,000 353,237 19,350 22,440,442 204,146 31,215 2,983,077 204,146 1,799,799 (1,132,073) 667,726 31,215 3,650,803 4,454,507 1,109,922 34,612,379 $ 4,658,653 $ 1,141,137 $ 38,263,182 IE'll CITY OF NEWPORT BEACH Budgetary Comparison Schedule State Gas Tax Special Revenue Fund For the Year Ended June 30, 2009 Budgeted Amounts Original Final Variance with Final Budget Positive Actual (Negative) Revenues: Intergovernmental $ 1,507,500 $ 1,507,500 $ 1,731,934 $ 224,434 Investment income 145,000 145,000 83,831 (61,169) Net increase in fair value of investments - - 31,511 31,511 Total revenues 1,652,500 1,652,500 1,847,276 194,776 Expenditures: Capital outlay Total Expenditures Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance, beginning Fund balance (deficit), ending 4,561,003 3,187,829 1,865,666 1,322,163 4,561,003 3,187,829 1,865,666 (1,322,163) (2,908,503) (1,535,329) (18,390) 1,516,939 (160,000) (160,000) (160,000) - (3,068,503) (1,695,329) (178,390) 1,516,939 2,942,943 2,942,943 2,942,943 - $ (125,560) $ 1,247,614 2,764,553 $ 1,516,939 MIMI Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures Public safety Net change in fund balance Fund balance, beginning Fund balance, ending CITY OF NEWPORT BEACH Budgetary Comparison Schedule Asset Forfeiture Special Revenue Fund For the Year Ended June 30, 2009 66,310 (23,100) 199,196 $ 176,096 IEK 117,822 25,329 92,493 (74,612) 87,800 162,412 199,196 199,196 - $ 124,584 $ 286,996 $ 162,412 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) $ 40,000 $ 40,000 $ 105,045 $ 65,045 3,210 3,210 6,191 2,981 - - 1,893 1,893 43,210 43,210 113,129 69,919 66,310 (23,100) 199,196 $ 176,096 IEK 117,822 25,329 92,493 (74,612) 87,800 162,412 199,196 199,196 - $ 124,584 $ 286,996 $ 162,412 CITY OF NEWPORT BEACH Budgetary Comparison Schedule OTS DUI Grant Special Revenue Fund For the Year Ended June 30, 2009 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 345,591 $ 345,591 $ 239,948 $ (105,643) Total revenues 345,591 345,591 239,948 (105,643) Expenditures Public safety 229,731 229,731 165,564 64,167 Net change in fund balance 115,860 115,860 74,384 (41,476) Fund balance (deficit), beginning (117,233) (117,233) (117,233) - Fund balance (deficit), ending $ (1,373) $ (1,373) $ (42,849) $ (41,476) M1 CITY OF NEWPORT BEACH Budgetary Comparison Schedule JAG Special Revenue Fund For the Year Ended June 30, 2009 1!,-181 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental S - $ - $ 13,825 $ 13,825 Total revenues - - 13,825 13,825 Expenditures Public safety - - 6,403 (6,403) Net change in fund balance - - 7,422 7,422 Fund balance (deficit), beginning (7,422) (7,422) (7,422) - Fund balance (deficit), ending $ (7,422) $ (7,422) $ - $ 7,422 1!,-181 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Circulation and Transportation Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Licenses, permits and fees Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance, beginning Fund balance, ending (80,000) (510,000) (509,910) 90 (1,081,246) (601,665) (132,129) 469,536 2,149,957 2,149,957 2,149,957 - $ 1,068,711 $ 1,548,292 $ 2,017,828 $ 469,536 151 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 859,820 $ 859,820 $ 859,820 $ - 75,000 75,000 76,637 1,637 - 28,807 28,807 934,820 934,820 965,264 30,444 1,936,066 1,026,485 587,483 439,002 (1,001,246) (91,665) 377,781 469,446 (80,000) (510,000) (509,910) 90 (1,081,246) (601,665) (132,129) 469,536 2,149,957 2,149,957 2,149,957 - $ 1,068,711 $ 1,548,292 $ 2,017,828 $ 469,536 151 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Building Excise Tax Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Licenses, permits and fees Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance, ending Budgeted Amounts Original Final $ 125,000 $ 125,000 1,000 1,000 126,000 126,000 185,815 59,815 335,921 335,921 182,508 153,413 (209,921) (209,921) 3,307 213,228 259,228 259,228 259,228 - $ 49,307 $ 49,307 $ 262,535 $ 213,228 IIM Variance with Final Budget Positive Actual (Negative) $ 175,831 $ 50,831 7,256 6,256 2,728 2,728 185,815 59,815 335,921 335,921 182,508 153,413 (209,921) (209,921) 3,307 213,228 259,228 259,228 259,228 - $ 49,307 $ 49,307 $ 262,535 $ 213,228 IIM CITY OF NEWPORT BEACH Budgetary Comparison Schedule Combined Transportation Special Revenue Fund For the Year Ended June 30, 2009 153 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 2,067,348 $ 2,100,348 $ 1,730,412 $ (369,936) Investment income 75,000 75,000 123,062 48,062 Net increase in fair value of investments - - 46,257 46,257 Total revenues 2,142,348 2,175,348 1,899,731 (275,617) Expenditures: Capital outlay 5,853,490 3,447,264 1,710,197 1,737,067 Net change in fund balance (3,711,142) (1,271,916) 189,534 1,461,450 Fund balance, beginning 3,627,560 3,627,560 3,627,560 - Fund balance (deficit), ending $ (83,582) $ 2,355,644 $ 3,817,094 $ 1,461,450 153 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Arterial Highway Rehabilitation Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Total revenues Expenditures: Capital outlay Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending (10,658) (10,658) 108,658 400,000 350,599 (49,401) (350,599) (350,599) (350,599) $ (241,941) $ 49,401 $ - $ (49,401) 154 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 400,000 $ 691,342 $ 670,918 $ (20,424) 400,000 691,342 670,918 (20,424) 291,342 291,342 309,661 (18,319) 108,658 400,000 361,257 (38,743) (10,658) (10,658) 108,658 400,000 350,599 (49,401) (350,599) (350,599) (350,599) $ (241,941) $ 49,401 $ - $ (49,401) 154 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Community Development Block Grant Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Total revenues Expenditures: Community development Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources: Transfers In Transfers (Out) Total other financing (uses) Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending 11-11 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 452,262 $ 452,262 $ 551,715 $ 99,453 452,262 452,262 551,715 99,453 142,806 142,806 124,479 18,327 164,812 261,415 164,809 96,606 84,000 84,000 84,000 - 112,253 112,253 112,253 - 503,871 600,474 485,541 114,933 (51,609) (148,212) 66,174 214,386 9,355 9,355 (15,450) (15,450) - 15,450 (15,450) (15,450) 9,355 24,805 (67,059) (163,662) 75,529 239,191 (75,529) (75,529) (75,529) - $ (142,588) _L _a39,1911 $ - $ 239,191 11-11 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Air Quality Management District Special Revenue Fund For the Year Ended June 30, 2009 Expenditures Public works 26,415 26,415 16,705 9,710 Variance 85,585 85,585 99,809 14,224 Fund balance, beginning with Final 362,564 362,564 - Fund balance, ending $ 448,149 Budget $462,373 $ 14,224 Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 100,000 $ 100,000 $ 98,737 $ (1,263) Investment income 12,000 12,000 12,920 920 Net increase in fair value of investments - - 4,857 4,857 Total revenues 112,000 112,000 116,514 4,514 Expenditures Public works 26,415 26,415 16,705 9,710 Net change in fund balance 85,585 85,585 99,809 14,224 Fund balance, beginning 362,564 362,564 362,564 - Fund balance, ending $ 448,149 $ 448,149 $462,373 $ 14,224 11.11 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Environmental Liability Special Revenue Fund For the Year Ended June 30, 2009 Expenditures Public works $ 70,000 $ 128,400 Variance $ 4,522 Capital outlay 27,780 with Final 67,382 1,298 Total expenditures Budget 197,080 Budgeted Amounts 5,820 Positive 467,220 Original Final Actual (Negative) Revenues: 2,663,652 2,663,652 2,663,652 Taxes $ 425,000 $ 425,000 $ 497,932 $ 72,932 Investment income 140,000 140,000 87,991 (52,009) Net increase in fair value of investments - - 32,930 32,930 Total revenues 565,000 565,000 618,853 53,853 Expenditures Public works $ 70,000 $ 128,400 $ 123,878 $ 4,522 Capital outlay 27,780 68,680 67,382 1,298 Total expenditures 97,780 197,080 191,260 5,820 Net change in fund balance 467,220 367,920 427,593 59,673 Fund balance, beginning 2,663,652 2,663,652 2,663,652 - Fund balance, ending $ 3,130,872 $ 3,031,572 $ 3,091,245 $ 59,673 IMA CITY OF NEWPORT BEACH Budgetary Comparison Schedule Supplemental Law Enforcement Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Investment income Total revenues Expenditures: Public safety Net change in fund balance Fund balance, beginning Fund balance, ending fl,Y:3 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) S 160,000 $ 160,000 $ 81,004 $ (78,996) 2,000 2,000 659 (1,341) 162,000 162,000 81,663 (80,337) 162,000 162,000 81,663 80,337 fl,Y:3 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Traffic Congestion Special Revenue Fund For the Year Ended June 30, 2009 Budgeted Amounts Original Final Variance with Final Budget Positive Actual (Negative) Revenues: Intergovernmental $ 1,138,717 $ 1,138,717 $ 718,852 $ (419,865) Investment income 30,000 30,000 3,247 (26,753) Net increase in fair value of investments - 1,221 1,221 Total revenues 1,168,717 1,168,717 723,320 (445,397) Expenditures: Capital outlay 926,000 343,200 333,884 9,316 Net change in fund balance 242,717 825,517 389,436 (436,081) Fund balance, beginning 4,035 4,035 4,035 - Fund balance, ending $ 246,752 $ 829,552 $ 393,471 $ (436,081) MG] CITY OF NEWPORT BEACH Newport Coast Annexation Budgetary Comparison Statement For the Year Ended June 30, 2009 M-111 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Intergovernmental $ - $ - $ - $ Investment income 450,000 450,000 381,234 (68,766) Net increase in fair value of investments - - 58,121 58,121 Total revenues 450,000 450,000 439,355 (10,645) Expenditures Debt service: Principal 1,200,000 1,200,000 1,200,000 - Total expenditures 1,200,000 1,200,000 1,200,000 - Excess (deficiency) of revenues over expenditures (750,000) (750,000) (760,645) (10,645) Other financing uses Transfers in - - - - Transfers out (200,000) (200,000) (439,355) (239,355) Total other financing (uses) (200,000) (200,000) (439,355) (239,355) Net change in fund balance (950,000) (950,000) (1,200,000) (250,000) Fund balance, beginning 10,800,000 10,800,000 10,800,000 Fund balance, ending $ 9,850,000 $ 9,850,000 $ 9,600,000 $ (250,000) M-111 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Proposition 1 B Transportation Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance, ending (51,212) (51,212) 1,354,589 1,354,589 1,354,589 - $ 1,354,589 $ 1,354,589 $ 1,303,377 $ (51,212) 114 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,354,500 $ 1,354,500 $ 1,252,014 $ (102,486) - - 37,266 37,266 - - 14,008 14,008 1,354,500 1,354,500 1,303,288 (51,212) 1,354,500 1,354,500 1,354,500 - (51,212) (51,212) 1,354,589 1,354,589 1,354,589 - $ 1,354,589 $ 1,354,589 $ 1,303,377 $ (51,212) 114 This page left blank intentionally. ��a FINANCIAL SECTION z a p U W U1 J Q U z Q z_ SUPPLEMENTARY 1L INFORMATION INTERNAL SERVICE FUNDS liv. INTERNAL SERVICE FUNDS The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. The City of Newport Beach Internal Service Funds are listed below: The Insurance Reserve Fund is used to account for the City's self- insured general liability and workers' compensation program. The Compensated Absences Fund is used to account for the City's accumulated liability for compensated absences. The Retiree Insurance Fund is used to account for the cost of providing post - employment Health Care Benefit. The Equipment Fund is used to account for the cost of maintaining and replacing the City's rolling stock fleet and the rental of the fleet to operating departments. `M Assets Current assets: Cash and investments Receivables: Accounts Inventories Prepaid items Total current assets Non - current assets: Capital assets: Equipment Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total assets Liabilities Current liabilities: Accounts payable and accrued liabilities Accrued payroll Due to general fund Workers' compensation - current General liability - current Compensated absences - current Total current liabilities Non - current liabilities: Workers' compensation General liability Compensated absences Net OPEB obligation Total Noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Unrestricted Total net assets CITY OF NEWPORT BEACH All Internal Service Funds Combining Statement of Net Assets June 30, 2009 iri.7 Total Insurance Compensated Retiree Equipment Internal Reserve Absence Insurance Maintenance Service Funds $ 20,882,363 $ 3,177,746 $ - $ 15,426,317 $ 39,486,426 307,642 - 569,147 13,258 890,047 - - - 259,731 259,731 161,579 161,579 21,190,005 3,177,746 730,726 15,699,306 40,797,783 - - - 22,691,452 22,691,452 (15,883,324) (15,883,324) 6,808,128 6,808,128 21,190,005 3,177,746 730,726 22,507,434 47,605,911 $ 482,462 $ - $ 13,455 $ 102,865 $ 598,782 - - - 43,376 43,376 - - 462,187 - 462,187 2,973,250 - - - 2,973,250 2,446,253 - - - 2,446,253 1,939,662 1,939,662 5,901,965 1,939,662 475,642 146,241 8,463,510 8,919,750 - - - 8,919,750 3,451,484 - - - 3,451,484 - 7,844,423 - - 7,844,423 4,408,000 4,408,000 12,371,234 7,844,423 4,408,000 - 24,623,657 18,273,199 9,784,085 4,883,642 146,241 33,087,167 - - - 6,808,128 6,808,128 2,916,806 (6,606,339) (4,152,916) 15,553,065 7,710,616 $ 2,916,806 $ (6,606,339) $ (4,152,916) $ 22,361,193 $ 14,518,744 iri.7 Operating revenues: Charges for services Retiree reimbursements Employee contributions Other Total operating revenues Operating expenses: Salaries and wages Depreciation Professional services Maintenance and supplies Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences OPEB ARC- Cash subsidy OPEB ARC- Implied subsidy Other Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net Increase in fair value of investments (Loss) on sale of capital assets Total nonoperating revenues Change in net assets Net assets (accumulated deficit), beginning Net assets, (accumulated deficit), ending CITY OF NEWPORT BEACH Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2009 629,676 274,028 GM Inn 933,677 86,254 - 442,250 37,538 - 192,462 (11,039) 19G 709 _ 891 971 231,712 (2,196,785) 2,302,029 1,158,180 504,028 (11,039) 1,651,169 1,270,633 1,983,129 (6,838,051) (1,956,131) 20,059,164 Total Insurance Compensated Retiree Equipment Internal Reserve Absence Insurance Maintenance Service Funds $ 6,528,118 $ 2,266,002 $ 2,720,000 $ 6,193,129 $. 17,707,249 - - 1,043,956 - 1,043,956 - - 376,538 - 376,538 307,814 47,849 933 356,596 6,835,932 2,266,002 4,188,343 6,194,062 19,484,339 - - - 1,520,219 1,520,219 - - - 1,846,971 1,846,971 - - - 51,067 51,067 - - - 615,644 615,644 - - - 481,805 481,805 3,216,337 - - - 3,216,337 3,589,622 - - - 3,589,622 - 2,158,082 - - 2,158,082 - - 2,720,000 - 2,720,000 - - 2,703,000 - 2,703,000 962,128 962,128 6,805,959 2,158,082 6,385,128 4,515,706 19,864,875 29,973 107,920 (2,196,785) 1,678,356 (380,536) 629,676 274,028 GM Inn 933,677 86,254 - 442,250 37,538 - 192,462 (11,039) 19G 709 _ 891 971 231,712 (2,196,785) 2,302,029 1,158,180 504,028 (11,039) 1,651,169 1,270,633 1,983,129 (6,838,051) (1,956,131) 20,059,164 13,248,111 $ 2,916,806 $ (6,606,339) $ (4,152,916) $ 22,361,193 $ 14,518,744 1RI1 Cash flows from capital and related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest on investments Net cash provided for investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of operating income to net cash provided (used) by operating activities: Cash flows from operating activities - - - (1,140,877) (1,140,877) 100,035 100,035 (1,040,842) (1,040,842) 903,704 CITY OF NEWPORT BEACH 634,712 1,662,208 Combining Statement of Cash Flows - Internal Service Funds 634,712 1,662,208 For the Year Ended June 30, 2009 1,795,838 902,702 - 3,262,190 5,960,730 19,086,525 Total 12,164,127 Insurance Compensated Retiree Equipment Internal $ 39,486,426 Reserve Absences Insurance Maintenance Service Funds Cash flows from operating activities (Increase) decrease in accounts receivable (307,642) Receipts from user departments $ 6,220,476 $ 2,266,002 $ 3,763,956 $ 6,430,087 $ 18,680,521 Payments to employees (2,657,337) (1,487,092) - (1,512,521) (5,656,950) Payments to suppliers (2,978,819) - (3,362,636) (1,250,179) (7,591,634) Other operating cash receipts 307,814 424,387 933 733,134 Net cash provided (used) for operating activities 892,134 778,910 825,707 3,668,320 6,165,071 (31,678) (183,832) 111,081 Cash flows from noncapital financing activities: 559,000 - - - Cash received from other funds Increase in general liability (825,707) - (825,707) Net cash provided (used)by noncapital financing 284,212 (825,707) - (825,707) Cash flows from capital and related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest on investments Net cash provided for investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of operating income to net cash provided (used) by operating activities: Cash flows from operating activities - - - (1,140,877) (1,140,877) 100,035 100,035 (1,040,842) (1,040,842) 903,704 123,792 634,712 1,662,208 903,704 123,792 634,712 1,662,208 1,795,838 902,702 - 3,262,190 5,960,730 19,086,525 2,275,044 12,164,127 33,525,696 $ 20,882,363 $ 3,177,746 $ $ 15,426,317 $ 39,486,426 Operating income (loss) $ 29,973 $ 107,920 $ (2,196,785) $ 1,678,356 $ (380,536) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation - - - 1,846,971 1,846,971 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (307,642) - 861,617 236,958 790,933 Decrease in inventories - - 89,867 89,867 Decrease in prepaid items - - 5,553 - 5,553 Increase (decrease) in accounts payable and accrued payroll 326,591 - (31,678) (183,832) 111,081 Increase in workers' compensation 559,000 - - - 559,000 Increase in general liability 284,212 - - - 284,212 Increase in compensated absences - 670,990 - - 670,990 Increase in net OPEB obligation 2;187,000 2,187,000 Total adjustments 862,161 670,990 3,022,492 1,989,964 6,545,607 Net cash provided (used) by operating activities $ 892 134 $ 778,910 $ 825,707 $ 3,668,320 $ 6,165,071 Nan -cash investing, capital, and financing activities: Net increase in fair value of Investments 274,028 37,538 - 195,462 507,028 (Loss) on sale of capital assets (11,039) (11,039) Total of non -cash activities $ 274,028 $ 37,538 $ $ 184,423 $ 495,989 ` - -VA This page left blank intentionally. ID& FINANCIAL SECTION z a p U W U1 J Q U z Q z Iz SUPPLEMENTARY INFORMATION FIDUCIARY FUNDS 111-101 FIDUCIARY FUNDS Fiduciary Funds are used to account for assets held by the City in a trustee capacity, or as an agent for other government entities, private organizations, or individuals. The City of Newport Beach Fiduciary Funds are listed below: The Special Assessment District Fund is used to account for funds received from affected property owners and payable to holders of 1911 Act, 1915 Act and other special assessment bonds. The Business Improvement District Fund is used to account for monies collected from local business districts for district property improvements and business enhancement. The Integrated Law and Justice Agency for Orange County (ILJAOC) Fund is used to account for monies collected from member agencies for the operation of ILJAOC. `ria CITY OF NEWPORT BEACH Agency Funds Combining Statement of Fiduciary Assets and Liabilities June 30, 2009 Liabilities Due to bondholders $ 6,759,807 $ - $ - $ 6,759,807 Due to others - 229,398 30,209 259,607 Due toILJAOC - - 1,037,964 1,037,964 Total liabilities $ 6,759,807 $ 229,398 $ 1,068,173 $ 8,057,378 171 Special Business Assessment District Improvement ILJAOC Assets Fund Fund Fund Totals Cash and investments S 2,658,042 $ 229,398 $ 985,979 $ 3,873,419 Cash with fiscal agent 4,101,765 - - 4,101,765 Prepaid expenses - 2,194 2,194 Intergovernmental receivable - - 80,000 80,000 Total assets $ 6,759,807 $ 229,398 $1,068,173 $ 8,057,378 Liabilities Due to bondholders $ 6,759,807 $ - $ - $ 6,759,807 Due to others - 229,398 30,209 259,607 Due toILJAOC - - 1,037,964 1,037,964 Total liabilities $ 6,759,807 $ 229,398 $ 1,068,173 $ 8,057,378 171 CITY OF NEWPORT BEACH Statement of Changes in Fiduciary Net Assets All Agency Funds For the Year Ended June 30, 2009 Balance Additions Deductions June 30, 2009 $ 4,395,646 $ (3,736,268) $ 2,658,042 2,853,559 (3,089,571) 4,101,765 $ 7,249,205 $ (6,825,839) $ 6,759,807 $ 7,249,205 $ (6,825,839) $ 6,759,807 Business Improvement District: Assets Cash and investments $ 120,869 $ 515,589 $ (407,060) $ 229,398 Liabilities Due to others $ 120,869 $ 515,589 $ (407,060) $ 229,398 ILJAOC: $ 6,336,441 Balance $ (6,825,839) June 30, 2008 Special Assessment: 220,452 515,589 Assets 259,607 Due to ILJAOC Cash and investments $ 1,998,664 Cash with fiscal agent Total Liabilities 4,337,777 Total Assets $ 6,336,441 Liabilities $ (307,520) $ Due to bondholders $ 6,336,441 Balance Additions Deductions June 30, 2009 $ 4,395,646 $ (3,736,268) $ 2,658,042 2,853,559 (3,089,571) 4,101,765 $ 7,249,205 $ (6,825,839) $ 6,759,807 $ 7,249,205 $ (6,825,839) $ 6,759,807 Business Improvement District: Assets Cash and investments $ 120,869 $ 515,589 $ (407,060) $ 229,398 Liabilities Due to others $ 120,869 $ 515,589 $ (407,060) $ 229,398 ILJAOC: $ 6,336,441 $ 7,249,205 $ (6,825,839) $ 6,759,807 Due to others 220,452 515,589 Assets 259,607 Due to ILJAOC 448,933 589,031 1,037,964 Total Liabilities Cash and investments $ 424,153 $ 869,346 $ (307,520) $ 985,979 Prepaid expenses - 2,194 2,194 Intergovernmental receivable 124,363 - (44,363) 80,000 Total Assets $ 548,516 $ 871,540 $ (351,883) $ 1,068,173 Liabilities Due to others $ 99,583 $ - $ (69,374) $ 30,209 Due to ILJAOC 448,933 589,031 - 1,037,964 Total Liabilitites $ 548,516 $ 589,031 _L _L69,3741 $ 1,068,173 Totals - All Agency Funds: Assets Cash and investments $ 2,543,686 $ 5,780,581 $ (4,450,848) $ 3,873,419 Cash with fiscal agent 4,337,777 2,853,559 (3,089,571) 4,101,765 Prepaid expenses - 2,194 2,194 Intergovernmental receivable 124,363 - (44,363) 80,000 Total Assets $ 7,005,826 $ 8,636,334 $ (7,584,782) $ 8,057,378 Liabilities Due to bondholders $ 6,336,441 $ 7,249,205 $ (6,825,839) $ 6,759,807 Due to others 220,452 515,589 (476,434) 259,607 Due to ILJAOC 448,933 589,031 1,037,964 Total Liabilities $ 7,005,826 $ 8,353,825 _L 2,302,273j $ 8,057,378 111150 J W STATISTICAL SECTION U1 D N C] D r N M n 0 z FINANCIAL TRENDS This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules contain trend information illustrating how the City's financial performance and well -being has changed over time: • Net Assets by Component • Changes in Net Assets • Fund Balances of Governmental Funds • Changes in Fund Balance of Governmental Funds Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. 174 CITY OF NEWPORT BEACH Net Assets by Component Last Eight Fiscal Years (accrual basis of accounting Fiscal Year 2002 2003 2004 2005' 2006 2007 2008 2009 Govemmentai activities: Invested in capital assets, net of related debt $1,391,677,813 $1,412,372,465 $1,512,651,096 $ 1,915,348,883 $ 2,005,643,651 $ 2,027,026,053 $ 2,050,925,370 5 2,060,959,265 Restricted 38,689,9513 37,650,692 45,494,082 54,285,743 51,901,103 35,017,831 40,988,923 44,574,005 UnuoArcted 41,095,786 49,322,283 46,772,913 61,894,956 56,662,229 75,989,169 87,802,996 96,592,345 Total govtursum al activXies $1171_463.555 $1199.345440 $1604.918.091 _L2 _L1,1 _L2 _L j717289 _L j,2 Business -type activities: Invested in capital assets, net of related debt $ 87,470,314 $ 91,912,205 $ 94,206,704 $ 99,641,411 $ 104,602,266 $ 107,231,308 $ 107,313,603 $ 108,510,361 Restricted - - - - - - - - Unrestricted 26,123,500 24,227,579 21,493,528 19,665,535 16,907,367 15,808,357 13,639,027 11,435,263 Total business- type activities $ 113.593.814 $ 116.139.784 $ 115700332 $ 119.306.9+16 $ 121,509.633 $ 123.039.865 $ 120.952.830 _L 119945.624 Primary government Invested in capital assets, net of related debt $1,479,148,127 $1,504,284,670 $1,606.857,800 $ 2,014,990294 $ 2,114245,917 $ 2,134257,361 $ 2,158,23 &973 $ 2,169,469,626 Restricted 38,689,956 37,650,692 45,494,082 54,285,743 51,901,103 35,017,831 40,985923 44,574,005 Unrestricted 67219,286 73,549,862 68,266,441 81,560,491 73,569,596 91,797,526 101,442023 108,027.608 Total primary govemmenl $1,585,057,369 $1,615,485,224 $1,720,618,323 $ 2,150,836,528 $ 2,235,716,616 $ 2,261,072,718 $ 2,300,669,919 $ 2,322,071,239 2005 data varies from trend because of increased capital assets related to PCH Relinquishment The City of Newport Beach implemented GASB 34 fir the fiscal year ended June 30, 2002. Information poor to the implementation of CASE 34 is not available iIFR CITY OF NEWPORT BEACH Changes In Net ASaets Last Eight Fiscal Years (accrual basis of accounting) 1 2005 data varies from trend because of increased capital assets related to PCH Relinquishment. 2006 data varies from trantl because of increased capital assets related mostly to Bristol St. Relinquishment, Newport Coast Community Center, and Fire Station k 7. 2008 data varies from bend because of,rc,...d capXal assets related to Santa Ann Heights Annexation. The Cify cf Newport Beech implemented GASB 34 Mr Me Fecal year ended June 30, 2002 Information prior M Me implementation of GASS 34 is not available. IIFil 2002 2003 2004 2005 2006 2007 2008 2009 Expenses: Governmental stfir s: General government $ 12,792,860 $ 10,799,630 $ 11,428,379 $ 11,378,609 $ 14,509,827 $ 14,166,168 $ 15,556,657 $ 16,430,400 Public safety 47,168,918 56,521,871 58,178,633 63,214,291 67,789,121 69,795,386 75,821,082 79,301,191 Public v101RS 3,320,516 32089,038 38,127,832 46,359,871 33,870,359 39,179,644 42,631,401 45,600,292 Communitydevelopment 4,471,397 5,782,215 6,229,785 6,437,006 8,157.925 9.020,868 10,052,871 10,283.464 Community services 11,044,086 10,404.285 14,741,504 13,073,215 13,803,755 23,304,053 19,146,588 201589,031 Interest on long -term debt 517,102 673,94-0 542,126 508,869 479,529 523,401 532,569 437,207 Total governmental activities expenses 106,314,879 116,270,983 129,248,259 140,971,861 138,610,516 155,989,720 163,741,168 172,641,585 Business -type activities: Water 14,606,514 14,540,036 17,185,034 14,467,233 16,228,213 17,399,900 20,148,517 18,210,821 Wastewater 2,588,833 3,115,136 3,363,954 2,740,908 3,143,629 3,259,837 3,423,592 3,753,053 Total business -type activities expenses 17,395,347 17,655,172 20,548,988 17,208,141 19,371,842 20,659,737 23,572,109 21,963,874 Total primary government expenses 123,710,226 133,926,155 149,797,247 158,180,002 157,982,358 176,649,49 187,313,277 194,605,459 Program revenues: Governmental activities: Charges for services: General government 2270,082 3,008,162 2,109,141 2,412,769 2,623,272 2944,100 3,055,982 2,543,880 Public safety 10,549,410 11,603,584 15,739,912 16,264,493 13,669,509 15,756,327 16,649,400 14,757,266 Publicwodts 5436,948 5,009,048 5,481,464 6,031,248 5,133,726 5,492,167 5616,118 5,532,871 Community development 3,236,483 4,022,904 5,196,276 5,129,558 5,667,289 5,682,636 5,597,309 4,852,534 Communiryserv'ioes 2,533,899 6,039,226 3,846,566 3,952,862 9,433,278 9,054,504 9,203513 9,052,330 Operating Grants and Contributions: 7,891,059 8,750,565 10,681,329 17,480.834 12,772,599 16,172,023 15,718851 13,404.286 Capital Grants and Contdbutons: 1,562,458 4,146,728 674,815 20,205,948 ' 69, 473,891 r 6,904716 31,037,915 s 24,633,716 Total governmental activities program revenues 33,480,339 42,580,217 43729,503 71,478,012 118,773,566 61,996,473 88939688 74,776,883 Business -type activities: Charges for services: Water 16,665724 16,489,284 18,430,000 17,573,196 17,923,523 17,918,968 17,270,511 16,966,621 Wastewater 2,945804 2,768.941 2,882,793 2,900,672 3,311,089 3,535,050 3,552,780 3,479,565 Tolal business -type activities program revenues 19,611,528 19,258,225 21,312,793 20,473,868 21,234,612 21.454,016 20,823,291 20,446,186 Total primary government program revenues 53,091867 61,838,442 65,042,296 91,951880 140,008,178 83,450,491 107,762,379 95223,069 Net revenues (expens es) : Governmental activities (72,834,540) (73,690,766) (85,516,756) (69,493,849) (19,836,950( (93,993247) (76,802,080) (97,864702) Business type activities 2,218181 1,603,053 763,805 3265,727 1862,770 794,281 (2,748,818) (1517,688) Total net revenues (expenses) $ (70,618,359) $ (72,087,713) $ (64,754,951) $ (66,228,122) $ (17,974,180) $ (93,198,966) $ (79,550,898) $ (91 1 2005 data varies from trend because of increased capital assets related to PCH Relinquishment. 2006 data varies from trantl because of increased capital assets related mostly to Bristol St. Relinquishment, Newport Coast Community Center, and Fire Station k 7. 2008 data varies from bend because of,rc,...d capXal assets related to Santa Ann Heights Annexation. The Cify cf Newport Beech implemented GASB 34 Mr Me Fecal year ended June 30, 2002 Information prior M Me implementation of GASS 34 is not available. IIFil CITY OF NEWPORT BEACH Changes in Net Assets Last Eight Fiscal Years (accrual basis of accounting) 2008 2009 $ 67,388;838 $ 2002 2003 2004 2005 2508:113 2006 2007 General revenues and other changes in net assess: 3,853,119 31961,634 304,920 356,237 373,350 230,115 Govemmensal activities: 1.764.827 - - Sale of service rights 25,006000 - - Taxes'. - - - - - Transfers Property taxes $ 33,583,659 $ 39,474,864 $ 43,631,829 $ 46,303,366 $ 57,808,545 $ 63,003,057 Sales tax 18796571 20,133.598 21.843,884 18,977,828 21,465,557 21.088,118 Sales tax io-lieu - - - 5,339,827 5,720,028 7,348,253 Transient occupancy taxes 7,696655 8,055,266 8,045,132 9,215,862 888,]79 9,832,729 12,059,008 Business license 2,4711 2,030,845 2,830,127 3,458,165 374,893 3,848,381 3,770,172 Franchise lazes 2,735,641 2,461 2;765,519 3,029,476 3,162,588 4,613,932 Motor vehicle license fees 4,380,070 3,970,103 3,624,917 6,395,860 300,751 391,559 Motor vehicle fines 711,693 742,957 - 29,880 - - - Other times 341620 314,725 266642 240,530 - 508,331 515,128 Invesimn- Amon. 2,171,474 2,111451 564,415 1,209,074 1,939,941 3,175,582 Net increase in fair value of (57,783) - (40,000) - - invasmarts 1,093913 318,686 (3601 (258,125) (715,615) (545,533) Gain on sale of assets 160,236 130,954 - 106246067 - - - Ohrer 12,570 1,294,628 214,536 761,111 776,907 2,232070 Property income 3,771,556 - - - - - Share ofjoint venture net 106845,682 239,058,514 B4,417,402 23,911,3% 47,884,236 22,408;326 2008 2009 $ 67,388;838 $ 70,126,680 21,856242 17,925.956 8,017539 2508:113 12,751,518 11,170,956 4,119,108 4,273,642 3,853,119 31961,634 304,920 356,237 373,350 230,115 3,6M.314 1.764.827 506485 1,096848 1,858,883 1,863020 Primary Revenue Sources $80,000,000 $20,000,000 $60,000,000 - $50,000,000 - $40,000,000 - $30,000,000 $20,000,000 $10,000,000 2002 2003 2004 2005 2006 2002 2008 2009 sv,raaMra�a �salaa rax n1.. Ounx., Tares OSaka Tax -In Lieu ir&l 2,120,582 389,418 146819 100,325 (513791) 253,207 - - Capital contributions 636206,102 17,636,792 102,713421 213,779,060 - - - - Sale of service rights 25,006000 - - - - - - - Transfers 33.2]7 57,783 40,000 Total governmental activities 941.247,399 99.303.148 186,364,438 308,552,363 104,254,352 11791 124,686.316 120,273,028 Business -type aciivitiem Investment inmrm 888,]79 505,619 203,041 424,157 549,012 792,936 588,870 374,893 Net increase in fair value of Investments 428,199 440,697 (87,078) (87,921) (169,095) (57,185) 72,913 135,789 Property income 27,100 29,880 29,280 26,970 - - - Centel contributions - - 215,331 - - - - Transfers - (33,277) (57,783) - (40,000) - - Thai Mulnesui activNes 1,344,078 942,919 302,791 363,206 339,917 735,751 661,783 510,682 Total primary government 942.591 477 106246067 186,667,229 308,915,569 10,594,269 118.640,304 125,348,099 120,783,710 Changes In net assets Governmental acUrvie. 868,412859 25,612,382 106845,682 239,058,514 B4,417,402 23,911,3% 47,884,236 22,408;326 Business -type activities 3,560,259 2,545,972 1,066596 3,628,933 2,202,687 1,530,032 (2,087035) (1,007,006) Total prim., .v.,rment IS 871,973,118 $ 28,158,354 $ 101,912,278 $ 242,687447 $ 86,620.089 $ 25,441,338 $ 45,797.201 $ 21,401,320 Primary Revenue Sources $80,000,000 $20,000,000 $60,000,000 - $50,000,000 - $40,000,000 - $30,000,000 $20,000,000 $10,000,000 2002 2003 2004 2005 2006 2002 2008 2009 sv,raaMra�a �salaa rax n1.. Ounx., Tares OSaka Tax -In Lieu ir&l CITY OF NEWPORT BEACH Fund Balances of Governmental Funds Last Eight Fiscal Years (modified accrual basis of accounting) Fiscal Year Contributions fund 2002 2003 2004 2005 2006 2007 2008 Reserved 2009 $ - $ - $ 1,155,638 $ 3,223,047 $ 1,656,459 $ 856,506 $ 641,469 Unreserved (457,464) General fund: 1,042,147 794,249 1,977,264 Total Contributions fund $ 7,501 $ (457.464) $ (956.689) $ 2197785 Reserved $ 3,165,787 $ 4,393,418 $ 6,678,579 $ 4,673,198 $ 9,374,722 $ 7,233,703 $ 6,807,094 $ 5,907,205 Unreserved 25,171,551 31,929,366 37,765,801 49,814,197 45,212,339 62,679,499 72,252,045 73,703,759 Total general fund $28,337,338 $36,322,784 $44,444,380 $18,157,202 $54,487,395 $54,587,061 $69,913,202 $79,059,139 $ 79,610,964 Special revenue funds 11,057,395 18,789,098 16,895,613 Tide and submerged land fund: 7,506,021 18,684,221 20,617,006 21,582,975 Capital projects funds 7,120,032 - - 6,076,969 2,077,124 Reserved $ 294,876 $ 457,777 $ 340,208 $ 552,713 $ 538,965 $ 642,985 $ 1,415,088 $ 351,012 Unreserved 238,822 356,075 120,328 194,174 27,633 143,946 259,701 Total all other governmental funds 288,952 Total tide and submerged land fund $ 533,698 $ 813,852 $ 460,536 $ 746,887 $ 566,598 $ 786,931 $ 1,674,789 $ 639,964 Mariners library fund: Reserved $ - $ 382,900 $ 142,016 $ 1,029,047 $ - $ - $ - $ - Unreserved 596,800 824,438 (1,750,160) (2,061,268) Total Mariners library fund $ $ 979,700 $ 966,454 $ 1,029,047 $ (1,750,160) $ (2,061,268) $ $ Contributions fund Reserved $ 7,501 $ - $ - $ 1,155,638 $ 3,223,047 $ 1,656,459 $ 856,506 $ 641,469 Unreserved (457,464) (956,689) 1,042,147 794,249 1,977,264 Total Contributions fund $ 7,501 $ (457.464) $ (956.689) $ 2197785 $ 3,223,047 $ 1,656,459 $ 1,650,755 $ 2,616.733 All other governmental funds: Reserved $ 4,669,957 $ 4,693,197 $ 3,973,823 $12,230,132 $18,157,202 $ 8,958,652 $ 9,788,771 $ 26,535,293 Unreserved, reported in: Special revenue funds 11,057,395 18,789,098 16,895,613 10,099,453 7,506,021 18,684,221 20,617,006 21,582,975 Capital projects funds 7,120,032 - - 6,076,969 2,077,124 (1,196,933) 3,271,954 (11,025,095) Permanent funds 15 285,506 404,771 660,029 934,648 1,170,009 Total all other governmental funds $22,847,399 $23,482,295 $20,869,436 $28,692,060 $28,145,118 $27,105,969 $34,612,379 $ 38,263,182 Fund Balances $90.000,000 080,000,000 - $70,000,000 - $60,000,000 - $50,000,000 $40,900,000 $30,000,000 $20,000,000 $10,000,000 - 2002 2003 2004 2005 2006 2oo7 2008 2009 ETntel General Fund ETOdl all olhar G.- un..nlel FUnde The City o /Newport Beach has elected to show only eight years of data for this schedule. 1rV CITY OF NEWPORT BEACH Changes in Fund Balances of Governmental Funds Last Eight Fiscal Years (modified accrual basis of accounting) Adjusted to include Property Tax-in lieu of VLF which was previously reported as intergovernmental revenue The City of Newport Beach has elected to show only eight years of data for this schedule. `INK Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 Revenues: Texas $ 65,878,471 $ 72.864.836 $ 79,874,751 $ 91,606,863 t $ 102,737,810 $ 112,230,054 $ 118,756,201 $ 115,711,574 Intergovernmental 26,227,740 10,379,792 16,108,023 19,513,589 14,842,994 18,866,929 21,005,429 11,434,885 Licenses and permits 3,350,958 4,397,520 5,429,632 4,961 5,708,965 4,574,659 6,474,789 5,883,515 Charges for services 10,338,569 11,156.294 11,516,782 13,104,478 13,135,366 14,452,723 15,073,178 14,498,120 Fines and todeitures 3,31 3;448,826 3,61 3,422,735 3,841,843 4,126,351 4,61 4,572,611 Investment Income 2,758,557 1,941,046 887,513 2,356,747 3,847,982 5,431,137 5,463,066 3,245,677 Net Increase(dacrease) in far ue of Investments 1,268,972 1,468,682 (360,586) (493,879) (1,325,211) (626,881) 720,488 1,472,335 Propedy income 10,130,165 10,947,021 11,857,671 12,337,339 13,625,142 13,965,815 15,217,803 14,032,342 Donations 746,774 1,819,159 2,704,367 1,087,826 883,405 1,379,461 2,159,637 6,760,140 Contributions from property owners - - - 14,779,013 - - - Other 1,782,696 2,594504 478,200 984446 1,042,882 1,967,465 4,205,095 8,501,014 Total revenues 125,867,066 121,013,680 132,102,316 163,663,391 158,341,178 176,367,713 193,740,128 186,112,213 Expendeursa Current: General government 12,292,008 9,689,275 11,024,256 10,920,667 12,531,200 13,706,061 14,508,103 15,560,823 Publiceafety 47,841,176 53,035,377 56,849,718 59,481 65.262,069 68,843,947 73,486,413 76,561,175 Publi.evid, 19,418,067 21,259,782 22,780,896 24,365,996 26,430,751 28,352,293 30,108,941 30,6191 Community developmem 4586,192 5,457,498 5,723,031 4144,917 7,900,503 7,753,035 8,701 9,971,536 Community services 9,418,041 9,382,608 10,827,346 10,351,414 12,730,727 13,988,589 14,478,146 17,485,605 Capital outlay 38,613,906 14.684.897 15,188,550 33,486,048 24,811,237 45,615,169 20,524,638 26,002,338 Debt service: Principal retirement 1,291,099 1,822,913 1,668,350 1,688,801 1,715,542 3,736,587 3,261 3,292,641 Interest and fiacal chi 466,974 529,808 520,228 499,077 480,909 458,035 577,299 482,908 Total expenditures 133,927,463 115,862,158 124,582,375 146,939,054 151,862,938 182,453,716 165,651,329 181,976,431 Exceed (deficiency) of revenues over (under) expenditures (8,060,397) 5,151,522 7,519,941 16,724,337 6,478,240 (6,086,003) 28,088,799 4,135,782 Other financing sources (uses): Transfers in 10,927,460 14,376,167 16,553,395 20,601,957 25,194,920 20,271,396 27,583,922 23,354,366 Transfers out (11,669,089) (14,342,890) (18,495,612) (20,612,176) (31,177,725) (22,521,396) (36,076,952) (23,354,366) Proceeds from issuance of debt 18,000,000 2,630,736 5,000,000 Total other financing sources (uses) 17,25$371 2,664,013 (1,942,217) (10,219) (5,982,805) 2,750,000 (8,493,030) 0 Net change in fund balances $ 9,197,974 $ 7,815,535 $ 5,577,724 $ 16,714,118 $ 495,435 $ (3,336,003) $ 19,595,769 $ 4,135782 Debt service as a percentage of noncapital expenditures 1.6% 22% 1.8% 1.7% 17% 2.8% 2.5% 2.3% Adjusted to include Property Tax-in lieu of VLF which was previously reported as intergovernmental revenue The City of Newport Beach has elected to show only eight years of data for this schedule. `INK REVENUE CAPACITY This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules present factors affecting the City's ability to generate its own revenue and its most significant local revenue source, the property tax: • Assessed Value and Estimated Actual Value of Taxable Property • Direct and Overlapping Property Tax Rates • Principal Property Tax Payers • Property Tax Levies and Collections Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. IF -111 CITY OF NEWPORT BEACH Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years City Fiscal Year Taxable Assessed Total Direct Ended June Value Tax Rate 30 Public Utility Secured Unsecured 2000 324,960 13,091,299,313 1,295,776,000 14,387,400,273 1.000% 2001 2,000 15,087,602,671 915,394,966 16, 002, 999, 637 1.000% 2002 2,000 16,515,797,641 913,075,074 17,428,874,715 1.000% 2003 16,531,505 21,339,270,499 1,085,951,066 22,425,221,565 1.000% 2004 16,531,505 23,219,166,299 1,372,432,950 24,591,599,249 1.000% 2005 53,310 25,193,662,254 1,484,019,033 26,677,681,287 1.000% 2006 53,310 28,136,607,566 1,914,106,993 30,050,714,559 1.000% 2007 53,310 31,423,473,042 1,569,867,249 32,993,340,291 1.000% 2008 53,310 34,188,568,583 1,668,015,342 35,856,583,925 1.000% 2009 699,230 36,436,106,070 1,538,539,482 37,974,645,552 1.000% NOTE: In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1 % based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2 %). With few exceptions, property is only re- assessed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. Source: County of Orange Auditor - Controller's Office fESI CITY OF NEWPORT BEACH Direct and Overlapping Property Tax Rates (Rate per $100 of assessed value) Last Ten Fiscal Years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 City Direct Rates City basic rate $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000 Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water Districts 0.009 0.009 0.008 0.007 0.006 0.005 0.005 0.005 0.004 0.004 School Districts 0.0000 0.0000 0.0069 0.0067 0.0122 0.0343 0.0349 0.0315 0.0308 0.0302 Total Direct Rate $ 1.009 $ 1.009 $ 1.015 $ 1.013 $ 1.018 $ 1.040 $ 1.040 $ 1.036 $ 1.035 $1.034 NOTE: In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: Orange County Auditor Controller's Office IF -M Irvine Company Irvine Apartment Communities LP 4000 MacArthur LP Newport Bluffs LLC Balboa Bay Club Inc. J= Seminconductor Inc 100 Bayview LLC UDR Newport Beach North LP Coronado South Apartments LP HHR Newport Beach LLC Source: HdL, Cored and Cone Co. CITY OF NEWPORT BEACH Principal Property Taxpayers Current Year and Nine Years Ago UX 2009 2000 Percent of Total Taxable Assessed Percent of Total City Taxable Taxable Assessed City Taxable Value Assessed Value Value Rank Assessed Value Rank $ 1,198,690,765 1 3.16% $ 864,045,460 1 6.01% 357,260,080 2 0.94% 252,082,303 3 1.75% 143,770,581 3 0.38% N/A 0.00% 135,435,013 4 0.36% NIA 0.00% 127,595,495 5 0.34% N/A 0.00% 125,900,087 6 0.33% N/A 0.00% 121,735;889 7 0.32% NIA 0.00% 115,457,240 8 0.30% N/A 0.00% 112,371,413 9 0.30% N/A 0.00% 85,182,642 10 0.22% N/A 0.00% $ 2,523,399,205 6.64% $ 1,116,127,763 7.76% UX Fiscal Year Taxes Levied for Ended June Total Collections to Date the Fiscal Year 30 Collections in 2000 24,667,494 2001 27,405,295 2002 31,298,541 2003 37,092,528 2004 42,469,238 2005 45,111,328 2006 47,286,816 2007 70,194,492 2008 69,315,117 2009 71,006,357 CITY OF NEWPORT BEACH Property Tax Levies and Collections Last Ten Fiscal Years Collected within the Fiscal Year of Levy Total Collections to Date Collections in Percent of Subsequent Percent of Amount Levy Years Amount Levy 24,207,104 98.13% 1,398,573 25,605,677 103.80% 26,856,091 98.00% 886,625 27,742,716 101.23% 30,651,143 97.93% 102,001 30,753,144 98.26% 36,351,026 98.00% 529,986 36,881,012 99.43% 41,420,410 97.53% 670,685 42,091,095 99.11% 54,063,951 119.85%2 483,804 54,547,755 2 120.92% 45,558,039 96.34% 728,365 46,286,404 97.88% 68,820,402 98.04% 808,765 69,629,167 99.19% 68,242,326 98.45% 846,904 69,089,231 99.67% 70,879,909 99.82% (294,366) 70,585,543 99.41% 1 Includes estimated levy for Newport Coast properties that were annexed on January 1, 2002. 2 Collections include nearly $10 million of Property Tax in lieu of Sales Tax and Vehicle License Fees not included in the levy. Source: Orange County Auditor Controller's Office I1:Y, I DEBT CAPACITY This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules exhibit the City's levels of outstanding debt over time, to help readers assess the affordability of the current level of outstanding debt, and the City's ability to issue additional debt: • Ratios of Outstanding Debt by Type • Ratios of General Bonded Debt Outstanding • Direct and Overlapping Debt • Legal Debt Margin Information • Pledged Revenue Coverage Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. lil-11 CITY OF NEWPORT BEACH Ratios of Outstanding Debt by Type Last Ten Fiscal Years Note: This excludes claims and judgements and employee compensated absence liabilities. Details regarding the City's outstanding debt can be found in the notes to the financial statements. These ratios are calculated using personal income and population for the prior calendar year. 11:1:1 Governmental Activities Fiscal Year Pre- Purchase Ended Certificates of Annexation Agreement June 30 Participation Note Payable Agreement CDBG Loan Capital Leases Payable 2000 6,845,000 2,469,399 N/A N/A 1,798,655 N/A 2001 6,610,000 2,350,930 N/A N/A 914,830 N/A 2002 6,365,000 2,219,660 18,000,000 N/A 1,150,927 N/A 2003 6,110,000 2,082,483 16,800,000 2,400,000 1,293,586 N/A 2004 5,845,000 1,939,133 15,600,000 2,340,000 862,975 N/A 2005 5,570,000 1,789,332 14,400,000 2,276,000 420,773 N/A 2006 5,280,000 1,632,789 13,200,000 2,207,000 166,056 N/A 2007 4,980,000 1,469,202 12,000,000 2,134,000 49,490 3,000,000 2008 4,665,000 1,298,254 10,800,000 2,056,000 - 1,500,000 2009 4,335,000 1,119,613 9,600,000 1,972,000 - N/A Note: This excludes claims and judgements and employee compensated absence liabilities. Details regarding the City's outstanding debt can be found in the notes to the financial statements. These ratios are calculated using personal income and population for the prior calendar year. 11:1:1 Business -type Activities Total Percentage of Governmental Water Revenue Total Business- Total Primary Personal Debt Per Activities Bonds type Activities Government Income' Capita' 11,113,054 13,200,000 13,200,000 24,313,054 0.57% 335 9,875,760 12,095,000 12,095,000 21,970,760 0.47% 297 27,735,587 10,950,000 10,950,000 38,685,587 0.88% 552 28,686,069 9,765,000 9,765,000 38,451,069 0.79% 508 26,587,108 8,535,000 8,535,000 35,122,108 0.66% 442 24,456,105 7,255,000 7,255,000 31,711,105 0.58% 392 22,485,845 5,925,000 5,925,000 28,410,845 0.50% 342 23,632,692 4,540,000 4,540,000 28,172,692 0.44% 338 20,319,254 3,095,000 3,095,000 23,414,254 0.36% 278 17,026,613 1,585,000 1,585,000 18,611,613 0.25% 216 MYA CITY OF NEWPORT BEACH Outstanding Debt Serviced by the General Fund Last Ten Fiscal Years (In Thousands, except Per Capita) Assessed value was used because the actual value of taxable property is not readily available in the State of California. IF -1.1 Purchase Percent of Fiscal Year Certificates of Agreement Assessed Ended June 30 Participation Payable Total Value' Per Capita 2000 7,070 N/A 7,070 0.05% 97 2001 6,845 N/A 6,845 0.05% 93 2002 6,610 N/A 6,610 0.04% 94 2003 6,365 N/A 6,365 0.04% 84 2004 6,110 N/A 6,110 0.03% 77 2005 5,845 N/A 5,845 0.02% 72 2006 5,570 N/A 5,570 0.02% 67 2007 5,280 3,000 8,280 0.03% 99 2008 4,980 1,500 6,480 0.02% 77 2009 4,335 N/A 4,335 0.01% 50 Assessed value was used because the actual value of taxable property is not readily available in the State of California. IF -1.1 City Assessed Valuation: Redevelopment Agency Incremental Valuation: Adjusted Assessed Valuation: OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Coast Community College District Rancho Santiago Community College District Laguna Beach Unified School District Laguna Beach U.S.D. Community Facilities District No. 98 -1 Newport Mesa Unified School District Newport Mesa U.S.D. Community Facilities District No. 90 -1 Santa Ana Unified School District Irvine Ranch Water District Improvement Districts CITY OF NEWPORT BEACH Direct and Overlapping Debt June 30, 2009 $ 37,974,645,552 871,021,950 $ 37,103,623,602 Percentage Outstanding Debt Estimated Share of Applicable ' 6130/09 Overlapping Debt 2.011% 34.732% 3.790% 14,584% 100.000% 71.707% 100.000% 8.696% 16.886 % - 100.000% Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 100.000% 98 -1 16, 081, 549 City of Newport Beach Special Improvement District No. 95-1 100.000% City of Newport Beach 1915 Act Bonds 100.000% Orange County Assessment District No. 88 -1 100.000% Orange County Assessment District No. 99 -1R 100.000% Orange County Assessment District No. 01 -1 100.000% Orange County Assessment District No. 01 -1 R 100.000% TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 4,335,000 DIRECT AND OVERLAPPING GENERAL FUND DEBT: OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations Orange County Pension Obligations Orange County Board of Education Certificates of Participation Municipal Water District of O.C. Water Facilities Corporation South Orange County Community College District Certificates of Participation Newport Mesa Unified School District Cer0ficales of Participation Santa Ana Unified School District Certificates of Participation Irvine Ranch Water District Certificates of Participation City of Newport Beach Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND DEBT Less: MWDOC Water Facilities Corporation (100% self-supporting) Santa Ana Unified School District OZAB (supported by scheduled deposits to trustee) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT GROSS COMBINED TOTAL DEBT (2) NET COMBINED TOTAL DEBT 9.781% 9.781 9.781% 11.613% 3.009% 71.707% B.696% 11.496% 100.000% 293,425,000 341,668,867 316;405,071 34,315,000 9,745,000 166,073,480 14,205,000 221,191,491 63,143,308 41,990,000 5,900,777 118,668,431 11,991,752 5,004,500 9,745,000 119,086,310 14,205,000 19,234,812 50,291,501 41,990,000 9,390,000 9,390,000 16, 081, 549 16, 081, 549 35,948,296 35,948,296 15,010,000 15,010,000 54,834,000 54,834,000 7,115,000 7,115,000 1,640,541,062 534,496,928 $ 462,152,000 $ 45,203,087 69,713,001 6,818,629 19,430,000 1,900,446 17,685,000 2,053,759 32,875,000 989,209 525,000 376,462 62,396,493 5,425,999 103,100,000 11,852,376 4,335,000 4,335,000 772,211,494 78,954,969 (2,053,759) (484,285) $ 76,416,925 613,451,897 610,913,853 The percentage of overlapping agency's assessed valuation located within boundaries of the city. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and nonbonded capital lease obligations. Ratios to 2008 -09 Assessed Valuation: Total Overlapping Tax and Assessment Debt 1.410% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($4,335,000) 0.010% Gross Combined Total Debt 1.650% Net Combined Total Debt 1.650% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $0.000 AB: ($425) Source: California Municipal Statistics, Inc IF -R] CITY OF NEWPORT BEACH Legal Debt Margin Information Last Ten Fiscal Years 2000 2001 2002 2003 Assessed valuation $ 14,387,400,273 $ 16,002,999,637 $ 17,428,874,715 $ 22,425,221,565 Conversion percentage 25% 25% 25% 25% Adjusted assessed valuation 3,596,850,068 4,000,749,909 4,357,218,679 5,606,305,391 Debt limit percentage 15% 15% 15% 15% Debt limit 539,527,510 600,112,486 653,582,802 840,945,809 Total net debt applicable to limit: General obligation bonds Legal debt margin $ 539,527,510 $ 600,112,486 $ 653,582,802 $ 840,945,809 Total debt applicable to the limit as a percentage of debt limit 0.0% 0.0% 0.0% 0.0% NOTE: The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981 -82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state. Source: City Administrative Servic 11:111 Fiscal Year 2004 2005 2006 2007 2008 2009 $ 24,591,599,249 $ 26,677,681,287 $ 30,050,714,559 $ 32,993,340,291 $ 35,856,583,925 $ 37,974,645,552 25% 25% 25% 25% 25% 25% 6,147,899,812 6,669,420,322 7,512,678,640 8,248,335,073 8,964,145,981 9,493,661,388 15% 15% 15% 15% 15% 15% 922,184,972 1,000,413,048 1,126,901,796 1,237,250,261 1,344,621,897 1,424,049,208 $ 922,184,972 $ 1,000,413,048 $ 1,126,901,796 $ 1,237,250,261 $ 1,344,621,897 $ 1,424,049,208 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Wal Fiscal Year Ended Water Revenue June 30 CITY OF NEWPORT BEACH Pledged- Revenue Coverage Last Ten Fiscal Years Water Revenue Bonds Less Operating Net Available Expenses Revenue Debt Service Principal Interest Coverage 2000 17,770,491 11,713,223 6,057,268 1,025,000 551,668 3.84 2001 17,839,320 11,784,120 6,055,200 1,145,000 510,224 3.66 2002 17,809,919 13,257,934 4,551,985 1,105,000 465,572 2.90 2003 17,326,604 12,430,144 4,896,460 1,185,000 418,172 3.05 2004 18,321,122 15,261,360 3,059,762 1,230,000 367,742 1.92 2005 17,878,016 12,967,118 4,910,898 1,280,000 314,622 3.08 2006 18,026,750 14,190,147 3,836,603 1,330,000 258,762 2.41 2007 18,534,689 15,614,885 2,919,804 1,385,000 199,900 1.84 2008 16,709,021 3 17,518,263 (809,242) 1,445,000 137,765 (0.51) 2009 17,259,977 16,437,227 822,750 1,510,000 71,325 0.52 Gross revenues includes operating revenues, interest, property, and intergovernmental revenues in the Water Fund. 2 Total Water Fund operating expenses do not include interest or depreciation expenses. 3 Adjusted due to loss on deletion MM DEMOGRAPHIC AND ECONOMIC INFORMATION This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules depict demographic and economic indicators to assist the reader in understanding the socio- economic, environment in which the City's financial activities take place: • Demographic and Economic Statistics • Principal Employers Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. IRN Fiscal Year CITY OF NEWPORT BEACH Demographic and Economic Statistics Last Ten Fiscal Years Population Personal Income Per Capita Unemployment (in thousands) Income Rate 2000 73,965 4,630,061 62,598 1.6% 2001 70,032 4,413,066 63,015 1.6% 2002 75,662 4,865,294 64,303 2.5% 2003 79,392 5,325,060 67,073 2.4% 2004 80,800 5,434,285 67,256 1.9% 2005 83,120 5,635,370 67,798 2.4% 2006 83,361 6,335,186 75,997 2.1% 2007 84,218 6,518,052 77,395 2.6% 2008 84,554 7,059,752 83,494 2.4% 2009 86,252 7,468,216 86,586 6.1% Source: California State Department of Finance f1146Ll CITY OF NEWPORT BEACH Principal Employers Current Year and 4 years ago Source: Newport Beach Chamber of Commerce W11 i Percent of Total Fmnlnvment N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2009 20C Percent of Total Number of Employment Number of Employer Employees Rank Employees Rank Hoag Memorial Hospital 4,116 1 5.08% 3,640 1 Pacific Life Insurance 1,096 2 1.35% 2,788 2 Glidewell Dental 902 3 1.11% - - City of Newport Beach 832 4 1.03% 788 4 Pacific Investment Management Co. 762 5 0.94% 530 7 Resort at Pelican Hill 735 6 0.91% - - Jazz Semi - Conductor 586 7 0.72% 730 5 The Island Hotel 424 8 0.52% 525 2 8 Fletcher Jones Motor Cars Inc. 420 9 0.52% - - Newport Beach Marriott Hotel & Tennis Club 363 10 0.45% 475 9 ' Information for nine years ago is not available. 2 The Island Hotel was formerly the Four Seasons Hotel. Source: Newport Beach Chamber of Commerce W11 i Percent of Total Fmnlnvment N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A OPERATING INFORMATION This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules present information on the City's operations and resources including service and infrastructure data to facilitate the readers understanding of how financial statement information relates to the services the City provides and the activities it performs: • Full Time City Employees by Functions • Operating Indicators by Function • Capital Asset Statistics by Function • Water Sold by Customer Type • Water Rates • Major Water Customers Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. i 14all Function General government Public safety Community development Public works Community services Balboa yacht basin Water Wastewater CITY OF NEWPORT BEACH Full-time City Employees by Function Last Ten Fiscal Years Full -Time Employees as of June 30, 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 69 75 77 77 84 86 90 93 93 99 344 358 384 384 385 385 388 393 397 397 39 42 44 46 46 47 48 52 56 57 157 155 163 164 162 162 163 163 165 160 51 53 57 58 57 60 65 66 68 71 1 1 1 1 1 1 31 34 33 33 33 34 34 34 35 35 11 10 12 12 13 13 13 13 13 13 Total 703 728 771 775 781 788 801 814 827 832 Source: City Administrative Services Department WIN CITY OF NEWPORT BEACH Operating Indicators by Function Last Ten Fiscal Years Source: City of Newport Beach 116x] Fiscal Year 2000 2001 2002 2003 2004 Police: Adult Arrests 3,396 3,494 3,684 3,485 3,201 Parking Citations Issued 76,993 74,068 73,191 68,907 71,076 Fire: Fire Responses 353 365 359 442 423 Fire Inspections 6,173 6,173 6,400 4,460 4,500 General Services: Street Patching (tons of mix) 4,400 5,000 5,500 5,500 5,000 Sidewalk Repair (square feet) 65,000 50,000 50,000 55,000 50,000 Recreation & Senior Services: Co- Sponsored Youth Organizations 141,594 165,464 188,689 200,077 185,627 Senior Transportation Services 10,260 11,000 10,917 12,094 12,041 Water: New connections 163 154 118 99 53 Average daily consumption (hundred cubic ft.) 17 17 17 17 17 Sewer: New connections N/A N/A N/A 50 25 Miles of Pipe Cleaned N/A N/A 202 262 293 Library Services: Library Circulation of Materials 1,130,000 1,250,713 1,263,200 1,347,583 1,392,346 Source: City of Newport Beach 116x] Fiscal Year 2005 2006 2007 2008 2009 3,079 2,999 3,289 3,599 3,231 72,665 74,780 67,170 67,258 64,577 228 214 175 247 236 4,550 6,470 7,136 6,682 6,912 4,500 4,600 4,980 4,644 3,882 50,000 55,000 59,459 60,222 49,644 194,749 194,722 201,258 255,424 318,779 11,936 13,000 13,493 14,500 15,984 55 52 95 60 26 17 17 17 17 17 24 24 45 45 12 205 335 226 241 220 1,475,025 1,443,078 1,622,573 1,622,573 1,575,518 MIS] Source: City of Newport Beach 00111 CITY OF NEWPORT BEACH Capital Asset Statistics by Function Last Ten Fiscal Years Fiscal Year 2000 2001 2002 2003 Police: Stations 1 1 1 1 Fire: Fire stations 6 6 7 7 Lifeguard Headquarters 1 1 1 1 Public works: Streets (miles) 311 315 325 333 Streetlights N/A N/A 7,277 7,277 Traffic signals N/A 121 130 131 Recreation & Senior Services: Parks 45 45 47 47 Community centers 10 10 11 11 Aquatic Center 1 1 1 1 Water: Water mains (miles) N/A 282.35 294.81 294.81 Maximum daily capacity (thousands of gallons) N/A 20,959 20,796 21,291 Wastewater: Sanitary sewers (miles) N/A 200.02 176.90 178.40 Storm sewers (miles) N/A 103.08 51.40 53.50 Library Services: Libraries 4 4 4 4 Source: City of Newport Beach 00111 Fiscal Year 2004 2005 2006 2007 2008 2009 1 1 1 1 1 1 7 8 8 8 8 8 1 1 1 1 1 1 333 333 333 395 395 395 7,277 7,277 7,277 7,278 7,278 7,278 131 144 147 147 148 148 47 47 47 47 48 49 11 11 11 12 13 13 1 1 1 1 1 1 294.81 298.42 299.88 300.35 300.17 300.31 20,092 20,633 19,369 20,392 20,365 19,707 179.15 179.15 179.15 202.80 202.80 202.80 57.60 57.60 57.60 95.50 95.50 95.50 4 4 4 4 4 4 o" it CITY OF NEWPORT BEACH Water Sold by Type of Customer Last Ten Fiscal Years (in hundred cubic feet) Source: City Utilities Department ON 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Type of Customer: Residential N/A 4,227,699 4,459,302 4,430,485 4,362,402 4,289,629 4,190,791 4,492,489 4,046,969 3,989,816 Commercial N/A 1,487,538 1,552,366 1,604,931 1,659,565 1,568,462 1,440,377 1,302,578 1,184,904 1,188,553 Government N/A 678,594 480,809 597,395 486,051 487,189 607,650 601,659 361,457 420,697 Total N/A 6,393,831 6,492,477 6,632,811 6,508,018 6,345,280 6,238,818 6,396,726 5,593,330 5,599,066 Total direct rate per 100 cubic ft. 2.00 2.00 2.00 2.00 2.00 2.00 2.08 2.08 2.08 2.08 Source: City Utilities Department ON CITY OF NEWPORT BEACH Water Rates Last Ten Fiscal Years Fiscal Year Ended June Monthly Rate per 30 Base Rate 100 cubic ft 2000 9.90 2.25 2001 9.90 2.25 2002 9.90 2.25 2003 10.00 2.25 2004 10.20 2.25 2005 10.35 2.25 2006 12.37 2.43 2007 12.37 2.43 2008 12.37 2.43 2009 12.37 2.43 Note: Rates are based on 3/4" meter, which is the standard household meter size. The City charges an excess -use rate above normal demand. 011kox CITY OF NEWPORT BEACH Major Water Customers Current Year and Seven Years Ago ' Information for fiscal years ended prior to 2001, is not available. Source: City Revenue Division 0011 2009 2001' Percent of Total Percent of Total Water Customer Water Charges Rank Water Revenues Water Charges Rank Water Revenues Big Canyon Country Club $ 181,581 1 0.01052035 $ 169,900 2 0.95% Irvine Apartment Management 143,043 2 0.008287554 N/A 0.00% Hoag Memorial Hospital 132,152 3 0.007656557 101,436 6 0.57% Newport Beach Country Club 115,829 4 0.006710843 152,362 3 0.85% UDR Newport Beach 85,345 5 0.004944676 N/A 0.00% Park Newport Ltd 84,229 6 0.004880018 150,062 4 0.84% The Irvine Company 79,813 7 0.004624166 267,688 1 1.50% Newport-Mesa USD 62,185 8 0.003602844 N/A 0.00% Pacific View - Pierce Bros. 57,483 9 0.003330422 47,466 11 0.27% Bluffs Homeowners Association 54,392 10 0.003151337 N/A 0.00% Spyglass Hill Community Assoc. 43,422 11 0.002515762 N/A 0.00% Newport Dunes Resort 42,672 12 0.002472309 N/A 0.00% Newport Beach Marriott 38,144 13 0.002209968 N/A 0.00% Eastbluff Homeowners Comm. Assoc. 38,112 14 0.002208114 N/A 0.00% Jasmine Creek Community Assoc. 37,368 15 0.002165009 N/A 0.00% $ 1,195,770 6.93% $ 888,914 4.98% ' Information for fiscal years ended prior to 2001, is not available. Source: City Revenue Division 0011 APPENDIX C SUMMARY OF THE LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Trust Agreement and Lease /Purchase Agreement not described elsewhere in this Official Statement. This summary does not purport to be complete and is qualified in its entirety by reference to said documents. TRUST AGREEMENT Definitions "Additional Certificates" means certificates of participation authorized by a Supplemental Agreement that are executed and delivered by the Trustee under and pursuant to the Trust Agreement. "Additional Payments" means all amounts payable by the City as Additional Payments as defined in the Lease. "Assignment Agreement" means the Assignment Agreement, dated as of the date of the Trust Agreement, by and between the Trustee and the Corporation, and any duly authorized and executed amendments thereto. "Beneficial Owner" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. "Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York or the State of California are authorized or required by law or executive order to remain closed. "Certificates" means collectively, the 2010A Certificates and the 201013 Certificates. "Certificate of Completion" means a certificate of the City Representative delivered pursuant to the Lease 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 July 2 each year to July 1 of the subsequent calendar year, provided that the first Certificate Year shall commence on the Closing Date and end on July 1, 2011. "Ciff" means the City of Newport Beach, a chartered city organized and existing under the laws and Constitution of the State, and its successors and assigns. "City Representative" means the City Manager of the City, the Assistant City Manager or any other person authorized by the City Manager of the City to act on behalf of the City with respect to the Lease or the Trust Agreement. "Closing Date" means the date on which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof. C -1 "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 November 1, 2010, by and between the City and the Trustee, as Dissemination Agent, as it may be amended from time to time in accordance with the terms thereof. "Corporation" means the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation organized under the laws of the State, its successors and assigns. "Corporation Representative" means the President, Vice President, Secretary, Treasurer of the Corporation, or any other person authorized to act on behalf of the Corporation under or with respect to the Lease. "Delivery Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B -1. "Delivery Costs" means and includes all items of expense directly or indirectly payable by or reimbursable to the City or the Corporation relating to the financing of the Project from the proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the Original Purchaser, filing and recording costs, settlement costs, printing costs, word processing costs, reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies, any computer and other expenses incurred in connection with the Certificates, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing. "Delivery Date" means the date on which any Series of Certificates or Additional Certificates are delivered to the Original Purchaser. "Depository" means the securities depository acting as depository pursuant to the Trust Agreement. "DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates. `Escrow Agent ,means U.S. Bank National Association or any successor or assigns. "Escrow Agreement" means the Escrow Agreement dated as of October 29, 2010, by and between the City and the Escrow Agent relating to the 1998 Certificates. "Escrow Fund" means that fund established pursuant to the Escrow Agreement and held by the Escrow Agent. "Event of Default" means an event of default under the Lease, as defined in the Trust Agreement. "Extraordinary Event" means: C -2 (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the 2010B Tax Certificate, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. year. "Fiscal Year" means the fiscal year of the City commencing July 1 and ending June 30 of the next "Fitch" means Fitch Ratings Group or any successors or assigns thereto. "Government Obligations' ions" means Permitted Investments of the type described in paragraphs (A) or (B) of the definition thereof. "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the City. If the City fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for prepayment, or if the Independent Banking Institution appointed by the City is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee. "Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the City. "Interest Payment Date" means July 1 and January 1 of each year commencing January 1, 2011. "Lease" means the Lease /Purchase Agreement related to the Certificates, dated as of the date of the Trust Agreement, by and between the City and the Corporation, and any duly authorized and executed amendments thereto. "Lease Payment" means any of the 2010A Lease Payments, the 2010B Lease Payments or lease payments relating to Additional Certificates required to be paid by the City to the Corporation pursuant to the Lease. "Lease Payment Date" means the Lease Payment Date defined in the Lease, which shall be each December 15 and June 15 commencing December 15, 2010. "Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to Article V of the Trust Agreement. "Leased Premises" has the meaning set forth in the Lease. C -3 "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, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof. "Net Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to Article VII of the Trust Agreement. "1998 Certificates" means the $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project). "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Trust Agreement. "Original Purchaser' means Stone & Youngberg LLC, as representative of original purchasers of the Certificates on the Closing Date, or the original purchaser of any Series of Additional Certificates. "Outstandin¢" when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates or Additional Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except: (1) Certificates or Additional Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates or Additional Certificates for the payment or prepayment of which funds or Government Obligations, together with interest earned thereon, in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates or Additional Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (3) Certificates or Additional Certificates in lieu of or in exchange for which other Certificates or Additional Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. "Owner" or "Certificate Owner" or "Owner of a Certificate ", or any similar term, when used with respect to a Certificate means the person in whose name such Certificate is registered on the registration books maintained by the Trustee. "Participants" means those broker - dealers, banks and other financial institutions from time to time for which the Depository holds book -entry certificates as securities depository. 1 "Permitted Investments" means, if and to the extent permitted by law and by any policy guidelines promulgated by the City: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury) or obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): Farmers Home Administration (FmHA) Certificates of beneficial ownership 2. Federal Housing Administration Debentures (FHA) 3. General Services Administration Participation certificates 4. Government National Mortgage Association (GNMA or "Ginnie Mae ") GNMA- guaranteed mortgage- backed bonds GNMA- guaranteed pass - through obligations 5. U.S. Maritime Administration Guaranteed Title XI financing (qualified under the Ship Financing Act of 1972) 6. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Corporation Bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac ") Participation certificates Senior debt obligations C -5 3. Federal National Mortgage Association (FNMA or "Fannie Mae ") Mortgage- backed securities and senior debt obligations (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal) 4. Student Loan Marketing Association (SLMA or "Sallie Mae ") Senior debt obligations 5. Resolution Funding Corp ( REFCORP) The interest only component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York 6. Farm Credit System Corp. - Consolidated system -wide bonds and notes D. Money market mutual funds registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm -G," "AAAm" or "AAm" and by Moody's of "Aaa," "Aal" or "Aa2," including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services or serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee. E. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City) secured at all times by collateral described in (A) and/or (B) above and having a maturity of one year or less. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated "A -1 +" by Standard & Poor's and "Prime -1" by Moody's, which may include the Trustee and its affiliates. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City), savings accounts, deposit accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest bearing deposits, interest bearing money market accounts, bankers' acceptances or money market deposits which are fully insured by FDIC or are rated in the AA long term rating by Moody's or Standard & Poor's (including those of the Trustee and its affiliates). G. Commercial paper rated at the time of investment "Prime - 1" by Moody's and "A -1 +" or better by Standard & Poor's. H. Investment agreements, including guaranteed investment agreements, acceptable to the Trustee. 1. Bonds or notes issued by any state or municipality which are rated by Moody's and Standard & Poor's in one of the two highest rating categories assigned by such agencies. 1. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -1 +" or better by Standard & Poor's, including those of the Trustee and its affiliates. K. Repurchase or reverse repurchase agreements rated "AA" or better by Standard and Poor's (including those of the Trustee or any of its affiliates) and that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer /lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee, in exchange for the securities at a specified date or dates. L. Any guaranteed investment contract, including forward delivery agreements ( "FDAs ") and forward purchase agreements ( "FPAs "), with a financial institution or insurance company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims - paying ability rated within the two highest rating categories of Standard & Poor's and Moody's. Only Permitted Investments described in clauses A, B or C above and having maturities equal to or less than 30 years from their date of delivery will be considered eligible for any collateralization /delivery purposes for guaranteed investment contracts, FDAs or FPAs; M. Pre - refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's. If, however, the issue is only rated by Standard & Poor's (i.e., there is no Moody's rating), then the pre - refunded bonds must have been pre - refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre - refunded municipals to satisfy this condition. N. The Local Agency Investment Fund of the State, provided that the Trustee may deposit and withdraw monies in its own name. O. Any other investments permitted by Government Code section 53601 (including investment agreements and forward delivery or forward purchase agreements). "Value" of the above investments shall be determined by the manner currently employed by the Trustee or any other manner consistent with industry standard. "Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of Lease Payments. "Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. "Principal Office or Corporate Trust Office" means the corporate trust office of the Trustee at 700 South Flower Street, Suite 600, Los Angeles, California 90017, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee; provided, however, that for the purposes of payment, transfer or exchange of Certificates such term means the office or agency of the Trustee at which, at any particular time its corporate trust agency business shall be conducted. "Project" has the meaning set forth in the Lease. "Project Cost Requisition" means a written requisition substantially in the form attached to the Trust Agreement. C -7 "Project Costs" means, with respect to any item or portion of the Project, the contract price paid or to be paid therefor upon acquisition, construction, procurement or improvement thereof, in accordance with a purchase order or contract therefor. Project Costs include, but are not limited to, the administrative, engineering, interior decorating, fixtures, furnishings and equipment, legal, financial and other costs incurred by the City and the Corporation in connection with the acquisition, construction, procurement, remodeling or improvement of the Project, all applicable sales taxes and other charges resulting from such construction, procurement, remodeling or improvement of the Project and the costs associated with making rebate calculations required by the Code. Project Costs shall not include any costs of the City or the Corporation to enforce remedies hereunder or under the Lease. " Proiect Fund" means the fund by that name established and held by the Trustee pursuant to Article III of the Trust Agreement. "Record Date" means the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day. "Reference Treasury Dealer" means any firm, specified by the City from time to time, that are primary United States Government securities dealers in the City of New York (each a "Primary Treasury Dealer "); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010A Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. "Series" means either the 2010A Certificates and such Additional Certificates which are secured by 2010A Lease Payments or the 2010B Certificates and such Additional Certificates which are secured by the 2010B Lease Payments as the context may suggest. "S &P" or "Standard & Poor's" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc., or any successors or assigns thereto. "Site Lease" means the Site Lease related to the Certificates, dated the date of the Trust Agreement, by and between the Corporation and the City. "Special Counsel" means Stradling Yocca Carlson & Rauth, a Professional Corporation, or any other attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax - exempt status of interest on obligations issued by states and their political subdivisions and acceptable to the City. "State" means the State of California. "Supplemental Agreement" means a supplement to the Trust Agreement providing for the execution and delivery of Additional Certificates pursuant to the Trust Agreement. "Tax Certificate" means the Tax Certificates, each dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and delivered to the 1W. City on the date of execution and delivery of the 2010A Certificates and the 2010B Certificates, including any and all exhibits attached thereto. "Tenn" means the time during which the Lease is in effect, as provided in the Lease. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Trustee" means The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States, and any successor trustee. "Trust Agreement" or "Agreement" means the Trust Agreement, together with any amendments hereof or supplements hereto permitted to be made hereunder. "2010A Certificates" means the $ aggregate principal amount of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project) to be executed and delivered by the Trustee pursuant to the Trust Agreement. "2010B Certificates" means the $ aggregate principal amount of the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project/Central Library Refunding) to be executed and delivered by the Trustee pursuant to the Trust Agreement. "2010A Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to the Lease as set forth in Exhibit A thereto and deposited in the 2010A Account of the Lease Payment Fund. "201013 Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to the Lease as set forth in Exhibit A thereto and deposited in the 2010B Account of the Lease Payment Fund. "2010A Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of the 2010A Lease Payments. "201013 Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of the 2010B Lease Payments. The 2010 Certificates of Participation Payment Provisions. Interest with respect to any Certificate shall be payable in lawful money of the United States of America by check or draft of the Trustee, mailed no later than the Interest Payment Date to the Owner at his address as it appears, on the Record Date, on the registration books maintained by the Trustee or at such other address as has been furnished to the Trustee in writing by the Owner on or prior to such Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Certificates or Additional Certificates filed with the Trustee prior to any Record Date, interest with respect to such Certificates shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing) by wire transfer of immediately available funds to an account in the continental United States designated in 'we such written request. Payments of defaulted interest with respect to the Certificates or Additional Certificates shall be paid by check or draft to the registered Owners of the Certificates or Additional Certificates as of a special record date to be fixed by the Trustee, notice of which special record date shall be given to the registered Owners of the Certificates or any Additional Certificates no less than ten days prior thereto. The principal of and premium, if any, on the Certificates or Additional Certificates is payable when due upon surrender thereof at the Principal Office in lawful money of the United States of America. Form of Certificates. The Certificates and the assignment to appear thereon shall be substantially in the forms set forth in the Trust Agreement. Pending the preparation of definitive Certificates the Certificates may be executed and delivered in temporary form exchangeable for definitive Certificates when ready for delivery. If the Trustee delivers temporary Certificates, it shall execute and deliver definitive Certificates in an equal aggregate principal amount of authorized denominations, when available, without additional charge, and thereupon the temporary Certificates shall be surrendered to the Trustee at its Principal Office. Until so exchanged, the temporary Certificates shall be entitled to the same benefits under the Trust Agreement as definitive Certificates. The form of any Additional Certificates shall be as set forth in the Supplemental Agreement relating to such Additional Certificates. Execution. The Certificates shall be executed by and in the name of the Trustee by the manual signature of any authorized signatory of the Trustee. The Trustee shall insert the date of execution of each Certificate in the place provided thereon. Application of Proceeds and Other Amounts. The proceeds from the sale of the Certificates shall be applied as set forth in the Official Statement under the caption "ESTIMATED SOURCES AND USES." 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 the Trust Agreement by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate principal amount in authorized denominations. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the City. The Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer, and there shall be no other charge to any Owner for any such transfer. 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. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the City. All Certificates surrendered shall be cancelled and destroyed by the Trustee and shall not be redelivered. 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 the Trust Agreement. :Wil] Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate shall become mutilated, the Trustee, at the expense of the Owner of said Certificate, shall execute and deliver a new Certificate of like tenor, maturity and principal amount in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated and indemnification of the Trustee to its satisfaction. Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and, if an indemnity, satisfactory to the Trustee indemnifying the Trustee, the Corporation and the City, shall be given, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor, maturity and principal amount and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of an appropriate fee for each new Certificate delivered and of the expenses which may be incurred by the Trustee in carrying out its duties in connection therewith. Any Certificate executed under the provisions of the Trust Agreement in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of the Trust Agreement with all other Certificates secured by the Trust Agreement. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate in place of one which has been mutilated, lost, destroyed or stolen, and which has matured, or has been called for prepayment, the Trustee may make payment with respect to such Certificate upon receipt of the above - mentioned indemnity. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by the 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 the Trust Agreement (except as otherwise herein provided), if made in the following manner: The fact and date of the execution by any Owner or his attorney or agent of any such instrument and of any instrument appointing any such attorney or agent, may be proved by a certificate, which need not be acknowledged or verified, of an officer of any bank or trust company located within the United States of America, or of any notary public, or other officer authorized to take acknowledgments of deeds to be recorded in such jurisdictions, that the persons signing such instruments acknowledged before him the execution thereof. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such certificate shall also constitute sufficient proof of his authority. The fact of the ownership of Certificates by any person, the amount and numbers of such Certificates and the date of execution shall be proved by the registration books maintained pursuant to the Trust Agreement. Nothing shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which the Trustee may deem sufficient in its sole discretion. Any request or consent of the Owner of any Certificate shall bind every future Owner of the same Certificate in respect of anything done or to be done by the Trustee in pursuance of such request or consent. Certificate Register. The Trustee will keep or cause to be kept at its Principal Office or another office designated by the Trustee sufficient books for the registration and transfer of the Certificates which shall, during normal working hours and upon reasonable prior notice, be open to inspection by the City C -11 and the Corporation; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, the Certificates. The City, the Corporation and the Trustee shall be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate shall be overdue and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. Destruction of Cancelled Certificates. Whenever in the 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. Additional Certificates. Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the following conditions, which are hereby made conditions precedent to the preparation, execution and delivery of such Additional Certificates: (a) The parties to the Trust Agreement shall have executed a Supplemental Agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established under the Trust Agreement for the Certificates, as shall be necessary or appropriate, and (ii) specifies whether such Certificates are payable from 2010A Lease Payments or 2010B Lease Payments; (b) The scheduled principal and interest payable with respect to such Additional Certificates shall be payable only on Interest Payment Dates applicable to the Certificates; (c) The Lease and Site Lease shall have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates as and when the same mature or become due and payable, (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of the Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such Additional Certificates, and (iii) make such other revisions to the Lease and Site Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions shall not materially prejudice the rights of the Owners of Outstanding Certificates as granted them under the terms of the Trust Agreement as may be evidenced by an opinion of Special Counsel; (d) There shall have been delivered to the Trustee a counterpart of the amendments required by (c) above; (e) The Trustee shall have received a certificate of the Corporation Representative that there exists on the part of the Corporation no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default); (f) The Trustee shall have received a certificate of the City Representative that (i) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted C -12 do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease); (g) The Trustee shall have received an opinion of Special Counsel substantially to the effect that (i) said Supplemental Agreement and said amendments to the Lease comply in all respects with the requirements of the Trust Agreement, (ii) said Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable) have been duly authorized, executed and delivered by the City and the Corporation, as applicable, (provided that said opinion of Special Counsel, in rendering the opinions set forth in this clause (ii), shall be entitled to rely upon one or more other opinions of counsel, including counsel to any of the respective parties to said Supplemental Agreement or said amendments to the Lease and Site Lease (if applicable)), (iii) assuming that no Event of Default has occurred and is continuing, the Trust Agreement, as amended by said Supplemental Agreement, and the Lease and Site Lease (if applicable), as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the City and Corporation, as applicable, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors' rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding) and (iv) the execution of such Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable), and performance by the parties thereunder, will not result in the inclusion of the Interest Component of any 2010A Lease Payments payable with respect to any 2010A Certificates, including Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), theretofore prepared, executed and delivered, in the gross income of the Owners of the 2010A Certificates or the owners of any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) for purposes of federal income taxation or the loss of the subsidy payments from the United States Treasury relating to the District's obligation to pay the Interest Component of the 2010B Lease Payments as evidenced by the 2010B Certificates; (h) There shall have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates; and (i) Such other conditions shall have been satisfied, and such other instruments shall have been duly executed and delivered to the Trustee, as the City or the Corporation shall have reasonably requested. Upon delivery to the Trustee of the foregoing instruments, the Trustee shall cause to be executed and delivered Additional Certificates of a Series representing the aggregate principal amount specified in such Supplemental Agreement, and such Additional Certificates shall be equally and ratably secured with all Certificates of like Series, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate of a Series, including Additional Certificates, over any other; provided, however, that no provision of the 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. C -13 Establishment of Project Fund The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Project Fund," referred to herein as the "Project Fund" and shall establish a 2010A Account and a 2010B Account therein. Within each of the 2010A Account and the 2010B Account, there shall be established Delivery Costs Subaccounts therein; shall keep the Project Fund separate and apart from all other funds and moneys held by it; and shall administer such fund as herein provided. The Project Fund shall be held and applied by the Trustee in accordance herewith. Purpose. Moneys in the Project Fund shall be expended for Project Costs and Delivery Costs. Deposit of Moneys; Payment of Project Costs and Delivery Costs. (a) Deposits. There shall be credited to the 2010A Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010A Certificates required to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the 2010A Account of the Project Fund, which shall remain in the 2010A Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2010A Certificates, as described in the Trust Agreement ; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. There shall be credited to the 2010B Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010B Certificates required to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the 2010B Account of the Project Fund, which shall remain in the 2010B Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2010B Certificates, as described in the Trust Agreement; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. (b) Disbursements. The Trustee shall disburse moneys in the Project Fund from time to time to pay Project Costs directly or to reimburse the City for payment of Project Costs, upon receipt by the Trustee of a Project Cost Requisition signed by the City Representative. The Trustee shall have no duty or liability to monitor the application of any moneys disbursed hereunder. The Trustee shall disburse moneys from the Delivery Costs Subaccounts to pay Delivery Costs or to reimburse the City for payment of such Delivery Costs upon receipt by the Trustee of a Delivery Cost Requisition signed by the City Representative. The Trustee shall be absolutely protected in making any disbursement from the Project Fund in reliance upon a Project Cost Requisition or Delivery Cost Requisition signed by the City Representative. Each such Project Cost Requisition and Delivery Cost Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any remaining balance in a Delivery Costs Subaccount after June 15, 2011 shall be transferred by the Trustee to the applicable account of the Project Fund as directed in writing by City Representative. Transfers of Unexpended Proceeds. Upon the filing with the Trustee of the Certificate of Completion pursuant to the Lease, the Trustee shall withdraw all remaining moneys in the Project Fund (other than any moneys retained therein to pay Project Costs not then due and payable and certified by the City Representative) and shall transfer such moneys to the applicable account of the Lease Payment Fund to be applied to the payment of principal and interest with respect to the applicable Series of Certificates as prescribed in the Trust Agreement or, at the written election of the City Representative delivered to the Trustee, together with an opinion of Special Counsel that such transfer will not cause interest due with respect to the 2010A Certificates to be included in gross income for federal income tax purposes, shall transfer such moneys to the City for the purpose of capital expenditures of the City, and following such transfer, the Project Fund shall be closed. C -14 Establishment of Prepayment Fund The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center 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. Within the Prepayment Fund, the Trustee shall establish a "2010A Account" into which any 2010A Prepayments shall be deposited and a "2010B Account" into which any 2010B Prepayments shall be deposited. Moneys to be used for prepayment of the Certificates and Additional Certificates shall be deposited into the applicable account of the Prepayment Fund established for such Series and used solely for the purpose of prepaying the applicable Certificates or Additional Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates or Additional Certificates to the Trustee. Lease Payments, Lease Payment Fund Security Provisions. (a) Assignment of Rights in Lease. The Corporation has, pursuant to the Assignment Agreement, absolutely assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Corporation's rights to receive and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease or pursuant hereto. All Lease Payments, Prepayments and such other amounts to which the Corporation may at any time be entitled (other than amounts due to the Corporation under the Lease) shall be paid directly to the Trustee, and all of the Lease Payments and Prepayments collected or received by the Corporation shall be deemed to be held and to have been collected or received by the Corporation as the agent of the Trustee and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within five (5) Business Days after the receipt thereof, and all such Lease Payments shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund, all such Prepayments shall be forthwith deposited by the Trustee upon the receipt thereof in the Prepayment Fund. (b) Security Interest in Moneys and Funds. The Corporation and the City, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified herein and in the Lease. In addition to the Trustee, only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. In addition to the Trustee, only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 2010B Account of the Prepayment Fund. (c) Pledge of Lease Payments and Proceeds. The 2010A Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented C -15 by the 2010A Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). The 2010B Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to Article IX of the Lease (the "Lease Proceeds ") are hereby irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under the Trust Agreement with respect to Additional Certificates, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the terms of the Trust Agreement. Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Lease Payment Fund" and shall establish a 2010A Account and a 2010B Account therein. All moneys at any time deposited by the Trustee in an account of the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the applicable Certificates of such Series. So long as any Certificates are Outstanding, neither the City nor the Corporation shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set forth. Deposits. There shall be deposited in the 2010A Account of the Lease Payment Fund all 2010A Lease Payments and in the 2010A Account of the Prepayment Fund all 2010A Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation pursuant to the Lease (regarding proceeds of rental interruption insurance) or pursuant to the Trust Agreement, which moneys shall be applied as a credit towards any 2010A Lease Payment then due. There shall be deposited in the 2010B Account of the Lease Payment Fund all 2010B Lease Payments and in the 2010B Prepayment Fund all 2010B Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation pursuant to the Lease (regarding proceeds of rental interruption insurance) or pursuant to the Trust Agreement, which moneys shall be applied as a credit towards any 2010B Lease Payment then due. The Trustee, in accordance with the Calculation Agency Agreement, dated as of November 1, 2010, by and between the City and the Trustee, shall at least 45 days but not more than 90 days prior to each Certificate Payment Date, submit to the United States Treasury a subsidy reimbursement request with respect to the 2010B Certificates in accordance with applicable Federal regulations. Upon receipt of such subsidy, the City shall deposit such cash subsidy payment into the 2010B Account of the Lease Payment Fund and use any such cash subsidy payments to offset its obligations to pay the Interest Component of the 2010B Lease Payments under the Lease. Application of Moneys. Except as provided in the Trust Agreement, all amounts in the 2010A Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2010A Certificates as the same shall become due and payable, in accordance with the provisions of the Trust Agreement, subject to the requirement that certain investment earnings may be transferred to the Rebate Fund, as provided in the Trust Agreement. Except as provided in the Trust Agreement, all amounts in the 2010B Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with C -16 respect to the 2010B Certificates as the same shall become due and payable, in accordance with the provisions of the Trust Agreement. 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 the Trust Agreement, 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 the Trust Agreement. 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 the Trust Agreement. 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 the Trust Agreement 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 the Trust Agreement, shall be withdrawn by the Trustee and remitted to the City. Net Proceeds Fund Establishment of Net Proceeds Fund: Deposits. The Trustee shall establish when required a special fund designated as the "City of Newport Beach (Civic Center Project) Net Proceeds Fund," referred to herein as the "Net Proceeds Fund," to be maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided herein. The Trustee shall deposit Net Proceeds in the Net Proceeds Fund as provided in the Lease. (a) Casualty Insurance. The Trustee shall disburse Net Proceeds for replacement or repair of the Leased Premises as provided in the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the City Representative as provided in the Lease. Pending such application, such Net Proceeds may be invested by the Trustee as directed by the City Representative in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to be transferred to the Rebate Fund pursuant to thereof, 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 the Trust Agreement and any other Additional Payments due under the Lease. (b) Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the Leased Premises shall be applied and disbursed by the Trustee upon the Written Request of the City as follows: (i) If the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Premises and will not result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease (such C -17 determination to be certified by the City in writing), such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (ii) If the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Premises and will result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease; then the Trustee shall immediately deposit such proceeds in the Prepayment Fund and such proceeds shall be applied to the prepayment of Certificates in the manner provided in the Trust Agreement. Cooperation. The Corporation and the Trustee shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to Article V of the Lease and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any item or portion thereof; provided, however, the Trustee shall not be obligated to take any action hereunder if it is not indemnified to its satisfaction from and against any liability or expense arising therefrom. Moneys In Funds, Investment Held in Trust. The moneys and investments held by the Trustee under the Trust Agreement, other than in the Rebate Fund, are irrevocably held in trust for the benefit of the respective Owners and, in the case of the Rebate Fund, for payment as required to the United States Treasury, and for the purposes herein specified, and such moneys, and any income or interest earned thereon, shall be expended only as provided in the Trust Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of the Corporation, the Trustee or the City, or any of them. Investments Authorized. (a) By Trustee. Subject to the further provisions of this Article VIII, moneys held by the Trustee hereunder shall be invested and reinvested on maturity thereof by the Trustee pursuant to the Trust Agreement. The Trustee will report any such investments to the City on a monthly basis in its regular statements. (b) Upon Direction of the City. The City Representative shall direct by facsimile, to the designated trust officer responsible for the administration of the Trust Agreement, followed by distribution by U.S. Mail or overnight courier service of such notice, such investment in specific Permitted Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect. Such investments and reinvestments shall be made giving full consideration for the time at which funds are required to be available based among other things, scheduled completion of the various components of the Project. In the event that the City Representative does not so direct the Trustee, the Trustee shall invest in the Permitted Investments described in the Trust Agreement. Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund shall mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding the investment. Investments instructed by the City Representative to be purchased with funds on deposit in the Project Fund shall mature not later than the dates upon which such funds shall be needed to be expended for the payment of Project Costs. Investments to the later of the final maturity of the Certificates or any Additional Certificates so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Trust Agreement. The Trustee may conclusively rely upon the written instructions of the City Representative as to both the suitability and legality of the directed investments. 1W. (c) Registration. Such investments, if registrable, shall be registered in the name of the Trustee for the benefit of the Owners and held by the Trustee or its nominee. (d) Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the Trust Agreement. The Trustee may act as purchaser or agent in the making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an advisor to any provider of, Permitted Investments hereunder. The City and Corporation acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City and the Corporation the right to receive brokerage confirmations of security transactions as they occur, at no additional costs, the City and Corporation specifically waives\ receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. (e) Trustee Standard of Care. Except as otherwise provided in the Trust Agreement, the Trustee shall not be responsible or liable for any consequences of any investment of funds or sale of such investment made by it in accordance with this section or disposition made by it in accordance with the Trust Agreement. Crediting of Investments. Except as otherwise provided in the Trust Agreement, any income, profit or loss on the investment of moneys held by the Trustee hereunder shall be credited to the respective fund for which it is held. Accounting. The Trustee shall furnish to the City, not less than monthly, an accounting (which may be in the form of its regular statements) of all investments made by the Trustee and all funds and amounts held by the Trustee; provided, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. Valuation and Disposition of Investments. (a) Valuation. Subject to the provisions of the Trust Agreement, for the purpose of determining the amount in any fund, all Permitted Investments (except investment agreements) credited to such fund shall be valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all funds and accounts, investments shall be valued by the Trustee not less often than annually nor more often than monthly. In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as may be available to the Trustee, including those within its regular accounting system and brokers and dealers in securities. (b) Disposition. Subject to the provisions of the Trust Agreement, the Trustee shall sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited. Commingling of Moneys in Funds. The Trustee may, and upon the written request of the City Representative shall, comrningle any of the funds held by it pursuant to the Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by the Trustee. The City shall ensure that any such commingling complies with Section 1.148 -4 of the Treasury Regulations, and shall provide written direction to the Trustee accordingly. In no event shall the Trustee C -19 have any duty or obligation, at any time and in any manner to monitor compliance with any governmental regulations relating to commingling of accounts. Tax Covenants. (a) General. The City and the Corporation hereby covenant with the holders of the 2010A Certificates that, notwithstanding any other provisions of the Trust Agreement, (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) they 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 2010A Certificates under Section 103 of the Code. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest due with respect to the 2010A Certificates. (b) Use of Proceeds. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates or the Project, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates are outstanding, the City and the Corporation, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall establish reasonable procedures necessary to ensure continued compliance with Section 141 of the Code and the continued qualification of the 2010A Certificates as "governmental bonds." (c) Arbitrage. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City and the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates. (d) Federal Guarantee. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the Certificates) shall not make any use of the proceeds of the Certificates or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (e) Covenant Regarding Build America Bonds. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the 2010B Certificates) shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the cash subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. I1] (f) Compliance with Tax Certificate. In furtherance of the foregoing tax covenants of this section, the City covenants that it will comply with the provisions of the Tax Certificate, which is incorporated herein as if fully set forth herein. These covenants shall survive payment in full or defeasance of the 2010A Certificates and the 2010B Certificates. Rebate Fund. The Trustee shall establish a special fund designated the "City of Newport Beach (Civic Center Project) Rebate Fund" (the "Rebate Fund "). All amounts at any time on deposit in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States (the "Rebate Requirement ") pursuant to Section 148 of the Code and the Treasury Regulations promulgated thereunder (the "Treasury Regulations "). Such amounts shall be free and clear of any lien under the Trust Agreement and shall be governed by the Trust Agreement and by the Tax Certificate executed by the City. The Trustee shall be deemed conclusively to have complied with the Rebate Requirement if it follows the directions of the City, and shall have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the City with the Rebate Requirement. The Trustee Appointment of Trustee. (a) Appointment. Trustee, a national banking association organized under the laws of the United States, is hereby appointed Trustee by the Corporation and the City. (b) Qualifications. The Corporation and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, California, Santa Ana, California, or Los Angeles, California capable of exercising trust powers in the State of California, with a combined capital (exclusive of borrowed capital) and a surplus of at least Seventy -Five Million Dollars ($75,000,000), or be a member of a bank holding company system, which shall have a combined capital and surplus of at least Seventy -Five Million Dollars ($75,000,000), and subject to supervision or examination by federal or state authority, so long as any Certificates are Outstanding. If such bank, corporation or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to then for the purpose of this section the combined capital and surplus of such bank, corporation or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (c) Removal. So long as there is no Event of Default, the City may remove the Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto. (d) Resignation. The Trustee may, upon written notice to the City and the Corporation, resign; provided that such resignation shall not take effect until the successor Trustee is appointed as provided in the Trust Agreement. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee. In the event the City does not name a successor Trustee within thirty (30) days of receipt of notice of the Trustee's resignation, then the Trustee may petition a federal or state court to seek the immediate appointment of a successor Trustee and be reimbursed by the City for all costs incurred in connection therewith. (e) Successor. Any successor Trustee shall be a bank, corporation or test company meeting the qualifications as set forth in Subsection (b) above. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Owners C -21 at their respective addresses set forth on the Certificate registration books maintained pursuant to the Trust Agreement. 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 the Trust Agreement, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. 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, facsimile, request, consent, direction, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the 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 of Counsel. The Trustee may consult with its counsel or counsel to the City with regard to legal questions and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith in accordance therewith. Before being required to take any action, the Trustee may require an opinion of Independent Counsel acceptable to the Trustee which opinion shall be made available to the other parties hereto upon request, which counsel may be counsel to any of the parties hereto, or a verified certificate of any party hereto, or both, concerning the proposed action and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken by the Trustee in reliance thereon and the City shall promptly reimburse the Trustee for such costs. (c) Reliance Upon Requested Certificates. Whenever in the administration of its duties under the Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed), in the absence of bad faith on its part, shall be deemed to be conclusively proved and established by the certificate of the City Representative or the Corporation Representative and such certificate shall be full warranty to the Trustee for any action taken or suffered under the provisions of the 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. 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 C -22 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 the 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. Standard of Care. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall only perform those duties specifically set forth herein and no implied duties, covenants or obligations whatsoever shall be read into the Trust Agreement. In the event of and during the continuance of an Event of Default, the Trustee shall exercise such care in performing its duties hereunder as a prudent person would exercise under the circumstances in the conduct of its own affairs. No action by the Trustee shall be construed or deemed to expand the limitations on the scope of the Trustee's duties. The Trustee shall not be considered in breach of or in default in its obligations hereunder in the event of enforced delay ( "unavoidable delay ") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of government, acts of the other parry, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a parry or others relating to zoning or other governmental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. Compensation of the Trustee. As an Additional Payment under the Lease, the City shall, from time to time, pay such amounts and reimburse such expenses (including, without limitation, legal fees and expenses) as are specified in any written agreement with the City and, on demand, pay to the Trustee to the extent not covered by such agreement reasonable compensation for its services and the services of any accountants, consultants, attorneys and other experts as may be engaged by the Trustee to provide services under the Trust Agreement pursuant to a written agreement between the City and the Trustee. Further, in the event of a default hereunder, the City agrees that the Trustee's fees and costs shall be deemed to be a substantial contribution to the trust and bankruptcy estate and /or administrative expenses in a bankruptcy, if applicable. The City's obligation hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates or resignation and removal of the Trustee. Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, interest on any Certificate, upon the trust estate for the foregoing fees, charges and expenses incurred by it. Trustee's Disclaimer of Warranties. THE TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE C -23 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 the Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. Modification or Amendment of Agreements Amendments Permitted. (a) With Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time, with notice to any rating agency then rating the Certificates by a Supplemental Agreement or amendment thereto which shall become effective when the written consents of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, shall have been filed with the Trustee. No such modification or amendment shall: (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificates being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (iii) modify any of the rights or obligations of the Trustee without its written assent thereto, or (iv) amend the Trust Agreement without the prior written consent of the Owners of all Certificates then outstanding. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest evidenced by the Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in the Trust Agreement. Without Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a Supplemental Agreement or amendments thereto or a supplement or amendment to the Lease, without the consent of any such Owners, but only to the extent permitted by law and only: (i) to add to the covenants and agreements of the City hereunder, (ii) to cure, correct or supplement any ambiguous or defective provision contained herein or therein, (iii) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable (which may be based upon opinions as provided in the Trust Agreement), shall not materially adversely affect the interest of the Owners, C -24 (iv) to substitute the Leased Premises, or a portion thereof, in accordance with the Lease, (v) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest component of 2010A Lease Payments and the interest payable with respect to the 2010A Certificates and to maintain the federal subsidy with respect to the City's obligations to pay the Interest Component with respect to the 2010B Lease Payments under the Lease, (vi) to add to the rights of the Trustee, (vii) to maintain the rating or ratings assigned to the Certificates, or (viii) to provide for the execution and delivery of Additional Certificates in accordance with the provisions of the Trust Agreement. No such modification or amendment, however, shall modify any of the rights or obligations of the Trustee without its written assent thereto. Any such Supplemental Agreement shall become effective upon execution and delivery by the parties hereto or thereto as the case may be. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest with respect to the 2010A Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in the Trust Agreement. Procedure for Amendment with Written Consent of the Owners. The Trust Agreement or the Lease may be amended by Supplemental Agreement as provided in the Trust Agreement in the event the consent of the Owners is required pursuant to the Trust Agreement. A copy of the form of such Supplemental Agreement, together with a request to the Owners for their consent thereto, shall be mailed by the Trustee to each Owner of a Certificate at his address as set forth in the Certificate registration books maintained pursuant to the Trust Agreement, but failure to receive copies of such Supplemental Agreement and request so mailed shall not affect the validity of the Supplemental Agreement when assented to as in this section provided. Such Supplemental Agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement) and notices shall have been mailed as hereinafter in this section provided. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this section provided for has been mailed. After the Owners of the required percentage of Certificates shall have filed their consent to such Supplemental Agreement, the Trustee shall mail a notice to the Owners of the Certificates in the manner hereinbefore provided in this section for the mailing of such Supplemental Agreement, stating in substance that such Supplemental Agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in this section (but failure to mail copies of said notice shall not affect the validity of such Supplemental Agreement or consents thereto). A record, consisting of the papers required by this section to be filed with the Trustee, shall be proof of the matters C -25 therein stated until the contrary is proved. The Trustee may obtain and conclusively rely on an opinion of counsel with regard to such matters. Disqualified Certificates. Certificates or Additional Certificates owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action or any calculation of Outstanding Certificates or Additional Certificates provided for in the Trust Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in the Trust Agreement; except that in determining whether the Trustee shall be protected in relying upon any such approval or consent of an Owner, only Certificates that the Trustee actually knows to be owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall be disregarded unless all Certificates are so owned, held by or for the account of, in which case such Certificates shall be considered Outstanding for the purpose of such determination. The City or the Trustee may adopt appropriate regulations to require each Owner, before his consent shall be deemed effective, to reveal if the Certificates or Additional Certificates as to which such consent is given are disqualified as provided in the Trust Agreement. Upon request of the Trustee, the City and Corporation shall specify to the Trustee those Certificates and Additional Certificates disqualified pursuant to this section and the Trustee may conclusively rely on such certificate. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective, the 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 the Trust Agreement or the Lease, as the case may be, for any and all purposes. Endorsement or Replacement of Certificates Delivered After Amendments. The City may determine that Certificates delivered after the effective date of any action taken as provided in the Trust Agreement shall bear a notation, by endorsement, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Outstanding Certificate at such effective date and presentation of his Certificate for such purpose at the Principal Office, a suitable notation shall be made on such Certificate. The City may determine that new Certificates, so modified as in the opinion of the Trustee is necessary to conform to such Owner's action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Certificate then Outstanding, such new Certificate shall be exchanged in the Principal Office without cost to such Owner, for a Certificate of the same character then Outstanding, upon surrender of such Certificate. Amendatory Endorsement of Certificates. Subject to the Trust Agreement, an Owner may accept any amendment as to the particular Certificates held by him, provided that due notification thereof is made on such Certificates. Copies of Amendments Delivered to Rating Agencies. Copies of any modifications or amendments to this Agreement, the Lease, the Site Lease or the Assignment Agreement shall be delivered by the City to any rating agency then rating the Certificates at least 10 days prior to the effective date thereof. C -26 Covenants; Notices Compliance With and Enforcement of the Lease. The City covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The Corporation covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Corporation thereunder. The Corporation and the City, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Leased Premises, which may or can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee. Payment of Taxes. The City shall pay all taxes as provided in the Lease. 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. Prosecution and Defense of Suits. The City shall promptly, and also upon request of the Trustee or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Premises, whether now existing or hereafter developing and shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose. City Budgets. In accordance with 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 failed to observe and perform its covenant and agreement and requesting that such failure be remedied within 30 days, or such failure shall constitute an Event of Default under the Lease. The Trustee shall forward a copy of such notice to the Corporation. Upon receipt of such notice, the City shall notify the Trustee in writing of the proceedings proposed to be taken by the City, and shall keep the Trustee advised in writing of all proceedings thereafter taken by the City. Further Assurances. The Corporation and the City will make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confirming unto the Owners the rights and benefits provided herein. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the 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 C -27 order, to cause the City to comply with its obligations under this section and the Continuing Disclosure Agreement. Limitation of Liability 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 the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee. No Liability of the City or Corporation for Trustee Performance. Except as expressly provided herein, neither the City nor the Corporation shall have any obligation or liability to any other parties hereto or to the Owners with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement. (a) No Investment Advice. The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates. (b) Sufficiency of the Trust Agreement or Lease Payments. The Trustee makes no representations as to the validity or sufficiency of the Certificates, shall incur no responsibility or liability in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall not be responsible or liable for the sufficiency or enforceability of the Lease, the Site Lease or the Assignment Agreement. The Trustee shall not be liable for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in the Trust Agreement), its right to receive moneys pursuant to said Lease, or the value of or title to the Leased Premises. (c) Actions of Corporation and City. The Trustee shall have no obligation or liability to any of the other parties or the Owners with respect to the Trust Agreement or failure or refusal of any other party to perform any covenant or agreement made by any of them under the 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 the Trust Agreement. (d) Recitals and Agreements of Corporation and City. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, covenants and agreements of the City or the Corporation (as the case may be), and the Trustee assumes no responsibility for the correctness of the same. Limitation of Rights to Parties and Certificate Owners. Nothing in the Trust Agreement or in the Certificates expressed or implied is intended or shall be construed to give any person other than the City, the Corporation, the Trustee and the Owners, any legal or equitable right, remedy or claim under or in respect of the Trust Agreement or any covenant, condition or provision hereof, and all such covenants, conditions and provisions are and shall be for the sole and exclusive benefit of the City, the Corporation, the Trustee and the Owners. No Liability of Corporation to the Owners. Except as expressly provided herein, the Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect to the observance or performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by the Trust Agreement. 1W. Events of Default and Remedies of Certificate Owners Assignment of Rights. The parties hereto acknowledge that pursuant to the Assignment Agreement the Corporation has transferred, assigned and set over to the Trustee for the benefit of the Owners, certain of the Corporation's rights under the Lease. Events of Default. (a) Remedies. If an Event of Default shall happen, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything herein or in the Lease to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. 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 the Trust Agreement shall have actual knowledge thereof, or shall have received written notice thereof at the Principal Office. Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of the Trust Agreement or of the Lease in an Event of Default, shall be deposited into the Lease Payment Fund and be applied by the Trustee after payment of all amounts due and payable under the Trust Agreement and the Lease in the following order upon presentation of the Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid - First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties and obligations hereunder, including reasonable compensation to its agents, attorneys and counsel and then to any such amounts incurred by the Owners; Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installment, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Third, Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be 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. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or in the Lease, or in aid of the C -29 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 the 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. hi no event shall counsel to the Trustee be deemed counsel to the Owners, and any communications between the Trustee and its counsel shall be deemed confidential and privileged. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Certificates or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners of the Certificates so affected. Non - Waiver. Nothing in the Trust Agreement or in the Certificates shall affect or impair the obligation of the City to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by the Trust Agreement 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. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it shall have full power, in the exercise of its discretion for the best interest of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the 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. 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 the Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) there shall have been a default in the payment of such Owner's proportionate interest in the Lease Payments as the same become due. W IJ Such notification, request, tender of indemnity, refusal or omission, and default are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under the Trust Agreement, except in the manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this section or any other provision of the Trust Agreement. Miscellaneous Defeasance. (a) Methods. If and when any Outstanding Certificates shall be paid and discharged in any one or more of the following ways: (i) Payment or Prepayment: by well and truly paying or causing to be paid the principal, interest and prepayment premiums (if any) with respect to such Certificates Outstanding, as and when the same become due and payable; (ii) Cash: by depositing with the Trustee, in trust, an amount of cash which (together with cash then on deposit in the Lease Payment Fund together with the interest to accrue thereon, in the event of payment or provision for payment of all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including all principal and interest and premium, if any; or (iii) Government Obligations: by irrevocably depositing with the Trustee, in trust, Government Obligations together with cash, if required, in such amount as will, together with interest to accrue thereon (and, in the event of payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease Payment Fund together with the interest to accrue thereon), be fully sufficient to pay and discharge such Certificates (including all principal and interest represented thereby and prepayment premiums if any) at or before their maturity or prepayment date; and all other amounts due hereunder have been paid in full, then, notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Corporation, the Trustee and the City with respect to such Certificates shall cease and terminate, except only the rights of the Trustee under the Trust Agreement hereof, and the obligation of the City and the Corporation to comply with the provisions of the Trust Agreement and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City from funds deposited pursuant to paragraphs (ii) and (iii) of this section, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to paragraphs (ii) and (iii) of this section, the Certificates shall continue to represent direct and proportionate interests of the Owners thereof in applicable Lease Payments under the Lease. (b) Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to one of the procedures described in paragraphs (a)(i) through (a)(iii) of this section, which are not required for the payment to be made to the Owners, shall be paid over to the City, after the payment of any amounts due to the Trustee pursuant to the Trust Agreement hereof and any other Additional Payments due under the Lease. C -31 M 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, in form and substance acceptable to the City of a nationally recognized firm of certified public accountants, verifying that the Government Obligations and cash, if any, satisfy the requirements of the Trust Agreement, (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, and (iii) a copy of an opinion of Special Counsel, dated the date of such defeasance and addressed to the Trustee and the City, in form and substance acceptable to the City, to the effect that such Certificates are no longer Outstanding under the Trust Agreement. Non - Presentment of Certificates. In the event any Certificate shall not be presented for payment when the principal with respect thereto becomes due, either at maturity, or at the date fixed for prepayment thereof, if moneys sufficient to pay such Certificate shall have been deposited in the Prepayment Fund or Lease Payment Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such Certificate shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such Certificate who shall thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his or her part under the 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 the Trust Agreement. Prior to forwarding any such moneys to the City, the Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial newspaper of general circulation in New York, New York. In addition, Trustee shall be indemnified from and against any and all liabilities to third parties resulting from its actions under this section. Thereafter, Owners shall be entitled to look only to the City for payment, and then only to the extent of the amount so repaid by the Trustee. The City shall not be liable for any interest on the sums paid to it pursuant to this section and shall not be regarded as a trustee or trustees of such money. Acquisition of Certificates by City. All Certificates acquired by the City, whether by purchase, gift or otherwise, shall be surrendered by the City to the Trustee for cancellation. Records. The Trustee shall keep complete and accurate records of all moneys received and disbursed by it under the Trust Agreement until four years after no Certificate is Outstanding (or such longer period as required by the Trustee's policies and procedures, or by applicable law), which shall be available for inspection by the City, the Corporation and any Owner, or the agent of any of them, at any time during regular business hours upon reasonable prior notice. Notices. Except as specifically provided otherwise in the Trust Agreement, all written notices to be given under the Trust Agreement shall be given by mail or personal delivery to the party entitled thereto at its address set forth in the Trust Agreement. Governing Law. The Trust Agreement shall be construed and governed in accordance with the laws of the State. C -32 Waiver of Notice. Whenever the giving of notice by mail or otherwise is required by the Trust Agreement, 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. Separability of Invalid Provisions. In case any one or more of the provisions contained in the 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 the Trust Agreement, and the 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 the 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 any one or more sections, paragraphs, sentences, clauses or phrases of the Trust Agreement may be held illegal, invalid or unenforceable. C -33 LEASE /PURCHASE AGREEMENT Definitions "Central Library Site" means the portion of the Leased Premises identified as such on Exhibit B to the Lease. "Civic Center Site" means the portion of the Leased Premises identified as such on Exhibit B to the Lease. "Completion Certificate" means the certificate of the City filed with the Trustee and signed by a City Representative, as prescribed by the Lease. "Environmental Regulations" shall mean all Laws and Regulations, now or hereafter in effect, with respect to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (42 U.S.C. Section 9601, et seq.) (together with the regulations promulgated thereunder, "CERCLA "), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et seq.) (together with the regulations promulgated thereunder, "RCRA "), the Emergency Planning and Community Right -to -Know Act, as amended (42 U.S.C. Section 11001, et seq.) (together with the regulations promulgated thereunder, "Title 111), the Clean Water Act, as amended (33 U.S.C. Section 1321 et sec.) (together with the regulations promulgated thereunder, "CWA "), the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.) (together with the regulations promulgated thereunder, "CAA ") and the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et sec.) (together with the regulations promulgated thereunder, "TSCA "), and any state or local similar laws and regulations and any so- called local, state or federal "superfund" or "superlien" law. "Interest Component" means the portion of each Lease Payment designated in Exhibit A to the Lease as the Interest Component. "Leased Premises" means the real property described in Exhibit B to the Lease and the existing improvements thereon being leased to the City by the Corporation. "Permitted Encumbrances" means, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of the Lease, permit to remain unpaid; (ii) the Assignment Agreement; (iii) the 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 taw to the extent permitted under the Lease; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Closing Date, which the City hereby certifies will not materially impair the use of the Leased Premises by the City; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the Lease and to which the Corporation and the City consent in writing. "Principal Component" means the portion of the Lease Payments designated in Exhibit A to the Lease as the Principal Component. "Project" means the improvements described in Exhibit C to the Lease, and any and all additions or substitutions thereto made as provided in the Lease, and any additional improvements financed with the proceeds of Additional Certificates. C -34 "Term" means the term of the Lease as set forth in Lease "Vendors" or "Contractors" means the persons with whom the Corporation, or the City as agent of the Corporation, has contracted for completion of the Project. Representations, Covenants and Warranties Representations, Covenants and Warranties of the City. The City represents, covenants and warrants to the Corporation as follows: Due Organization and Existence. The City is a municipal corporation and a chartered city duly organized and existing under the Constitution and laws of the State. Authorization: Enforceability. The Constitution and laws of the State authorize the City to enter into the 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. The Lease, the Site Lease, the Trust Agreement, the Agency Agreement and the Continuing Disclosure Agreement constitute the legal, valid and binding obligations of the City enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. No Conflicts or Default: No Liens or Encumbrances. Neither the execution and delivery of the 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. Execution and Delivery. The City has duly authorized and executed the Lease in accordance with the Constitution and laws of the State. General Tax and Arbitrage Covenant. The City hereby covenants that, notwithstanding any other provision of the Lease, it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). The City shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates). C -35 The City shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) are outstanding, the City, with respect to the proceeds thereof, the portion of the Leased Premises and the Project intended for public use and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall not, directly or indirectly, use or permit the use of any proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or of the Leased Premises, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). The City shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. The City hereby makes an irrevocable election to receive a refundable credit under Section 54AA(g)(2)(B) of the Code in cash with respect to the City's obligations to make 2010B Lease Payments and covenants to cause such amounts to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments. The City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any other action that would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. Flood Plain. The City hereby represents that the Leased Premises is not in a 100 year flood plain. Essentiality of the Leased Premises. The City hereby represents that the Leased Premises are essential for the City's performance of its governmental functions. 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. C -36 Title Insurance. The City hereby represents that the Leased Premises is the same property which is the subject of the ALTA title insurance policy (with western regional exceptions) CLTA title insurance policy issued by First American Title Insurance Company pursuant to the Lease Agreement. Representations, Covenants and Warranties of the Corporation. The Corporation represents, covenants and warrants to the City as follows: Due Organization and Existence; Enforceability. The Corporation is a 501(c)(4) nonprofit public benefit corporation duly organized, existing and in good standing under the laws of the State, has the power to enter into the 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. The Lease, the Assignment Agreement, the Site Lease, the Agency Agreement and the Trust Agreement constitute the legal, valid and binding obligations of the Corporation, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution and delivery of the Lease, the Assignment Agreement, the Site Lease, the Agency Agreement or the Trust Agreement, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the joint powers agreement of the Corporation or any restriction or any agreement or instrument to which the Corporation is now a party or by which the Corporation is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Corporation, or upon the Leased Premises except by Permitted Encumbrances and by the pledge contained in the Trust Agreement. Execution and Delivery. The Corporation has duly authorized and executed the Lease in accordance with the laws of the State. Maintenance of Existence. To the extent permitted by law, the Corporation agrees that during the term hereof it will maintain its existence as a 501(c)(4) nonprofit public benefit corporation, will not combine or consolidate with or merge into any other entity or permit one or more other entities to consolidate with or merge into it. General Tax and Arbitrage Covenant. The Corporation covenants that, notwithstanding any other provision of the Lease, it shall not take any action if any such action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates intended for public use under Section 103 of the Code (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). C -37 The Corporation shall not take any action if any such action would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) are outstanding, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation, with respect to the proceeds thereof, the portion of the Leased Premises intended for public use, the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), or of the Leased Premises, or other funds available to it, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). To the extent that the Corporation may control the proceeds of the Certificates or any Additional Certificates, the Corporation shall not make any use of the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or any other of its funds, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. To the extent that the Corporation may have control over the proceeds of the 2010B Certificates, the Corporation shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. W Acquisition, Construction and Installation of the Project Deposit of Certificate Proceeds. On the Closing Date for the Certificates and on the Closing Date for any Additional Certificates, the Corporation agrees to pay or cause to be paid to the Trustee the proceeds of the sale of the Certificates and Additional Certificates, which moneys, in the case of the Certificates, shall be deposited with the Trustee as provided in the Trust Agreement, or in the case of Additional Certificates as provided in any Supplemental Trust Agreement which relates to such Additional Certificates. Completion of the Project. The Corporation and the City agree to execute and deliver the Agency Agreement pursuant to which the City, as the agent of the Corporation, will acquire, construct, deliver and install the Project. The City and the Corporation each covenants and agrees to comply with the terms of the Agency Agreement. 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 the Lease Agreement and the Trust Agreement, which shall be disbursed in accordance and upon compliance with the Trust Agreement. Completion Certification. The City and the Corporation expect that the Project will be substantially completed in accordance with plans and specifications described in the Agency Agreement. Upon the completion of acquisition, construction, delivery and installation of the portion of the Project to be financed with the proceeds of the Certificates, and upon the completion of the improvements to be financed with each series of Additional Certificates, the City shall deliver to the Trustee a Completion Certificate with respect thereto. A separate Completion Certificate will be filed with respect to the portion of the Project to be financed from the Certificates and the portion to be financed with each series of Additional Certificates. On the date of filing a Completion Certificate, all excess moneys remaining in the Project Fund for the Certificates or issue of Additional Certificates for which such Completion Certificate is delivered shall be applied in accordance with the provisions of Section 3.04 of the Trust Agreement. Section 3.5. Substitution of or Addition to the Project. The City shall have the right to substitute alternate items for any portion of the Project listed in Exhibit C hereto or provide for additional components of the Project by providing the Trustee with a written certificate in the form contained in Exhibit E hereto, so long as such substitution or addition does not cause, in and of itself, the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments or result in a reduction in the fair rental value of the Leased Premises. Compliance with Law. (a) Public Biddin¢. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all applicable provisions for bids and contracts prescribed by law, including, without limitation, the Public Contract Code and the Government Code of the State. C -39 (b) Wage Rates and Working Hours. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all provisions relating to prevailing wage rates and working hours applicable to it under the laws of the State. (c) Plans and Specifications. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall prepare and adopt plans and specifications for the acquisition, construction and installation of the Project pursuant to the Government Code and Public Contracts Code of the State. Further Assurances and Corrective Instruments. The Corporation and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Premises hereby leased or intended so to be or for carrying out the expressed intention of the Lease. Agreement to Lease; Term of Lease Payments Lease. The Corporation hereby leases the Leased Premises to the City, and the City hereby leases the Leased Premises from the Corporation, upon the terms and conditions set forth herein. The Lease shall not operate as a merger of the City's leasehold estate in the Leased Premises pursuant to the Lease and its fee estate in the Leased Premises and shall not cause the extinguishment of the leasehold interest granted to the Corporation under the Site Lease. Term. The Term of the Lease shall commence on the date of execution hereof and shall end on July 1, 2040, unless extended pursuant to the Lease, or unless terminated prior thereto upon the earliest of any of the following events: (a) Default and Termination. A default by the City and the Corporation's election to terminate the Lease; (b) Payment of All Lease Payments. The payment by the City of all Lease Payments required under the Lease and any Additional Payments required under the Lease; (c) Prepayment. The deposit of funds or Government Obligations with the Trustee in amounts sufficient to pay all Lease Payments as the same shall become due, as provided in the Lease and the Trust Agreement; or (d) Purchase. Upon the exercise by the City of its option to purchase all of the Corporation's interest in the Leased Premises as provided in the Lease; provided, however, that upon exercise by the City of its option to purchase the Corporation's interest in a portion of the Leased Premises, as provided in the Lease, the Lease shall be terminated only with respect to the portion of the Leased Premises purchased. Extension of Lease Term. The Term of the Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all Interest Components and Principal Components represented thereby shall not be fully paid by the City as a result of a default in the payment of Lease Payments, or because the Lease Payments hereunder shall have been abated at any time as permitted by the terms hereof, then the Term shall be extended until all Certificates and Additional Certificates shall be fully paid, except that the Term shall in no event be extended beyond the tenth anniversary of the final scheduled maturity of any Certificate or Additional Certificate. 1 R Lease Pavments (a) Time and Amount. Subject to the provisions of the Lease (regarding abatement in event of loss of use of any portion of the Leased Premises), (regarding option to purchase) and Article X (regarding prepayment of Lease Payments), the City agrees to pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the 2010A Lease Payments and the 2010B Lease Payments (denominated into components of principal and interest, the Interest Component of such Lease Payment being paid semiannually) in the amounts specified in Exhibit A, to be due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) specified in Exhibit A (the "Lease Payment Date ") which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. In the event that any Additional Certificates are executed and delivered pursuant to the Trust Agreement, the City and the Trustee shall execute an amendment to Exhibit A to state the Lease Payments due hereunder as a result of the execution and delivery of such Additional Certificates. The obligation of the City to pay Lease Payments shall commence on the Closing Date for the Certificates. In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the Trustee shall provide prompt written notice to the City of such failure to pay; provided, however, that failure to give such notice shall not excuse any event of default under the Lease. The City's obligation to make 2010B Lease Payments are hereby designated as federally taxable "Build America Bonds" pursuant to the American Recovery Reinvestment Tax Act of 2009 and the provisions of Section 54AA of the Code. (b) Credits. Any amount held in the 2010A Account of the Lease Payment Fund or the 2010B Account of the Lease Payment Fund on any Lease Payment Date (other than capitalized interest, which shall be credited in accordance with the Trust Agreement, and 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 principal with respect to any Certificates or Additional Certificates that have matured or been called for payment and have not been presented for payment or interest) shall be credited towards the applicable Lease Payment then due and payable. The City need not transfer additional cash to the Trustee on any Lease Payment Date if the amounts then held in the Lease Payment Fund (other than those amounts excluded under the prior sentence) are at least equal to the Lease Payment then required to be paid. (c) Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments required in this section, the Lease Payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the original interest rate payable with respect to each Certificate or Additional Certificate, as applicable, represented by such delinquent Lease Payment. (d) No Withholding. Notwithstanding any dispute between the Corporation and the City, including a dispute as to the failure of any portion of the Leased Premises in use by or possession of the City to perform the task for which it is leased, the City shall make all Lease Payments and Additional Payments when due and shall not withhold any Lease Payments pending the final resolution of such dispute. (e) 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 C -41 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 the 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 Corporation's leasehold interest in the Leased Premises at the end of the Term. Budget and Appropriation. The City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due hereunder in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of the annual budget, such amounts shall be included and maintained in such budget as amended. During the Term, the City will furnish annually, on or before August 1 of each year, to the Trustee a certificate of the City Representative stating that all Lease Payments and Additional Payments due hereunder for the applicable Fiscal Year have been included in its annual budget and the amount so included. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the 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. Assignment of Lease Payments. Certain of the Corporation's rights under the Lease, including the right to receive and enforce payment of the Lease Payments, Additional Payments and Prepayments, to be made by the City hereunder, have been assigned absolutely to the Trustee, subject to certain exceptions, pursuant to the Assignment Agreement, to which assignment the City hereby consents. The Corporation hereby directs the City, and the City hereby agrees, to pay to the Trustee at the Trustee's corporate trust office designated in the Trust Agreement, or to the Trustee at such other place as the Trustee shall direct in writing, all Lease Payments, Additional Payments or Prepayments thereof payable by the City hereunder. The Corporation will not assign or pledge the Lease Payments or other amounts derived from the Leased Premises and from its other rights under the Lease except as provided under the terms of the Lease, the Assignment Agreement and the Trust Agreement, or its duties and obligations except as provided under the Lease. Use and Possession. The total Lease Payments due in any Fiscal Year shall be in consideration for the City's right to use and possession of the Leased Premises for such Fiscal Year. During the Term of the Lease, the City shall be entitled to the exclusive use and possession of the Leased Premises, subject only to the Permitted Encumbrances. C -42 Abatement of Lease Payments and Additional Payments. (a) In the Event of Damage, Destruction, Condemnation or Title Defect. Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased Premises, the City shall remain obligated to make Lease Payments which would otherwise be abated (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. The Lease Payments shall be payable from such amounts paid under (i) and (ii) above as an obligation of the City payable from a special fund. (b) 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 the Lease, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Additional Payments. In addition to the Lease Payments, the City shall also pay such amounts ( "Additional Payments ") as shall be required for the payment of all administrative costs of the Corporation relating to the Leased Premises, the Certificates and any Additional Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its interest in the Leased Premises or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to comply with the terms of the Certificates and any Additional Certificates or of the Trust Agreement, including premiums or insurance maintained pursuant to the Lease or to indemnify the Corporation and its employees, officers and directors and the Trustee. All such Additional Payments to be paid hereunder shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing. Net - Net -Net Lease. The Lease shall be deemed and construed to be a "net- net -net lease" and the City hereby agrees that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, reserve deposits, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided herein. C -43 Insurance Public Liability and Leased Premises Damage. (a) Coverage. The City shall maintain or cause to be maintained, throughout the Term hereof, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of any City property or portion thereof. (b) Limits. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $500,000 for damage to property resulting from each accident or event (in each case subject to a deductible clause of not to exceed $500,000). Such public liability and property damage insurance may, however, be in the form of a single limit policy covering all such risks in an amount equal to the liability limits set forth herein. (c) Joint or Self- 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 the Lease, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid. 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). Casualty and Theft Insurance. (a) Casualty and Theft Insurance; Coverage. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of the 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; notwithstanding the foregoing, the City shall not be required to maintain such insurance on the portion of the Leased Premises located on the Civic Center Site until a Completion Certificate has been filed with the Trustee. The City shall not be required to purchase or maintain earthquake or flood insurance with respect to the Leased Premises. (b) Amount. Such insurance shall be in an amount not less than the replacement cost of the Leased Premises, subject to a "deductible clause" not to exceed two hundred fifty thousand dollars ($250,000) for any one loss or, in the case of a flood and earthquake rider, ten percent (10 %) of the coverage obtained. The term "full replacement value" as used in the Lease shall mean the actual replacement cost of the improvements constituting the Leased Premises. WE (c) Joint or Self- Insurance. Such insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Net Proceeds Fund and applied as provided in the Lease. Rental Interruption Insurance. (a) Coverage and Amount. Upon delivery of the Leased Premises to it for occupancy, the City shall maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24 -month period, to insure against loss of rental income from the Leased Premises caused by perils covered by the insurance required to be maintained as provided in the Lease. Such rental interruption insurance shall name the Trustee and the Corporation as additionally insured parties and the Trustee as the loss payee. (b) Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental income or use and occupancy insurance carried by the City but may not be maintained in the form of self - insurance by the City. (c) Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable and proportionately between 2010A Lease Payments and 2010B Lease Payments if there are insufficient Net Proceeds to pay all Lease Payments due in any such Certificate Year. Title Insurance. The City shall obtain and, throughout the Term of the Lease, maintain or cause to be maintained title insurance on the Leased Premises, in the form of an ALTA title policy (with western regional exceptions) or in the form of a CLTA title policy, in an amount equal to the aggregate principal amount of the Certificates and Additional Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same, payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or policies shall insure the City's leasehold estate hereunder in the Leased Premises, subject only to Permitted Encumbrances. All Net Proceeds received under said policy or policies shall be deposited with the Trustee and applied as provided in the Trust Agreement. So long as any of the Certificates and Additional 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 and the owners of any Additional Certificates. The Net Proceeds of such insurance shall be applied as provided in the Lease. General Insurance Provisions. (a) Form of Policies. All policies of insurance required to be procured and maintained pursuant to the Lease and any statements of self - insurance shall be in a form certified by the City Representative or an insurance agent, broker or consultant to the City to comply with the provisions hereof. All such policies shall provide that the insured parties shall be given thirty (30) days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be procured and maintained pursuant to the Lease regarding casualty and theft insurance, rental interruption insurance, and title insurance shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Owners. All required insurance policies must be provided by a commercial insurer rated A by Best or A- and A3 by S &P and Moody's, respectively. All policies shall name the City, the Corporation and the Trustee as insureds and the Trustee as a loss payee. C -45 (b) Payment of Premiums. The City shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease, and shall promptly furnish or cause to be furnished to the Trustee a certificate to such effect, as described in paragraph (d) below. (c) Protection of the Trustee. The Trustee shall not be responsible for the sufficiency or adequacy of any insurance herein required and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. (d) Evidence of Insurance. The City shall cause to be delivered to the Trustee annually on or before August 1 a certificate stating that the insurance policies required by the Lease are in full force and effect. (e) Self Insurance. The City may only elect to self insure pursuant to the Lease if and to the extent such self - insurance method or plan of protection shall afford reasonable protection to the Corporation and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by other cities in the State other than the City. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance shall not be deemed to be self - insurance for purposes hereof. Any self - insurance maintained by the City pursuant to the Lease shall comply with the following terms: (i) The self - insurance program shall be approved in writing by the City's City Manager or Assistant City Manager and an independent insurance consultant in accordance with the California Labor Code and the California Government Code; (ii) The self - insurance program shall include an actuarially sound claims reserve fund out of which each self - insured claim shall be paid; the adequacy of such fund shall be evaluated on a biannual basis by the City Representative in a certified statement delivered to the Trustee; and any deficiencies in any self - insured claims reserve fund shall be remedied in accordance with the recommendation of the City Representative; and (iii) In the event the self - insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City Representative, shall be maintained. Cooperation. The Corporation shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any portion thereof. Damage, Destruction and eminent Domain; Use of Net Proceeds 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 the Lease regarding casualty and theft insurance and title insurance promptly upon receipt thereof, and pursuant to the Trust Agreement, the Trustee shall deposit such Net Proceeds of insurance in the Net Proceeds Fund. The City and/or the Corporation shall transfer to the Trustee any other Net Proceeds (other than Net Proceeds paid under the Lease which shall be applied as described in such sections) received by the City and/or Corporation in the event of any accident, destruction, theft or taking by eminent domain or condemnation with respect to the Project, for deposit in the Net Proceeds Fund. (b) Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph (ii) below, the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as provided in paragraph (ii) below. (i) Certification. The City Representative must certify to the Corporation and the Trustee that: (x) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose, together with any other funds supplied by the City to the Trustee in a subaccount of the Net Proceeds Fund for such purpose, are expected to equal at least 100% of the projected costs of replacement or repair, as demonstrated in an attached reconstruction budget, and (y) Timely Completion. In the event that damage, destruction or taking results, or is expected to result, in an abatement of Lease Payments, such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds, as described in the Lease together with other identified available moneys, will be available to pay in full all Lease Payments coming due during such period as demonstrated in an attached reconstruction schedule. (ii) Requisition. The City Representative must deliver to the Trustee a requisition stating with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation. Each such cost requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confine the accuracy of such facts. Any balance of the Net Proceeds remaining after such replacement or repair has been completed and after payment or provision for payment of all Certificates as provided in the Trust Agreement and all Additional Certificates as provided in any Supplemental Trust Agreement pursuant to which such Additional Certificates are executed and delivered shall be paid to the City after payment of amounts due the Trustee pursuant to the Trust Agreement. (c) Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City's determination that the certification provided in the Lease 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 the Trust Agreement and apply them to prepayment of the Certificates as provided in the Trust Agreement and Additional Certificates as provided in a Supplemental Trust Agreement and prepayment of Lease Payments as provided in the Lease; provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net Proceeds, together with funds then on hand in the Lease Payment Fund are not sufficient to prepay all the Certificates and Additional Certificates then Outstanding, then the City shall not be permitted to certify that repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best interest of the City. In such event, the City shall proceed to repair, replace or improve the Leased Premises as described herein from legally available funds in the then - current Fiscal Year and shall make the required notification to the Trustee pursuant to the Trust Agreement and the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm, or corporation named in the requisition as provided therein. C -47 Covenants with Respect to the Leased Premises 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. Interest in the Leased Premises and the Lease. (a) Corporation Holds Leasehold Interest During Term. During the Term of the Lease, the Corporation does and shall hold a leasehold interest in the Leased Premises pursuant to the Site Lease. The City shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents reasonably required, to maintain and evidence such title and interest at all times during the Term of the Lease. (b) Title Transferred to the City at End of Term. Upon expiration of the Tenn as provided in the Lease, all right, title and interest of the Corporation in and to all of the Leased Premises shall be transferred to and vest in the City, without the necessity of any additional document of transfer. Option to Purchase. The City may exercise an option to purchase the Corporation's interest under the Site Lease and the Lease in the Leased Premises by depositing with the Trustee cash and/or Government Obligations as provided in the Trust Agreement. In such event, all or a portion of the obligations of the City under the Lease, and the security provided by the Lease for said obligations or said portion of the obligations, shall cease and terminate as provided in the Lease, excepting in the case all of the Corporation's interest has been purchased, only the obligation of the City to make, or cause to be made, such Lease Payments from such deposit. In the event Lease Payments and Additional Payments under the Lease have been paid in full, on the date of said deposit, the Corporation's interest in the Leased Premises shall revert and transfer to the City automatically and without further action by the City or the Corporation, and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of the Corporation's interests in the Leased Premises. In the event Lease Payments under the Lease have been paid in part only, on the date of said deposit, the City shall specify a discrete portion of the Corporation's interest in the Leased Premises for reversion and transfer to the City and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of such portion of the Corporation's interest in the Leased Premises; provided, that such portion shall revert and transfer to the City only if the reduction in the fair rental value of the Leased Premises resulting from such reversion and transfer at the time of such reversion and transfer (as determined by an independent appraisal acceptable to the Corporation) is proportionately less than or equal to the reduction in the maximum annual Lease Payments under the Lease resulting from such purchase. Any such deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the Lease. Quiet Enjoyment. During the Term, the Corporation shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall during such Term peaceably and quietly have and hold and enjoy the Leased Premises, without suit, trouble or hindrance from the Corporation, or any person or entity claiming under or through the Corporation except as expressly set forth in the Lease. The Corporation will, at the request of the City, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect the Leased Premises as provided in the Lease. Installation of the City's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or :W3 other property in or upon any portion of the Leased Premises. All such items shall remain the sole property of the City, regardless of the manner in which the same may be affixed to such portion of the Leased Premises, in which neither the Corporation nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to such portion of the Leased Premises resulting from the installation, modification or removal of any such items of equipment. Nothing in the 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. Access to the Leased Premises. The City agrees that the Corporation, any Corporation Representative and the Corporation's successors, assigns or designees shall have the right at all reasonable times to enter upon the Leased Premises or any portion thereof to examine and inspect the Leased Premises. The City further agrees that the Corporation, any such Corporation Representative, and the Corporation's successors, assigns or designees shall have such rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the Leased Premises in the event of failure by the City to perform its obligations hereunder. Maintenance, Utilities, Taxes and Assessments. (a) Maintenance; Repair and Replacement. Throughout the Term of the Lease, as part of the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased Premises shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. In exchange for the Lease Payments herein provided, the Corporation agrees to provide only the Leased Premises, as hereinbefore more specifically set forth. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of the Lease. (b) Tax and Assessments; Utility Charges. The City shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Corporation or the City or levied, assessed or charged against any portion of the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of the Lease as and when the same become due. (c) Contests. The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Corporation and the Trustee with the opinion of an Independent Counsel acceptable to the Corporation, to the effect that, by nonpayment of any such items, the interest of the Corporation in such portion of the Leased Premises will not be materially endangered and that the Leased Premises will not be subject to loss or forfeiture. Otherwise, the City shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Corporation. The Corporation will cooperate fully in such contest, upon the request and at the expense of the City. Modification of the Leased Premises. (a) Additions, Modifications and Improvements. The City shall, at its own expense, have the right to make additions, modifications, and improvements to any portion of the Leased Premises if such WE 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 the Lease. Such additions, modifications and improvements shall not in any way cause an abatement of Lease Payments with respect to the Leased Premises or cause it to be used for purposes other than those authorized under the provisions of State and federal law or in any way which would impair the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates); and the Leased Premises, upon completion of any additions, modifications and improvements made pursuant to this section, shall have an annual fair rental value which is not less than the annual Lease Payments. (b) No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any additions, modifications or improvements made by the City pursuant to this section; provided that if any such lien is established and the City shall first notify or cause to be notified the Corporation of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Trustee (as assignee of the Corporation). The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City. (c) Replacements, Redevelopment and Renovation. The City shall, at its own expense, or with the proceeds of Additional Certificates, have the right to make replacements, redevelopment or renovation of all or a portion of the Leased Premises if the following conditions precedent are satisfied: (i) The City receives an opinion of Special Counsel, a copy of which the City shall furnish to the Corporation and the Trustee, that (1) such replacement does not adversely affect the federal income tax exclusion or the State tax- exempt status of the Interest Component evidenced by the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates) or would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments, and (2) the Lease will remain the legal, valid, binding and enforceable obligation of the City; (ii) In the event such replacement, redevelopment or renovation would result in the temporary abatement of Lease Payments as provided in the Lease the City shall have notified any rating agency then providing a rating on the Certificates and shall deposit moneys with the Trustee in advance for payment of Lease Payments from the proceeds of Additional Certificates or from special funds of the City or other moneys, the application of which would not, in the opinion of Special Counsel (a copy of which shall have been delivered to the Trustee), result in such Lease Payments constituting indebtedness of the City in contravention of the Constitution and laws of the State; (iii) The City shall certify to the Trustee that it has sufficient funds to complete such replacement, redevelopment or renovation; and (iv) In the case of replacement(s), redevelopment or renovation other than from the proceeds of Additional Certificates, the City and the Trustee receive an independent appraisal from a California certified general appraiser that the annual fair rental value of Leased Premises following the replacement, redevelopment or renovation will be at least equal to the annual Lease Payments immediately prior to such replacement, redevelopment or renovation. I1] Encumbrances; Alternative Financing Methods. (a) Encumbrances. Except as provided in the Lease, the City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of the Corporation and the City as herein provided. Except as expressly provided in the Lease, the City shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that the City may contest such liens if it desires to do so. The City shall reimburse the Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. (b) Alternative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims shall at any time while any of the Certificates or Additional Certificates remain Outstanding be and remain subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the benefit of the Owners and (2) the City shall have first delivered to the Trustee an opinion of Special Counsel substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result in the inclusion of the interest with respect to the 2010A Certificates and the Additional Certificates (to extent such Additional Certificates are executed and delivered as tax exempt Certificates) in the gross income of the owners thereof for purposes of federal income taxation or impair the State tax - exempt status of such interest payments and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Corporation's Disclaimer of Warranties. THE CORPORATION MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Corporation be liable for incidental, indirect, special or consequential damages, in connection with or arising out of the Lease, the Site Lease, the Assignment Agreement, the Agency Agreement or the Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. The City's Right to Enforce Warranties of Vendors or Contractors. The Corporation hereby irrevocably appoints the City its agent and attorney -in -fact during the Term of the Lease, so long as the City shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, respecting the Leased Premises which the Corporation may have against any vendor or contractor. The City's sole remedy for the breach of any such warranty, indemnification or representation shall be against the vendor or contractor with respect thereto, and not against the Corporation, nor shall such matter have any effect whatsoever on the rights and obligations of the Corporation with respect to the 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 Corporation shall, upon the City's request and at the City's expense, do all things and take all such actions as the City may request in connection with the assertion of any such claims and rights. C -51 Substitution or Release of the Leased Premises. The City shall have the right to substitute alternate real property for any portion of the Leased Premises described in Exhibit B hereto or to release a portion of the Leased Premises from the lien of the Lease by providing the Trustee with a supplement to the Lease substantially in the form attached as Exhibit D hereto and by satisfying the conditions set forth in the Lease . All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution pursuant to this section, there shall be no reduction in or abatement of the Lease Payments due from the City hereunder as a result of such substitution. No substitution or release shall be permitted hereunder unless: (a) In the case of a substitution, the City provides the Trustee with a certificate that the substituted real property has an equivalent or greater useful life as the Leased Premises to be released and that the useful life of the substituted Leased Premises exceeds the remaining term of the Lease Payments hereunder; (b) an independent California Certified General or equivalent certified real estate appraiser selected by the City finds (and delivers a certificate to the City and the Trustee setting forth its findings) that the Leased Premises following any release or substitution has an annual fair rental value greater than or equal to the corresponding Lease Payments due hereunder so that the Lease Payments payable by the City pursuant to the Lease will not be abated. Notwithstanding the foregoing, upon the filing by the City of the Completion Certificate, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site, provided that the City certifies to the Trustee that at least 90% of the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. (c) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) or CLTA title insurance policy with respect to any substituted property, with an endorsement so as to be payable to the Trustee for the benefit of the Owners, showing no prior liens thereon other than Permitted Encumbrances. Such policy shall comply with the Lease, shall be in the amount equal to the principal component of Lease Payments attributable to the substituted property, and shall insure the leasehold interest or the fee simple interest of the Corporation or the City, as applicable, to the substituted property; (d) the City provides the Corporation and the Trustee with an opinion of Special Counsel that such substitution or release does not cause, in and of itself, the interest evidenced and represented by the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause a loss of the cash subsidy payments from the United States Treasury with respect to the 2010B Certificates; (e) the City shall give, or cause to be given, any notice of the occurrence of such substitution or release required to be given pursuant to the Continuing Disclosure Agreement; and (f) upon the substitution of any real property and improvements thereon for all or a portion of the Leased Premises then existing, or the release of any portion of the Leased Premises, the City, the Corporation and the Trustee shall execute and the City shall record with the office of the County Recorder, County of Orange, California, any document necessary to reconvey to the City the portion of the Leased Premises being released and to include any substituted real property and /or improvements as all or a portion of the Leased Premises. C -52 Compliance with Law, Regulations, Etc. (a) Except as described in subsection (b) below, the City has, after due inquiry, no knowledge and has not given or received any written notice indicating that the past or present use of the Leased Premises or any practice, procedure or policy employed by it in the conduct of its business materially violates any applicable (including federal, state, county and local) law, regulation, code, order, rule, judgment or consent agreement, including, without limitation, those relating to zoning, building, use and occupancy, fire safety, health, sanitation, air pollution, ecological matters, environmental protection, hazardous or toxic materials, substances or wastes, conservation, parking, architectural barriers to the handicapped, or restrictive covenants or other agreements affecting title to the Leased Premises (collectively, "Laws and Regulations "). Without limiting the generality of the foregoing, to the best of its knowledge, after due inquiry, neither the City nor any prior or present owner, tenant or subtenant of the Leased Premises has, other than as set forth in subsections (a) and (b) of this section or as may have been remediated in accordance with Laws and Regulations, (i) used, treated, stored, transported or disposed of any material amount of flammable explosives, polychlorinated biphenyl compounds, heavy metals, chlorinated solvents, cyanide, radon, petroleum products, asbestos, methane, radioactive materials, pollutants, hazardous materials, hazardous wastes, hazardous, toxic, or regulated substances or related materials, as defined in CERCLA, RCRA, CWA, CAA, TSCA and Title 11I, 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) of the Lease with respect to Hazardous Materials are those Hazardous Materials in the amounts ordinarily found in the inventory of, or used in the maintenance of the City's City Hall or related buildings, the use, treatment, storage, transportation and disposal of which has been and shall be in compliance with all Laws and Regulations (the "Permitted Use "). (c) No portion of the Leased Premises located in an area of high potential incidence of radon has an unventilated basement or subsurface portion which is occupied or used for any purpose other than the foundation or support of the improvements to the Leased Premises. Environmental Compliance. (a) Other than the Permitted Use, the City shall not use or permit the Leased Premises or any part thereof to be used to generate, manufacture, refine, treat, store, handle, transport or dispose of, transfer, produce or process Hazardous Materials, except, and only to the extent, if necessary to maintain the improvements on the Leased Premises and then, only in compliance with all Environmental Regulations, and any state equivalent laws and regulations, nor shall it permit, as a result of any intentional or unintentional act or omission on its part or by any tenant, subtenant, licensee, guest, invitee, contractor, employee and agent, the storage, transportation, disposal or use of Hazardous Materials or the Release or threat of Release of Hazardous Materials on, from or beneath the Leased Premises or onto any other Leased Premises excluding, however, those Hazardous Materials in those amounts ordinarily found in the inventory of a municipal corporation, the use, storage, treatment, transportation and disposal of which shall be in compliance with all Environmental Regulations. Upon the occurrence of any Release or threat of Release of Hazardous Materials other than the Permitted Use, the City shall promptly commence and perform, or cause to be commenced and performed promptly, without cost to the Trustee, all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to C -53 clean up and remove all Hazardous Materials so released, on, from or beneath the Leased Premises, in compliance with all Environmental Regulations. Notwithstanding anything to the contrary contained herein, underground storage tanks shall only be permitted subject to compliance with subsection (d) and only to the extent necessary to maintain the improvements on the Leased Premises. (b) The City shall comply with, and shall cause all tenants, subtenants, licensees, guests, invitees, contractors, employees and agents on the Leased Premises to comply with, all Environmental Regulations, and shall keep the Leased Premises free and clear of any liens imposed pursuant thereto; provided, however, that notwithstanding that a portion of this covenant is limited to the City's use of its best efforts, the City shall remain solely responsible for ensuring such compliance and such limitation shall not diminish or affect in any way the City's obligations contained in subsection (c) of the Lease as provided in subsection (c) of the Lease. Upon receipt of any notice from any person with regard to the Release of Hazardous Materials other than the Permitted Use on, from or beneath the Leased Premises, the City shall give prompt written notice thereof to the Trustee prior to the expiration of any period in which to respond to such notice under any Environmental Regulation. (c) Irrespective of whether any representation or warranty contained in the Lease is not true or correct, the City shall, to the extent permitted by law, defend, indemnify and hold harmless the Trustee, the Owners, the Corporation and each of their respective employees, agents, officers, directors, trustees, successors and assigns, from and against any claims, demands, penalties, fines, attorneys' fees (including, without limitation, attorneys' fees and expenses incurred to enforce the indemnification contained in the Lease, consultants' fees and expenses, investigation and laboratory fees and expenses, liabilities, settlements (five Business Days' prior notice of which the Trustee shall have delivered to the City) court costs, damages, losses, costs or expenses of whatever kind or nature, known or unknown, contingent or otherwise, occurring in whole or in part, arising out of, or in any way related to, (i) the presence, disposal, Release, threat of Release, removal, discharge, storage or transportation of any Hazardous Materials on, from or beneath the Leased Premises, (ii) any personal injury (including wrongful death) or Leased Premises damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any lawsuit brought or threatened, settlement reached (five Business Days' prior notice of which the Trustee shall have delivered to the City), or governmental order relating to Hazardous Materials on, from or beneath the Leased Premises, (iv) any violation of Environmental Regulations or subsection (a) or (b) of the Lease by it or any of its agents, tenants, employees, contractors, licensees, guests, subtenants or invitees, and (v) the imposition of any governmental lien for the recovery of environmental cleanup or removal costs. To the extent that the City is strictly liable under any Environmental Regulation, its obligation under the foregoing indemnification shall likewise be without regard to fault on its part with respect to the violation of any Environmental Regulation which results in liability to any indemnitee. The obligations and liabilities under the Lease shall survive the payment and satisfaction of all Certificates and Additional Certificates or resignation or removal of the Trustee. (d) The City shall conform to and carry out a reasonable program of maintenance and inspection of all underground storage tanks, and shall maintain, repair, and replace such tanks only in accordance with Laws and Regulations, including but not limited to Environmental Regulations. Condemnation of Leased Premises. The City hereby covenants and agrees, to the extent it may lawfully do so, that, except as described in the Site Lease, so long as any of the Certificates or Additional Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Leased Premises. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City shall fail or refuse to abide by such covenant and condemns the Leased Premises, then the appraised value of the Leased Premises shall not be less than the sum of. (i) as to Certificates and Additional Certificates then subject to optional prepayment, the principal and interest components of such Certificates and Additional C -54 Certificates outstanding through the date of their prepayment, and (ii) as to Certificates and Additional Certificates not then subject to optional prepayment, the amount necessary to defease such Certificates and Additional Certificates to the first available prepayment date in accordance with the Trust Agreement. Assignment, Subleasing and Amendment Assignment by the Corporation. Except as provided herein, in the Trust Agreement and the Assignment Agreement, the Corporation will not assign the Lease to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in the Lease. Assignment and Subleasing by the Ci (a) Assignment. The Lease may be assigned by the City, so long as such assignment does not, in the opinion of Special Counsel, adversely affect the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds or affect the validity of the Lease. In the event that the Lease is assigned by the City, the obligation to make Lease Payments hereunder shall remain the obligation of the City. (b) Sublease. The City may sublease all or any portion of the Leased Premises subject to all of the following conditions: (i) The Lease and the obligation of the City to make Lease Payments and Additional Payments hereunder shall remain obligations of the City; (ii) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be famished to the Corporation and the Trustee, a true and complete copy of such sublease; and (iii) The City shall furnish to the Corporation and the Trustee, an opinion of Special Counsel to the effect that the sublease will not cause the interest due with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Amendments and Modifications. The Lease may be amended or any of its terms modified with the written consent of the City, the Corporation and the Trustee in accordance with Article X of the Trust Agreement. Events ofDefault and Remedies Events of Default Defined. The following shall be "events of default" under the Lease and the terms "events of default" and "default" shall mean, whenever they are used in the Lease, any one or more of the following events: (a) Payment Default. Failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; and C -55 (b) Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed hereunder or otherwise with respect hereto or in the Trust Agreement or in the Site Lease, other than as referred to in clause (a) of this section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation, the Trustee, or the Owners of not less than twenty percent (20 %) in aggregate principal amount of Certificates and Additional Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Corporation, such Owners, as the case may be, shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected. (c) Bankruptcy or Insolvency. The Sling by the City of a case in bankruptcy, or the subjection of any right or interest of the City under the Lease to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. Remedies on Default. Whenever any event of default referred to in the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything herein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default hereunder, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. (a) No Termination; Repossession and Re -Lease on Behalf of The City. In the event the Corporation does not elect to terminate the Lease in the manner hereinafter provided for in subparagraph (b) of the Lease, the Corporation may, with the consent of the City, which consent is hereby irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City hereby irrevocably appoints the Corporation as the agent and attomey -in -fact of the City to repossess and re -lease the Leased Premises in the event of default by the City in the performance of any covenants contained herein to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in C -56 the County of Orange, for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re- leasing of the Leased Premises. The City hereby waives any and all claims for damage caused or which may be caused by the Corporation in repossessing the Leased Premises as provided herein and all claims for damages that may result from the destruction of or the injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that may be in or upon the Leased Premises. The City agrees that the terms of the Lease constitute full and sufficient notice of the right of the Corporation to re -lease the Leased Premises in the event of such repossession without effecting a surrender of the Lease, and further agrees that no acts of the Corporation in effecting such re- leasing shall constitute a surrender or termination of the 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 the Lease shall vest in the Corporation to be effected in the sole and exclusive manner provided for in subparagraph (b) below. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re- leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement. In the event that the liability of the City under this subsection (a) is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies provided in this subsection (a). (b) Termination; Repossession and Re- Lease. In the event of the termination of the Lease by the Corporation at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Any surplus received by the Trustee, as assignee of the Corporation, from such re- leasing over total Lease Payments shall be remitted to the City. Additional Payments that would have been due hereunder and the fees, expenses and costs of the Trustee as assignee of the Corporation on re- leasing the Leased Premises shall be remitted to the City. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. The City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. (c) Opinion of Special Counsel. The re- leasing of the Leased Premises as provided herein shall be subject to the opinion of Special Counsel that such re- leasing will not cause the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional C -57 Certificates are executed and delivered as tax - exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments with respect to the 2010B Certificates which have been designated as Build America Bonds. (d) No Termination by The City. Under no circumstances may the City terminate the Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation hereunder. No Remedy Exclusive. No remedy conferred herein upon or reserved to the Corporation is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under the 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 Corporation to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. Agreement to Pay Attorneys' Fees and Expenses. In the event either party to the Lease (except for the Trustee, as assignee of the Corporation) should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. No Additional Waiver Implied by One Waiver. In the event any agreement contained in the 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. Application of the Proceeds from the Re -Lease of the Leased Premises. All amounts received by the Corporation under the Lease pursuant to an Event of Default shall, subject to the Trust Agreement, be deposited by the Trustee in the Lease Payment Fund and credited towards the Lease Payments in order of Lease Payment Dates, and proportionally among 2010A Lease Payments and 2010B Lease Payments. Trustee and Owners to Exercise Rights. Such rights and remedies as are given to the Corporation under this Article IX have been assigned by the Corporation to the Trustee under the Assignment Agreement, to which assignment the City hereby consents. Such rights and remedies shall be exercised by the Trustee and the Owners as provided in the Trust Agreement. In addition to the rights and remedies assigned by the Corporation to the Trustee, to the extent that the Trust Agreement and the Lease confer upon or gives or grant to the Trustee any right, remedy or claim under or by reason of the Trust Agreement or the Lease, the Trustee is hereby explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred given or granted. Prepayment of Lease Payments Security Deposit. Notwithstanding any other provision of the 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 the Trust Agreement. In such event, and provided that the City has paid any other amounts due and owing under the Lease and the Trust Agreement, all obligations of the City under the Lease, and all security provided by the Lease for said obligations, shall 13 cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such deposit. On the date of said deposit, title to the Leased Premises shall vest in the City automatically and without further action by the City or the Corporation (except as provided herein). Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of the Lease. The Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the title transfer of the Leased Premises. 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 Certificates and any Additional Certificates) pursuant to the Trust Agreement. The City and the Corporation hereby agree that such Net Proceeds or other moneys shall be credited towards the City's obligations hereunder (except in the case of such Prepayment of the Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual Lease Payments will be proportional to the initial annual Lease Payments. Optional Prepayment. Subject to the terms and conditions of this section, the Corporation hereby grants an option to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment prices set forth in the Trust Agreement and in any Supplemental Agreement. The City shall provide notice to the Trustee at least 45 days prior to the date fixed for prepayment of the Certificates (or on such later date as shall be consented to by the Trustee). The City and the Corporation agree that such prepayments shall be credited toward the City's obligations hereunder corresponding to the resulting prepayment of the Certificates and Additional Certificates in accordance with the Trust Agreement and any Supplemental Agreement on the dates and at the prepayment prices provided therein. Miscellaneous Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received on the earlier of the day of actual receipt or five Business Days after deposit in the United States mail in first -class or certified form, postage prepaid, to the City or the Corporation, as the case may be, at the addresses indicated in the Trust Agreement, The Corporation, the City, and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Binding Effect. ffect. The Lease shall inure to the benefit of and shall be binding upon the Corporation and the City and their respective successors and assigns. Severability. In the event any provision of the Lease shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision of the Lease. Applicable Law. The Lease shall be governed ay and construed in accordance with the laws of the State of California. C -59 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX D BOOK -ENTRY SYSTEM THE INFORMATION IN THIS Appendix D CONCERNING THE DEPOSITORY TRUST COMPANY, NEW YORK, NEW YORK AND ITS BOOK -ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CORPORATION, THE CITY AND THE UNDERWRITERS BELIEVE TO BE RELIABLE, BUT THE CORPORATION, THE CITY AND THE UNDERWRITERS TAKE NO RESPONSIBILITY FOR THE ACCURACY THEREOF. The Depository Trust Company ( "DTC "), New York, New York, will act as securities depository for the Certificates. The Certificates will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered bond certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository is a limited - purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information set forth on such websites is not incorporated by reference. Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ( "Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmations from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. D -1 To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates: DTC records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The Corporation and the City will not have any responsibility or obligation to such Direct Participants and Indirect Participants or the persons for whom they act as nominees with respect to the Certificates. Beneficial Owners of the Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as prepayments, tenders, defaults, and proposed amendments to the Certificates. For example, Beneficial Owners of the Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Prepayment notices will be sent to DTC. If less than all of the Series of a particular maturity are being prepaid, DTC's usual practice is to determine by lot the amount of the interest of each Direct Participant in the Certificates of such maturity to be prepaid. None of the Corporation, the City or the Trustee can provide any assurance that DTC, the Direct Participants or the Indirect Participants will allocate prepayments of the Certificates of a particular maturity among Beneficial Owners on such a proportional basis. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments evidenced by the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Trustee, on payable dates in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC or the Trustee; subject to any statutory, or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. THE CORPORATION, THE CITY AND THE TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF D -2 DTC WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE CERTIFICATES (i) PAYMENTS OF PRINCIPAL OF AND INTEREST EVIDENCED BY THE CERTIFICATES, (ii) CONFIRMATIONS OF THEIR OWNERSHIP INTERESTS IN THE CERTIFICATES OR (iii) OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS PARTNERSHIP NOMINEE, AS THE REGISTERED OWNER OF THE CERTIFICATES, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. NONE OF THE CORPORATION, THE CITY OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OF DTC OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC; (2) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST EVIDENCED BY THE CERTIFICATES; (3) THE DELIVERY BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO OWNERS UNDER THE TERMS OF THE INDENTURE; OR (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS OWNER OF THE CERTIFICATES. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the Corporation, the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry-only transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered to DTC. D -3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX E PROPOSED FORMS OF SPECIAL COUNSEL OPINIONS Upon the issuance of the 2010A Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form: [Date of Delivery] City of Newport Beach Newport Beach, California Re: $ City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease/Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchaser of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $ City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $ City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates "), which will evidence undivided proportionate interests in certain other lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010B Certificates or the 2010B Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement "), the Corporation has assigned to the Trustee the Corporation's right to receive 2010A Lease Payments from the City under the Lease. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: E -1 (1) The obligation of the City to pay 2010A Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2010A Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, 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 minimum tax imposed on individuals and corporations and with respect to corporations will not be included as an adjustment in the calculation of alternate minimum taxable income. (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. Original issue discount that accrues to a Certificate owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph (3) above) and is exempt from State of California personal income tax. (6) The amount by which a Certificate owner's original basis for determining loss on sale or exchange in a 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. The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the E -2 "Code "), that must be satisfied subsequent to the delivery of the Certificates to assure that such 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 interest (and original issue discount) with respect to the Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The City and the Corporation have covenanted to comply with all such requirements. Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any tax consequences with respect to the Certificates. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate executed by the City and other documents related to the Certificates may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax - exempt obligations. We express no opinion as to the effect on the tax consequences on and after the date on which any such change occurs or action is taken or omitted upon advice or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted, E -3 Upon the issuance of the 2010B Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form: [Date of Delivery] City of Newport Beach Newport Beach, California Re: $ City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease/Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchasers of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $ City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $ City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) (the "2010A Certificates") which will evidence direct and undivided proportionate interests in certain other lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010A Certificates or the 2010A Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement "), the Corporation has assigned to the Trustee the Corporation's right to receive 2010B Lease Payments from the City under the Lease. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay 2010B Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on E-4 legal remedies against municipalities in the State of California. The obligation of the City to make 2010B Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) evidenced by the Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) Except for certain exceptions, the difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. (6) The District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable as a part of the 2010B Lease Payments evidenced by Certificates on or about each interest payment date. The cash payment does not constitute a full faith and credit guarantee of the United States Government, but is required to be paid by the United States Treasury under the American Recovery & Reinvestment Act of 2009. Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any tax consequences with respect to the Certificates. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction, and express no opinion as to the enforceability of the choice of law provisions contained in the Trust Agreement. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such E -5 authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. Any federal tax advice contained herein with respect to the Certificates is not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties under the Code. The federal tax advice contained herein with respect to the Certificates was written to support the promoting and marketing of the Certificates. Before purchasing any of the Certificates, all potential purchasers should consult their independent tax advisors with respect to the tax consequences relating to the Certificates and the taxpayer's particular circumstances. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Certificates or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted E -6 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement, dated as of November 1, 2010 (the "Agreement'), by and between the City of Newport Beach (the "City") and Digital Assurance Certification, L.L.C. (the "Dissemination Agent'), is executed and delivered in connection with the $ aggregate principal amount of City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the $ aggregate principal amount of City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Certificates) (Civic Center Project) (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") executed and delivered pursuant to the Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement'), by and among the City, the Newport Beach Public Facilities Financing Corporation (the "Corporation") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). Capitalized terms used in this Agreement which are not otherwise defined in the Trust Agreement shall have the respective meanings specified above or in Article W hereof. The City and the Dissemination Agent agree as follows: ARTICLE I The Undertakin¢ Section I. L Purpose. This Agreement is being executed and delivered solely to assist the Underwriter in complying with subsection (b)(5) of the Rule. Section 1.2. Annual Financial Information. (a) The City shall provide Annual Financial Information with respect to each fiscal year of the City, commencing with fiscal year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the MSRB. (b) The City shall provide, in a timely manner, notice of any failure of the City to provide the Annual Financial Information by the date specified in subsection (a) above to the MSRB. Section 1.3. Audited Financial Statements. If not provided as part of Annual Financial Information by the date required by Section 1.2(a) hereof, the City shall provide Audited Financial Statements, when and if available, to the MSRB. Section 1.4. Material Event Notices. (a) If a Material Event occurs, the City shall provide, in a timely manner, notice of such Material Event to (i) the MSRB and (ii) the Dissemination Agent. (b) Any notice of a defeasance of Certificates shall state whether the Certificates have been escrowed to maturity or to an earlier redemption date and the timing of such maturity or redemption. (c) The Dissemination Agent shall promptly advise the City whenever the Dissemination Agent has actual notice of an occurrence which, if material, would require the City to provide notice of a Material Event hereunder; provided, however, that the failure of the Dissemination Agent so to advise the City shall not constitute a breach by the Dissemination Agent of any of its duties and responsibilities under this Agreement. F -1 Section 1.5. Additional Information. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of Material Event hereunder, in addition to that which is required by this Agreement. If the City chooses to do so, the City shall have no obligation under this Agreement to update such additional information or include it in any future Annual Financial Information or notice of a Material Event hereunder. Section 1.6. Additional Disclosure Obligations. The City acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 as amended, and Rule lOb -5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the City and that, under some circumstances, compliance with this Agreement without additional disclosures or other action may not fully discharge all duties and obligations of the City under such laws. Section 1.7. No Previous Non - Compliance. The City represents that in the previous five years it has not failed to comply in all material respects with any previous undertaking in a written contract or agreement specified in paragraph (b)(5)(i) of the Rule. ARTICLE II Operating Rules Section 2.1. Reference to Other Filed Documents. It shall be sufficient for purposes of Section 1.2 hereof if the City provides Annual Financial Information by specific reference to documents (i) available to the public on the MSRB Internet Web site (currently, www.emma.msrb.org) or (ii) filed with the SEC. The provisions of this Section shall not apply to notices of Material Events pursuant to Section 1.4 hereof. Section 2.2. Submission of Information. Annual Financial Information may be set forth or provided in one document or a set of documents, and at one time or in part from time to time. Section 2.3. Dissemination Agents. The City may from time to time designate an agent to act on its behalf in providing or filing notices, documents and information as required of the City under this Agreement, and revoke or modify any such designation. Digital Assurance Certification, L.L.C. is hereby appointed the initial dissemination agent hereunder. Section 2.4. Transmission of Notices, Documents and Information. (a) Unless otherwise required by the MSRB, all notices, documents and information provided to the MSRB shall be provided to the MSRB's Electronic Municipal Markets Access (EMMA) system, the current Internet Web address of which is www.emma.msrb.org. (b) All notices, documents and information provided to the MSRB shall be provided in an electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 2.5. Fiscal Year. (a) The City's current fiscal year is July 1 to June 30, and the City shall promptly notify (i) the MSRB and (ii) the Dissemination Agent of each change in its fiscal year. (b) Annual Financial Information shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. F -2 ARTICLE III Effective Date, Termination, Amendment and Enforcement Section 3.1. Effective Date; Termination. (a) This Agreement shall be effective upon the issuance of the Certificates. (b) The obligations of the City and the Dissemination Agent under this Agreement shall terminate upon a legal defeasance, prior redemption or payment in full of all of the Certificates. (c) This Agreement, or any provision hereof, shall be null and void in the event that the City (1) delivers to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that those portions of the Rule which require this Agreement, or such provision, as the case may be, do not or no longer apply to the Certificates, whether because such portions of the Rule are invalid, have been repealed, or otherwise, as shall be specified in such opinion, and (2) delivers copies of such opinion to the MSRB. Section 3.2. Amendment. (a) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates (except to the extent required under clause (4)(ii) below), if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the City or the type of business conducted thereby, (2) this Agreement as so amended would have complied with the requirements of the Rule as of the date of this Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the same effect as set forth in clause (2) above, (4) either (i) the City shall have delivered to the Dissemination Agent an opinion of Counsel or a determination by an entity, in each case unaffiliated with the City (such as counsel or the Dissemination Agent), addressed to the City and the Dissemination Agent, to the effect that the amendment does not materially impair the interests of the holders of the Certificates or (ii) the holders of the Certificates consent to the amendment to this Agreement pursuant to the same procedures as are required for amendments to the Trust Agreement with consent of holders of Certificates pursuant to the Trust Agreement as in effect at the time of the amendment, and (5) the City shall have delivered copies of such opinion(s) and amendment to the MSRB. (b) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) an amendment to the Rule is adopted, or a new or modified official interpretation of the Rule is issued, after the effective date of this Agreement which is applicable to this Agreement, (2) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that performance by the City and the Dissemination Agent under this Agreement as so amended will not result in a violation of the Rule and (3) the City shall have delivered copies of such opinion and amendment to the MSRB. (c) This Agreement may be amended by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that the amendment is permitted by rule, order or other official pronouncement, or is consistent with any interpretive advice or no- action positions of Staff, of the SEC, F -3 and (2) the Dissemination Agent shall have delivered copies of such opinion and amendment to the MSRB. (d) To the extent any amendment to this Agreement results in a change in the type of financial information or operating data provided pursuant to this Agreement, the first Annual Financial Information provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (e) If an amendment is made pursuant to Section 3.2(a) hereof to the accounting principles to be followed by the City in preparing its financial statements, the Annual Financial Information for the fiscal year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. Section 3.3. Benefit; Third -Party Beneficiaries; Enforcement. (a) The provisions of this Agreement shall constitute a contract with and inure solely to the benefit of the holders from time to time of the Certificates, except that beneficial owners of Certificates shall be third -party beneficiaries of this Agreement. The provisions of this Agreement shall create no rights in any person or entity except as provided in this subsection (a) and in subsection (b) of this Section. (b) The obligations of the City to comply with the provisions of this Agreement shall be enforceable (i) in the case of enforcement of obligations to provide financial statements, financial information, operating data and notices, by any holder of Outstanding Certificates, or by the Dissemination Agent on behalf of the holders of Outstanding Certificates, or (ii) in the case of challenges to the adequacy of the financial statements, financial information and operating data so provided, by the Dissemination Agent on behalf of the holders of Outstanding Certificates; provided, however, that the Dissemination Agent shall not be required to take any enforcement action except at the direction of the holders of not less than a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided the Trust Agreement) who shall have provided the Dissemination Agent with adequate security and indemnity. The holders' and Trustee's rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the City's obligations under this Agreement. in consideration of the third -party beneficiary status of beneficial owners of Certificates pursuant to subsection (a) of this Section, beneficial owners shall be deemed to be holders of Certificates for purposes of this subsection (b). (c) Any failure by the City or the Dissemination Agent to perform in accordance with this Agreement shall not constitute a default or an Event of Default under the Trust Agreement, and the rights and remedies provided by the Trust Agreement upon the occurrence of a default or an Event of Default shall not apply to any such failure. (d) This Agreement shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Agreement shall be instituted in a court of competent jurisdiction in the State; provided, however, that to the extent this Agreement addresses matters of federal securities laws, including the Rule, this Agreement shall be construed in accordance with such federal securities laws and official interpretations thereof. F -4 ARTICLE IV Definitions Section 4.1. Definitions. The following terms used in this Agreement shall have the following respective meanings: (1) "Annual Financial Information" means, collectively, (i) updated versions of the following financial information and operating data contained in the tables with the following headings in Appendix A to the Official Statement, for each applicable fiscal year of the City, as follows: (A) City of Newport Beach General Fund Balance Sheets; (B) City of Newport Beach General Fund Statement of Revenues, Expenditures and Change in Fund Balance; (C) City of Newport Beach General Fund Budgets; (D) City of Newport Beach Selected Major Revenue Sources; (E) City of Newport Beach Property Tax Rates; (F) City of Newport Beach Assessed Valuation; (G) City of Newport Beach Property Tax Levies and Collections; (H) City of Newport Beach Fifteen Principal Taxpayers; (1) City of Newport Beach Employee Labor Organizations; (J) City of Newport Beach PERS Annual Pension Costs; (K) City of Newport Beach PERS Schedule of Funding Progress; (L) City of Newport Beach Annual OPEB Cost and Net OPEB Obligation; (M) City of Newport Beach Long Term Debt of the City; (N) City of Newport Beach Estimated Direct and Overlapping Debt; and (0) City of Newport Beach Schedule of Investments; and (ii) the information regarding amendments to this Agreement required pursuant to Sections 3.2(d) and (e) of this Agreement. Annual Financial Information shall include Audited Financial Statements, if available, or Unaudited Financial Statements. The descriptions contained in Section 4.1(1)(i) hereof of financial information and operating data constituting Annual Financial Information are of general categories of financial information and operating data. When such descriptions include information that no longer can be generated because the operations to which it related have been materially changed or discontinued, a statement to that effect shall be provided in lieu of such information. Any Annual Financial Information containing modified financial information or operating data shall explain, in narrative form, the reasons F -5 for the modification and the impact of the modification on the type of financial information or operating data being provided. (2) "Audited Financial Statements" means the annual financial statements, if any, of the City, audited by such auditor as shall then be required or permitted by State law or the Trust Agreement. Audited Financial Statements shall be prepared in accordance with GAAP applicable to governmental entities; provided, however, that pursuant to Sections 3.2(a) and (e) hereof, the City may from time to time, if required by Federal or State legal requirements, modify the accounting principles to be followed in preparing its financial statements. The notice of any such modification required by Section 3.2(a) hereof shall include a reference to the specific Federal or State law a regulation describing such accounting principles, or other description thereof. (3) "Counsel" means nationally recognized special counsel or counsel expert in federal securities laws. (4) "GAAP" means generally accepted accounting principles as prescribed from time to time for governmental units by the Governmental Accounting Standards Board, the Financial Accounting Standards Board, or any successor to the duties and responsibilities of either of them. (5) "Material Event' means any of the following events with respect to the Certificates, whether relating to the City or otherwise, if material: (i) principal and interest payment delinquencies; (ii) non - payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax- exempt status of the Certificates; (vii) modifications to rights of Certificateholders; (viii) bond calls (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Certificates; and (xi) rating changes. (6) "MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Agreement. F -6 (7) "Official Statement" means the Official Statement dated November , 2010 of the City relating to the Certificates. (8) "Rule" means Rule 15c2 -12 promulgated by the SEC under the Securities Exchange Act of 1934 (17 CFR Part 240, §240.15c2 -12), as amended, as in effect on the date of this Agreement, including any official interpretations thereof issued either before or after the effective date of this Agreement which are applicable to this Agreement. (9) "SEC" means the United States Securities and Exchange Commission. (10) "Unaudited Financial Statements" means the same as Audited Financial Statements, except that they shall not have been audited. ARTICLE V Miscellaneous Section 5.1. Duties, Immunities and Liabilities of the Dissemination Agent under this Agreement. The Dissemination Agent shall have only such duties under this Agreement as are specifically set forth in this Agreement, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct in the performance of its duties hereunder. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. Section 5.2. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. F -7 IN WITNESS WHEREOF, the parties have each caused this Agreement to be executed by their duly authorized representatives, and the City has caused its corporate seal to be hereunto affixed and attested by an authorized representative, all as of the date first above written. [SEAL] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: LIM Hawkins Delafield & Wood LLP M CITY OF NEWPORT BEACH M An Authorized Representative DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Dissemination Agent M 1 MIX J� Frere reavanaroia sources FSC FSC° C077746 Printed by: ImageMaster, Inc. RATINGS: Moody's: "Aa2" S &P: "AA +" Fitch: "AA +" See "Ratings" herein. NEW ISSUES - BOOK -ENTRY ONLY In the opinion of Stradling Yocca Carlson & Routh, a Professional Corporation, Newport Beach, California ( "Special Counsel'), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and reguireraents described herein,. interest (and original issue discount) evidenced by tae 2010ACei ti finites is excluded from gross income forfederal income tax purposes and is not an item of tax preference jor purposes of calculating the federal alternative minimum tam imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) evidenced by the 2010A Certificates and 2010E Certt icates is exempt from State of California personal income tax. See "TAX MATTERS " herein. �a�W'Oa, CITY OF NEWPORT BEACH m CERTIFICATES OF PARTICIPATION $20,085,000 $106,575,000 4t�aa,.r� 2010A (TAX EXEMPT) 2010B (FEDERALLY TAXABLE DIRECT (CIVIC CENTER PROJECT (CENTRAL PAY BUILD AMERICA BONDS) LIBRARY REFUNDING) (CIVIC CENTER PROJECT) Dated: Date of Delivery Due: July 1, as shown below The City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) in the aggregate principal amount of $20,085,000 (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount. of $106,575,000 (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among the City of Newport Beach (the "City "), the Newport Beach Public Facilities Corporation (the "Corporation') and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee"). The 2010A Certificates evidence fractionat and undivided interests in the right to receive certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to a Lease/Purchase Agreement, dated as of November 1, 2010, by and between the City and the Corporation, pursuant to which the City will sublease from the Corporation certain real property and all the improvements thereon, as more particularly described herein. The 2010B Certificates evidence fractional and undivided interests in the right to receive certain other lease payments (the "2010B Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to the Lease. See "Security and Sources of Payment for the Certificates -Lease Payments" herein. The proceeds of the 2010A Certificates will be applied to prepay certain outstanding certificates of participation and finance a portion of the costs of the acquisition, improvement and equipping of a new Civic Center (the "Civic Center Project "), as described herein. The proceeds of the 2010B Certificates will be applied to provide additional financing for the Civic Center Project, as described herein. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. See "Plan of Financing" and "Estimated Sources and Uses of Funds" herein. The City has designated the 2010B Certificates as "Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive periodic payments from the United States Treasury equal to 35% of the interest payable on the 2010B Certificates. See "The Certificates - Designation of the 2010B Certificates as Build America Bonds" herein. Interest represented by the Certificates is payable on January 1 and July I of each year, commencing on January 1, 2011. Principal installments due with respect to the Certificates are payable annually on July 1 of each year commencing July 1, 2011. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only, in denominations of $5,000, or any integral multiple thereof Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D - "Book -Entry System" attached hereto. The Certificates are subject to prepayment, as described herein. See '"Me Certificates - Optional Prepayment" and "The Certificates - Mandatory Prepayment" herein. (See inside cover) THE CITY IS OBLIGATED TO PAY LEASE PAYMENTS FROM ANY SOURCE OF LEGALLY AVAILABLE FUNDS, AND THE CITY HAS COVENANTED IN THE LEASE TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Certificates will be offered when, as and if executed, delivered, and received by the Underwriters, subject to the approval as to their legality by Strndling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Certain legal matters will be passed upon for the City and the Corporation by David Hunt, City Attorney, and Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, and for the Underwriters by their counsel, Jones Hall, A Professional Law Corporation, San Francisco, California. It is anticipated that the Certificates in definitive form will be available for delivery to DTC in New York, New York, on or about November 30, 2010. STONE &YOUNGBERG De La Rosa & Co. BofA Merrill Lynch Raymond James Dazed: November 17, 2010. MATURITY SCHEDULE $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT /CENTRAL LIBRARY REFUNDING) Maturity Date Principal Interest Price CUSIP, Maturity Date Principal Interest Price CUSIP, (July 1) Amount Rate Yield CUSIP, (July 1) Amount Rate Yield CUSIP, 2011 $1,740,000 2.00% 0.65% 6517791362 2016 $3,060,000 4.00% 2.35% 651779BN9 2012 2,690,000 3.00 0.95 651779BJ8 2017 3,185,000 4.00 2.74 651779BP4 2013 2,775,000 3.00 1.27 651779BK5 2018 410,000 4.00 3.11 651779BQ2 2014 2,860,000 3.00 1.67 651779BL3 2019 425,000 4.00 3.44 651779BRO 2015 2,940,000 4.00 2.00 651779BMI $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) Maturity Date (July 1) Principal Amount Interest Rate Price CUSIP, Maturity Date (July 1) Principal Amount Interest Rate Price CUSIP, 2018 $2,900,000 4.451% 100.00% 651779CA6 2021 $3165,000 5.351 %. 100.00% 651779BT6 2019 2,980,000 4.751 100.00 651779CB4 2022 3,275,000 5.601 100.00 651779BU3 2020 3,065,000 5.051 100.00 651779BS8 2023 3,390,000 5.851 100.00 651779BV1 $17,800,000 7.018% 2010B Term Certificates due July 1, 2030 — Price: 100.00 % — CUSIPt: 651779BY5 $70,000,000 7.168 %2010B Term Certificates due July 1, 2040 — Price: 100.00 % — CUSIP': 65177913Z2 } Copyright, American Bankers Association. CUSIP data is provided by Standard & Poor's CUSIP Service Bureau, a Division of the McGraw -Hill Companies, Inc., and is set forth herein for convenience of reference only. The City, the Corporation and the Underwriter do not assume responsibility for the accuracy of such data. CITY OF NEWPORT BEACH ORANGE COUNTY, CALIFORNIA MAYOR AND CITY COUNCIL Keith D. Curry, Mayor, District 7 Michael F. Henn, Mayor Pro Tem, District 1 Steven Rosansky, Council Member, District 2 Rush Hill, Council Member, District 3 Leslie J. Daigle, Council Member, District 4 Edward D. Selich, Council Member, District 3 Nancy Gardner, Council Member, District 6 CITY STAFF David Kiff, City Manager David R. Hunt, City Attorney Leilani I. Brown, City Clerk Tracy McCraner, Director of Administrative Services/Treasurer Dan Matusiewicz, Deputy Director ofAdministrative Services/Treasurer Stephen Badum, Public Works Director David Webb, City Engineer NEWPORT BEACH PUBLIC FACILITIES CORPORATION Board of Directors Keith D. Curry, Chairman Michael F. Henn, Vice Chairman Leslie Daigle Nancy Gardner Steven Rosansky Edward D. Selich Don Webb David Kiff, Secretary Tracy McCraner, Chief Financial Officer Special Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Disclosure Counsel Hawkins Delafield & Wood LLP Los Angeles, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Trustee The Bank of New York Mellon Trust Company, N.A. Los Angeles, California No dealer, broker, salesperson or other person has been authorized by the City or the Corporation to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Corporation. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale. This Official Statement is not a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been furnished by the City and by other sources which are believed to be reliable. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, the Corporation or any other parties described herein since the date hereof. All summaries of the Certificates, the Trust Agreement, the Lease, the Site Lease and the Assignment Agreement (each as described herein) and other documents summarized herein, are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. The City maintains a website at http: / /www.newportbeachea.gov. However, the information presented on such website is not part of this Official Statement, is not incorporated by reference herein and should not be relied upon in making an investment decision with respect to the Certificates. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. TABLE OF CONTENTS Page INTRODUCTION........................................................................................................... ............................... 1 General...................................................................................................................... ............................... 1 Security and Source of Payment for the Certificates ................................................. ............................... 2 TheCity ..................................................................................................................... ............................... 3 TheCertificates ......................................................................................................... ............................... 3 TaxMatters ................................................................................................................ ............................... 4 ContinuingDisclosure ............................................................................................... ............................... 4 Forward - Looking Statements .................................................................................... ............................... 4 Miscellaneous............................................................................................................ ............................... 4 THE LEASED PREMISES ............................................................................................. ............................... 5 PLANOF FINANCING .................................................................................................. ............................... 7 General...................................................................................................................... ............................... 7 TheCivic Center Project ........................................................................................... ............................... 7 Prepayment of the 1998 Certificates ......................................................................... ............................... 8 ESTIMATED SOURCES AND USES OF FUNDS ....................................................... ............................... 9 THECERTIFICATES ..................................................................................................... ............................... 9 General...................................................................................................................... ............................... 9 Designation of the 2010B Certificates as "Build America Bonds.. ........................... ............................... 9 Book -Entry System ................................................................................................. ............................... 10 OptionalPrepayment ............................................................................................... ............................... 10 MandatoryPrepayment ........................................................................................... ............................... 12 Selection of Certificates for Prepayment ................................................................. ............................... 14 Partial Prepayment of Certificates ........................................................................... ............................... 15 Noticeof Prepayment .............................................................................................. ............................... 15 SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT ............... ............................... 16 Pledgeand Security ................................................................................................. ............................... 16 Pledge of Refundable Credits to 2010B Certificates ............................................... ............................... 17 Assignment of Lease; Sublease of Leased Premises ............................................... ............................... 18 LeasePayments ....................................................................................................... ............................... 18 NoReserve Fund ..................................................................................................... ............................... 19 Insurance................................................................................................................. ............................... 19 Abatement............................................................................................................... ............................... 20 Substitution or Release of the Leased Premises ...................................................... ............................... 20 AdditionalCertificates ............................................................................................ ............................... 21 Remedieson Default ............................................................................................... ............................... 21 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS...................................................................................................... ............................... 23 ArticleXIII A .......................................................................................................... ............................... 23 ArticleXIII B .......................................................................................................... ............................... 23 Proposition46 .......................................................................................................... ............................... 24 Proposition62 .......................................................................................................... ............................... 25 Proposition218 ........................................................................................................ ............................... 25 PropositionlA ......................................................................................................... ............................... 27 Proposition26 .......................................................................................................... ............................... 28 FutureInitiatives ...................................................................................................... ............................... 28 RISKFACTORS ........................................................................................................... ............................... 28 Nota Pledge of Taxes ............................................................................................. ............................... 28 (i) Additional Obligations of the City .......................................................................... ............................... 29 Default; Remedies Upon Default ............................................................................ ............................... 29 Limitationson Remedies ......................................................................................... ............................... 30 Abatement............................................................................................................... ............................... 31 Risk of Nonpayment of Refundable Credits ............................................................ ............................... 31 SeismicEvents ........................................................................................................ ............................... 31 THE CORPORATION .................................................................................................. ............................... 32 TAXMATTERS ............................................................................................................ ............................... 32 CERTAIN LEGAL MATTERS ..................................................................................... ............................... 35 FINANCIAL STATEMENTS ....................................................................................... ............................... 36 LITIGATION................................................................................................................. ............................... 36 UNDERWRITING........................................................................................................ ............................... 36 FINANCIALADVISOR ............................................................................................... ............................... 36 CONTINUING DISCLOSURE ..................................................................................... ............................... 37 RATINGS...................................................................................................................... ............................... 37 MISCELLANEOUS...................................................................................................... ............................... 37 APPENDICES APPENDIX A CITY OF NEWPORT BEACH FINANCIAL INFORMATION AND REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMAITON .... ............................A -1 APPENDIX B CITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE30, 2009 ........................................................................................... ............................B -1 APPENDIX C — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ........................ ............................... CA APPENDIX D — BOOK -ENTRY SYSTEM ......................................................................... ............................D -I APPENDIX E — FORMS OF SPECIAL COUNSEL OPINIONS ..................................... ............................... E -1 APPENDIX F — FORM OF CONTINUING DISCLOSURE AGREEMENT .................. ............................... F -1 (ii) CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION $20,085,000 $106,575,000 2010A (TAX EXEMPT) 2010B (FEDERALLY TAXABLE DIRECT PAY (CIVIC CENTER PROJECT /CENTRAL BUILD AMERICA BONDS) LIBRARY REFUNDING) (CIVIC CENTER PROJECT) INTRODUCTION This introduction contains only a brief summary of certain terms of the Certificates being offered, and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of provisions of the Constitution and laws of the State of California and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Trust Agreement and the Lease (herein defined). See Appendix C — "Summary of Principal Legal Documents — Definitions" attached hereto. General This Official Statement, including the cover page, the inside cover page and the Appendices attached hereto (the "Official Statement "), provides certain information concerning the sale and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) in the aggregate principal amount of $20,085,000 (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $106,575,000 (the "201013 Certificates" and, together with the 2010A Certificates, the "Certificates "). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010, by and among the City of Newport Beach (the "City "), the Newport Beach Public Facilities Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). The proceeds of the 2010A Certificates will be applied to prepay the outstanding City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "), and finance a portion of the costs of the acquisition, improvement and equipping of a new Civic Center (the "Civic Center Project"), as described herein. The proceeds of the 2010B Certificates will be applied to provide additional financing for the Civic Center Project, as described herein. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. See "Plan of Financing" and "Estimated Sources and Uses of Funds" herein. In connection with the prepayment of the 1998 Certificates and the financing of the Civic Center Project, the City will lease certain real property and all improvements thereon, as more particularly described herein (the "Leased Premises "), to the Corporation pursuant to a Site Lease, dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Corporation. The City will sublease the Leased Premises from the Corporation pursuant to a Lease/Purchase Agreement, dated as of November 1, 2010 (the "Lease "), by and between the City and the Corporation. The 2010A Certificates evidence the right to receive certain fractional and undivided interests in the right to receive certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. The 201013 Certificates evidence fractional and undivided interests in the right to receive certain other lease payments (the "201013 Lease Payments" and, together with the 2010A Lease Payments, the "Lease Payments ") to be made by the City pursuant to the Lease as rental for the Leased Premises. Security and Source of Payment for the Certificates Under the Lease, in consideration for the use and occupancy of the Leased Premises, the City has agreed to make certain payments designated as Lease Payments and certain other payments designated as Prepayments with respect to the Leased Premises (the "Prepayments "), in the amounts, at the times and in the manner set forth in the Lease. Lease Payments are scheduled to be sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. The City has covenanted in the Lease to take such action as may be necessary to include all Lease Payments and such amounts as shall be required for the payment of all administrative costs and charges (the "Additional Payments ") (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. Pursuant to an Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Trustee and the Corporation, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates all of the Corporation's rights, title, and interest under the Site Lease and all of the Corporation's rights, title and interest under the Lease (excepting only the Corporation's rights to indemnity, the payment of its fees and expenses and certain consents and approvals), including the right to receive Lease Payments, Prepayments and Additional Payments from the City under the Lease or the Trust Agreement, as applicable. See Appendix C — "Summary of Principal Legal Documents" attached hereto. THE CITY IS OBLIGATED TO PAY LEASE PAYMENTS FROM ANY SOURCE OF LEGALLY AVAILABLE FUNDS, AND THE CITY HAS COVENANTED IN THE LEASE TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The City's obligation to pay Lease Payments is, however, subject to abatement in the event of damage, destruction, condemnation or title defect that causes a substantial interference with the use and possession of all or a portion of the Leased Premises by the City. During periods of abatement, the City shall remain obligated to make Lease Payments and Additional Payments under the Lease, as an obligation of the City payable from a special fund, (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. See "Security and Sources of Payment for the Certificates — Lease Payments" and "— Abatement' ' herein. The City The City was incorporated under the general laws of the State on September 1, 1906. The City is located in the coastal center of the County of Orange (the "County "), approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. As of 2010, the City had a permanent population of 86,738, which typically grows to over 100,000 during the summer months, including 20,000 to 100,000 tourists daily. The City's adopted budget for Fiscal Year 2010 -11 (the "Fiscal Year 2010 -11 Adopted Budget ") is approximately $226.7 million, approximately $149.3 million of which relates to the City's General Fund. See Appendix A — "City of Newport Beach Financial Information and Regional Economic and Demographic Information" and Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached hereto. The Certificates The Certificates will be executed and delivered in the form of fully registered certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be dated their date of delivery (the "Delivery Date ") and mature on the dates set forth on the inside cover page hereof. The interest represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and 2010B Lease Payments, respectively, designated as interest components coming due on the Interest Payment Dates in each year (each an "Interest Component "). The principal represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and the 2010B Lease Payments, respectively, designated as principal components coming due on the applicable Interest Payment Dates in each year (each a "Principal Component "). Interest represented by the Certificates is payable on January 1 and July 1 of each year, commencing on January 1, 2011 (each, an "Interest Payment Date "). The City has designated the 2010B Certificates as `Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive periodic payments ( "Refundable Credits ") from the United States Treasury equal to 35% of the interest payable on the 2010B Certificates. The Certificates will be issued in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "), which will act as securities depository for the Certificates. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D — "Book -Entry System" attached hereto. The Certificates are subject to prepayment, as described herein. See "The Certificates — Optional Prepayment" and "The Certificates — Mandatory Prepayment" herein. Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( "Special Counsel "), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) evidenced by the 2010A Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) evidenced by the 2010A Certificates and 2010B Certificates is exempt from State of California personal income tax. See "TAX MATTERS" herein. Continuing Disclosure The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System (the "Repository") for purposes of Rule 15c2- 12(b)(5) (the "Rule ") adopted by the Securities and Exchange Commission certain annual financial information and operating data and, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriters in complying with the Rule. See "Continuing Disclosure" herein for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement pursuant to which such reports are to be made. The City has complied in all material respects in the last five years with each of its previous undertakings with regard to the Rule to provide annual reports and notices of material events. Forward - Looking Statements Certain statements included or incorporated by reference in the Official Statement constitute "forward- looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. The achievement of certain results or other expectations contained in such forward- looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. Although such expectations reflected in such forward - looking statements are believed to be reasonable, there can be no assurance that such expectations will prove to be correct. Neither the City nor the Corporation is obligated to issue any updates or revisions to the forward - looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur, whether or not they prove to be correct. Miscellaneous The Certificates will be offered when, as and if issued, and received by the Underwriters, subject to the approval as to their legality by Special Counsel and certain other conditions. The description herein of the Trust Agreement, the Site Lease, the Lease and the Assignment Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and the information with respect thereto included in the aforementioned documents. See Appendix C — "Summary of Principal Legal Documents" attached hereto. Copies of the documents are on file and available for inspection at the Corporate Trust Office of the Trustee at The Bank of New York Mellon Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017. J The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Corporation since the date hereof. THE LEASED PREMISES Pursuant to the Site Lease, the City will lease to the Corporation the Leased Premises. Pursuant to the Lease, the Corporation will lease the Leased Premises back to the City, and the City will make Lease Payments in consideration for the use and occupancy of the Leased Premises. The Leased Premises will initially consist of nine separate properties with an estimated aggregate value of $128.9 million. Each of these Leased Premises is described below: Newport Coast Community Center. The Newport Coast Community Center (the "Community Center ") is a 16,865 square -foot facility located at 6401 San Joaquin Hills Road in Newport Coast. The Community Center includes two conference rooms, a banquet room, warming kitchen, gymnasium, library book drop, indoor /outdoor stage and large outdoor patio, and is situated on 133,548 square feet of land. Constructed in 2007, the Community Center is valued at approximately $17.6 million. OASIS Senior Center. The OASIS Senior Center (the "Senior Center ") consists of three single - story buildings connected by covered walkways. The wood framed, 36,467 square -foot facility is located at 800 Marguerite Avenue in Corona Del Mar, at the intersection of Marguerite Avenue and Fifth Avenue, on 169,884 square feet of land. This state -of -the -art facility was designed by Robert R. Coffee, Architect & Associates of Newport Beach and houses educational classrooms, art and crafts programs, health and fitness activities, social and assembly functions, and administrative offices. The Senior Center also includes meeting and services rooms, family rooms, a library, a computer room, an activities/banquet hall, walkways through the outdoor areas, various active and passive park amenities and a parking area. The Senior Center is valued at approximately $29.8 million. Central Library. The Central Library (the "Central Library ") is a two -story, 50,930 square -foot facility located at 1000 Avocado Avenue in Newport Beach, near the intersection of MacArthur Boulevard and Pacific Coast Highway, on 174,240 square feet of land (the "Central Library Site "). The Central Library was designed by Simon Martin -Vegue Winkelstein Moris of San Francisco in association with James L. Pirdy of Newport Beach and includes a children's room, a young adult area, a public meeting room and exhibit space for highlighting works of community artists. The Central Library houses current books, magazines, newspapers, sound and video recordings and various reference collections. The Central Library was constructed in 1997 with proceeds of the 1998 Certificates, all of which will be prepaid with a portion of the proceeds of the 2010A Certificates, as further described below. See "Plan of Financing — Prepayment of the 1998 Certificates" herein. The Central Library is valued at approximately $28.7 million, prior to the improvements to be financed with a portion of the proceeds of the Certificates. See "Plan of Financing - The Civic Center Project" herein. Mariners Library. The Donna and John Crean Mariners Branch Library (the "Manners Library") is a one -story, 15,305 square -foot linear design built facility located at 1300 Irvine Avenue in Newport Beach on 64,355 square feet of land. The Mariners Library was designed by Thirtieth Street Architects of Newport Beach and serves as a public library for local residents and the school library for Mariners Elementary School. The Mariners Library features high ceilings and many windows to allow natural lighting in the main reading areas, which look out on Mariners Park. Highlights of the Mariners Library include the Friends Children's Room, the Teen Corner, separate computer centers for adults, teens, and children, self -serve checkout machines as well as a fully- staffed customer service desk, wireless Internet 5 access throughout facility, and the Vincent Jorgensen Room, with a student study center for after - school and community programs. Constructed in 2006, the Mariners Library is valued at approximately $10.1 million. Fire Station 3. Fashion Island Fire Station 3 ( "Fire Station 3 ") is a 13,605 square -foot facility located at 868 Santa Barbara Drive in Newport Beach. Fire Station 3 is a two -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room, a conference room, a communications room and dormitories on 49,380 square feet of land. Constructed in 1971, Fire Station 3 is valued at approximately $8.1 million. Fire Station 4. Balboa Island Fire Station 4 ( "Fire Station 4 ") is a 4,400 square -foot facility located at 124 Marine Avenue in Newport Beach. Fire Station 4 is a two -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room and a dormitory on 4,482 square feet of land. Constructed in 1994, Fire Station 4 is valued at approximately $3.9 million. Fire Station 7. Santa Ana Heights Fire Station 7 ( "Fire Station 7 ") is an 11,027 square -foot facility located at 20401 Acacia Avenue in Newport Beach. Fire Station 7 is primarily a single -story structure that houses, among other things, an apparatus room, a shop, storage rooms, administrative offices, a kitchen, a dining room, a fitness room, dormitories and a training room on 91,912 square feet of land. Constructed in 2007, Fire Station 7 is valued at approximately $11.3 million. Police Station. The Newport Beach Police Station (the "Police Station ") is a 47,964 square -foot facility located at 870 Santa Barbara Drive in Newport Beach, at the intersection of Jamboree Road and Santa Barbara Drive, on 118,152 square feet of land. The Police Station houses the Newport Beach Police Department and includes conference rooms, meeting and interrogation rooms, a training room, a kitchen, offices, a reference room, evidence and property rooms, a communications center, a command center, holding cells, a juvenile detention area, a fitness center, a shop a garage, an on -site fueling station and a roof -top helipad. Constructed in 1973, the Police Station is valued at approximately $19.4 million. Civic Center Site. The site for the Civic Center Project is located at 1100 Avocado Avenue, 1300 Avocado Avenue and 1450 Avocado Avenue in Newport Beach and consists of 698,331 square feet of land. The value of the Civic Center Site, under its current land use, has not been determined. See "Plan of Financing — The Civic Center Project' herein for a description of the improvements to be financed with a portion of the proceeds of the Certificates. Upon completion of the Civic Center Project, the City expects to exercise its option to release the Community Center, the Senior Center, the Mariners Library, Fire Station 3, Fire Station 4, Fire Station 7 and the Police Station from the lien of the Lease such that only Civic Center Project (consisting of the Central Library and the Civic Center Site, each as improved as described under "Plan of Financing — The Civic Center Project') will constitute the Leased Premises. See "Plan of Financing — The Civic Center Project' herein. The City is permitted to substitute other real property for all or a part of the Leased Premises upon compliance with all of the conditions set forth in the Lease and the Trust Agreement. See Appendix C — "Summary of Principal Legal Documents — The Lease — Substitution or Release of the Leased Premises" attached hereto. 11 PLAN OF FINANCING General The 2010A Certificates are being executed and delivered to prepay the 1998 Certificates currently outstanding in the principal amount of $3,990,000 and finance the acquisition, improvement and equipping of the Civic Center Project. The 2010B Certificates are being executed and delivered to provide additional financing for Civic Center Project. The proceeds of the Certificates will also be applied to pay certain costs of issuance incurred in connection with the Certificates. The Civic Center Project Project Components. The Civic Center Project consists of the design, construction and development or expansion of various public buildings and spaces on two parcels inland of the Newport Beach Central Library and bordered by Avocado Avenue and MacArthur Boulevard. In particular, the Civic Center Project includes: • Design and development of the City's fifth largest park on 16 -acres of land, which will include a dog park, a civic lawn for outdoor events, places for art, a restored wetlands, 1.23 miles of walking and viewing trails, a belvedere and other view opportunities, and restrooms. • Design and expansion of the Central Library by 17,000 square feet and effectively linking the Central Library and Civic Center. The expansion of the Central Library will include improvements to the children's programs room, reading rooms, a sound and video room, expansion of the restrooms and the addition of a cafe and credit union. • Design and construction 450 -space parking structure to accommodate up to 350 cars associated with the City office building and 100 cars associated with use for the Central Library. • Design and construction of an emergency readiness center to serve as the permanent home of the City's emergency response team. • Design and construction of a new community room that seats up to 150 persons and opens to an outside covered area. This new community room will be made available for lectures, arts programs, and other community events. • Design and construction of new City Council Chambers that seat up to 150 persons and double as community meeting space when not being used by the City Council or its commissions. • Design and construction of a new City office building that will house approximately 240 employees who work at City Hall and include a large "One Stop Shop" to improve customer service for persons seeking parking permits or getting planning or building approvals. The office building will replace the `old" City Hall, now located at 3300 Newport Boulevard on the Balboa Peninsula. The City Charter has been amended to direct that City Hall be moved to the location at 1100 Avocado Avenue. The City Council is exploring potential uses for the "old" City Hall site. 7 If construction costs permit, design and construction of a pedestrian bridge that would allow walkers to safely cross over San Miguel Avenue without impacting vehicular traffic. The City will seek to attain at least a Leadership in Energy and Environmental Design Silver designation for the Civic Center Project. To attain such designation, design of the Civic Center Project must include passive heating and cooling systems in the City office building, including a raised floor system and advanced lighting technologies, Califomia - friendly landscaping in the main portion of the park, adjacent transit facilities and other means to increase the number of City workers who carpool, bike to work, or use alternative fuel vehicles and a building orientation that maximizes the ability for natural ventilation and natural light. Project Schedule. Design development has been completed. Construction documentation, site excavation and mass grading of over 280,000 cubic yards of dirt began in spring of 2010 and are expected to be completed by late 2010. The extensive earth removal is intended to assure that the parking structure and City office building stay below an approved "view plane" that protects the public's view of the harbor and ocean from MacArthur Boulevard. Construction of the parking structure is scheduled to begin in late 2010 and conclude by fall of 2011. Bidding and contact award for the park and building construction is expected to occur in late 2010, with construction scheduled to commence in early 2011 and project completion, park opening and City office building occupation scheduled for late 2012. Project Professionals. The City's design and engineering team will consist of Bohlin Cywinski Jackson, an architecture, planning and interior design firm, Peter Walker & Partners, landscape architects, and Arup, a firm of designers, planners, engineers, consultants and technical specialists. The City retained C.W. Driver to serve as the City's construction manager and LSA Associates to complete the environmental work for the Civic Center Project. Prepayment of the 1998 Certificates The 1998 Certificates were executed and delivered to prepay the City of Newport Beach Certificates of Participation, Series 1992, the proceeds of which were applied to the acquisition and construction of the Central Library. The City has deposited moneys into the Escrow Fund established under the Escrow Agreement, dated as of October 29, 2010 (the "Escrow Agreement "), by and between the City and U.S. Bank National Association (the "Escrow Agent "), as escrow agent thereunder in an amount, together with other moneys on deposit in the funds and accounts for the 1998 Certificates, is sufficient to prepay the 1998 Certificates on December 1, 2010 (the "Prepayment Date ") at the prepayment price of 100% (expressed as a percentage of the principal amount to be prepaid), plus accrued interest thereon to the Prepayment Date. Accordingly, the 1998 Certificates have been defeased pursuant to the defeasance provisions of the 1998 Trust Agreement. Upon execution and delivery of the 2010A Certificates and in accordance with the provisions of the Escrow Agreement, the City will replace $3,525,828 of the amounts heretofore deposited in the Escrow Fund with $3,525,828 of the proceeds of the 2010A Certificates and cause such proceeds to be used to defease the 1998 Certificates on the Prepayment Date. ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Certificates, together with other moneys available therefor, are expected to be applied approximately as follows: Sources: Principal Amount of Certificates Original Issue Premium 1998 Reserve Fund Total Sources Uses: Project Fund Escrow Fund Costs of Issuance(l) Total Uses 2010A Certificates $ 20,085,000.00 1,155,299.55 565,655.00 2010B Certificates $ 106,575,000.00 Total $ 126,660,000.00 1,155,299.55 565,655.00 $ 21,805,954.55 $ 106,575,000.00 $ 128,380,954.55 S 17,509,969.90 4,091,512.50 204,472.15 $ 21,805,954.55 $ 105,490,030.10 1,084,969.90 $ 106,575,000.00 $123,000,000.00 4,091,512.50 1,289,442.05 $ 128,380,954.55 Includes underwriting discount, rating agencies fees, financial advisor fees and expenses, title insurance fees, legal fees and expenses, . trustee fees and expenses, printing costs and other costs of issuance. THE CERTIFICATES General The Certificates will be dated their Delivery Date and principal with respect to the Certificates will be payable on the dates set forth on the inside cover page of this Official Statement. The interest represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and 2010B Lease Payments, respectively, designated as the Interest Components coming due on the Interest Payment Dates in each year. The principal represented by the 2010A Certificates and the 2010B Certificates will represent the sum of the portions of the 2010A Lease Payments and the 2010B Lease Payments, respectively, designated as Principal Components coming due on the applicable Interest Payment Dates in each year. Interest with respect to the Certificates will be payable semiannually on each January 1 and July 1 of each year, commencing on January 1, 2011 and will be calculated on the basis of a 360 -day year of twelve 30 -day months. Each Certificate shall bear interest from the Interest Payment Date next preceding the date of execution thereof, unless (i) it is executed during the period from the day after the "Record Date" (being the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day) for an Interest Payment Date to and including such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is executed on or prior to the Record Date for the first Interest Payment Date, in which event interest shall be payable from the Delivery Date; provided, however, that if, at the time of execution of any Certificate interest with respect to such Certificate is in default, such Certificate shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Certificate. Designation of the 2010B Certificates as `Build America Bonds" The City has designated the 2010B Certificates as "Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest with respect to the 2010B Certificates is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. The City expects to receive Refundable Credits from the United States Treasury equal to 35% of the interest payable on the 2010B Certificates. Pursuant to the Lease, all of the Refundable Credits received by the City are to be deposited to the 2010B Account of the Lease Payment Fund as a credit against the City's obligation to pay the Interest Component of the 2010B Lease Payments, and are pledged to the payment of the 2010B Certificates. The City is obligated to pay 2010B Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor, which applies regardless of receipt of the Refundable Credits. Book -Entry System The Certificates will be executed and delivered in the form of fully registered certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be delivered in fully registered form only, and, when issued, will be registered in the name of Cede & Co., as nominee of DTC, which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal and interest payments represented by the 2010A Certificates are payable directly to DTC by the Trustee from 2010A Lease Payments. Principal and interest payments represented by the 2010B Certificates are payable directly to DTC by the Trustee from 2010B Lease Payments. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to direct participants of DTC, who will in turn disburse such payments to the beneficial owners of the Certificates. See Appendix D — "Book -Entry System" attached hereto. Optional Prepayment Optional Prepayment. The 2010A Certificates are not subject to prepayment prior to maturity Extraordinary Optional Prepayment of2010B Certificates. The 2010B Certificates are subject to extraordinary prepayment prior to their respective maturities, at the option of the City, upon the occurrence of an Extraordinary Event, as a whole or in part, on any date, and in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. "Extraordinary Event" means (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such Sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the tax certificate for the 2010B Certificates, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. Optional Prepayment of 2010E Certificates with Make -Whole Payment. The 2010B Certificates will be subject to prepayment prior to maturity at the option of the City, as a whole or in part, on any Business Day in the event the City exercises its option under the Lease to prepay the 2010B Lease Payments at the applicable Make -Whole Prepayment Price. "Make -Whole Prepayment Price" means the greater of (1) the original issue price (but not less than 100 %) of such Principal Component of the 2010B Lease Payments to be prepaid; or (2) the Principal Component of the 2010B Lease Payment to be prepaid plus the Make -Whole Premium, together, in each case, with accrued interest, if any, to the date fixed for prepayment of the 2010B Certificates. 10 "Make -Whole Premium" means, with respect to any 2010B Certificate to be prepaid, an amount calculated by an Independent Banking Institution equal to the positive difference, if any, between: (a) the sum of the present values, calculated as of the date fixed for prepayment of: (i) each Interest Component that, but for the prepayment, would have been payable with respect to the 2010B Lease Payment or portion thereof being prepaid on each regularly scheduled Lease Payment Date occurring after the date fixed for prepayment through the maturity date of the corresponding 2010B Certificate (excluding any accrued interest for the period prior to the date fixed for prepayment); plus (ii) the Principal Component that, but for such prepayment, would have been payable on the maturity date (or applicable mandatory sinking fund prepayment date or dates) with respect to the 201013 Certificate or portion thereof being prepaid; minus (b) the principal amount of the 2010B Lease Payment or portion thereof being prepaid. The present values of the Interest Components and Principal Components referred to in (a) above will be determined by discounting the amount of each such Interest Components and Principal Components from the date that each such payment would have been payable but for the prepayment to the date fixed for prepayment on a semiannual basis (assuming a 360 -day year consisting of twelve (12) 30 -day months) at a discount rate equal to the Comparable Treasury Yield, plus (1) with respect to a 2010B Certificate prepaid as described under "Extraordinary Optional Prepayment of 2010B Certificates ", 100 basis points, or (2) with respect to a 2010B Certificate prepaid as described under the "Optional Prepayment of 2010B Certificates with Make - Whole Payment", 40 basis points. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Comparable Treasury Issue" means, with respect to any prepayment date for a particular 2010B Certificate evidencing a 2010B Lease Payment, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the 2010B Certificates evidencing 2010B Lease Payments to be prepaid. "Comparable Treasury Price" means, with respect to any prepayment date for a particular 2010B Certificate, either (a) the average of five Reference Treasury Dealer quotations for the date fixed for prepayment, after excluding the highest and lowest such quotations, and (b) if the Independent Banking Institution is unable to obtain five such quotations, the average of the quotations that are obtained. The quotations will be the average, as determined by the Independent Banking Institution, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of principal amount) quoted in writing to the Independent Banking Institution, at 5:00 p.m. New York City time on any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. 11 "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the City. If the City fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for prepayment, or if the Independent Banking Institution appointed by the City is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee. "Comparable Treasury Yield" means the yield which represents the weekly average yield to maturity for the preceding week appearing in the most recently published statistical release designated "H.15(519) Selected Interest Rates" under the heading "Treasury Constant Maturities," or any successor publication selected by the Independent Banking Institution that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity, for the maturity corresponding to the remaining term to maturity of the 2010B Certificate being prepaid. The Comparable Treasury Yield will be determined as of any Business Day that falls not less than three Business Days nor more than 45 calendar days immediately preceding the applicable date fixed for prepayment. If the H.15(519) statistical release sets forth a weekly average yield for United States Treasury securities that have a constant maturity that is the same as the remaining term to maturity of the 2010B Certificate being prepaid, then the Comparable Treasury Yield will be equal to such weekly average yield. In all other cases, the Comparable Treasury Yield will be calculated by interpolation on a straight -line basis, between the weekly average yields on the United States Treasury securities that have a constant maturity (i) closest to and greater than the remaining term to maturity of the 2010B Certificate being prepaid; and (ii) closest to and less than the remaining term to maturity of the 2010B Certificate being prepaid. Any weekly average yields calculated by interpolation will be rounded to the nearest 1 /100th of 1 %, with any figure of 1 /200th of 1% or above being rounded upward. If, and only if, weekly average yields for United States Treasury securities for the preceding week are not available in the H.15(519) statistical release or any successor publication, then the Comparable Treasury Yield will be the rate of interest per armum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) at the Comparable Treasury Price as of the date fixed for prepayment. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010B Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. "Reference Treasury Dealer" means any firm, specified by the City from time to time, that is a primary United States Government securities dealer in the City of New York (a "Primary Treasury Dealer "); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. Mandatory Prepayment Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof (the "Net Proceeds "), which the Trustee shall deposit in the Prepayment Fund at least 45 days prior to the date fixed for prepayment and credited towards the prepayment made by the City pursuant to the Lease, at a 12 prepayment price equal to the principal amount thereof together with accrued interest to the date fixed for prepayment, without premium. Mandatory Sinking Account Payment. The 2010B Certificates maturing July 1, 2030 (the "2030 Term 2010B Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2030 Term 2010B Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2030 Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2030 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. Mandatory Prepayment Date Sinking (July 1) Account Payment 2024 $ 2,620,000 2025 2,580,000 2026 2,555,000 2027 2,530,000 2028 2,510,000 2029 2,505,000 2030 2,500,000 { Final Maturity The 2010B Certificates maturing July 1, 2040 (the "2040 Term 2010B Certificates ") are subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2040 Term 2010B Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of the 2040 Term 2010B Certificates so prepaid as nearly as practicable in a pro rata basis in integral multiples of $5,000. In addition, in lieu of prepayment thereof, the 2040 Term 2010B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement. 13 Mandatory Prepayment Date Sinking (July 1) Account Payment 2024 $ 890,000 2025 1,095,000 2026 1,295,000 2027 1,495,000 2028 1,700,000 2029 1,900,000 2030 2,100,000 2031 4,810,000 2032 5,035,000 2033 5,265,000 2034 5,510,000 2035 5,770,000 2036 6,035,000 2037 6,320,000 2038 6,615,000 2039 6,920,000 2040` 7,245,000 { Final Maturity If prior to one of the mandatory prepayment dates specified above the City purchases any 2030 Term 2010B Certificates or 2040 Term 2010B Certificates, then at least 45 days prior to the prepayment date the City shall notify the Trustee as to the principal amount purchased, and the amount of Certificates so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce the upcoming sinking account payment for the applicable maturity of the Certificates so purchased. Selection of Certificates for Prepayment If less than all of the 2010 Certificates are prepaid, the Trustee shall select the 2010 Certificates to be prepaid from all Certificates not previously called for prepayment (a) with respect to any extraordinary prepayment, among maturities of all 2010 Certificates and Additional Certificates on a pro rata basis as nearly as practicable, (b) with respect to any optional prepayment of 2010 Certificates, among maturities as directed by the City, (c) with respect to 2010A Certificates with the same maturity, by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair, and (d) with respect to 2010B Certificates with the same maturity, (i) if the 2010B Certificates are not book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid among the Owners of such 2010B Certificates on a pro rata basis as nearly as practicable, and (ii) if the 2010B Certificates are book -entry bonds, the Trustee shall select the 2010B Certificates of such maturity to be prepaid on a pro rata pass - through distribution of principal basis in accordance with DTC procedures, provided that, so long as the 2010B Certificates are held in book -entry form, the selection for prepayment of such 2010B Certificates shall be made in accordance with the operational arrangements of DTC then in effect, and, if the DTC operational arrangements do not allow for prepayment on a pro rata pass - through distribution of principal basis, the 2010B Certificates will be selected for prepayment, in accordance with DTC procedures, by lot. It is the City's intent that the redemption allocations described herein with respect to the 2010B Certificates be made on a pro rata pass - through distribution of principal basis. However, the City can provide no assurance that DTC, the DTC Participants or any other intermediaries will allocate redemptions among Beneficial Owners on such basis. See Appendix D — "Book -Entry System" attached hereto. 14 Partial Prepayment of Certificates Upon surrender by the Owner of a Certificate for partial prepayment at the principal office of the Trustee, payment of such partial prepayment of the principal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal in principal amount to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment shall be valid upon payment of the amount required to be paid to such Owner, and the City, the Corporation and the Trustee shall be released and discharged from all liability to the extent of such payment. Notice of Prepayment When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstanding Certificates of a maturity are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, and (f) the original date of execution and delivery of the Certificates. Such notice shall further state that on the specified date there shall become due and payable upon each Certificate to be prepaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto shall cease to accrue and be payable. Such notice may specify that the prepayment of the Certificates to be prepaid is conditioned upon the timely receipt of funds required for such prepayment. Notice of such prepayment shall be sent by first class mail or delivery service postage prepaid, or by telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class mail, postage prepaid, to the Corporation and the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates. Notice having been given to the Owners of the Certificates as set forth above, and the moneys for the prepayment (including, the interest to the applicable date of prepayment), having, been set aside in the Prepayment Fund, the Certificates shall become due and payable on said date of prepayment, and, upon presentation and surrender thereof at the Principal Office, said Certificates shall be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to said date of prepayment. If, on the date of a prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as set forth above, then, from and after said date of prepayment, interest with respect to the Certificates to be prepaid shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon. All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of the Trust Agreement shall be cancelled upon surrender thereof and destroyed. 15 SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT Pledge and Security Pursuant to the Trust Agreement, the Corporation and the City grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified in the Trust Agreement and in the Lease. Only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. Only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 2010B Account of the Prepayment Fund. Pursuant to the Trust Agreement, the 2010A Lease Payments and the 2010B Lease Payments are irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010A Certificates and 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement), respectively. Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to the Lease (the "Lease Proceeds ") are irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under the Trust Agreement, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. The pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with and subject to the terms of the Trust Agreement. The 2010A Certificates represent the aggregate principal components of the 2010A Lease Payments under the Lease and the 2010B Certificates represent the aggregate principal components of the 2010B Lease Payments under the Lease. The 2010A Certificates evidence the right to receive certain fractional and undivided interests in 2010A Lease Payments to be made by the City pursuant to the Lease and the 201013 Certificates evidence the right to receive certain fractional and undivided interests in 201013 Lease Payments to be made by the City pursuant to the Lease. The City is required under the Lease to make Lease Payments subject to the provisions of the Lease related to abatement. The City has covenanted in the Lease to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. Lease Payments are scheduled to be paid as set forth herein. See "— Lease Payments Schedule" herein. THE OBLIGATION OF THE CITY TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE SHALL CONSTITUTE A CURRENT EXPENSE OF THE CITY AND SHALL NOT IN ANY WAY BE CONSTRUED TO BE A DEBT OF THE CITY, OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY APPLICABLE CONSTITUTIONAL OR STATUTORY LIMITATION OR REQUIREMENTS CONCERNING THE CREATION OF INDEBTEDNESS BY THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, NOR SHALL ANYTHING CONTAINED IN THE LEASE CONSTITUTE A PLEDGE OF GENERAL REVENUES, FUNDS OR MONEYS OF THE CITY BEYOND THE FISCAL YEAR FOR WHICH THE CITY HAS APPROPRIATED FUNDS TO PAY LEASE PAYMENTS AND ADDITIONAL PAYMENTS UNDER THE LEASE OR AN 16 OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The Trustee, pursuant to the Trust Agreement and the Assignment Agreement, will receive Lease Payments for the benefit of the Owners. Except as expressly provided in the Trust Agreement, the Trustee will not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City or the Corporation of the other agreements and covenants required to be performed by them, respectively contained in the Site Lease, the Lease or the Trust Agreement. Additional amounts payable by the City under the Lease include, among others, amounts sufficient to pay certain taxes, assessments, utility and other charges on the Leased Premises. The Lease shall be deemed and construed to be a "net- net -net lease" and the City has agreed pursuant to the Lease that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided in the Lease. The Lease provides that the covenants on the part of the City contained therein shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the City. See Appendix C — "Summary of Principal Legal Documents — Lease" herein. Pledge of Refundable Credits to 2010B Certificates The Refundable Credits constitute amounts payable by the Federal government under Section 6431 of the Code, and which, in the case of the 2010B Certificates, the City has elected to receive under Section 54AA(g)(1) of the Code. Pursuant to the Lease, all of the Refundable Credits received by the City are to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments, and are pledged to the payment of the 2010B Certificates. The Lease provides that the City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any other action that would cause the City to lose the subsidy payments from the U.S. Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. Refundable Credits do not constitute a full faith and credit guarantee of the United States with respect to the 2010B Certificates, but are required to be paid by the U.S. Treasury under the American Recovery and Reinvestment Act of 2009 upon proper application by the City. Under the American Recovery and Reinvestment Act of 2009, the U.S. Treasury may offset any Refundable Credit to which the City is otherwise entitled against any other tax liability of the City payable to the U.S. Treasury, such as withholding or payroll taxes, or other penalties or interest that may be owed at any time to the U.S. Treasury. The American Recovery and Reinvestment Act of 2009 contains broad legislative regulatory authority to prescribe such regulations and other guidance as may be necessary or appropriate to carry out the provisions relating to the Build America Bonds and the Refundable Credits. The Internal Revenue Service and the U.S. Treasury will continue to consider the need to develop any special rules to adapt or tailor the procedural framework implementing provisions of the American Recovery and Reinvestment Act of 2009, and may promulgate further regulations. No assurance is given that the U.S. Treasury will make payment of the Refundable Credits in the amounts to which the City believes it is entitled, nor that such 17 payments will be made in a timely manner. No assurance can be given that Congress will not amend or repeal provisions of the American Recovery and Reinvestment Act of 2009, which amendments could affect the payment of Refundable Credits. Assignment of Lease; Sublease of Leased Premises The Lease may be assigned by the City and all or a portion of the Leased Premises may be subleased by the City subject to the conditions set forth in the Lease, including the delivery of an opinion of Special Counsel to the effect that such assignment or sublease, as applicable, does not adversely affect the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. For purposes of an assignment of the Lease, Special Counsel shall also opine that the assignment does not affect the validity of the Lease. If the Lease is assigned by the City or all or any portion of the Leased Premises is subleased by the City, the obligation to make Lease Payments under the Lease shall remain the obligation of the City. See Appendix C — "Summary of Principal Legal Documents Lease Assignment and Subleasing" herein. Lease Payments The Lease requires the City to make Lease Payments on January 1 and July 1 of each year, beginning on January 1, 2011, and continuing until the end of the term of the Lease. Each Lease Payment shall be payable by the City to the Trustee, as assignee of the Corporation. The interest components of the Lease Payments payable by the City under the Lease shall be paid by the City as, and shall constitute interest paid on, the principal components of the Lease Payments payable by the City under the Lease. Lease Payments have been calculated to be at least sufficient to pay principal and interest components of the Certificates when due on each Interest Payment Date. 18 A table of annual Lease Payments under the Lease is set forth below. LEASE PAYMENTS "' Amounts reflect independent rounding. t21 Amounts prior to the application of the cash subsidy payments the City expects to receive from the United States Treasury, in an amount equal to 35% of the interest payable with respect to the 2010B Certificates. (3) Amounts reflect the aggregate amount of scheduled Lease Payments under the Lease due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) which me sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. No Reserve Fund There is no reserve fund for the Certificates. Insurance The Lease provides that the City shall maintain or cause to be maintained, throughout the term of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees, and insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with 19 2010A Certificates 2010B Certificates 2010A Lease PaymentsM 2010B Lease Payments(l) Total Base Period Principal Interest Total Base Principal Interest Total Base Rental Ending July 1 Component Component Rental Payments Component Componerren Rental Payments Payments1013113) 2011 $ 1,740,000 $ 401,691 $ 2,141,691 $ -- $ 4,245,447 $ 4,245,447 $ 6,387,138 2012 2,690,000 650,550 3,340,550 -- 7,243,417 7,243,417 10,583,967 2013 2,775,000 569,850 3,344,850 -- 7,243,417 7,243,417 10,588,267 2014 2,860,000 486,600 3,346,600 -- 7,243,417 7,243,417 10,590,017 2015 2,940,000 400,800 3,340,800 -- 7,243,417 7,243,417 10,584,217 2016 3,060,000 283,200 3,343,200 -- 7,243,417 7,243,417 10,586,617 2017 3,185,000 160,800 3,345,800 -- 7,243,417 7,743,417 10,589,217 2018 410,000 33,400 443,400 2,900,000 7,243,417 10,143,417 10,586,817 2019 425,000 17,000 442,000 2,980,000 7,114,338 10,094,338 10,536,338 2020 -- -- -- 3,065,000 6,972,758 10,037,758 10,037,758 2021 -- -- -- 3,165,000 6,817,945 9,982,945 9,982,945 2022 -- -- -- 3,275,000 6,648,586 9,923,586 9,923.,586 2023 -- -- -- 3,390,000 6,465,153 9,855,153 9,855,153 2024 -- -- -- 3,510,000 6,266,804 9,776,804 9,776,804 2025 -- -- -- 3,675,000 6,019,137 9,694,137 9,694,137 2026 -- -- -- 3,850,000 5,759,583 9,609,583 9,609,583 2027 -- -- -- 4,025,000 5,487,448 9,512,448 9,512,448 2028 -- -- -- 4,210,000 5,202,731 9,412,731 9,412,731 2029 -- -- -- 4,405,000 4,904,723 9,309,723 9,309,723 2030 -- -- -- 4,600,000 4,592,730 9,192,730 9,192,730 2031 -- -- -- 4,810,000 4,266,752 9,076,752 9,076,752 2032 -- -- -- 5,035,000 3,921,971 8,956,971 8,956,971 2033 -- -- -- 5,265,000 3,561,062 8,826,062 8,826,062 2034 -- -- -- 5,510,000 3,183,667 8,693.,667 8,693.,667 2035 -- -- -- 5,770,000 2,788,710 8,558,710 8,558,710 2036 -- -- -- 6,035,000 2,375,117 8,410,117 8,410,117 2037 -- -- -- 6,320,000 1,942,528 8,262,528 8,262,528 2038 -- -- -- 6,615,000 1,489,510 8,104,510 8,104,510 2039 -- -- -- 6,920,000 1,015,347 7,935,347 7,935,347 2040 -- -- -- 7,245,000 519,322 7,764,322 7,764,322 Total $20,085,000 $3,003,891 $23,088,891 $106,575,000 $152,265,286 $258,840,286 $281,929,178 "' Amounts reflect independent rounding. t21 Amounts prior to the application of the cash subsidy payments the City expects to receive from the United States Treasury, in an amount equal to 35% of the interest payable with respect to the 2010B Certificates. (3) Amounts reflect the aggregate amount of scheduled Lease Payments under the Lease due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) which me sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. No Reserve Fund There is no reserve fund for the Certificates. Insurance The Lease provides that the City shall maintain or cause to be maintained, throughout the term of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees, and insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with 19 extended coverage and theft, vandalism and malicious mischief insurance. Pursuant to the Lease, the City shall also maintain workers' compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers' Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto (with provision for self - insurance). The Lease also provides that the City shall maintain or cause to be maintained on the Leased Premises rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24- month period, to insure against loss of rental income from the Leased Premises caused by perils covered by casualty and theft insurance. The City is not required to purchase or maintain earthquake insurance with respect to the Leased Premises. Pursuant to the Lease, the insurance for public liability and property damage insurance, worker's compensation and casualty and theft insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self - insurance by the City. See Appendix C — "Summary of Principal Legal Documents — Lease Agreement — Insurance" attached hereto. Abatement Except (i) to the extent that moneys derived from any person, including proceeds of rental interruption insurance, as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. In the event of abatement as described above, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds pursuant to the Lease, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Substitution or Release of the Leased Premises Pursuant to the Lease, the City shall have the right to substitute alternate real property for any portion of the Leased Premises or to release a portion of the Leased Premises from the lien of the Lease upon compliance with all of the conditions set forth in the Lease. Notwithstanding any substitution pursuant to the Lease, there shall be no reduction in or abatement of the Lease Payments due from the City hereunder as a result of such substitution. After a substitution or release, the part of the Leased Premises for which the substitution or release has been effected shall be released from the leasehold under the Lease. 20 The Lease further provides that, subject to certain conditions precedent, upon the filing by the City of a completion certificate with respect to the Project, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site (each as defined in the Lease), provided that the City certifies to the Trustee that at least 90% of the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. See Appendix C — "Summary of Principal Legal Documents — The Lease Agreement — Covenants with Respect to the Leased Premises — Substitution or Release of the Leased Premises" attached hereto. Additional Certificates In addition to the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the conditions set forth in the Trust Agreement, which are made conditions precedent to the preparation, execution and delivery of such Additional Certificates, including, but not limited to, (i) the parties to the Trust Agreement shall have executed a Supplemental Agreement setting forth the terms and provisions of such Additional Certificates and specification of whether such Additional Certificates are payable from the 2010A Lease Payments or 2010B Lease Payments and (ii) the Trustee shall have received a certificate of the City Representative that (1) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (2) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease). See Appendix C — "Summary of Principal Legal Documents — The Trust Agreement — The 2010 Certificates of Participation — Additional Certificates" attached hereto. Remedies on Default Events of Default. Pursuant to the Lease, any one or more of the following shall be "events of default" thereunder: (a) failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; (b) failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed under the Lease or otherwise with respect thereto or in the Trust Agreement or in the Site Lease, subject to certain exceptions, and (c) the filing by the City of a case in bankruptcy or certain related events set forth in the Lease. Whenever any event of default under the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. No Termination; Repossession and Re -Lease on Behalf of the City. Pursuant to the Lease, in the event the Corporation does not elect to terminate the Lease in the manner described under "— Termination; Repossession and Re- Lease" herein, the Corporation may, with the consent of the City, which consent is irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its 21 obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re- leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement. In the event that the liability of the City under this caption "— No Termination; Repossession and Re -Lease on Behalf of the City" is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies described under this caption "— No Termination; Repossession and Re -Lease on Behalf of the City". Termination; Repossession and Re- Lease. Pursuant to the Lease, in the event of the termination of the Lease by the Corporation at its option and in the manner described in this paragraph on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. Pursuant to the Lease, the City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. 22 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIII A On June 6, 1978, California voters approved Proposition 13, adding Article XIII A to the California Constitution. Article XIII A, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975 -76 tax bill under `full cash value,' or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two- thirds of the votes cast by the voters voting on the proposition. Legislation enacted by the State Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation the following year. The City is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XDI A effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIII B On November 6, 1979, California voters approved Proposition 4, which added Article XIII B to the California Constitution. In May 1990, the voters through their approval of Proposition 111 amended Article XIII B. Article XIII B of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the 1978 -79 Fiscal Year. Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to a governmental entity, or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and 23 disability insurance funds. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues and (iii) certain State subventions received by local governments. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years. As amended in May 1990, the appropriations limit for the County in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of Financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the County's option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ( "K -14 ") districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two -year periods. Any excess of the aggregate "proceeds of taxes" received by the County over such two -year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Article XIII B permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter - approved change can only be effective for a maximum of four years. The City Council adopted the annual appropriation limit for the Fiscal Year 2010 -11 of approximately $140.6 million. The limitation applies only to proceeds of taxes and therefore does not apply to service fees and charges, investment earnings on non - proceeds of taxes, fines, and revenue from the sale of property and taxes received from the State and federal governments that are tied to special programs. Based on the Fiscal Year 2010 -11 Adopted Budget, the funds subject to limitation total approximately $111.3 million (total General Fund budget minus non - proceeds of taxes and debt service) and are approximately $29.3 million below the Article XIII B limit. Proposition 46 On June 3, 1986, California voters approved Proposition 46, which added an additional exemption to the 1% tax limitation imposed by Article XIII A. Under this amendment to Article XIII A, local governments and school districts may increase the property tax rate above 1% for the period necessary to retire new general obligation bonds, if two - thirds of those voting in a local election approve the issuance of such bonds and the money raised through the sale of the bonds is used exclusively to purchase or improve real property. 24 Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election which (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two- thirds vote of the governmental entity's legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local government entity be approved by a two- thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A of the California Constitution, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988. On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a county -wide sales tax of one -half of one percent was a special tax that, under Section 53722 of the Government Code, required a two- thirds voter approval. Because the tax received an affirmative vote of only 54.1%, this special tax was found to be invalid. Following the California Supreme Court's decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ( "La Habra "). In this case, the court held that public agency's continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The City does not believe any of the taxes constituting City revenues are levied in violation of Proposition 62. Proposition 218 On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the "Right to Vote on Taxes Acf' ( "Proposition 218 "). Proposition 218 added Articles XIII C and XIII D to the California Constitution and contained a number of interrelated provisions affecting the ability of local governments, including the City, to levy and collect both existing and future taxes, assessments, fees and charges. The City is unable to predict whether and to what extent Proposition 218 may be held to be constitutional or how its terms will be interpreted and applied by the courts. Proposition 218 could substantially restrict the City's ability to raise fixture revenues and could subject certain existing sources of revenue to reduction or repeal, and increase the City's costs to hold elections, calculate fees and assessments, notify the public and defend its fees and assessments in court. However, the City does not presently believe that the potential financial impact on the City as a result of the provisions of Proposition 218 will adversely affect the City's ability to pay its debt obligations and perform its other obligations payable from the General Fund as and when due. 25 Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City's General Fund, require a two- thirds vote. Further, any general purpose tax that the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election held within two years of November 5, 1996. The City has not enacted, imposed, extended or increased any tax without voter approval since January 1, 1995. These voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues through General Fund taxes, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure requirements. Article XIII C also expressly extends to voters the power to reduce or repeal local taxes, assessments, fees and charges through the initiative process, regardless of the date such taxes, assessments, fees or charges were imposed. This extension of the initiative power is not limited by the terms of Proposition 218 to fees imposed after November 6, 1996 and absent other legal authority could result in retroactive reduction in any existing taxes, assessments or fees and charges. SB 919 provides that the initiative powers extended to voters under Article XIII C likely excludes actions construed as impairment of contracts under the contract clause of the United States Constitution. SB 919 provides that the initiative power provided for in Proposition 218 "shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after November 6, 1998, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights" protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City's General Fund. Further, "fees" and "charges" are not defined in Article XIII C or SB 919, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIII C as they do in Article XIII D. Accordingly, the scope of the initiative power under Article XIII C could include all sources of General Fund monies not received from or imposed by the federal or State government or derived from investment income. The initiative power granted under Article XIII C of Proposition 218, by its terms, applies to all local taxes, assessments, fees and charges. The City is unable to predict whether the courts will ultimately interpret the initiative provision to be limited to property related local taxes, assessments, fees and charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges which are deposited into the City's General Fund. The City believes that in the event that the initiative power was exercised so that all local taxes, assessments, fees and charges which may be subject to the provisions of Proposition 218 are reduced or substantially reduced, the financial condition of the City, including its General Fund, would be materially adversely affected. As a result, there can be no assurances that the City would be able to pay the Certificates as and when due or any of its other obligations payable from the General Fund. Article XIII D of Proposition 218 adds several new requirements to make it more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. "Assessment' is defined in Proposition 218 and SB 919 as any levy or charge upon real property for a special benefit conferred upon the real property. This includes maintenance assessments imposed in County service areas and in special districts. In most instances, in the event that the City is unable to collect assessment revenues relating to specific programs as a consequence of Proposition 218, the City will curtail such services rather than use amounts in the General Fund to finance such programs. Accordingly, the City anticipates that any impact Proposition 218 may have on existing or future taxes, fees, and assessments will not adversely affect the ability of the City to pay the Certificates as and when due. However, no assurance can be given 26 that the City may or will be able to reduce or eliminate such services in the event the assessments that presently finance them are reduced or repealed. Article XIII D also adds several provisions, including notice requirements and restrictions on use, affecting "fees" and "charges" which are defined as "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service." The annual amount of revenues that are received by the City and deposited into its General Fund which may be considered to be property related fees and charges under Article XIII D of Proposition 218 is not substantial. Accordingly, presently the City does not anticipate that any impact Proposition 218 may have on future fees and charges will not adversely affect the ability of the City to pay the principal and interest with respect to the Certificates as and when due. However, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. Further, the fees and charges of the County's enterprise funds, including those which are not property related for purposes of Article XIII D of Proposition 218, may be determined to be fees and charges subject to the initiative power as provided in Article XIII C of Proposition 218, as described above. In the event that fees and charges cannot be appropriately increased or are reduced pursuant to the exercise of the initiative power, the City may have to choose whether to reduce or eliminate the service financed by such fees or charges or finance such service from its General Fund. Further, no assurance can be given that the City may or will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. Additional implementing legislation respecting Proposition 218 may be introduced in the State legislature from time to time that would supplement and add provisions to California statutory law. No assurance may be given as to the terms of such legislation or its potential impact on the City. Proposition 1A Proposition IA (2004), proposed by the State Legislature in connection with the 2004 -05 Budget Act and approved by the voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition lA (2004) generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two- thirds of both houses of the State Legislature. Proposition IA (2004) provides, however, that beginning in Fiscal Year 2008 -09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two - thirds of both houses of the State Legislature and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition IA (2004) also provides that if the State reduces the VLF rate below 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition IA (2004) requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. In Fiscal Year 2009 -10, the State borrowed approximately 8.0% of property tax revenues from counties, cities and special districts, totaling approximately $1.9 billion, which amount will be repaid 27 within three years of the borrowing pursuant to Proposition 1A (2004). The City's share of the borrowing was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. Proposition 26 On November 2, 2010, voters approved Proposition 26, which amends the State Constitution to expand the definition of a tax so that certain fees and charges currently imposed by government will be subject to approval by two thirds of each house of the State Legislature or approval by local voters, as applicable. In addition, Proposition 26 requires a two- thirds approval by each of house the State Legislature to approve laws that increase taxes on any taxpayer, even if the law's overall fiscal effect does not increase State revenues. Proposition 26 also repeals recent State laws that conflict with the measure, unless approved again by two- thirds of each house of the State Legislature within one year of approval of Proposition 26. The State Legislative Analyst's Office ( "LAO ") states that Proposition 26 would make it more difficult for State and local governments to pass new laws that raise revenues and could reduce government revenues and spending statewide by up to billions of dollars annually compared to what otherwise would have occurred, particularly if the proposed voting requirements results in some proposes not being approved. There are several uncertainties regarding the terms of Proposition 26. Accordingly, the City can not presently estimate the potential impact Proposition 26 will have on the City's finances. However, the City believes that Proposition 26 will not adversely affect the ability of the City to pay the principal and interest with respect to the Certificates as and when due. Future Initiatives Article XIII A, Article XIII B, Article XIII C, Article XIII D and Propositions 62, IA and 26 were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time, other initiative measures could be adopted, further affecting revenues of the City or the City's ability to expend revenues. The nature and impact of these measures cannot be predicted by the City. Text of the qualified statewide ballot measures may be found at the Secretary of State website, www.sos.ca.gov under the heading "Elections" An impartial analysis of the ballot measures is posted by the LAO at www.lao.ca.gov. The referenced information is prepared by the respective State agency maintaining the web site and not by the City, and the City can take no responsibility for the continued accuracy of the intemet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. RISK FACTORS The ability of the City to pay principal of and interest with respect to the Certificates depends primarily upon the receipt by the City of sufficient General Fund revenues. Some of the events which could prevent the City from receiving sufficient General Fund revenues to enable it to pay the principal of and interest on the Certificates are summarized below. The following description of risks is not intended to be an exhaustive list of the risks associated with the purchase of the Certificates and the order of the risks set forth below does not necessarily reflect the relative importance of the various risks. Not a Pledge of Taxes The obligation of the City to pay Lease Payments and Additional Payments under the Lease shall constitute a current expense of the City and shall not in any way be construed to be a debt of the City, or the State, or any political subdivision thereof, in contravention of any applicable constitutional or statutory 28 limitation or requirements concerning the creation of indebtedness by the City, the State, or any political subdivision thereof, nor shall anything contained in the Lease constitute a pledge of general revenues, funds or moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Lease Payments and Additional Payments under the Lease or an obligation of the City for which the city is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments from any source of legally available funds, and the City has covenanted in the Lease to make the necessary annual appropriations therefor. The City is currently liable on and may accrue other obligations payable from its general revenues. Such obligations, together with the Certificates, are payable from general revenues of the City without priority. Additional Obligations of the City The City has the capability to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased. The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Premises, taxes and other governmental charges levied against the Leased Premises) are payable from funds lawfully available to the City. In the event that the amounts which the City is obligated to pay in a fiscal year exceed the City's revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. Default; Remedies Upon Default Whenever any event of default under the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. Pursuant to the Lease, in the event the Corporation does not elect to terminate the Lease, the Corporation may, with the consent of the City, which consent is irrevocably given, repossess the Leased Premises and re -lease it, subject to the limitations set forth below with respect to the Central Library Site, for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The Lease provides that the obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. Pursuant to the Lease, the City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained in the Lease and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall 29 be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments under the Lease, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. Alternatively, pursuant to the Lease, in the event of the termination of the Lease by the Corporation at its option (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises, subject to the limitations set forth below with respect to the Central Library Site), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re- lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. Pursuant to the Lease, the City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner in the Lease expressly provided. Limitations on Remedies The rights of the Owners of the Certificates are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, and the obligations incurred by the City, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against counties in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. In addition, the portion of the Leased Premises consisting of the Central Library Site is subject to the conditions and restrictions set forth in that certain Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase (the "Declaration "), dated as of March 11, 1992, by and between the Irvine Company, as grantor (the "Declarant "), and the City, as grantee, pursuant to which the City was granted the Central Library Site. Pursuant to the Declaration, no portion of the Central Library Site or any improvements thereon shall be used for retail, commercial, quasi - retail or quasi - commercial facilities that materially compete with the retail and commercial facilities in the Newport Center, including the shopping center known as Fashion Island, or otherwise improved, developed, used, operated or maintained with any facilities or for any purpose whatsoever except as a public library with related parking unless expressly approved by the Declarant, which approval may be granted or withheld by the Declarant in its sole discretion. The Declaration also provides that, except for certain permitted 30 transfers to a governmental entity whose primary purpose is the maintenance and operation of public libraries and transfers in connection with the sale of public obligations, the Declarant has a right of first refusal with respect to all or any part of the Central Library Site determined to be transferred by the City. The Declaration further provides that upon any proposed, attempted or actual transfer in violation of the provisions of the Declaration and upon any violation of the restrictions set forth therein, the Declarant in its sole option and discretion shall be entitled to repurchase the Central Library Site. Abatement Except (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided in the Lease, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. Risk of Nonpayment of Refundable Credits No assurance is given that the U.S. Treasury will make payment of the Refundable Credits in the amounts to which the City believes it is entitled, nor that such payments will be made in a timely manner. The U.S. Treasury may offset any Refundable Credit to which the City is otherwise entitled against any other tax liability of the City payable to the U.S. Treasury. No assurance can be given that Congress will not amend or repeal provisions of the American Recovery and Reinvestment Act of 2009, which amendments could affect the payment of Refundable Credits. See "Security for the Certificates and Sources of Payment — Pledge of Refundable Credits to 2010B Certificates" herein. Seismic Events The Leased Premises is located within a seismically active area, and damage from an earthquake could be substantial. The City is not obligated under the Lease to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Premises and no assurance can be made that the City will procure and maintain, or cause to be procured and maintained, such insurance. There can be no assurance that earthquake insurance on the Leased Premises, if any, can be renewed or will be maintained by the City in the future, or will be available for payments in respect of the Certificates. If there is no earthquake insurance on the Leased Premises and if the Leased Premises is damaged in an earthquake, the Lease Payments would be subject to abatement. See "Risk Factors — Abatement' herein. The Leased Premises may also be at risk from other events of force majeure, such as damaging storms, floods, fires and explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional 31 information regarding the City's risk management programs, see Appendix A — "City of Newport Beach Financial Information and Regional Economic and Demographic Information — City of Newport Beach Financial Information — Risk Management" and Appendix C — "Summary of Principal Legal Documents — The Lease — Insurance" attached hereto. THE CORPORATION The Corporation was incorporated on March 9, 1992, and is a nonprofit public benefit corporation duly organized and existing under the California Nonprofit Public Benefit Corporation Law for the purpose, among other things, of rendering financial assistance to the City by financing, acquiring, constructing, improving, leasing and selling buildings, building improvements, equipment, electrical, water, sewer, road and other public improvements, lands and any other real or personal property, tangible and intangible, for the benefit of residents of the City and surrounding areas. The Corporation has no taxing authority. The Corporation has no liability to the Owners of the Certificates and has pledged none of its moneys, funds or assets toward the Lease Payments or Prepayments under the Lease, or toward the payment of any amount due in connection with the Certificates. The Corporation is a separate legal entity from the City. It is governed by a seven member Board of Directors (the "Board of Directors ") appointed by the City Council. The Corporation has no employees. All staff work is performed by employees of the City. The members of the Corporation's Board of Directors are the members of the City Council in their ex officio capacity. The Corporation has not entered into any material financing arrangements with respect to the Certificates other than those referred to in this Official Statement. Further information concerning the Corporation may be obtained from the Corporation's office at 3300 Newport Boulevard, Newport Beach, California, 92659 -1768. TAX MATTERS 2010A Certificates. In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with respect to the 2010A Certificates is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, interest with respect to the 2010A Certificates is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, 2010A Certificate Owners should consult their tax advisors regarding whether interest with respect to the 2010A Certificates is included as an adjustment in the calculation of alternative minimum taxable income. The difference between the issue price of a 2010A Certificate (the fast price at which a substantial amount of the 2010A Certificates of the same 2010And maturity is to be sold to the public) and the stated prepayment price at maturity with respect to the 2010A Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to an Owner of a 2010A Certificate (the "2010A Certificate Owner ") before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2010A Certificate Owner will increase the 2010A Certificate Owner's basis in the applicable 2010A Certificate. In the opinion of Special Counsel, original issue discount that accrues to a 2010A Certificate Owner is excluded from gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the 32 federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Special Counsel's opinion as to the exclusion from gross income of interest (and original issue discount) with respect to the 2010A Certificates is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City complies with all requirements of the Code, that must be satisfied subsequent to the execution and delivery of the 2010A Certificates to assure that the interest (and original issue discount) with respect to the 2010A Certificates will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) with respect to the 2010A Certificates to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the 2010A Certificates. The City has covenanted to comply with all such requirements. The amount by which a 2010A Certificate Owner's original basis for determining loss on sale or exchange in the applicable 2010A Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable 2010A Certificate premium, which must be amortized under Section 171 of the Code; such amortizable 2010A Certificate premium reduces the 2010A Certificate Owner's basis in the applicable 2010A Certificate (and the amount of tax - exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2010A Certificate premium may result in a 2010A Certificate Owner realizing a taxable gain when a 2010A Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2010A Certificate to the Owner. Purchasers of the 2010A Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable 2010A Certificate premium. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of tax - exempt bond issues, including both random and targeted audits. It is possible that the 2010A Certificates will be selected for audit by the IRS. It is also possible that the market value of the 2010A Certificates might be affected as a result of such an audit of the 2010A Certificates (or by an audit of similar bonds). Special Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax Certificate relating to the 2010A Certificates permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) with respect to the 2010A Certificates for federal income tax purposes if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Special Counsel has rendered an opinion that interest (and original issue discount) with respect to the 2010A Certificates is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2010A Certificates and the accrual or receipt of interest (and original issue discount) with respect to the 2010A Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2010A Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2010A Certificates. 33 A copy of the proposed form of opinion of Special Counsel with respect to the 2010A Certificates is set forth in Appendix E herein. 2010B Certificates. The 2010B Lease Payments evidenced by the 2010B Certificates have been designated as Build America Bonds for purposes of Section 54AA of the Code for which the City is allowed a refundable credit which, with respect to any interest payment date for the 2010B Certificates, is equal to 35 percent of the amount of interest evidenced by the 2010B Certificates on such date. The City will elect to receive a cash subsidy payment from the United States Treasury equal to thirty-five percent (35 %) of the interest payable by the City evidenced by the 2010B Certificates. UNDER NO CIRCUMSTANCES WILL THE OWNERS OF THE 201011 CERTIFICATES RECEIVE OR BE ENTITLED AT ANY TIME TO A CREDIT AGAINST THE TAX IMPOSED BY THE CODE. The City cannot ensure that it will receive such a refundable credit at any time and in any given amount. The cash subsidy payment with respect to the 2010B Certificates to which the City is entitled is treated by the Internal Revenue Service as a refund of a tax credit and such refund may be offset by the Department of the Treasury by any liability of the City payable to the Federal government, including in respect of any internal revenue tax (including any interest and penalties), past due child support, past due and legally enforceable debt due federal agencies, unemployment compensation debts, and past due legally enforceable state income tax debts. The payment of the cash subsidy payments do not represent a full faith and credit obligation or guarantee of the federal government and there can be no assurance that the subsidy payments will be timely received in any particular amount. In the opinion of Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest evidenced by the 2010B Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Code but is exempt from State of California personal income tax. Except for certain exceptions, the difference between the issue price of a 2010B Certificate (the first price at which a substantial amount of the 2010B Certificate of the same 2010And maturity is to be sold to the public) and the stated prepayment price at maturity with respect to such 2010B Certificate (to the extent the prepayment price at maturity is bigger than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method. The amount of original issue discount deemed received by the 2010B Certificate Owner will increase the 2010B Certificate Owner's basis in the 2010B Certificate. 2010B Certificate holders should consult their own tax advisors with respect to taking into account any original issue discount on the 2010B Certificates. 2010B Certificate holders that have a basis in the 2010B Certificates that is greater than the principal amount of such 2010B Certificates should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under Section 171 of the Code. The qualification of the 2010B Certificates and receipt of the refundable credit for purposes of Section 54AA of the Code is subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2010B Certificates to assure that the 2010B Lease Payments evidenced by 2010B Certificates qualify as Build America Bonds under Section 54AA for which the City has made an irrevocable election to receive a refundable credit. Failure to comply with such requirements of the Code might result in the City not receiving such a refundable credit, possibly retroactive to the date of issue of the 2010B Certificates. The City has covenanted to comply with all such requirements. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of bond issues, including both random and targeted audits. It is possible that the 2010B Certificates will be 34 selected for audit by the IRS. It is also possible that the market value of the 2010B Certificates might be affected as a result of such an audit of the 2010B Certificates (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, that Congress or the IRS might change the Code (or interpretation thereof) subsequent to the issuance of the 2010B Certificates to the extent that it adversely affects the status of the 2010B Lease Payments evidenced by 2010B Certificates as Build America Bonds for purposes of Section 54AA of the Code for which the Board is entitled to a refundable credit or the 2010B Certificate market value. It is possible that subsequent to the issuance of the 2010B Certificates there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state or local law) that affect the federal, state, or local tax treatment of the 2010B Certificates or the market value of the 2010B Certificates. No assurance can be given that subsequent to the issuance of the 2010B Certificates such changes or interpretations will not occur. The federal tax and State of California personal income tax discussion set forth above is included for general information only and may not be applicable depending upon an Owner's particular situation. The ownership and disposal of a 2010B Certificate and the accrual or receipt of interest with respect to a 2010B Certificate may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. ANY FEDERAL TAX ADVICE CONTAINED HEREIN WITH RESPECT TO THE 2010B CERTIFICATES IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE CODE. THE FEDERAL TAX ADVICE CONTAINED HEREIN WITH RESPECT TO THE 2010B CERTIFICATES WAS WRITTEN TO SUPPORT THE PROMOTING AND MARKETING OF THE 2010B CERTIFICATES. BEFORE PURCHASING ANY OF THE 2010B CERTIFICATES, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES RELATING TO THE 2010B CERTIFICATES AND THE TAXPAYER'S PARTICULAR CIRCUMSTANCES. A copy of the proposed form of opinion of Special Counsel with respect to the 2010B Certificates is set forth in Appendix E hereto. CERTAIN LEGAL MATTERS The validity of the Certificates and certain other legal matters are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Complete copies of the proposed forms of opinions of Special Counsel are contained in Appendix E hereto. Special Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City and the Corporation by David Hunt, City Attorney, and Hawkins Delafield & Wood LLP, Los Angeles, California, Disclosure Counsel, and for the Underwriters by their counsel, Jones Hall, A Professional Law Corporation, San Francisco, California. Payment of the fees of Special Counsel, Disclosure Counsel and the Underwriter's counsel is contingent upon execution and delivery of the Certificates. Special Counsel and Disclosure Counsel represent the Underwriters on matters unrelated to the Certificates. 35 FINANCIAL STATEMENTS The general purpose financial statements of the City, pertinent sections of which are included in Appendix B to this Official Statement, have been audited by Mayer Hoffman McCann P.C. (the "Independent Auditors "), certified public accountants and management consultants, as stated in their report appearing in Appendix A. Independent Auditors has not consented to the inclusion of its report as Appendix B and has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Independent Auditors with respect to any event subsequent to its report dated December 18, 2009. LITIGATION No litigation is pending or, to the best knowledge of the City, threatened against the City or the Corporation concerning the validity of the Certificates. The City is not aware of any litigation pending or threatened questioning the political existence of the City or the Corporation or contesting the City's ability to cause the execution and delivery of the Certificates or pay the Lease Payments pursuant to the Lease. There are a number of lawsuits and claims pending against the City. Other than as described in Appendix A, the City does not believe that any of these proceedings could have a material adverse impact upon the financial condition of the City. UNDERWRITING The Certificates are being purchased by the underwriters named on the cover page hereof (the "Underwriters "). Pursuant to the Purchase Contract for the Certificates the Underwriters have agreed, subject to certain conditions, to purchase the 2010A Certificates at a price of $21,129,832.05 (representing the principal amount of the 2010A Certificates of $20,085,000.00, plus an original issue premium of $1,155,299.55, less an underwriting discount of $110,467.50) and the 2010B Certificates at a price of $105,988,837.50 (representing the principal amount of the 2010B Certificates of $106,575,000.00, less an underwriting discount of $586,162.50). The Purchase Contract for the Certificates provides that the Underwriters will purchase all of the Certificates, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell the Certificates to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriters. The following two sentences have been provided by De La Rosa & Co., one of the underwriters for the Certificates. De La Rosa & Co., one of the Underwriters of the Certificates, has entered into separate agreements with Credit Suisse Securities USA LLC, UnlonBanc Investment Services LLC and City National Securities, Inc. for retail distribution of certain municipal securities offerings, at the original issue prices. Pursuant to said agreement, if applicable to the Certificates, De La Rosa & Co. will share a portion of its underwriting compensation with respect to the Certificates, with Credit Suisse Securities USA LLC, UnionBanc Investment Services LLC or City National Securities, Inc. FINANCIAL ADVISOR Fieldman, Rolapp & Associates, Irvine, California served as Financial Advisor to the City (the "Financial Advisor ") in connection with the issuance of the Certificates. The Financial Advisor is an independent financial advisory firm and is not engaged in the business of underwriting municipal bonds or other securities. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an 36 independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement (the "Disclosure Undertaking") with Digital Assurance Certification, L.L.C., the City has agreed to provide, or cause to be provided, with respect to each fiscal year of the City, commencing with Fiscal Year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the Repository the audited financial statements, if available, or unaudited financial statements, and the annual financial information and operating data with respect to the City, for each fiscal year of the City, as described in Appendix A — "City of Newport Beach Information" attached hereto and specified in the Disclosure Undertaking. hi addition, the City has agreed to provide, or cause to be provided, to the Repository in a timely manner notice of the following "Listed Events" if determined by the City to be material: (1) principal and interest payment delinquencies; (2) non - payment related defaults; (3) unscheduled draws on the debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax- exempt status of the security; (7) modifications to rights of security holders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities; and (11) rating changes. These covenants have been made in order to assist the Underwriters in complying with the Rule. The City has complied in all material respects in the last five years with each of its previous undertakings with regard to the Rule to provide annual reports and notices of material events. RATINGS Moody's Investors Service, Inc. ( "Moody's "), S &P and Fitch Ratings ( "Fitch ") have assigned ratings of "Aa2," "AA +" and "AA +," respectively, to the Certificates. Moody's, S &P and Fitch have also assigned issuer ratings of "Aaa, ", .. AAA" and "AAA," respectively, to the City. Such ratings reflect only the views of such organizations and explanations of the significance of such ratings may be obtained only from the organizations at: Moody's Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007 -2796, telephone number (212) 553 -0317; Standard and Poor's Ratings Services, 55 Water Street, New York, New York 10041, telephone number (212) 438 -2000; and Fitch Ratings, One State Street Plaza, New York, New York 10004, telephone number (212) 908 -0500. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. MISCELLANEOUS The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF NEWPORT BEACH By: C— iw 4 ty Manager 37 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A CITY OF NEWPORT BEACH FINANCIAL INFORMATION AND REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION CITY OF NEWPORT BEACH FINANCIAL INFORMATION ..................... General........................................................................ ............................... Government................................................................ ............................... Accounting and Financial Reporting ........................ ............................... BudgetProcess ........................................................... ............................... FinancialStatements .................................................... ............................... Recent Budget Results; Fiscal Year 2010 -11 Budget ............................ Major Revenues ......................................................... ............................... OtherFunds ................................................................ ............................... Reserves...................................................................... ............................... CapitalProjects .......................................................... ............................... LaborRelations .......................................................... ............................... Pension Benefits ......................................................... ............................... Other Post Employment Benefits ............................. ............................... RiskManagement ...................................................... ............................... Indebtedness............................................................... ............................... City Investment Policy .............................................. ............................... Litigation.................................................................... ............................... STATE OF CALIFORNIA BUDGET INFORMATION ............................ General........................................................................ ............................... Fiscal Year 2010 -11 State Budget ............................... ............................... Current and Future State Budgets ............................... ............................... REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION ..... Population................................................................... ............................... Employment............................................................... ............................... Median Household Income ....................................... ............................... Personal Income ......................................................... ............................... MajorEmployers ....................................................... ............................... Construction Activity ................................................ ............................... TaxableSales .............................................................. ............................... Foreclosure Activity .................................................. ............................... A -(i) (THIS PAGE INTENTIONALLY LEFT BLANK) CITY OF NEWPORT BEACH FINANCIAL INFORMATION General The City of Newport Beach (the "City ") was incorporated under the general laws of the State of California (the "State ") on September 1, 1906. The City is located in the coastal center of the County of Orange (the "County"), approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. As of 2010, the City had a permanent population of 86,738, which typically grows to over 100,000 during the summer months, including 20,000 to 100,000 tourists daily. The City's adopted budget for Fiscal Year 2010 -11 (the "Fiscal Year 2010 -11 Adopted Budget ") is approximately $226.7 million, approximately $149.3 million of which relates to the City's General Fund. Government The City operates pursuant to a City Charter adopted in 1954. The City has a Council -Mayor form of government. City Council members are elected by district but voted on by the population as a whole, and serve four -year staggered terms. The City Council consists of the Mayor and six other members and is responsible for, among other things, policy- making, passing local ordinances, adopting the budget, appointing committees and hiring the City Manager, the City Attorney, and the City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day to day operations of the City and for appointing directors of departments. The City is a full service city providing its residents and visitors with the following services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check and code enforcement services; libraries and cultural and arts services; recreation and senior services; and water, wastewater, rubbish disposal, and street light utilities services. The City provides water and sewer service to most areas within City limits, but it does not provide gas, electrical, or other utility service. Public elementary and secondary education is provided by school districts, which are separate government entities. On November 2, 2010, the voters of the City approved various City Charter amendments that will, among other things, modify existing provisions of the City Charter relating to additional taxes, restrict oil operations, amend legal document publication requirements and franchise processes, increase formal bidding thresholds, adjust misdemeanor penalties, require redistricting appointments every ten years, amend the City's civil service system, repeal the Chamber of Commerce contribution limit, remove City contract term limitations, require voter approval for the sale of City -owned waterfront property and effect administrative changes to comply with State and federal law. The City Charter amendments will not adversely affect the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (collectively, the "Certificates ") and the transactions described in the forepart of this Official Statement. Accounting and Financial Reporting The City maintains its accounting records in accordance with generally accepted accounting principles applicable to governmental entities ( "GAAP ") and the standards established by the A -1 Governmental Accounting Standards Board ( "GASB "). At least quarterly, a report is prepared for the City Council to review fiscal performance to date against the budget. A comprehensive annual financial report ( "CAFR "), including the audited financial statements, is prepared annually in conformance with GAAP, as promulgated by the GASB. The City's financial statements are audited by an independent certified public accountant. The City's most recent financial statements for the Fiscal Year ended June 30, 2009 were audited by Mayer Hoffman McCann P.C. The City's audited financial statements, together with accompanying notes and opinions from the City's Independent Auditor, for the Fiscal Year ended June 30, 2009, are set forth in Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. The City's governmental funds, including the General Fund, use the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when both available and measurable. The City's enterprise and internal service funds are proprietary funds that use the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related goods or services are delivered. Budget Process The City prepares and adopts an annual budget as required by the City Charter. The budget is the operating and capital expenditure plan for the City for the fiscal year beginning on July 1 and ending on June 30 of the following year (the "Fiscal Year ") and serves as the foundation for the City's financial planning and control. The budget process commences in December when the Administrative Services Department prepares preliminary fund balance estimates for the current year and preliminary revenue estimates for the next fiscal year. In January, the Administrative Services Department prepares a budget calendar and issues budget instructions, including budget guidelines approved by the City Manager and appropriation limits, and expenditure detail to each department for use in preparation of the next year's City budget. The departments then submit revenue and expenditure appropriation requests that are summarized by the Administrative Services Department and presented to the City Manager for review. The City Manager then meets with each department and, together with the Administrative Services Department, prepares and submits to the City Council a proposed budget for the next fiscal year. Subsequent to City Council review, including as many budget study sessions as the City Council deems necessary, and prior to the budget's final adoption, the City Manager provides each City Council Member with an itemized list of all proposed changes to permit a roll call vote by the City Council on each item during the budget hearing at the regular City Council meeting. The City Council holds the budget hearing and adopts the budget on or before June 30 of each year, as required by the City Charter. The budget is prepared on a modified accrual basis with all appropriations lapsing at the close of the fiscal year. Any revisions that increase the total appropriations of any fund over $10,000 must be approved by the City Council. In the event of any shortfall in projected revenue, immediate steps are taken to mitigate the shortfall through the identification of alternative funding sources or freezing appropriations. Similarly, if expenditures are projected to exceed appropriations, steps are taken to freeze expenditures in other accounts within the affected department or to transfer available resources to offset the added expenditure requirement. 10 Financial Statements Table A -1 below sets forth the audited General Fund Balance Sheet for Fiscal Years 2005 -06 through 2008 -09 and the unaudited General Fund Balance Sheet for Fiscal Year 2009 -10. ASSETS Cash and Investments Receivables Accounts Notes Interest Intergovernmental Receivables Due from Other Funds Due from Agency Fund Prepaid Items Inventory Total Assets LIABILITIES, EQUITY AND FUND BALANCES Liabilities: Accounts Payable Accrued Payroll Deposits Payable Unearned Revenue Unavailable Revenue Deferred Revenues Total liabilities Fund balances: Reserved: Unreserved: DesignateVl Total Fund Balances Total Liabilities and Fund Balances TABLE A -1 CITY OF NEWPORT BEACH GENERAL FUND BALANCE SHEETS FIVE YEAR COMPARISON Fiscal Years 2005 -06 through 2009 -10 $ 5,164,274 Fiscal Year Ended June 30, $ 5,054,805 2006 2007 2008 2009 2010 Audited Audited Audited Audited Unaudited 2,992,328 2,339,224 1,590,815 1,725,326 1,911,171 $ 51,002,231 $ 63,551,764 $ 75,278,961 $ 76,435,099 $ 70,382,742 3,620,532 4,636,290 6,291,724 5,138,168 4,138,978 50,000 50,000 50,000 -- 471,250 1,497,197 1,592,648 1,827,739 1,457,076 981,924 6,366,265 5,857,894 5,552,883 4,798,249 4,948,641 3,309,485 7,351,061 3,297,073 3,686,684 11,940,685 -- 436,484 -- -- -- 865,350 492,032 127,836 526,444 932,148 211,746 220,864 229,546 219,698 238,274 $ 66,922,806 $ 84,189,037 $ 92,655,762 $92,261,418 $ 94,034,642 $ 5,164,274 $ 6,314,060 $ 5,054,805 $ 3,478,489 $ 3,403,362 2,055,909 2,358,540 3,688,974 4,083,477 4,204,908 3,277,731 3,741,959 2,913,141 2,992,328 2,339,224 1,590,815 1,725,326 1,911,171 1,907,895 1,904,552 247,016 135,950 28,532 188,265 25,000 $ 12,335,745 $ 14,275,835 $ 13,596,623 $ 12,650,454 $ 11,877,046 $ 9,374,722 $ 7,487,498 $ 6,807,094 $ 5,907,205 $ 5,472,481 45,212,339 62,425,704 72,252,045 73,703,759 76,685,115 $ 54,587,061 $ 69,913,202 $ 79,059,139 $ 79,610,964 $. 82,157,596 $ 66,922,806 $ 84,189,037 $ 92,655,762 $ 92,261,418 $ 94,034,642 0> Pursuant to City practice, unreserved General Fund amounts are designated for contingencies, capital projects, appropriations and other special purposes. Such amounts are available to fund current obligations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B —"City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -3 Table A -2 below sets forth the audited General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for Fiscal Years 2005 -06 through 2009 -10 and the unaudited General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for Fiscal Year 2009 -10. TABLE A -2 CITY OF NEWPORT BEACH GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE FIVE YEAR COMPARISON Fiscal Years 2005 -06 through 2009 -10 Revenue: Taxes and Assessments Property Sales Sales Tax in -lieu Transient Occupancy Other Taxes Intergovernmental Licenses and Permits Charges for Services Fines and Forfeitures Investment Income Net Increase (Decrease) in Fair Value of Investments Property Income Donations Other Total Revenue Expenditures: Current General Government Public Safetytlt Public Works Community Development Community Services Capital Outlay Debt Service: Principal Interest and fiscal changes Total Expenditures Excess of revenue over expenditures (Table continued on next page) Fiscal Year Ended June 30, 2006 2007 2008 2009 2010 A,,ditod Anditod Anrliterl A,,ditod itnmalitod $ 57,888,545 $ 63,003,057 $ 67,388,838 $ 70,126,680 $ 71,999,679 21,465,557 21,088.,118 21,855,242 17,925,956 17,440,736 5,720,028 7,348,253 8,017,539 7,503,113 4,539,946 9,832,729 12,059,008 12,751,518 11,170,956 11,400,710 7,377,811 8,309,012 8,288,855 8,486,937 7,976,309 3,935,193 3,811,671 3,083,152 2,597,108 2,693,785 3,295,057 3,108,651 4,994,304 4,396,034 2,603,348 13,098,106 14,368,652 14,935,333 14,374,139 15,210,962 3,839,925 3,706,150 3,957,864 3,711,087 3,739,303 1,939,941 3,175,582 3,655,314 1,697,103 706,855 (715,615) (545,533) 508,485 1,096,848 707,200 6,224,093 6,471,129 6,603,973 6,552,603 6,080,577 605,271 1,323,550 1,202,474 261,357 124,703 1,040,158 1,967,465 1,458,770 234,573 1,690,499 $ 135.546.799 $ 149.194.765 $ 158.701.661 $ 150.134.494 $ 146.914.612 $ 12,457,334 $ 13,624,189 $ 14,425,553 $ 15,478,258 $ 15,086,125 47,971,940 50,424,717 53,650,324 57,285,811 56,108,046 22,446,976 24,403,360 25,454,281 26,220,846 25,681,411 7,299,573 7,223,202 7,769,980 8,302,214 8,097,847 10,950,588 11,749,016 12,639,243 13,281,963 13,109,514 6,510,325 10,368,748 10,455,571 5,910,047 8,627,010 -- 2,000,000 1,500,000 1,500,000 -- -- -- 142,500 71,250 -- $ 107,636,736 $ 119,793,232 $ 126,037,452 $ 128,050,389 $ 126,709,953 $ 27,910,063 $ 29,401,533 $ 32,664,209 $ 22,084,105 $ 20,204,659 A -4 (Table continued from prior page.) Other Financing Sources (Uses): Transfers In Transfers Outa] Issuance of debt Total Other Financing Sources (Uses) Net Change in Fund Balance Fond Balances, Beginning Fond Balance, Ending Fiscal Year Ended June 2006 2007 2008 2009 2010 Audited Audited Audited Audited Unaudited $ 787,393 $ 1,027,127 $ 5,521,342 $ 690,013 $ 1,519,725 (28,597,790) (20,102,519) (29,039,614) (22,222,293) (20,677,752) -- 5,000,000 -- -- 1,500,000 $ (27,810,397) $ (14,075,392) $ (23,518,272) $ (21,532,280) $ (17,658,027) 99,666 15,326,141 9,145,937 551,825 2,546,632 $ 54,487,395 $ 54,587,051 $69,913,202 $ 79,059,139 $ 79,610,964 S 54,587,061 S 69,913,202 S 79,059..139 S 79.610.964 $ 82,157,596 '" Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to the Police Department and the Fire Department. (zl Includes in each of the respective years a transfer from the General Fund to finance in part the maintenance and operations of the Tide and Submerged Land Fund (the "Tide Fund "), which were $15.2 million, $17.0 million, $17.4 million, $20.3 million and $20.1 million from Fiscal Years 2005 -06 through 2009 -10, respectively. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09; City of Newport Beach for Fiscal Year 2009 -10. See Appendix B —"City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. Recent Budget Results; Fiscal Year 2010 -11 Budget Long -Term Financial Planning. The City undertakes financial planning with a long -term approach and has developed several master replacement plans for its critical assets and infrastructure, including major facilities, street pavement, water and sewer infrastructure, and City vehicles and heavy equipment. The City retains the services of actuaries to predict and fund long- term liabilities, including workers compensation, general claim liabilities, pension liabilities and post employment health care liabilities. Reserve levels and annual required funding contributions are set by City Council policy. See "City of Newport Beach Financial Information — Reserves" herein. Annual contribution rates for workers compensation and general liability are targeted to facilitate the accumulation of cash reserves to achieve at least a 75% "confidence funding level ", meaning that there is a 75% probability that the respective funds will have enough money to cover all benefits and claims that have been incurred in connection therewith. Except for the implied subsidy component of the City's post employment health care plan ( "OPEB liability "), the City's policy is to fund the cash subsidy of its OPEB liability and pension liabilities at 100% of the actuarially determined annual required contribution ( "ARC "). Because the City pays the entire ARC each year, its net pension and net OPEB obligation at the end of each year is $0 (except for the implied subsidy component of OPEB which is funded on a pay -as- you -go basis). See "City of Newport Beach Financial Information — Pension Benefits" and "City of Newport Beach Financial Information — Post - Employment Benefits" herein. To mitigate the rising cost of pension plans, the City has negotiated pension cost sharing agreements with certain employee associations and is reviewing the potential for additional contributions and the creation of a second tier of pension benefits for new employees. Fiscal Year 2008 -09 Results. As of the end of the Fiscal Year 2008 -09, the City's Governmental Funds reflected combined fund balances of $121 million, an increase of $4.1 million from the prior year. The General Fund represented $79.6 million or 65.7% of the combined fund balances of the Governmental Funds. The General Fund reflected an increase of $0.6 million in fund A -5 balance relative to the prior fiscal year, after a transfer of $22.2 million to other funds, which consisted of $20.3 million in routine transfers to subsidize the operations of the Tide Fund, a $0.5 million transfer to the Contributions Fund and $1.4 million in various nonrecurring transfers to other funds. At the end of Fiscal Year 2008 -09, unreserved fund balance for the General Fund was $73.7 million, or 57.6% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100 % of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. Fiscal Year 2009 -10 Results. As of the end of the Fiscal Year 2009 -10, the City's Governmental Funds reflected combined fund balances of $110.2 million, a decrease of $10.9 million from the prior year. The General Fund represented $82.2 million or 74.6% of the combined fund balances of the Governmental Funds. The General Fund balance continued its trend of gradual increase, reflecting an increase of $2.5 million in fund balance relative to the prior fiscal year, after a transfer of $20.7 million to other funds, which consisted of $20.1 million in routine transfers to subsidize the operations of the Tide Fund and a $0.5 million routine transfer to the Debt Service Fund. At the end of Fiscal Year 2009 -10, unreserved fund balance for the General Fund was $76.7 million or 61% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. To address an $8 million projected revenue shortfalls in Fiscal Year 2009 -10, the City Council took a series of corrective actions, including adopting its Fiscal Sustainability Plan, organizing a review to identify operation savings, deferring certain capital projects, renegotiating contracts and contracting for additional services and returning surplus reserves. The City also approved an Early Retirement Incentive Plan ( "ERIP "), which operates through the Public Agency Retirement Systems ( "PARS ") Supplemental Retirement Plan ( "SRP "). See "City of Newport Beach Financial Information — Pension Benefits — Public Agency Retirement System — Supplemental Retirement Plan" herein. The SRP offered through PARS allowed the City to set the payment, eligibility, and refilling based on the City's needs, and allowed the associated expense to be known and quantifiable. The benefit to the participating employee is paid through a 15 -year annuity of 7% of "final pay up" to $75,000 and 6% of amount of "final pay" over $75,000, and it complements and is in addition to an employee's CalPERS retirement benefit. The total estimated cost to fund the ERIP benefit is $862,359 for the first year and $819,241 per year for the next four years. After accounting for the costs of implementing the ERIP plan and the estimated reduction to the City payroll, the net savings are expected to reach nearly $3.1 million annually. Fiscal Year 2010 -11 Budget. The Fiscal Year 2010 -11 Adopted Budget was adopted by the City Council on June 22, 2010. Total City revenues, excluding internal premiums, are expected to decrease approximately 4.4% relative to Fiscal Year 2009 -10 actual revenues, from $210.8 million to $201.6 million. Total City expenditures, excluding internal charges but including debt service and capital projects, are $226.7 million. The General Fund portion included revenues of approximately $145.1 million and expenditures of approximately $149.3 million. In accordance with the normal practice of the City, the Fiscal Year 2010 -11 Adopted Budget has been adjusted to reflect carry -over appropriations from the prior fiscal year and program needs not included in the Fiscal Year 2010 -11 Proposed Budget. See Table A -3 herein. The City projects that Fiscal Year 2010 -11 General Fund revenues will decrease approximately $1.8 million from Fiscal Year 2009 -10 actual revenues. Property tax revenues, which account for approximately 49% of total General Fund revenues, are budgeted to decrease by approximately $1.4 million in Fiscal Year 2010 -11. However, updated assessed valuation information from the County Assessor's Office reflects a projected 0.27% increase in net taxable IM-4 value in the City. See "City of Newport Beach Financial Information — Major Revenues" herein. Sales tax and uniform transient occupancy tax ( "TOT ") are the next largest components of the City's General Fund. The Fiscal Year 2010 -11 sales tax estimate is $17.4 million, the same as Fiscal Year 2009 -10 actual sales tax receipts and approximately 3.1% lower than Fiscal Year 2008 -09 actual sales tax receipts. TOT revenues are estimated to be $11.6 million, an increase of 1.4% over the Fiscal Year 2009 -10 actual TOT receipts. The General Fund contains expenditures for all operating City departments, except for the Harbor Resources Division within the City Manager Department and the Oil and Gas Division of the Utilities Department, which are funded through the Tide Fund and the Water and Wastewater Divisions within the Utilities Department respectively. In Fiscal Year 2010 -11, the General Fund expenditures, net of the Tide Fund, including General Fund capital improvements, total $126.6 million, a decrease of $0.1 million, or 0.1% from Fiscal Year 2009 -10 General Fund actual expenditures. Excluding internal service premiums charged to fund insurance reserves, equipment maintenance and replacement, and post employment medical benefits, total expenditures are proposed to be approximately $226.7 million. The budget shortfall between total external revenues and expenditures is due to the timing of Capital Improvement Project ( "CIP ") revenues and expenditures. CIP projects often span one or more fiscal years and it is estimated that $29 million projects will be re- budgeted from a prior fiscal year because such projects were delayed or were only partially completed. These funds are reserved in a Capital Appropriations reserve, but when the appropriation is carried forward to the following year, this re- appropriation causes expenditures to exceed current year revenues. Funding for the Project. The City's Fiscal Year 2010 -11 Adopted Budget includes a set -aside of $31.3 million as part of its Facilities Replacement Program (the "Facilities Replacement Program ") to fund construction expenditures for the Civic Center Project, including a parking structure and library additions, which amount will be reimbursed from proceeds of the Certificates described in the forepart of this Official Statement. See "Reserves — Facilities Replacement Program" for a description of the City's Facilities Replacement Program. The Civic Center project has been reviewed in context of all critical City facility replacement plans. The City's facilities replacement policy limits General Fund annual contributions to debt service to not more that 5% of total General Fund operating budget in any one year. See "Plan of Financing — The Civic Center Project" in the forepart of this Official Statement. Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010- 11 Budget. On October 8, 2010, the Governor signed the 2010 Budget Act (the "2010 -11 State Budget Act ") to address a then - projected $19.3 billion shortfall in revenues. See "State of California Budget Information - Fiscal Year 2010 -11 State Budget" herein. The funding provisions included in the 2010 -11 State Budget Act are expected to have minor impacts on City operations. The City has reviewed the 2010 -11 Budget Act and reflected the reductions included therein in its Fiscal Year 2010 -11 Adopted Budget. The primary impact to the City from the 2010 -11 Budget Act is the delay of new Highway Users Tax Account payments. City monthly payments for the remainder of Fiscal Year 2010 -11 will be increased and adjusted to compensate for the deferral. Given the current state of the State's economy and the projected imbalance in the State's budget, the City cannot fully anticipate the impact of State's continuing budget challenges on the revenues or expenditures of the City. The City cannot predict the extent of any additional fiscal problems that will be encountered in this or in any future fiscal years, and, it is not clear what measures will be taken by the A -7 State or federal government to address the continuing economic downturn. Future State budgets could be affected by national economic conditions and the factors over which the City will have no control. Also, the City cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State's current and future budget deficits or the impact that such actions will have on the City's finances and operations. To the extent that the State budget process results in reduced revenues or increased expenses to the City, the City will be required to make adjustments to its budget. See "State of California Budget Information" herein. Future Budget Impacts. For Fiscal Year 2010 -11, the ERIP is expected to continue to provide operating savings. Notwithstanding the 13.3 % investment earnings realized on pension investments for Fiscal Year 2009 -10, the City is anticipating a significant increase in expenditures in Fiscal Year 2011 -12 as that is when the Fiscal Year 2008 -09 investment losses of 24% (approximately $119.8 million of the market value of assets and $102.9 million of the actuarial value of assets) in connection with pension are factored into the City's pension contribution rates. The City's total pension cost is expected to increase from a budgeted $19.8 million in Fiscal Year 2010 -11 to $21.6 million in Fiscal Year 2011 -12, $25.8 in Fiscal Year 2012 -13 and $28.8 million in Fiscal Year 2013 -14. The City currently has $5 million in its Reserve for PERS Rate Changes to help offset rate increases. See "City of Newport Beach Financial Information — Pension Benefits" herein. I&V Table A -3 below sets forth the City's original, adopted budget and actual budget results for Fiscal Years 2008 -09 and 2009 -10 and the adopted budget for Fiscal Year 2010 -11. TABLE A -3 CITY OF NEWPORT BEACH GENERAL FUND BUDGETS(n Fiscal Years 2008 -09 through 2010 -11 MG Fiscal Year 2008 -09 Fiscal Year 2009 -10 Fiscal Year 2010 -11 Original Original Estimated Original Budget Actual Budget Actual Budget Revenues Taxes and Assessments: Property $ 68,834,854 $ 70,126,680 $ 71,119,504 $ 71,999,679 $ 70,642,840 Sales 22,635,634 17,925,956 19,656,428 17,440,736 17,374,734 Sales Tax In-Lieu (2) 8,258,065 7,503,113 7,690,691 4,539,946 6,392,273 Transient Occupancy 13,014,079 11,170,956 13,000,000 11,400,710 11,555,034 Other taxes 8,018,514 8,486,937 7,634,000 7,976,309 8,410,800 Intergovernmental 2,407,991 2,597,108 2,051,200 2,693,785 1,840,272 Licenses and Permits 5,968,653 4,396,034 2,947,790 2,603,348 2,663,975 Charges for Services 15,280,400 14,374,139 14,380,989 15,210,962 13,878,895 Fines and Forfeitures 3,560,256 3,711,087 3,645,000 3,739,303 3,651,000 Investment Income 2,268,000 1,697,103 1,400,000 706,855 1,050,000 Net increase in Fair Value of Investments -- 1,096,848. -- 707,200 Property income 6,117,202 6,552,603 6,018,404 6,080,577 7,232,797 Donations 112,500 261,357 100,000 124,703 50,000 Other 564,715 234,573 495,600 1,690,499 383,050 Total Revenues $ 157,040,863 $ 150,134,494 $ 150,139,606 $ 146,914,612 $ 145,125,670 Expenditures: General Government: City Council $ 1,196,180 $ 1,188,990 $ 1,279,250 $ 1,163,486 $ 1,047,612 City Clerk 524,193 469,507 381,140 382,393 500,270 City Attorney 1,542,595 2,097,159 2,403,871 2,688,217 2,379,426 City Manager 1.,810,465 1,779,540 1,619,706 1,163,956 1,809,249 Administrative Services 8,390,086 7,889,562 8,156,605 7,356,232 7,824,501 Human Resources 2,155,636 2,053,500 2,357,506 2,331,841 2,321,792 Total General Government $ 15,619,155 $. 15,478,258 $ 16,198,078 $. 15,086,125 $ 15,882,850 Public Safety: (3) Police $ 37,936,468 $ 36,646,654 $ 36,886,066 $ 35,374,156 $ 35,599,103 Fire 19,540,265 20,639,157 21,077,491 20,733,889 21,536,261 Total Public Safety $ 57,476,733 $ 57,285,811 $ 57,963,557 $ 56,108,045 $ 57,135,364 Public. Works: General Services $ 20,801,443 $ 19,690,353 $ 21,098,141 $ 19,445,196 $ 19,550,813 Public Works 5,250,308 5,075,801 5,180,773. 5,077,222 4,973,274 Utilities 1,465,258 1,454,692 1,462,862 1,158,994 1,317,935 Total Public Works $ 27,517,008 $ 26,220,846 $ 27,741,776 $ 25,681,412 $ 25,842,022 Community Development: Planning $ 4,060,682 $ 4,713,078 $ 3.,119,410 $ 3,126,089 $ 3,066,495 Building 4,947,609 3,324,759 4,858,614 4,408,216 4,332,481 Code and Water Quality Enforcement 439,401 264,377 430,204 563,542 266,882 Total Community Development $ 9,447,693 $ 8,302,214 $ 8,408,228 $ 8,097,847 $ 7,665,858 (Table continued on next page.) MG (Table continued from prior page.) Community Services: Library Services Recreation and Senior Services Total Community Services Capital Outlay Debt Service: Principal Interest and Fiscal Charges Total Debt Service Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses) Transfers In Transfers Out Issuance of Debt Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, Beginning Fund Balance, Ending Fiscal Year 2008 -09 Fiscal Year 2009 -10 Fiscal Year 2010 -11 Original $ Original Estimated Original Budget Actual Budget Actual Budget $ 6,966,096 $ 6,521,718 $ 6,629,814 $ 6,554,183 $ 6,562,723 7,243,013 6,760,245 7,161,164 6,555,331 7,652,175 $ 14,209,109 $ 13,281,963 $ 13,790,978 $ 13,109,514 $ 14,214,898 14,270,981 5,910,047 8,636,613 8,627,010 5,054,497 $ 1,500,000 $ 1,500,000 $ -- $ -- $ 750,000 71,250 71,250 -- -- 30,000 $ 1,571,250 $ 1,571,250 $ -- $ -- $ 780,000 S 140,111,929 $ 128,050,389 $ 132,739,230 $ 126,709,953 $ 126,575,489 $ 16,928,934 $ 22,084,105 $ 17,400,376 $ 20,204,659 $ 18,550,181 $ 440,000 $ 690,013 $ 440,000 $ 1,519,725 $ 440,000 (20,884,284) (22,222,293) (20,701,193) (20,677,752) (51,728,627) -- -- -- 1,500,000 -- $ (20,444,284) S (21,532,280) $ (20,261,193) $ (17,658,027) $ (51,288,627) $ (3,515,350) S 551,825 $ (2,860,817) $ 2,546,632 $ (32,738,446) $ 79,059,139 S 79,059,139 S 79,610,964 $ 79,610,964 $ 82,157,596 $ 75,543,789 S 79,610,964 S 76,750,147 S 82,157,596 S 49,419,150 Net of year -end allocations of certain General Fund revenues to the Tide Fund for maintenance services. (2) Includes correction of $1.2 million Sales Tax In -Lieu overpayment as a result of a State error in Fiscal Year 2008 -09. (3) Increases in Public Safety expenditures are attributable to increases in the PERS (herein defined) rate, increases in cost of living adjustments and, beginning in Fiscal Year 2008 -09, the charge of annual OPEB (herein defined) cost to each of the Police Department and the Fire Department. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09; Adopted Budgets of the City for Fiscal Years 2009 -10 and 2010 -11; City for actual revenues and expenditures for Fiscal Year 2009 -10. Major Revenues General. The City's General Fund and its activities are primarily supported by ad valorem property, sales and use taxes, and transient occupancy taxes, which account for approximately 73% of total General Fund revenues. Other revenue sources supporting General Fund activities include licenses, fees and permits, intergovernmental revenues, charges for services, fines, forfeitures and penalties, revenues from the use of money and property, contributions, and other miscellaneous revenues. A -10 Table A -4 below sets forth the City's total General Fund revenues for selected major revenue sources from Fiscal Years 2006 -07 through 2010 -11. Taxes and Assessments Revenue Category Property Tax Sales Tax Sales Tax in -lieu Transient Occupancy Other Intergovernmental Licenses and Permits Charges for Services Fines and Forfeitures Investment Income Net Increase (Decrease) in Fair Value of Investments Property Income Donations Other Total Source: City of Newport Beach. TABLE A -4 CITY OF NEWPORT BEACH SELECTED MAJOR REVENUE SOURCES Fiscal Years 2006 -07 through 2010 -11 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 Actual Actual Actual Estimated Budgeted $ 63,003,057 $ 67,388,838 $ 70,126,680 $ 71,999,679 $ 70,642,840 21,088,118 21,855,242 17,925,956 17,440,736 17,374,734 7,348,253 8,017,539 7,503,113 4,539,946 6,392,273 12,059,008 12,751,518 11,170,956 1 1,400,710 11,555,034 8,309,012 8,288,855 8,486,937 7,976,309 8,410,800 3,811,671 3,083,152 2,597,108 2,693,785 1,840,272 3,108,651 4,994,304 4,396,034 2,603,348 2,663,975 14,368,652 14,935,333 14,374,139 15,210,962 13,878,895 3,706,150 3,957,864 3,711,087 3,739,303 3,651,000 3,175,582 3,655,314 1,697,103 706,855 1,050,000 (545,533) 508,485 1,096,848 707,200 — 6,471,129 6,603,973 6,552,603 6,080,5777 7,232,797 1,323,550 1,202,474 261,357 124,703 50,000 1,967,465 1,458,770 234,573 1,690,499 383,050 $ 149,194,765 $ 158,701,661 $ 150,134,494 $ 146,914,612 $ 145,125,670 Property Taxes. Property tax receipts provide the largest tax revenue source of the City, contributing approximately $70.1 million and $72 million (or 47% and 49% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. Property tax receipts are expected to provide approximately $70.6 million (inclusive of property transfer taxes) or 49% of General Fund revenues for Fiscal Year 2010 -11. Ad valorem property taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date "). For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." One type of ad valorem property tax is the 1 percent ad valorem property tax levied by the County on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of "situs" growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which A -11 were developed to permit the levying of taxes for less than county-wide or less than city-wide special and school districts. Another type of ad valorem property tax is the ad valorem property levied by the County to pay debt service on voter - approved general obligation bonds. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one -half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax defaulted property is subject to sale by the Office of the County Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one -half percent per month begins to accrue on November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. The County employs an alternate method of property tax apportionment known as the "Teeter Plan ", pursuant to which the County apportions taxing agencies 100% of their levy (adjusted for roll changes) and retains all delinquent receivables. However, the City is not a participant in the Teeter Plan. Accordingly, the City receives its property tax receipts as described above and retains all delinquent receivables relating thereto. Property taxes allocated to the City include an amount to compensate cities for the loss of motor vehicle license fees. Motor Vehicle License Fees ( "VLF ") are levied as a percentage of an automobile's purchase price, subject to depreciation, and are paid annually to the California Department of Motor Vehicles at the time of registration. The fees are then forwarded to the State Controller's Office, which allocates the funds to local governments per capita on a monthly basis. Beginning in 1999, the VLF underwent a series of offsets that ultimately resulted in a 67.0% reduction in the effective VLF rate, from 2.0% of a vehicle's value to 0.65 %. To compensate cities and counties for the tax offset, the State began providing State General Fund revenue to cities and counties on a dollar- for - dollar basis, otherwise known as the VLF backfill. As part of the Fiscal Year 2005 State Budget agreement, the VLF rate was statutorily reduced to 0.65 %, eliminating the VLF backfill. Cities were compensated for the loss in VLF revenue with increased property tax revenues. Although the VLF rate has subsequently increased, the City does not share in this increase. The Fiscal Year 2010 -11 Adopted Budget includes $69.4 million in projected property tax revenues, excluding property tax transfer of $1.2 million, consisting of $62.6 million of 1% property tax levy and $6.8 million of "in -lieu of VLF" property tax revenue. Although the City has historically experienced steady growth in assessed valuation of 4% or more, the City assumed for purposes of the Fiscal Year 2010 -11 Adopted Budget that there would be a 0.25% decline in secured property taxes from the prior year, with contingencies for a decline of assessed valuation. According to updated assessed valuation information provided by the County Assessor's Office, the City A -12 experienced a year -to -year increase in net taxable value of $38.8 billion, an increase of 0.27% over Fiscal Year 2009 -10 values. A number of factors contributed to the slower growth in assessed valuation for the last several years, such as falling residential real estate prices and increased foreclosures. In addition, the increased number of reassessment applications to the Assessor's Office has contributed to increased refunds to homeowners and less revenue to the City. The 1.0% property tax levy is placed on the total assessed valuation of all commercial, residential, and industrial properties in the City. Due to the downturn on the real estate market, the average median home price decreased nearly 29.6 percent since 2007 through July 2010. In Fiscal Year 2009 -10, the State borrowed approximately 8.0% of property tax revenues from counties, cities and special districts, totaling approximately $1.9 billion, which amount will be repaid within three years, all in accordance with Proposition IA (2004) approved by voters in 2004. The City's share of the borrowing was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. See "Constitutional and Statutory Limitations on Taxes, Revenues and Appropriations — Proposition IA," in the forepart of this Official Statement. Table A -5 below sets forth the property tax rates for the City for the Fiscal Years 2005 -06 through 2010 -11. TABLE A -5 CITY OF NEWPORT BEACH PROPERTY TAX RATES Fiscal Years 2005 -06 through 2009 -2010 Total Direct Rate $1.040 $1.036 $1.035 $1.034 $1.038 In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: County of Orange Auditor Controller's Office. A -13 Fiscal Years 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 City Direct Ratesatl City Basic Rates $1.000 $1.000 $1.000 $1.000 $1.000 Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water Districts 0.005 0.005 0.004 0.004 0.004 School Districts 0.0349 0.0315 0.0308 0.0302 0.0340 Total Direct Rate $1.040 $1.036 $1.035 $1.034 $1.038 In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: County of Orange Auditor Controller's Office. A -13 Table A -6 below sets forth the secured and unsecured assessed valuations for property in the City for the Fiscal Years 2006 -07 through 2010 -11. TABLE A -6 CITY OF NEWPORT BEACH ASSESSED VALUATION Fiscal Years 2006 -07 through 2010 -11 Fiscal Locally State Total Year(i) Assessed Assessed Secure&)"' 2006 -07 $31,423,419,732 $ 53,310 $31,423,473,042 2007 -08 34,188,515,273 53,310 34,188,568,583 2008 -09 36,435,406,840 699,230 36,436,106,070 2009 -10 37,077,896,580 699,230 37,078,595,810 2010 -11 37,079,578,045 699,230 37,080,217,275 Unsecured Total Values (4) Values (2) 1,569,867,249 $32,993,340,291 1,668,015,342 35,856,583,925 1,538,539,482 37,974,645,552 1,564,808,312 38,643,404,122 1,626,947,910 38,707,165,185 (p As of January 1. (z) Totals do not equal sum of component parts due to independent rounding. (3) Represents Proposition 13 increases and decreases in taxable value of locally assessed real estate, excluding exempt properties such as churches, hospitals and schools. t0j Consists of business personal property assessments, plus marine and aircraft assessments. Source: County of Orange Auditor Controller's Office. Table A -7 below sets forth property tax collections and delinquencies in the City as of June 30 for Fiscal Years 2005 -06 through 2009 -10. TABLE A -7 CITY OF NEWPORT BEACH PROPERTY TAX LEVIES AND COLLECTIONS Fiscal Years 2006 through 2010 2005 -06 Tax Percent of Delinquent Total Collections as of Levy Tax Fiscal Year Tax Levy June 30 Collected Collections(t) 2005 -06 $47,286,816 $45,558,039 96.34% $ 728,365 2006 -07 70,194,492 68,820,402 98.04 808,765 2007 -08 69,315,117 68,242,326 98.45 846,904 2008 -09 71,006,357 70,879,909 99.82 (294,366) 2009- 10(2) 68,412,731 62,858,261 91.88 (1,227,109) Source: County of Orange Auditor Controller's Office. (') Negative numbers reflect property tax refunds allocated to the referenced year. (Z) Net of amount property tax revenues borrowed by the State from the City, which was approximately $6.2 million. The City recovered the full amount of the borrowing in Fiscal Year 2009 -10 by participating in a securitization program through the California Statewide Communities Development Authority. A -14 Table A -8 below sets forth the 10 largest taxpayers in the City as shown on the Fiscal Year 2009- 10 secured tax roll and the land use, the assessed valuation and the percentage of the City's total property tax revenues attributable to each such taxpayer. TABLE A -8 CITY OF NEWPORT BEACH TEN LARGEST TAXPAYERS Fiscal Year 2009 -10 Taxable Assessed Percentage of Property Owner Valuation Totalttl 1. The Irvine Company $1,845,922,190 4.78% 2. MacArthur Rockwell Semiconductor 145,017,612 0.38 3. Newport Bluffs LLC 138,143,707 0.36 4. Balboa Bay Club Inc. 128,568,741 0.33 5. 100 Bayview LLC 124,169,842 0.32 6. UDR Newport Beach North LP 117,788,896 0.30 7. Coronado South Apartments LP 114,618,841 0.30 8. Newport Healthcare Center 103,942,105 0.27 9. Jazz Semiconductor Inc. 103,174,333 0.27 10. HHR Newport Beach LLP 86,937,294 0.22 h 20092009 Assessed Valuation of $38,643,404,122. Source: County of Orange Assessor's Office. Sales Taxes. Sales tax receipts provided the second largest tax revenue source of the City, contributing approximately $17.9 million and $17.4 million (or 11.9% and 11.8% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. Sales tax receipts are expected to provide approximately 17.4 million or 12.0% of General Fund revenues for Fiscal Year 2010 -11. Collected at the point of sale, sales tax receipts are remitted to the State Board of Equalization, which allocates tax revenue owed to the City in the form of monthly payments. According to the Bradley - Burns Sales and Use Tax law, cities are to receive one cent of the total 8.25 cent statewide sales tax levied on each dollar of taxable sales. Sales tax also includes a half -cent tax approved by California voters in 1993 pursuant to Proposition 172 for the purpose of funding local public safety expenditures. Beginning in Fiscal Year 2004 -05, the City's sales tax revenues have included a reimbursement from property taxes that the City will receive as a result of the "triple flip ", the shift enacted by the State in Fiscal Year 2004 -05 pursuant to which local governments shift one- quarter of a cent of their Bradley - Burns Sales and Use Tax to the State in exchange for an equivalent amount of property tax. Once the State's Economic Recovery Bonds are repaid in full, local governments are expected to lose the property tax reimbursement, but will instead regain the one - quarter -cent sales tax that was diverted to the State by the triple -flip. This shift is different from the MVLF property tax swap which is considered to be a permanent shift of revenues from MVLF to property tax. The State may elect to repay its Economic Recovery Bonds prior to their expected payment date if sales tax revenues are sufficient to support such repayment. The timing of such repayment and the associated cessation of the property tax reimbursement and one - quarter -cent sales tax diversion are not expected to affect amounts available to repay the principal and interest with respect to the Certificates. A -15 The Fiscal Year 2010 -11 Adopted Budget includes $17.4 million in projected sales tax revenues, which excludes $6.4 million in triple flip reimbursements. Such amounts are in addition to $0.7 million in Proposition 172 safety sales tax revenue derived from a half -cent sales tax resulting from the passage statewide of Proposition 172 in November 1993, which must be used solely for local public safety purposes. Sales tax revenues are dependent on consumer behavior, which has been negatively affected by the current economic recession, falling home prices and tightening credit policies. Sales revenues have decreased from $21.9 million in Fiscal Year 2007 -08 to $17.4 million in Fiscal Year 2009 -10 and are projected to be $17.4 million in Fiscal Year 2010 -11 . Sales tax revenues are expected to increase as employment conditions improve and consumer confidence is restored. Safety sales tax receipts typically follow the same economic trends as sales tax receipts, but are distributed to cities based on a different allocation formula than the distribution of sales tax. The City can provide no assurance that actual sales tax receipts will not be materially less than projected. Transient Occupancy Tax. TOT receipts provided the third largest tax revenue source of the City, contributing approximately $11.2 million and $11.4 million (or 7.4% and 7.8% of General Fund revenues) during Fiscal Years 2008 -09 and 2009 -10, respectively. TOT receipts are expected to provide approximately $11.6 million or 8.0% of General Fund revenues for Fiscal Year 2010 -11. The TOT accrues to the City at a rate of 10% of room charges (with 18% of this collection going to the local CVB. The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of approximately twenty inns, motels, hotels and resorts and accounted for 91.3% of TOT revenues in Fiscal Year 2009 -10. The residential category is made up of approximately 700 vacation rentals represented 8.7% of TOT revenue in Fiscal Year 2009 -10. The Fiscal Year 2010 -11 Adopted Budget includes $11.6 million in projected TOT revenues, which reflects a $0.2 million increase over Fiscal Year 2009 -10 actual TOT receipts. Transient occupancy tax collections generally follow a similar trend as sales taxes. The recent hotel expansions and the addition of a new luxury resort within the City have mitigated some of the effects of negative economic conditions the last few years. Other Funds In addition to the City's General Fund, there are numerous other funds whose amounts are used to finance City expenditures, including capital improvements. The City's Special Revenue Funds are used to account for the proceeds of special revenue sources, which are legally restricted to expenditures for specific purposes. One such Special Revenue Fund is the City's Gas Tax Fund, which is funded by the State Gasoline Tax and can only be expended for street repair, construction, and maintenance. The City has many other special revenue funds that are included in its budget. The City employs Internal Service Funds to account for vehicle maintenance and replacement, as well as all compensated absences, general liability, workers' compensation, and other insurance payments. These internal service funds are funded by charging each of the operating departments a rate computed to support these activities. Further, the City's budget includes Enterprise Funds, which are used to account for City operations that are financed and operated in a manner similar to private business enterprises. The objective of segregating activities of this type is to identify the costs of providing the services, and to finance them through user charges. The two main City enterprise funds are the City's Water Fund and the Wastewater Fund. Both of these funds are financed by user charges to the customers (residents and businesses of Newport Beach). P None of the amounts in the City's Special Revenue Funds, Internal Service Funds or Enterprise Funds are pledged to repayment of the principal and interest with respect to the Certificates. Reserves Reserves /Designations of Fund Balance. The City has established a Reserves/Designations of Fund Balance policy, as amended through November 12, 2008 (the "Reserves Policy "), for the administration of financial reserves and fund balances. Reserves are to be funded at the levels specified in the Reserves Policy as part of the annual budget process. If operational or other considerations require the City Council to temporarily override the Reserve Policy during any fiscal year, the City Manager will recommend to the City Council a plan to restore any reserves falling below required minimum levels and reserve levels will be restored as soon as practical. If the reserve requirements set forth in the Reserves Policy are unmet in any fiscal year, the City Manager will recommend funding prioritization to the City Council as part of the Budget. The City Council decides whether to appropriate funds from reserve accounts. Reserve amounts will not be spent for any function other than the specific purpose of the reserve account from which they are drawn without specific direction in the annual budget resolution or by a separate City Council resolution approving that specific action. Each of the City's funds, including the General Fund, contains accounting reserves (non discretionary), contingency reserves, designated reserves (strategic savings) and stabilization reserves. Accounting reserves are established pursuant to GAAP and represent the unspendable portions of fund balance, such as inventories and long -term receivables, as well as funds that are legally restricted by some external source, such as debt service reserves and encumbrances. Contingency reserves represent funds for unexpected financial emergencies, such as the adverse impact of natural disasters. Designated reserves or strategic savings are designated for known or anticipated events that events require large, non - recurring financial outlay, such as the replacement of systems and equipment or major capital improvements. Stabilization reserves facilitate the orderly management of the operating budget by stabilizing revenues and expenditures within the context of large market fluctuations. The City's General Fund contains a contingency reserve with a target balance of not less than 12% of annual General Fund expenditures. Funds in this reserve cannot be used without the specific authorization of City Council. The General Fund contingency reserve is currently at the target balance set forth in the Reserves Policy. The City's General Fund also contains three stabilization reserves: an appropriations reserve that serves as a temporary repository for funds not yet fully appropriated in the annual budget; a reserve for capital projects, and a PERS rate reserve to help smooth (for internal budgeting purposes) the year -to -year fluctuations in PERS rates, which is accomplished by budgeting the normal cost of PERS rates and setting aside excess amounts when actual PERS rates are below budgeted levels and drawing on such amounts when actual PERS rates are above budgeted levels. Further, the City's General Fund includes a number of accounting reserves, such as those for debt service, long -term receivables and encumbrances, and a number of designated reserves, such as those for off - street parking, affordable housing, neighborhood enhancement and capital improvements See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Funding for the Project" herein. Facilities Replacement Program. The City has established a Facilities Replacement Program, as amended through August 11, 2009 (the "Facilities Replacement Policy "), to address the replacement or major renovation of existing physical infrastructure and the addition of new facilities. Funding for the program is derived from development fees, contributions from individuals and organizations within the community, annual budget appropriations from the General Fund, net A -17 proceeds of financings and investment earnings on temporarily idle funds. Program funds are used for actual site acquisition, design, construction, directly related costs and debt service expenses. Pursuant to the Facilities Replacement Policy, General Fund contributions to the Facilities Replacement Program should be in the range of 3.0% to 4.5% of the General Fund operating budget each year (exclusive of periodic year- end -close contributions of unexpended appropriations originally budgeted for other purposes or contributions of unexpected one -time revenues not specified for another purpose), but not in excess of 5.0% of the total General Fund operating budget, subject to certain limited exceptions. The Facilities Replacement Policy also provides that the final maturity for any borrowed funds shall not exceed 30 years or the projected life of the new facility, whichever is earlier. The City's Fiscal Year 2010 -11 budget includes a $31.3 million transfer to the Facilities Replacement Program to fund a set -aside for construction expenditures and debt service for the Civic Center Project, including a parking structure and library additions, which amount will be reimbursed from proceeds of the Certificates described in the forepart of this Official Statement. The projected General Fund Balance of $49.40 million, as set forth in the Fiscal Year 2010 -11 budget, is net of the foregoing set - aside. The City intends to reimburse itself for Civic Center Project expenditures from the proceeds of the Certificates. Other Reserves. The City has also established a number of other reserves pursuant to its reserves and funding policies, including reserves for the Tide Fund, the Permanent Endowment Fund (Robinson Skinner Annuity) for Newport Bay Dredging, the Water Fund, the Wastewater Fund and the Internal Service Fund (the "Internal Service Fund "). See "City of Newport Beach Financial Information — Risk Management" herein. In addition, the Reserves Policy sets forth the City's funding policies with respect pension benefits and OPEB. The City currently has $5 million in its Reserve for PERS Rate Changes to help offset rate increases. See "City of Newport Beach Financial Information — Pension Benefits" and "City of Newport Beach Financial Information — Other Post Employment Benefits" herein. The amounts in such funds, including the reserves therein, are not pledged for payment of the principal and interest with respect to the Certificates. Capital Projects The City's CIP serves as a plan for the provision of public improvements, special projects, on- going maintenance programs, and the implementation of the City's master plans. Projects in the CIP include improvements and major maintenance on arterial highways, local streets, and alleys; storm drain and water quality improvements; bay, pier, and beach improvements; park and facility improvements; water and wastewater system improvements; transportation safety and traffic signal improvements; and planning programs and studies. The proposed Fiscal Year 2010 -11 CIP consists of 51 projects representing nearly $24 million in new appropriations and more than $29 million in re- budgeted funds for a total CIP budget of $52,916,797. Major funding initiatives include Rhine Channel dredging, Big Canyon restoration, Jamboree Road Bridge widening and Jamboree Road improvements. Significant work continues on major facilities projects such as the Civic Center, Marina Park, and Sunset Ridge Park. Given the current fiscal climate, the development of the proposed CIP was limited to meeting Council priorities and master plan requirements. As a result, the Fiscal Year 2010 -11 CIP represents a 12.9% decrease in total funding compared to the adopted Fiscal Year 2009 -10 CIP. Essential projects were prioritized and summarized by available funds and presented to the City Council for consideration. Funding of capital projects is derived from multiple funding sources. IRK Labor Relations As of July 1, 2010, the City employs approximately 808 full -time and 135 full -time equivalent employees. The 135 full -time equivalent employee hours are staffed by approximately 479 part -time employees. The City has ten labor organizations which represent an aggregate 1,004 classified employees. The labor organizations are the Firefighters Association, the Fire Management Association, the Lifeguard Management Association, Police Association, Police Management Association, Association of Newport Beach Ocean Lifeguards, Newport Beach City Employees Association, Newport Beach Employees League, Professional and Technical Association, and Part - Time Unit (UPEC Local 777). The City has never experienced a strike or other work stoppage. Table A -9 below sets forth the City's employee labor organizations and their respective contract expiration dates. TABLE A -9 CITY OF NEWPORT BEACH EMPLOYEE LABOR ORGANIZATIONS As of June 30, 2010 t' Terms of expired contracts remain in effect until new contracts are executed Source: City of Newport Beach. Pension Benefits California Public Employees' Retirement System. The City contracts with, and contributes to, the California Public Employees' Retirement System ( "PEAS "), an agent multiple - employer public employee defined benefit pension plan, for certain defined pension benefits. PERS provides retirement and disability benefits, annual cost -of- living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Such information is not incorporated herein by reference. City safety employees and City non -safety employees participating in PERS are required to contribute 9% and 8 %, respectively, of their annual covered salary. Pursuant to the terms of labor contracts with safety employees, the City historically made the entire contribution required of City safety employees on their behalf and for their account. Effective December 19, 2009, February 27, 2010 and A -19 Approximate Number of Employees Contract Labor Organizations In Organization Expiration Date Newport Beach Firefighters Association 119 December 31, 2011 Fire Management Association 6 December 31, 2010 Lifeguard Management Association 17 December 31, 2011 Police Association 206 December 31, 2011 Police Management Association 33 December 31, 2011 Association of Newport Beach Ocean Lifeguards 197 April 30, 2011 Newport Beach City Employees Association 103 June 30, 201011 Newport Beach Employees League 156 June 30, 201011 Professional & Technical Association 91 June 30, 201011 Part-Time Unit (UPEC Local 777) 76 June 30, 201011 t' Terms of expired contracts remain in effect until new contracts are executed Source: City of Newport Beach. Pension Benefits California Public Employees' Retirement System. The City contracts with, and contributes to, the California Public Employees' Retirement System ( "PEAS "), an agent multiple - employer public employee defined benefit pension plan, for certain defined pension benefits. PERS provides retirement and disability benefits, annual cost -of- living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Such information is not incorporated herein by reference. City safety employees and City non -safety employees participating in PERS are required to contribute 9% and 8 %, respectively, of their annual covered salary. Pursuant to the terms of labor contracts with safety employees, the City historically made the entire contribution required of City safety employees on their behalf and for their account. Effective December 19, 2009, February 27, 2010 and A -19 July 3, 2010, members of the Newport Beach Firefighters Association, Newport Beach Lifeguard Management Association and Police Association and Police Management Association, respectively, will contribute 3.5% of base pay to offset the 9% PERS member contribution made by the City. Safety employees have also agreed to a PERS contract amendment that requires all new safety employees to pay 5.5% of the 9% PERS member contribution for their first five years of uninterrupted service. Since January 2008, pursuant to agreements with non - safety employees, the City has contributed 7% and non- safety employees have contributed 1% of the 8% non - safety employee required contribution. Non - safety employees also contribute 2.42% of the City's employer contribution. Benefit provisions and all other requirements are established by State statutes and City contracts with employee bargaining groups. The City's contributions to the PERS plan include the employer -paid member contribution described above and the actuarially determined annual required contribution ( "ARC "), which fluctuates each year based on an annual actuarial plan valuation. The ARC is calculated using the entry age actuarial cost method and consists of two components: the "normal cost ", which represents the portion of the actuarial present value of the benefits that the City and its employees will be expected to fund that are attributable to a current year's employment, and the amortized amount of the unfunded actuarial accrued liability ( "UAAL "). The amortization of the UAAL represents the current year's portion of the unfunded accrued costs (i.e., the UAAL) attributable to past years' employment. The UAAL is an estimate based on a series of assumptions that operate on economic and demographic data of the PERS plan membership and may increase or decrease as result of changes in actuarial assumptions (such as the assumed investment rate of return of 7.75 %, net of administrative expenses), benefit improvements and other experience that differ from that anticipated by the actuarial assumptions. This process is used to determine, as of the date of the calculation, how sufficient the assets in the PERS plan are to fund, as of the date of calculation, the accrued costs attributable to PERS plan participants. The funding sufficiency is typically expressed as the ratio of the valuation assets to the actuarial accrued liabilities. if the actuarially calculated funding level of a plan is less than 100 %, the plan has a UAAL. For a summary of principal assumptions and methods used to determine the ARC for the City's PERS plan for safety and non - safety employees, see Note 10 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". When measuring assets for determining the UAAL, many pension plans, including the City's PERS plan, "smooth" gains and losses to reduce volatility. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Pursuant to the Employer Rate Stability Policy (herein defined) adopted by PERS and the "fresh start" implemented in connection therewith, gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of approximately 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. Using a rolling 30 -year amortization period for measuring the actuarial accrued liability could result in the UAAL continuing to rise indefinitely even if the City were to contribute the full ARC in each year. Under certain circumstances, the City may be unable to effectively amortize the plan's UAAL. In April 2005, the PERS Board of Administration adopted its Employer Rate Stability Policy (the "Employer Rate Stability Policy "), which provided for, among other things, calculating the annual contribution amount with regard to gains and losses as a rolling 30 -year amortization of all remaining unamortized gains and losses (as opposed to recognizing 10% of annual gains and losses pursuant to prior policy) beginning with the actuarial valuation as of June 30, 2004. Pursuant to such policy change, multiple amortization bases (including those for benefit improvement or changes in actuarial methods or A -20 assumptions, which are typically less than 30 years) were combined into a single base (the gain and loss bases) and amortized over a rolling 30 -year period to effect a "fresh start" as of June 30, 2004. The Employer Rate Stability Policy did not affect other existing amortization bases for benefit improvements, assumptions changes and method changes. After accounting for the investment return of 16.7% for Fiscal Year 2003 -04 and the implementation of the Employer Rate Stability Policy and the fresh start, as of June 30, 2004, the City's non - safety plan had an actuarial value of assets of $140,911,426, a market value of assets of $138,642,729 and accrued liabilities of $151,246,453 and its safety plan had an actuarial value of assets of $200,715,264, a market value of assets of $197,605,409 and accrued liabilities of $250,554,103. As of June 30, 2004, as a result of the fresh start, $648,199 was credited to the non - safety plan and $437,343 was credited to the safety plan. As of June 30, 2008, the date of the most recent actuarial valuation prepared by PERS, a $775,562 credit was included in the calculation of the City's required contribution for the non - safety plan (which had accrued liabilities of $217.4 million) and a $554,430 credit was included in the calculation of the City's required contribution for the safety plan (which had accrued liabilities of $336.1 million) as a result of the fresh start. Beginning with the June 30, 2009 valuation, PERS will implement a 3 -year phase -in of the 24% investment losses experienced in Fiscal Year 2008 -09. The phased -in approach entails temporarily increasing the corridor limits for establishing the actuarial value of assets from 80 -120% of market value of assets to 60 -140% of market value on June 30, 2009 (which impacts the Fiscal Year 2011 -12 contribution rate), changing the corridor limits to 70 -130% of market value on June 30, 2010 (which impacts the 2012 -13 contribution rate) and returning to the 80 -120% of market value corridor limits for the actuarial value of assets on June 30, 2011 (which impacts contribution rates for Fiscal Year 2013 -14 and thereafter). According to PERS, the Fiscal Year 2008 -09 asset loss, isolated outside of the 80 -120% corridor, will be calculated amortized using a fixed 30 -year schedule. Temporary expansion of the corridor limits for the actuarial value of assets is expected to result in lower City pension contributions in the short-term and a higher UAAL in the long -term. The amortization periods and assumptions used by PERS are subject to change from time to time. The City cannot predict the nature or effect of such changes on the City's pension costs. For Fiscal Year 2009 -10, PERS experienced 13.3% earnings on pension investments. There is a lag between the point in time at which the actuary completes the actuarial valuation and the date that the contribution rates calculated in the valuation go into effect. This lag is typically two years. The actuarial valuation of the plan as of June 30, 2009, the most recent actuarial valuation provided by PERS, sets forth the employer contribution rates for Fiscal Year 2011 -12, which are 14.628% for non - safety employees (prior to application of cost - sharing arrangements) and 35.028% for safety employees (prior to application of cost - sharing arrangements) of annual covered payroll. After the application of cost - sharing arrangements, the employer contribution rates are 12.208% and 35.028% of annual covered payroll for non - safety employees and safety employees, respectively. The employer contribution rates for Fiscal Year 2010 -11 are 8.406% for non- safety employees (inclusive of applicable cost - sharing arrangements) and 30.202% for safety employees of annual covered payroll. Without the cost sharing agreement with non - safety employees, the contribution rate would have been 10.826% for non - safety employees. The City has included its ARC in the Fiscal Year 2010 -11 Adopted Budget. The employer contribution rate for Fiscal Year 2009 -10 was 7.734% for non - safety employees (inclusive of applicable cost - sharing arrangements) and 28.760% for safety employees of annual covered payroll. The employer contribution rate for Fiscal Year 2008 -09 was 9.055% for non - safety employees (inclusive of applicable cost - sharing arrangements) and 29.67% for safety employees of annual covered payroll. Under GASB 27, an employer reports an annual pension cost ( "APC ") equal to the ARC plus an adjustment for the cumulative difference between the APC and the employer's actual plan A -21 contributions for the year. The cumulative difference is called the net pension obligation ( "NPO "). Pursuant to the City's Reserves Policy, the City makes contributions to the plan equaling at least 100% of the ARC. Because the City pays the entire ARC each year, by definition, its NPO at the end of each year is $0. For more information on the City's pension plan and funding levels, see Note 10 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Table A -10 below sets forth the APC, percentage of APC contributed and NPO for Fiscal Years 2006 -07 through 2009 -10 and the estimated amounts for Fiscal Year 2010 -11. TABLE A -10 CITY OF NEWPORT BEACH PERS ANNUAL PENSION COSTS Fiscal Years 2006 -07 through 2010 -11 ($ in thousands) Annual City General % of Annual Pension Net Pension Fiscal Year Pension Costal Fund Portion Cost Contributed Obligation 2006 -07 $16,207 $15,363 100% $0 2007 -08 16,454 15,613 100 0 2008 -09 18,405 17,526 100 0 2009 -10t �1 17,822 17,072141 100 0 2010 -11t'1 19,819 18,99911 100 0 in Includes City contribution and employer paid member contributions. t21 Actual; unaudited. t3) Projected; includes 0% vacancy assumption. (4) Does not reflect 3.5% of base pay (equal to $167,428) contribution by safety members of the Newport Beach Firefighters Association. ts1 Does not reflect budgeted 3.5% of base pay (equal to approximately $897,501) contribution by safety members of the Newport Beach Firefighters Association, Newport Beach Lifeguard Management Association and Police Association and Police Management Associations. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2008- 09; City approved Budget for Fiscal Years 2009 -10 and 2010 -11. See Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. A -22 Table A -11 below sets forth the PERS schedule of funding progress for Fiscal Years 2004 -05 through 2008 -09. TABLE A -11 CITY OF NEWPORT BEACH PERS SCHEDULE OF FUNDING PROGRESS Fiscal Years 2004 -05 through 2008 -09 ($ in thousands) 2008 Miscellaneous $217,378 $195,954 $199,722 $ 21,424 90.1% 91.9% $41,148 52.066% Safety 336,061 264,634 272,104 71,427 78.7 81.0 28,056 254.587 Total $553,439 $460,588 $471,826 $ 92,851 83.2% 85.3% $69,204 134.170% 2009(�) Miscellaneous $249,666 $207,818 $152,670 $ 41,849 83.2% 61.1% $42,893 97.566% Safety 366,918 274,649 200,974 92,269 74.9 54.8 30,253 304.991 Total 5616,584 $482,469 $353,644 $134,118 78.2% 57.4% $73.146 183.357% (1) Reflects the fresh start established as of June 30, 2004. (2) Decrease in market value for Fiscal Year 2008 -09 is attributable to the PERS investment loss of 24.0% in Fiscal Year 2008 -09. Does not reflect approximately $125 million of net unsmoothed losses for Fiscal Year 2008 -09. Source: California Public Employee's Retirement System Actuarial Reports for the respective Fiscal Years for market value of assets and Fiscal Year 2008 -09 data; City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09 for all other data for Fiscal Years 2004 -05 through 2007 -08. The City's pension costs are expected to substantially increase due to, among other things, the PERS investment losses of 24.0% in Fiscal Year 2008 -09, the significant increase in unfunded liability as a result of such losses, the greater longevity of plan members and lower than expected actual rates of return on investments. From Fiscal Year 2010 -11 to Fiscal Year 2014 -15, absent changes to the actuarial assumptions and City pension arrangements with employees, the City's pension contribution rates (inclusive of the employer -paid member contributions described herein) as a percentage of covered payroll is projected to increase from 15.4% to 26.8% (from $6.78 million to $12.91 million) for non- safety employees and from 35.7% to 57.7% (from $11.89 million to $19.12 million) for safety employees, and remain at this level for approximately 30 years. The City is exploring various options to address the A -23 Funded Status Entry Age Unfunded Valuation Normal Actuarial Market Liability Actuarial Annual UAAL as a Date Accrued Value of Value of (Excess Value of Market Covered Percentage (June 30) Liability Assets(l) Assets Assets) Assetsu) Value Payroll of Payroll 2005 Miscellaneous $161,371 $150,730 $155,028 $ 10,641 93.4% 96.1% $32,218 31.098% Safety 267,192 215,965 222,326 51,227 80.8 83.2 24,303 210.785 Total $428,563 $366,695 $377,354 $ 61,868 85.6% 88.1% $58,521 105.719% 2006 Miscellaneous $183,637 $163,158 $173,031 $ 20,479 88.8% 94.2% $37,224 55.016% Safety 296,420 231,701 246,396 64,719 78.2 83.1 26,053 248.413 Total $480,057 $394,859 $419,427 $ 85,198 82.3% 87.4% $63,277 134.643% 2007 Miscellaneous $192,178 $178,524 $206,931 $ 13,654 92.9% 107.7% $36,795 37.10M, Safety 308,552 250,062 292.102 58,490 81.0 94.7 25,035 233.633 Total 5500,730 5428,586 5499,033 $ 72.144 85.6% 99.7% $61,830 1 16.W8']% 2008 Miscellaneous $217,378 $195,954 $199,722 $ 21,424 90.1% 91.9% $41,148 52.066% Safety 336,061 264,634 272,104 71,427 78.7 81.0 28,056 254.587 Total $553,439 $460,588 $471,826 $ 92,851 83.2% 85.3% $69,204 134.170% 2009(�) Miscellaneous $249,666 $207,818 $152,670 $ 41,849 83.2% 61.1% $42,893 97.566% Safety 366,918 274,649 200,974 92,269 74.9 54.8 30,253 304.991 Total 5616,584 $482,469 $353,644 $134,118 78.2% 57.4% $73.146 183.357% (1) Reflects the fresh start established as of June 30, 2004. (2) Decrease in market value for Fiscal Year 2008 -09 is attributable to the PERS investment loss of 24.0% in Fiscal Year 2008 -09. Does not reflect approximately $125 million of net unsmoothed losses for Fiscal Year 2008 -09. Source: California Public Employee's Retirement System Actuarial Reports for the respective Fiscal Years for market value of assets and Fiscal Year 2008 -09 data; City of Newport Beach Comprehensive Annual Financial Report for Fiscal Years 2005 -06 through 2008 -09 for all other data for Fiscal Years 2004 -05 through 2007 -08. The City's pension costs are expected to substantially increase due to, among other things, the PERS investment losses of 24.0% in Fiscal Year 2008 -09, the significant increase in unfunded liability as a result of such losses, the greater longevity of plan members and lower than expected actual rates of return on investments. From Fiscal Year 2010 -11 to Fiscal Year 2014 -15, absent changes to the actuarial assumptions and City pension arrangements with employees, the City's pension contribution rates (inclusive of the employer -paid member contributions described herein) as a percentage of covered payroll is projected to increase from 15.4% to 26.8% (from $6.78 million to $12.91 million) for non- safety employees and from 35.7% to 57.7% (from $11.89 million to $19.12 million) for safety employees, and remain at this level for approximately 30 years. The City is exploring various options to address the A -23 projected cost increases, including the potential for negotiating additional employee contributions and the creation of a new tier of reduced pension benefits of new employees. If the City is unsuccessful in attaining such cost reductions, the City may make additional operations reductions, which may include furloughs and layoffs. For information regarding retirement plans, deferred compensation plans, defined contribution plans and post employment benefits, see "Summary Information" and Notes 9, 10 and 11 in Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009" attached to this Official Statement. Public Agency Retirement System. Alternate Retirement Plan. The City entered into a defined contribution plan administrated by Public Agency Retirement System, a private administrator known, for all of its part-time employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75 %. The City's contributions for each employee and the interest thereon are fully vested immediately. There is no actuarial accrued liability attributable to past years' employment. For the year ended June 30, 2009, the City's covered payroll for employees participating in the plan was $2,919,260. Employees made contributions of $109,472 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,485,659 at June 30, 2009. For the year ended June 30, 2010, the City's covered payroll for employees participating in the plan was $2,963,120. Employees made contributions of $111,117 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,615,399 at June 30, 2010. The City's estimated covered payroll for employees participating in the plan during Fiscal Year 2010 -11 is $3,341,227 and employee contributions are budgeted at $125,296. Supplemental Retirement Plan. At its December 8, 2009 regular meeting, the City Council approved Resolution 2009 -90 authorizing its ERIP through PARS. The ERIP was one part of a multi - pronged approach to help close a projected deficit in the City's Fiscal Year 2009 -10 General Fund. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget —Fiscal Year 2009 -10 Results" herein. The ERIP provides participating employees with a supplement to their normal PERS retirement benefits through an additional payment from the City. Fifty -one employees elected to participate in the ERIP. Eligible retirees were given the option of receiving a direct lump sum payment, fixed term distribution or a lifetime benefit. To finance the ERIP, the City entered into a funding arrangement with a third party insurance company pursuant to which the City will make fixed annual payments in the amount of $819,241 per year for five years. Thereafter, the City will have no further funding obligation with respect to the ERIP. Laborer's International Union of North America. The City is the agent for employees to contribute funds to support a supplemental pension plan for some employee associations through contract with Laborer's International Union of North America ( "LIUNA'). The contract is funded at a fixed percentage of total compensation on a pay -as- you -go basis. The City is not contractually required to guarantee the level of the ultimate LIUNA benefit to retirees nor does it do so. Other Post Employment Benefits General. The City has established the City of Newport Beach Medical Expense Reimbursement Plan (the "Reimbursement Plan "). All employees and eligible retirees participate in the Reimbursement Plan through a Health Reimbursement Arrangement ( "HRA ") that is held in trust and A -24 managed by ING pursuant to IRS Revenue Ruling 2002 -41 (June 26, 2002) and IRS Notice 2002 -45 (June 26, 2002). The City is the sole employer for the Reimbursement Plan. As of June 30, 2009, the Reimbursement Plan had a total of 1,194 participants, consisting of 521 miscellaneous employees, 273 safety employees, and 400 retirees and their beneficiaries. As of June 30, 2010, the Reimbursement Plan had a total of 1,181 participants, consisting of 462 miscellaneous employees, 271 safety employees, and 448 retirees and their beneficiaries. For a description of the benefits provided pursuant to the Reimbursement Plan, see Note 11 of the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Defined Contribution Portion. The City established a defined contribution program within the Reimbursement Plan, effective January 2006 (the "New Plan "), that requires mandatory employee and employer contributions. Benefits depend solely on amounts contributed to the plan, plus investment earnings thereon, and the City has no further funding obligation to the New Plan once the contributions are made to the applicable employee's account. Participants in the New Plan include all employees hired after January 1, 2006, certain employees hired prior to this date and certain employees hired prior to January 1, 2006 that elected to fully convert ( "Fully Converted Participants ") to the New Plan. Consistent with agreements between the City and applicable employee labor contracts, the New Plan will be 100% funded, on an ongoing basis, as part of the annual budget process. Funds to cover this expenditure will be contained within the salary section of each department's annual operating budget. Defined Benefit Portion. Employees who retired prior to January 1, 2006 receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month (the "Old Plan "). The Old Plan is closed to new participants. The cost of the Old Plan is divided among the City, current employees and retirees. Prior to 2001, the Old Plan was largely funded on a pay -as- you -go basis and the City accrued unfunded liabilities. The City began funding its accrued liabilities in 2001. In 2008, such assets were placed in a pre- funding trust. The City intends to amortize the remaining unfunded liability within 20 years. See "— Funding" below. Hybrid Portion. Certain employees hired prior to January 1, 2006 had the option to retain a hybrid of the Old Plan or to fully convert to the New Plan. Employees electing to retain a hybrid of the Old Plan ( "Hybrid Participants ") participate in a program that requires mandatory defined contributions by employees and the City, as well as a defined benefit consisting of an ongoing contribution from the City to the participant's HRA account each month after retirement. These employees are also eligible to receive health care benefits under the City's group health care plans, provided they pay the City $100 per month, up until their retirement, to offset the unfunded portion of post employment health benefits existing at the inception of the plan. Funding. Employee and City contributions to the Reimbursement Plan are based on the participant's status as Fully Converted Participant, Hybrid Participant or retired participant. See Note 11 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". Historically, Reimbursement Plan expenses were funded on a pay -as- you -go basis. In 2001, the City began setting aside amounts for its accrued liability. In 2008, the City entered into an agreement with the PERS as a participating employer in the Ca1PERS Employers Retirement Benefits Trust ( "CERBT ") to pre -fund future OPEB expenses and placed its previously accumulated cash reserves in the amount of $8.8 million in trust, reducing the City's unfunded accrued liability to $49.8 million. In Fiscal Year 2009 -10, the City contributed $2.02 million to the CERBT. For Fiscal Year 2010 -11, the City budgeted approximately $2.13 million contribution to the CERBT. As of June 30, 2010, the balance in the CERBT was approximately $6.79 million. A -25 Pursuant to the City's Reserve Policy, the City will pre -fund the "explicit subsidy" or cash subsidy portion of the actuarial accrued liability of the Old Plan over a 20 -year amortization period, or less. This amount will be based on the ARC determined by a biennial actuarial review, subject to review and analysis by the City. The annual target reserve balance will be established and maintained through the same process. Because one of the two health plans offered by the City is a non - community -rated plan and retirees are offered the same premium rates as active employees, GASB 45 requires that an "implied subsidy" (the difference between expected claims and premiums paid for retirees) be valued for the life of the retiree and accrued as a cost of the retiree health care plan. The City has elected to fund the implied subsidy on a pay -as- you -go basis since employer contributions to active and retiree medical plans are fixed, and significant uncertainty exists whether additional cash flows will occur in the future as a result of the implied subsidy. Pursuant to the City's Reserve Policy, the City will not separately fund any actuarially defined liability for "implied subsidy ". However, the City plans to meet all other contributions connected with this retiree benefit pursuant to GASH 45. Costs for administering the Old Plan are included in the Human Resources Department's annual operating budget. See Note 11 to the financial statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009 ". in connection with GASB 45 compliance, the City has calculated its net OPEB obligation ( "NOPEBO ") as of June 30, 2009 to be approximately $4.4 million. The NOPEBO is the cumulative difference between the City's annual OPEB cost and the City's contributions to OPEB in a particular year, including the OPEB liability or asset at transition, if any. Annual OPEB cost is equal to (i) the ARC for OPEB, (b) one year's interest on the NOPEBO from prior years (which the City determined to be $6.2 million at the beginning of Fiscal Year 2007 -08, the transition year, in accordance with GASB 45), and (c) an adjustment to the ARC for OPEB to offset the effect of actuarial amortization of past under- or over - contributions. The most recent actuarial valuation of the City's Reimbursement Plan was prepared as of June 30, 2008 (the "2008 OPEB Valuation ") for the purpose of determining the City's annual cost in accordance with GASB 45. The valuation reflected an entry age normal cost method and included a fixed 20 -year amortization period, a discount rate of 7.75% for the cash subsidy to be prefunded through the CERBT, a discount rate of 5% for the implied subsidy to be funded from the City's General Fund and projected salary increases of 3.25% per year. The 2008 OPEB Valuation also reflected the actuarial value of assets being established between 80 -120% of market value of assets and gains and losses in the actuarial value of assets being recognized over a 5 -year period. Further, the 2008 OPEB Valuation reflected the following unfunded liability amortization: the initial unfunded liability as of June 30, 2007 being amortized as a level percentage of pay over 20 years (with 17 years remaining as of June 30, 2010), benefit and assumption changes being amortized as a level percentage of pay over a fixed 20 years, gains and losses being amortized as a level percentage of pay over a rolling 15 years, experience gains and losses being amortized over a rolling 15 years. According to the 2008 OPEB Valuation, using the assumptions and methodology described above and consistent with GASH 45, the UAAL for OPEB for all retirees and participants was $40.2 million as of June 30, 2008 and projected to be $43.8 million as of June 30, 2009. The cash subsidy portion of the Reimbursement Plan had a funded status of 30.5% as of June 30, 2008. The implied subsidy portion reflected a funded status of 0% because that portion is funded on a pay -as- you -go basis. Pursuant to the 2008 OPEB Valuation, the City's ARC for Fiscal Year 2010 -11 is projected to be 6.4% of covered payroll, 0.1 % higher than the City's ARC for Fiscal Year 2009 -10. The next actuarial valuation of the City's Reimbursement Plan, dated as of June 30, 2010, is expected to be available in 2011. MR Table A -12 below sets forth the City's NOPEBO for Fiscal Years 2007 -08 through 2009 -10. TABLE A -12 CITY OF NEWPORT BEACH ANNUAL OPEB COST AND NET OPEB OBLIGATION Fiscal Years 2007 -08 through 2009 -10 ($ in thousands) 011I11FRIN Cash Subsidy Prefunding $2,629 Fiscal Year Net OPEB Annual Contributions Net OPEB and Obligation OPEB and Benefit Obligation Subsidy Amount (July 1) Costux2l Payments (June 30) 011I11FRIN Cash Subsidy $6,200"' $2,629 $(8,829)la1 $ Implied Subsidy 2,648 (427)(2) 2,221 Total 56,200 $5,277 $(9,256) 52,221 2008 -09 Cash Subsidy $ $2,720 $(2,720) $ Implied Subsidy 2,221 2,703 (516) 11 4,408 Total $2,221 $5,423 $(3,236) $4,408 2009 -10 Cash Subsidy $ $2,016 $(2,016) $ Implied Subsidy 4,408 2,477 (346) 6,472 Total $4,408 $4,493 $ 2,362 $6,472 n1 Equal to the ARC for the applicable year as adjusted for expected interest on the NOPEBO and an amortization of the NOPEPO. 121 Over 95% of the annual OPEB cost is attributable to the City General Fund. ts1 Based on a prior period adjustment to the cash subsidy component of the NOPEBO. (41 Equal to Fiscal Year 2007 -08 annual OPEB cost plus $6.2 million payment on prior period NOPEBO adjustment. Source: City of Newport Beach Comprehensive Annual Financial Report for Fiscal Year 2008 -09. Risk Management The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. For general liability, the City has excess insurance coverage of $26 million per occurrence with a self - insured retention ( "SIR ") of $500,000 per occurrence. For workers' compensation and employer's liability insurance, the City has excess insurance coverage of $1,000,000 per occurrence with a $1,000,000 SIR. This coverage provides for work - related accidents and diseases. The Insurance Reserve Fund was established to account for costs associated with general liability and workers' compensation. The Insurance Reserve Fund is accounted for as an Internal Service Fund where assets are set aside for risk management, administration, claim settlements A -27 and benefit distribution. A premium is charged to each fund that accounts for part-time or full - time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. The total liability claims payable include $17,790,737 which represents the discounted present value at June 30, 2009; the claims were discounted using an interest rate of five percent. For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. Indebtedness General Obligation Debt. The City has no general obligation debt outstanding. Debt and Certificates of Participation. The City has no long -term or short term bonded debt outstanding. The City has entered into lease arrangements with nonprofit public benefit corporations to finance capital projects, typically through the execution and delivery of certificates of participation. As of June 30, 2010, the City had $3.99 million of certificates of participation outstanding. Lease payments which secure these certificates of participation are paid from amounts in the City's General Fund, a portion of which is reimbursed with amounts from various other revenue sources. The City has no outstanding variable rate obligations and does not have an outstanding liquidity facility. Information on the City's long -term debt is in Note (6) of the Notes to the Financial Statements attached to this Official Statement as Appendix B — "City Financial Statements for the Fiscal Year Ended June 30, 2009." The $1.6 million water revenue bonds reflected in Note (6) have been repaid in full and are no longer outstanding. Estimated Direct and Overlapping Bonded Debt. Table A -13 below sets forth a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics Inc. and dated as of August 1, 2010. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. The Debt Report does not include the Certificates described in the forepart of this Official Statement. The Debt Report generally includes long -term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long -term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long -term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. I The City periodically issues special assessment or community facilities district bonds on behalf of petitioning developers or citizens when the City determines that the public facilities to be financed are of a defined, extraordinary benefit to the City. The City also issues revenue bonds m behalf of qualified borrowers from time to time. Although such obligations are included in the Debt Report, they are not secured by or payable from the City's General Fund or any other fund of the City. A -29 TABLE A -13 CITY OF NEWPORT BEACH ESTIMATED DIRECT AND OVERLAPPING DEBT (As of August 1, 2010) 2009 -10 Assessed Valuation: $38,643,404,122 Redevelopment Incremental Valuation: 894,901 662 Adjusted. Assessed Valuation: $37,748,502,460 OVERLAPPING TAX AND ASSESSMENT DEBT: %Applicable Debt 8/1/10 Metropolitan Water District 2.086% $ 5,511,629 Coast Community College District 35.120 114,761,226 Rancho Santiago Community College District 3.908 12,257,667 Laguna Beach Unified School District 15.236 4,997,408 Laguna Beach Unified School District Community Facilities District No. 98 -1 100. 9,680,000 Newport Mesa Unified School District 71.997 115,593,689 Newport Mesa Unified School District Community Facilities District No. 90 -1 100. 13,390,000 Santa Ana Unified School District 9.117 24,168,596 Irvine Ranch Water District Improvement Districts 16.895 -100. 47,315,471 Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 98 -1 100. 41,275,000 City of Newport Beach Special Improvement District No. 95 -1 100. 8,715,000 City of Newport Beach 1915 Act Bonds 100. 17,719,652 Orange County Assessment District No. 88 -1 100. 34,718,296 Orange County Reassessment District No. 99 -IR 100. 13,835,000 Orange County Assessment District No. 01 -1 100. 53,769,000 Orange County Reassessment District No. 01 -1R 100. 6,505.000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $524,212,634 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fond Obligations 10.080% $34,217,266 Orange County Pension Obligations 10.080 5,728,882 Orange County Board of Education Certificates of Participation 10.080 1,938,384 Municipal Water District of Orange County Water Facilities Corporation 11.918 1,682,822 South Orange County Community College District Certificates of Participation 3.105 539,494 Santa Ana Unified School District Certificates of Participation 9.117 4,918,963 Irvine Ranch Water District Certificates of Participation 11.436 9,737,182 City of Newport Beach Certificates of Participation 100. 3,990,000(1) TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $62,752,993 Less: MWDOC Water Facilities Corporation (100% supported) 1,682,822 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $61,070,171 GROSS COMBINED TOTAL DEBT $586,965,627(2) NET COMBINED TOTAL DEBT $585,282,805 (1) Excludes issue to be sold and certificates of participation to be prepaid with a portion of the proceeds thereof. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. Ratios to 2009 -l0 Assessed Valuation Total Overlapping Tax and Assessment Debt ........................1.36% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($3,990,000) 0.01% Gross Combined Total Debt ......................... ..........................1.55% Net Combined Total Debt ....................... ............................... 1.55 % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6 /30/10: $0 Source: California Municipal Statistics Inc. A -30 City Investment Policy The City pools all cash and investments of all funds, except for bond or certificate of participation proceeds, which are invested pursuant to the terms of their respective issuing instruments. The City's Statement of Investment Policy, as amended through September 28, 2010 (the "Investment Policy "), provides for investment of the City's funds pursuant to City policies and codes, State statutes and Federal regulations in a manner designed to preserve security of principal, maintain sufficient liquidity and attain a benchmark rate of return commensurate with the City's investment risk constraints and the liquidity characteristics of the portfolio. The City Charter provides for investment of City funds by the Director of Finance, who is responsible for establishing and maintaining a system of internal controls designed to prevent losses of public funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets, or imprudent action by City employees and officers. Pursuant to the Investment Policy, the Director of Finance is also responsible for submitting to the City Council monthly reports on the investment earnings and performance results of the City's investment portfolio. The City's investment program is managed using the prudent investor standard set forth in Section 53600.3 of the California Government Code. Pursuant to the Investment Policy, the City may deposit and invest in U.S. Treasury issues, federal agency or federal instrumentality obligations, mortgage- backed securities and asset - backed securities, medium -term notes, municipal bonds, non - negotiable certificates of deposit, negotiable certificates of deposit, prime commercial paper, eligible banker's acceptances, repurchase agreements and reverse repurchase agreements, the State's local agency investment fund, county investment funds (excluding the Orange County Pool) and money market funds, subject to the provisions of Section 53601 of the California Government Code and the further conditions and restrictions of the Investment Policy. The Investment Policy provides that any security type or structure not specifically approved thereby is prohibited, including, but are not limited to, "exotic" derivative structures such as range notes, dual index notes, inverse floating rate notes, leveraged or de- leveraged floating rate notes, interest only strips that are derived from a pool of mortgages and any security that could result in zero interest accrual if held to maturity, or any other complex variable or structured note with an unusually high degree of volatility risk. The Investment Policy states that the portfolio shall be diversified, with investments matched with anticipated cash flow requirements and known future liabilities and no more than 5% of the City's portfolio being invested in the instruments of any one non - governmental issuer, subject to certain exceptions. To that end, the Investment Policy provides that the City will not invest in securities maturing more than five years from the date of trade settlement, unless the City Council has by resolution granted authority to make such an investment at least three months prior to the date of investment. The Investment Policy further provides that the City shall not purchase any security rated Al and / or A+ or below if that security has been placed on "credit watch" for a possible downgrade by a nationally recognized statistical rating organization. The City is not a party to any swap agreements and has not sustained losses from investment in any collateralized mortgage obligation. Table A -14 below sets forth the par value, market value, adjusted cost basis and percent of total investments for each category of the City's investments as of September 30, 2010. A -31 TABLE A -14 CITY OF NEWPORT BEACH SCHEDULE OF INVESTMENTS (As of September 30, 20 10) Source: City of Newport Beach Litigation The City is a defendant in lawsuits pertaining to various matters, including claims asserted which are incidental to performing routine governmental and other functions. This litigation includes, but is not limited to, actions commenced and claims asserted against the City arising out of alleged torts, alleged breaches of contracts, alleged violations of law, and condemnation proceedings. The City does not expect the aggregate amount of the uninsured liabilities of the City which may result from an adverse ruling in any or all of such claims to have a material adverse effect on its ability to pay principal and interest with respect to the Certificates when due. STATE OF CALIFORNIA BUDGET INFORMATION General The City derives certain of its revenues, including gas tax revenues and property tax transfers, from the State. Under certain circumstances, the State has borrowed or otherwise shifted revenues from local agencies, including the City, to the State. See "City of Newport Beach Financial Information - Recent Budget Results; Fiscal Year 2010 -11 Budget - Fiscal Year 2010 -11 Budget- Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" for a description of the primary impacts anticipated by the City. The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State Budget is regularly available at various State - maintained websites. Text of the budget may be found at the Department of Finance website, www.dof ca.gov, under the heading "California Budget." An impartial analysis of the budget is posted by the LAO at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Underwriters, and the A -32 Adjusted Cost % of Total Investment Type Par Value Market Value Value Investments Money Market Fund $ 2,676,723 $ 2,676,723 $ 2,676,989 1.88% U.S. Treasury Obligations 19,065,000 19,492,852 19,234,127 13.68 U.S. Agency 69,025,000 70,608,623 69,964,492 49.54 Mortgage Backed Securities 197,106 200,565 198,030 0.14 Local Agency Investment Fund 10,732,287 10,732,287 10,732,287 7.53 Corporate Note 32,645,000 33,935,421 33,818,357 23.81 Negotiable Certificates of Deposit 1,600,000 1,599,432 1,600,748 1.12 Foreign Bonds 585,000 591,148 593,406 0.41 Commercial Paper 2,700,000 2,700,000 2,700,016 1.89 Totals $139,226,116 $142,537,052 $141,518,452 100.00% Source: City of Newport Beach Litigation The City is a defendant in lawsuits pertaining to various matters, including claims asserted which are incidental to performing routine governmental and other functions. This litigation includes, but is not limited to, actions commenced and claims asserted against the City arising out of alleged torts, alleged breaches of contracts, alleged violations of law, and condemnation proceedings. The City does not expect the aggregate amount of the uninsured liabilities of the City which may result from an adverse ruling in any or all of such claims to have a material adverse effect on its ability to pay principal and interest with respect to the Certificates when due. STATE OF CALIFORNIA BUDGET INFORMATION General The City derives certain of its revenues, including gas tax revenues and property tax transfers, from the State. Under certain circumstances, the State has borrowed or otherwise shifted revenues from local agencies, including the City, to the State. See "City of Newport Beach Financial Information - Recent Budget Results; Fiscal Year 2010 -11 Budget - Fiscal Year 2010 -11 Budget- Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" for a description of the primary impacts anticipated by the City. The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State Budget is regularly available at various State - maintained websites. Text of the budget may be found at the Department of Finance website, www.dof ca.gov, under the heading "California Budget." An impartial analysis of the budget is posted by the LAO at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Underwriters, and the A -32 City and the Underwriters take no responsibility for the continued accuracy of the internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references. Fiscal Year 2010 -11 State Budget On October 8, 2010, the Governor signed the 2010 -11 State Budget Act to address a then - projected $19.3 billion shortfall in revenues. The 2010 -11 State Budget Act estimates Fiscal Year 2009- 10 revenues and transfers of $86.92 billion, total expenditures of $86.35 billion and a year -end deficit of $4.80 billion, which included a negative $5.38 billion prior -year State General Fund balance, $6.34 billion withdrawal from the reserve for economic uncertainties and an allocation of $1.54 billion to the reserve for the liquidation of encumbrances. The 2010 -11 State Budget Act projects 2010 -11 revenues and transfers of $94.23 billion, total expenditures of $86.55 billion and a year -end surplus of $2.87 billion (net of the $4.80 billion deficit from Fiscal Year 2009 -10), of which $1.54 billion is budgeted to be reserved for the liquidation of encumbrances and $1.34 billion is budgeted to be deposited in a reserve for economic uncertainties. The 2010 -11 State Budget approves placement of a constitutional amendment on the State's reserve funds on the March 2012 ballot. If approved, the State would increase the maximum size of its Budget Stabilization Account from five percent to ten percent of annual State General Fund revenues and provide new requirements for depositing State funds into the Budget Stabilization Account. If the ballot measure were approved, the law would further restrict the State's ability to withdraw funds from its reserves. Certain of the features of the 2010 -11 State Budget Act affecting local agencies, including the City, include the following: 1. The 2010 -11 State Budget Act includes a $187.1 million General Fund decrease in funding resulting from the enrollment of seniors and people with disabilities in managed care and deferring a managed care payment for two -plan and geographic managed care counties. 2. The 2010 -11 State Budget includes a $84.5 million General Fund funding decrease resulting from freezing daily per diem hospital inpatient rates at existing levels. 3. The 2010 -11 State Budget includes a $365.9 million funding decrease from utilization of an advance of Temporary Assistance for Needy Families Block Grant funds for the quarter ending June 30, 2011 in lieu of General Fund. 4. The 2010 -11 State Budget includes a $300 million decrease in IHSS program, consisting of (1) using B3SS provider - generated revenue to draw down additional federal funds and offset General Fund expenditures in the program ($190 million), (2) imposing a 3.6% across - the -board reduction to the hours assessed for IHSS recipients ($35 million) and (3) reflecting an updated caseload estimate based on an actual decline in recipients as compared to the previous caseload projection ($75 million). 5. The 2010 -11 State Budget includes approximately $162.4 million funding decrease as a result of maintaining the level of Child Welfare Services program funding at Fiscal Year 2009 -10 budgeted levels, eliminating State funding for the Seriously Emotionally disturbed portion of the Foster Care program and reducing the reimbursement rates for license- exempt child care providers. 6. The 2010 -11 State Budget includes a one -time reduction of $365 million resulting from the suspension of most mandates not related to elections, law enforcement and property taxes. A -33 The LAO released a report entitled "Major Features of the Legislature's 2010 -11 Budget" on October 8, 2010 and a report entitled "Major Features of California's 2010 -11 Budget" on October 12, 2010 (collectively, the "2010 -11 LAO Budget Overviews "), which provide analysis by the LAO of the 2010 -11 State Budget. The 2010 -11 LAO Budget Overviews state that more than two- third's of the budget solutions contained State Legislature's budget for 2010 -11 are one -time or temporary in nature. Accordingly, the LAO cautions that the State will continue to face sizable annual budget problems in Fiscal Year 2011 -12 and thereafter. The LAO provided further analysis of the 2010 -11 State Budget pursuant to its report entitled "The Budget Package: 2010 -11 California Spending Plan" on November 4, 2010. On November 10, 2010, the LAO released a report entitled "The 2011 -12 Budget: California's Fiscal Outlook" (the "2011 -12 LAO Fiscal Outlook"), which updates the LAO's forecast of the State's General Fund revenues and expenditures. The LAO projects that, absent corrective action, the State will have a budget deficit of approximately $25.4 billion at the end of Fiscal Year 2011 -12 (inclusive of a budget deficit of $6 billion at the end of Fiscal Year 2010 -11) and budget deficits of approximately $20 billion per fiscal year through Fiscal Year 2015 -16. The LAO notes that the Fiscal Year 2010 -11 State Budget included $4 billion in assumed federal funding that had not been approved at the time of its adoption, and projects that $3.5 billion of such amount (or flexibility related thereto) will not be received. The LAO cautions that a net $3 billion of additional budget solutions will not be achieved and that Proposition 22, which was approved in November 2010, will reduce State General Fund solutions by approximately $800 million. In order to address the State's structural budget deficit, the LAO recommends the State take a multi -year approach and minimize the use of risky budgetary measures that it believes contribute to fiscal year -end deficits. The LAO further recommends that the State Legislature consider revenue policies including, among other things, tax expenditure programs such as special credits, deductions and exemptions, increasing charges for program beneficiaries, extending certain temporary tax increases, and reconsidering the optional single sales factor for multistate companies. According to the LAO, the approval of permanent actions and certain temporary budget solutions could eliminate the State's structural deficit and allow the State to build reserves to address the next economic downturn and any long -tern fiscal liabilities. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -11 Budget — Impact of the State's Fiscal Year 2010 -11 Budget on the City's Fiscal Year 2010 -11 Budget" herein for a description of the State budget's impact on the City. Reports of the LAO are available on the LAO website at www.lao.ca.gov. Information on the website is not incorporated herein by reference. Current and Future State Budgets The City receives a significant portion of its funding from the State. Changes in the revenues received by the State can affect the amount of funding, if any, to be received from the State by the City and other counties in the State. The City cannot predict the extent of the budgetary problems the State will encounter in this Fiscal Year or in any future fiscal years, and, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of current and future State budget negotiations, the impact that such budgets will have on its finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. See "City of Newport Beach Financial Information — Recent Budget Results; Fiscal Year 2010 -1 Budget — Fiscal Year 2010 -11 Budget — Impact of the State's Fiscal Year 2010 -11 Budget on the A -34 City's Fiscal Year 2010 -11 Budget" herein for a description of the potential impact of the State budget on the City. REGIONAL ECONOMIC AND DEMOGRAPHIC INFORMATION Set forth below is certain demographic information regarding the City and the County. This information is provided for informational purposes only and general background. The Certificates are not a debt of the County, the State, or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable thereon. As set forth under "The Certificates — Security for the Certificates" in the forepart of this Official Statement, the Certificates are secured by lease payments and prepayments to be made by the City pursuant to the terms of the Trust Agreement and the Lease. See "The Certificates" in the forepart of this Official Statement. Population The City is located in the coastal center of the County, approximately 89 miles north of San Diego, 15 miles south of Long Beach and 45 miles southwest of Los Angeles. Table A -15 below sets forth the population of the City, the County and the State for calendar years 2006 through 2010. Calendar Year(') TABLE A -15 POPULATION GROWTH CITY OF NEWPORT BEACH, THE COUNTY OF ORANGE AND THE STATE OF CALIFORNIA (Calendar Years 2006 -2010) City of County of Newport Beach Orange State of California 2006 83,124 3,061,535 37,087,005 2007 83,564 3,077,656 37,463,609 2008 84,145 3,104,046 37,871,509 2009 86,145 3,134,858 38,255,508 2010 86,738 3,166,461 38,648,090 n" As of July I of the year shown. Reflects revised estimates as of May 2010. Source: California State Department of Finance, E4 Population Estimates for Cities, Counties and the State, 2001 -2010 with 2000 Benchmark. A -35 Employment Table A -16 below sets forth the wage and salary employment in the County for calendar years 2005 through 2009. Service Providing is the largest employment sector in the County. TABLE A -16 ANNUAL AVERAGE INDUSTRY EMPLOYMENT COUNTY OF ORANGE (Calendar Years 2005 -2009) 2005 2006 2007 2008 2009 Total Farm 5,600 5,300 5,000 4,600 3,900 Total Nonfarm 1,491,000 1,518,900 1,515,500 1,481,600 1,371,400 Total Private 1,335,600 1,362,200 1,356,200 1,320,900 1,214,200 Goods Producing 283,500 289,900 284,000 265,900 228,600 Natural Resources and Mining 700 600 600 600 500 Construction 99,900 106,600 103,100 91,200 73,600 Manufacturing 182,900 182,700 180,400 174,100 154,500 Service Providing 1,207,400 1,229,000 1,231,500 1,215,700 1,142,800 Trade, Transportation and Utilities 269,800 272,800 277,000 271,600 250,000 Wholesale Trade 83,000 83,700 86,900 86,700 80,100 Retail Trade 158,100 160,800 161,200 155,600 141,900 Transportation, Warehousing and 28,700 28,200 28,900 29,300 27,900 Utilities Information 32,800 31,900 31,200 30,100 27,400 Financial Activities 138,400 138,200 127,700 113,100 105,600 Professional and Business Services 264,300 274,500 273,300 266,600 239,000 Educational and Health Services 133,500 137,700 142,600 150,700 151,100 Leisure & Hospitality 165,000 169,600 172,900 176,400 169,700 Other Services 48,400 47,700 47,400 46,500 42,800 Government 155,300 156,700 159,400 160,800 157,300 Total, All Industries(') 1,496,500 1,524,300 1,520,500 1,486,200 1,375,400 The "Total All Industries" data is not directly comparable to the employment data found herein. Employment is reported by place of work; it does not include persons involved in labor management disputes. Figures are rounded to the nearest hundred. Totals may not equal sum of component categories due to independent rounding. Source: State of California, Employment Development Department, Industry Employment and Labor Force by Annual Average, March 2009 Benchmark. Table A -17 below sets forth the civilian labor force, employment, and unemployment in the City, the County and the State for calendar years 2005 through 2009. TABLE A -17 CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT") CITY OF NEWPORT BEACH, COUNTY OF ORANGE AND THE STATE OF CALIFORNIA (Annual Averages for Calendar Years 2005 -2009) 01 Data Not Seasonally Adjusted. Source: State of California, Employment Development Department, based on March 2009 benchmark. The State of California Employment Development Department, Labor Market Information Division (the `EDD "), preliminarily estimates that, on a seasonally unadjusted basis, the civilian labor force in the City in September 2010 was 44,300, of which approximately 41,600 persons were employed. Based on preliminary estimates of the EDD as of October 22, 2010, the City's unemployment rate in September 2010 of 6.0 %, on a seasonally unadjusted basis, was below that of the County at 9.6 %, below that of the State at 12.2% and below that of the United States at 9.2 %. A -37 Calendar Year 2005 2006 2007 2008 2009 Civilian Labor Force City of Newport Beach Employed 43,800 44,500 44,500 44,100 41,500 Unemployed 1,000 900 1,100 1,500 2,500 City 2.3% 2.1% 2.4% 3.3% 5.7% County 3.8 3.4 3.9 5.3 9.0 California 5.4 4.9 5.3 7.2 11.4 01 Data Not Seasonally Adjusted. Source: State of California, Employment Development Department, based on March 2009 benchmark. The State of California Employment Development Department, Labor Market Information Division (the `EDD "), preliminarily estimates that, on a seasonally unadjusted basis, the civilian labor force in the City in September 2010 was 44,300, of which approximately 41,600 persons were employed. Based on preliminary estimates of the EDD as of October 22, 2010, the City's unemployment rate in September 2010 of 6.0 %, on a seasonally unadjusted basis, was below that of the County at 9.6 %, below that of the State at 12.2% and below that of the United States at 9.2 %. A -37 Median Household Income Table A -18 below sets forth the median household income for the City, the County and the State for calendar years 2005 through 2009. TABLE A -18 MEDIAN HOUSEHOLD INCOME") CITY OF NEWPORT BEACH, COUNTY OF ORANGE, THE STATE OF CALIFORNIA AND THE UNITED STATES (Calendar Years 2005 -2009) Personal Income Table A -19 below sets forth the per capita personal income in the County and the State for calendar years 2005 through 2009: TABLE A -19 PER CAPITA PERSONAL INCOME COUNTY OF ORANGE AND THE STATE OF CALIFORNIAI'1121 (Calendar Years 2005 -2009) Calendar Year County of Orange (3) State of California 2005 City of Newport County of State of United Year Beach Orange California States 2006 $103,068 $70,232 $56,645 $48,451 2007 110,511 73,263 59,948 50,740 2008 123,958 75,078 61,021 52,029 2009 104,435 71,865 58,931 50,221 2010 105,657 76,412 62,401 52,795 Inflated Dollars for each respective year. Source: U.S. Census Bureau - American Community Survey for Fiscal Years 2005 -06 through 2008 -09; Claritas for Fiscal Year 2009 -10. Personal Income Table A -19 below sets forth the per capita personal income in the County and the State for calendar years 2005 through 2009: TABLE A -19 PER CAPITA PERSONAL INCOME COUNTY OF ORANGE AND THE STATE OF CALIFORNIAI'1121 (Calendar Years 2005 -2009) Calendar Year County of Orange (3) State of California 2005 $47,141 $38,767 2006 50,997 41,567 2007 52,009 43,402 2008 51,894 43,852 2009141 -- 42,325 ro Per capita personal income was computed using Census Bureau midyear population estimates. Estimates for 2005 -2008 reflect county population estimates available as of April 2008. 121 All state and local area dollar estimates are in current dollars (not adjusted for inflation). �1 Reflects per capita personal income for the Santa Ana-Anaheim-Irvine, California Metropolitan Division. 141 County of Orange Per Capita Personal Income for Year 2009 not yet available. Source: Bureau of Economic Analysis, U.S. Department of Commerce. INt3 Major Employers Table A -20 below sets forth the principal employers as of June 30, 2010 in the City: TABLE A -20 CITY OF NEWPORT BEACH PRINCIPAL EMPLOYERS(o (As of June 30, 2010) Name Hoag Memorial Hospital Conexant Systems Pacific Life Insurance Company Glidewell Laboratories City of Newport Beach US Bank B. Alan Whitson Company Newport-Mesa Unified School District Marriott Newport Beach Balboa Bay Club and Resort Fletcher Jones Motor Cars Island Hotef2l Pimco Advisors Number Type of Business or Entity Employed Hospital and health care 4,001 Semiconductor solutions 1,650 Life insurance, investment 1,513 Dental 1,400 City government 940 Financial 883 Management Consulting company 750 Education 545 Hotel, resort 510 Hotel, resort 500 Automotive 500 Hotel, resort 500 Investment company 500 Figures reflect number of employees of each employer at the time the information was collected. (z> The Island Hotel was formerly the Four Seasons Hotel. Source: InfoGroup. A -39 Table A -21 below sets forth the largest employers within Orange County reported as of December 31, 2009: Name Walt Disney Co. University of California, Irvine St. Joseph Health System Boeing Co. Yom! Brands Inc. Target Corp. Supervalu htc. Kaiser Permanente Memorial Health Services Inc. Bank of America Corp. Home Depot Inc. California State University, Fullerton The Kroger Co. Wells Fargo & Co. AT &T Inc. Hoag Memorial Hospital Presbyterian Wal -Mart Stores Inc. Cedar Fair LP United Health Group Inc. Tenet Healthcare Corp. Costco Wholesale CVS Caremark Corp. Edison International Automobile Club of Southern California Stater Bros, Holdings Inc TABLE A -21 COUNTY OF ORANGE LARGEST EMPLOYERS") (As of December 31, 2009) Number of Business or Entity Employed Entertainment 19,800 Higher education and health care 19,279 Health care 10,929 Aerospace and communications 8,477 Fast food restaurants 7,000 Retail 6,226 Grocery retailer 5,923 Health care 5,598 Health care 5,533 Banking 5,450 Retail 5,000 Higher education 4,952 Grocery retailer 4,500 Banking 4,455 Telephone service 4,300 Hospital and health care 4,241 Retail 4,000 Entertainment 3,900 Health care 3,800 Health care 3,795 Discount retailer 3,663 Pharmacy 3,650 Utilities and investments 3,500 Information systems, insurance and automotive assistance 3,300 Grocery retailer 3,115 Includes corporations, hospitals and universities. Excludes government entities and school and community college districts. Franchise operations are considered separately from their corporate chains. Source: Orange County Business Journal — 2010 Book of Lists. EMIN Construction Activity Table A -22 below sets forth building permit valuations and new housing units in the City for calendar years 2006 through 2010. TABLE A -22 CITY OF NEWPORT BEACH BUILDING PERMIT VALUATION AND NEW HOUSING UNITS Calendar Years 2006 -2010 2006 2007 2008 2009 20101'1 Residential Single- Family $ 82,967,310 $ 68,054,930 $ 81,504,056 $ 44,246,031 $18,300,981 Multi - Family 7,450,000 11,283,560 9,791,756 3,287,177 9,600,000 Alteration/Additions 56,805,626 58,058,723 49,507,192 38,080,919 29,585,044 Total: $147,222,936 $137,397,213 $140,803,004 $ 85,614,127 $18,846,025 Non - Residential New Commercial $ 36,300,000 $ 57,666,475 $ 17,000,000 $ 22,177,120 $ 2,867,530 New Industry 0 2,000,000 0 0 0 Othertzl 37,093,731 29,236,976 32,513,364 9,866,091 3,817,380 Alteration/Additions 53,803,425 40,431,975 62,653,046 40,201,278 21,870,834 Total: $127,197,156 $129,335,426 $112,166,410 $ 72,244,489 $28,555,744 Total All Industry: $274,420,092 $266,732,639 $252,969,414 $157,858,616 $77,401,769 New Housing Units Single - Family Units 126 107 90 66 22 Multi- Family Units 34 40 38 6 4 Total: 160 147 128 72 26 tD Numbers reflect January through June 2010 only. f �1 Other New Nonresidential includes churches and religious buildings, medical and institutional buildings, schools and educational buildings, agricultural buildings, residential garages, utilities buildings, and miscellaneous nonresidential structures. Source: Construction Industry Research Board. A -41 Taxable Sales Table A -23 below sets forth the taxable sales in the City for calendar years 2004 through 2008. Table A -24 below sets forth the taxable sales in the City for the first two quarters of calendar year 2009. Type of Business Retail Stores: Apparel Stores General Merchandise Stores Food Stores Eating and Drinking Places Home Furnishings and Appliances Building Materials and Farm Implements Auto Dealers and Auto Supplies Service Stations(2) Other Retail Stores (3) Retail Stores Totals All Other Outlets Total All Outlets TABLE A -23 29,130 30,566 29,774 CITY OF NEWPORT BEACH 382,748 430,653 TAXABLESALES 647,238 517,940 74,715 Calendar Years 2004 -2008 105,462 116,143 128,087 (In Thousands) 327,910 334,155 217,538 2004 2005 2006 2007th 2008(0 $ 138,308 $ 159,346 $ 168,773 $ 172,604 $ 154,951 237,968 256,604 259,294 247,316 215,698 76,493 82,662 86,262 88,522 88,880 344,205 381,592 392,918 403,373 390,435 81,027 99,458 96,501 94,043 61,173 25,548 29,130 30,566 29,774 26,934 382,748 430,653 538,993 647,238 517,940 74,715 89,411 105,462 116,143 128,087 288,372 327,910 334,155 217,538 198,233 1,649,384 1,856,766 2,012,924 2,016,551 1,782,332 475,161 501,875 559,897 631,800 622,532 $2,124,545 $2,358,641 $2,572,821 $2,648,351 $2,404,864 In early 2007 the California State Board of Equalization began a process of converting business codes of sales and use tax permit holders to North American Industry Classification System Codes. As a result of the coding change process, industry data for 2007 and 2008 are not comparable with data from prior years. (zl Prior to 2007, industry data for Service Stations were included in Automotive. (n In 2007 and 2008, industry data for Specialty Stores were included in Other Retail Stores. Source: California Board of Equalization. TABLE A -24 CITY OF NEWPORT BEACH TAXABLESALES Calendar Year 2009, First and Second Quarter (In Thousands) Type of Business Retail and Food Services: Motor Vehicle and Parts Dealers Home Furnishings and Appliance Stores Building Materials and Garden Equipment and Supplies Food and Beverage Stores Gasoline Stations Clothing and Clothing Accessories Stores General Merchandise Stores Food Services and Drinking Places Other Retail Group Total Retail and Food Services All Other Outlets Totals All Outlets Source: California Board of Equalization. A -43 First Quarter Second Quarter 2009 2009 $115,984 $108,638 11,054 9,542 9,481 11,412 20,575 23,484 18,718 24,313 32,579 40,334 33,540 38,575 83,706 91,665 34,128 38,936 $359,765 $386,898 134,624 133,022 494 388 519 920 Foreclosure Activity Table A -25 below sets forth foreclosure activity in the City and the County for the calendar years 2005 through 2010: TABLE A -25 CITY OF NEWPORT BEACH AND COUNTY OF ORANGE FORECLOSURE ACTIVITY Calendar Years 2005 through 2010 Calendar Total Number of % of Total Year Foreclosures Housing Units Housing Units 2005 City 1 42,143 0.00% County 152 1,013,634 0.01 2006 City 14 42,352 0.03 County 691 1,019,012 0.07 2007 City 40 42,580 0.09 County 4,223 1,025,302 0.41 2005 City 117 42,711 0.27 County 11,647 1,030,914 1.13 2009 City 141 43,477 0.32 County 8,502 1,035,536 0.82 20101° City 84 -- 0.09 County 4,839 0.27 Source: MDA DataQuick Information Systems. 0t Reflects data from January through July, 2010 ail APPENDIX B CITY FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2009 (THIS PAGE INTENTIONALLY LEFT BLANK) Oil A °° pL low a im" i 'I' 9 - �w ' p , 9I all ri;�' qi ii i 1 ie..i !�. - ii ar i r- �, Y � - _ �JP'ibk3 4 J ti#yL --jam' Comprehensive Annual Financial Reporl This page left blank intentionally. • ryv NI ,v t wp O\ FOR Comprehensive Annual Financial Report For the Year Ended June 30, 2009 Prepared by the Administrative Services Department Dennis C. Danner, Director Wpm- The City of Newport Beach was incorporated September 1, 1906 The present City Seal was adopted July 22, 1957 z M O v C n O M rn m El 0 z INTRODUCTORY SECTION This page left blank intentionally. CITY OF NEWPORT BEACH Comprehensive Annual Financial Report Year Ended June 30, 2009 TABLE OF CONTENTS INTRODUCTORY SECTION (Unaudited) Tableof Contents ......................................................................................... ..............................1 Letterof Transmittal ..................................................................................... ..............................5 GFOA Certificate of Achievement for Excellence in Financial Reporting ... .............................18 Listof City Officials ..................................................................................... .............................19 OrganizationChart ...................................................................................... .............................20 FINANCIAL SECTION Independent Auditors' Report ............................................................... .............................23 Management's Discussion and Analysis ............................................. .............................27 (Required Supplementary Information) Basic Financial Statements Government -wide Financial Statements: Statement of Net Assets .................................................................... .............................49 Statement of Activities ...................................................................... ............................... 50 Fund Financial Statements: Governmental Funds: BalanceSheet ................................................................................. .............................55 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets ............................................................ .............................56 Statement of Revenues, Expenditures and Changes in Fund Balances ...................... 57 Reconciliation of Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities ..............58 Budgetary Comparison Statements: GeneralFund ............................................................................ .............................59 Tide and Submerged Land Fund ............................................... .............................61 ContributionsFund .................................................................... .............................62 Proprietary Funds: Statement of Net Assets ............................................................... .............................65 Statement of Revenues, Expenses and Changes in Fund Net Assets .....................66 Statement of Cash Flows ........................................................... ............................... 67 Fiduciary Funds: Statement of Fiduciary Assets and Liabilities — Agency Funds ..... ............................... 71 Notes to the Financial Statements ..................................................... .............................75 Supplementary Schedules Non -Major Governmental Funds: Combining Balance Sheet .................................. ............................... ............................132 Combining Statement of Revenues, Expenditures and Changes in FundBalances ................................................... ............................... ............................140 Budgetary Comparison Schedules: StateGas Tax Fund ........................................... ............................... ............................147 Asset Forfeiture Fund ........................................ ............................... ............................148 OTS DUI Grant Fund ......................................... ............................... ............................149 182 JAGFund ........................................................... ............................... ............................150 Circulation and Transportation Fund .................. ............................... ............................151 Building Excise Tax Fund ................................... ............................... ............................152 Combined Transportation Fund ......................... ............................... ............................153 Arterial Highway Rehabilitation Fund ................. ............................... ............................154 Community Development Block Grant Fund ...... ............................... ............................155 Air Quality Management District Fund ............... ............................... ............................156 Environmental Liability Fund .............................. ............................... ............................157 Supplemental Law Enforcement Fund ............... ............................... ............................158 Traffic Congestion Relief Fund ........................... ............................... ............................159 Newport Coast Annexation Fund ....................... ............................... ............................160 Proposition 1B Transportation Fund .................. ............................... ............................161 Internal Service Funds: Combining Statement of Net Assets .................. ............................... ............................165 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets....... 166 Combining Statement of Cash Flows ................. ............................... ............................167 Fiduciary Funds: Combining Statement of Fiduciary Assets and Liabilities ................. ............................171 Statement of Changes in Fiduciary Net Assets ... ............................... ...........................172 STATISTICAL SECTION (Unaudited) Financial Trends: NetAssets by Component ........................................ ............................... ...........................175 Changesin Net Assets .............................................. ............................... ...........................176 Fund Balances of Governmental Funds ................... ............................... ............................178 Changes in Fund Balance of Governmental Funds . ............................... ............................179 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property ......... ............................181 Property Tax Rates, Direct and Overlapping Governments, Last Ten Fiscal Years ........... 182 Principal Property Taxpayers as of June 30, 2009 ... ............................... ...........................183 Property Tax Levies & Collections ........................... ............................... ............................184 Debt Capacity: Ratio of Outstanding Debt by Type .......................... ............................... ............................186 Outstanding Debt Serviced by the General Fund .... ............................... ............................188 Schedule of Direct and Overlapping Debt ................ ............................... ............................189 Computation of Legal Debt Margin .......................... ............................... ............................190 Revenue Bond Coverage, Last Ten Fiscal Years .... ............................... ............................192 Demographic and Economic Information Demographic and Economic Statistics, Last Ten Fiscal Years ............... ............................194 PrincipalEmployers ................................................. ............................... ............................195 Operating Information: Full Time City Employees by Function ..................... ............................... ............................197 Operating Indicators by Function ............................. ............................... ............................198 Capital Asset Statistics by Function ......................... ............................... ............................200 Water Sold by Customer Type ................................. ............................... ............................202 WaterRates ......................................................................................... ............................... 203 Major Water Customers ........................................... ............................... ............................204 This page left blank intentionally. CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES Dennis Danner, Director/ Treasurer December 18, 2009 Honorable Mayor and Members of the City Council, and Citizens of the City of Newport Beach Newport Beach, California The City Charter and California state law require that the City of Newport Beach issue annually a complete set of financial statements and that an independent firm of certified public accountants audit this report in conformance with generally accepted auditing standards (GAAS). The Comprehensive Annual Financial Report (CAFR) of the City of Newport Beach for the year ended June 30, 2009, is hereby submitted. The CAFR was prepared in conformance with generally accepted accounting principles (GAAP). The City's financial reporting is based upon all Governmental Accounting Standards Board (GASB) pronouncements as well as Financial Accounting Standard Board (FASB) statements and interpretations that were issued on or after November 30, 1989 that do not conflict with or contradict GASB pronouncements. This report consists of City management's representations concerning the finances of the City of Newport Beach. Responsibility for the accuracy and completeness of the data presented rests with the City. Management of the City is also responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the government are protected from loss, theft, or misuse, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. We believe the information presented in this report is complete and accurate in all material respects, and that it is reported in a manner designed to fairly present the financial position and results of operations of the various activities of the City of Newport Beach. The City of Newport Beach's financial statements have been audited by Mayer Hoffman McCann P.C., a firm of licensed certified public accountants. The goal of the audit was to provide reasonable assurance that the financial statements of the City of Newport Beach for the fiscal year ended June 30, 2009, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Newport Beach's financial statements for the year ended June 30, 2009, are fairly 3300 Newport Boulevard - Post Office Box 1768 - Newport Beach, California 92658 -8915 Telephone: (949) 644 -3127 • Fax: (949) 644 -3339 •Website: www.city.newport- beach.ca.us presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. A narrative introduction, overview, and analysis accompany the basic financial statements in the form of the Management's Discussion and Analysis (MD &A). The letter of transmittal is designed to complement the MD &A and should be read in conjunction with it. The City of Newport Beach MD &A can be found immediately following the report of the independent auditors and will provide further information regarding the format and content of this report. The notes to the financial statements contain a summary of significant policies and disclosures, including contingencies and subsequent events the reader should consider in assessing the financial condition of the City. PROFILE OF THE CITY The City of Newport Beach is located in the coastal center of Orange County, in the heart of Southern California, with Los Angeles County to the north and San Diego County to the south. There are currently 34 cities within the County offering one of the finest climates in the United States. Orange County is the third largest county in California trailing Los Angeles and San Diego and is the sixth largest county in the nation. The general vicinity of Newport Beach and the County of Orange relative to the counties of Los Angeles, San Bernardino, Riverside and San Diego is illustrated on the map below: Las Angeles ° County San Bernardino 0 County ©\ Riverside Orange County County NEWPORT REREN IV ° 5` Diego County The City of Newport Beach is one of Southern California's most scenic and dynamic communities. It surrounds Newport Bay, well known for its picturesque islands and one of the greatest natural yacht harbors in the world, accommodating over 9,000 boats of all types docked within its 21 square mile harbor area. This bay area and the ten miles of ocean beach offer outstanding fishing, swimming, surfing, and aquatic sports activities. The City has a permanent population of 86,252. During the summer months, the population grows to over 100,000 with 20,000 to 100,000 tourists daily. There are fine residential areas, modern shopping facilities, and a quality school system. A major campus of the University of California is located immediately adjacent to the City, and eight other colleges are within a 30 -mile radius. The following map illustrates the communities within the City of Newport Beach; the City's bay, recreational harbor and beachfront topography; and the City's location relative to the bordering cities of Costa Mesa to the north, Irvine to the east and Laguna Beach to the south. rte=. ima .1 N A. eevcn The City of Newport Beach was incorporated September 1, 1906. The current City Charter was adopted in 1954. The City operates under a Council- Manager form of government. Council Members are elected by district but voted on by the population as a whole, and serve four -year staggered terms. The governing council consists of the mayor and six other members and is responsible for among other things, policy- making, passing local ordinances, adopting the budget, appointing committees and hiring the City Manager, City Attorney, and City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day to day operations of the City, and for appointing heads of departments. The City of Newport Beach is a full service city providing its residents and visitors with the following functional services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check, and code enforcement services; libraries and cultural and arts services; recreation and senior services; and water, wastewater, rubbish disposal, and street light utility services. The City provides water and sewer service to most areas within City limits, but it does not provide gas, electrical, or other utility service. Public elementary and secondary education is provided by school districts, which are separate government entities. Component Unit: The City's financial statements present the financial activity of the City of Newport Beach (the primary government) and the Newport Beach Public Facilities Corporation (a component unit of the City). The Corporation is blended into the City's financial statements because of its operational and financial relationship with the City. Even though it is a legally separate organization, City of Newport Beach elected officials have continuing accountability for fiscal matters of the Corporation. Additional information about the Newport Beach Public Facilities Corporation and the reporting entity in general can be found in Footnote 1a of the notes to the financial statements. Budget: The annual budget serves as the foundation for the City of Newport Beach's financial planning and control. The Administrative Services Department, with City Manager direction, develops budget guidelines and appropriation limits for each department every year in January. The departments then submit revenue and expenditure appropriation requests which are summarized by the Administrative Services Department and presented to the City Manager for review. The City Manager then meets with each department and prepares a proposed budget document for the City Council. The City Council holds a budget hearing and adopts a budget on or before June 30, the close of the City's fiscal year. Budgets are adopted for the General Fund and Special Revenue Funds. The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which increase the total appropriations of any fund over $10,000 must be approved by the City Council. LOCAL ECONOMIC MIX From 1950 to 2009, the population of the City increased from 12,120 to 86,252. As vacant land becomes increasingly scarce, population growth is expected to flatten considerably as the City becomes relatively built -out. According to the Center for Demographic Research at California State University Fullerton, the City of Newport Beach will be home to an estimated 91,321 residents by the year 2015. Newport Beach's physical setting encompasses about 25.3 square miles of land, of which approximately 75% is developed and 25% is undeveloped including the City's coastal beaches used for recreation and open space. The developed land is 70% residential and 30% non - residential. Of the City's 41,850 residential dwelling units, 60% of the housing is single - family units and 40% is multi - family units. This current land use mix produces General Fund revenues of approximately $150 million. Tax revenues represent nearly 76.7% of all General Fund revenues while only 23.3% is generated by other revenue sources. The top three individual revenue sources, Property Taxes, Sales Taxes and Transient Occupancy Taxes (TOT), represent 71 % of all General Fund revenues. General Fund Revenues • Property Taxes A • Sales Taxes ■ Sales Tax In Lieu ■ Transient Occupancy Taxes ■ Other Taxes 7.5% 40 ■ All Other Sources 5.0% Property Taxes: Property taxes account for 46.7% of all General Fund revenues.. Property taxes generated with the City limits are distributed amongst various local governments. The City receives, on average, 16.5% of the property taxes paid by Newport Beach residents. The remainder goes to school districts, the County, and other government entities. Sales Taxes: In March of 2004, voters approved Proposition 57 which allowed the State to enact revenue swapping procedures commonly referred to as the "Triple Flip." In doing so, Sales Taxes were reallocated to cities in two separate revenue streams "Sales Taxes" and "Sales Taxes In Lieu" which impacted the timing and distribution method but did not materially impact the revenue category in total. Sales Taxes and sales taxes in lieu represent 16.9% of all General Fund revenues. The City's sales tax base is generated from a relatively diverse business community and is not dependent on any one merchant or industry. The following chart demonstrates the diversity of the City sales tax revenue. The largest segment, "Restaurants," accounts for 19.4% of total sales taxes and is represented by 311 restaurants. The next largest segment, "Auto Sales - New," accounts for 19.1% of total sales taxes and is represented by 9 dealerships. The "Other" categorization accounts for another 15.6% and is represented by 785 businesses. Sales Tax by Business Segment 2.2 8 6% .� 4.0% 4.7% 6.2% 7.6% 81% 10.1% ■ Restaurants - 311 ■ New Auto Sales - 9 ■ Leasing -64 • Miscellaneous Retail- 805 • Department Stores -19 • Apparel Stores - 178 • Service Stations - 21 • Food Markets -40 • Office Equipment -75 • Furniture / Appliance - 149 • Other -785 Transient Occupancy Taxes (TOT): The TOT accrues to the City at a rate of 10% of room charges (with 18% of this collection going to the local Conference and Visitors Bureau). The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of approximately twenty inns, motels, hotels and resorts and accounts for 89% of TOT revenues. The residential category is made up of some 700 vacation rentals representing only 11% of TOT revenue. Together, they account for nearly $11.2 million in annual TOT revenue. Annual Revenue Percent (In Millions) of Total Commercial Property: Inns, Motels and Hotels $10.0 89% Residential Property: Vacation Rentals $ 1.2 11% $11.2 100% ECONOMIC OUTLOOK & FACTORS EFFECTING FISCAL PLANNING U.S. Economy: In the fall of 2008, the national economy began a freefall which has continued through the second quarter of 2009. Current data and consensus amongst economists, however, suggest the national economy is stabilizing and the recovery has begun. During the third quarter of 2009, the Gross Domestic Product (GDP) turned around and grew at a rate of 3.5 %. Dampening this news is some speculation that the turn - around was largely bolstered by federal stimulus spending and the underlying recovery of the economy is occurring more modestly. As can been seen in the chart below, the California Legislative Analyst Office (LAO) projects the annualized real GDP growth to bottom -out at -2.5% in 2009 before slowly returning to modest growth of 2% in 2010 and 3% in 2011. 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 2004 1 2005 1 2006 U.S. Real GDP Growth 2007 1 2008 Est mated I Pro Projected I Projected 1- t5eries1l 3.6% 1 3.1% 1 2.9% 1 2.0% 1 0.4% 1 -2.5% 1 10% 1 3.0% 1 Source: LAO's Economic Forecast State of California Economic Recovery: Like the national economy, the State of California economy is in recovery. The pace of job losses has subsided and home sales are on the rise. The recession in California will likely end in 2009 but since the recession started earlier and fell sharper than the rest of the nation, the California economy has further to travel as demonstrated by the table below: Unemployment Rate (Percent)` Actual Estimated Forecast 2008 2009 2010 2011 2012 United States 5.8 9.2 10.0 9.4 8.5 California 7.2 11.7 12.1 11.3 10.2 * Source: LAO Economic Forecast California State Budget: The State budget is of great concern to all cities, including Newport Beach. The State's inability to achieve meaningful on -going budget solutions has resulted in massive lingering budget problems in the coming months and into the foreseeable future. As depicted by the following chart, the LAO projects a $6.3 billion deficit for 2009 -10 and a $14.4 billion shortfall between revenues and expenditures in 2010 -11 with similar projections for the succeeding years. State Budget Operating Shortfalls (In Billions) C: 5 Carry -In Deficit From Previous Year ■ Annual Operating Shortfall -10 15 -20 -25 2009 -10 2010 -11 2011 -12 2012 -13 2013 -14 2014 -15 Source: LAO's California Fiscal Outlook Considering the projected annual shortfalls, a plan that permanently addresses the State's structural deficit represents an enormous challenge and will require substantial ongoing solutions. LOCAL ECONOMY Local Impact of the State's Budget Crisis As the State's budget deficits continue to balloon, there is a considerable risk that the State may attempt to shift the burden to local governments by reallocating or permanently shifting revenues from local governments. In the early nineties, the State enacted a number of permanent revenue shifts from local governments to schools. The cumulative impact of the ERAF shifts I, II and III since 1993 have cost City of Newport Beach taxpayers in excess of $89 million. As a part of the State's 2009 -10 budget initiatives, the State acted to defer certain tax sources due to local governments including 8% of local property taxes, certain highway users taxes (gas tax) and traffic congestion relief taxes. The State took these actions to replace a portion of the shortfall in state revenues associated with current economic conditions. With regard to the property tax borrowing, legislation was signed into law on July 28, 2009 that enabled the State of California to borrow $6.2 million of property tax revenue due to the City in fiscal year 2009 -10. On November 10, 2009, the California Statewide Communities Development Authority (CSCDA) issued debt to provide to participating local governments, 100% of the property tax revenue that the State had been authorized to borrow. The bonds provide for the borrowed funds to be remitted to the participating local governments in two installments (on January 15, 2010 and on May 3, 2010). Although the 2009 -10 State budget actions thus far have largely represented short-term borrowings rather than permanent revenue shifts, we are very concerned that the State will continue to look at local government revenues sources as a means to resolve their staggering budget problems. Property Taxes: Unlike many cities, property taxes, not sales taxes, are the number one source of revenue for the City of Newport Beach, representing 46.7% of all General Fund revenues. Due to the limited supply of scenic coastal property and the unique access to the scenic Newport Bay and one of the best recreational yacht harbors, the Newport Beach community has been developed into in affluent residential neighborhoods (70 %) and high -end commercial districts (30 %). Despite the dramatic declines in the real estate market, sales data for the month of October, 2009, demonstrates the relatively high density of affluence throughout the residential communities. Median home sales prices in all areas of the City approach or exceed $1 million. CITY OF NEWPORT BEACH Median Home Sales* Comparitive Month Ending November * Source: DataQuick Information Systems Due to a vigorous demand for coastal property, the City has enjoyed long -term growth trends with its number one revenue source. Over a ten -year period, assessed valuation increased an average of 9.48% per annum and 6.76% over a twenty -year period. Since Californians passed Proposition 13 in 1978, assessed property value is reassessed to market value only when the property changes ownership. Otherwise, the assessed value grows by no more than 2% per year. This practice creates a constant lag and buffer between assessed and market values, effectively insulating the tax base from more erratic market value gyrations. Median Median Number of Number of Newport Beach Sales Price Sales Price Home Sales Home Sales Zip Code 2008 2009 2008 2009 92625 $ 3,000,000 $ 1,500,000 9 8 92660 $ 1,225,000 $ 1,061,250 8 33 92661 $ 3,450,000 $ 1,950,000 2 4 92663 $ 2,350,000 $ 810,000 1 18 92657 $ 1,393,000 $ 1,535,000 5 20 All Orange County $ 400,000 $ 432,000 2,177 2,528 * Source: DataQuick Information Systems Due to a vigorous demand for coastal property, the City has enjoyed long -term growth trends with its number one revenue source. Over a ten -year period, assessed valuation increased an average of 9.48% per annum and 6.76% over a twenty -year period. Since Californians passed Proposition 13 in 1978, assessed property value is reassessed to market value only when the property changes ownership. Otherwise, the assessed value grows by no more than 2% per year. This practice creates a constant lag and buffer between assessed and market values, effectively insulating the tax base from more erratic market value gyrations. Although assessed value growth has slowed for the last several years and will likely continue to decrease in 2010 -11, we are hopeful that assessed valuations will modestly rebound in years thereafter. 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% 20 Year Assessed Property Value Growth -Assessed Value Growth Trendline (3 Yr Average Growth ) m T rn rn rn m T ° N N N 2 N g4 N 4 N 4 N 4 N 4 N 0 N `The 2000 -03 datapoint was normalized to reduce the impact the Newport Coast Annexation had on the assessed valuation growth trendline. Although the City has normally been any able to rely on steady growth in assessed valuation of 4% or more, it is probable the City will build the 2010 -11 budget assumptions around a zero growth scenario with contingencies for a decline of assessed valuation. Sales and Transient Occupancy Revenues: Because sales tax and TOT revenues follow consumer behavior, they are much more volatile than property taxes. The current economic recession, falling home prices and tightening credit policies have significantly depressed consumer spending patterns. Sales taxes have contracted precipitously during 2008 -09 and are expected to continue to decline in 2009 -10 until employment conditions improve and consumer confidence is restored. Transient occupancy tax collections generally follow a similar trend as sales taxes but are somewhat muted due to recent hotel expansions and the addition of a new luxury resort. TOT revenues are currently expected remain at 2008 -09 revenue levels before modestly rebounding in 2010 -11. LONG TERM FINANCIAL PLANNING The City takes long -term financial planning seriously and has developed several master replacement plans for its critical assets and infrastructure including major facilities, street pavement, water and sewer infrastructure, and City vehicles and heavy equipment. The City retains actuaries to predict and fund long -term liabilities including workers compensation, general claim liabilities, pension liabilities and post employment health care liabilities. Reserve levels and annual required funding contributions are set by Council policy. In the case of workers compensation and general liability, annual contribution rates are targeted to accumulate cash reserves in excess of the $11.9 million and $5.9 million expected liability respectively, to achieve at least a 75% confidence funding level of $13.2 million and $6.1 million respectively. Except for the implied subsidy component of the City's post employment health care plan (OPEB liability), the City policy is to fund the cash subsidy of our OPEB liability of $ 2.7 million and pension liabilities of $18.4 million at 100% of the actuarially determined annual required contribution (ARC). Because the City pays the entire ARC each year, its net pension and net OPEB obligation at the end of each year is $0 (except for the implied subsidy component of OPEB which is funded on a pay -as- you -go basis). To mitigate the rising cost of pension plans, the City is actively pursuing cost sharing agreements with our employee associations pertaining to pension plans. Regarding OPEB plan liabilities, the City closed the defined benefit component of the OPEB plan to new participants in 2006. The new plan resembles a defined contribution style plan through which once the contribution is made the employee account, the employer has no further funding obligation to the plan. See footnotes 10 and 11 of the notes to the financial statements for further information on the funding status of the City's pension and OPEB plans. Stewardship: The City has long taken a conservative approach to forecasting revenues, often assuming a "worst case scenario." This fiscal conservatism has created a stable financial base. As a result, even in a downturn, the City of Newport Beach is able to maintain its services at a high level, while reducing expenses to accommodate reduced revenues. The City's fiscal discipline has allowed it to prepare balanced budgets and save, both during prosperous and difficult economic periods. While the current recession is much deeper than expected, management and the Council were able to act swiftly to trim the operating budget at the midpoint of the 2008- 09 fiscal year, averting a decline in the fund balance of the General Fund. The General Fund ended the year with a $79.1 million fund balance, a net increase of $552,000. Of this amount, $5.8 million is reserved and is not available to finance new activities because it has already been committed to fulfill contractual obligations or is otherwise legally restricted beyond the City Council's control. Within the Council's discretion, the City Council has designated $18.6 million for contingencies, $13.1 million for unspecified future appropriations, $4.7 million for capital projects that were not completed during the fiscal year, and $37.3 million designated for other special purposes including $25.0 million designated for the City's facilities replacement plan and $5.0 million designated to offset unexpected increases in PERS pension costs. 2009 -10 Cost Saving Measures: After the date of this report's balance sheet but prior to the issuance of this report, it became clear that deteriorating revenues would present budget short-falls in 2009 -10. With the approval of City Council, management initiated an Early Retirement Incentive Plan (ERIP) with intent to further trim the City's overall cost structure. A total of 51 people participated in the plan and this action is expected to save nearly $3.1 million annually. Additionally, the City has initiated a second phase restructuring effort to effect additional long -term cost savings and improved efficiencies. Major Initiative: While 2010 -11 will likely present another challenging budget year, plans for a new Civic Center Project, which includes a parking structure and library additions, are underway that will be integrated in a 16 -acre passive park with ocean views. The costs of the improvements are expected to exceed $100 million and will require bond financing. The Civic Center project has been reviewed in context of all critical City facility replacement plans and the City has judiciously set aside $25 million to pre -fund debt service and or construction expenditures. The City's facilities replacement policy limits General Fund contributions to debt service to not more that 5% of total General Fund expenditures in any one year as added measure to insure long -term sustainability and fiscal prudence. AWARDS AND ACKNOWLEDGMENTS Awards: The City has prepared a comprehensive annual financial report for the past 17 years. The City has received awards for excellence in financial reporting each of those years. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Newport Beach for its comprehensive annual financial report for the fiscal year ended June 30, 2008. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to conform to the Certificate of Achievement program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. Acknowledgments: Preparation of this report was accomplished through the efficient and dedicated services of virtually everyone in the City's Accounting Division and the Graphics and Print Services unit. In addition, members of the Administrative Services Department would like to thank the City Manager, and the Mayor and City Council for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. We would also like to thank our auditors, Mayer Hoffman McCann P.C., for their time and assistance in the preparation of the report. This report was completely prepared and published by City employees. ✓aC,.l David A Kiff City Manager / / Richard C. Kurth Acting Administrative Services Director Certificate of Achievement for Excellence in Financial Reporting Presented to City of Newport Beach California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive amoral financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. 1 IUNIRO SWCTAT3 �y! 140 ORPMTON President Executive Director L to R: Council Member Michael F. Henn, Mayor Pro Tern Keith D. Curry, Mayor Edward D. Selich, Council Members Leslie J. Daigle, Nancy Gardner, Steven Rosansky and Don Webb City Attorney David R. Hunt Sharon Wood........ Dave Kiff ............... Dennis C. Danner. Jay Elbettar .......... Steve Lewis .......... Mark Harmon........ Terri L. Cassidy .... Cynthia Cowell ..... David Lepo ........... John Klein ............. Steve Badum........ Laura Detweiler.... George Murdoch.. City Manager �- Homer L. Bludau City Clerk Leilani Brown ...........Assistant City Manager /Director of Community & Economic Development ........................................................... ............................... Assistant City Manager ............ ............................... .................Administrative Services Director /Treasurer ...................................................................... ............................... Building Director ................................................................................. ............................... Fire Chief ............................... ............................... ........................General Services Director ..................................................... ............................... Human Resources Director ................................. ............................... ........................Library Services Director .............................................. ............................... .......................Planning Director ............................................................................. ............................... Police Chief ..................................... ............................... .........................Public Works Director ............... ............................... .....................Recreation & Senior Services Director ....................................................................... ............................... Utilities Director ELECTORATE r BUILDING CODE 1 BOARD OF APPEALS r - - - - - --1 CIVIL SERVICE BOARD CITY CLERK L- - - - - -J r-- - - - -iJ PLANNING COMMISSION L- - - - - -J ASSISTANT CITY MANAGER crap —un vm emnomic oevalopmem Cafe EnbrremeM PLANNING Land Use and Development Long -Range Planning Planning Commission Support Housing Programs BUILDING Admirastration Plan CnecklPannit Servlcss Public Counter Inspections Use and Occupanry Residential Building Records FIRE Fire Suppression (Operations) ocean Lifeguards Training and Education Hering SMaterials Fare Prevention Junior Lifeguard Program Administration Emergency Medical Services POLICE Patrol Suppod Servlcss Trans Chief of Police Detective MAYOR a COUNCIL CITYATTORNEY CITY MANAGER ADMINISTRATIVE SERVICES Accounting /RaPomhoSudgeting Treasury Management Billing & Receivables PaymlgACCOUnts Payable Cashiering Gaoiphe is Information Systems Revenue Information Technology Purchasing&Warahousmg Printing &Postal Services O ELECTED OFFICIALS Fiscal Year 2008 -2009 r — — — — — — i BOARD OF LIBRARY TRUSTEES L- - - - - -J r PARKSBEACHESB 1 L RECREATION COMMISSION J r- - - - - -� CITY ARTS COMMISSION L- - - - - -J r- - - - - -� HARBOR COMMISSION ASSISTANT CITY MANAGER Haroor, Rea— Pubomnranmamn UTILITIES wafer Service Waslaidder Collection Electrical Services Oil & Gas Production Administration Street Lights GENERAL SERVICES Parka add Traea OParatbns Suppod Field Maintenance TraH¢ Signs &Markings Building Maintenance Refuse Collection Equipment Maintenance Recycling PUBLIC WORKS Engineering CIP Design & Construction IngaidnLeum Master Planning Divestment Be,.. TraRC Manning &Enginsenng Public Right of Way Permitting LIBRARY SERVICES Central Library & Brandi es Information & Reference Services Adult &Vouch Programs Ana CalWrai Services Literary Services Board of Library Trustees Supped City Ads Commission Support Sister City ASSOdation Suppod RECREATION & SENIOR SERVICES Yonth&Adult Sports Program. Senior Programs Services Playground/Park Development Special Events Facility ManagemenVRessnadare PIMP Commission Suppod HUMAN RESOURCES Recmronent General Liability Employstalabor Relations Benefits Adminentrdllon I ClassificaGOnlComperda ion Warkara Compensation Citywide Training Retiree Counseling& Benefits Civil Service Board Support Graveness& Disciplines r - - - -J 0 COUNCILAPPOINTED BOARDS & COMMISSIONS COUNGILAPPOINTED POSITIONS CITY DEPARTMENTS FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT Z O H U W U] J Q U Z Q Z Lz This page left blank intentionally. 22 Mayer Hoffman McCann P.C. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine. California 92612 949- 474 -2020 ph 949- 263 -5520 fx www.mhni- pc.com City COnitCil City of Newport Beach Newport Beach, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying basic financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fiutd information of the City of Newport Beach, California, as of and for the year ended June 30, 2009, which collectively comprise the City's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the City of Newport Beach's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted 0111- audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Arrcli/ ill'; .SICWCIar -[IS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining ftmd information of the City of Newport Beach, as of June 30, 2009, and the respective changes in financial position and cash flows, where applicable, of the City of Newport Beach, California and the respective budgetary comparison information for the general fund and major special revenue funds of the City for the Year then ended in conformity with accounting principles generally accepted in the United States of America. The information identified in the accompanying table of contents as nlcolcl,,enlew's cliscrnssion cacl clnah:.ris and regrrireel sit y /emeuf(Illy hi n-I larion is not a required part of the basic financial statements, but is supplementary information required by the accounting standards generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. PAI City Council City of Newport Beach Newport Beach, California Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Newport Beach's basic financial statements. The introductory section, combining and individual nonmajor fiord financial statements, schedules and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic Financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. In accordance with Gorei•nmeiu Amliiil {if Siemeklnh, we have also issued a report dated December 18, 2009 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmeni Auditing Sicrridcu•cls and should be considered in assessing the results of our audit. Irvine, California December 18, 2009 PZI FINANCIAL SECTION MANAGEMENTS DISCUSSION AND ANALYSIS 25 Z O_ H U W U1 J Q U Z Q Z Lz This page left blank intentionally. PQ dJ_1Z ETC] =1iLTI =l�111 1&111610111 *19[dki I_1IUL1I /_1AM11 This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents management's discussion and analysis of the City's financial performance during the fiscal year that ended on June 30, 2009. This analysis should be read in conjunction with the Transmittal Letter at the front of this report and the accompanying Basic Financial Statements. lyla_1Hd /_10 :110:11 Eel: 11 &9 Long -term Economic Resource (Government -wide) Focus — Economic resources are differentiated from financial resources in that the economic measurement focus measures changes in net assets as soon as the event occurs regardless of the timing of related cash flows. Therefore, this measurement focus includes both current spendable resources and fixed non - spendable assets, and long -term claims against these assets. The resulting net assets utilizing this measurement focus provides one measure of the City's overall long -term financial condition. • The assets of the City exceeded liabilities at the close of the most recent fiscal year by $2.322 billion. The vast majority of this figure is represented by illiquid capital assets including land and infrastructure. Capital assets net of accumulated depreciation and any related debt totaled $2.170 billion, while the remaining balance of net assets totaled $151.9 million. Of this amount, $107.7 million represents unrestricted net assets that may be used to meet the City's ongoing obligations to citizens and creditors for both governmental and business -type activities. • The City's total net assets increased $21.4 million (0.93 %) to $2.322 billion as a result of current year activities. The increase is partially attributable to donations totaling in the amount of $6.4 million associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed in the amount of $8.4 million by a developer as a condition of development in the Fashion Island area of the City (North Newport Center Development Agreement) and smaller capital projects. • The City's total debt decreased by $1.1 million, from $51.7 million to $50.6 million, during the current fiscal year. The decrease is the net result of regular debt service payments of $16.2 million combined with an increase in our estimate of our OPEB liability of $5.4 million. Short -term Financial Resources (Fund) Focus — The financial resources focus measures inflows of current spendable assets. The resulting net difference between current financial assets and current financial liabilities otherwise known as fund balance (or net working capital in the private sector) is a measure of the City's ability to finance activities in the near term. MA • At the close of the current fiscal year, the City's Governmental Funds reported a combined ending fund balance of $121 million, an increase of $4.1 million. Approximately $106.4 million is unreserved fund balance available to fund current obligations at the City Council's discretion. Of the $106.4 million unreserved fund balance, City Council has designated $18.6 million for contingencies, $13.1 for unspecified future appropriations, $4.7 million for capital projects that were not completed during the fiscal year, and $39.6 million designated for other special purposes including $25 million for facilities identified for replacement in the City's facilities replacement plan. The remaining $30.4 million is made up of smaller amounts designated across various funds. • The General Fund reported an increase of $0.6 million in fund balance after transferring $22.2 million to other funds. Of this transfer, $20.3 million represented a routine transfer to subsidize the operations of the Tide and Submerged Land Fund and a $0.5 million transfer to the Contributions Fund. The remaining $1.4 million represented various nonrecurring transfers to other funds. • At the end of the current fiscal year, unreserved fund balance for the General Fund was $73.7 million, or 57.6% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the comprehensive annual financial report contains the following information: Independent Auditors' Report, Management's Discussion and Analysis (this section), the Basic Financial Statements, and the Supplementary Information section, an optional section that presents combining and budgetary schedules for individual non - major funds. The Basic Financial Statements are comprised of three components: 1) Government -wide Financial Statements, 2) Fund Financial Statements and, 3) Notes to the Financial Statements. Management's Discussion and Analysis is intended to be an introduction to the Basic Financial Statements. 1- 7_F9[0lyh /_1.[d /_1I&IIF_AI=1dd=1ki IK Government -wide Financial Statements — The Government -wide Financial Statements are intended to provide a "Big Picture" view of the City as a whole using accounting methods similar to those used by private sector companies. The statement of net assets includes all of the City's assets (including non - spendable assets like streets, roads, and land rights) and liabilities (including long -term liabilities that may be paid over twenty or so more years). All of the current year revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. PU The two Government -wide Financial Statements report the City's net assets and how they have changed. Net assets — the difference between the City's assets and liabilities — is one way to measure the City's financial health, or position. Over time, increases or decreases in the City's net assets are an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the City, one should also consider additional non - financial factors such as changes in the City's property tax base and the condition of the City's roads. The Government -wide Financial Statements of the City are divided into two categories: Governmental Activities — This statement depicts the extent to which programs are self - supporting and the net amount provided by property taxes and other general revenues. Most of the City's basic services are included in this category, such as the public safety, public works, community development, community services and general administration. Taxes and other general revenues finance most of these activities. Business -type Activities — The City accounts for its Water and Wastewater utilities as business enterprises. The City charges fees to customers to recover the cost of providing Water and Wastewater services. Fund Financial Statements — Funds are accounting devices that the City uses to track and control resources intended for specific purposes. The Fund Financial Statements provide more detailed information about the City's most significant funds (major funds) but not the City as a whole. Some funds are required by State and Federal law or by bond covenants. Other funds are utilized simply to control and manage resources intended for particular purposes. The City utilizes three broad categories of funds: Governmental Funds — Governmental Funds are used to account for essentially the same functions reported as Governmental Activities in the Government -wide Financial Statements. However, unlike the Government -wide Financial Statements, Governmental Fund Financial Statements utilize the financial resources measurement focus and thus concentrate on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Consequently, the Governmental Fund Financial Statements provide a detailed short-term view that helps a reader determine whether there are more or fewer financial resources that can be spent in the near future to finance City programs. Also included in the Governmental Funds are Permanent Funds. These funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support City programs. Proprietary Funds — Services for which the City charges customers a fee are generally reported in Proprietary Funds (Enterprise Funds and Internal Service Funds). Like the Government -wide Financial Statements, these funds provide K01 both long and short -term financial information utilizing the economic resources measurement focus. The City's Enterprise Funds (Water and Wastewater Funds) are individual funds represented in the combined presentation of Business -type Activities in the Government -wide Financial Statements. The individual fund presentation provides more detailed information about each business segment, its operating statements, and statements of cash flow. The City also uses Internal Service Funds that are utilized to report and allocate the cost of certain centrally managed and operated activities (e.g. fleet maintenance, risk management, retiree insurance, etc.). Because the Internal Service Funds primarily serve the government, they are reported with Governmental Activities rather than the Business -type Activities in the Government -wide Financial Statements. Fiduciary Funds — The City utilizes Fiduciary Funds to account for assets held by the City in a trustee capacity, or as an agent for other governmental entities, private organizations, or individuals. All of the City's fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. We exclude these activities from the City's Government -wide Financial Statements because the City cannot use these assets to finance its operations. Notes to the Financial Statements — The financial statements also include the Notes to the Financial Statements that provide important narrative details about the information contained in the financial statements. Information contained in the Notes to the Financial Statements is critical to a reader's full understanding of the Government - wide and Fund Financial Statements. Supplementary Information — In addition to the required elements of the Basic Financial Statements, we have also included a Supplementary Information section, which includes budgetary and combining schedules that provide additional details about the City's non -major Governmental Funds, Internal Service Funds, and Fiduciary Funds. I: KSP /=1:Lhrd=1Z, 11 drdlU]=1yIZ /_1,I1113 /_1 W_1ki f_1WM1..1 Net Assets — Net assets may serve a useful indicator of a government's overall financial condition over time. The City's combined net assets for the year ended June 30, 2009, as shown in Table 1, were $2.322 billion, increasing $21.4 million over the prior year. 3b1 Current and other assets Capital assets Total assets Long -term liabilities outstanding Other liabilities Total liabilities Net assets Invested in capital assets, net of debt Restricted Unrestricted Total net assets Table 1 Net Assets (in thousands) Governmental Activities Business -Type Activities Total 2008 2009 2008 2009 2008 2009 $ 175,010 $ 182,934 $ 18,288 $ 15,234 $ 193,298 $ 198,168 2,070,835 2,084,794 108,954 108,642 2,179,789 2,193,436 2,245,845 2,267,728 127,242 123,876 2,373,087 2,391,604 48,600 49,009 3,095 1,585 51,695 50,594 17,527 16,594 3,194 2,346 20,721 18,940 66,127 65,603 6,289 3,931 72,416 69,534 2,050,925 2,061,636 40,989 44,213 87,803 96,276 $ 2,179,717 $ 2,202,125 107,314 108,510 13,639 11,435 $120,953 $ 119,945 2,158,239 2,170,146 40,989 44,213 101,442 107,711 $ 2,300,670 $ 2,322,070 Invested in Capital Assets - By far the largest component of net assets, $2.170 billion (93.4d/ %), reflects the City's investment in capital assets (e.g., land, buildings, infrastructure, and equipment) less accumulated depreciation and any related outstanding debt used to acquire those assets. The City's capital assets do not represent a financial resource and consequently are not readily available for funding current obligations. Restricted Assets - An additional portion of the City's net assets, $44.2 million (1.9 %), represents resources that are subject to external restrictions on how they may be used. Unrestricted Assets - The remaining balance of unrestricted net assets, $107.7 million (4.6 %), may be used to meet the City's ongoing obligations to citizens and creditors. • Overall, the City's net assets increased $21.4 million in the current fiscal year. The increase is partially attributable to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed by a developer as a condition of development in the Fashion Island area of the City (North Newport Center Development Agreement) and smaller capital projects. Other key financial activity for the year ended June 30, 2009, is shown in Table 2. 31 Table 2 Changes in Net Assets (in thousands) Governmental Activities - The cost of all governmental activities in the current fiscal year was $172.6 million. As shown in the statement of activities, $36.7 million of the cost was paid by those who directly benefited from the programs, $38 million was financed by contributions and grants received from other governmental organizations, developers, and property owners for both capital and operating activities, and $97.9 million was subsidized through general City revenues. Net assets for governmental activities of the City at the beginning of the year were $2.18 billion, and increased by $22.4 million by the end of the year. The increase is partially attributable to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed by a developer and smaller capital projects. 5% Governmental Activities Business -Type Activities Total 2008 2009 2008 2009 2008 2009 Revenues: Program Revenues: Charges for services $ 40,122 $ 36,739 $ 20,823 $ 20,446 $ 60,945 $ 57,185 Operating grants and capital contributions 15,779 13,404 - - 15,779 13,404 Capital grants and contributions 31,038 24,634 - - 31,038 24,634 General Revenues: Taxes: Property taxes 67,389 70,127 - - 67,389 70,127 Sales tax 21,855 17,926 - - 21,855 17,926 Sales tax in -lieu 8,018 7,503 - - 8,018 7,503 Transient occupancy taxes 12,751 11,171 - - 12,751 11,171 Other taxes 8,277 8,465 - - 8,277 8,465 Intergovernmental (Unrestricted): Motor Vehicle License Tax 373 356 - - 373 356 Investment related income 4,164 2,862 662 511 4,826 3,373 Miscellaneous 1,859 1,863 - - 1,859 1,863 Total revenues 211,625 195,050 21,485 20,957 233,110 216,007 Expenses: General government 15,557 16,431 - - 15,557 16,431 Public safety 75,821 79,301 - - 75,821 79,301 Public works 42,631 45,600 - - 42,631 45,600 Community development 10,053 10,284 - - 10,053 10,284 Community services 19,147 20,589 - - 19,147 20,589 Interest 532 437 - - 532 437 Water - - 20,148 18,211 20,148 18,211 Wastewater 3,423 3,753 3,423 3,753 Total expenses 163,741 172,642 23,571 21,964 187,312 194,606 Increases in net assets 47,884 22,408 (2,086) (1,007) 45,798 21,401 Net asset at beginning of year 2,131,833 2,179,717 123,039 120,953 2,254,872 2,300,670 Net assets at end of year $2,179,717 $ 2.202,125 $120,953 $ 119,946 $2,300,670 $2,322,071 Governmental Activities - The cost of all governmental activities in the current fiscal year was $172.6 million. As shown in the statement of activities, $36.7 million of the cost was paid by those who directly benefited from the programs, $38 million was financed by contributions and grants received from other governmental organizations, developers, and property owners for both capital and operating activities, and $97.9 million was subsidized through general City revenues. Net assets for governmental activities of the City at the beginning of the year were $2.18 billion, and increased by $22.4 million by the end of the year. The increase is partially attributable to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts, two parcels of land contributed by a developer and smaller capital projects. 5% The City is a full service city providing residents and visitors with the following functional services: General Government is comprised of six departments (City Council, City Clerk, City Manager, City Attorney, Human Resources, and Administrative Services) providing general governance, executive management, legal services, records management, risk management, finance, accounting, and information technology services. Public Safety is comprised of two departments (Police and Fire) providing general law enforcement, fire suppression and prevention services, paramedic and medical transport services, disaster preparedness, and ocean lifeguard services. Public Works is comprised of two departments (Public Works and General Services) providing engineering, construction and maintenance of public streets, highways, buildings, beaches, parks, and related infrastructure; as well as traffic engineering, street lighting, and trash disposal services. Community Development is comprised of two departments (Planning and Building) that provide planning and zoning services, economic development services, and building plan check and code enforcement services. Community Services is comprised of two departments (Library Services and Recreation & Senior Services) providing library services, cultural and arts programs, recreation services, and senior social and transportation services. Business Enterprise Operations are overseen by one department (Utilities) providing water and wastewater services. Each program's net cost (total cost less revenues generated by the activities) is presented in Tables 3 and 4. The net cost shows the extent to which the City's general taxes support each of the City's programs. 33 General government Public safety Public works Community development Community services Interest 50.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 Table 3 Governmental Activities (in thousands) 2008 Total Cost Net Cost of Service of Service $ 15,557 $ (12,376) 75,821 (57,155) 42,631 2,519 10,053 (4,456) 19,147 (4,801) 532 (533) $ 163,741 $ (76,802) 2009 Total Cost Net Cost of Service of Service $ 16,431 $ (13,773) 79,301 (62,513) 45,600 (14,666) 10,284 (5,431) 20,589 (1,045) 437 (437) $ 172,642 $ (97,865) Table 4 Program Expenses and Revenue - Governmental Activities Year Ended June 30, 2009 (in millions) General Public Safety Public Works Community Community Interest Government Development Services ■Total Expenses ■ Program Revenues Of the $97.9 million in program revenues that financed the governmental activities, $62.5 million was utilized for public safety, $13.8 million was utilized for general government, $14.7 million was utilized for public works, $5.4 million was utilized for community development, $1.0 million was utilized for community services and $437,207 was utilized for interest on long -term debt. The net cost of funding Public Works 34 activities increased dramatically over 2008 due to a decrease of $14.2 million (35.7 %) in operating and capital contributions and an increase of $3.0 million in expenses in various capital projects. Interest costs only represent 1/4 of 1% of total governmental activities. Table 5 Governmental Activities Year Ended June 30. 2009 Sources of Revenue 69 • Charges for Services • Contributions • Taxes • Other Functional Expenses M • General Government • Public Safety Public Works • Community Development Community Services Major Governmental Activities in the current fiscal year included the following: Revenues: • Excluding transfers, total program and general revenues in the current year amounted to $195 million. Of this amount, 38.3% represents program generated revenue (18.8% charges for services and 19.5% capital grants and contributions), while the remaining 61.7% represents general revenue sources (59.3% taxes and 2.4% from other sources). • The City reported capital contributions of $15.6 million in public works program revenues and $9.1 million in community services program revenues for a total of $24.6 million in capital contributions. The majority of these contributions are related to the donations associated with the construction of the new OASIS Senior Center, property owner contributions associated with the new assessment districts and the capital contributions of the two parcels of land noted above. • The $4.4 million decrease in General Revenues over the prior year is a combination of a few key factors: o In spite of the poor economy, the City, unlike most other cities, has enjoyed long -term stability in its number one revenue source at $70.1 million, due to a constant demand for coastal property. Over the past ten years, assessed values have increased an average of 9.48% per year. Assessed property values increased only 5.91% in the current year versus 8.7% in the prior year. Property tax collections, in total, including unsecured property and prior year collections, increased $2.7 million or 4.1 % in the current year. o At nearly $17.9 million and $11.2 million respectively, sales taxes and transient occupancy taxes represent the number two and three top individual revenue sources for the City. Due to the depressed economic activity, sales taxes decreased $3.9 million, or 17.9% from the prior year while transient occupancy taxes decreased $1.6 million or 12.4% from the prior year. o Investment income decreased $1.3 million or 31.3% over the prior year due to lower interest rates offset by an increase in fair value of investments in the current year. An increase in the fair value of investments usually occurs in a falling interest rate environment when the stated rate of return exceeds the current market rate. Expenses: • In the current year, expenses for all governmental activities totaled $172.6 million. Overall, an increase of $8.9 million (5.4 %) from the prior year, which can be attributed to the following factors: 0 • General Government expenses increased $0.9 million (5.6 %) when compared to the prior year due to anticipated costs related to reorganization and restructuring of a couple of divisions and the first time charge of annual OPEB cost to each department. • Public Safety expenses are up $3.5 million (4.6 %) in the current year. The increase is due an increase in PIERS rate, cost of living adjustments and the first time charge of annual OPEB cost to each department. • Public Works expenses were up $3.0 million (6.7 %) when compared to prior year due to an increase in repair and maintenance of City Streets, infrastructure and facilities and the first time charge of annual OPEB cost to each department. • Community Development expenses increased $0.2 million (2.3 %) in the current year, due to the first time charge of annual OPEB cost to each department. • Community Service expenditures were up $1.4 million (7.5 %) due to a full year's operating costs associated with the Central Library which opened the prior year, small staffing changes and an increase in operating costs related to fee based classes due to an increase in registration for Summer Camps, as well as the first time charge of annual OPEB cost to each department. Business -type Activities — Business -type activities are financed primarily by fees charged to external parties for goods and services. The City's two business -type activities, water and wastewater utilities, produced a $1.0 million decrease in net assets. The decrease in net assets was comprised of an operating loss of $1.2 million, non - operating revenues of $346,807, and an off - setting ($114,391) consolidation adjustment related to internal service fund activities. srl 20.000 18.000 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 Table 6 Program Expense & Revenue - Business -type Activities Year Ended June 30, 2009 (in millions) Water Wastewater ■ Total Expenses ■ Program Revenues Major Business -type Activities in the current fiscal year included the following: Water Of the $18.2 million in water related expenses, $7.5 million (41.2 %) is for the purchase of water, $4.0 million (22.0°/x) is for maintenance, supplies, and depreciation of the water system, $4.2 million (23.1 %) covers employee related costs, $1.7 million (9.3 %) is for professional services, and the remaining $0.8 million (4.4 %) is collectively attributable to other miscellaneous expenses, interest on outstanding debt, and loss on removal of capital assets. Wastewater Of the $3.8 million in wastewater related expenses, $1.5 million (39.5°/x) is for maintenance, supplies, and depreciation of the wastewater system, $1.5 million (40.4 %) is for employee related costs, and the remaining $755,518 (20.1%) is attributable to other individually insignificant expenses. 01.1 FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, the City uses fund accounting to highlight available financial resources and to ensure and demonstrate compliance with finance - related legal requirements. Governmental Funds — Utilizing the financial resources measurement focus, the City's Governmental Funds provide information on near -term inflows and outflows, and balances of spendable resources. This information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. Fund Balance — As of the end of the current fiscal year, the City's Governmental Funds reported combined fund balances of $121 million, an increase of $4.1 million from the prior year. The General Fund represented $79.6 million or 65.7% of the combined fund balances of the Governmental Funds. Reserved Fund Balance — The City has $14.7 million in fund balance that is reserved to indicate it is not available to finance new activities because it has already been committed: 1) to fulfill contractual obligations and purchase orders ($7.0 million), 2) for permanent endowment ($4.6 million), 3) as a reserve for affordable housing ($1.7 million), and 4) for a variety of other restrictions that make these resources unavailable for spending ($1.4 million). Unreserved Fund Balance — The remaining $106.4 million is classified as unreserved fund balance, which is available for spending at the City Council's discretion but may be designated for special purposes. Of the $106.4 million unreserved fund balance, City Council has designated $18.6 million for contingencies, $13.1 million for unspecified future appropriations, $4.7 million for capital projects that were not completed during the fiscal year, and $39.6 million designated for other special purposes including $25 million for facilities identified for replacement in the City's facilities replacement plan. The remaining $30.4 million is made up of smaller amounts designated across various funds. Major activities in the Governmental Funds in the current fiscal year included the following: The General Fund ended the year with a $79.6 million fund balance, a net increase of $0.6 million after transferring $22.2 million to other funds ($20.3 million represented a routine transfer to subsidize the operations of the Tide and Submerged Land Fund, $0.5 million transfer to the Contributions Fund and, $1.4 million represented various nonrecurring transfers to other funds). The net increase in fund balance of $0.6 million was substantially lower than last year's net change in fund balance of $9.1 million do to the poor economy resulting in $18.6 million reduced revenues. This was attributed to a significant drop of $4.4 million in sales tax and sales tax in -lieu, $1.6 million in Transient Occupancy Tax OR and $1.3 million in investment income and increase in fair value of investments. The decrease in above revenues did not result in a larger decrease in fund balance due healthy property taxes, a one- time developer contribution of $1.5 million (Hoag) and management action to impose budget reductions and improve fiscal discipline. • The activities of the Tide and Submerged Land Fund are routinely subsidized by the General Fund. At year end, the General Fund transferred sufficient resources ($20.3 million) to cover the Tide and Submerged Land Fund's deficit and other outstanding commitments and designations of fund balance. The Tide and Submerged Land Fund ended the current year with $0.6 million in fund balance. • The Contributions Fund reported revenues of $1.4 million and expenditures of approximately $1.0 million related to a variety of grants and cooperative agreements associated with water quality projects, street projects and park improvement projects. Proprietary Funds — The City's Proprietary Funds (Enterprise and Internal Service Funds) presented in the Fund Financial Statements section basically provide the same type of information in the Government -wide Financial Statements, but include individual segment information. Major activities in the Enterprise Funds in the current fiscal year included the following: • Net assets in the Water Fund decreased $0.8 million largely due to increase in cost of supplies. Net assets in Wastewater Fund decreased by $114,427. Unrestricted net assets at year end were $7.9 million for the Water Fund, and $3.6 million in the Wastewater Fund. • Other factors concerning the finances of these two funds have already been addressed above in the discussion of the City's business -type activities. Major activities in the Internal Service Funds in the current fiscal year included the following: • Net assets in the Internal Service Funds increased $1.3 million in the current year. The increase was primarily due to lower than expected operating costs. Ell] GENERAL FUND BUDGETARY HIGHLIGHTS Changes to Original Budget Final budgeted revenues for the General Fund decreased $0.4 million from the original budget during the year ended June 30, 2009. Significant factors contributing to this fluctuation are highlighted as follows: • Final budgeted intergovernmental revenues increased $0.6 million from the original budget and $0.4 million in unexpected other revenues due to unexpected timing differences associated with the collection of these revenue source, combined with a $1.3 million lower than anticipated license and permits revenue source due to the distressed economic activity. Final budgeted expenditures for the General Fund decreased $26.9 million from the original budget during the year ended June 30, 2009. Significant factors contributing to this fluctuation are highlighted as follows: • Budgeted expenditures for general government increased $0.5 million due to amendments for additional expenditures related to re- organization in the City Attorney's Office. • Public safety and public works functions were decreased by $18.3 million and $3.0 million respectively. This budget reduction was primarily due to a routine allocation of expenditures from General Fund cost centers to the Tidelands Fund for police, fire and beach maintenance services utilized in support of tidelands operations. • Final budgeted capital outlays from the General Fund decreased $6.1 million from the original budget during the year ended June 30, 2009, primarily due to budgetary reductions to reflect project timing differences which are re- budgeted in the following fiscal year for 1) Prop 50 Buck Gully Stabilization, 2) River Avenue Pedestrian Coastal Access Improvements, 3) Back Bay View Park Enhancement 4) Semeniuk Slough Dredging Project, 5) Police Facilities Generator Replacement, as well as 6) various smaller budgetary decreases.. • During the current year, final transfers out budgeted for the General Fund varied from the original budget by approximately $18.6 million primarily due to the expenditure allocation to the Tidelands Fund. Variance with Final Budget Actual revenues were $6.5 million below final budgeted revenues for the year ended June 30, 2009 due to the poor economic climate. Significant factors contributing to this unfavorable variance are summarized as follows: 41 • A $1.3 million favorable variance was realized due to higher than expected property taxes revenues. • Lower than expected sales tax and sales in -lieu due to the lower economy approximated $5.5 million. • Transient Occupancy tax revenues were lower than expected at $1.8 million. • A $0.5 million favorable variance was realized due to an increase in the fair value of investments measured at end of year. • Licenses and permits and charges for services were lower than expected at a little over $1.0 million. Actual General Fund expenditures of $128 million were significantly less than final budgetary estimates of $135.5 million. Significant factors contributing to this $7.4 million favorable variances are summarized as follows: • A $2.2 million favorable variance was realized from capital improvement projects that were deferred to next year. • A total of $5.2 million in favorable variances was realized in Public Safety, Public Works, Community Development, Community Services and General Government due to managerial action to reduce operating expenditures, increased fiscal discipline, personal turnover and temporary vacancies. In spite of the $6.5 million lower than expected revenues, conservative budgeting, managerial action, increased fiscal discipline, timing of expenditures and other favorable variances contributed to the $0.6 million net increase in General Fund, fund balance. [•1_1;211 IF_1W_F'19= 1tr_1�U 717 - 11 r_191iJI1ki 16111:71%1[0]k Capital Assets The City's investment in capital assets for governmental and business -type activities as of June 30, 2009, amounts to $2.193 billion (net of accumulated depreciation). This investment is comprised of a broad range of capital assets including land, buildings, machinery and equipment, park facilities, road improvements, storm drains, piers, oil wells, sound walls and bridges. The total net increase (including additions and deletions) of $13.6 million represents a 0.6% increase over last year. The $13.6 million net increase is the result of additions of $17.2 million, and deletions of $3.6 million. EM Table 7 Capital Assets at Year End (net of depreciation, in thousands) Major capital asset events during the current fiscal year included the following: • The City capitalized $17.2 million in capital assets in the current year. Of the $17.2 million, $8.4 million was contributed by a private developer, $7.3 million paid for through current year expenses and the remaining $1.5 million represents additions from work in progress started in previous years. • Of the $17.2 million capitalized as governmental assets in the current year, $1.4 million represents additions from work in progress started in previous years. Of the ($136,438) capitalized in the current year as business -type assets, $1.2 million represented additions for infrastructure consisting of major repairs and upgrades to the water mains and water wells. Additional information on the City's capital assets can be found in Note (5) of the Notes to the Financial Statements. Long -term Debt At the end of the current fiscal year, the City had total long -term debt outstanding of $50.6 million for all governmental and business -type activities. 43 Governmental Activities Business -Type Activities Total 2008 2009 2008 2009 2008 2009 Land $ 1,807,381 $ 1,815,781 $ 2,016 $ 2,016 $ 1,809,397 $ 1,817,797 Structures 54,641 54,515 94 89 54,735 54,604 Equipment 8,964 8,365 28 107 8,992 8,472 Infrastructure 194,541 192,966 106,503 105,515 301,044 298,481 Work in progress 5,307 13,167 313 915 5,620 14,082 Totals $ 2,070,834 $ 2,084,794 $ 108,954 $ 108,642 $ 2,179,788 $ 2,193,436 Major capital asset events during the current fiscal year included the following: • The City capitalized $17.2 million in capital assets in the current year. Of the $17.2 million, $8.4 million was contributed by a private developer, $7.3 million paid for through current year expenses and the remaining $1.5 million represents additions from work in progress started in previous years. • Of the $17.2 million capitalized as governmental assets in the current year, $1.4 million represents additions from work in progress started in previous years. Of the ($136,438) capitalized in the current year as business -type assets, $1.2 million represented additions for infrastructure consisting of major repairs and upgrades to the water mains and water wells. Additional information on the City's capital assets can be found in Note (5) of the Notes to the Financial Statements. Long -term Debt At the end of the current fiscal year, the City had total long -term debt outstanding of $50.6 million for all governmental and business -type activities. 43 Certificates of participation Note payable Pre - annexation agreement CDBG Loan Purchase Installment Agreement Revenue bonds Claims and judgments Workers' compensation payable Compensated absences Net OPEB Obligation Totals Table 8 Outstanding Debt at Year -End (in thousands) Governmental Activities 2008 2009 $ 4,665 $ 4,335 $ 1,298 1,120 10,800 9,600 2,056 1,972 1,500 - 5,614 5,898 11,334 11,893 9,113 9,784 2,221 4,408 $ 48,601 $ 49,010 Business -Type Activities 2008 2009 3,095 1,585 $ 3,095 $ 1,585 Total 2008 2009 $ 4,665 $ 4,335 1,298 1,120 10,800 9,600 2,056 1,972 1,500 - 3,095 1,585 5,614 5,898 11,334 11,893 9,113 9,784 2,221 4,408 $ 51,696 $ 50,595 The City's total debt decreased $1.1 million during the current fiscal year. The cumulative decrease is the net result of regular debt service payments, offsetting increases in claims and judgments payable of $3.7 million, compensated absences payable of $2.8 million, and $5.4 million in net OPEB obligation. The net OPEB obligation of $4.4 million resulted in the City's election not to fully fund the implicit subsidy associated with GASB 45 and the City's post employment Retiree Medical plan. Additional information on the City's long -term debt and OPEB Obligation can be found in Note (6) and Note (11) of the Notes to the Financial Statements. FACTORS AFFECTING NEXT YEAR'S BUDGET • Each January, the City Council establishes priorities for the coming year(s). The financial implications of these priorities are considered when the budget is developed. The 2009 priorities include an aggressive array of goals including minimizing the adverse impacts of John Wayne airport, improving organizational performance, maintaining a balanced budget, reviewing facility replacements needs, enforcing group homes regulations, the alignment of City regulations to the City's General Plan, the implementation of an effective traffic management plan, the schematic design of a new civic center, the development of additional park improvements, the implementation of various water quality projects and the development of a lower bay dredging strategy. • After the date of this report's balance sheet but prior to the issuance of this report, it became clear that deteriorating revenues would present budget shortfalls in 2009- 10. Management expects that the growth of property tax revenues will continue to decline in 2009 -10 and 2010 -11. Management also expects that Sales taxes and 44 transient occupancy tax revenues will continue to decline in 2009 -10 before modestly rebounding in 2010 -11. Management has also been advised by CalPERS that pension costs are likely to increase substantially by 2011 -12 due to recent losses in the equities markets. • As the depth of the recession began to unfold, management acted to reduce operating budgets across the board in 2008 -09 and again in 2009 -10. In reaction to the mounting adverse budget factors mentioned above, management initiated an Early Retirement Incentive Plan (ERIP) with intent to further trim the City's overall cost structure. A total of 51 people participated in the plan and this action is expected to save nearly $3.1 million annually. Additionally, the City has initiated a second phase restructuring effort to affect additional long -term cost savings and improved efficiencies. • With the adoption of the 2008 cost study and Fee Schedule, Council directed staff to implement a 3 -year phasing to full cost recovery for several services with fees that exceeded $100 and the increase resulting from the fee study that increased the charge by 100% or more. The second of the three phases was approved by Council on September 8, 2009. Although the third and final phasing of fees was scheduled for June of 2010, the City's recent budget challenges precipitated the need to implement the final phasing ahead of schedule. The final phasing for the fee based services to full cost recovery was implemented on December 8, 2009. . CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Administrative Services Department, 3300 Newport Boulevard, Newport Beach, CA 92663 -3884, (949) 644 -3126. The City's Budgets, Comprehensive Annual Financial Reports as well as other City financial information can be found on the City's website at: www. NewportBeachCA .gov /financialinfo. [ti This page left blank intentionally. ER FINANCIAL SECTION 13OVERNMENT-WIDE FINANCIAL STATEMENTS EVA z a p U W Ln J Q U z Q z Lz This page left blank intentionally. m CITY OF NEWPORT BEACH Statement of Net Assets June 30, 2009 Assets: Cash and investments (note 4) Receivables: Accounts Interest Intergovernmental receivables Cash with fiscal agent (note 4) Internal balances Investment in joint venture (note 15) Prepaid items Inventory Capital assets, (note 5): Non - depreciable Depreciable Accumulated depreciation Total assets Liabilities: Accounts payable Accrued salaries and benefits Accrued interest payable Deposits payable Unearned revenue Noncurrent liabilities (note 6): Due within one year Due in more than one year Total liabilities Net Assets: Invested in capital assets, net of related debt Restricted for: Community development Public safety Public works Community services Debt Service Permanent Funds: Nonexpendable Expendable Unrestricted Total net assets Governmental Business -type Activities Activities Total $ 158,886,013 $ 9,232,552 $ 168,118,565 8,539,107 4,585,201 13,124,308 1,457,076 - 1,457,076 6,929,611 - 6,929,611 3,141,141 1,453,268 4,594,409 61,331 (61,331) - 2,684,052 - 2,684,052 756,887 25,000 781,887 479,429 - 479,429 1.,828,948,445 2,931,603 1,831,880,048 402, 845, 037 156, 499, 811 559, 344, 848 (146,999,476) (50,789,321) (197,788,797) 2,267,728,653 123,876,783 2,391,605,436 6,550,159 2,085,543 8,635,702 4,164,978 159,517 4,324,495 110,599 65,393 175,992 3,150,496 35,663 3,186,159 2,618,216 - 2,618,216 9,179, 844 1,585,000 10, 764, 844 39,829,591 - 39,829,591 65,603,883 3,931,116 69,534,999 2,061,635,642 108,510,361 2,170,146,003 6,630,169 - 6,630,169 425,558 - 425,558 24,887,385 - 24,887,385 5,904,067 - 5,904,067 565,778 - 565,778 4,629,781 - 4,629,781 1,170,009 - 1,170,009 96,276,381 11,435,306 107,711,687 $ 2,202,124,770 $ 119,945,667 $ 2,322,070,437 See accompanying notes to basic financial statements C['] Functions /Programs Primary government: Governmental activities: General government Public safety Public works Community development Community services Interest on long -term debt Total governmental activities Business -type activities: Water Wastewater Total business -type activities Total primary government CITY OF NEWPORT BEACH Statement of Activities Year Ended June 30, 2009 18,210,789 16,966,621 3,753,042 3,479,565 21,963,831 20,446,186 16,966,621 3,479,565 20,446,186 $ 194,606,218 $ 57,185,067 $ 13,404,286 $ 24,633,716 $ 95,223,069 See accompanying notes to basic financial statements 41] General revenues: Taxes: Property tax Sales tax Sales tax in -lieu Transient occupancy tax Business license tax Franchise tax Other taxes Intergovernmental (Unrestricted): Motor vehicle license tax Investment income Net increase in fair value of investments Other Total general revenues Change in net assets Net assets at beginning of year Net assets at end of year Program Revenues Operating Capital Total Charges for Grants and Grants and Program Expenses Services Contributions Contributions Revenues $ 16,430,529 $ 2,543,880 $ 113,453 $ - $ 2,657,333 79,301,600 14,757,266 2,031,427 - 16,788,693 45,600,429 5,532,871 9,841,795 15,559,572 30,934,238 10,283,528 4,852,534 - - 4,852,534 20,589,094 9,052,330 1,417,611 9,074,144 19,544,085 437,207 172,642,387 36,738,881 13,404,286 24,633,716 74,776,883 18,210,789 16,966,621 3,753,042 3,479,565 21,963,831 20,446,186 16,966,621 3,479,565 20,446,186 $ 194,606,218 $ 57,185,067 $ 13,404,286 $ 24,633,716 $ 95,223,069 See accompanying notes to basic financial statements 41] General revenues: Taxes: Property tax Sales tax Sales tax in -lieu Transient occupancy tax Business license tax Franchise tax Other taxes Intergovernmental (Unrestricted): Motor vehicle license tax Investment income Net increase in fair value of investments Other Total general revenues Change in net assets Net assets at beginning of year Net assets at end of year Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -type (1,244,168) Activities Activities Total $ (13,773,196) $ - $ (13,773,196) (62,512,907) - (62,512,907) (14,666,191) - (14,666,191) (5,430,994) - (5,430,994) (1,045,009) - (1,045,009) (437,207) (437,207) (97,865,504) - (97,865,504) - (1,244,168) (1,244,168) (273,477) (273,477) - (1,517,645) (1,517,645) $ (97,865,504) $ (1,517,645) $ (99,383,149) 70,126,680 - 70,126,680 17,925,956 - 17,925,956 7,503,113 - 7,503,113 11,170,956 - 11,170,956 4,273,642 - 4,273,642 3,961,634 - 3,961,634 230,115 - 230,115 356,237 - 356,237 1,764,827 374,893 2,139,720 1,096,848 135,789 1,232,637 1,862,977 - 1,862,977 120,272,985 510,682 120,783,667 22,407,481 (1,006,963) 21,400,518 2,179,717,289 120,952,630 2,300,669,919 $ 2,202,124,770 $ 119,945,667 $ 2,322,070,437 See accompanying notes to basic financial statements 51 This page left blank intentionally. M FINANCIAL SECTION z a p U W U1 FUND J Q FINANCIAL STATEMENTS C] z GOVERNMENTAL FUNDS Q z Lz :Yc3 GOVERNMENTALFUNDS Major Funds The General Fund is used to account for fiscal resources which are dedicated to governmental operations of the City, and not required to be accounted for in another fund. The Tide and Submerged Land Fund is a Special Revenue Fund used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas. The Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific streets, highway, construction, or water quality projects. Non -major Funds Non -major governmental funds are those governmental funds which do not meet the criteria of a major fund. For reporting purposes in this section, they are combined together as Other Governmental Funds. 54 CITY OF NEWPORT BEACH Governmental Funds Balance Sheet June 30, 2009 See accompanying notes to basic financial statements :M Tide and Other Submerged Governmental Assets General Land Contributions Funds Totals Cash and investments $ 76,435,099 $ 772,983 $ 2,791,078 $ 39,400,427 $ 119,399,587 Receivables: Accounts 5,138,168 885,493 1,089,597 535,802 7,649,060 Interest 1,457,076 - - - 1,457,076 Intergovernmental receivables 4,798,249 - 1,545,308 586,054 6,929,611 Cash with fiscal agent - - - 3,141,141 3,141,141 Due from other funds (note12) 3,686,684 - - - 3,686,684 Prepaid items 526,444 - - 68,864 595,308 Inventory 219,698 - 219,698 Total assets $ 92,261,418 $ 1,658,476 $ 5,425,983 $ 43,732,288 $ 143,078,165 Liabilities and Fund Balances Liabilities: Accounts payable $ 3,478,489 $ 822,219 $ 164,914 $ 1,485,755 $ 5,951,377 Accrued payroll 4,083,477 38,125 - - 4,121,602 Deposits payable 2,992,328 158,168 - - 3,150,496 Unearned revenue 1,907,895 - 490,790 219,531 2,618,216 Unavailable revenue 188,265 - 2,151,546 539,323 2,879,134 Due to otherfunds (note 12) 3,224,497 3,224,497 Total liabilities 12,650,454 1,018,512 2,807,250 5,469,106 21,945,322 Fund balances: Reserved for encumbrances 3,474,339 351,012 641,469 2,505,461 6,972,281 Reserved for debt service - - - 565,778 565,778 Reserved for permanent endowment - - - 4,629,781 4,629,781 Reserved for affordable housing 1,686,724 - - - 1,686,724 Reserved for prepaid items 526,444 - - 137,728 664,172 Reserved for inventories 219,698 - - - 219,698 Reserved for long -term receivable - - - - - Unreserved: Designated for special purposes 37,329,671 288,952 1,977,264 - 39,595,887 Designated, reported in: Special revenue funds - - - 21,625,824 21,625,824 Capital projects funds - - - 11,393,179 11,393,179 Permanent funds - - - 1,170,009 1,170,009 Designated for contingencies 18,614,125 - - - 18,614,125 Designated for capital projects 4,661,307 - - - 4,661,307 Designated for appropriations 13,098,656 - - - 13,098,656 Undesignated, reported in: Special Revenue Funds - - - (42,849) (42,849) Capital projects funds (3,721,729) (3,721,729) Total fund balances 79,610,964 639,964 2,618,733 38,263,182 121,132,843 Total liabilities and and fund balances $ 92,261,418 $ 1,658,476 $ 5,425,983 $ 43,732,288 $ 143,078,165 See accompanying notes to basic financial statements :M CITY OF NEWPORT BEACH Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2009 Fund balances of governmental funds $ 121,132,843 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets net of accumulated depreciation have not been included as financial resources in governmental fund activity. Amount excludes capital assets from internal service funds which are added below. 2,077,985,878 Long term debt that have not been reported in the governmental fund activity. Amounts exclude long -term debt activity from internal service funds which have been added below: Certificates of participation payable (4,335,000) Note payable (1,119,613) Pre - annexation agreement (9,600,000) CDBG loan (1,972,000) Accrued interest payable for the current portion of interest due on long -term debt has not been reported in the governmental funds. (110,599) Some of the revenue will be collected after year -end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. 2,879,134 Internal service funds are used by management to charge the costs of certain activities, such as self- insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The assets (including capital assets) and liabilities of the internal service funds must be added to the statement of net assets. 14,518,744 Investment in joint ventures is not a current financial resource and therefore not reported in the governmental funds. 2,684,052 Internal balance created by the consolidation of internal service fund activities related to enterprise funds is not reported in the governmental funds. 61,331 Net assets of governmental activities $ 2,202,124,770 See accompanying notes to basic financial statements .31 CITY OF NEWPORT BEACH Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year Ended June 30, 2009 See accompanying notes to basic financial statements AA Tide and Other Submerged Governmental General Land Contributions Funds Totals Revenues Taxes and assessments: Property tax $ 70,126,680 $ - $ - $ - $ 70,126,680 Sales tax 17,925,956 - - - 17,925,956 Sales tax in -lieu 7,503,113 - - - 7,503,113 Transient occupancy tax 11,170,956 - - - 11,170,956 Othertaxes 8,486,937 - - 497,932 8,984,869 Intergovernmental 2,597,108 28,084 1,165,289 7,644,404 11,434,885 Licenses and permits 4;396,034 1,311,650 - 175,831 5,883,515 Charges for services 14,374,139 123,981 - - 14,498,120 Fines and forfeitures 3,711,087 1,704 - 859,820 4,572,611 Investment income 1,697,103 174,585 134,463 1,239,526 3,245,677 Net increase in fair value of investments 1,096,848 - 50,543 324,944 1,472,335 Property income 6,552,603 7,479,739 - - 14,032,342 Donations 261,357 - 83,882 6,414,901 6,760,140 Other 234,573 280 8,266,161 8,501,014 Total revenues 150,134,494 9,120,023 1,434,177 25,423,519 186,112,213 Expenditures Current: General government 15,478,258 89,396 - - 15,567,654 Public safety 57,285,811 20,989,574 - 278,959 78,554,344 Public works 26,220,846 3,989,965 - 408,594 30,619,405 Community development 8,302,214 396,565 - 1,272,757 9,971,536 Community services 13,281,963 1,921,292 - 2,282,350 17,485,605 Capital outlay 5,910,047 2,845,548 1,016,199 16,230,545 26,002,339 Debt service (note 6): Principal 1,500,000 178,641 - 1,614,000 3,292,641 Interest and fiscal charges 71,250 58,421 - 353,237 482,908 Total expenditures 128,050,389 30,469,402 1,016,199 22,440,442 181,976,432 Excess (deficiency) of revenues over expenditures 22,084,105 (21,349,379) 417,978 2,983,077 4,135,781 Other financing sources (uses) Transfers in (note 13) 690,013 20,314,554 550,000 1,799,799 23,354,366 Transfers out (note 13) (22,222,293) (1,132,073) (23,354,366) Total other financing sources (uses) (21,532,280) 20,314,554 550,000 667,726 Net change in fund balances 551,825 (1,034,825) 967,978 3,650,803 4,135,781 Fund balances, beginning 79,059,139 1,674,789 1,650,755 34,612,379 116,997,062 Fund balances, ending $ 79,610,964 $ 639,964 $ 2,618,733 $ 38,263,182 $ 121,132,843 See accompanying notes to basic financial statements AA CITY OF NEWPORT BEACH Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmenal Funds to the Statement of Activities Year ended June 30, 2009 Net change in fund balances - total governmental funds $ 4,135,781 Amounts reported for governmental activities in the statement of activities differ from the amounts reported in the statement of activities because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 14,776,239 Payment of debt service principal is an expenditure in the governmental funds, but the repayment reduces long -term liabilities in the statement of net assets. 3,292,641 Accrued Interest for debt service. This is the net change in accrued interest for the current period. 45,701 Some of the revenue will be collected after year -end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds.This is the net change in unearned revenue for the current period. (1,316,358) Internal service funds are used by management to charge the costs of certain activities, such as self- insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The net revenue of the internal service funds is reported in the statement of activities. 1,270,633 Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. 88,453 Internal balance created by the consolidation of internal service funds activities related to enterprise funds is reflected as a reduction of revenues in the statement of activities. 114,391 Change in net assets of governmental activities $ 22,407,481 See accompanying notes to basic financial statements A -1 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement For the Year Ended June 30, 2009 *01 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Taxes and assessments: Property $ 68,634,854 $ 68,834,854 $ 70,126,680 $ 1,291,826 Sales 22,635,634 22,635,634 17,925,956 (4,709,678) Sales tax in -lieu 8,258,065 8,258,065 7,503,113 (754,952) Transient occupancy 13,014,079 13,014,079 11,170,956 (1,843,123) Othertaxes 8,018,514 8,018,514 8,486,937 466,423 Intergovernmental 2,407,991 2,987,018 2,597,108 (389,910) Licenses and permits 5,968,653 4,654,553 4,396,034 (258,519) Charges for services 15,280,400 15,159,700 14,374,139 (785,561) Fines and forfeitures 3,560,256 3,559,756 3,711,087 151,331 Investment income 2,268,000 2,200,000 1,697,103 (502,897) Net increase in fair value of investments - - 1,096,848 1,096,848 Property income 6,117,202 6,117,202 6,552,603 435,401 Donations 112,500 165,632 261,357 95,725 Other 564,715 1,009,135 234,573 (774,562) Total revenues 157,040,863 156,614,142 150,134,494 (6,479,648) Expenditures General government: City council 1,192,209 1,250,334 1,188,990 61,344 City clerk 514,666 501,794 469,507 32,287 City attorney 1,519,339 2,014,073 2,097,159 (83,086) City manager 1,766,292 1,810,784 1,779,540 31,244 Administrative services 8,300,454 8,201,874 7,889,562 312,312 Human resources 2,117,864 2,135,600 2,053,500 82,100 Total General government 15,410,824 15,914,459 15,478,258 436,201 Public safety: Police 45,350,802 37,631,910 36,646,654 985,256 Fire 31,719,460 21,103,782 20,639,157 464,625 Total Public safety 77,070,262 58,735,692 57,285,811 1,449,881 Public works: General services 23,278,717 20,775,294 19,690,353 1,084,941 Public works 5,678,355 5,201,951 5,075,801 126,150 Utilities 1,449,748 1,455,830 1,454,692 1,138 Total Public works 30,406,820 27,433,075 26,220,846 1,212,229 *01 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement (continued) Other financing sources (uses) Transfers in - 240,000 690,013 Variance with Transfers out (3,270,713) (21,872,292) (22,222,293) Final Budget Total other financing Budgeted Amounts Positive Original Final Actual (Negative) Community development: Net change in fund balance Planning 3,985,078 4,898,875 4,713,078 185,797 Building 4,828,319 4,028,264 3,324,759 703,505 Code and Water Quality Enforcement 819,233 427,107 264,377 162,730 Total Community development 9,632,630 9,354,246 8,302,214 1,052,032 Community services: Library Services 6,857,928 7,087,294 6,521,718 565,576 Recreation and senior services 7,169,052 7,238,170 6,760,245 477,925 Total Community services 14,026,980 14,325,464 13,281,963 1,043,501 Capital outlay 14,270,981 8,123,225 5,910,047 2,213,178 Debt service: Principal 1,500,000 1,500,000 1,500,000 - Interest and Fiscal Charges 71,250 71,250 71,250 Total Debt Service 1,571,250 1,571,250 1,571,250 - Total expenditures 162,389,747 135,457,411 128,050,389 7,407,022 Excess (deficiency) of revenues over expenditures (5,348,884) 21,156,731 22,084,105 927,374 Other financing sources (uses) Transfers in - 240,000 690,013 450,013 Transfers out (3,270,713) (21,872,292) (22,222,293) (350,001) Total other financing sources (uses) (3,270,713) (21,632,292) (21,532,280) 100,012 Net change in fund balance (8,619,597) (475,561) 551,825 1,027,386 Fund balance, beginning 79,059,139 79,059,139 79,059,139 Fund balance, ending $ 70,439,542 $ 78,583,578 $ 79,610,964 $ 1,027,386 [Y1] CITY OF NEWPORT BEACH Tide and Submerged Land Budgetary Comparison Statement For the Year Ended June 30, 2009 Expenditures General government - 89,396 89,396 Variance with Public safety - 20,989,574 20,989,574 Final Budget Public works Budgeted Amounts 4,031,928 Positive 41,963 Original Final Actual (Negative) Revenues Community development - 396,565 396,565 Intergovernmental $ - $ - $ 28,084 $ 28,084 Licenses and permits 1,314,100 1,314,100 1,311,650 (2,450) Charges for services 120,700 120,700 123,981 3,281 Fines and forfeitures 500 500 1,704 1,204 Investment income 68,000 68,000 174,585 106,585 Property income 8,843,302 8,843,302 7,479,739 (1,363,563) Other - - 280 280 Total revenues 10,346,602 10,346,602 9,120,023 (1,226,579) Expenditures General government - 89,396 89,396 - Public safety - 20,989,574 20,989,574 - Public works 696,482 4,031,928 3,989,965 41,963 Community services 2,035,450 2,264,102 1,921,292 342,810 Community development - 396,565 396,565 - Capital outlay 3,077,800 3,546,522 2,845,548 700,974 Debt service: Principal 178,641 178,641 178,641 - Interest and fiscal charges 58,421 58,421 58,421 Total expenditures 6,046,794 31,555,149 30,469,402 1,085,747 Excess (deficiency) of revenues over expenditures 4,299,808 (21,208,547) (21,349,379) (140,832) Other financing sources (uses) Transfers in Transfers out Total other financing sources (uses) Net change in fund balance Fund balance, beginning Fund balance, ending 20,314,554 (4,811,660) 20,314,554 - (4,811,660) 20,314,554 20,314,554 - (511,852) (893,993) (1,034,825) (140,832) 1,674,789 1,674,789 1,674,789 $ 1,162,937 $ 780,796 $ 639,964 $ (140,832) GYI CITY OF NEWPORT BEACH Contributions Fund Budgetary Comparison Statement For the Year Ended June 30, 2009 Expenditures: Capital outlay 5,783,841 1,751,966 1,016,199 735,767 Excess (deficiency) of revenues over expenditures (4,965,041) (63,148) 417,978 481,126 Other financing sources (uses): Transfers in - - 550,000 550,000 Transfers out - - - - Net change in fund balance (4,965,041) (63,148) 967,978 1,031,126 Fund balance, beginning 1,650,755 1,650,755 1,650,755 - Fund balance (deficit), ending _L 314,286j $ 1,587,607 $2,618,733 $ 1,031,126 I.% Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 718,800 $ 1,358,893 $ 1,165,289 $ (193,604) Investment income 100,000 100,000 134,463 34,463 Net increase in fair value of investments - - 50,543 50,543 Donations 229,925 83,882 (146,043) Total revenues 818,800 1,688,818 1,434,177 (254,641) Expenditures: Capital outlay 5,783,841 1,751,966 1,016,199 735,767 Excess (deficiency) of revenues over expenditures (4,965,041) (63,148) 417,978 481,126 Other financing sources (uses): Transfers in - - 550,000 550,000 Transfers out - - - - Net change in fund balance (4,965,041) (63,148) 967,978 1,031,126 Fund balance, beginning 1,650,755 1,650,755 1,650,755 - Fund balance (deficit), ending _L 314,286j $ 1,587,607 $2,618,733 $ 1,031,126 I.% FINANCIAL SECTION z a p U W U7 FUND Q FINANCIAL STATEMENTS U z PROPRIETARY FUNDS Q z Li k3 PROPRIETARY FUNDS Business -type Activities The Water Fund is a Major Fund used to account for the operations of the City's water utility, a self - supporting activity which is entirely financed though user charges. The Wastewater Fund is a Major Fund used to account for the operations of the City's wastewater system, a self- supporting activity which is entirely financed through user charges. Governmental Activities The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. [Y! CITY OF NEWPORT BEACH Proprietary Fund Statement of Net Assets June 30, 2009 Assets Current assets: Cash and investments Receivables: Accounts Inventories Prepaid items Total current assets Non - current assets: Cash with fiscal agent Capital assets (note 5): Land Structures Equipment Infrastructure Work in progress Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets Liabilities Current liabilities: Accounts payable Accrued payroll Deposits payable Accrued interest payable Bonds payable (note 6) Due to general fund Workers' compensation - current General liability - current Compensated absences - current Total current liabilities Non - current liabilities (note 6): Workers' compensation General liability Compensated absences Net OPEB obligation Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Unrestricted Total Net Assets Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net assets of business -type activities Enterprise Funds Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds $ 6,270,034 $ 2,962,518 $ 9,232,552 $ 39,486,426 3,828,721 756,480 4,585,201 890,047 - - - 259,731 25,000 25,000 161,579 10,123,755 3,718,998 13,842,753 40,797,783 1,453,268 - 1,453,268 - 2,016,450 - 2,016,450 - 205,793 - 205,793 - 291,888 - 291,888 22,691,452 113,407,961 42,594,169 156,002,130 - 856,774 58,379 915,153 - (37,707,738) (13,081,583) (50,789,321) (15,883,324) 79,071,128 29,570,965 108,642,093 6,808,128 80,524,396 29,570,965 110,095,361 6,808,128 90,648,151 33,289,963 123,938,114 47,605,911 1,993,217 92,326 2,085,543 598,782 114,625 44,892 159,517 43,376 65,369 24 65,393 - 35,663 - 35,663 - 1,585,000 - 1,585,000 - - - - 462,187 - - - 2,973,250 - - - 2,446,253 1,939,662 3,793,874 137,242 3,931,116 8,463,510 - - - 8,919,750 - - - 3,451,484 - - - 7,844,423 4,408,000 - - - 24,623,657 3,793,874 137,242 3,931,116 33,087,167 78,939,396 29,570,965 108,510,361 6,808,128 7,914,881 3,581,756 11,496,637 7,710,616 $ 86,854,277 $33,152,721 120,006,998 $ 14,518,744 (61,331) $ 119,945,667 See accompanying notes to basic financial statements M& CITY OF NEWPORT BEACH Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2009 Enterprise Funds Operating revenues: Charges for sales and services: Water sales Sewer service and connection fees Retiree Reimbursements Employee Contributions Other Total operating revenues Operating expenses: Purchase of water Salaries and benefits Depreciation Professional services Maintenance and supplies System maintenance Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences OPEB ARC - Cash subsidy OPEB ARC - Implied subsidy Other Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net increase in fair value of investments (Loss) on removal of capital assets Interest expense Other fiscal charges Total nonoperating revenues Change in net assets Net assets, beginning of year Net assets, end of year Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net assets of business -type activities 7,512,251 - 4,174,246 Governmental 1,524,328 566,216 Total Activities 946,137 521,593 Enterprise Internal Service Water Wastewater Funds Funds 13,248,111 $ 14,518,744 $ 16,878,661 $ - $ 16,878,661 $ - - 3,471,388 3,471,388 - - - - 1,043,956 - - - 376,538 87,960 8,177 96,137 18,063,845 16,966,621 3,479,565 20,446,186 19,484,339 7,512,251 - 4,174,246 1,515,122 1,524,328 566,216 1,707,249 357,418 946,137 521,593 1,517,701 394,593 7,512,251 5,689,368 1,520,219 2,090,544 1,846,971 2,064,667 51,067 1,467,730 615,644 1,912,294 - - 481,805 - - 3,216,337 - - - 3,589,622 - - - 2,158,082 - - - 2,720,000 - - - 2,703,000 579,643 369,068 948,711 962,128 17,961,555 3,724,010 21,685,565 19,864,875 (994,934) (244,445) (1,239,379) (380,536) 284,300 90,593 96,364 39,425 (87,306) - (71,325) (5,242) 216,789 130,018 (778,145) (114,427) 87,632,422 33,267,148 $ 86,854,277 $ 33,152,721 See accompanying notes to basic financial statements 141 374,893 1,158,180 135,789 504,028 (67,308) (11,039) (71,325) (5,242) 346,807 1,651,169 (892,572) 1,270,633 13,248,111 $ 14,518,744 (114,391) $ (1,006,963) CITY OF NEWPORT BEACH Proprietary Fund Statement of Cash Flows For the Year ended June 30, 2009 Cash flows from operating activities: Cash received from customers or user departments Cash payments to employees for services Cash payments to suppliers for goods and services Cash received (payments made) for other operating activities Net cash provided by operating activities Cash flows from noncapital financing activities: Cash received from other funds Net cash provided by nonoapital financing activities Cash flows from capital related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Principal payments oa long -term liabilities Interest paid on long -term liabilities Other fiscal charges Net cash (used) for capital related financing activities Cash flows from investing activities: Interest on investments Net cash provided by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of cash equivalents to the statement of net assets Cash and investments reported on statement of net assets Cash and investments with fiscal agent reported on statement of net assets Cash and cash equivalents Reconciliation of operating income to net cash used for operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash used for operating activities: Depreciation (Increase) decrease in accounts receivable Decrease in inventories Decrease in prepaid items Increase (decrease) in accounts payable and accrued payroll (Decrease) in accrued interest payable (Decrease) in deposits payable Increase in workers' compensation Increase in general liability Increase In compensated absences Increase in net OPEB obligation Total adjustments Net cash used for operating activities Non -cash investing, capital and financing activities: Net increase in fair value of investments (Loss) on disposal of capital assets Total of non -cash activities Enterprise Funds Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds $ 16,720,552 $ 3,439,020 $ 20,159,572 $ 18,680,521 (4,159,992) (1,505,555) (5,665,547) (5,656,950) (12,545,229) (1,276,990) (13,822,219) (7,591,634) (491,683) (360,891) (852,574) 733,134 (476,352) 295,584 (180,768) 6,165,071 (825,707) (825,707) (1,807,268) (58,379) (1,865,647) (1,140,877) - (151,039) - - 100,035 (1,510,000) 790,933 - (1,510,000) - (71,325) - (71,325) - (5,242) (5,242) (814,417) (3,393,835) (58,379) (3,452,214) (1,040,842) 111,081 (33,220) - 380,664 130,018 510,682 1,662,208 380,664 (7,070) 130,018 510,682 1,662,208 - - 559,000 (3,489,523) 367,223 (3,122,300) 5,960,730 11,212,825 - 2,595,295 13,808,120 33,525,696 670,990 $ 7,723,302 $ 2,962,518 $ 10,685,820 $ 39,486,426 2,187,000 518,582 540,029 $ 6,270,034 $ 2,962,518 $ 9,232,552 39,486,426 1,453,268 $ (180,768) $ 1,453,268 $ 96,364 $ 7,723,302 $ 2,962,518 $ 10,685,820 $ 39,486,426 $ (994,934) $ (244,445) $ (1,239,379) $ (380,536) 1,524,328 566,216 2,090,544 1,846,971 (151,039) (32,368) (183,407) 790,933 89,867 - 5,553 (814,417) 6,181 (808,236) 111,081 (33,220) - (33,220) - (7,070) - (7,070) - - - - 559,000 - - - 284,212 - - - 670,990 2,187,000 518,582 540,029 1,058,611 6,545,607 _L_(476 352) $ 295,584 $ (180,768) $ 6,165,071 $ 96,364 $ 39,425 $ 135,789 $ 507,028 (87,308) (87,308) $ (11,039) $ 9,056 $ 39,425 $ 48,481 $ 495,989 See accompanying notes to basic financial statements M -A This page left blank intentionally. Y3 FINANCIAL SECTION z a p U W U1 FUND J Q FINANCIAL STATEMENTS U z FIDUCIARY FUNDS Q z 17L FIDUCIARY FUNDS Agency Funds, a type of Fiduciary Funds, are used to account for assets held by the City as an agent for other government entities, private organizations, or individuals. Fill CITY OF NEWPORT BEACH Agency Funds Statement of Fiduciary Assets and Liabilities June 30, 2009 Assets Totals Cash and investments (note 4) $ 3,873,419 Cash with fiscal agent (note 4) 4,101,765 Prepaid expenses 2,194 Intergovernmental receivable 80,000 Total assets $ 8,057,378 Liabilities Due to bondholders $ 6,759,807 Due to others 259,607 Due to ILJAOC 1,037,964 Total liabilities $ 8,057,378 See accompanying notes to basic financial statements 71 This page left blank intentionally. �a FINANCIAL SECTION NOTES TO THE FINANCIAL STATEMENTS F&I z a p U W U1 J Q U z Q z LL This page left blank intentionally. ME CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (1) Summary of Significant Accounting Policies The basic financial statements of the City of Newport Beach (the "City ") have been prepared in conformity with generally accepted accounting principles ( "GAAP ") as applicable to government units. The Governmental Accounting Standards Board ( "GASB ") is the accepted standard - setting body for establishing governmental accounting and financial reporting principles. a. Reporting Entity The City of Newport Beach was incorporated on September 1, 1906. The current City Charter was adopted in 1954. The City operates under a Council- Manager form of government and provides the following services: public safety (police, fire, and marine), highway and streets, cultural and recreation, public improvements, planning and zoning, utilities, and general administrative services. The financial statements present the financial activity of the City of Newport Beach (the primary government) and its component unit. The component unit discussed below is included in the City's reporting entity because of the significance of its operational or financial relationship with the City. This entity is legally separate from the City. However, the City of Newport Beach's elected officials have continuing full or partial accountability for fiscal matters of the component unit. The financial reporting entity consists of: (1) the City, (2) organizations for which the City is financially accountable, and (3) organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issue bonded debt without approval by the primary government. In a blended presentation, a component unit's balances and transactions are reported in a manner similar to the balances and transactions of the City. Component units are presented on a blended basis when the component unit's governing body is substantially the same as the City's or the component unit provides services almost entirely to the City. Blended Component Unit The financial statements of the City of Newport Beach include the financial activities of the Newport Beach Public Facilities Corporation (the "Corporation "). The Corporation was formed on March 9, 1992, for the purpose of assisting the City of Newport Beach in the financing of public improvements, including a public library. The Corporation is governed by a Board of Directors comprised of seven individuals appointed by the City Council of the City of Newport Beach. The Corporation's financial data and transactions are included in the debt service r!.", CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 fund. Separate financial statements are not prepared for the Corporation. The debt service fund is used solely to account for the activities of the Corporation and contains no other City debt financing activities. b. Basis of Accounting and Measurement Focus The basic financial statements of the City are composed of the following: Government -wide financial statements Fund financial statements Notes to the financial statements Financial reporting is based upon all GASB pronouncements, as well as the FASB Statements and Interpretations, APB Opinions, and Accounting Research Bulletins that were issued on or after November 30, 1989 that do not conflict with or contradict GASB pronouncements. Government -wide Financial Statements Government -wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business -type activities of the primary government (including its blended component units). The City of Newport Beach has no discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City. Government -wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long -term) economic resources and obligations of the reporting government are reported in the government -wide financial statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. Program revenues include charges for services, special assessments, and payments made by parties outside of the reporting government's citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. r[:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Amounts paid to acquire capital assets are capitalized as assets in the government -wide financial statements, rather than reported as an expenditure. Proceeds of long -term debt are recorded as a liability in the government -wide financial statements, rather than as another financing source. Amounts paid to reduce long -term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. Fund Financial Statements The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be 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. Governmental 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. Fund financial statements for the primary government's governmental, proprietary, and fiduciary funds are presented after the government -wide financial statements. These statements display information about major funds individually and non -major funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds. Fiduciary funds of the City primarily represent assets held by the City in a custodial capacity for other individuals or organizations. Governmental Funds In the fund financial statements, governmental funds are presented using the modified- accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City uses an availability period of 60 days. Sales taxes, property taxes, franchise taxes, gas taxes, motor vehicle license fee, transient occupancy taxes, grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period to the extent normally collected within the availability period. Other revenue items are considered to be measurable and available when cash is received by the City. Revenue recognition is subject to the measurability and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange MA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 transaction upon which they are based takes place. Imposed non - exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government - mandated and voluntary non- exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of "available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Non - current portions of long -term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources," since they do not represent net current assets. Recognition of governmental fund type revenue represented by non - current receivables is deferred until they become current receivables. Non- current portions of other long -term receivables are offset by fund balance reserve accounts. Revenues, expenses, gains, losses, assets, and liabilities resulting from non - exchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non - current liabilities. Since they do not affect net current assets, such long -term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long -term debt are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long -term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. F&I CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Proorietary & Fiduciary Funds The City's enterprise and internal service funds are proprietary funds. In the fund financial statements, proprietary and fiduciary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or non - current) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net assets. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non - operating revenues, such as subsidies, taxes, and investment earnings result from non - exchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the proprietary fund financial statements, rather than reported as expenditure. Proceeds of long -term debt are recorded as a liability in the proprietary fund financial statements, rather than as other financing source. Amounts paid to reduce long -term indebtedness of the proprietary funds are reported as a reduction of the related liability, rather than as expenditure. Agency funds are custodial in nature (assets equal liabilities) and do not involve the recording of City revenues and expenses. C. Fund Classifications The City utilizes the following broad categories of funds: Major Funds Major funds are those funds which are either material or of particular importance. Major Governmental Funds — Governmental funds are generally used to account for tax supported activities. The following governmental funds met the criteria of a major fund: General Fund The General Fund is the general operating fund of the City. It is used to account for all activities, except those required to be accounted for in another fund. Viol CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Tide and Submerged Land The Tide and Submerged Land Fund is used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas. Contributions Fund The Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific street or highway construction projects. Major Proprietary Funds — Proprietary funds are used to report an activity for which a fee is charged to external users to recover the cost of operation. Water Fund The Water Fund is an enterprise fund used to account for the activities associated with the transmission and distribution of potable water by the City to its users. Wastewater Fund The Wastewater Fund is an enterprise fund used to account for the activities associated with providing sewer services by the City to its users. Internal Service Funds — The Internal Service Funds are used to account for the City's self- insured general liability and workers' compensation, compensated absences, retiree insurance, and the cost of maintaining and replacing the City's rolling stock fleet. City departments are the primary users of these services and are charged a fee on a cost reimbursement basis. Fiduciary Funds — The Fiduciary Funds are used to account for assets held by the City as an agent for property owners with special assessments, local businesses in business improvements districts, and other individuals who have made miscellaneous special deposits with the City. d. Cash and Investments For purposes of the statement of cash flows, cash and cash equivalents are defined to be cash on hand, demand deposits and highly liquid investments with a maturity of three months or less from the date of purchase. For financial statement presentation purposes, cash and cash equivalents are shown as cash and investments and restricted cash and investments in the proprietary funds. tit] rai f. CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investments Investments are generally stated at fair value. Cash and investments are pooled to maximize investment yields. The net change in fair value and interest earned on the investments is allocated to the respective funds based on each fund's average monthly cash and investments balance. The City's investment in LAIF is $20,381,833 at June 30, 2009. This investment value is based on information provided by the State Treasurer's Office. The carrying value of the City's position in the fund is materially consistent with the fair value of the fund shares. This pool is under the regulatory oversight of the State Treasurer's Office. The LAIF Board consists of five members as designated by Statute. The Chairman is the State Treasurer, or his designated representative. Two members qualified by training and experience in the field of investment of finance, and two members who are treasurers, finance or fiscal officers or business managers employed by any County, City or local district or municipal corporation of this state, are appointed by the State Treasurer. The term of each appointment is two years, or at the pleasure of the appointing authority. Intergovernmental Receivables Intergovernmental receivable s project billings, and pending government agencies. As of $6,929,611. Inventories represent grant reimbursement requests, capital transfers of taxes and fees collected by other June 30, 2009, the balance of this account was Inventories are valued at cost, which approximates market, using the first -in, first - out method. The City follows the consumption method for inventory control. The costs of governmental fund type inventories are recorded as expenditures when consumed. g. Capital Assets Capital assets, which include land, structures, equipment, and infrastructure assets, are reported in the applicable governmental or business -type activities columns in the Government -wide Financial Statements. Capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Equipment purchased in excess of $5,000 is capitalized if it has an expected useful life of three years or more. Building, infrastructure, and improvements are capitalized if cost is in excess of ty CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 $30,000. The cost of normal maintenance and repairs that do not add to the value of the asset's lives are not capitalized. The City chose to value and report on infrastructure assets in their entirety (e.g. Prior to 1980). Major capital outlay for capital assets and improvements are capitalized as projects are constructed. For debt - financed capital assets, interest incurred during the construction phase is reflected in the capitalization value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets acquired through lease obligations are valued at the present value of future lease payments at the date acquired. Contributed capital assets are valued at their estimated fair market value at the date of contribution. Capital assets used in operations are depreciated over their estimated useful lives using the straight -line method in the government -wide financial statements and in the fund financial statements of the proprietary funds. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheet. The range of lives used for depreciation purposes for each capital asset class as follows: Structures 30 -75 years Equipment 3 -15 years Infrastructure 20 -75 years h. Claims and Judgments The City accounts for material claims and judgments and associated legal and administrative costs when it is probable that the liability claim has been incurred and the amount of the loss can be reasonably estimated. The City records the estimated loss liabilities in the Internal Service Fund. Included therein are claims incurred but not reported, which consists of (a) known loss events expected to be presented as claims later, (b) unknown loss events that are expected to become claims, and (c) expected future development on claims already reported. This is based upon historical actual results that have established a reliable pattern supplemented by specific information about current matters. Small dollar claims and judgments are recorded as expenditures when paid. Property Taxes The assessment, levy, and collection of property taxes are the responsibility of the County of Orange. The City records property taxes as revenue when received from the County, except at year -end, when property taxes received within 60 days are accrued as revenue. Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien date March 1 I.% CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Levy date July 1 Due dates November 1 — 1st installment March 1 — 2nd installment Collection dates December 10 — 1" installment April 10 — 2 "d installment j. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and limited amounts of earned but unused sick leave benefits, which will be paid to employees upon separation from City service. Beginning in fiscal year 1990, the City adopted a general leave plan to replace the traditional vacation and sick leave plan. The City uses a general leave plan which permits a maximum of three years' accrual for every employee, above which the excess is paid out as current compensation. All employees hired prior to January 1, 1990, were given the option of remaining in the traditional vacation and sick leave plan or enrolling in the general leave plan. All employees hired on or after January 1, 1990, are automatically enrolled in the general leave plan. Compensated absences are accrued in the Compensated Absence Internal Service Fund when employee services have been rendered and when it becomes probable that the City will compensate the employees for benefits through paid time off or cash payments at termination or retirement. Benefits that have been earned but are not yet available for use because employees have not met certain conditions are accrued to the extent it is probable that the employees will meet the conditions for compensation in the future. k. Unearned Revenue Unearned revenues are those where asset recognition has been met, but the revenue recognition criteria have not been met. MCI (2) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Reconciliation of Government -wide and Fund Financial Statements a. Explanation of Differences Between Governmental Funds Balance Sheet and the Statement of Net Assets The "total fund balances' of the City's governmental funds $121,132,843 differs from "net assets" of governmental activities $2,202,124,770 reported in the statement of net assets. This difference primarily results from the long -term economic focus of the statement of net assets versus the current financial resources focus of the governmental fund balance sheets. Capital Related Items When capital assets (property, plant, and equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the City as a whole. Cost of capital assets $2,209,102,030 Accumulated depreciation (131,116.152) Total capital assets, net* $2 077 985,878 *Amount excludes net capital assets of $6,808,128 from Internal Service funds. Long -term Debt Transactions Long -term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities (both current and long -term) are reported in the statement of net assets. Balances at June 30, 2009 were: Certificates of participation $ 4,335,000 Note payable 1,119,613 Pre - annexation agreement 9,600,000 CDBG Loan 1.972.000 Total $17.026.613 Dyll CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Accrued Interest Accrued liabilities in the statement of net assets differ from the amount reported in governmental funds due to accrued interest on outstanding debt payable (see Note 6). Accrued interest added 1110 599 Investment in Joint Venture Investment in joint ventures is not a current financial resource and hence reported only in the statement of net assets. Net equity in joint venture $2 684 052 Unavailable Revenue Some of the revenue will be collected after year -end, but is not available soon enough to pay for current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. Unavailable revenue $2.879.134 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities (such as equipment management and self- insurance authorities) to individual funds. The assets (including capital assets) and liabilities of the internal service funds are included in governmental activities in the statement of net assets, because they primarily serve governmental activities of the City. Internal Service Funds $14.518.744 Reclassifications and Eliminations Interfund balances must generally be eliminated in the government -wide statements, except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once — in the function in which they are allocated. Investments in joint ventures are not a current financial resource and are not reported in the governmental funds. Therefore, it is added for the statement of net assets. Interfund balance created due to the consolidation of internal service activities to governmental and enterprise funds is not reported in the fund statements and must be added to the statement of net assets. ft.", CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Explanation of Differences betweeen Government Funds Balance Sheet and the Statement of Net Assets Assets Cash and investments Receivables: Accounts Notes Interest Intergovernmental receivables Cash with fiscal agent Interfund balances Investment in joint venture Prepaid items Inventory Capital assets Accumulated depreciation Total assets Liabilities and Fund Balances / Net Assets Liabilities: Accounts payable Accrued payroll Accrued interest payable Deposits payable Claims payable Workers' compensation payable Compensated absences payable Unearned revenue Unavailable revenue Due to other funds Long -term liabilities Total liabilities Fund balances / net assets Total liabilities and and fund balances / net assets Total Capital Long -term Governmental Related Accumulated Debt Funds Items Depreciation Transactions $ 119,399,587 $ - $ - $ - 7,649,060 - - - 1,457,076 - - - 6,929,611 - - - 3,141,141 - - - 3,686,684 - - - 595,308 - - - 219,698 - - - - 2,209,102,030 - - - (131,116,152) - $ 143,078,165 $ 2,209,102,030 $ (131,116,152) $ - $ 5,951,377 - - - 4,121,602 - - - 3,150,496 - - - 2,618,216 - - - 2,879,134 - - - 3,224,497 - - - - - 17,026,613 21,945,322 - - 17,026,613 121,132,843 2,209,102,030 (131,116,152) (17,026,613) $ 143,078,165 $ 2,209,102,030 $ (131,116,152) $ - i� CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investment Internal Reclassifications - Interest in Joint Unavailable Service and Statement of Pavable Venture Revenue Funds Eliminations Net Assets $ - $ - $ - $ 39,486,426 $ - $ 158,886,013 - - - 890,047 - 8,539,107 - - - - - 1,457,076 - - - - - 6,929,611 - - - - - 3,141,141 - - - - (3,625,353) 61,331 - 2,684,052 - - - 2,684,052 - - - 161,579 - 756,887 - - - 259,731 - 479,429 - - - 22,691,452 - 2,231,793,482 24,623,657 (15,883,324) - (146,999,476) $ - $ 2,684,052 $ - $ 47,605,911 $ (3,625,353) $ 2,267,728,653 $ - - - $ 598,782 - $ 6,550,159 - - - 43,376 - 4,164,978 110,599 - - - - 110,599 - - - - - 3,150,496 - - - 2,446,253 - 2,446,253 - - - 2,973,250 - 2,973,250 - - - 1,939,662 - 1,939,662 - - - - - 2,618,216 - - (2,879,134) - - - - - - 462,187 (3,686,684) - - - - 24,623,657 - 41,650,270 110,599 - (2,879,134) 33,087,167 (3,686,684) 65,603,883 (110,599) 2,684,052 2,879,134 14,518,744 61,331 2,202,124,770 $ - $ 2,684,052 $ - $ 47,605,911 $ (3,625,353) $ 2,267,728,653 �7 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 b. Explanation of Differences between Enterprise Funds and Government - wide Statement of Net Assets Total net assets of the City's Enterprise Funds of $120,006,998 differs from net assets of the business -type activities of $119,945,667 reported in the government -wide statement of net assets. The difference, $61,331, results from the consolidation of internal service fund activities related to the enterprise funds. Explanation of Differences between Enterprise Funds and Government -wide Statement of Net Assets Total Internal Government wide Enterprise Service Statement of Assets Funds Funds Net Assets Cash and investments Receivables: Accounts Cash with fiscal agent Interfund balances Prepaid items Capital assets, net Total assets Liabilities and Fund Balances / Net Assets Liabilities: Accounts payable Accrued payroll Accrued interest payable Liabilities from restricted assets Noncurrent liabilities: Due within one year Due in more than one year Total liabilities $ 9,232,552 $ $ 9,232,552 4,585,201 4,585,201 1,453,268 1,453,268 - (61,331) (61,331) 25,000 25,000 108,642,093 108,642,093 $ 123,938,114 $ (61,331) $ 123,876,783 $ 2,085,543 $ $ 2,085,543 159,517 159,517 35,663 35,663 65,393 65,393 1,585,000 1,585,000 3.931.116 3.931.116 Net Assets Invested in capital assets, net of related debt $ 108,510,361 - $ 108,510,361 Unrestricted 11,496,637 (61,331) 11,435,306 $ 120,006,998 $ (61,331) $ 119,945,667 1.1.1 C. CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities The "net change in fund balances" for governmental funds $4,135,781 differs from the "change in net assets" for governmental activities $22,407,481 reported in the statement of activities. The differences arise primarily from the long -term economic focus of the statement of activities versus the current financial resources focus of the governmental funds. The effect of the difference is illustrated below. Capital Related Items When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. In governmental funds, significant maintenance projects are reclassified as functional expenses in the statement of net assets. Also, contributed capital is not recorded in governmental funds; therefore it is added for the statement of net assets. Capital outlay Net change to Internal Service Fund capital assets Capital Contribution Net change in capital related items Depreciation expense Deletions to accumulated depreciation Net change in accumulated depreciation I -R] $17,509,910 (4,395,327) 8,400,000 V1514 583 ($8,151,807) 1,413,463 W7 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Long -Term Debt Transactions Repayment of debt service is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. Issuance of debt is reported as an other financing source in governmental funds, thus increasing fund balance. For the City as a whole, however, the principal payments reduce the liabilities, and proceeds from long term debt increase liabilities in the statement of net assets. Certificates of Participation $ 330,000 Note payable 178,641 Pre - annexation agreement 1,200,000 CDBG loan 84,000 Purchase agreement 1,500.000 Total principal payments made $3,292,641 Accrued Interest Interest accrued on outstanding debt payable is not recorded as an expenditure in governmental funds, and, thus has been added to the statement of activities. Net change in accrued interest $45-701 Investment in Joint Venture Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. Net change in investment in joint venture $88.453 Unavailable Revenue Some of the revenue will be collected after year -end, but is not available soon enough to pay for current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. Net change in unavailable revenue $1.316.358 1111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities, such as equipment management and self- insurance activities, to individual funds. The adjustments for internal service funds "closes' those funds by reimbursing or charging additional amounts to participating departments in individual funds for costs over or under charged for those activities. Net change in Internal Service Funds $1270.633 Reclassification and Eliminations Interfund balances must generally be eliminated in the government -wide financial statements, except for net residual amounts due between governmental and business -type activities. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once — in the function in which they are allocated. Amounts involving fiduciary funds should be reported as external transactions. 1.1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities Revenues: Taxes and assessments Intergovernmental Licenses and permits Charges for services Fines and forfeitures Investment income Net increase in fair value of investments Property income Share of joint venture net gain Donations Contributed capital Loss on sale of capital assets Other Total revenues Expenditures: Current: General government Public safety Public works Community development Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenses Otherfinancing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances / net assets Total Capital Long -term Governmental Related Accumulated Debt Funds Items Depreciation Transactions $ 115,711,574 $ - $ - $ - 11,434,885 - - - 5,883,515 - - - 14,498,120 - - - 4,572,611 - - - 3,245,677 - - - 1,472,335 - - - 14,032,342 - - - 6,760,140 - - - 8,400,000 - - 8,501,014 186,112,213 8,400,000 15,567,654 - 313,265 - 78,554,344 1,140,876 (646,514) - 30,619,405 3,254,451 5,598,925 - 9,971,536 - 110,144 - 17,485,605 - 1,362,524 - 26,002,339 (17,509.,910) - - 3,292,641 - - (3,292,641) 482,908 181,976,432 (13,114,583) 6,738,344 (3,292,641) 23,354,366 - (23,354,366) 4,135,781 21,514,583 (6,738,344) 3,292,641 Fund balances /net assets beginning of year 116,997,062 2,187,587,447 (124,377,808) (20,319,254) Fund balances /net assets end of year $ 121,132,843 $ 2,209,102,030 $ (131,116,152) $ (17,026,613) I'M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investment 400,347 Internal Reclassifications 176,848 Accrued in Joint Unavailable Service and Statement of Interest Venture Revenue Fund Eliminations Activities $ - $ - $ - $ - $ - $ 115,711,574 - - (1,316,358) - - 10,118,527 - - - - - 5,883,515 - - - - 114,391 14,612,511 - - - - - 4,572,611 - - - - - 3,245,677 - - - 1,158,180 - 2,630,515 - - - 504,028 - 14,536,370 - 88,453 - - - 88,453 - - - - - 6,760,140 - - - - - 8,400,000 - - - (11,039) - (11,039) 8,501,014 88,453 (1,316,358) 1,651,169 114,391 195,049,868 - - - 149,263 400,347 16,430,529 - - - 76,045 176,848 79,301,599 - - - (54,372) 6,182,021 45,600,430 - - - 81,865 119,983 10,283,528 - - - 127,735 1,613,230 20,589,094 - - - - (8,492,429) - (45,701) - - - 437,207 (45,701) 380,536 $ (110,599) 172,642,387 - - - - (23,354,366) - 23,354,366 45,701 88,453 (1,316,358) 1,270,633 114,391 22,407,481 (156,300) 2,595,599 4,195,492 13,248,111 (53,060) 2,179,717,289 $ (110,599) $ 2,684,052 $ 2,879,134 $ 14,518,744 $ 61,331 $ 2,202,124,770 10191 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 d. Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities The change in net assets for the City's enterprise funds ($892,572) differs from the change in net assets of the business -type activities ($1,006,963) reported in the government -wide statement of activities. The difference, ($61,331), results from the consolidation of internal service fund activities related to the enterprise funds. Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities Nonoperating revenues (expenses) Investment income Total Internal Business -type activities Loss on removal of capital assets Enterprise Service Statement of Other Funds Fund Activities Operating revenues: Charges for sales and services: Water sales $ 20,350,049 S - $ 20,350,049 Other 96,137 - 96,137 Total operating revenues 20,446,186 - 20,446,186 Operating expenses: Purchase of Water 7,512,251 - 7,512,251 Salaries and wages 5,689,368 - 5,689,368 Depreciation 2,090,544 - 2,090,544 Professional Services 2,064,667 - 2,064,667 Maintenance and supplies 1,467,730 114,391 1,582,121 System maintenance 1,912,294 - 1,912,294 Other 948,711 - 948,711 Total operating expenses 21,685,565 114,391 21,799,956 Operating income (1,239,379) (114,391) (1,353,770) Nonoperating revenues (expenses) Investment income 374,893 Net decrease in fair value of investments 135,789 Loss on removal of capital assets (87,308) Interest expense (71,325) Other (5,242) Total nonoperating revenues (expenses) 346,807 Change in net assets Net assets, beginning of year (892,572) (114,391) 374,893 135,789 (87,308) (71,325) (5,242) 346,807 (1,006,963) 120,899,570 53,060 120,952,630 Net assets, end of year $ 120,006,998 $ (61,331) $ 119,945,667 1411 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (3) Budgetary Control and Compliance The City adheres to the following general procedures in establishing the budgetary data reflected in the financial statements: During April, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted at City Council meetings to obtain taxpayer comments. Prior to July 1, the budget is legally adopted through passage of an appropriation resolution. • Budgets are adopted on an annual basis consistent with generally accepted accounting principles for General and Special Revenue Funds. • The City of Newport Beach does not present budget information on Capital Projects Funds since the City approved project - length budgets. These project - length budgets authorize total expenditures over the duration of a construction project rather than year -by -year budgeting. • The City of Newport Beach does not present budget information on Debt Service and Permanent Funds since the City is not required to and does not adopt an annual budget. • The budget is formally integrated into the accounting system and employed as a management control device during the year. • The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which alter the total appropriations of any fund must be approved by City Council. • At fiscal year -end, budget appropriations lapse. Budget appropriations for incomplete capital projects are re- budgeted in the following fiscal year by Council action and are included in the revisions noted above. Projects that are not started during the budget year are reevaluated in the following year. • Encumbrances represent commitments related to unperformed contracts for goods and services. The City utilizes an encumbrance system as a management control technique to assist in controlling expenditures. Under this system, encumbrance accounting for the expenditure of funds is recorded in order to indicate outstanding commitments and is employed in the governmental fund types. Encumbrances outstanding at year -end are reported as reservations of fund balances since they do not constitute expenditures or liabilities. Encumbrances and their related budgets are honored in the subsequent year to fulfill these commitments and are presented in the original adopted budget. F:7.", (4) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Expenditures exceeded appropriations in the following non -major governmental funds. Anoropriations Expenditures Justice Assistance Grant $ - $ 6,403 Arterial Highway Rehabilitation $ 291,342 $ 320,319 The following funds reported deficit fund balances: Special Revenue Funds OTS DUI Grant $ 42,489 Capital Proiects Marine Science Center $ 420,148 City Hall Improvements $ 1,750,813 Misc SAH Projects $ 417,721 Marina Park $ 857,392 Sunset Ridge Park $ 243,301 Police Facility $ 2,175 Lifeguard Headquarters $ 30,179 Internal Service Funds Compensated Absences $ 6,606,339 Retiree Insurance $ 4,152,916 Variance $ (6,403) $ (28,977) The City's intentions are to eliminate deficit fund balances through future grant funding, other future revenue sources, or interfund transfers. Cash and Investments Cash and investments as of June 30, 2009 are classified in the accompanying financial statements as follows: Statement of net assets: Cash and investments Cash with fiscal agent Fiduciary funds: Cash and investments Cash with fiscal agent Total cash and investments $ 168,118,565 4,594,409 3,873,419 4,101,765 $ 180,688,158 Cash and investments as of June 30, 2009 consist of the following: is-11 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Cash on hand $ 40,226 Deposits with financial institutions (783,218) Investments 181,431,150 Total cash and investments $ 180,688,158 Investments Authorized by the California Government Code and the Entity's Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code (or the City's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City's investment policy, where more restrictive) that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions to Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity of Portfolio* in One Issuer Local Agency Bonds 5 years 15% None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptances 180 days 30% 10% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 1 year 30% 10% Repurchase Agreements 30 days None None Reverse Repurchase Agreements 30 days 10% of base value None Medium -Term Notes 4 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass - Through Securities 5 years 20% None County Pooled Investment Funds N/A 5% None Local Agency Investment Fund (LAIF) N/A None None JPA Pools (other investment pools) N/A None None * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions to CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee (i.e. fiscal agent) are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. F.I:1 Maximum Maximum Percentage Investment Authorized Investment Type Maximum Maturity Allowed in One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities None None None Banker's Acceptances 30 days - 360 days None None Commercial Paper 180 days - 270 days None 10% Money Market Mutual Funds N/A None None Investment Agreements None None None Certificates of Deposit None None None Demand Deposits 30 days - 360 days None None Time Deposits 30 days - 360 days None None Local Agency Bonds None None None Forward Delivery Agreement None None None Forward Purchase and Sale Agreement None None None Corporate Notes None None None Repurchase Agreements None None None Local Agency Investment Fund N/A None None Municipal Obligations None None None County Pooled Investment Funds N/A None None F.I:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity: Investment Tvoe Money Market Funds U.S. Treasury Notes U.S. Agencies Corporate Notes Municipal Bond Commercial Paper LAIF Foreign Bonds Mortgage - backed Securities Cash with Fiscal Agent: Money Market Funds Investment Agreements Total $ 5,321,323 $ 5,321,323 $ - $ - $ - $ 5,321,323 21,542,294 1,133,585 20,408,709 - - 21,542,294 85,142,487 28,192,164 50,351,181 6,599,142 - 85,142,487 33,287,090 11,709,214 20,260,262 1,317,614 - 33,287,090 1,797,420 1,797,420 - - - 1,797,420 1,598,383 1,598,383 - - - 1,598,383 20,381,833 20,381,833 - - - 20,381,833 3,092,958 844,600 2,248,358 - - 3,092,958 571,188 571,188 - - - 571,188 7,515,598 7,515,598 1,180,576 - 7,515,598 $ 181,431,150 $ 79,065,308 $ 93,268,510 $ 7,916,756 $ 1,180,576 $ 181,431,150 * Investment agreements are recorded at cost (not fair value) because these agreements represent nonparticipating contracts that are nonnegotiable and whose redemption terms do not consider market rates. Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations As of June 30, 2009 the City did not have any investments (including investments held by fiscal agent) whose fair values were highly sensitive to interest rate fluctuations. 1.0101 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Mlnlmum Evenu t Legal From Falr Value Ra0n9 Bled..,. Auk AA+ AA AF A+ A A- A -1+ A_1 BBB Investment Tyoe Morrey Market 1-da 5,321323 A $ - $ illo,B90 $ 11.5. T—, NSes 21,..2291 NIA 12392030 2,8255]4 US. Agencies 85,143,487 NIA - 80.060.414 Corad,ate NWes 33,287,090 A - 5,011.408 Municipal Bond 1.797,420 AA - - Commerclol Paper 1598.333 A-1 - - trcslA9encylnvesimentFund 2o.3Bt &13 NIA - - Ford, Son. 3,092,958 NIA - 827,000 Mot19a9 ... SttvMks 571,188 AA4 - 571,188 Cash with Fladal Aped, Money Merkel Funds 7,515,598 A - 7,515,598 1—..nt Agreements 1,i BC,576 NIA - - $ 181.431,150 5 12392A30 3 79,712,072 $ Concentration of Credit Risk 894,022 8.908.073 1,425,351 3.510502 5,20,010 7,310.914 812,072 805.380 600,294 1.BS5,664 %180.578 N01 Reeled $ 5,228433 8520893 24,188,051 992.080 79BSB2 799,821 - - - 20,381933 The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer that represent 5% or more of total City's investments are as follows: Issuer Investment Type Reported Amount FFCB Federal agency securities $ 14,210,531 FHLB Federal agency securities $ 18,845,749 FHLMC Federal agency securities $ 31,293,903 FNMA Federal agency securities $ 20,828,402 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker - dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool 111I87 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2009, none of the City's deposits with financial institutions in excess of federal depository amounts were held in uncol lateral ized accounts. As of June 30, 2009, City investments in the following investment types were held by the same broker - dealer (counterparty) that was used by the City to buy the securities: Investment Type Money Market Funds U.S. Treasury Notes U.S. Agencies Corporate Notes Mortgage backed Securities Foreign Bonds Commercial Paper Reported Amount $ 4,835,107 2,625,574 35,663,772 12,162,146 571,188 3,092,958 1,598,383 For investments identified herein as restricted cash with fiscal agent, the fiscal agent selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. 1[111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (5) Capital Assets Capital asset activity for the year ended June 30, 2009 was as follows: Governmental Activities: Beginning Balance Balance Additions Deletions June 30, 2009 Non - depreciable: Land and rights of way $ 1,807,381,269 $ 8,400,000 $ - $ 1,815,781,269 Work in progress 5,307,333 9,237,529 (1,377,686) 13,167,176 Depreciable: Structures 67,059,241 1,219,856 68,279,097 Equipment 26,860,316 1,667,335 (766,850) 27,760,801 Infrastructure 303,296,714 6,762,876 (3,254,451) 306,805,139 2,209,904,873 27,287,596 (5,398,987) 2,231,793,482 Less accumulated depreciation for: Structures (12,418,643) (1,345,618) - (13,764,261) Equipment (17,896,022) (2,224,188) 724,052 (19,396,158) Infrastructure (108,755,273) (6,428,972) 1,345,188 (113,839,057) (139,069,938) (9,998,778) 2,069,240 (146,999,476) Net Capital Assets $ 2,070,834,935 $ 17,288,818 _L _(L329,747 $ 2,084,794,006 111M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Business -type Activities: Non - depreciable: Land Work in progress Depreciable: Structures Equipment Infrastructure Less accumulated depreciation for: Structures Equipment Infrastructure Net Beginning Governmental Business -type Balance Balance Additions Deletions June 30, 2009 $ - Public safety 1,268,732 - $ 2,016,450 $ - $ - $ 2,016,450 312,949 690,663 (88,459) 915,153 205,793 - - 205,793 185,521 106,367 566,216 291,888 154,975,054 1,157,076 (130,000) 156,002,130 157,695,767 1,954,106 (218,459) 159,431,414 (112,175) (5,145) (117,320) (157,445) (27,499) - (184,944) (48,471,849) (2,057,900) 42,692 (50,487,057) (48,741,469) (2,090,544) 42,692 (50,789,321) $ 108,954,298 (136,438) _§_J175,7671 $ 108,642,093 Depreciation expense was charged in the following functions in the Statement of Activities: 111191 Governmental Business -type Activities Activities General government $ 313,265 $ - Public safety 1,268,732 - Public works 6,944,113 - Community development 110,144 - Community service 1,362,524 - Water - 1,524, 328 Wastewater - 566,216 $ 9,998,778 $ 2,090,544 111191 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (6) Long -Term Debt Changes in Long -Term Liabilities Long -term liability for the year ended June 30, 2009, was as follows: Amounts Beginning Ending Due Within Balance Additions Deletions Balance One Year Governmental activities: Certificates of participation payable $ 4,665,000 $ - $ (330,000) $ 4,335,000 $ 345,000 Note payable 1,298,254 - (178,641) 1,119,613 186,679 Pre - annexation agreement 10,800,000 - (1,200,000) 9,600,000 1,200,000 CDBG Loan 2,056,000 - (84,000) 1,972,000 89,000 Purchase Agreement Payable 1,500,000 - (1,500,000) - - Workers' compensations payable 11,334,000 3,216,337 (2,657,337) 11,893,000 2,973,250 Claims and judgements payable 5,613,525 3,678,834 (3,394,622) 5,897,737 2,446,253 Compensated absences 9,113,095 2,828,270 (2,157,280) 9,784,085 1,939,662 Net OPEB obligation 2,221,000 5,423,000 (3,236,000) 4,408,000 - Total governmental activities 48,600,874 15,146,441 (14,737,880) 49,009,435 9,179,844 Business -type activities: Water Revenue Bonds payable 3,095,000 - (1,510,000) 1,585,000 1,585,000 Total $ 51,695,874 $ 15,146,441 $ (16,247,880) $ 50,594,435 $ 10,764,844 Internal service funds predominantly serve the governmental funds. Accordingly, long- term liabilities for them are included as part of the above totals for governmental activities. Also, liabilities for workers' compensation, claims and judgments, compensated absences, and net OPEB obligation are typically liquidated from the Internal Service funds through resources collected from individual funds. 1[1111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Governmental Activities • Certificates of Participation In Fiscal Year 1998 -99, the Newport Beach Public Facilities Corporation issued $7,330,000 of Refunding Certificates of Participation to advance refund the 1992 Certificates of Participation used to finance the construction of the Central Library. The refunding was undertaken to reduce total debt service payments over the next twenty years by $690,228 and resulted in an economic gain of $495,745. The Refunded Certificates were executed and delivered pursuant to the Prior Trust Agreement. The City has previously entered into a project lease with the Newport Beach Public Facilities Corporation to lease certain property, facilities, improvements, and equipment. The lease payments made by the City are held by a trustee who makes semi - annual payments on the Certificates of Participation. The lease payments began May 15, 1994, and are in amounts sufficient to cover the payment of principal and interest of the Certificates. The 1998 Certificates consist of $2,995,000 of Serial Certificates with interest rates from 3.6% to 4.55% and $4,335,000 of Term Certificates with interest rates from 5.05% to 5.15 %. Interest on the Certificates is payable semiannually on June 1 and December 1 of each year. Future principal payments range from $345,000 to $535,000 through June 1, 2019. Principal payments are payable annually on June 1 of each year. At June 30, 2009, the City has a required cash reserve balance for debt service of $565,778, which is recorded as a restricted asset and reservation of fund balance in the Debt Service Fund. The outstanding balance at June 30, 2009, amounted to $4,335,000. The annual amortization requirements of the Certificates of Participation are as follows: Year Ending 563,025 June 30 Principal 2010 345,000 2011 360,000 2012 380,000 2013 400,000 2014 420,000 2015 -2019 2,430,000 $ 4,335,000 • Note Payable Interest Total 220,448 565,448 203,025 563,025 184,845 564,845 165,655 565,655 145,455 565,455 386,435 2,816,435 $ 1,305,863 $ 5,640,863 Note payable consists of a note to the California Department of Boating and Waterways in 1987 for a loan in the amount of $3,300,000. The note is payable in thirty annual principal and interest installments of $237,062 at 4.5% rate of interest 1[11.1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 beginning August 1, 1987. The outstanding balance at June 30, 2009, amounted to $1,119,613. The annual amortization requirements for the Note Payable are as follows: Year Ending June 30 2010 2011 2012 2013 2014 2015 -2016 Principal 186,679 195,080 203,859 213,032 222,609 98,354 $ 1,119,613 Interest 50,383 41,982 33,203 24,030 14,443 6,688 $ 170,729 Newport Coast Pre - Annexation Agreement Payable Total 237,062 237,062 237,062 237,062 237,052 105,042 $ 1,290,342 In conjunction with the January 1, 2002, annexation of Newport Coast, the City entered into an agreement payable with the Newport Coast Committee for a total of $18,000,000 to reduce property owner assessments used to finance certain road and street improvements. The principal -only agreement which began in the 2003 fiscal year, is payable over a period of fifteen years in equal installments of $1,200,000. The outstanding balance at June 30, 2009, amounted to $9,600,000. • CDBG Loan In fiscal year 2003, the City received $2,400,000 in Section 108 loan proceeds to assist with the funding for the Balboa Village Improvement Program. The loan is collateralized by future Community Development Block Grant allocations with an average interest rate of 6.5 %. Future principal payments range from $89,000 to $208,000 through June 30, 2023. The outstanding balance at June 30, 2009, amounted to $1,972,000. The annual amortization requirements for the CDBG Loan are as follows: Year Ending June 30 Principal Interest 2010 89,000 108,535 2011 95,000 104,345 2012 102,000 99,653 2013 108,000 94,485 2014 116,000 88,722 2015 -2019 706,000 334,880 2020 -2023 756,000 95,595 $ 1,972,000 $ 926,215 f[oIl Total 197,535 199,345 201,653 202,485 204,722 1,040,880 851,595 $ 2,898,215 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 • Purchase Agreement Payable In Fiscal Year 2007, the City entered into an agreement with the California Department of Transportation (CalTrans) for the purchase of a 15.05 -acre parcel of land at the corner of Superior Avenue and Coast Highway. The purchase price was $5 million, to be paid in three installments with a 4.75% interest. The loan has been paid off and there is no outstanding balance at June 30, 2009. • Claims and Judgments The City retains the risk of loss for general liability and workers' compensation claims as described in note (8). These amounts represent estimates of amounts to be paid for reported general liability and workers' compensation claims including incurred - but- not - reported claims based upon past experience, modified for current trends and information. While the ultimate amount of losses incurred through June 30, 2009, is dependent on future developments, based upon information from the City's attorneys, the City's claims administrators and others involved with the administration of the programs, City management believes the accrual is adequate to cover such losses. The estimated liability at June 30, 2009, for general liability amounted to $5,897,737 and for workers' compensation was $11,893,000. • Compensated Absences The City's policies relating to compensated absences are described in Note (1). This liability, to be paid in future years from available and future resources, at June 30, 2009, is $9,784,085. • Net OPEB Obligation (NOO) The net OPEB obligation is the difference between the ARC and the actual contributions made. The City has elected to fund the cash subsidy portion $2.72 million of the ARC. As for the implied subsidy $4.408 million, the City has elected to fund it on a pay -as- you -go basis, thus resulting in net OPEB obligation of $4.408 million. Business -type activities • Water Revenue Bonds In Fiscal Year 1998 -99, the City issued $14,225,000 of Refunding Water Revenue Bonds to refund the 1994 Water Revenue Bonds used to finance the construction and acquisition of water storage and transmission facilities. The refunding was undertaken to reduce total debt service payments over a ten -year period by $481,153 and resulted in an economic gain of $418,469. The bonds are secured by a pledge of net revenues of the water fund. The 1998 Serial Bonds bear interest ranging from 3.6% to 4.5 %. At June 30, 2009, the City has a required cash reserve balance of $1,453,768 which is recorded as cash with fiscal agent. Ten annual 111YA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 principal payments are payable on August 1, and semiannual interest payments are payable on February 1 and August 1. At June 30, 2009, the outstanding principal balance was $1,585,000. The City's rate covenant requires a coverage ratio of at least 125 %. For the year ended June 30, 2009, the rate covenant was 52 %. The annual amortization requirements for the Water Revenue Bonds are as follows: Year Ending June 30 2010 (7) Limited Obligation Bonds Principal Interest Total $ 1,585,000 $ - $ 1,585,000 Special Assessment Districts Bonds The City has issued certain Assessment District and Community Facilities District Bonds. Although the City collects and disburses funds for these districts, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds, and therefore the bonded indebtedness is not shown in the financial statements of the City. The City holds reserve funds on behalf of bondholders; the assets are recorded in the Special Assessment Agency Fund. Bonds outstanding at June 30, 2009, for each district under the Bond Acts of 1911 and 1915, and other special assessments, are as follows: Bonds Outstanding Assessment District Original Issue June 30, 2009 No. 68 Newport Shores 3,813,562 2,860,000 No. 69 West Newport 4,978,498 3,660,000 No. 70 Bay Shores 1,380,996 955,000 No. 71 Balboa Boulevard 796,942 260,000 No. 74 Island Avenue 222,629 130,000 No. 75 Balboa Business 821,204 615,000 No. 78 Little Balboa Island 1,348,196 720,000 No. 79 Beacon Bay 1,215,134 665,000 No. 82 Corona del Mar 274,967 170,000 No. 86 Balboa Peninsula 300,174 175,000 No. 92 Coast Highway 1,425,000 1,425,000 No. 99 -2 Ocean Front 1,953,952 1,953,952 No. 101 Central Balboa 2,467,597 2,467,597 No. 95 -1 CIOSA Refunding Series A 15,495,000 9,390,000 1[11:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Other Limited Obligation Bonds The City has issued revenue bonds for the purpose of advancing the net proceeds of the bonds to Hoag Memorial Hospital Presbyterian for the purposes of financing the acquisition, construction and equipping of health facilities located within the City. The bonds are limited obligations of the City payable from payments required to be made by Hoag Memorial Hospital. The City is not obligated to pay the principal or interest of the bonds except from payments made by Hoag, and neither the faith and credit nor the taxing power of the City is pledged to the payment of the principal and interest on the bonds. Bonds outstanding at June 30, 2009, are as follows: Series 2008C Series 2008D Series 2008E Series 2009A Series 2009B Series 2009C Series 2009D Series 2009E $70,095,000 $80,000,000 $90,000,000 $66,835,000 $36,605,000 $36,605,000 $35,490,000 $35,490,000 The revenue bonds are subject to, at the option of Hoag Memorial Hospital Presbyterian, optional and mandatory tender for purchase. If no tender or purchase is made, varying redemption payments on the 2008 Series bonds commence on December 1, 2012, and are required to be made through December 1, 2028. For the 2009 Series bonds, varying redemption payments commence on December 1, 2014, and are required to be made through December 1, 2038. (8) Risk Management — General Liability and Workers' Compensation The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. For general liability, the City has excess insurance coverage of $26 million per occurrence with a self- insured retention (SIR) of $500,000 per occurrence. For workers' compensation and employer's liability insurance, the City has excess insurance coverage of $1,000,000 per occurrence with a $1,000,000 SIR. This coverage provides for work - related accidents and diseases. 1111:] CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 The Insurance Reserve fund was established to account for costs associated with general liability and workers' compensation. The Insurance Reserve fund is accounted for as an internal service fund where assets are set aside for risk management, administration, claim settlements and benefit distribution. A premium is charged to each fund that accounts for part-time or full -time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. The total liability claims payable include $17,790,737 which represents the discounted present value at June 30, 2009; the claims were discounted using an interest rate of five percent. For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City's general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $54,472,396 at June 30, 2009. ff[e7 General Liability Workers' Compensation June 30, 2008 June 30, 2009 June 30, 2008 June 30, 2009 Unpaid claims, beginning of fiscal year $ 4,837,048 $ 5,613,525 $ 11,442,000 $ 11,334,000 Incurred claims (including IBNR) 3,371,513 3,589,622 2,339,836 3,216,337 Claim payments (2,595,036) (3,305,410) (2,447,836) (2,657,337) Unpaid claims, end of fiscal year $ 5,613,525 $ 5,897,737 $ 11,334,000 $ 11,893,000 For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City's general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $54,472,396 at June 30, 2009. ff[e7 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (10) Pension Plan Plan Descriotion - Defined Benefit Plan The City contributes to the California Public Employees Retirement System (PERS), an agent multiple - employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost -of- living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Funding Policy Participants are required to contribute 8% (9% for safety employees) of their annual covered salary. The City makes the contribution required of City safety employees on their behalf and for their account. In January 2008, non - safety employees modified their PERS benefits and agreed to contribute 1 % of the required 8% of annual salary for the participant contribution and 2.42% of the City's employer contribution which is discussed below. Benefit provisions and all other requirements are established by State statues and City contract with employee bargaining groups. Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer's actual plan contributions for the year. The cumulative difference is called the net pension obligation (NPO). The ARC for the period July 1, 2008 to June 30, 2009 has been determined by an actuarial valuation of the plan as of June 30, 2005. The contribution rate indicated for the period is 9.055% for non - safety employees and 29.67% for safety employees of annual covered payroll. Without the cost sharing agreement with non - safety employees, the contribution rate would be 11.475% for non - safety employees. In order to calculate the dollar value of the ARC for inclusion in financial statements prepared as of June 30, 2009, the contribution rate is multiplied by the payroll of covered employees that were paid during the period from July 1, 2008 to June 30, 2009. 111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Annual Pension Cost For 2009, the City's annual pension cost of $18,405,078 for PERS was equal to the City's required and actual contributions. A summary of principle assumptions and methods used to determine the annual required contribution is shown below: Payroll Growth 3.25% Individual Salary A merit scale varying by Growth duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Safety Plan June 30, 2006 Entry Age Actuarial Cost Method Level Percent of Payroll 31 Years as of the Valuation Date 15 -Year Smoothed Market 7.75% (net of administrative expenses) 3.25% to 13.15% depending on age, service, and type of employment 3.00% 3.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. IBM Miscellaneous Plan Valuation Date June 30, 2006 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Average Remaining 27 Years as of the Valuation Period Date Asset Valuation Method 15 -Year Smoothed Market Actuarial Assumptions: Investment Rate of 7.75% (net of administrative Return expenses) Projected Salary 3.25% to 14.45% depending Increases on age, service, and type of employment Inflation Rate 3.00% Payroll Growth 3.25% Individual Salary A merit scale varying by Growth duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Safety Plan June 30, 2006 Entry Age Actuarial Cost Method Level Percent of Payroll 31 Years as of the Valuation Date 15 -Year Smoothed Market 7.75% (net of administrative expenses) 3.25% to 13.15% depending on age, service, and type of employment 3.00% 3.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Gains and losses that occur in the operation of the plan are amortized over a 30 -year rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. IBM CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 THREE -YEAR TREND INFORMATION FOR PERS ($ Amount in Thousands) Fiscal Annual Pension Year Cost (APC) 6/30/07 $16,207 6/30/08 $16,454 6/30/09 $18,405 Percentage of Net Pension APC Contributed Obligation 100% $0 100% $0 100% $0 The Schedule of Funding Progress, below, shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. The Schedule of Funding Progress, below, presents multiyear trend information about whether the actuarial value of the plan assets is increasing or decreasing overtime, relative to the actuarial accrued liability for benefits. SCHEDULE OF FUNDING PROGRESS FOR PERS ($ Amount in Thousands) 06/30/2008 Misc. $ 217,378 Entry Age $ 21,424 Unfunded 52.066% Safety 336,061 264,634 71,427 78.7% 81.0% 28,056 Normal Actuarial Liability $ 92,851 83.2% 85.3% $ 69,204 Annual More current information regarding actuarial data Valuation Accrued Value of (Excess Covered UAAL as a Date Liability Assets Assets) Funded Status Payroll % of Payroll AVA Market (A) (B) (A - B) (B /A) Value (C) [(A -B) / C] 06/30/2006 Misc. $ 183,637 $163,158 $ 20,479 88.8% 94.2% $ 37,224 55.016% Safety 296,420 231,701 64,719 78.2% 83.1% 26,053 248.413% Total $ 480,057 $394,859 $ 85,198 82.3% 87.4% $ 63,277 134.643% 06/30/2007 Misc. $ 192,178 $178,524 $ 13,654 92.9% 107.7% $ 36,795 37.108% Safety 308,552 250,062 58,490 81.0% 94.7% 25,035 233.633% Total $ 500,730 $428,586 $ 72,144 85.6% 99.7% $ 61,830 116.681% 06/30/2008 Misc. $ 217,378 $195,954 $ 21,424 90.1% 91.9% $ 41,148 52.066% Safety 336,061 264,634 71,427 78.7% 81.0% 28,056 254.587% Total $ 553,439 $460,588 $ 92,851 83.2% 85.3% $ 69,204 134.170% More current information regarding actuarial data is not yet available from PERS. 113 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Plan Description - Defined Contribution Plan Pursuant to City Council Resolution No. 91 -106, the City entered into a defined contribution plan administrated by the private administrator known as Public Agency Retirement System ( "PARS ") for all of its part-time employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75 %. The City's contributions for each employee (and interest earned by the accounts) are fully vested immediately. For the year ended June 30, 2009, the City's covered payroll for employees participating in the plan was $2,919,260. Employees made contributions of $109,472 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,485,659 at June 30, 2009. (11) Post Employment Health Care Benefits (OPEB) The following description of the City of Newport Beach Medical Expense Reimbursement Plan (the "Plan ") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. Plan Description Effective January 2006, the City and employee associations agreed to major changes in the Post Employment Healthcare Plan. All employees and eligible retirees will participate in a Health Reimbursement Arrangement ( "HRA ") sponsored by the City, held in trust and managed by ING (Trustee), under IRS Revenue Ruling 2002 -41 (June 26, 2002) and IRS Notice 2002 -45 (June 26, 2002). All employees hired after January 1, 2006, and certain employees hired prior to this date, as well as employees who elected to fully convert (Fully Converted) to a defined contribution formula, participate in a program that requires mandatory employee and employer contributions. However, once these contributions have been made to the employee's account, the City has no further funding obligation to the Plan on their behalf. Certain employees hired prior to January 1, 2006, had the option to retain a hybrid of the former defined benefit Plan, or to fully convert to the new Plan. Employees electing to retain a hybrid of the former defined benefit formula (Hybrid) participate in a program requiring mandatory defined contributions by employees and employer, as well as a defined benefit consisting of an ongoing contribution, from the City to the participant's HRA account, each month after retirement. Additionally, these employees are eligible to receive health care benefits under the City's group health care plans. However, in order to receive these benefits these employees are required to pay the City $100 per month, 114 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 up until their retirement, to offset the unfunded portion of post employment health benefits existing at the inception of the Plan. Employees who retired prior to January 1, 2006, continue to receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month. The defined benefit portion of the plan is closed to new participants. The City of Newport Beach is the sole employer for the Plan. Total participants involved in the plan were 1,194 as of June 30, 2009, consisting of 521 miscellaneous employees, 273 safety employees, and 400 retirees and their beneficiaries. Benefits Provided The City provides post - employment medical, dental and vision benefits to its retirees, the same benefits as those afforded to active employees, with the general exception that once a retiree becomes eligible for Medicare (that is, reaches age 65), he or she must join a Medicare HMO or a Medicare Supplement plan, with Medicare becoming the primary payor. Employees become eligible to retire and receive City -paid healthcare benefits upon attaining age 50 (safety) or age 55 (miscellaneous) and 5 years of covered PERS service or upon disability before age 50. The payment of benefits, for the purpose of reimbursing eligible health care expenses, cease upon the earliest of the following: (1) the date of the participant's, their spouse's, or qualified dependant's death; (2) the date the balance of any fully converted participant account reaches zero, if no further contributions will be made to said account; or (3) the date of termination of the Plan. Plan Contributions Contributions to the Plan are based on the participant's status as "Fully Converted" or "Hybrid" as described above. All employees contribute 1% of their annual salary. Fully Converted employees also receive a contribution from the City of $1.50 per month for each year of service and age, after five years of employment. Additionally, Fully Converted employees who previously participated in the defined benefit program receive a one -time contribution from the City upon retirement. This contribution consists of $100 per month for every month paid into the defined benefit program, up to a maximum of 180 months. Further, the City contributes a percentage of any flexible leave bank conversions. The percentage contributed to the HRA account is based on the bargaining unit each employee is associated with. Hybrid employees receive a one -time contribution of $75 per month for every month paid into the defined benefit program, up to a maximum of 180 months. For Hybrid employees, the City also contributes a percentage of any flexible leave bank conversions. The percentage contributed to the HRA account is based on the bargaining unit each employee is associated with. Upon retirement, Hybrid employees receive a defined benefit consisting of a monthly contribution, made by the City, to the participant's HRA account of approximately $400. II&I CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Employees who retired prior to January 1, 2006, continue to receive a defined benefit consisting of a monthly contribution, made by the City, to the participant's HRA account each month of approximately $400 (approximately $425 for certain retired Police employees). The defined benefit component of the plan is closed to new participants; however, an actuarial valuation is utilized to determine the accrued liability and funding requirements associated with this component of the plan. Actuarial Valuation, Assumptions and Methods Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial assets, consistent with the long -term perspective of the calculations. Valuation Date: June 30. 2008 Actuarial Cost Method: Entry Age Normal Cost Method (same as CaIPERS) Amortization Method: Level percent of payroll over fixed 20 years Amortization Period: Level contribution amount over fixed 20 years Projected Salary Increases: 3.25% per year Discount Rate: 7.75 % for cash subsidy, pre- funding through CalPERS OPEB Trust 5% for implied subsidy, no pre- funding, benefits paid from the City's General fund 1111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Implied Subsidy Because one of the two health plans offered by the City is a non - community -rated plan and retirees are offered the same premium rates as active employees, GASB 45 requires that an implied subsidy (the difference between expected claims and premiums paid for retirees) be valued for the life of the retiree and accrued as a cost of the retiree health care plan. The City has elected to fund the implied subsidy on a pay -as- you -go basis since employer contributions to active and retiree medical plans are fixed, and significant uncertainty exists whether additional cash flows will occur in the future as a result of the implied subsidy. Two -Year Annual Required Contribution (ARC) Trend The 2008 -09 Annual Required Contribution (ARC) includes the Normal Cost plus a 20 -year amortization of the Unfunded AAL (in 000's): 1irA Current Year Annual ARC As Beginning Actual OPEB Percentage Covered a %of Ending Balance ARC Contributiion Obligation Contributed Payroll Payroll Balance Cash Subsidy $ - $ 2,720 $ 2,720 $ - 100% $ 56,527 4.8% $ - Implied Subsidy 2,221 2,703 516 2,187 19.1% 56,527 4.8% 4,408 Net OPEB Obligation $ 2,221 $ 56,527 9.6% $ 4,408 $ 5,423 $ 3,236 $ 2,187 59.7% 1irA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Two -Year Net OPEB Obligation (NOO) Trend The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the entire ARC, then the NOO would equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for the purpose of GASB 45. The June 30, 2009, NOO is determined as follows (in 000's): Prefunding Contributions & Benefit Fiscal Year July 1, NOO AOC Payments June 30, NOO 2007/08 Cash Subsidy $ 6,200 ' $ 2,629 $ (8,829)2 $ - Implied Subsidy Amortization %of 2,648 (427) 3 on NOO 2,221 Total $ 6,200 $ 5,277 $ - $ (9,256) $ 2,221 2008/09 111 (142) 2,703 4.8% Total $5,454 $ 111 Cash Subsidy $ - $ 2,720 $ (2,720) $ - Implied Subsidy 2,221 2,703 (516) ° 4,408 Total $ 2,221 $ 5,423 $ (3,236) $ 4,408 1 - Based on a prior period adjustment to the cash subsidy component of the NOO 2 - 2007 -2008 AOC and $6.2 million payment on retroactive NOO 3 - 2007 -2008 estimated implied subsidy 4 - 2008 -2009 estimated implied subsidy Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a Net OPEB Obligation (NOO) at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2008 -09 AOC is determined as follows (in 000's): III AOC as Interest Amortization %of ARC on NOO of NOO Total AOC Payroll Cash Subsidy $ 2,720 $ - $ - $ 2,720 4.8% Implied Subsidy 2,734 111 (142) 2,703 4.8% Total $5,454 $ 111 $ (142) $ 5,423 9.6% III CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Two -Year Funding Status Trend The schedule below shows the actuarial accrued liability (AAL), actuarial value of assets, funded status, and the relationship of the unfunded actuarial accrued liability (UAAL) to payroll as of the most recent valuation date. (12) Interfund Receivables and Pavables At June 30, 2009, interfund receivables and payable were as follows: Actuarial Actuarial Unfunded Internal Service Funds Annual UAAL as Valuation Accrued Value of AAL Funded Covered a % of Date Liability Assets (UAAL) Status Payroll Payroll 06/30/2006 Cash Subsidy $29,639 $ - $29,639 0.0% $54,748 54.1% Implied Subsidy 26,409 - 26,409 0.0% $54,748 48.2% Total $56,048 $ - $56,048 0.0% $54,748 102.4% 06/30/2008 Cash Subsidy $28,842 $ 8,785 $20,057 30.5% $56,527 35.5% Implied Subsidy 20,173 - 20,173 0.0% $56,527 35.7% Total $49,015 $8,785 $40,230 0.0% $56,527 71.2% (12) Interfund Receivables and Pavables At June 30, 2009, interfund receivables and payable were as follows: The above balances are primarily due to reclassification of negative cash balance in the city wide cash pool. 11K Due from Due to General Fund $ 3,686,684 $ - Internal Service Funds 462,187 Nonmajor Funds 3,224,497 Total $ 3,686,684 $ 3,686,684 The above balances are primarily due to reclassification of negative cash balance in the city wide cash pool. 11K CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 (13) Interfund Transfers Interfund transfers at June 30, 2009, consisted of the following: Total $ 690,013 $ 20,314,554 $ 550,000 $ 1,799,799 $ 23,354,366 The City typically uses transfers to fund ongoing subsidies. The general fund transferred $20,314,554 to subsidize for the maintenance and operation of the Tide and Submerged Land Fund. As required by the pre- annexation agreement, interest accrued in the amount of $439,355 in the Newport Coast Annexation fund, is due to and was subsequently transferred to the General Fund. (14) Reserved and Designated Fund Balances The City has set up "reserves" of fund equity to segregate fund balances which are not appropriable for expenditure in future periods, or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The following provides explanations as to the nature and purpose of each reserve and designation. Reserved for encumbrances Amounts reserved for encumbrances are commitments for materials and services on purchase orders and contracts that are legally committed but not expended by fiscal year end. Reserved for debt service This account sets aside a portion of fund balance to meet the annual debt service requirements. Reserved for permanent endowment This account reflects a permanent endowment established for the maintenance and dredging of Upper Newport Bay. IWel Transfers In Tide and Submerged Contributions Non -Major General Fund Land Fund Funds Total 5 O General Fund $ - $ 20,314,554 $ 550,000 1,357,739 $ 22,222,293 Iu m Non -Major Funds $ 690,013 442,060 12132,073 Total $ 690,013 $ 20,314,554 $ 550,000 $ 1,799,799 $ 23,354,366 The City typically uses transfers to fund ongoing subsidies. The general fund transferred $20,314,554 to subsidize for the maintenance and operation of the Tide and Submerged Land Fund. As required by the pre- annexation agreement, interest accrued in the amount of $439,355 in the Newport Coast Annexation fund, is due to and was subsequently transferred to the General Fund. (14) Reserved and Designated Fund Balances The City has set up "reserves" of fund equity to segregate fund balances which are not appropriable for expenditure in future periods, or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The following provides explanations as to the nature and purpose of each reserve and designation. Reserved for encumbrances Amounts reserved for encumbrances are commitments for materials and services on purchase orders and contracts that are legally committed but not expended by fiscal year end. Reserved for debt service This account sets aside a portion of fund balance to meet the annual debt service requirements. Reserved for permanent endowment This account reflects a permanent endowment established for the maintenance and dredging of Upper Newport Bay. IWel CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Reserved for affordable housing This account reflects amounts collected from developers to build affordable housing to all income levels in compliance with State planning laws. Reserved for prepaid items This account reflects prepaid items which are not available, spendable resources. Reserved for inventories This account reflects the value of inventories purchased by the City but not yet issued to the operating departments. Reserved for Iona -term receivable This account reflects the value of the note receivable which is not an available and spendable resource. Designated for special purposes This account reflects funds that have been designated for special projects which vary in nature. Designated for contingencies Contingency designations represent funds for unexpected emergencies. Designated for capital projects This account reflects unspent appropriations committed to capital projects in the prior year. Designation for appropriations This account reflects unspent appropriations that may be utilized to augment the operating budget. (15) Joint Venture Agreements Bonita Canyon Public Facilities Financing Authority The Bonita Canyon Public Facilities Financing Authority (Authority) is a joint venture formed by the City of Newport Beach, Irvine Unified School District, and Newport -Mesa Unified School District. The Authority's Board is comprised of two members appointed by each of the member agencies. The Authority created Community Facilities District 98 -1 to finance public facilities that will benefit the properties within their boundaries. The Authority issued $45,000,000 of special tax bonds that will be repaid by special assessments; the City is not obligated in any manner to repay the bonds. The Authority paid the City $30,577,712 (81.7 %) to pay for the costs of acquiring and constructing public facilities including parks and road improvements. At June 30, 2009, the contributions from property owners are held in trust as cash with fiscal agent totaling $1,005,565. The City does not make any annual contributions to this joint venture. The 121 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 City does not include the Authority as a component unit, as the City is not financially accountable for the Authority's activities and the Authority is not fiscally dependent on the City. The City's equity interest in this joint venture is not readily determinable. Complete separate financial statements can be obtained at the Newport Mesa Unified School District, 2985 Bear Street, Suite 8M, Costa Mesa, California. Air Borne Law Enforcement The City is a participant in a joint venture agreement with the City of Costa Mesa for the operation of the Air Borne Law Enforcement program (ABLE). The oversight Board consists of the Chiefs of Police of Costa Mesa and Newport Beach and one appointee for each Member Agency for a total of four Board Members. The cities have a 50% interest in the venture, with each city having provided an initial investment of two helicopters and related equipment. The City of Newport Beach's cost of participating in the ABLE program is recorded in the General Fund, which provides for the maintenance and operation of the program as well as replacement of capital equipment used in the operation of the program. Annually, the amounts paid by the City to this joint venture are approximately $1,000,000. Operation costs are offset by fees collected from surrounding cities that may subscribe to regular patrol or request assistance on an as- needed basis. Shared equally between the cities of Newport Beach and Costa Mesa, the City's share of net income from subscribers and other cities amounts to $70,378 for fiscal year 2008- 09. The City's 50% interest in the net equity of this joint venture at June 30, 2009, amounts to $2,539,841. Complete separate financial statements can be obtained at the City of Costa Mesa at 77 Fair Drive, Costa Mesa, California. Metro Cities Fire Authority The City of Newport Beach is a member of a joint venture agreement with the cities of Anaheim, Fountain Valley, Fullerton, Garden Grove, Huntington Beach, and Orange for the operation of a communication network to provide fire suppression, emergency medical assistance, and rescue services. The oversight board consists of one voting member and one alternate appointed by the governing body of each member agency. The City of Newport Beach's costs are based each fiscal year upon the number of recorded incidents attributable to the City divided by the recorded incidents attributable to all members during the year and, are recorded in the General Fund as an expenditure for service. Upon termination of the agreement, the proceeds from the sale of the property and assets of the joint venture will be paid to each member agency pursuant to their fair share percentage. Annually, the amounts paid by the City to this joint venture are approximately $529,488. The City's 10.83% interest in the net equity of this joint venture at June 30, 2009, amounts to $144,211. Complete separate financial statements can be obtained at the Metro Cities Fire Authority offices at 201 S. Anaheim Boulevard, Suite 302, Anaheim, California. Integrated Law and Justice Agency of Orange County The City is a participant in a joint venture agreement with the several other public agencies of Orange County for the operation of the Integrated Law and Justice Agency IP% CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 of Orange County ( ILJAOC). The Integrated Law and Justice Agency of Orange County went into effect fiscal year 2007. The ILJAOC consists of 23 member agencies with an oversight board consisting of 12 members from the participating member agencies. The City acts as a treasurer for the ILJAOC and as such the activities of the ILJAOC are recorded in an Agency Fund. Annually, each member agency pays a percentage of the operating and replacement costs for the ILJAOC. The City's annual contribution and interest in the net equity of this joint venture at June 30, 2009, was immaterial. Complete separate financial statements can be obtained at the City of Newport Beach, 3300 Newport Boulevard, Newport Beach, California. (16) Commitments and Contingencies Claims and Judgments Numerous claims and suits have been filed against the City in the normal course of business. The estimated liability under such claims, based upon information received from the City Attorney, contracted attorneys and the Risk Manager, has been estimated and recorded as accrued claims and judgments payable (See Note 6). Circulation Improvement and Open Space Agreement The City entered into a Circulation Improvement and Open Space Agreement ( CIOSA) with a developer whereby the City received a loan of $14,395,572 to be used only for certain transportation and circulation improvements. The City agreed to match the contribution (without interest) by pledging 50% of future Fair Share Fees (developer impact fees) which are recorded in the Circulation and Transportation Special Revenue Fund. During the year ended June 30, 2009, the City received $859,820 of Fair Share Fees, and $429,910 was paid to the CIOSA Construction capital projects fund. Through June 30, 2009, $3,975,365 of Fair Share Fees has been paid. No additional liability has been recorded, because any future repayment is uncertain; any amounts not contributed by February 20, 2016, will be forgiven. Newport Coast Pre - Annexation Agreement In Fiscal Year 2001 -02, the City entered into a Pre - Annexation Agreement with the Newport Coast Committee that stipulated certain terms and conditions for the annexation of property collectively known as Newport Coast. In conjunction with the annexation, the City also agreed to sell the water service rights for the annexed area to Irvine Ranch Water District for $25.0 million. Among other basic provisions, the Pre - Annexation Agreement stipulates specific requirements for the use of proceeds from the sale of the water rights to Irvine Ranch Water District. The City has entered into an agreement to reimburse Newport Coast residents $18.0 million of the $25.0 million for certain public road and street improvements previously financed by property owner assessments. The assessment 123 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 debt relief will be provided to Newport Coast residents in equal installments of $1.2 million over 15 years. The remaining $7.0 million was used in locating, planning, and constructing a Community Center within the annexed area. Contractual commitments Construction and contractual commitments for major construction projects are as follows: Oasis Senior Center Rebuild Civic Center Kings Road /Kings Place Pavement Reconstruction Sunset Ridge Park Bay Knolls and Mariners Community Slurry Seal (17) Subsequent Events Limited Obligation Bond Issue Total Project Project To Date Unexpended Budget Expenditures Commitments $19,440,842 $2,219,776 $12,406,841 7,099,486 1,694,415 5,465,839 800,000 71,839 703,244 851,083 274,194 586,329 830,000 13,225 523,565 Subsequent to year end the City has issued certain limited obligation, 1915 Act assessment district improvement bonds listed as follows: District Name Par Value Issue Date Assessment District 103 Peninsula Point $3,295,700 October 2, 2009 The bonds are issued in serial maturities over fifteen years ranging from 1.5% to 4.1 %. The proceeds of these bonds, together with certain investment earnings, and certain monies will be used to finance the cost of the undergrounding power, telephone and cable facilities. Bond proceeds will also be used to establish a debt service reserve fund and to pay the costs of issuance of the Bonds. The aggregate assessed value levied in the district exceeds $168 million. Although the City will be collecting and disbursing funds for these districts, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds. Sale of Proposition 1A Receivable The emergency suspension of Proposition 1A was passed by the Legislature and signed by the Governor as ABX4 14 and ABX4 15 as part of the 2009 -10 budget package on July 28, 2009. Under the provision, the State will borrow 8% of the amount of property tax revenue apportioned to cities, counties and special districts. The state will be irzl CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 required to repay those obligations plus interest by June 30, 2013. The City of Newport Beach share of the State borrowing amounts to nearly $6.2 million. Authorized under ABX4 14 and ABX4 15, the Proposition 1A Securitization Program was instituted by California Communities to enable Local Agencies to sell their respective Proposition 1A Receivables to California Communities. Under the Securitization Program, California Communities simultaneously purchased the Proposition 1A Receivables, issued bonds ( "Prop 1A Bonds ") and will provide each local agency with the cash proceeds in two equal installments, on January 15, 2010 and May 3, 2010. The purchase price paid to the local agencies will equal 100% of the amount of the property tax reduction. All transaction costs of issuance and interest will be paid by the State of California. The City has no obligation on the bonds and no credit exposure to the State. Eariv Retirement Incentive Proaram (ERIP In October, 2009, the City Council approved Resolution 2009 -73 authorizing an Early Retirement Incentive Program (ERIP) to eligible employees, under the condition the program would meet the immediate and future fiscal, managerial and operational goals of the City to help mitigate declining General Fund revenues and institute long -term structural changes to avert future budget shortfalls and ensure that the City remains financially sound. There were 166 employees who met the following eligibility requirements: • Full -time, miscellaneous (non- safety) employee • 50 years of age or older as of January 31, 2010 • Eligible to retire from PERS with at least five years of service • Have at least three years of service with the City as of January 31, 2010 • Would actually retire from the PIERS system • Not the City Manger, City Clerk, or the City Attorney A total of 51 people participated and were approved by the Council for the Early Retirement Incentive Program through the Public Agency Retirement Systems ( "PARS ") Supplemental Retirement Program ( "SRP "). The Supplemental Retirement Plan offered through PARS allowed the City to set the payment, eligibility, and refilling based on the City's needs, as well as allowing the expense to be known and quantifiable. The benefit to the participating employee is paid via a 15 -year annuity of 7% of Final Pay up to $75,000 and 6% of amount of Final Pay over $75,000, and it complements and is in addition to an employee's CalPERS retirement benefit. The total estimated cost to fund the ERIP benefit approximates $950,000 for the first five years. After considering the costs of implementing the ERIP plan and the estimated reduction to the City payroll, the net savings are expected to reach nearly $3.1 million annually. irk? CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2009 Financial Markets A number of financial institutions have reported financial difficulties as an indirect result of delinquencies associated with home mortgages. The full ramifications of this are not determinable at this time and it's not possible to determine with certainty all of the institutions that might be impacted by current market conditions. IMI FINANCIAL SECTION z a p U W U1 J Q U z Q z_ SUPPLEMENTARY 1L INFORMATION NON-MAJOR GOVERNMENTALFUNOS IBM NON -MAJOR GOVERNMENTAL FUNDS Non -major Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources which are legally restricted to expenditures for specified purposes. The City of Newport Beach Special Revenue Funds are as follows: The State Gas Tax Fund accounts for all State Gas Tax related revenues and expenditures, including street repair, construction, and maintenance. State law requires that these funds be used exclusively for maintenance of the street and highway system. The Asset Forfeiture Fund was established to account for all revenues resulting from the seizure of assets in conjunction with criminal cases (primarily drug trafficking). It is the City's policy that all such funds shall be used for enhancement of law enforcement programs. The Office of the Traffic Safety DUI Grant Fund (OTS) is used to account for federal funding of the Selective Traffic Enforcement Program (STEP). These funds are used exclusively for DUI enforcement. The Justice Assistance Grant Fund (JAG) is used to account for federal support of law enforcement activities. The Circulation and Transportation Fund is used to account for fair share revenues collected from developers and restricted for capital improvement projects meeting the circulation element of the City's General Plan. The Building Excise Tax Fund is used to account for revenues received from builders or developers on building or remodeling projects within the City. Expenditures from this fund are used exclusively for public safety, libraries, parks, beaches, or recreational activities. The Combined Transportation Fund is used to account for the revenues and expenditures of funds received from the Orange County Combined Transportation Funding Program. Expenditures from this fund are used exclusively for transportation related purposes. The Arterial Highway Rehabilitation Fund is used to account for federal funds available through the Federal Highway Administration Arterial Highway Rehabilitation Program to share the cost of rehabilitating certain arterial roadways in the City. The Community Development Block Grant Fund is used to account for revenues and expenditures relating to the City's Community Development Block Grant program. These funds are received from the Federal Department of Housing and Urban Development and must be expended exclusively on programs for low or moderate income individuals /families. The Air Quality Management District Fund is used to account for revenues received from the South Coast Air Quality Management District restricted for the use of reducing air pollution. The Environmental Liability Fund is used to account for solid waste fees restricted for mitigation of future environmental liability relating to the handling of solid waste. The Supplemental Law Enforcement Services Fund (SLESF) is used to account for revenues received from the county to be used exclusively for front line law enforcement services. iW:3 The Traffic Congestion Relief Fund is used to account for all revenues received from the State Treasury related to Assembly Bill 2928. State law requires that these funds be used exclusively for maintenance or reconstruction costs on public streets and roads. The Newport Coast Annexation Fund is used to account for revenues and expenditures related to the Newport Coast Annexation Agreement. The Prop 1 B Fund is used to account for all revenues and expenditures related to the Prop 1 B fund. State law requires that these funds be used exclusively for all transportation related projects, including state highway safety and rehabilitation projects, local street and road improvements, congestion relief, traffic reduction and traffic safety. Non -major Debt Service Funds Debt Service Funds are used to account for debt service transactions including revenue collections and payments of principal and interest on long -term obligations of the City. The City of Newport Beach Debt Service Fund is as follows: The Library COP Fund is used to account for the debt service transactions related to the Certificates of Participation used to finance the construction of the Central Library. Non -major Capital Projects Funds Capital Projects Funds are used to account for resources used for the acquisition and construction of capital facilities by the City, except those financed by Enterprise Funds. The City of Newport Beach Capital Projects Funds are as follows: The Assessment District Fund is used to account for the receipt and expenditure of funds received from 1911 Act and 1915 Act Assessment Districts for capital improvement projects. The CIOSA Construction Fund is used to account for the receipt and expenditure of funds for the Circulation Improvement and Open Space Agreement (CIOSA). The improvements include street and frontage improvements. The Bonita Canyon Development Fund is used to account for the receipt and expenditure of funds for the Bonita Canyon Public Facilities Agreement. The improvements include certain public parks and recreation facilities, and street improvements and facilities. The Oil Spill Remediation Fund is used to account for the receipt of the settlement proceeds from the American Trader Company. These funds must be used on projects affecting the areas damaged by the spill. The Fire Station 7 Fund is used to account for the property acquisition, design and construction of a new fire station which will replace a temporary fire station that provides service in the northern part of the city. The Marine Science Center Fund is used to account for the design and construction of a new Marine Science Center. The City Hall Improvement Fund is used to account for the design and construction of a new Civic Center Complex. Ino] The Mariners Library Fund is a Special Revenue Fund used to account for revenues and expenditures of funds for the Mariners Library Capital Project. The Oasis Senior Center Fund is used to account for revenues and expenditures associated with the development and construction of the Oasis Senior Center. The Misc. Santa Ana Heights Projects Fund is used to account for various grants and projects associated with providing public works, parks and recreation opportunities within the part of the City known as Santa Ana Heights. The Marina Park Fund is used to account for the design and construction of the Marina Park. The Sunset Ridge Park Fund is used to account for the design and construction of the Sunset Ridge Park. The Police Facility Fund is used to account for expenditures for the future space needs expected of the existing facility buildings, including detailed facility planning and budgetary guidelines for possible building rehabilitation and /or expansion projects. The LG Headquarters Fund is used to account for expenditures for the future space needs expected of the existing headquarters buildings, including detailed facility planning and budgetary guidelines for possible building rehabilitation and /or expansion projects. Non -major Permanent Funds Permanent Funds are used to report resources that are legally restricted for the extent that only earnings, not principal, may be used for purposes that support the reporting government's programs. The City of Newport Beach Permanent Fund is as follows: The Bay Dredging Fund is used to account for the receipt of permanent endowments intended to fund the ongoing cost of maintaining and dredging of the Upper Newport Bay. The Ackerman Fund is used to account for the receipt of permanent endowments intended as follows: 75% of the fund's investment proceeds will be used for the purchase of High Tech Library Equipment while the remaining 25% will be used for Scholarships for needy students. IBhl This page left blank intentionally. 131 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 119% Special Revenue Circulation State Asset OTS and Gas Tax Forfeiture DUI Grant JAG Transportation Assets Cash and investments $ 2,765,000 $ 229,869 $ - $ - $ 2,046,113 Receivables: Accounts - 1,918 - - - Intergovernmental receivables - 55,209 - - Cash with fiscal agent - - - - - Prepaid items - - - - - Total Assets $ 2,765,000 $ 286,996 $ $ $ 2,046,113 Liabilities and Fund Balances Liabilities: Accounts payable $ 447 $ - $ - $ - $ 28,285 Unearned revenue - - - - - Unavailable revenue - - - - - Due to other funds - - 42,849 - - Total Liabilities 447 - 42,849 - 28,285 Fund balances: Reserved for encumbrances 542,837 - - - 250,620 Reserved for debt service - - - - - Reserved for permanent endowment - - - - - Reserved for prepaid items - - - - - Unreserved: Designated for special purposes 2,221,716 286,996 - - 1,767,208 Undesignated - - (42,849) - - Total fund balances 2,764,553 286,996 (42,849) - 2,017,828 Total liabilities and fund. balances $ 2,765,000 $286,996 $ - $ - $ 2,046,113 119% Special Revenue Building Arterial Community Air Quality Excise Combined Highway Development Management Environmental Tax Transportation Rehabilitation Block Grant District Liability $ 277,417 $ 3,974,325 $ - $ - $ 465,418 $ 3,034,533 - - - - - 5,826 - 325,018 - 32,013 - - - - - - - 68,864 $ 277,417 $ 4,299,343 $ $ 32,013 $ 465,418 $ 3,109,223 $ 14,882 $ 120,036 $ - $ 22,130 $ 3,045 $ 17,978 - 219,531 - - - - - 142,682 - - - - - - - 9,883 - - 14,882 482,249 - 32,013 3,045 17,978 14,448 1,424,406 - - - 3,609 - - - - - 137,728 248,087 2,392,688 - - 462,373 2,949,908 262,535 3,817,094 - - 462,373 3,091,245 $ 277,417 $ 4,299,343 $ - $ 32,013 $ 465,418 $ 3,109,223 (continued) 133 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 (continued) 134 Special Revenue Supplemental Traffic Newport Law Congestion Coast Prop 1B Enforcement Relief Annexation Transportation Assets Cash and investments $ - $ 241,817 $ 9,600,000 $ 1,303,377 Receivables: Accounts - - - - Intergovernmental receivables - 173,814 - - Cash with fiscal agent - - - - Prepaid items - - - - Total Assets S - S 415,631 $ 9,600,000 $ 1,303,377 Liabilities and Fund Balances Liabilities: Accounts payable $ - $ 22,160 $ - $ - Unearned revenue - - - - Unavailable revenue - - - - Due to other funds - - - - Total Liabilities - 22,160 - - Fund balances: Reserved for encumbrances - - - - Reserved for debt service - - - - Reserved for permanent endowment - - - - Reserved for prepaid items - - - - Unreserved: Designated for special purposes - 393,471 9,600,000 1,303,377 Undesignated - - - - Total fund balances - 393,471 9,600,000 1,303,377 Total liabilities and fund balances $ - $ 415,631 $ 9,600,000 $ 1,303,377 134 Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill COP District Construction Development Remediation Fire Station 7 $ - $ 1,665,194 $ 1,935,818 $ - $ - $ 52,318 - 41,417 - - - - 565,778 1,569,798 - 1,005,565 - - $ 565,778 $ 3,276,409 $ 1,935,818 $ 1,005,565 $ $ 52,318 $ - $ 65,704 $ - $ - $ - $ - - - - 27,603 - - - 65,704 - 27,603 - - - 259,052 10,489 - - - 565,778 - - - - - - 2,951,653 1,925,329 977,962 - 52,318 565,778 3,210,705 1,935,818 977,962 - 52,318 $ 565,778 $ 3,276,409 $ 1,935,818 $ 1,005,565 $ - $ 52,318 (continued) 1611 Assets Cash and investments Receivables: Accounts Intergovernmental receivables Cash with fiscal agent Prepaid items Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Unearned revenue Unavailable revenue Due to other funds Total Liabilities Fund balances: Reserved for encumbrances Reserved for debt service Reserved for permanent endowment Reserved for prepaid items Unreserved: Designated for special purposes Undesignated Total fund balances Total liabilities and fund. balances CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 (continued) Marine City Hall Mariners Oasis Science Center Improvements Library Senior Center e m m a nA„ „oo 90,000 $ 9u,000 $ $ $ 8,UU9,U88 $ 3,435 $ 523,725 506,713 1,227,088 b1U,148 1,fbU,813 (420,148) (1,750,813) 90,000 $ 11911 $ 523,171 b",1 /1 5,485,917 5,485,917 - $ - $ b,0U9,U88 Misc Marina Sunset Police Lifeguard SAH Projects Park Ridge Park Facility Headquarters 396,641 - - - - .n oao,ov i y y a Y $ 190 $ 51,375 $ 74,842 $ - $ 14,000 396,641 - - - - 417,531 806,017 168,459 2,175 16,179 814,362 857,392 243,301 2,175 30,179 (417,721) (857,392) (243,301) (2,175) (30,179) (417,721) (857,392) (243,301) (2,175) (30,179) $ 396,641 $ - $ - $ - $ - (continued) `KrI Assets Cash and investments Receivables: Accounts Intergovernmental receivables Cash with fiscal agent Prepaid items Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Unearned revenue Unavailable revenue Due to other funds Total Liabilities Fund balances: Reserved for encumbrances Reserved for debt service Reserved for permanent endowment Reserved for prepaid items Unreserved: Designated for special purposes Undesignated Total fund balances Total liabilities and fund balances CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2009 (continued) Permanent Fund Total Other Ackerman Governmental Bay Dredging Donation Funds $ 4,658,653 $ 1,141,487 $ 39,400,427 - - 535,802 - - 586,054 - - 3,141,141 - - 68,864 $ 4,658,653 $ 1,141,487 $ 43,732,288 350 $ 1,485,755 - 219,531 539,323 - 3,224,497 350 5,469,106 - - 2,505,461 - - 565,778 3,857,000 772,781 4,629,781 - - 137,728 801,653 368,356 34,189,012 - - (3,764,578) 4,658,653 1,141,137 38,263,182 $ 4,658,653 $ 1,141,487 $ 43,732,288 161.1 This page left blank intentionally. ISM) Revenues: Othertaxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning Fund balances (deficit), ending CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 State Gas Tax 1,731,934 83,831 31,511 Special Revenue Asset OTS Forfeiture DUI Grant 105,045 239,948 6,191 1,893 JAG 13,825 1,847,276 113,129 239,948 13,825 25,329 165,564 6,403 1,865,666 - - - 1,865,666 25,329 165,564 6,403 (18,390) 87,800 74,384 7,422 (160,000) (160,000) (178,390) 87,800 74,384 7,422 2,942,943 199,196 (117,233) (7,422) $ 2,764,553 $ 286,996 $ (42,849) $ - IE,9] Special Revenue Circulation Building Arterial Community Air Quality and Excise Combined Highway Development Management Environmental Transportation Tax Transportation Rehabilitation Block Grant District Liability $ - $ - $ - $ - $ - $ - $ 497,932 - - 1,730,412 670,918 551,715 98,737 - - 175,831 - - - - - 859,820 - - - - - - 76,637 7,256 123,062 - - 12,920 87,991 28,807 2,728 46,257 - - 4,857 32,930 965,264 185,815 1,899,731 670,918 551,715 116,514 618,853 - 16,705 123,878 - - - 124,479 - - 587,483 182,508 1,710,197 309,661 164,809 - 67,382 - - - - 84,000 - - 112,253 587,483 182,508 1,710,197 309,661 485,541 16,705 191,260 377,781 3,307 189,534 361,257 66,174 99,809 427,593 (509,910) (509,910) (132,129) 3,307 9,355 (10,658) - (10,658) 9,355 189,534 350,599 75,529 99,809 427,593 2,149,957 259,228 3,627,560 (350,599) (75,529) 362,564 2,663,652 $ 2,017,828 $ 262,535 $ 3,817,094 $ $ - $ 462,373 $ 3,091,245 (continued) MINI CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 (continued) Special Revenue Supplemental Traffic Newport Law Congestion Coast Prop 1B Enforcement Relief Annexation Transportation Revenues: Othertaxes $ - $ - $ - Intergovernmental 81,004 718,852 - Licenses, permits and fees - - - Fines and forfeitures - - - Investment income 659 3,247 381,234 Net increase in fair value of investments - 1,221 58,121 Donations - - - Other 1,252,014 37,266 14,008 81,663 723,320 439,355 1,303,288 Expenditures: Current: Public safety 81,663 - - Public works - - - Community development - - - Community services - - - Capital outlay - 333,884 - Debt service: Principal - - 1,200,000 Interest and fiscal charges - Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances (deficit), ending 1,354,500 81,663 333,884 1,200,000 1,354,500 389,436 (760,645) (51,212) (439,355) (439,355) 389,436 (1,200,000) (51,212) 4,035 10,800,000 1,354,589 $ - $ 393,471 $ 9,600,000 $ 1,303,377 1EK Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill COP District Construction Development Remediation Fire Station 7 $ - S - S - S - S - S - 22,023 2,286 75,889 3,322 700 2,318 - 12,183 28,525 - - - - 8,073,604 - 190,500 - - 22,023 8,088,073 104,414 193,822 700 2,318 268,011 - 6,708,317 997,208 330,000 - - 240,984 570,984 6,708,317 1,265,219 10,051 27,620 10,051 27,620 (548,961) 1,379,756 (1,160,805) 193,822 (9,351) (25,302) 548,750 764,634 429,910 548,750 764,634 429,910 (211) 2,144,390 (730,895) 193,822 (12,150) (12,150) (21,501) (25,302) 565,989 1,066,315 2,666,713 784,140 21,501 77,620 $ 565,778 $ 3,210,705 $ 1,935,818 $ 977,962 $ - $ 52,318 (continued) 1061 CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 (continued) Revenues: Othertaxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Excess (deficiency) of revenues over expenditures Capital Projects Marine City Hall Mariners Science Center Improvement Library 5 S S 450,000 22,313 2,057 474,370 216,843 1,694,416 216,843 1,694,416 257,527 (1,694,416) Other financing sources (uses): Transfers in 47,150 Transfers out - Total other financing sources (uses) 47,150 Net change in fund balances 304,677 (1,694,416) Oasis 119,886 6,392,588 6,512,474 2,282,350 2,282,350 4,230,124 4,230,124 Fund balances, beginning (724,825) (56,397) - 1,255,793 Fund balances (deficit), ending _L __L420,1481 _L _L,750.8131 $ - $ 5,485,917 1011 Capital Projects Misc Marina Sunset Police Lifequard SAH Projects Park Ridge Park Facility Headquarters $ 135,715 717,558 243,301 2,175 30,179 135,715 717,558 243,301 2,175 30,179 (135,715) (717,558) (243,301) (2,175) (30,179) (135,715) (717,558) (243,301) (2,175) (30,179) (282,006) (139,834) - - - $ (417,721) _L __L857,3921 $ (243,301) $ (2,175) $ (30,179) (continued) 145 CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2009 (continued) Revenues: Othertaxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances (deficit), ending Permanent Funds Total Other Ackerman Governmental Bay Dredging Donation Funds S - $ - $ 497,932 - - 7,644,404 - 175,831 - 859,820 142,243 50,565 1,239,526 61,903 - 324,944 - - 6,414,901 - - 8,266,161 204,146 50,565 25,423,519 278,959 - 408,594 19,350 1,272,757 - 2,282,350 16,230,545 1,614,000 353,237 19,350 22,440,442 204,146 31,215 2,983,077 204,146 1,799,799 (1,132,073) 667,726 31,215 3,650,803 4,454,507 1,109,922 34,612,379 $ 4,658,653 $ 1,141,137 $ 38,263,182 IE'll CITY OF NEWPORT BEACH Budgetary Comparison Schedule State Gas Tax Special Revenue Fund For the Year Ended June 30, 2009 Budgeted Amounts Original Final Variance with Final Budget Positive Actual (Negative) Revenues: Intergovernmental $ 1,507,500 $ 1,507,500 $ 1,731,934 $ 224,434 Investment income 145,000 145,000 83,831 (61,169) Net increase in fair value of investments - - 31,511 31,511 Total revenues 1,652,500 1,652,500 1,847,276 194,776 Expenditures: Capital outlay Total Expenditures Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance, beginning Fund balance (deficit), ending 4,561,003 3,187,829 1,865,666 1,322,163 4,561,003 3,187,829 1,865,666 (1,322,163) (2,908,503) (1,535,329) (18,390) 1,516,939 (160,000) (160,000) (160,000) - (3,068,503) (1,695,329) (178,390) 1,516,939 2,942,943 2,942,943 2,942,943 - $ (125,560) $ 1,247,614 2,764,553 $ 1,516,939 MIMI Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures Public safety Net change in fund balance Fund balance, beginning Fund balance, ending CITY OF NEWPORT BEACH Budgetary Comparison Schedule Asset Forfeiture Special Revenue Fund For the Year Ended June 30, 2009 66,310 (23,100) 199,196 $ 176,096 IEK 117,822 25,329 92,493 (74,612) 87,800 162,412 199,196 199,196 - $ 124,584 $ 286,996 $ 162,412 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) $ 40,000 $ 40,000 $ 105,045 $ 65,045 3,210 3,210 6,191 2,981 - - 1,893 1,893 43,210 43,210 113,129 69,919 66,310 (23,100) 199,196 $ 176,096 IEK 117,822 25,329 92,493 (74,612) 87,800 162,412 199,196 199,196 - $ 124,584 $ 286,996 $ 162,412 CITY OF NEWPORT BEACH Budgetary Comparison Schedule OTS DUI Grant Special Revenue Fund For the Year Ended June 30, 2009 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 345,591 $ 345,591 $ 239,948 $ (105,643) Total revenues 345,591 345,591 239,948 (105,643) Expenditures Public safety 229,731 229,731 165,564 64,167 Net change in fund balance 115,860 115,860 74,384 (41,476) Fund balance (deficit), beginning (117,233) (117,233) (117,233) - Fund balance (deficit), ending $ (1,373) $ (1,373) $ (42,849) $ (41,476) M1 CITY OF NEWPORT BEACH Budgetary Comparison Schedule JAG Special Revenue Fund For the Year Ended June 30, 2009 1!,-181 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental S - $ - $ 13,825 $ 13,825 Total revenues - - 13,825 13,825 Expenditures Public safety - - 6,403 (6,403) Net change in fund balance - - 7,422 7,422 Fund balance (deficit), beginning (7,422) (7,422) (7,422) - Fund balance (deficit), ending $ (7,422) $ (7,422) $ - $ 7,422 1!,-181 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Circulation and Transportation Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Licenses, permits and fees Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance, beginning Fund balance, ending (80,000) (510,000) (509,910) 90 (1,081,246) (601,665) (132,129) 469,536 2,149,957 2,149,957 2,149,957 - $ 1,068,711 $ 1,548,292 $ 2,017,828 $ 469,536 151 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 859,820 $ 859,820 $ 859,820 $ - 75,000 75,000 76,637 1,637 - 28,807 28,807 934,820 934,820 965,264 30,444 1,936,066 1,026,485 587,483 439,002 (1,001,246) (91,665) 377,781 469,446 (80,000) (510,000) (509,910) 90 (1,081,246) (601,665) (132,129) 469,536 2,149,957 2,149,957 2,149,957 - $ 1,068,711 $ 1,548,292 $ 2,017,828 $ 469,536 151 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Building Excise Tax Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Licenses, permits and fees Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance, ending Budgeted Amounts Original Final $ 125,000 $ 125,000 1,000 1,000 126,000 126,000 185,815 59,815 335,921 335,921 182,508 153,413 (209,921) (209,921) 3,307 213,228 259,228 259,228 259,228 - $ 49,307 $ 49,307 $ 262,535 $ 213,228 IIM Variance with Final Budget Positive Actual (Negative) $ 175,831 $ 50,831 7,256 6,256 2,728 2,728 185,815 59,815 335,921 335,921 182,508 153,413 (209,921) (209,921) 3,307 213,228 259,228 259,228 259,228 - $ 49,307 $ 49,307 $ 262,535 $ 213,228 IIM CITY OF NEWPORT BEACH Budgetary Comparison Schedule Combined Transportation Special Revenue Fund For the Year Ended June 30, 2009 153 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 2,067,348 $ 2,100,348 $ 1,730,412 $ (369,936) Investment income 75,000 75,000 123,062 48,062 Net increase in fair value of investments - - 46,257 46,257 Total revenues 2,142,348 2,175,348 1,899,731 (275,617) Expenditures: Capital outlay 5,853,490 3,447,264 1,710,197 1,737,067 Net change in fund balance (3,711,142) (1,271,916) 189,534 1,461,450 Fund balance, beginning 3,627,560 3,627,560 3,627,560 - Fund balance (deficit), ending $ (83,582) $ 2,355,644 $ 3,817,094 $ 1,461,450 153 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Arterial Highway Rehabilitation Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Total revenues Expenditures: Capital outlay Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending (10,658) (10,658) 108,658 400,000 350,599 (49,401) (350,599) (350,599) (350,599) $ (241,941) $ 49,401 $ - $ (49,401) 154 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 400,000 $ 691,342 $ 670,918 $ (20,424) 400,000 691,342 670,918 (20,424) 291,342 291,342 309,661 (18,319) 108,658 400,000 361,257 (38,743) (10,658) (10,658) 108,658 400,000 350,599 (49,401) (350,599) (350,599) (350,599) $ (241,941) $ 49,401 $ - $ (49,401) 154 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Community Development Block Grant Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Total revenues Expenditures: Community development Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources: Transfers In Transfers (Out) Total other financing (uses) Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending 11-11 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 452,262 $ 452,262 $ 551,715 $ 99,453 452,262 452,262 551,715 99,453 142,806 142,806 124,479 18,327 164,812 261,415 164,809 96,606 84,000 84,000 84,000 - 112,253 112,253 112,253 - 503,871 600,474 485,541 114,933 (51,609) (148,212) 66,174 214,386 9,355 9,355 (15,450) (15,450) - 15,450 (15,450) (15,450) 9,355 24,805 (67,059) (163,662) 75,529 239,191 (75,529) (75,529) (75,529) - $ (142,588) _L _a39,1911 $ - $ 239,191 11-11 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Air Quality Management District Special Revenue Fund For the Year Ended June 30, 2009 Expenditures Public works 26,415 26,415 16,705 9,710 Variance 85,585 85,585 99,809 14,224 Fund balance, beginning with Final 362,564 362,564 - Fund balance, ending $ 448,149 Budget $462,373 $ 14,224 Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 100,000 $ 100,000 $ 98,737 $ (1,263) Investment income 12,000 12,000 12,920 920 Net increase in fair value of investments - - 4,857 4,857 Total revenues 112,000 112,000 116,514 4,514 Expenditures Public works 26,415 26,415 16,705 9,710 Net change in fund balance 85,585 85,585 99,809 14,224 Fund balance, beginning 362,564 362,564 362,564 - Fund balance, ending $ 448,149 $ 448,149 $462,373 $ 14,224 11.11 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Environmental Liability Special Revenue Fund For the Year Ended June 30, 2009 Expenditures Public works $ 70,000 $ 128,400 Variance $ 4,522 Capital outlay 27,780 with Final 67,382 1,298 Total expenditures Budget 197,080 Budgeted Amounts 5,820 Positive 467,220 Original Final Actual (Negative) Revenues: 2,663,652 2,663,652 2,663,652 Taxes $ 425,000 $ 425,000 $ 497,932 $ 72,932 Investment income 140,000 140,000 87,991 (52,009) Net increase in fair value of investments - - 32,930 32,930 Total revenues 565,000 565,000 618,853 53,853 Expenditures Public works $ 70,000 $ 128,400 $ 123,878 $ 4,522 Capital outlay 27,780 68,680 67,382 1,298 Total expenditures 97,780 197,080 191,260 5,820 Net change in fund balance 467,220 367,920 427,593 59,673 Fund balance, beginning 2,663,652 2,663,652 2,663,652 - Fund balance, ending $ 3,130,872 $ 3,031,572 $ 3,091,245 $ 59,673 IMA CITY OF NEWPORT BEACH Budgetary Comparison Schedule Supplemental Law Enforcement Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Investment income Total revenues Expenditures: Public safety Net change in fund balance Fund balance, beginning Fund balance, ending fl,Y:3 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) S 160,000 $ 160,000 $ 81,004 $ (78,996) 2,000 2,000 659 (1,341) 162,000 162,000 81,663 (80,337) 162,000 162,000 81,663 80,337 fl,Y:3 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Traffic Congestion Special Revenue Fund For the Year Ended June 30, 2009 Budgeted Amounts Original Final Variance with Final Budget Positive Actual (Negative) Revenues: Intergovernmental $ 1,138,717 $ 1,138,717 $ 718,852 $ (419,865) Investment income 30,000 30,000 3,247 (26,753) Net increase in fair value of investments - 1,221 1,221 Total revenues 1,168,717 1,168,717 723,320 (445,397) Expenditures: Capital outlay 926,000 343,200 333,884 9,316 Net change in fund balance 242,717 825,517 389,436 (436,081) Fund balance, beginning 4,035 4,035 4,035 - Fund balance, ending $ 246,752 $ 829,552 $ 393,471 $ (436,081) MG] CITY OF NEWPORT BEACH Newport Coast Annexation Budgetary Comparison Statement For the Year Ended June 30, 2009 M-111 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Intergovernmental $ - $ - $ - $ Investment income 450,000 450,000 381,234 (68,766) Net increase in fair value of investments - - 58,121 58,121 Total revenues 450,000 450,000 439,355 (10,645) Expenditures Debt service: Principal 1,200,000 1,200,000 1,200,000 - Total expenditures 1,200,000 1,200,000 1,200,000 - Excess (deficiency) of revenues over expenditures (750,000) (750,000) (760,645) (10,645) Other financing uses Transfers in - - - - Transfers out (200,000) (200,000) (439,355) (239,355) Total other financing (uses) (200,000) (200,000) (439,355) (239,355) Net change in fund balance (950,000) (950,000) (1,200,000) (250,000) Fund balance, beginning 10,800,000 10,800,000 10,800,000 Fund balance, ending $ 9,850,000 $ 9,850,000 $ 9,600,000 $ (250,000) M-111 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Proposition 1 B Transportation Special Revenue Fund For the Year Ended June 30, 2009 Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance, ending (51,212) (51,212) 1,354,589 1,354,589 1,354,589 - $ 1,354,589 $ 1,354,589 $ 1,303,377 $ (51,212) 114 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,354,500 $ 1,354,500 $ 1,252,014 $ (102,486) - - 37,266 37,266 - - 14,008 14,008 1,354,500 1,354,500 1,303,288 (51,212) 1,354,500 1,354,500 1,354,500 - (51,212) (51,212) 1,354,589 1,354,589 1,354,589 - $ 1,354,589 $ 1,354,589 $ 1,303,377 $ (51,212) 114 This page left blank intentionally. ��a FINANCIAL SECTION z a p U W U1 J Q U z Q z_ SUPPLEMENTARY 1L INFORMATION INTERNAL SERVICE FUNDS liv. INTERNAL SERVICE FUNDS The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. The City of Newport Beach Internal Service Funds are listed below: The Insurance Reserve Fund is used to account for the City's self- insured general liability and workers' compensation program. The Compensated Absences Fund is used to account for the City's accumulated liability for compensated absences. The Retiree Insurance Fund is used to account for the cost of providing post - employment Health Care Benefit. The Equipment Fund is used to account for the cost of maintaining and replacing the City's rolling stock fleet and the rental of the fleet to operating departments. `M Assets Current assets: Cash and investments Receivables: Accounts Inventories Prepaid items Total current assets Non - current assets: Capital assets: Equipment Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total assets Liabilities Current liabilities: Accounts payable and accrued liabilities Accrued payroll Due to general fund Workers' compensation - current General liability - current Compensated absences - current Total current liabilities Non - current liabilities: Workers' compensation General liability Compensated absences Net OPEB obligation Total Noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Unrestricted Total net assets CITY OF NEWPORT BEACH All Internal Service Funds Combining Statement of Net Assets June 30, 2009 iri.7 Total Insurance Compensated Retiree Equipment Internal Reserve Absence Insurance Maintenance Service Funds $ 20,882,363 $ 3,177,746 $ - $ 15,426,317 $ 39,486,426 307,642 - 569,147 13,258 890,047 - - - 259,731 259,731 161,579 161,579 21,190,005 3,177,746 730,726 15,699,306 40,797,783 - - - 22,691,452 22,691,452 (15,883,324) (15,883,324) 6,808,128 6,808,128 21,190,005 3,177,746 730,726 22,507,434 47,605,911 $ 482,462 $ - $ 13,455 $ 102,865 $ 598,782 - - - 43,376 43,376 - - 462,187 - 462,187 2,973,250 - - - 2,973,250 2,446,253 - - - 2,446,253 1,939,662 1,939,662 5,901,965 1,939,662 475,642 146,241 8,463,510 8,919,750 - - - 8,919,750 3,451,484 - - - 3,451,484 - 7,844,423 - - 7,844,423 4,408,000 4,408,000 12,371,234 7,844,423 4,408,000 - 24,623,657 18,273,199 9,784,085 4,883,642 146,241 33,087,167 - - - 6,808,128 6,808,128 2,916,806 (6,606,339) (4,152,916) 15,553,065 7,710,616 $ 2,916,806 $ (6,606,339) $ (4,152,916) $ 22,361,193 $ 14,518,744 iri.7 Operating revenues: Charges for services Retiree reimbursements Employee contributions Other Total operating revenues Operating expenses: Salaries and wages Depreciation Professional services Maintenance and supplies Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences OPEB ARC- Cash subsidy OPEB ARC- Implied subsidy Other Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net Increase in fair value of investments (Loss) on sale of capital assets Total nonoperating revenues Change in net assets Net assets (accumulated deficit), beginning Net assets, (accumulated deficit), ending CITY OF NEWPORT BEACH Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2009 629,676 274,028 GM Inn 933,677 86,254 - 442,250 37,538 - 192,462 (11,039) 19G 709 _ 891 971 231,712 (2,196,785) 2,302,029 1,158,180 504,028 (11,039) 1,651,169 1,270,633 1,983,129 (6,838,051) (1,956,131) 20,059,164 Total Insurance Compensated Retiree Equipment Internal Reserve Absence Insurance Maintenance Service Funds $ 6,528,118 $ 2,266,002 $ 2,720,000 $ 6,193,129 $. 17,707,249 - - 1,043,956 - 1,043,956 - - 376,538 - 376,538 307,814 47,849 933 356,596 6,835,932 2,266,002 4,188,343 6,194,062 19,484,339 - - - 1,520,219 1,520,219 - - - 1,846,971 1,846,971 - - - 51,067 51,067 - - - 615,644 615,644 - - - 481,805 481,805 3,216,337 - - - 3,216,337 3,589,622 - - - 3,589,622 - 2,158,082 - - 2,158,082 - - 2,720,000 - 2,720,000 - - 2,703,000 - 2,703,000 962,128 962,128 6,805,959 2,158,082 6,385,128 4,515,706 19,864,875 29,973 107,920 (2,196,785) 1,678,356 (380,536) 629,676 274,028 GM Inn 933,677 86,254 - 442,250 37,538 - 192,462 (11,039) 19G 709 _ 891 971 231,712 (2,196,785) 2,302,029 1,158,180 504,028 (11,039) 1,651,169 1,270,633 1,983,129 (6,838,051) (1,956,131) 20,059,164 13,248,111 $ 2,916,806 $ (6,606,339) $ (4,152,916) $ 22,361,193 $ 14,518,744 1RI1 Cash flows from capital and related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest on investments Net cash provided for investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of operating income to net cash provided (used) by operating activities: Cash flows from operating activities - - - (1,140,877) (1,140,877) 100,035 100,035 (1,040,842) (1,040,842) 903,704 CITY OF NEWPORT BEACH 634,712 1,662,208 Combining Statement of Cash Flows - Internal Service Funds 634,712 1,662,208 For the Year Ended June 30, 2009 1,795,838 902,702 - 3,262,190 5,960,730 19,086,525 Total 12,164,127 Insurance Compensated Retiree Equipment Internal $ 39,486,426 Reserve Absences Insurance Maintenance Service Funds Cash flows from operating activities (Increase) decrease in accounts receivable (307,642) Receipts from user departments $ 6,220,476 $ 2,266,002 $ 3,763,956 $ 6,430,087 $ 18,680,521 Payments to employees (2,657,337) (1,487,092) - (1,512,521) (5,656,950) Payments to suppliers (2,978,819) - (3,362,636) (1,250,179) (7,591,634) Other operating cash receipts 307,814 424,387 933 733,134 Net cash provided (used) for operating activities 892,134 778,910 825,707 3,668,320 6,165,071 (31,678) (183,832) 111,081 Cash flows from noncapital financing activities: 559,000 - - - Cash received from other funds Increase in general liability (825,707) - (825,707) Net cash provided (used)by noncapital financing 284,212 (825,707) - (825,707) Cash flows from capital and related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest on investments Net cash provided for investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of operating income to net cash provided (used) by operating activities: Cash flows from operating activities - - - (1,140,877) (1,140,877) 100,035 100,035 (1,040,842) (1,040,842) 903,704 123,792 634,712 1,662,208 903,704 123,792 634,712 1,662,208 1,795,838 902,702 - 3,262,190 5,960,730 19,086,525 2,275,044 12,164,127 33,525,696 $ 20,882,363 $ 3,177,746 $ $ 15,426,317 $ 39,486,426 Operating income (loss) $ 29,973 $ 107,920 $ (2,196,785) $ 1,678,356 $ (380,536) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation - - - 1,846,971 1,846,971 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (307,642) - 861,617 236,958 790,933 Decrease in inventories - - 89,867 89,867 Decrease in prepaid items - - 5,553 - 5,553 Increase (decrease) in accounts payable and accrued payroll 326,591 - (31,678) (183,832) 111,081 Increase in workers' compensation 559,000 - - - 559,000 Increase in general liability 284,212 - - - 284,212 Increase in compensated absences - 670,990 - - 670,990 Increase in net OPEB obligation 2;187,000 2,187,000 Total adjustments 862,161 670,990 3,022,492 1,989,964 6,545,607 Net cash provided (used) by operating activities $ 892 134 $ 778,910 $ 825,707 $ 3,668,320 $ 6,165,071 Nan -cash investing, capital, and financing activities: Net increase in fair value of Investments 274,028 37,538 - 195,462 507,028 (Loss) on sale of capital assets (11,039) (11,039) Total of non -cash activities $ 274,028 $ 37,538 $ $ 184,423 $ 495,989 ` - -VA This page left blank intentionally. ID& FINANCIAL SECTION z a p U W U1 J Q U z Q z Iz SUPPLEMENTARY INFORMATION FIDUCIARY FUNDS 111-101 FIDUCIARY FUNDS Fiduciary Funds are used to account for assets held by the City in a trustee capacity, or as an agent for other government entities, private organizations, or individuals. The City of Newport Beach Fiduciary Funds are listed below: The Special Assessment District Fund is used to account for funds received from affected property owners and payable to holders of 1911 Act, 1915 Act and other special assessment bonds. The Business Improvement District Fund is used to account for monies collected from local business districts for district property improvements and business enhancement. The Integrated Law and Justice Agency for Orange County (ILJAOC) Fund is used to account for monies collected from member agencies for the operation of ILJAOC. `ria CITY OF NEWPORT BEACH Agency Funds Combining Statement of Fiduciary Assets and Liabilities June 30, 2009 Liabilities Due to bondholders $ 6,759,807 $ - $ - $ 6,759,807 Due to others - 229,398 30,209 259,607 Due toILJAOC - - 1,037,964 1,037,964 Total liabilities $ 6,759,807 $ 229,398 $ 1,068,173 $ 8,057,378 171 Special Business Assessment District Improvement ILJAOC Assets Fund Fund Fund Totals Cash and investments S 2,658,042 $ 229,398 $ 985,979 $ 3,873,419 Cash with fiscal agent 4,101,765 - - 4,101,765 Prepaid expenses - 2,194 2,194 Intergovernmental receivable - - 80,000 80,000 Total assets $ 6,759,807 $ 229,398 $1,068,173 $ 8,057,378 Liabilities Due to bondholders $ 6,759,807 $ - $ - $ 6,759,807 Due to others - 229,398 30,209 259,607 Due toILJAOC - - 1,037,964 1,037,964 Total liabilities $ 6,759,807 $ 229,398 $ 1,068,173 $ 8,057,378 171 CITY OF NEWPORT BEACH Statement of Changes in Fiduciary Net Assets All Agency Funds For the Year Ended June 30, 2009 Balance Additions Deductions June 30, 2009 $ 4,395,646 $ (3,736,268) $ 2,658,042 2,853,559 (3,089,571) 4,101,765 $ 7,249,205 $ (6,825,839) $ 6,759,807 $ 7,249,205 $ (6,825,839) $ 6,759,807 Business Improvement District: Assets Cash and investments $ 120,869 $ 515,589 $ (407,060) $ 229,398 Liabilities Due to others $ 120,869 $ 515,589 $ (407,060) $ 229,398 ILJAOC: $ 6,336,441 Balance $ (6,825,839) June 30, 2008 Special Assessment: 220,452 515,589 Assets 259,607 Due to ILJAOC Cash and investments $ 1,998,664 Cash with fiscal agent Total Liabilities 4,337,777 Total Assets $ 6,336,441 Liabilities $ (307,520) $ Due to bondholders $ 6,336,441 Balance Additions Deductions June 30, 2009 $ 4,395,646 $ (3,736,268) $ 2,658,042 2,853,559 (3,089,571) 4,101,765 $ 7,249,205 $ (6,825,839) $ 6,759,807 $ 7,249,205 $ (6,825,839) $ 6,759,807 Business Improvement District: Assets Cash and investments $ 120,869 $ 515,589 $ (407,060) $ 229,398 Liabilities Due to others $ 120,869 $ 515,589 $ (407,060) $ 229,398 ILJAOC: $ 6,336,441 $ 7,249,205 $ (6,825,839) $ 6,759,807 Due to others 220,452 515,589 Assets 259,607 Due to ILJAOC 448,933 589,031 1,037,964 Total Liabilities Cash and investments $ 424,153 $ 869,346 $ (307,520) $ 985,979 Prepaid expenses - 2,194 2,194 Intergovernmental receivable 124,363 - (44,363) 80,000 Total Assets $ 548,516 $ 871,540 $ (351,883) $ 1,068,173 Liabilities Due to others $ 99,583 $ - $ (69,374) $ 30,209 Due to ILJAOC 448,933 589,031 - 1,037,964 Total Liabilitites $ 548,516 $ 589,031 _L _L69,3741 $ 1,068,173 Totals - All Agency Funds: Assets Cash and investments $ 2,543,686 $ 5,780,581 $ (4,450,848) $ 3,873,419 Cash with fiscal agent 4,337,777 2,853,559 (3,089,571) 4,101,765 Prepaid expenses - 2,194 2,194 Intergovernmental receivable 124,363 - (44,363) 80,000 Total Assets $ 7,005,826 $ 8,636,334 $ (7,584,782) $ 8,057,378 Liabilities Due to bondholders $ 6,336,441 $ 7,249,205 $ (6,825,839) $ 6,759,807 Due to others 220,452 515,589 (476,434) 259,607 Due to ILJAOC 448,933 589,031 1,037,964 Total Liabilities $ 7,005,826 $ 8,353,825 _L 2,302,273j $ 8,057,378 111150 J W STATISTICAL SECTION U1 D N C] D r N M n 0 z FINANCIAL TRENDS This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules contain trend information illustrating how the City's financial performance and well -being has changed over time: • Net Assets by Component • Changes in Net Assets • Fund Balances of Governmental Funds • Changes in Fund Balance of Governmental Funds Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. 174 CITY OF NEWPORT BEACH Net Assets by Component Last Eight Fiscal Years (accrual basis of accounting Fiscal Year 2002 2003 2004 2005' 2006 2007 2008 2009 Govemmentai activities: Invested in capital assets, net of related debt $1,391,677,813 $1,412,372,465 $1,512,651,096 $ 1,915,348,883 $ 2,005,643,651 $ 2,027,026,053 $ 2,050,925,370 5 2,060,959,265 Restricted 38,689,9513 37,650,692 45,494,082 54,285,743 51,901,103 35,017,831 40,988,923 44,574,005 UnuoArcted 41,095,786 49,322,283 46,772,913 61,894,956 56,662,229 75,989,169 87,802,996 96,592,345 Total govtursum al activXies $1171_463.555 $1199.345440 $1604.918.091 _L2 _L1,1 _L2 _L j717289 _L j,2 Business -type activities: Invested in capital assets, net of related debt $ 87,470,314 $ 91,912,205 $ 94,206,704 $ 99,641,411 $ 104,602,266 $ 107,231,308 $ 107,313,603 $ 108,510,361 Restricted - - - - - - - - Unrestricted 26,123,500 24,227,579 21,493,528 19,665,535 16,907,367 15,808,357 13,639,027 11,435,263 Total business- type activities $ 113.593.814 $ 116.139.784 $ 115700332 $ 119.306.9+16 $ 121,509.633 $ 123.039.865 $ 120.952.830 _L 119945.624 Primary government Invested in capital assets, net of related debt $1,479,148,127 $1,504,284,670 $1,606.857,800 $ 2,014,990294 $ 2,114245,917 $ 2,134257,361 $ 2,158,23 &973 $ 2,169,469,626 Restricted 38,689,956 37,650,692 45,494,082 54,285,743 51,901,103 35,017,831 40,985923 44,574,005 Unrestricted 67219,286 73,549,862 68,266,441 81,560,491 73,569,596 91,797,526 101,442023 108,027.608 Total primary govemmenl $1,585,057,369 $1,615,485,224 $1,720,618,323 $ 2,150,836,528 $ 2,235,716,616 $ 2,261,072,718 $ 2,300,669,919 $ 2,322,071,239 2005 data varies from trend because of increased capital assets related to PCH Relinquishment The City of Newport Beach implemented GASB 34 fir the fiscal year ended June 30, 2002. Information poor to the implementation of CASE 34 is not available iIFR CITY OF NEWPORT BEACH Changes In Net ASaets Last Eight Fiscal Years (accrual basis of accounting) 1 2005 data varies from trend because of increased capital assets related to PCH Relinquishment. 2006 data varies from trantl because of increased capital assets related mostly to Bristol St. Relinquishment, Newport Coast Community Center, and Fire Station k 7. 2008 data varies from bend because of,rc,...d capXal assets related to Santa Ann Heights Annexation. The Cify cf Newport Beech implemented GASB 34 Mr Me Fecal year ended June 30, 2002 Information prior M Me implementation of GASS 34 is not available. IIFil 2002 2003 2004 2005 2006 2007 2008 2009 Expenses: Governmental stfir s: General government $ 12,792,860 $ 10,799,630 $ 11,428,379 $ 11,378,609 $ 14,509,827 $ 14,166,168 $ 15,556,657 $ 16,430,400 Public safety 47,168,918 56,521,871 58,178,633 63,214,291 67,789,121 69,795,386 75,821,082 79,301,191 Public v101RS 3,320,516 32089,038 38,127,832 46,359,871 33,870,359 39,179,644 42,631,401 45,600,292 Communitydevelopment 4,471,397 5,782,215 6,229,785 6,437,006 8,157.925 9.020,868 10,052,871 10,283.464 Community services 11,044,086 10,404.285 14,741,504 13,073,215 13,803,755 23,304,053 19,146,588 201589,031 Interest on long -term debt 517,102 673,94-0 542,126 508,869 479,529 523,401 532,569 437,207 Total governmental activities expenses 106,314,879 116,270,983 129,248,259 140,971,861 138,610,516 155,989,720 163,741,168 172,641,585 Business -type activities: Water 14,606,514 14,540,036 17,185,034 14,467,233 16,228,213 17,399,900 20,148,517 18,210,821 Wastewater 2,588,833 3,115,136 3,363,954 2,740,908 3,143,629 3,259,837 3,423,592 3,753,053 Total business -type activities expenses 17,395,347 17,655,172 20,548,988 17,208,141 19,371,842 20,659,737 23,572,109 21,963,874 Total primary government expenses 123,710,226 133,926,155 149,797,247 158,180,002 157,982,358 176,649,49 187,313,277 194,605,459 Program revenues: Governmental activities: Charges for services: General government 2270,082 3,008,162 2,109,141 2,412,769 2,623,272 2944,100 3,055,982 2,543,880 Public safety 10,549,410 11,603,584 15,739,912 16,264,493 13,669,509 15,756,327 16,649,400 14,757,266 Publicwodts 5436,948 5,009,048 5,481,464 6,031,248 5,133,726 5,492,167 5616,118 5,532,871 Community development 3,236,483 4,022,904 5,196,276 5,129,558 5,667,289 5,682,636 5,597,309 4,852,534 Communiryserv'ioes 2,533,899 6,039,226 3,846,566 3,952,862 9,433,278 9,054,504 9,203513 9,052,330 Operating Grants and Contributions: 7,891,059 8,750,565 10,681,329 17,480.834 12,772,599 16,172,023 15,718851 13,404.286 Capital Grants and Contdbutons: 1,562,458 4,146,728 674,815 20,205,948 ' 69, 473,891 r 6,904716 31,037,915 s 24,633,716 Total governmental activities program revenues 33,480,339 42,580,217 43729,503 71,478,012 118,773,566 61,996,473 88939688 74,776,883 Business -type activities: Charges for services: Water 16,665724 16,489,284 18,430,000 17,573,196 17,923,523 17,918,968 17,270,511 16,966,621 Wastewater 2,945804 2,768.941 2,882,793 2,900,672 3,311,089 3,535,050 3,552,780 3,479,565 Tolal business -type activities program revenues 19,611,528 19,258,225 21,312,793 20,473,868 21,234,612 21.454,016 20,823,291 20,446,186 Total primary government program revenues 53,091867 61,838,442 65,042,296 91,951880 140,008,178 83,450,491 107,762,379 95223,069 Net revenues (expens es) : Governmental activities (72,834,540) (73,690,766) (85,516,756) (69,493,849) (19,836,950( (93,993247) (76,802,080) (97,864702) Business type activities 2,218181 1,603,053 763,805 3265,727 1862,770 794,281 (2,748,818) (1517,688) Total net revenues (expenses) $ (70,618,359) $ (72,087,713) $ (64,754,951) $ (66,228,122) $ (17,974,180) $ (93,198,966) $ (79,550,898) $ (91 1 2005 data varies from trend because of increased capital assets related to PCH Relinquishment. 2006 data varies from trantl because of increased capital assets related mostly to Bristol St. Relinquishment, Newport Coast Community Center, and Fire Station k 7. 2008 data varies from bend because of,rc,...d capXal assets related to Santa Ann Heights Annexation. The Cify cf Newport Beech implemented GASB 34 Mr Me Fecal year ended June 30, 2002 Information prior M Me implementation of GASS 34 is not available. IIFil CITY OF NEWPORT BEACH Changes in Net Assets Last Eight Fiscal Years (accrual basis of accounting) 2008 2009 $ 67,388;838 $ 2002 2003 2004 2005 2508:113 2006 2007 General revenues and other changes in net assess: 3,853,119 31961,634 304,920 356,237 373,350 230,115 Govemmensal activities: 1.764.827 - - Sale of service rights 25,006000 - - Taxes'. - - - - - Transfers Property taxes $ 33,583,659 $ 39,474,864 $ 43,631,829 $ 46,303,366 $ 57,808,545 $ 63,003,057 Sales tax 18796571 20,133.598 21.843,884 18,977,828 21,465,557 21.088,118 Sales tax io-lieu - - - 5,339,827 5,720,028 7,348,253 Transient occupancy taxes 7,696655 8,055,266 8,045,132 9,215,862 888,]79 9,832,729 12,059,008 Business license 2,4711 2,030,845 2,830,127 3,458,165 374,893 3,848,381 3,770,172 Franchise lazes 2,735,641 2,461 2;765,519 3,029,476 3,162,588 4,613,932 Motor vehicle license fees 4,380,070 3,970,103 3,624,917 6,395,860 300,751 391,559 Motor vehicle fines 711,693 742,957 - 29,880 - - - Other times 341620 314,725 266642 240,530 - 508,331 515,128 Invesimn- Amon. 2,171,474 2,111451 564,415 1,209,074 1,939,941 3,175,582 Net increase in fair value of (57,783) - (40,000) - - invasmarts 1,093913 318,686 (3601 (258,125) (715,615) (545,533) Gain on sale of assets 160,236 130,954 - 106246067 - - - Ohrer 12,570 1,294,628 214,536 761,111 776,907 2,232070 Property income 3,771,556 - - - - - Share ofjoint venture net 106845,682 239,058,514 B4,417,402 23,911,3% 47,884,236 22,408;326 2008 2009 $ 67,388;838 $ 70,126,680 21,856242 17,925.956 8,017539 2508:113 12,751,518 11,170,956 4,119,108 4,273,642 3,853,119 31961,634 304,920 356,237 373,350 230,115 3,6M.314 1.764.827 506485 1,096848 1,858,883 1,863020 Primary Revenue Sources $80,000,000 $20,000,000 $60,000,000 - $50,000,000 - $40,000,000 - $30,000,000 $20,000,000 $10,000,000 2002 2003 2004 2005 2006 2002 2008 2009 sv,raaMra�a �salaa rax n1.. Ounx., Tares OSaka Tax -In Lieu ir&l 2,120,582 389,418 146819 100,325 (513791) 253,207 - - Capital contributions 636206,102 17,636,792 102,713421 213,779,060 - - - - Sale of service rights 25,006000 - - - - - - - Transfers 33.2]7 57,783 40,000 Total governmental activities 941.247,399 99.303.148 186,364,438 308,552,363 104,254,352 11791 124,686.316 120,273,028 Business -type aciivitiem Investment inmrm 888,]79 505,619 203,041 424,157 549,012 792,936 588,870 374,893 Net increase in fair value of Investments 428,199 440,697 (87,078) (87,921) (169,095) (57,185) 72,913 135,789 Property income 27,100 29,880 29,280 26,970 - - - Centel contributions - - 215,331 - - - - Transfers - (33,277) (57,783) - (40,000) - - Thai Mulnesui activNes 1,344,078 942,919 302,791 363,206 339,917 735,751 661,783 510,682 Total primary government 942.591 477 106246067 186,667,229 308,915,569 10,594,269 118.640,304 125,348,099 120,783,710 Changes In net assets Governmental acUrvie. 868,412859 25,612,382 106845,682 239,058,514 B4,417,402 23,911,3% 47,884,236 22,408;326 Business -type activities 3,560,259 2,545,972 1,066596 3,628,933 2,202,687 1,530,032 (2,087035) (1,007,006) Total prim., .v.,rment IS 871,973,118 $ 28,158,354 $ 101,912,278 $ 242,687447 $ 86,620.089 $ 25,441,338 $ 45,797.201 $ 21,401,320 Primary Revenue Sources $80,000,000 $20,000,000 $60,000,000 - $50,000,000 - $40,000,000 - $30,000,000 $20,000,000 $10,000,000 2002 2003 2004 2005 2006 2002 2008 2009 sv,raaMra�a �salaa rax n1.. Ounx., Tares OSaka Tax -In Lieu ir&l CITY OF NEWPORT BEACH Fund Balances of Governmental Funds Last Eight Fiscal Years (modified accrual basis of accounting) Fiscal Year Contributions fund 2002 2003 2004 2005 2006 2007 2008 Reserved 2009 $ - $ - $ 1,155,638 $ 3,223,047 $ 1,656,459 $ 856,506 $ 641,469 Unreserved (457,464) General fund: 1,042,147 794,249 1,977,264 Total Contributions fund $ 7,501 $ (457.464) $ (956.689) $ 2197785 Reserved $ 3,165,787 $ 4,393,418 $ 6,678,579 $ 4,673,198 $ 9,374,722 $ 7,233,703 $ 6,807,094 $ 5,907,205 Unreserved 25,171,551 31,929,366 37,765,801 49,814,197 45,212,339 62,679,499 72,252,045 73,703,759 Total general fund $28,337,338 $36,322,784 $44,444,380 $18,157,202 $54,487,395 $54,587,061 $69,913,202 $79,059,139 $ 79,610,964 Special revenue funds 11,057,395 18,789,098 16,895,613 Tide and submerged land fund: 7,506,021 18,684,221 20,617,006 21,582,975 Capital projects funds 7,120,032 - - 6,076,969 2,077,124 Reserved $ 294,876 $ 457,777 $ 340,208 $ 552,713 $ 538,965 $ 642,985 $ 1,415,088 $ 351,012 Unreserved 238,822 356,075 120,328 194,174 27,633 143,946 259,701 Total all other governmental funds 288,952 Total tide and submerged land fund $ 533,698 $ 813,852 $ 460,536 $ 746,887 $ 566,598 $ 786,931 $ 1,674,789 $ 639,964 Mariners library fund: Reserved $ - $ 382,900 $ 142,016 $ 1,029,047 $ - $ - $ - $ - Unreserved 596,800 824,438 (1,750,160) (2,061,268) Total Mariners library fund $ $ 979,700 $ 966,454 $ 1,029,047 $ (1,750,160) $ (2,061,268) $ $ Contributions fund Reserved $ 7,501 $ - $ - $ 1,155,638 $ 3,223,047 $ 1,656,459 $ 856,506 $ 641,469 Unreserved (457,464) (956,689) 1,042,147 794,249 1,977,264 Total Contributions fund $ 7,501 $ (457.464) $ (956.689) $ 2197785 $ 3,223,047 $ 1,656,459 $ 1,650,755 $ 2,616.733 All other governmental funds: Reserved $ 4,669,957 $ 4,693,197 $ 3,973,823 $12,230,132 $18,157,202 $ 8,958,652 $ 9,788,771 $ 26,535,293 Unreserved, reported in: Special revenue funds 11,057,395 18,789,098 16,895,613 10,099,453 7,506,021 18,684,221 20,617,006 21,582,975 Capital projects funds 7,120,032 - - 6,076,969 2,077,124 (1,196,933) 3,271,954 (11,025,095) Permanent funds 15 285,506 404,771 660,029 934,648 1,170,009 Total all other governmental funds $22,847,399 $23,482,295 $20,869,436 $28,692,060 $28,145,118 $27,105,969 $34,612,379 $ 38,263,182 Fund Balances $90.000,000 080,000,000 - $70,000,000 - $60,000,000 - $50,000,000 $40,900,000 $30,000,000 $20,000,000 $10,000,000 - 2002 2003 2004 2005 2006 2oo7 2008 2009 ETntel General Fund ETOdl all olhar G.- un..nlel FUnde The City o /Newport Beach has elected to show only eight years of data for this schedule. 1rV CITY OF NEWPORT BEACH Changes in Fund Balances of Governmental Funds Last Eight Fiscal Years (modified accrual basis of accounting) Adjusted to include Property Tax-in lieu of VLF which was previously reported as intergovernmental revenue The City of Newport Beach has elected to show only eight years of data for this schedule. `INK Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 Revenues: Texas $ 65,878,471 $ 72.864.836 $ 79,874,751 $ 91,606,863 t $ 102,737,810 $ 112,230,054 $ 118,756,201 $ 115,711,574 Intergovernmental 26,227,740 10,379,792 16,108,023 19,513,589 14,842,994 18,866,929 21,005,429 11,434,885 Licenses and permits 3,350,958 4,397,520 5,429,632 4,961 5,708,965 4,574,659 6,474,789 5,883,515 Charges for services 10,338,569 11,156.294 11,516,782 13,104,478 13,135,366 14,452,723 15,073,178 14,498,120 Fines and todeitures 3,31 3;448,826 3,61 3,422,735 3,841,843 4,126,351 4,61 4,572,611 Investment Income 2,758,557 1,941,046 887,513 2,356,747 3,847,982 5,431,137 5,463,066 3,245,677 Net Increase(dacrease) in far ue of Investments 1,268,972 1,468,682 (360,586) (493,879) (1,325,211) (626,881) 720,488 1,472,335 Propedy income 10,130,165 10,947,021 11,857,671 12,337,339 13,625,142 13,965,815 15,217,803 14,032,342 Donations 746,774 1,819,159 2,704,367 1,087,826 883,405 1,379,461 2,159,637 6,760,140 Contributions from property owners - - - 14,779,013 - - - Other 1,782,696 2,594504 478,200 984446 1,042,882 1,967,465 4,205,095 8,501,014 Total revenues 125,867,066 121,013,680 132,102,316 163,663,391 158,341,178 176,367,713 193,740,128 186,112,213 Expendeursa Current: General government 12,292,008 9,689,275 11,024,256 10,920,667 12,531,200 13,706,061 14,508,103 15,560,823 Publiceafety 47,841,176 53,035,377 56,849,718 59,481 65.262,069 68,843,947 73,486,413 76,561,175 Publi.evid, 19,418,067 21,259,782 22,780,896 24,365,996 26,430,751 28,352,293 30,108,941 30,6191 Community developmem 4586,192 5,457,498 5,723,031 4144,917 7,900,503 7,753,035 8,701 9,971,536 Community services 9,418,041 9,382,608 10,827,346 10,351,414 12,730,727 13,988,589 14,478,146 17,485,605 Capital outlay 38,613,906 14.684.897 15,188,550 33,486,048 24,811,237 45,615,169 20,524,638 26,002,338 Debt service: Principal retirement 1,291,099 1,822,913 1,668,350 1,688,801 1,715,542 3,736,587 3,261 3,292,641 Interest and fiacal chi 466,974 529,808 520,228 499,077 480,909 458,035 577,299 482,908 Total expenditures 133,927,463 115,862,158 124,582,375 146,939,054 151,862,938 182,453,716 165,651,329 181,976,431 Exceed (deficiency) of revenues over (under) expenditures (8,060,397) 5,151,522 7,519,941 16,724,337 6,478,240 (6,086,003) 28,088,799 4,135,782 Other financing sources (uses): Transfers in 10,927,460 14,376,167 16,553,395 20,601,957 25,194,920 20,271,396 27,583,922 23,354,366 Transfers out (11,669,089) (14,342,890) (18,495,612) (20,612,176) (31,177,725) (22,521,396) (36,076,952) (23,354,366) Proceeds from issuance of debt 18,000,000 2,630,736 5,000,000 Total other financing sources (uses) 17,25$371 2,664,013 (1,942,217) (10,219) (5,982,805) 2,750,000 (8,493,030) 0 Net change in fund balances $ 9,197,974 $ 7,815,535 $ 5,577,724 $ 16,714,118 $ 495,435 $ (3,336,003) $ 19,595,769 $ 4,135782 Debt service as a percentage of noncapital expenditures 1.6% 22% 1.8% 1.7% 17% 2.8% 2.5% 2.3% Adjusted to include Property Tax-in lieu of VLF which was previously reported as intergovernmental revenue The City of Newport Beach has elected to show only eight years of data for this schedule. `INK REVENUE CAPACITY This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules present factors affecting the City's ability to generate its own revenue and its most significant local revenue source, the property tax: • Assessed Value and Estimated Actual Value of Taxable Property • Direct and Overlapping Property Tax Rates • Principal Property Tax Payers • Property Tax Levies and Collections Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. IF -111 CITY OF NEWPORT BEACH Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years City Fiscal Year Taxable Assessed Total Direct Ended June Value Tax Rate 30 Public Utility Secured Unsecured 2000 324,960 13,091,299,313 1,295,776,000 14,387,400,273 1.000% 2001 2,000 15,087,602,671 915,394,966 16, 002, 999, 637 1.000% 2002 2,000 16,515,797,641 913,075,074 17,428,874,715 1.000% 2003 16,531,505 21,339,270,499 1,085,951,066 22,425,221,565 1.000% 2004 16,531,505 23,219,166,299 1,372,432,950 24,591,599,249 1.000% 2005 53,310 25,193,662,254 1,484,019,033 26,677,681,287 1.000% 2006 53,310 28,136,607,566 1,914,106,993 30,050,714,559 1.000% 2007 53,310 31,423,473,042 1,569,867,249 32,993,340,291 1.000% 2008 53,310 34,188,568,583 1,668,015,342 35,856,583,925 1.000% 2009 699,230 36,436,106,070 1,538,539,482 37,974,645,552 1.000% NOTE: In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1 % based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2 %). With few exceptions, property is only re- assessed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. Source: County of Orange Auditor - Controller's Office fESI CITY OF NEWPORT BEACH Direct and Overlapping Property Tax Rates (Rate per $100 of assessed value) Last Ten Fiscal Years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 City Direct Rates City basic rate $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000 Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water Districts 0.009 0.009 0.008 0.007 0.006 0.005 0.005 0.005 0.004 0.004 School Districts 0.0000 0.0000 0.0069 0.0067 0.0122 0.0343 0.0349 0.0315 0.0308 0.0302 Total Direct Rate $ 1.009 $ 1.009 $ 1.015 $ 1.013 $ 1.018 $ 1.040 $ 1.040 $ 1.036 $ 1.035 $1.034 NOTE: In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: Orange County Auditor Controller's Office IF -M Irvine Company Irvine Apartment Communities LP 4000 MacArthur LP Newport Bluffs LLC Balboa Bay Club Inc. J= Seminconductor Inc 100 Bayview LLC UDR Newport Beach North LP Coronado South Apartments LP HHR Newport Beach LLC Source: HdL, Cored and Cone Co. CITY OF NEWPORT BEACH Principal Property Taxpayers Current Year and Nine Years Ago UX 2009 2000 Percent of Total Taxable Assessed Percent of Total City Taxable Taxable Assessed City Taxable Value Assessed Value Value Rank Assessed Value Rank $ 1,198,690,765 1 3.16% $ 864,045,460 1 6.01% 357,260,080 2 0.94% 252,082,303 3 1.75% 143,770,581 3 0.38% N/A 0.00% 135,435,013 4 0.36% NIA 0.00% 127,595,495 5 0.34% N/A 0.00% 125,900,087 6 0.33% N/A 0.00% 121,735;889 7 0.32% NIA 0.00% 115,457,240 8 0.30% N/A 0.00% 112,371,413 9 0.30% N/A 0.00% 85,182,642 10 0.22% N/A 0.00% $ 2,523,399,205 6.64% $ 1,116,127,763 7.76% UX Fiscal Year Taxes Levied for Ended June Total Collections to Date the Fiscal Year 30 Collections in 2000 24,667,494 2001 27,405,295 2002 31,298,541 2003 37,092,528 2004 42,469,238 2005 45,111,328 2006 47,286,816 2007 70,194,492 2008 69,315,117 2009 71,006,357 CITY OF NEWPORT BEACH Property Tax Levies and Collections Last Ten Fiscal Years Collected within the Fiscal Year of Levy Total Collections to Date Collections in Percent of Subsequent Percent of Amount Levy Years Amount Levy 24,207,104 98.13% 1,398,573 25,605,677 103.80% 26,856,091 98.00% 886,625 27,742,716 101.23% 30,651,143 97.93% 102,001 30,753,144 98.26% 36,351,026 98.00% 529,986 36,881,012 99.43% 41,420,410 97.53% 670,685 42,091,095 99.11% 54,063,951 119.85%2 483,804 54,547,755 2 120.92% 45,558,039 96.34% 728,365 46,286,404 97.88% 68,820,402 98.04% 808,765 69,629,167 99.19% 68,242,326 98.45% 846,904 69,089,231 99.67% 70,879,909 99.82% (294,366) 70,585,543 99.41% 1 Includes estimated levy for Newport Coast properties that were annexed on January 1, 2002. 2 Collections include nearly $10 million of Property Tax in lieu of Sales Tax and Vehicle License Fees not included in the levy. Source: Orange County Auditor Controller's Office I1:Y, I DEBT CAPACITY This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules exhibit the City's levels of outstanding debt over time, to help readers assess the affordability of the current level of outstanding debt, and the City's ability to issue additional debt: • Ratios of Outstanding Debt by Type • Ratios of General Bonded Debt Outstanding • Direct and Overlapping Debt • Legal Debt Margin Information • Pledged Revenue Coverage Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. lil-11 CITY OF NEWPORT BEACH Ratios of Outstanding Debt by Type Last Ten Fiscal Years Note: This excludes claims and judgements and employee compensated absence liabilities. Details regarding the City's outstanding debt can be found in the notes to the financial statements. These ratios are calculated using personal income and population for the prior calendar year. 11:1:1 Governmental Activities Fiscal Year Pre- Purchase Ended Certificates of Annexation Agreement June 30 Participation Note Payable Agreement CDBG Loan Capital Leases Payable 2000 6,845,000 2,469,399 N/A N/A 1,798,655 N/A 2001 6,610,000 2,350,930 N/A N/A 914,830 N/A 2002 6,365,000 2,219,660 18,000,000 N/A 1,150,927 N/A 2003 6,110,000 2,082,483 16,800,000 2,400,000 1,293,586 N/A 2004 5,845,000 1,939,133 15,600,000 2,340,000 862,975 N/A 2005 5,570,000 1,789,332 14,400,000 2,276,000 420,773 N/A 2006 5,280,000 1,632,789 13,200,000 2,207,000 166,056 N/A 2007 4,980,000 1,469,202 12,000,000 2,134,000 49,490 3,000,000 2008 4,665,000 1,298,254 10,800,000 2,056,000 - 1,500,000 2009 4,335,000 1,119,613 9,600,000 1,972,000 - N/A Note: This excludes claims and judgements and employee compensated absence liabilities. Details regarding the City's outstanding debt can be found in the notes to the financial statements. These ratios are calculated using personal income and population for the prior calendar year. 11:1:1 Business -type Activities Total Percentage of Governmental Water Revenue Total Business- Total Primary Personal Debt Per Activities Bonds type Activities Government Income' Capita' 11,113,054 13,200,000 13,200,000 24,313,054 0.57% 335 9,875,760 12,095,000 12,095,000 21,970,760 0.47% 297 27,735,587 10,950,000 10,950,000 38,685,587 0.88% 552 28,686,069 9,765,000 9,765,000 38,451,069 0.79% 508 26,587,108 8,535,000 8,535,000 35,122,108 0.66% 442 24,456,105 7,255,000 7,255,000 31,711,105 0.58% 392 22,485,845 5,925,000 5,925,000 28,410,845 0.50% 342 23,632,692 4,540,000 4,540,000 28,172,692 0.44% 338 20,319,254 3,095,000 3,095,000 23,414,254 0.36% 278 17,026,613 1,585,000 1,585,000 18,611,613 0.25% 216 MYA CITY OF NEWPORT BEACH Outstanding Debt Serviced by the General Fund Last Ten Fiscal Years (In Thousands, except Per Capita) Assessed value was used because the actual value of taxable property is not readily available in the State of California. IF -1.1 Purchase Percent of Fiscal Year Certificates of Agreement Assessed Ended June 30 Participation Payable Total Value' Per Capita 2000 7,070 N/A 7,070 0.05% 97 2001 6,845 N/A 6,845 0.05% 93 2002 6,610 N/A 6,610 0.04% 94 2003 6,365 N/A 6,365 0.04% 84 2004 6,110 N/A 6,110 0.03% 77 2005 5,845 N/A 5,845 0.02% 72 2006 5,570 N/A 5,570 0.02% 67 2007 5,280 3,000 8,280 0.03% 99 2008 4,980 1,500 6,480 0.02% 77 2009 4,335 N/A 4,335 0.01% 50 Assessed value was used because the actual value of taxable property is not readily available in the State of California. IF -1.1 City Assessed Valuation: Redevelopment Agency Incremental Valuation: Adjusted Assessed Valuation: OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Coast Community College District Rancho Santiago Community College District Laguna Beach Unified School District Laguna Beach U.S.D. Community Facilities District No. 98 -1 Newport Mesa Unified School District Newport Mesa U.S.D. Community Facilities District No. 90 -1 Santa Ana Unified School District Irvine Ranch Water District Improvement Districts CITY OF NEWPORT BEACH Direct and Overlapping Debt June 30, 2009 $ 37,974,645,552 871,021,950 $ 37,103,623,602 Percentage Outstanding Debt Estimated Share of Applicable ' 6130/09 Overlapping Debt 2.011% 34.732% 3.790% 14,584% 100.000% 71.707% 100.000% 8.696% 16.886 % - 100.000% Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 100.000% 98 -1 16, 081, 549 City of Newport Beach Special Improvement District No. 95-1 100.000% City of Newport Beach 1915 Act Bonds 100.000% Orange County Assessment District No. 88 -1 100.000% Orange County Assessment District No. 99 -1R 100.000% Orange County Assessment District No. 01 -1 100.000% Orange County Assessment District No. 01 -1 R 100.000% TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 4,335,000 DIRECT AND OVERLAPPING GENERAL FUND DEBT: OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations Orange County Pension Obligations Orange County Board of Education Certificates of Participation Municipal Water District of O.C. Water Facilities Corporation South Orange County Community College District Certificates of Participation Newport Mesa Unified School District Cer0ficales of Participation Santa Ana Unified School District Certificates of Participation Irvine Ranch Water District Certificates of Participation City of Newport Beach Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND DEBT Less: MWDOC Water Facilities Corporation (100% self-supporting) Santa Ana Unified School District OZAB (supported by scheduled deposits to trustee) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT GROSS COMBINED TOTAL DEBT (2) NET COMBINED TOTAL DEBT 9.781% 9.781 9.781% 11.613% 3.009% 71.707% B.696% 11.496% 100.000% 293,425,000 341,668,867 316;405,071 34,315,000 9,745,000 166,073,480 14,205,000 221,191,491 63,143,308 41,990,000 5,900,777 118,668,431 11,991,752 5,004,500 9,745,000 119,086,310 14,205,000 19,234,812 50,291,501 41,990,000 9,390,000 9,390,000 16, 081, 549 16, 081, 549 35,948,296 35,948,296 15,010,000 15,010,000 54,834,000 54,834,000 7,115,000 7,115,000 1,640,541,062 534,496,928 $ 462,152,000 $ 45,203,087 69,713,001 6,818,629 19,430,000 1,900,446 17,685,000 2,053,759 32,875,000 989,209 525,000 376,462 62,396,493 5,425,999 103,100,000 11,852,376 4,335,000 4,335,000 772,211,494 78,954,969 (2,053,759) (484,285) $ 76,416,925 613,451,897 610,913,853 The percentage of overlapping agency's assessed valuation located within boundaries of the city. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and nonbonded capital lease obligations. Ratios to 2008 -09 Assessed Valuation: Total Overlapping Tax and Assessment Debt 1.410% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($4,335,000) 0.010% Gross Combined Total Debt 1.650% Net Combined Total Debt 1.650% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $0.000 AB: ($425) Source: California Municipal Statistics, Inc IF -R] CITY OF NEWPORT BEACH Legal Debt Margin Information Last Ten Fiscal Years 2000 2001 2002 2003 Assessed valuation $ 14,387,400,273 $ 16,002,999,637 $ 17,428,874,715 $ 22,425,221,565 Conversion percentage 25% 25% 25% 25% Adjusted assessed valuation 3,596,850,068 4,000,749,909 4,357,218,679 5,606,305,391 Debt limit percentage 15% 15% 15% 15% Debt limit 539,527,510 600,112,486 653,582,802 840,945,809 Total net debt applicable to limit: General obligation bonds Legal debt margin $ 539,527,510 $ 600,112,486 $ 653,582,802 $ 840,945,809 Total debt applicable to the limit as a percentage of debt limit 0.0% 0.0% 0.0% 0.0% NOTE: The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981 -82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state. Source: City Administrative Servic 11:111 Fiscal Year 2004 2005 2006 2007 2008 2009 $ 24,591,599,249 $ 26,677,681,287 $ 30,050,714,559 $ 32,993,340,291 $ 35,856,583,925 $ 37,974,645,552 25% 25% 25% 25% 25% 25% 6,147,899,812 6,669,420,322 7,512,678,640 8,248,335,073 8,964,145,981 9,493,661,388 15% 15% 15% 15% 15% 15% 922,184,972 1,000,413,048 1,126,901,796 1,237,250,261 1,344,621,897 1,424,049,208 $ 922,184,972 $ 1,000,413,048 $ 1,126,901,796 $ 1,237,250,261 $ 1,344,621,897 $ 1,424,049,208 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Wal Fiscal Year Ended Water Revenue June 30 CITY OF NEWPORT BEACH Pledged- Revenue Coverage Last Ten Fiscal Years Water Revenue Bonds Less Operating Net Available Expenses Revenue Debt Service Principal Interest Coverage 2000 17,770,491 11,713,223 6,057,268 1,025,000 551,668 3.84 2001 17,839,320 11,784,120 6,055,200 1,145,000 510,224 3.66 2002 17,809,919 13,257,934 4,551,985 1,105,000 465,572 2.90 2003 17,326,604 12,430,144 4,896,460 1,185,000 418,172 3.05 2004 18,321,122 15,261,360 3,059,762 1,230,000 367,742 1.92 2005 17,878,016 12,967,118 4,910,898 1,280,000 314,622 3.08 2006 18,026,750 14,190,147 3,836,603 1,330,000 258,762 2.41 2007 18,534,689 15,614,885 2,919,804 1,385,000 199,900 1.84 2008 16,709,021 3 17,518,263 (809,242) 1,445,000 137,765 (0.51) 2009 17,259,977 16,437,227 822,750 1,510,000 71,325 0.52 Gross revenues includes operating revenues, interest, property, and intergovernmental revenues in the Water Fund. 2 Total Water Fund operating expenses do not include interest or depreciation expenses. 3 Adjusted due to loss on deletion MM DEMOGRAPHIC AND ECONOMIC INFORMATION This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules depict demographic and economic indicators to assist the reader in understanding the socio- economic, environment in which the City's financial activities take place: • Demographic and Economic Statistics • Principal Employers Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. IRN Fiscal Year CITY OF NEWPORT BEACH Demographic and Economic Statistics Last Ten Fiscal Years Population Personal Income Per Capita Unemployment (in thousands) Income Rate 2000 73,965 4,630,061 62,598 1.6% 2001 70,032 4,413,066 63,015 1.6% 2002 75,662 4,865,294 64,303 2.5% 2003 79,392 5,325,060 67,073 2.4% 2004 80,800 5,434,285 67,256 1.9% 2005 83,120 5,635,370 67,798 2.4% 2006 83,361 6,335,186 75,997 2.1% 2007 84,218 6,518,052 77,395 2.6% 2008 84,554 7,059,752 83,494 2.4% 2009 86,252 7,468,216 86,586 6.1% Source: California State Department of Finance f1146Ll CITY OF NEWPORT BEACH Principal Employers Current Year and 4 years ago Source: Newport Beach Chamber of Commerce W11 i Percent of Total Fmnlnvment N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2009 20C Percent of Total Number of Employment Number of Employer Employees Rank Employees Rank Hoag Memorial Hospital 4,116 1 5.08% 3,640 1 Pacific Life Insurance 1,096 2 1.35% 2,788 2 Glidewell Dental 902 3 1.11% - - City of Newport Beach 832 4 1.03% 788 4 Pacific Investment Management Co. 762 5 0.94% 530 7 Resort at Pelican Hill 735 6 0.91% - - Jazz Semi - Conductor 586 7 0.72% 730 5 The Island Hotel 424 8 0.52% 525 2 8 Fletcher Jones Motor Cars Inc. 420 9 0.52% - - Newport Beach Marriott Hotel & Tennis Club 363 10 0.45% 475 9 ' Information for nine years ago is not available. 2 The Island Hotel was formerly the Four Seasons Hotel. Source: Newport Beach Chamber of Commerce W11 i Percent of Total Fmnlnvment N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A OPERATING INFORMATION This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules present information on the City's operations and resources including service and infrastructure data to facilitate the readers understanding of how financial statement information relates to the services the City provides and the activities it performs: • Full Time City Employees by Functions • Operating Indicators by Function • Capital Asset Statistics by Function • Water Sold by Customer Type • Water Rates • Major Water Customers Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. i 14all Function General government Public safety Community development Public works Community services Balboa yacht basin Water Wastewater CITY OF NEWPORT BEACH Full-time City Employees by Function Last Ten Fiscal Years Full -Time Employees as of June 30, 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 69 75 77 77 84 86 90 93 93 99 344 358 384 384 385 385 388 393 397 397 39 42 44 46 46 47 48 52 56 57 157 155 163 164 162 162 163 163 165 160 51 53 57 58 57 60 65 66 68 71 1 1 1 1 1 1 31 34 33 33 33 34 34 34 35 35 11 10 12 12 13 13 13 13 13 13 Total 703 728 771 775 781 788 801 814 827 832 Source: City Administrative Services Department WIN CITY OF NEWPORT BEACH Operating Indicators by Function Last Ten Fiscal Years Source: City of Newport Beach 116x] Fiscal Year 2000 2001 2002 2003 2004 Police: Adult Arrests 3,396 3,494 3,684 3,485 3,201 Parking Citations Issued 76,993 74,068 73,191 68,907 71,076 Fire: Fire Responses 353 365 359 442 423 Fire Inspections 6,173 6,173 6,400 4,460 4,500 General Services: Street Patching (tons of mix) 4,400 5,000 5,500 5,500 5,000 Sidewalk Repair (square feet) 65,000 50,000 50,000 55,000 50,000 Recreation & Senior Services: Co- Sponsored Youth Organizations 141,594 165,464 188,689 200,077 185,627 Senior Transportation Services 10,260 11,000 10,917 12,094 12,041 Water: New connections 163 154 118 99 53 Average daily consumption (hundred cubic ft.) 17 17 17 17 17 Sewer: New connections N/A N/A N/A 50 25 Miles of Pipe Cleaned N/A N/A 202 262 293 Library Services: Library Circulation of Materials 1,130,000 1,250,713 1,263,200 1,347,583 1,392,346 Source: City of Newport Beach 116x] Fiscal Year 2005 2006 2007 2008 2009 3,079 2,999 3,289 3,599 3,231 72,665 74,780 67,170 67,258 64,577 228 214 175 247 236 4,550 6,470 7,136 6,682 6,912 4,500 4,600 4,980 4,644 3,882 50,000 55,000 59,459 60,222 49,644 194,749 194,722 201,258 255,424 318,779 11,936 13,000 13,493 14,500 15,984 55 52 95 60 26 17 17 17 17 17 24 24 45 45 12 205 335 226 241 220 1,475,025 1,443,078 1,622,573 1,622,573 1,575,518 MIS] Source: City of Newport Beach 00111 CITY OF NEWPORT BEACH Capital Asset Statistics by Function Last Ten Fiscal Years Fiscal Year 2000 2001 2002 2003 Police: Stations 1 1 1 1 Fire: Fire stations 6 6 7 7 Lifeguard Headquarters 1 1 1 1 Public works: Streets (miles) 311 315 325 333 Streetlights N/A N/A 7,277 7,277 Traffic signals N/A 121 130 131 Recreation & Senior Services: Parks 45 45 47 47 Community centers 10 10 11 11 Aquatic Center 1 1 1 1 Water: Water mains (miles) N/A 282.35 294.81 294.81 Maximum daily capacity (thousands of gallons) N/A 20,959 20,796 21,291 Wastewater: Sanitary sewers (miles) N/A 200.02 176.90 178.40 Storm sewers (miles) N/A 103.08 51.40 53.50 Library Services: Libraries 4 4 4 4 Source: City of Newport Beach 00111 Fiscal Year 2004 2005 2006 2007 2008 2009 1 1 1 1 1 1 7 8 8 8 8 8 1 1 1 1 1 1 333 333 333 395 395 395 7,277 7,277 7,277 7,278 7,278 7,278 131 144 147 147 148 148 47 47 47 47 48 49 11 11 11 12 13 13 1 1 1 1 1 1 294.81 298.42 299.88 300.35 300.17 300.31 20,092 20,633 19,369 20,392 20,365 19,707 179.15 179.15 179.15 202.80 202.80 202.80 57.60 57.60 57.60 95.50 95.50 95.50 4 4 4 4 4 4 o" it CITY OF NEWPORT BEACH Water Sold by Type of Customer Last Ten Fiscal Years (in hundred cubic feet) Source: City Utilities Department ON 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Type of Customer: Residential N/A 4,227,699 4,459,302 4,430,485 4,362,402 4,289,629 4,190,791 4,492,489 4,046,969 3,989,816 Commercial N/A 1,487,538 1,552,366 1,604,931 1,659,565 1,568,462 1,440,377 1,302,578 1,184,904 1,188,553 Government N/A 678,594 480,809 597,395 486,051 487,189 607,650 601,659 361,457 420,697 Total N/A 6,393,831 6,492,477 6,632,811 6,508,018 6,345,280 6,238,818 6,396,726 5,593,330 5,599,066 Total direct rate per 100 cubic ft. 2.00 2.00 2.00 2.00 2.00 2.00 2.08 2.08 2.08 2.08 Source: City Utilities Department ON CITY OF NEWPORT BEACH Water Rates Last Ten Fiscal Years Fiscal Year Ended June Monthly Rate per 30 Base Rate 100 cubic ft 2000 9.90 2.25 2001 9.90 2.25 2002 9.90 2.25 2003 10.00 2.25 2004 10.20 2.25 2005 10.35 2.25 2006 12.37 2.43 2007 12.37 2.43 2008 12.37 2.43 2009 12.37 2.43 Note: Rates are based on 3/4" meter, which is the standard household meter size. The City charges an excess -use rate above normal demand. 011kox CITY OF NEWPORT BEACH Major Water Customers Current Year and Seven Years Ago ' Information for fiscal years ended prior to 2001, is not available. Source: City Revenue Division 0011 2009 2001' Percent of Total Percent of Total Water Customer Water Charges Rank Water Revenues Water Charges Rank Water Revenues Big Canyon Country Club $ 181,581 1 0.01052035 $ 169,900 2 0.95% Irvine Apartment Management 143,043 2 0.008287554 N/A 0.00% Hoag Memorial Hospital 132,152 3 0.007656557 101,436 6 0.57% Newport Beach Country Club 115,829 4 0.006710843 152,362 3 0.85% UDR Newport Beach 85,345 5 0.004944676 N/A 0.00% Park Newport Ltd 84,229 6 0.004880018 150,062 4 0.84% The Irvine Company 79,813 7 0.004624166 267,688 1 1.50% Newport-Mesa USD 62,185 8 0.003602844 N/A 0.00% Pacific View - Pierce Bros. 57,483 9 0.003330422 47,466 11 0.27% Bluffs Homeowners Association 54,392 10 0.003151337 N/A 0.00% Spyglass Hill Community Assoc. 43,422 11 0.002515762 N/A 0.00% Newport Dunes Resort 42,672 12 0.002472309 N/A 0.00% Newport Beach Marriott 38,144 13 0.002209968 N/A 0.00% Eastbluff Homeowners Comm. Assoc. 38,112 14 0.002208114 N/A 0.00% Jasmine Creek Community Assoc. 37,368 15 0.002165009 N/A 0.00% $ 1,195,770 6.93% $ 888,914 4.98% ' Information for fiscal years ended prior to 2001, is not available. Source: City Revenue Division 0011 APPENDIX C SUMMARY OF THE LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Trust Agreement and Lease /Purchase Agreement not described elsewhere in this Official Statement. This summary does not purport to be complete and is qualified in its entirety by reference to said documents. TRUST AGREEMENT Definitions "Additional Certificates" means certificates of participation authorized by a Supplemental Agreement that are executed and delivered by the Trustee under and pursuant to the Trust Agreement. "Additional Payments" means all amounts payable by the City as Additional Payments as defined in the Lease. "Assignment Agreement" means the Assignment Agreement, dated as of the date of the Trust Agreement, by and between the Trustee and the Corporation, and any duly authorized and executed amendments thereto. "Beneficial Owner" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. "Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York or the State of California are authorized or required by law or executive order to remain closed. "Certificates" means collectively, the 2010A Certificates and the 201013 Certificates. "Certificate of Completion" means a certificate of the City Representative delivered pursuant to the Lease 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 July 2 each year to July 1 of the subsequent calendar year, provided that the first Certificate Year shall commence on the Closing Date and end on July 1, 2011. "Ciff" means the City of Newport Beach, a chartered city organized and existing under the laws and Constitution of the State, and its successors and assigns. "City Representative" means the City Manager of the City, the Assistant City Manager or any other person authorized by the City Manager of the City to act on behalf of the City with respect to the Lease or the Trust Agreement. "Closing Date" means the date on which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof. C -1 "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 November 1, 2010, by and between the City and the Trustee, as Dissemination Agent, as it may be amended from time to time in accordance with the terms thereof. "Corporation" means the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation organized under the laws of the State, its successors and assigns. "Corporation Representative" means the President, Vice President, Secretary, Treasurer of the Corporation, or any other person authorized to act on behalf of the Corporation under or with respect to the Lease. "Delivery Cost Requisition" means a written requisition substantially in the form attached hereto as Exhibit B -1. "Delivery Costs" means and includes all items of expense directly or indirectly payable by or reimbursable to the City or the Corporation relating to the financing of the Project from the proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the Original Purchaser, filing and recording costs, settlement costs, printing costs, word processing costs, reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies, any computer and other expenses incurred in connection with the Certificates, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing. "Delivery Date" means the date on which any Series of Certificates or Additional Certificates are delivered to the Original Purchaser. "Depository" means the securities depository acting as depository pursuant to the Trust Agreement. "DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates. `Escrow Agent ,means U.S. Bank National Association or any successor or assigns. "Escrow Agreement" means the Escrow Agreement dated as of October 29, 2010, by and between the City and the Escrow Agent relating to the 1998 Certificates. "Escrow Fund" means that fund established pursuant to the Escrow Agreement and held by the Escrow Agent. "Event of Default" means an event of default under the Lease, as defined in the Trust Agreement. "Extraordinary Event" means: C -2 (a) a change has occurred to Section 54AA or 6431 of the Code, (b) there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such sections, or (c) any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of any act or omission by the City to satisfy the requirements to qualify to receive the 35% federal cash subsidy payable with respect to the 2010B Tax Certificate, and as a result thereof, the federal cash subsidy expected to be received from the United States Treasury with respect to the Interest Component of the 2010B Lease Payments is eliminated or reduced, as reasonably determined by the City Manager or Director of Administrative Services, which determination shall be conclusive. year. "Fiscal Year" means the fiscal year of the City commencing July 1 and ending June 30 of the next "Fitch" means Fitch Ratings Group or any successors or assigns thereto. "Government Obligations' ions" means Permitted Investments of the type described in paragraphs (A) or (B) of the definition thereof. "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the City of New York designated by the City. If the City fails to appoint an Independent Banking Institution at least 30 days prior to the date fixed for prepayment, or if the Independent Banking Institution appointed by the City is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield will be determined by an Independent Banking Institution designated by the Trustee. "Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the City. "Interest Payment Date" means July 1 and January 1 of each year commencing January 1, 2011. "Lease" means the Lease /Purchase Agreement related to the Certificates, dated as of the date of the Trust Agreement, by and between the City and the Corporation, and any duly authorized and executed amendments thereto. "Lease Payment" means any of the 2010A Lease Payments, the 2010B Lease Payments or lease payments relating to Additional Certificates required to be paid by the City to the Corporation pursuant to the Lease. "Lease Payment Date" means the Lease Payment Date defined in the Lease, which shall be each December 15 and June 15 commencing December 15, 2010. "Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to Article V of the Trust Agreement. "Leased Premises" has the meaning set forth in the Lease. C -3 "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, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof. "Net Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to Article VII of the Trust Agreement. "1998 Certificates" means the $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project). "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Trust Agreement. "Original Purchaser' means Stone & Youngberg LLC, as representative of original purchasers of the Certificates on the Closing Date, or the original purchaser of any Series of Additional Certificates. "Outstandin¢" when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates or Additional Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except: (1) Certificates or Additional Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates or Additional Certificates for the payment or prepayment of which funds or Government Obligations, together with interest earned thereon, in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates or Additional Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (3) Certificates or Additional Certificates in lieu of or in exchange for which other Certificates or Additional Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. "Owner" or "Certificate Owner" or "Owner of a Certificate ", or any similar term, when used with respect to a Certificate means the person in whose name such Certificate is registered on the registration books maintained by the Trustee. "Participants" means those broker - dealers, banks and other financial institutions from time to time for which the Depository holds book -entry certificates as securities depository. C -4 "Permitted Investments" means, if and to the extent permitted by law and by any policy guidelines promulgated by the City: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury) or obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): Farmers Home Administration (FmHA) Certificates of beneficial ownership 2. Federal Housing Administration Debentures (FHA) 3. General Services Administration Participation certificates 4. Government National Mortgage Association (GNMA or "Ginnie Mae ") GNMA- guaranteed mortgage- backed bonds GNMA- guaranteed pass - through obligations 5. U.S. Maritime Administration Guaranteed Title XI financing (qualified under the Ship Financing Act of 1972) 6. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Corporation Bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac ") Participation certificates Senior debt obligations C -5 3. Federal National Mortgage Association (FNMA or "Fannie Mae ") Mortgage- backed securities and senior debt obligations (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal) 4. Student Loan Marketing Association (SLMA or "Sallie Mae ") Senior debt obligations 5. Resolution Funding Corp ( REFCORP) The interest only component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York 6. Farm Credit System Corp. - Consolidated system -wide bonds and notes D. Money market mutual funds registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm -G," "AAAm" or "AAm" and by Moody's of "Aaa," "Aal" or "Aa2," including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services or serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee. E. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City) secured at all times by collateral described in (A) and/or (B) above and having a maturity of one year or less. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated "A -1 +" by Standard & Poor's and "Prime -1" by Moody's, which may include the Trustee and its affiliates. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit (including those placed by a third party pursuant to an agreement between the Trustee and the City), savings accounts, deposit accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest bearing deposits, interest bearing money market accounts, bankers' acceptances or money market deposits which are fully insured by FDIC or are rated in the AA long term rating by Moody's or Standard & Poor's (including those of the Trustee and its affiliates). G. Commercial paper rated at the time of investment "Prime - 1" by Moody's and "A -1 +" or better by Standard & Poor's. H. Investment agreements, including guaranteed investment agreements, acceptable to the Trustee. 1. Bonds or notes issued by any state or municipality which are rated by Moody's and Standard & Poor's in one of the two highest rating categories assigned by such agencies. C -6 J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -1 +" or better by Standard & Poor's, including those of the Trustee and its affiliates. K. Repurchase or reverse repurchase agreements rated "AA" or better by Standard and Poor's (including those of the Trustee or any of its affiliates) and that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer /lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee, in exchange for the securities at a specified date or dates. L. Any guaranteed investment contract, including forward delivery agreements ( "FDAs ") and forward purchase agreements ( "FPAs "), with a financial institution or insurance company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims - paying ability rated within the two highest rating categories of Standard & Poor's and Moody's. Only Permitted Investments described in clauses A, B or C above and having maturities equal to or less than 30 years from their date of delivery will be considered eligible for any collateralization /delivery purposes for guaranteed investment contracts, FDAs or FPAs; M. Pre - refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's. If, however, the issue is only rated by Standard & Poor's (i.e., there is no Moody's rating), then the pre - refunded bonds must have been pre - refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre - refunded municipals to satisfy this condition. N. The Local Agency Investment Fund of the State, provided that the Trustee may deposit and withdraw monies in its own name. O. Any other investments permitted by Government Code section 53601 (including investment agreements and forward delivery or forward purchase agreements). "Value" of the above investments shall be determined by the manner currently employed by the Trustee or any other manner consistent with industry standard. "Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of Lease Payments. "Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. "Principal Office or Corporate Trust Office" means the corporate trust office of the Trustee at 700 South Flower Street, Suite 600, Los Angeles, California 90017, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee; provided, however, that for the purposes of payment, transfer or exchange of Certificates such term means the office or agency of the Trustee at which, at any particular time its corporate trust agency business shall be conducted. "Project" has the meaning set forth in the Lease. "Project Cost Requisition" means a written requisition substantially in the form attached to the Trust Agreement. C -7 "Project Costs" means, with respect to any item or portion of the Project, the contract price paid or to be paid therefor upon acquisition, construction, procurement or improvement thereof, in accordance with a purchase order or contract therefor. Project Costs include, but are not limited to, the administrative, engineering, interior decorating, fixtures, furnishings and equipment, legal, financial and other costs incurred by the City and the Corporation in connection with the acquisition, construction, procurement, remodeling or improvement of the Project, all applicable sales taxes and other charges resulting from such construction, procurement, remodeling or improvement of the Project and the costs associated with making rebate calculations required by the Code. Project Costs shall not include any costs of the City or the Corporation to enforce remedies hereunder or under the Lease. " Proiect Fund" means the fund by that name established and held by the Trustee pursuant to Article III of the Trust Agreement. "Record Date" means the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day. "Reference Treasury Dealer" means any firm, specified by the City from time to time, that are primary United States Government securities dealers in the City of New York (each a "Primary Treasury Dealer "); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any prepayment date for a particular 2010A Lease Payment, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third Business Day preceding such prepayment date. "Series" means either the 2010A Certificates and such Additional Certificates which are secured by 2010A Lease Payments or the 2010B Certificates and such Additional Certificates which are secured by the 2010B Lease Payments as the context may suggest. "S &P" or "Standard & Poor's" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc., or any successors or assigns thereto. "Site Lease" means the Site Lease related to the Certificates, dated the date of the Trust Agreement, by and between the Corporation and the City. "Special Counsel" means Stradling Yocca Carlson & Rauth, a Professional Corporation, or any other attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax - exempt status of interest on obligations issued by states and their political subdivisions and acceptable to the City. "State" means the State of California. "Supplemental Agreement" means a supplement to the Trust Agreement providing for the execution and delivery of Additional Certificates pursuant to the Trust Agreement. "Tax Certificate" means the Tax Certificates, each dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and delivered to the W-1 City on the date of execution and delivery of the 2010A Certificates and the 2010B Certificates, including any and all exhibits attached thereto. "Tenn" means the time during which the Lease is in effect, as provided in the Lease. "Treasury Rate" means, with respect to any prepayment for a particular 2010B Lease Payment, the rate per annum truncated to the fifth decimal, expressed as a percentage of the Principal Component, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. "Trustee" means The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States, and any successor trustee. "Trust Agreement" or "Agreement" means the Trust Agreement, together with any amendments hereof or supplements hereto permitted to be made hereunder. 112010A Certificates" means the $20,085,000 aggregate principal amount of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project) to be executed and delivered by the Trustee pursuant to the Trust Agreement. "201013 Certificates" means the $106,575,000 aggregate principal amount of the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project/Central Library Refunding) to be executed and delivered by the Trustee pursuant to the Trust Agreement. "2010A Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to the Lease as set forth in Exhibit A thereto and deposited in the 2010A Account of the Lease Payment Fund. "201013 Lease Payment" means any payment required to be paid by the City to the Corporation pursuant to the Lease as set forth in Exhibit A thereto and deposited in the 2010B Account of the Lease Payment Fund. "2010A Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of the 2010A Lease Payments. "201013 Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of the 2010B Lease Payments. The 2010 Certificates of Participation Payment Provisions. Interest with respect to any Certificate shall be payable in lawful money of the United States of America by check or draft of the Trustee, mailed no later than the Interest Payment Date to the Owner at his address as it appears, on the Record Date, on the registration books maintained by the Trustee or at such other address as has been furnished to the Trustee in writing by the Owner on or prior to such Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Certificates or Additional Certificates filed with the Trustee prior to any Record Date, interest with respect to such Certificates shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing) by wire transfer of immediately available funds to an account in the continental United States designated in C -9 such written request. Payments of defaulted interest with respect to the Certificates or Additional Certificates shall be paid by check or draft to the registered Owners of the Certificates or Additional Certificates as of a special record date to be fixed by the Trustee, notice of which special record date shall be given to the registered Owners of the Certificates or any Additional Certificates no less than ten days prior thereto. The principal of and premium, if any, on the Certificates or Additional Certificates is payable when due upon surrender thereof at the Principal Office in lawful money of the United States of America. Form of Certificates. The Certificates and the assignment to appear thereon shall be substantially in the forms set forth in the Trust Agreement. Pending the preparation of definitive Certificates the Certificates may be executed and delivered in temporary form exchangeable for definitive Certificates when ready for delivery. If the Trustee delivers temporary Certificates, it shall execute and deliver definitive Certificates in an equal aggregate principal amount of authorized denominations, when available, without additional charge, and thereupon the temporary Certificates shall be surrendered to the Trustee at its Principal Office. Until so exchanged, the temporary Certificates shall be entitled to the same benefits under the Trust Agreement as definitive Certificates. The form of any Additional Certificates shall be as set forth in the Supplemental Agreement relating to such Additional Certificates. Execution. The Certificates shall be executed by and in the name of the Trustee by the manual signature of any authorized signatory of the Trustee. The Trustee shall insert the date of execution of each Certificate in the place provided thereon. Application of Proceeds and Other Amounts. The proceeds from the sale of the Certificates shall be applied as set forth in the Official Statement under the caption "ESTIMATED SOURCES AND USES." 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 the Trust Agreement by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate principal amount in authorized denominations. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the City. The Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer, and there shall be no other charge to any Owner for any such transfer. 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. The cost of printing Certificates and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the City. All Certificates surrendered shall be cancelled and destroyed by the Trustee and shall not be redelivered. 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 the Trust Agreement. C -10 Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate shall become mutilated, the Trustee, at the expense of the Owner of said Certificate, shall execute and deliver a new Certificate of like tenor, maturity and principal amount in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated and indemnification of the Trustee to its satisfaction. Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and, if an indemnity, satisfactory to the Trustee indemnifying the Trustee, the Corporation and the City, shall be given, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor, maturity and principal amount and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of an appropriate fee for each new Certificate delivered and of the expenses which may be incurred by the Trustee in carrying out its duties in connection therewith. Any Certificate executed under the provisions of the Trust Agreement in lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of the Trust Agreement with all other Certificates secured by the Trust Agreement. Notwithstanding any other provision of this Section, in lieu of delivering a new Certificate in place of one which has been mutilated, lost, destroyed or stolen, and which has matured, or has been called for prepayment, the Trustee may make payment with respect to such Certificate upon receipt of the above - mentioned indemnity. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by the 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 the Trust Agreement (except as otherwise herein provided), if made in the following manner: The fact and date of the execution by any Owner or his attorney or agent of any such instrument and of any instrument appointing any such attorney or agent, may be proved by a certificate, which need not be acknowledged or verified, of an officer of any bank or trust company located within the United States of America, or of any notary public, or other officer authorized to take acknowledgments of deeds to be recorded in such jurisdictions, that the persons signing such instruments acknowledged before him the execution thereof. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such certificate shall also constitute sufficient proof of his authority. The fact of the ownership of Certificates by any person, the amount and numbers of such Certificates and the date of execution shall be proved by the registration books maintained pursuant to the Trust Agreement. Nothing shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which the Trustee may deem sufficient in its sole discretion. Any request or consent of the Owner of any Certificate shall bind every future Owner of the same Certificate in respect of anything done or to be done by the Trustee in pursuance of such request or consent. Certificate Register. The Trustee will keep or cause to be kept at its Principal Office or another office designated by the Trustee sufficient books for the registration and transfer of the Certificates which shall, during normal working hours and upon reasonable prior notice, be open to inspection by the City C -11 and the Corporation; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, the Certificates. The City, the Corporation and the Trustee shall be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate shall be overdue and the City, the Corporation and the Trustee shall not be affected by any notice to the contrary. Destruction of Cancelled Certificates. Whenever in the 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. Additional Certificates. Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee shall, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there shall have been compliance with all of the following conditions, which are hereby made conditions precedent to the preparation, execution and delivery of such Additional Certificates: (a) The parties to the Trust Agreement shall have executed a Supplemental Agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established under the Trust Agreement for the Certificates, as shall be necessary or appropriate, and (ii) specifies whether such Certificates are payable from 2010A Lease Payments or 2010B Lease Payments; (b) The scheduled principal and interest payable with respect to such Additional Certificates shall be payable only on Interest Payment Dates applicable to the Certificates; (c) The Lease and Site Lease shall have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates as and when the same mature or become due and payable, (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of the Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such Additional Certificates, and (iii) make such other revisions to the Lease and Site Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions shall not materially prejudice the rights of the Owners of Outstanding Certificates as granted them under the terms of the Trust Agreement as may be evidenced by an opinion of Special Counsel; (d) There shall have been delivered to the Trustee a counterpart of the amendments required by (c) above; (e) The Trustee shall have received a certificate of the Corporation Representative that there exists on the part of the Corporation no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default); (f) The Trustee shall have received a certificate of the City Representative that (i) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted C -12 do not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the amended Lease); (g) The Trustee shall have received an opinion of Special Counsel substantially to the effect that (i) said Supplemental Agreement and said amendments to the Lease comply in all respects with the requirements of the Trust Agreement, (ii) said Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable) have been duly authorized, executed and delivered by the City and the Corporation, as applicable, (provided that said opinion of Special Counsel, in rendering the opinions set forth in this clause (ii), shall be entitled to rely upon one or more other opinions of counsel, including counsel to any of the respective parties to said Supplemental Agreement or said amendments to the Lease and Site Lease (if applicable)), (iii) assuming that no Event of Default has occurred and is continuing, the Trust Agreement, as amended by said Supplemental Agreement, and the Lease and Site Lease (if applicable), as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the City and Corporation, as applicable, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors' rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding) and (iv) the execution of such Supplemental Agreement and said amendments to the Lease and Site Lease (if applicable), and performance by the parties thereunder, will not result in the inclusion of the Interest Component of any 2010A Lease Payments payable with respect to any 2010A Certificates, including Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), theretofore prepared, executed and delivered, in the gross income of the Owners of the 2010A Certificates or the owners of any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) for purposes of federal income taxation or the loss of the subsidy payments from the United States Treasury relating to the District's obligation to pay the Interest Component of the 2010B Lease Payments as evidenced by the 2010B Certificates; (h) There shall have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates; and (i) Such other conditions shall have been satisfied, and such other instruments shall have been duly executed and delivered to the Trustee, as the City or the Corporation shall have reasonably requested. Upon delivery to the Trustee of the foregoing instruments, the Trustee shall cause to be executed and delivered Additional Certificates of a Series representing the aggregate principal amount specified in such Supplemental Agreement, and such Additional Certificates shall be equally and ratably secured with all Certificates of like Series, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate of a Series, including Additional Certificates, over any other; provided, however, that no provision of the 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. C -13 Establishment of Project Fund The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Project Fund," referred to herein as the "Project Fund" and shall establish a 2010A Account and a 2010B Account therein. Within each of the 2010A Account and the 2010B Account, there shall be established Delivery Costs Subaccounts therein; shall keep the Project Fund separate and apart from all other funds and moneys held by it; and shall administer such fund as herein provided. The Project Fund shall be held and applied by the Trustee in accordance herewith. Purpose. Moneys in the Project Fund shall be expended for Project Costs and Delivery Costs. Deposit of Moneys; Payment of Project Costs and Delivery Costs. (a) Deposits. There shall be credited to the 2010A Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010A Certificates required to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the 2010A Account of the Project Fund, which shall remain in the 2010A Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2010A Certificates, as described in the Trust Agreement ; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. There shall be credited to the 2010B Account of the Project Fund the following amounts: (1) the proceeds of sale of the 2010B Certificates required to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the 2010B Account of the Project Fund, which shall remain in the 2010B Account of the Project Fund until expended for Project Costs or applied to the prepayment of 2010B Certificates, as described in the Trust Agreement; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs. (b) Disbursements. The Trustee shall disburse moneys in the Project Fund from time to time to pay Project Costs directly or to reimburse the City for payment of Project Costs, upon receipt by the Trustee of a Project Cost Requisition signed by the City Representative. The Trustee shall have no duty or liability to monitor the application of any moneys disbursed hereunder. The Trustee shall disburse moneys from the Delivery Costs Subaccounts to pay Delivery Costs or to reimburse the City for payment of such Delivery Costs upon receipt by the Trustee of a Delivery Cost Requisition signed by the City Representative. The Trustee shall be absolutely protected in making any disbursement from the Project Fund in reliance upon a Project Cost Requisition or Delivery Cost Requisition signed by the City Representative. Each such Project Cost Requisition and Delivery Cost Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any remaining balance in a Delivery Costs Subaccount after June 15, 2011 shall be transferred by the Trustee to the applicable account of the Project Fund as directed in writing by City Representative. Transfers of Unexpended Proceeds. Upon the filing with the Trustee of the Certificate of Completion pursuant to the Lease, the Trustee shall withdraw all remaining moneys in the Project Fund (other than any moneys retained therein to pay Project Costs not then due and payable and certified by the City Representative) and shall transfer such moneys to the applicable account of the Lease Payment Fund to be applied to the payment of principal and interest with respect to the applicable Series of Certificates as prescribed in the Trust Agreement or, at the written election of the City Representative delivered to the Trustee, together with an opinion of Special Counsel that such transfer will not cause interest due with respect to the 2010A Certificates to be included in gross income for federal income tax purposes, shall transfer such moneys to the City for the purpose of capital expenditures of the City, and following such transfer, the Project Fund shall be closed. C -14 Establishment of Prepayment Fund The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center 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. Within the Prepayment Fund, the Trustee shall establish a "2010A Account" into which any 2010A Prepayments shall be deposited and a "2010B Account" into which any 2010B Prepayments shall be deposited. Moneys to be used for prepayment of the Certificates and Additional Certificates shall be deposited into the applicable account of the Prepayment Fund established for such Series and used solely for the purpose of prepaying the applicable Certificates or Additional Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates or Additional Certificates to the Trustee. Lease Payments, Lease Payment Fund Security Provisions. (a) Assignment of Rights in Lease. The Corporation has, pursuant to the Assignment Agreement, absolutely assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Corporation's rights to receive and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease or pursuant hereto. All Lease Payments, Prepayments and such other amounts to which the Corporation may at any time be entitled (other than amounts due to the Corporation under the Lease) shall be paid directly to the Trustee, and all of the Lease Payments and Prepayments collected or received by the Corporation shall be deemed to be held and to have been collected or received by the Corporation as the agent of the Trustee and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within five (5) Business Days after the receipt thereof, and all such Lease Payments shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund, all such Prepayments shall be forthwith deposited by the Trustee upon the receipt thereof in the Prepayment Fund. (b) Security Interest in Moneys and Funds. The Corporation and the City, as their interests may appear, hereby grant to the Trustee for the benefit of the Owners of the Certificates and all Additional Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys shall be held by the Trustee in trust and applied to the respective purposes specified herein and in the Lease. In addition to the Trustee, only Owners of the 2010A Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010A Account of the Lease Payment Fund and the 2010A Account of the Prepayment Fund. In addition to the Trustee, only Owners of the 2010B Certificates and Owners of Additional Certificates (to the extent provided in a Supplemental Agreement) shall have a lien on and a security interest in all moneys in the 2010B Account of the Lease Payment Fund and the 2010B Account of the Prepayment Fund. (c) Pledge of Lease Payments and Proceeds. The 2010A Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented C -15 by the 2010A Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). The 2010B Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2010B Certificates (and Additional Certificates to the extent provided in a Supplemental Agreement). Any proceeds from the re- letting or any other disposition of the Leased Premises pursuant to Article IX of the Lease (the "Lease Proceeds ") are hereby irrevocably pledged equally to the 2010A Certificates, the 2010B Certificates and any Additional Certificates. Except as permitted under the Trust Agreement with respect to Additional Certificates, the Lease Payments and Lease Proceeds shall not be used for any other purpose while any of the Certificates remain Outstanding. This pledge shall constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the terms of the Trust Agreement. Establishment of Lease Payment Fund. The Trustee shall establish a special fund designated as the "City of Newport Beach (Civic Center Project) Lease Payment Fund" and shall establish a 2010A Account and a 2010B Account therein. All moneys at any time deposited by the Trustee in an account of the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the applicable Certificates of such Series. So long as any Certificates are Outstanding, neither the City nor the Corporation shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set forth. Deposits. There shall be deposited in the 2010A Account of the Lease Payment Fund all 2010A Lease Payments and in the 2010A Account of the Prepayment Fund all 2010A Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation pursuant to the Lease (regarding proceeds of rental interruption insurance) or pursuant to the Trust Agreement, which moneys shall be applied as a credit towards any 2010A Lease Payment then due. There shall be deposited in the 2010B Account of the Lease Payment Fund all 2010B Lease Payments and in the 2010B Prepayment Fund all 2010B Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation pursuant to the Lease (regarding proceeds of rental interruption insurance) or pursuant to the Trust Agreement, which moneys shall be applied as a credit towards any 2010B Lease Payment then due. The Trustee, in accordance with the Calculation Agency Agreement, dated as of November 1, 2010, by and between the City and the Trustee, shall at least 45 days but not more than 90 days prior to each Certificate Payment Date, submit to the United States Treasury a subsidy reimbursement request with respect to the 2010B Certificates in accordance with applicable Federal regulations. Upon receipt of such subsidy, the City shall deposit such cash subsidy payment into the 2010B Account of the Lease Payment Fund and use any such cash subsidy payments to offset its obligations to pay the Interest Component of the 2010B Lease Payments under the Lease. Application of Moneys. Except as provided in the Trust Agreement, all amounts in the 2010A Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2010A Certificates as the same shall become due and payable, in accordance with the provisions of the Trust Agreement, subject to the requirement that certain investment earnings may be transferred to the Rebate Fund, as provided in the Trust Agreement. Except as provided in the Trust Agreement, all amounts in the 2010B Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with C -16 respect to the 2010B Certificates as the same shall become due and payable, in accordance with the provisions of the Trust Agreement. 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 the Trust Agreement, 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 the Trust Agreement. 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 the Trust Agreement. 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 the Trust Agreement 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 the Trust Agreement, shall be withdrawn by the Trustee and remitted to the City. Net Proceeds Fund Establishment of Net Proceeds Fund: Deposits. The Trustee shall establish when required a special fund designated as the "City of Newport Beach (Civic Center Project) Net Proceeds Fund," referred to herein as the "Net Proceeds Fund," to be maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided herein. The Trustee shall deposit Net Proceeds in the Net Proceeds Fund as provided in the Lease. (a) Casualty Insurance. The Trustee shall disburse Net Proceeds for replacement or repair of the Leased Premises as provided in the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the City Representative as provided in the Lease. Pending such application, such Net Proceeds may be invested by the Trustee as directed by the City Representative in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to be transferred to the Rebate Fund pursuant to thereof, 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 the Trust Agreement and any other Additional Payments due under the Lease. (b) Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the Leased Premises shall be applied and disbursed by the Trustee upon the Written Request of the City as follows: (i) If the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Premises and will not result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease (such C -17 determination to be certified by the City in writing), such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (ii) If the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Premises and will result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease; then the Trustee shall immediately deposit such proceeds in the Prepayment Fund and such proceeds shall be applied to the prepayment of Certificates in the manner provided in the Trust Agreement. Cooperation. The Corporation and the Trustee shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to Article V of the Lease and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any item or portion thereof; provided, however, the Trustee shall not be obligated to take any action hereunder if it is not indemnified to its satisfaction from and against any liability or expense arising therefrom. Moneys In Funds, Investment Held in Trust. The moneys and investments held by the Trustee under the Trust Agreement, other than in the Rebate Fund, are irrevocably held in trust for the benefit of the respective Owners and, in the case of the Rebate Fund, for payment as required to the United States Treasury, and for the purposes herein specified, and such moneys, and any income or interest earned thereon, shall be expended only as provided in the Trust Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of the Corporation, the Trustee or the City, or any of them. Investments Authorized. (a) By Trustee. Subject to the further provisions of this Article VIII, moneys held by the Trustee hereunder shall be invested and reinvested on maturity thereof by the Trustee pursuant to the Trust Agreement. The Trustee will report any such investments to the City on a monthly basis in its regular statements. (b) Upon Direction of the City. The City Representative shall direct by facsimile, to the designated trust officer responsible for the administration of the Trust Agreement, followed by distribution by U.S. Mail or overnight courier service of such notice, such investment in specific Permitted Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect. Such investments and reinvestments shall be made giving full consideration for the time at which funds are required to be available based among other things, scheduled completion of the various components of the Project. In the event that the City Representative does not so direct the Trustee, the Trustee shall invest in the Permitted Investments described in the Trust Agreement. Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund shall mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding the investment. Investments instructed by the City Representative to be purchased with funds on deposit in the Project Fund shall mature not later than the dates upon which such funds shall be needed to be expended for the payment of Project Costs. Investments to the later of the final maturity of the Certificates or any Additional Certificates so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Trust Agreement. The Trustee may conclusively rely upon the written instructions of the City Representative as to both the suitability and legality of the directed investments. C -18 (c) Registration. Such investments, if registrable, shall be registered in the name of the Trustee for the benefit of the Owners and held by the Trustee or its nominee. (d) Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the Trust Agreement. The Trustee may act as purchaser or agent in the making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an advisor to any provider of, Permitted Investments hereunder. The City and Corporation acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City and the Corporation the right to receive brokerage confirmations of security transactions as they occur, at no additional costs, the City and Corporation specifically waives\ receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. (e) Trustee Standard of Care. Except as otherwise provided in the Trust Agreement, the Trustee shall not be responsible or liable for any consequences of any investment of funds or sale of such investment made by it in accordance with this section or disposition made by it in accordance with the Trust Agreement. Crediting of Investments. Except as otherwise provided in the Trust Agreement, any income, profit or loss on the investment of moneys held by the Trustee hereunder shall be credited to the respective fund for which it is held. Accounting. The Trustee shall furnish to the City, not less than monthly, an accounting (which may be in the form of its regular statements) of all investments made by the Trustee and all funds and amounts held by the Trustee; provided, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. Valuation and Disposition of Investments. (a) Valuation. Subject to the provisions of the Trust Agreement, for the purpose of determining the amount in any fund, all Permitted Investments (except investment agreements) credited to such fund shall be valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all funds and accounts, investments shall be valued by the Trustee not less often than annually nor more often than monthly. In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as may be available to the Trustee, including those within its regular accounting system and brokers and dealers in securities. (b) Disposition. Subject to the provisions of the Trust Agreement, the Trustee shall sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited. Commingling of Moneys in Funds. The Trustee may, and upon the written request of the City Representative shall, comrningle any of the funds held by it pursuant to the Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately notwithstanding such commingling by the Trustee. The City shall ensure that any such commingling complies with Section 1.148 -4 of the Treasury Regulations, and shall provide written direction to the Trustee accordingly. In no event shall the Trustee C -19 have any duty or obligation, at any time and in any manner to monitor compliance with any governmental regulations relating to commingling of accounts. Tax Covenants. (a) General. The City and the Corporation hereby covenant with the holders of the 2010A Certificates that, notwithstanding any other provisions of the Trust Agreement, (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) they 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 2010A Certificates under Section 103 of the Code. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest due with respect to the 2010A Certificates. (b) Use of Proceeds. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates or the Project, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates are outstanding, the City and the Corporation, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall establish reasonable procedures necessary to ensure continued compliance with Section 141 of the Code and the continued qualification of the 2010A Certificates as "governmental bonds." (c) Arbitrage. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City and the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates. (d) Federal Guarantee. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the Certificates) shall not make any use of the proceeds of the Certificates or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates to be "federally guaranteed" within the meaning of Section 149(b) of the Code. (e) Covenant Regarding Build America Bonds. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the 2010B Certificates) shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the cash subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. C -20 (f) Compliance with Tax Certificate. In furtherance of the foregoing tax covenants of this section, the City covenants that it will comply with the provisions of the Tax Certificate, which is incorporated herein as if fully set forth herein. These covenants shall survive payment in full or defeasance of the 2010A Certificates and the 2010B Certificates. Rebate Fund. The Trustee shall establish a special fund designated the "City of Newport Beach (Civic Center Project) Rebate Fund" (the "Rebate Fund "). All amounts at any time on deposit in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States (the "Rebate Requirement ") pursuant to Section 148 of the Code and the Treasury Regulations promulgated thereunder (the "Treasury Regulations "). Such amounts shall be free and clear of any lien under the Trust Agreement and shall be governed by the Trust Agreement and by the Tax Certificate executed by the City. The Trustee shall be deemed conclusively to have complied with the Rebate Requirement if it follows the directions of the City, and shall have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the City with the Rebate Requirement. The Trustee Appointment of Trustee. (a) Appointment. Trustee, a national banking association organized under the laws of the United States, is hereby appointed Trustee by the Corporation and the City. (b) Qualifications. The Corporation and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, California, Santa Ana, California, or Los Angeles, California capable of exercising trust powers in the State of California, with a combined capital (exclusive of borrowed capital) and a surplus of at least Seventy -Five Million Dollars ($75,000,000), or be a member of a bank holding company system, which shall have a combined capital and surplus of at least Seventy -Five Million Dollars ($75,000,000), and subject to supervision or examination by federal or state authority, so long as any Certificates are Outstanding. If such bank, corporation or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to then for the purpose of this section the combined capital and surplus of such bank, corporation or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (c) Removal. So long as there is no Event of Default, the City may remove the Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto. (d) Resignation. The Trustee may, upon written notice to the City and the Corporation, resign; provided that such resignation shall not take effect until the successor Trustee is appointed as provided in the Trust Agreement. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee. In the event the City does not name a successor Trustee within thirty (30) days of receipt of notice of the Trustee's resignation, then the Trustee may petition a federal or state court to seek the immediate appointment of a successor Trustee and be reimbursed by the City for all costs incurred in connection therewith. (e) Successor. Any successor Trustee shall be a bank, corporation or test company meeting the qualifications as set forth in Subsection (b) above. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Owners C -21 at their respective addresses set forth on the Certificate registration books maintained pursuant to the Trust Agreement. 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 the Trust Agreement, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. 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, facsimile, request, consent, direction, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been passed or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the 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 of Counsel. The Trustee may consult with its counsel or counsel to the City with regard to legal questions and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith in accordance therewith. Before being required to take any action, the Trustee may require an opinion of Independent Counsel acceptable to the Trustee which opinion shall be made available to the other parties hereto upon request, which counsel may be counsel to any of the parties hereto, or a verified certificate of any party hereto, or both, concerning the proposed action and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken by the Trustee in reliance thereon and the City shall promptly reimburse the Trustee for such costs. (c) Reliance Upon Requested Certificates. Whenever in the administration of its duties under the Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed), in the absence of bad faith on its part, shall be deemed to be conclusively proved and established by the certificate of the City Representative or the Corporation Representative and such certificate shall be full warranty to the Trustee for any action taken or suffered under the provisions of the 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. 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 C -22 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 the 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. Standard of Care. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall only perform those duties specifically set forth herein and no implied duties, covenants or obligations whatsoever shall be read into the Trust Agreement. In the event of and during the continuance of an Event of Default, the Trustee shall exercise such care in performing its duties hereunder as a prudent person would exercise under the circumstances in the conduct of its own affairs. No action by the Trustee shall be construed or deemed to expand the limitations on the scope of the Trustee's duties. The Trustee shall not be considered in breach of or in default in its obligations hereunder in the event of enforced delay ( "unavoidable delay ") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of government, acts of the other parry, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a parry or others relating to zoning or other governmental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. Compensation of the Trustee. As an Additional Payment under the Lease, the City shall, from time to time, pay such amounts and reimburse such expenses (including, without limitation, legal fees and expenses) as are specified in any written agreement with the City and, on demand, pay to the Trustee to the extent not covered by such agreement reasonable compensation for its services and the services of any accountants, consultants, attorneys and other experts as may be engaged by the Trustee to provide services under the Trust Agreement pursuant to a written agreement between the City and the Trustee. Further, in the event of a default hereunder, the City agrees that the Trustee's fees and costs shall be deemed to be a substantial contribution to the trust and bankruptcy estate and/or administrative expenses in a bankruptcy, if applicable. The City's obligation hereunder shall remain valid and binding notwithstanding maturity and payment of the Certificates or resignation and removal of the Trustee. Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, interest on any Certificate, upon the trust estate for the foregoing fees, charges and expenses incurred by it. Trustee's Disclaimer of Warranties. THE TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE C -23 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 the Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. Modification or Amendment of Agreements Amendments Permitted. (a) With Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time, with notice to any rating agency then rating the Certificates by a Supplemental Agreement or amendment thereto which shall become effective when the written consents of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, shall have been filed with the Trustee. No such modification or amendment shall: (i) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificates being affected, or (ii) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or (iii) modify any of the rights or obligations of the Trustee without its written assent thereto, or (iv) amend the Trust Agreement without the prior written consent of the Owners of all Certificates then outstanding. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest evidenced by the Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in the Trust Agreement. Without Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a Supplemental Agreement or amendments thereto or a supplement or amendment to the Lease, without the consent of any such Owners, but only to the extent permitted by law and only: (i) to add to the covenants and agreements of the City hereunder, (ii) to cure, correct or supplement any ambiguous or defective provision contained herein or therein, (iii) in regard to matters arising hereunder or thereunder, as the parties hereto or thereto may deem necessary or desirable (which may be based upon opinions as provided in the Trust Agreement), shall not materially adversely affect the interest of the Owners, C -24 (iv) to substitute the Leased Premises, or a portion thereof, in accordance with the Lease, (v) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest component of 2010A Lease Payments and the interest payable with respect to the 2010A Certificates and to maintain the federal subsidy with respect to the City's obligations to pay the Interest Component with respect to the 2010B Lease Payments under the Lease, (vi) to add to the rights of the Trustee, (vii) to maintain the rating or ratings assigned to the Certificates, or (viii) to provide for the execution and delivery of Additional Certificates in accordance with the provisions of the Trust Agreement. No such modification or amendment, however, shall modify any of the rights or obligations of the Trustee without its written assent thereto. Any such Supplemental Agreement shall become effective upon execution and delivery by the parties hereto or thereto as the case may be. The Trustee shall have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest with respect to the 2010A Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto shall become effective as provided in the Trust Agreement. Procedure for Amendment with Written Consent of the Owners. The Trust Agreement or the Lease may be amended by Supplemental Agreement as provided in the Trust Agreement in the event the consent of the Owners is required pursuant to the Trust Agreement. A copy of the form of such Supplemental Agreement, together with a request to the Owners for their consent thereto, shall be mailed by the Trustee to each Owner of a Certificate at his address as set forth in the Certificate registration books maintained pursuant to the Trust Agreement, but failure to receive copies of such Supplemental Agreement and request so mailed shall not affect the validity of the Supplemental Agreement when assented to as in this section provided. Such Supplemental Agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement) and notices shall have been mailed as hereinafter in this section provided. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this section provided for has been mailed. After the Owners of the required percentage of Certificates shall have filed their consent to such Supplemental Agreement, the Trustee shall mail a notice to the Owners of the Certificates in the manner hereinbefore provided in this section for the mailing of such Supplemental Agreement, stating in substance that such Supplemental Agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in this section (but failure to mail copies of said notice shall not affect the validity of such Supplemental Agreement or consents thereto). A record, consisting of the papers required by this section to be filed with the Trustee, shall be proof of the matters C -25 therein stated until the contrary is proved. The Trustee may obtain and conclusively rely on an opinion of counsel with regard to such matters. Disqualified Certificates. Certificates or Additional Certificates owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action or any calculation of Outstanding Certificates or Additional Certificates provided for in the Trust Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in the Trust Agreement; except that in determining whether the Trustee shall be protected in relying upon any such approval or consent of an Owner, only Certificates that the Trustee actually knows to be owned or held by or for the account of the City or the Corporation or by any person directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or the Corporation (except any Certificates or Additional Certificates held in any pension or retirement fund) shall be disregarded unless all Certificates are so owned, held by or for the account of, in which case such Certificates shall be considered Outstanding for the purpose of such determination. The City or the Trustee may adopt appropriate regulations to require each Owner, before his consent shall be deemed effective, to reveal if the Certificates or Additional Certificates as to which such consent is given are disqualified as provided in the Trust Agreement. Upon request of the Trustee, the City and Corporation shall specify to the Trustee those Certificates and Additional Certificates disqualified pursuant to this section and the Trustee may conclusively rely on such certificate. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective, the 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 the Trust Agreement or the Lease, as the case may be, for any and all purposes. Endorsement or Replacement of Certificates Delivered After Amendments. The City may determine that Certificates delivered after the effective date of any action taken as provided in the Trust Agreement shall bear a notation, by endorsement, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Outstanding Certificate at such effective date and presentation of his Certificate for such purpose at the Principal Office, a suitable notation shall be made on such Certificate. The City may determine that new Certificates, so modified as in the opinion of the Trustee is necessary to conform to such Owner's action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Certificate then Outstanding, such new Certificate shall be exchanged in the Principal Office without cost to such Owner, for a Certificate of the same character then Outstanding, upon surrender of such Certificate. Amendatory Endorsement of Certificates. Subject to the Trust Agreement, an Owner may accept any amendment as to the particular Certificates held by him, provided that due notification thereof is made on such Certificates. Copies of Amendments Delivered to Rating Agencies. Copies of any modifications or amendments to this Agreement, the Lease, the Site Lease or the Assignment Agreement shall be delivered by the City to any rating agency then rating the Certificates at least 10 days prior to the effective date thereof. C -26 Covenants, Notices Compliance With and Enforcement of the Lease. The City covenants and agrees with the Owners to perform all obligations and duties imposed on it under the Lease. The Corporation covenants and agrees with the Owners to perform all obligations and duties unposed on it under the Lease. The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Corporation thereunder. The Corporation and the City, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Leased Premises, which may or can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee. Payment of Taxes. The City shall pay all taxes as provided in the Lease. 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. Prosecution and Defense of Suits. The City shall promptly, and also upon request of the Trustee or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Premises, whether now existing or hereafter developing and shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose. City Budgets. In accordance with 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 failed to observe and perform its covenant and agreement and requesting that such failure be remedied within 30 days, or such failure shall constitute an Event of Default under the Lease. The Trustee shall forward a copy of such notice to the Corporation. Upon receipt of such notice, the City shall notify the Trustee in writing of the proceedings proposed to be taken by the City, and shall keep the Trustee advised in writing of all proceedings thereafter taken by the City. Further Assurances. The Corporation and the City will make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confirming unto the Owners the rights and benefits provided herein. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the 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 C -27 order, to cause the City to comply with its obligations under this section and the Continuing Disclosure Agreement. Limitation of Liability 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 the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee. No Liability of the City or Corporation for Trustee Performance. Except as expressly provided herein, neither the City nor the Corporation shall have any obligation or liability to any other parties hereto or to the Owners with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement. (a) No Investment Advice. The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates. (b) Sufficiency of the Trust Agreement or Lease Payments. The Trustee makes no representations as to the validity or sufficiency of the Certificates, shall incur no responsibility or liability in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall not be responsible or liable for the sufficiency or enforceability of the Lease, the Site Lease or the Assignment Agreement. The Trustee shall not be liable for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in the Trust Agreement), its right to receive moneys pursuant to said Lease, or the value of or title to the Leased Premises. (c) Actions of Corporation and City. The Trustee shall have no obligation or liability to any of the other parties or the Owners with respect to the Trust Agreement or failure or refusal of any other party to perform any covenant or agreement made by any of them under the 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 the Trust Agreement. (d) Recitals and Agreements of Corporation and City. The recitals of facts, covenants and agreements herein and in the Certificates contained shall be taken as statements, covenants and agreements of the City or the Corporation (as the case may be), and the Trustee assumes no responsibility for the correctness of the same. Limitation of Rights to Parties and Certificate Owners. Nothing in the Trust Agreement or in the Certificates expressed or implied is intended or shall be construed to give any person other than the City, the Corporation, the Trustee and the Owners, any legal or equitable right, remedy or claim under or in respect of the Trust Agreement or any covenant, condition or provision hereof, and all such covenants, conditions and provisions are and shall be for the sole and exclusive benefit of the City, the Corporation, the Trustee and the Owners. No Liability of Corporation to the Owners. Except as expressly provided herein, the Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect to the observance or performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by the Trust Agreement. C -28 Events of Default and Remedies of Certificate Owners Assignment of Rights. The parties hereto acknowledge that pursuant to the Assignment Agreement the Corporation has transferred, assigned and set over to the Trustee for the benefit of the Owners, certain of the Corporation's rights under the Lease. Events of Default. (a) Remedies. If an Event of Default shall happen, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything herein or in the Lease to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. 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 the Trust Agreement shall have actual knowledge thereof, or shall have received written notice thereof at the Principal Office. Application of Funds. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of the Trust Agreement or of the Lease in an Event of Default, shall be deposited into the Lease Payment Fund and be applied by the Trustee after payment of all amounts due and payable under the Trust Agreement and the Lease in the following order upon presentation of the Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid - First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties and obligations hereunder, including reasonable compensation to its agents, attorneys and counsel and then to any such amounts incurred by the Owners; Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installment, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Third, Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be 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. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or in the Lease, or in aid of the C -29 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 the 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. hi no event shall counsel to the Trustee be deemed counsel to the Owners, and any communications between the Trustee and its counsel shall be deemed confidential and privileged. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Certificates or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners of the Certificates so affected. Non - Waiver. Nothing in the Trust Agreement or in the Certificates shall affect or impair the obligation of the City to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by the Trust Agreement 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. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it shall have full power, in the exercise of its discretion for the best interest of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the 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. 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 the Trust Agreement, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) there shall have been a default in the payment of such Owner's proportionate interest in the Lease Payments as the same become due. C -30 Such notification, request, tender of indemnity, refusal or omission, and default are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under the Trust Agreement, except in the manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates. The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, shall not be impaired or affected without the consent of such Owner, notwithstanding the foregoing provisions of this section or any other provision of the Trust Agreement. Miscellaneous Defeasance. (a) Methods. If and when any Outstanding Certificates shall be paid and discharged in any one or more of the following ways: (i) Payment or Prepayment: by well and truly paying or causing to be paid the principal, interest and prepayment premiums (if any) with respect to such Certificates Outstanding, as and when the same become due and payable; (ii) Cash: by depositing with the Trustee, in trust, an amount of cash which (together with cash then on deposit in the Lease Payment Fund together with the interest to accrue thereon, in the event of payment or provision for payment of all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including all principal and interest and premium, if any; or (iii) Government Obligations: by irrevocably depositing with the Trustee, in trust, Government Obligations together with cash, if required, in such amount as will, together with interest to accrue thereon (and, in the event of payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease Payment Fund together with the interest to accrue thereon), be fully sufficient to pay and discharge such Certificates (including all principal and interest represented thereby and prepayment premiums if any) at or before their maturity or prepayment date; and all other amounts due hereunder have been paid in full, then, notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Corporation, the Trustee and the City with respect to such Certificates shall cease and terminate, except only the rights of the Trustee under the Trust Agreement hereof, and the obligation of the City and the Corporation to comply with the provisions of the Trust Agreement and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City from funds deposited pursuant to paragraphs (ii) and (iii) of this section, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to paragraphs (ii) and (iii) of this section, the Certificates shall continue to represent direct and proportionate interests of the Owners thereof in applicable Lease Payments under the Lease. (b) Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to one of the procedures described in paragraphs (a)(i) through (a)(iii) of this section, which are not required for the payment to be made to the Owners, shall be paid over to the City, after the payment of any amounts due to the Trustee pursuant to the Trust Agreement hereof and any other Additional Payments due under the Lease. C -31 M 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, in form and substance acceptable to the City of a nationally recognized firm of certified public accountants, verifying that the Government Obligations and cash, if any, satisfy the requirements of the Trust Agreement, (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, and (iii) a copy of an opinion of Special Counsel, dated the date of such defeasance and addressed to the Trustee and the City, in form and substance acceptable to the City, to the effect that such Certificates are no longer Outstanding under the Trust Agreement. Non - Presentment of Certificates. In the event any Certificate shall not be presented for payment when the principal with respect thereto becomes due, either at maturity, or at the date fixed for prepayment thereof, if moneys sufficient to pay such Certificate shall have been deposited in the Prepayment Fund or Lease Payment Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such Certificate shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such Certificate who shall thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his or her part under the 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 the Trust Agreement. Prior to forwarding any such moneys to the City, the Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial newspaper of general circulation in New York, New York. In addition, Trustee shall be indemnified from and against any and all liabilities to third parties resulting from its actions under this section. Thereafter, Owners shall be entitled to look only to the City for payment, and then only to the extent of the amount so repaid by the Trustee. The City shall not be liable for any interest on the sums paid to it pursuant to this section and shall not be regarded as a trustee or trustees of such money. Acquisition of Certificates by City. All Certificates acquired by the City, whether by purchase, gift or otherwise, shall be surrendered by the City to the Trustee for cancellation. Records. The Trustee shall keep complete and accurate records of all moneys received and disbursed by it under the Trust Agreement until four years after no Certificate is Outstanding (or such longer period as required by the Trustee's policies and procedures, or by applicable law), which shall be available for inspection by the City, the Corporation and any Owner, or the agent of any of them, at any time during regular business hours upon reasonable prior notice. Notices. Except as specifically provided otherwise in the Trust Agreement, all written notices to be given under the Trust Agreement shall be given by mail or personal delivery to the party entitled thereto at its address set forth in the Trust Agreement. Governing Law. The Trust Agreement shall be construed and governed in accordance with the laws of the State. C -32 Waiver of Notice. Whenever the giving of notice by mail or otherwise is required by the Trust Agreement, 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. Separability of Invalid Provisions. In case any one or more of the provisions contained in the 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 the Trust Agreement, and the 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 the 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 any one or more sections, paragraphs, sentences, clauses or phrases of the Trust Agreement may be held illegal, invalid or unenforceable. C -33 LEASE /PURCHASE AGREEMENT Definitions "Central Library Site" means the portion of the Leased Premises identified as such on Exhibit B to the Lease. "Civic Center Site" means the portion of the Leased Premises identified as such on Exhibit B to the Lease. "Completion Certificate" means the certificate of the City filed with the Trustee and signed by a City Representative, as prescribed by the Lease. "Environmental Regulations" shall mean all Laws and Regulations, now or hereafter in effect, with respect to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (42 U.S.C. Section 9601, et seq.) (together with the regulations promulgated thereunder, "CERCLA "), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et seq.) (together with the regulations promulgated thereunder, "RCRA "), the Emergency Planning and Community Right -to -Know Act, as amended (42 U.S.C. Section 11001, et seq.) (together with the regulations promulgated thereunder, "Title 111), the Clean Water Act, as amended (33 U.S.C. Section 1321 et sec.) (together with the regulations promulgated thereunder, "CWA "), the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.) (together with the regulations promulgated thereunder, "CAA ") and the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et sec.) (together with the regulations promulgated thereunder, "TSCA "), and any state or local similar laws and regulations and any so- called local, state or federal "superfund" or "superlien" law. "Interest Component" means the portion of each Lease Payment designated in Exhibit A to the Lease as the Interest Component. "Leased Premises" means the real property described in Exhibit B to the Lease and the existing improvements thereon being leased to the City by the Corporation. "Permitted Encumbrances" means, as of any particular rime: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of the Lease, permit to remain unpaid; (ii) the Assignment Agreement; (iii) the 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 taw to the extent permitted under the Lease; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Closing Date, which the City hereby certifies will not materially impair the use of the Leased Premises by the City; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the Lease and to which the Corporation and the City consent in writing. "Principal Component" means the portion of the Lease Payments designated in Exhibit A to the Lease as the Principal Component. "Project" means the improvements described in Exhibit C to the Lease, and any and all additions or substitutions thereto made as provided in the Lease, and any additional improvements financed with the proceeds of Additional Certificates. C -34 "Term" means the term of the Lease as set forth in Lease "Vendors" or "Contractors" means the persons with whom the Corporation, or the City as agent of the Corporation, has contracted for completion of the Project. Representations, Covenants and Warranties Representations, Covenants and Warranties of the City. The City represents, covenants and warrants to the Corporation as follows: Due Organization and Existence. The City is a municipal corporation and a chartered city duly organized and existing under the Constitution and laws of the State. Authorization: Enforceability. The Constitution and laws of the State authorize the City to enter into the 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. The Lease, the Site Lease, the Trust Agreement, the Agency Agreement and the Continuing Disclosure Agreement constitute the legal, valid and binding obligations of the City enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. No Conflicts or Default: No Liens or Encumbrances. Neither the execution and delivery of the 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. Execution and Delivery. The City has duly authorized and executed the Lease in accordance with the Constitution and laws of the State. General Tax and Arbitrage Covenant. The City hereby covenants that, notwithstanding any other provision of the Lease, it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). The City shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates). C -35 The City shall not take any action, or fail to take any action, if any such action or failure to take action would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) are outstanding, the City, with respect to the proceeds thereof, the portion of the Leased Premises and the Project intended for public use and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. The City shall not, directly or indirectly, use or permit the use of any proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or of the Leased Premises, or other funds of the City, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the City shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). The City shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or any other funds of the City, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. The City hereby makes an irrevocable election to receive a refundable credit under Section 54AA(g)(2)(B) of the Code in cash with respect to the City's obligations to make 2010B Lease Payments and covenants to cause such amounts to be deposited to the Lease Payment Fund as a credit against its obligation to pay the Interest Component of the 2010B Lease Payments. The City shall not make any use of the proceeds of the 2010B Certificates or take or omit to take any other action that would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. Flood Plain. The City hereby represents that the Leased Premises is not in a 100 year flood plain. Essentiality of the Leased Premises. The City hereby represents that the Leased Premises are essential for the City's performance of its governmental functions. 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. C -36 Title Insurance. The City hereby represents that the Leased Premises is the same property which is the subject of the ALTA title insurance policy (with western regional exceptions) CLTA title insurance policy issued by Fidelity Title Company pursuant to the Lease Agreement. Representations, Covenants and Warranties of the Corporation. The Corporation represents, covenants and warrants to the City as follows: Due Organization and Existence; Enforceability. The Corporation is a 501(c)(4) nonprofit public benefit corporation duly organized, existing and in good standing under the laws of the State, has the power to enter into the 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. The Lease, the Assignment Agreement, the Site Lease, the Agency Agreement and the Trust Agreement constitute the legal, valid and binding obligations of the Corporation, enforceable in accordance with their respective terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of creditors generally. No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution and delivery of the Lease, the Assignment Agreement, the Site Lease, the Agency Agreement or the Trust Agreement, nor the fulfillment of or compliance with the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the joint powers agreement of the Corporation or any restriction or any agreement or instrument to which the Corporation is now a party or by which the Corporation is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Corporation, or upon the Leased Premises except by Permitted Encumbrances and by the pledge contained in the Trust Agreement. Execution and Delivery. The Corporation has duly authorized and executed the Lease in accordance with the laws of the State. Maintenance of Existence. To the extent permitted by law, the Corporation agrees that during the term hereof it will maintain its existence as a 501(c)(4) nonprofit public benefit corporation, will not combine or consolidate with or merge into any other entity or permit one or more other entities to consolidate with or merge into it. General Tax and Arbitrage Covenant. The Corporation covenants that, notwithstanding any other provision of the Lease, it shall not take any action if any such action would adversely affect the exclusion from gross income of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates intended for public use under Section 103 of the Code (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or the portion of the Leased Premises intended for public use by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). C -37 The Corporation shall not take any action if any such action would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "private activity bonds" within the meaning of Section 141 of the Code, and in furtherance thereof, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), shall not make any use of the proceeds of the 2010A Certificates, any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Project or the portion of the Leased Premises intended for public use, or any portion thereof, or any other funds of the City, that would cause the 2010A Certificates or any Additional Certificates to be "private activity bonds" within the meaning of Section 141 of the Code. To that end, so long as any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) are outstanding, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation, with respect to the proceeds thereof, the portion of the Leased Premises intended for public use, the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements are, at the time, applicable and in effect. To the extent that the Corporation may control the Leased Premises or the proceeds of the Certificates or any Additional Certificates, the Corporation shall not, directly or indirectly, use or permit the use of any proceeds of any 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), or of the Leased Premises, or other funds available to it, or take or omit to take any action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, to the extent that the Corporation may control the Leased Premises or the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates), the Corporation shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates). To the extent that the Corporation may control the proceeds of the Certificates or any Additional Certificates, the Corporation shall not make any use of the proceeds of the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) or any other of its funds, or take or omit to take any other action, that would cause the 2010A Certificates or any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be "federally guaranteed" within the meaning of Section 149(b) of the Code. To the extent that the Corporation may have control over the proceeds of the 2010B Certificates, the Corporation shall not make any use of the proceeds of the 2010B Certificates, or take or omit to take any other action, that would cause the City to lose the subsidy payments from the United States Treasury relating to City's obligations to pay the Interest Component of the 2010B Lease Payments under the Lease as evidenced by the 2010B Certificates. C -38 Acquisition, Construction and Installation of the Project Deposit of Certificate Proceeds. On the Closing Date for the Certificates and on the Closing Date for any Additional Certificates, the Corporation agrees to pay or cause to be paid to the Trustee the proceeds of the sale of the Certificates and Additional Certificates, which moneys, in the case of the Certificates, shall be deposited with the Trustee as provided in the Trust Agreement, or in the case of Additional Certificates as provided in any Supplemental Trust Agreement which relates to such Additional Certificates. Completion of the Project. The Corporation and the City agree to execute and deliver the Agency Agreement pursuant to which the City, as the agent of the Corporation, will acquire, construct, deliver and install the Project. The City and the Corporation each covenants and agrees to comply with the terms of the Agency Agreement. 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 the Lease Agreement and the Trust Agreement, which shall be disbursed in accordance and upon compliance with the Trust Agreement. Completion Certification. The City and the Corporation expect that the Project will be substantially completed in accordance with plans and specifications described in the Agency Agreement. Upon the completion of acquisition, construction, delivery and installation of the portion of the Project to be financed with the proceeds of the Certificates, and upon the completion of the improvements to be financed with each series of Additional Certificates, the City shall deliver to the Trustee a Completion Certificate with respect thereto. A separate Completion Certificate will be filed with respect to the portion of the Project to be financed from the Certificates and the portion to be financed with each series of Additional Certificates. On the date of filing a Completion Certificate, all excess moneys remaining in the Project Fund for the Certificates or issue of Additional Certificates for which such Completion Certificate is delivered shall be applied in accordance with the provisions of Section 3.04 of the Trust Agreement. Section 3.5. Substitution of or Addition to the Project. The City shall have the right to substitute alternate items for any portion of the Project listed in Exhibit C hereto or provide for additional components of the Project by providing the Trustee with a written certificate in the form contained in Exhibit E hereto, so long as such substitution or addition does not cause, in and of itself, the Interest Component evidenced by the 2010A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments or result in a reduction in the fair rental value of the Leased Premises. Compliance with Law. (a) Public Biddin¢. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all applicable provisions for bids and contracts prescribed by law, including, without limitation, the Public Contract Code and the Government Code of the State. C -39 (b) Wage Rates and Working Hours. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall comply with all provisions relating to prevailing wage rates and working hours applicable to it under the laws of the State. (c) Plans and Specifications. Except as otherwise provided by City Charter and the City of Newport Beach Municipal Code, the City shall prepare and adopt plans and specifications for the acquisition, construction and installation of the Project pursuant to the Government Code and Public Contracts Code of the State. Further Assurances and Corrective Instruments. The Corporation and the City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Premises hereby leased or intended so to be or for carrying out the expressed intention of the Lease. Agreement to Lease; Term of Lease Payments Lease. The Corporation hereby leases the Leased Premises to the City, and the City hereby leases the Leased Premises from the Corporation, upon the terms and conditions set forth herein. The Lease shall not operate as a merger of the City's leasehold estate in the Leased Premises pursuant to the Lease and its fee estate in the Leased Premises and shall not cause the extinguishment of the leasehold interest granted to the Corporation under the Site Lease. Term. The Term of the Lease shall commence on the date of execution hereof and shall end on July 1, 2040, unless extended pursuant to the Lease, or unless terminated prior thereto upon the earliest of any of the following events: (a) Default and Termination. A default by the City and the Corporation's election to terminate the Lease; (b) Payment of All Lease Payments. The payment by the City of all Lease Payments required under the Lease and any Additional Payments required under the Lease; (c) Prepayment. The deposit of funds or Government Obligations with the Trustee in amounts sufficient to pay all Lease Payments as the same shall become due, as provided in the Lease and the Trust Agreement; or (d) Purchase. Upon the exercise by the City of its option to purchase all of the Corporation's interest in the Leased Premises as provided in the Lease; provided, however, that upon exercise by the City of its option to purchase the Corporation's interest in a portion of the Leased Premises, as provided in the Lease, the Lease shall be terminated only with respect to the portion of the Leased Premises purchased. Extension of Lease Term. The Term of the Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all Interest Components and Principal Components represented thereby shall not be fully paid by the City as a result of a default in the payment of Lease Payments, or because the Lease Payments hereunder shall have been abated at any time as permitted by the terms hereof, then the Term shall be extended until all Certificates and Additional Certificates shall be fully paid, except that the Term shall in no event be extended beyond the tenth anniversary of the final scheduled maturity of any Certificate or Additional Certificate. C -40 Lease Pavments (a) Time and Amount. Subject to the provisions of the Lease (regarding abatement in event of loss of use of any portion of the Leased Premises), (regarding option to purchase) and Article X (regarding prepayment of Lease Payments), the City agrees to pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the 2010A Lease Payments and the 2010B Lease Payments (denominated into components of principal and interest, the Interest Component of such Lease Payment being paid semiannually) in the amounts specified in Exhibit A, to be due and payable in arrears on the fifteenth (15th) day of the month (or if such day is not a Business Day, the next succeeding Business Day) specified in Exhibit A (the "Lease Payment Date ") which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. In the event that any Additional Certificates are executed and delivered pursuant to the Trust Agreement, the City and the Trustee shall execute an amendment to Exhibit A to state the Lease Payments due hereunder as a result of the execution and delivery of such Additional Certificates. The obligation of the City to pay Lease Payments shall commence on the Closing Date for the Certificates. In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the Trustee shall provide prompt written notice to the City of such failure to pay; provided, however, that failure to give such notice shall not excuse any event of default under the Lease. The City's obligation to make 2010B Lease Payments are hereby designated as federally taxable "Build America Bonds" pursuant to the American Recovery Reinvestment Tax Act of 2009 and the provisions of Section 54AA of the Code. (b) Credits. Any amount held in the 2010A Account of the Lease Payment Fund or the 2010B Account of the Lease Payment Fund on any Lease Payment Date (other than capitalized interest, which shall be credited in accordance with the Trust Agreement, and 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 principal with respect to any Certificates or Additional Certificates that have matured or been called for payment and have not been presented for payment or interest) shall be credited towards the applicable Lease Payment then due and payable. The City need not transfer additional cash to the Trustee on any Lease Payment Date if the amounts then held in the Lease Payment Fund (other than those amounts excluded under the prior sentence) are at least equal to the Lease Payment then required to be paid. (c) Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments required in this section, the Lease Payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the original interest rate payable with respect to each Certificate or Additional Certificate, as applicable, represented by such delinquent Lease Payment. (d) No Withholding. Notwithstanding any dispute between the Corporation and the City, including a dispute as to the failure of any portion of the Leased Premises in use by or possession of the City to perform the task for which it is leased, the City shall make all Lease Payments and Additional Payments when due and shall not withhold any Lease Payments pending the final resolution of such dispute. (e) 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 C -41 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 the 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 Corporation's leasehold interest in the Leased Premises at the end of the Term. Budget and Appropriation. The City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due hereunder in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of the annual budget, such amounts shall be included and maintained in such budget as amended. During the Term, the City will furnish annually, on or before August 1 of each year, to the Trustee a certificate of the City Representative stating that all Lease Payments and Additional Payments due hereunder for the applicable Fiscal Year have been included in its annual budget and the amount so included. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the 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. Assignment of Lease Payments. Certain of the Corporation's rights under the Lease, including the right to receive and enforce payment of the Lease Payments, Additional Payments and Prepayments, to be made by the City hereunder, have been assigned absolutely to the Trustee, subject to certain exceptions, pursuant to the Assignment Agreement, to which assignment the City hereby consents. The Corporation hereby directs the City, and the City hereby agrees, to pay to the Trustee at the Trustee's corporate trust office designated in the Trust Agreement, or to the Trustee at such other place as the Trustee shall direct in writing, all Lease Payments, Additional Payments or Prepayments thereof payable by the City hereunder. The Corporation will not assign or pledge the Lease Payments or other amounts derived from the Leased Premises and from its other rights under the Lease except as provided under the terms of the Lease, the Assignment Agreement and the Trust Agreement, or its duties and obligations except as provided under the Lease. Use and Possession. The total Lease Payments due in any Fiscal Year shall be in consideration for the City's right to use and possession of the Leased Premises for such Fiscal Year. During the Term of the Lease, the City shall be entitled to the exclusive use and possession of the Leased Premises, subject only to the Permitted Encumbrances. C -42 Abatement of Lease Payments and Additional Payments. (a) In the Event of Damage, Destruction, Condemnation or Title Defect. Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided herein, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking. Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased Premises, the City shall remain obligated to make Lease Payments which would otherwise be abated (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which would otherwise be abated. The Lease Payments shall be payable from such amounts paid under (i) and (ii) above as an obligation of the City payable from a special fund. (b) 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 the Lease, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel addressed to the Trustee, the City and the Corporation, not result in the obligations of the City hereunder constituting indebtedness of the City in contravention of the Constitution and laws of the State. Additional Payments. In addition to the Lease Payments, the City shall also pay such amounts ( "Additional Payments ") as shall be required for the payment of all administrative costs of the Corporation relating to the Leased Premises, the Certificates and any Additional Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its interest in the Leased Premises or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to comply with the terms of the Certificates and any Additional Certificates or of the Trust Agreement, including premiums or insurance maintained pursuant to the Lease or to indemnify the Corporation and its employees, officers and directors and the Trustee. All such Additional Payments to be paid hereunder shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing. Net - Net -Net Lease. The Lease shall be deemed and construed to be a "net- net -net lease" and the City hereby agrees that the Lease Payments shall be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, reserve deposits, costs associated with the Leased Premises, charges or set -offs whatsoever, except as expressly provided herein. C -43 Insurance Public Liability and Leased Premises Damage. (a) Coverage. The City shall maintain or cause to be maintained, throughout the Term hereof, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of any City property or portion thereof. (b) Limits. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $500,000 for damage to property resulting from each accident or event (in each case subject to a deductible clause of not to exceed $500,000). Such public liability and property damage insurance may, however, be in the form of a single limit policy covering all such risks in an amount equal to the liability limits set forth herein. (c) Joint or Self- 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 the Lease, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid. 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). Casualty and Theft Insurance. (a) Casualty and Theft Insurance; Coverage. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of the 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; notwithstanding the foregoing, the City shall not be required to maintain such insurance on the portion of the Leased Premises located on the Civic Center Site until a Completion Certificate has been filed with the Trustee. The City shall not be required to purchase or maintain earthquake or flood insurance with respect to the Leased Premises. (b) Amount. Such insurance shall be in an amount not less than the replacement cost of the Leased Premises, subject to a "deductible clause" not to exceed two hundred fifty thousand dollars ($250,000) for any one loss or, in the case of a flood and earthquake rider, ten percent (10 %) of the coverage obtained. The term "full replacement value" as used in the Lease shall mean the actual replacement cost of the improvements constituting the Leased Premises. C -44 (c) Joint or Self- Insurance. Such insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self - insurance by the City. (d) Payment of Net Proceeds. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Net Proceeds Fund and applied as provided in the Lease. Rental Interruption Insurance. (a) Coverage and Amount. Upon delivery of the Leased Premises to it for occupancy, the City shall maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24 -month period, to insure against loss of rental income from the Leased Premises caused by perils covered by the insurance required to be maintained as provided in the Lease. Such rental interruption insurance shall name the Trustee and the Corporation as additionally insured parties and the Trustee as the loss payee. (b) Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental income or use and occupancy insurance carried by the City but may not be maintained in the form of self - insurance by the City. (c) Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable and proportionately between 2010A Lease Payments and 2010B Lease Payments if there are insufficient Net Proceeds to pay all Lease Payments due in any such Certificate Year. Title Insurance. The City shall obtain and, throughout the Term of the Lease, maintain or cause to be maintained title insurance on the Leased Premises, in the form of an ALTA title policy (with western regional exceptions) or in the form of a CLTA title policy, in an amount equal to the aggregate principal amount of the Certificates and Additional Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same, payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or policies shall insure the City's leasehold estate hereunder in the Leased Premises, subject only to Permitted Encumbrances. All Net Proceeds received under said policy or policies shall be deposited with the Trustee and applied as provided in the Trust Agreement. So long as any of the Certificates and Additional 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 and the owners of any Additional Certificates. The Net Proceeds of such insurance shall be applied as provided in the Lease. General Insurance Provisions. (a) Form of Policies. All policies of insurance required to be procured and maintained pursuant to the Lease and any statements of self - insurance shall be in a form certified by the City Representative or an insurance agent, broker or consultant to the City to comply with the provisions hereof. All such policies shall provide that the insured parties shall be given thirty (30) days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be procured and maintained pursuant to the Lease regarding casualty and theft insurance, rental interruption insurance, and title insurance shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Owners. All required insurance policies must be provided by a commercial insurer rated A by Best or A- and A3 by S &P and Moody's, respectively. All policies shall name the City, the Corporation and the Trustee as insureds and the Trustee as a loss payee. C -45 (b) Payment of Premiums. The City shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease, and shall promptly furnish or cause to be furnished to the Trustee a certificate to such effect, as described in paragraph (d) below. (c) Protection of the Trustee. The Trustee shall not be responsible for the sufficiency or adequacy of any insurance herein required and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. (d) Evidence of Insurance. The City shall cause to be delivered to the Trustee annually on or before August 1 a certificate stating that the insurance policies required by the Lease are in full force and effect. (e) Self Insurance. The City may only elect to self insure pursuant to the Lease if and to the extent such self - insurance method or plan of protection shall afford reasonable protection to the Corporation and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by other cities in the State other than the City. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance shall not be deemed to be self - insurance for purposes hereof. Any self - insurance maintained by the City pursuant to the Lease shall comply with the following terms: (i) The self - insurance program shall be approved in writing by the City's City Manager or Assistant City Manager and an independent insurance consultant in accordance with the California Labor Code and the California Government Code; (ii) The self - insurance program shall include an actuarially sound claims reserve fund out of which each self - insured claim shall be paid; the adequacy of such fund shall be evaluated on a biannual basis by the City Representative in a certified statement delivered to the Trustee; and any deficiencies in any self - insured claims reserve fund shall be remedied in accordance with the recommendation of the City Representative; and (iii) In the event the self - insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City Representative, shall be maintained. Cooperation. The Corporation shall cooperate fully with the City at the expense of the City in filing any proof of loss with respect to any insurance policy maintained pursuant to this Article and in the prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased Premises or any portion thereof. Damage, Destruction and eminent Domain; Use of Net Proceeds 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 the Lease regarding casualty and theft insurance and title insurance promptly upon receipt thereof, and pursuant to the Trust Agreement, the Trustee shall deposit such Net Proceeds of insurance in the Net Proceeds Fund. The City and/or the Corporation shall transfer to the Trustee any other Net Proceeds (other than Net Proceeds paid under the Lease which shall be applied as described in such sections) received by the City and/or Corporation in the event of any accident, destruction, theft or taking by eminent domain or condemnation with respect to the Project, for deposit in the Net Proceeds Fund. C -46 (b) Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the certification described in paragraph (i) below and the requisition described in paragraph (ii) below, the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as provided in paragraph (ii) below. (i) Certification. The City Representative must certify to the Corporation and the Trustee that: (x) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose, together with any other funds supplied by the City to the Trustee in a subaccount of the Net Proceeds Fund for such purpose, are expected to equal at least 100% of the projected costs of replacement or repair, as demonstrated in an attached reconstruction budget, and (y) Timely Completion. In the event that damage, destruction or taking results, or is expected to result, in an abatement of Lease Payments, such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds, as described in the Lease together with other identified available moneys, will be available to pay in full all Lease Payments coming due during such period as demonstrated in an attached reconstruction schedule. (ii) Requisition. The City Representative must deliver to the Trustee a requisition stating with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation. Each such cost requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confine the accuracy of such facts. Any balance of the Net Proceeds remaining after such replacement or repair has been completed and after payment or provision for payment of all Certificates as provided in the Trust Agreement and all Additional Certificates as provided in any Supplemental Trust Agreement pursuant to which such Additional Certificates are executed and delivered shall be paid to the City after payment of amounts due the Trustee pursuant to the Trust Agreement. (c) Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City's determination that the certification provided in the Lease 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 the Trust Agreement and apply them to prepayment of the Certificates as provided in the Trust Agreement and Additional Certificates as provided in a Supplemental Trust Agreement and prepayment of Lease Payments as provided in the Lease; provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net Proceeds, together with funds then on hand in the Lease Payment Fund are not sufficient to prepay all the Certificates and Additional Certificates then Outstanding, then the City shall not be permitted to certify that repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best interest of the City. In such event, the City shall proceed to repair, replace or improve the Leased Premises as described herein from legally available funds in the then - current Fiscal Year and shall make the required notification to the Trustee pursuant to the Trust Agreement and the Trustee shall disburse moneys in the Net Proceeds Fund to the person, firm, or corporation named in the requisition as provided therein. C -47 Covenants with Respect to the Leased Premises 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. Interest in the Leased Premises and the Lease. (a) Corporation Holds Leasehold Interest During Term. During the Term of the Lease, the Corporation does and shall hold a leasehold interest in the Leased Premises pursuant to the Site Lease. The City shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents reasonably required, to maintain and evidence such title and interest at all times during the Term of the Lease. (b) Title Transferred to the City at End of Term. Upon expiration of the Tenn as provided in the Lease, all right, title and interest of the Corporation in and to all of the Leased Premises shall be transferred to and vest in the City, without the necessity of any additional document of transfer. Option to Purchase. The City may exercise an option to purchase the Corporation's interest under the Site Lease and the Lease in the Leased Premises by depositing with the Trustee cash and/or Government Obligations as provided in the Trust Agreement. In such event, all or a portion of the obligations of the City under the Lease, and the security provided by the Lease for said obligations or said portion of the obligations, shall cease and terminate as provided in the Lease, excepting in the case all of the Corporation's interest has been purchased, only the obligation of the City to make, or cause to be made, such Lease Payments from such deposit. In the event Lease Payments and Additional Payments under the Lease have been paid in full, on the date of said deposit, the Corporation's interest in the Leased Premises shall revert and transfer to the City automatically and without further action by the City or the Corporation, and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of the Corporation's interests in the Leased Premises. In the event Lease Payments under the Lease have been paid in part only, on the date of said deposit, the City shall specify a discrete portion of the Corporation's interest in the Leased Premises for reversion and transfer to the City and the Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of such portion of the Corporation's interest in the Leased Premises; provided, that such portion shall revert and transfer to the City only if the reduction in the fair rental value of the Leased Premises resulting from such reversion and transfer at the time of such reversion and transfer (as determined by an independent appraisal acceptable to the Corporation) is proportionately less than or equal to the reduction in the maximum annual Lease Payments under the Lease resulting from such purchase. Any such deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the Lease. Quiet Enjoyment. During the Term, the Corporation shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall during such Term peaceably and quietly have and hold and enjoy the Leased Premises, without suit, trouble or hindrance from the Corporation, or any person or entity claiming under or through the Corporation except as expressly set forth in the Lease. The Corporation will, at the request of the City, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect the Leased Premises as provided in the Lease. Installation of the City's Personal Property. The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other property in or upon any portion of the Leased Premises. All such items shall remain the sole property of the City, regardless of the manner in which the same may be affixed to such portion of the Leased Premises, in which neither the Corporation nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to such portion of the Leased Premises resulting from the installation, modification or removal of any such items of equipment. Nothing in the 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. Access to the Leased Premises. The City agrees that the Corporation, any Corporation Representative and the Corporation's successors, assigns or designees shall have the right at all reasonable times to enter upon the Leased Premises or any portion thereof to examine and inspect the Leased Premises. The City further agrees that the Corporation, any such Corporation Representative, and the Corporation's successors, assigns or designees shall have such rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the Leased Premises in the event of failure by the City to perform its obligations hereunder. Maintenance, Utilities, Taxes and Assessments. (a) Maintenance; Repair and Replacement. Throughout the Term of the Lease, as part of the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased Premises shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. In exchange for the Lease Payments herein provided, the Corporation agrees to provide only the Leased Premises, as hereinbefore more specifically set forth. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of the Lease. (b) Tax and Assessments; Utility Charges. The City shall also pay or cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Corporation or the City or levied, assessed or charged against any portion of the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of the Lease as and when the same become due. (c) Contests. The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall furnish the Corporation and the Trustee with the opinion of an Independent Counsel acceptable to the Corporation, to the effect that, by nonpayment of any such items, the interest of the Corporation in such portion of the Leased Premises will not be materially endangered and that the Leased Premises will not be subject to loss or forfeiture. Otherwise, the City shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Corporation. The Corporation will cooperate fully in such contest, upon the request and at the expense of the City. Modification of the Leased Premises. (a) Additions, Modifications and Improvements. The City shall, at its own expense, have the right to make additions, modifications, and improvements to any portion of the Leased Premises if such C -49 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 the Lease. Such additions, modifications and improvements shall not in any way cause an abatement of Lease Payments with respect to the Leased Premises or cause it to be used for purposes other than those authorized under the provisions of State and federal law or in any way which would impair the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates); and the Leased Premises, upon completion of any additions, modifications and improvements made pursuant to this section, shall have an annual fair rental value which is not less than the annual Lease Payments. (b) No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any additions, modifications or improvements made by the City pursuant to this section; provided that if any such lien is established and the City shall first notify or cause to be notified the Corporation of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Trustee (as assignee of the Corporation). The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City. (c) Replacements, Redevelopment and Renovation. The City shall, at its own expense, or with the proceeds of Additional Certificates, have the right to make replacements, redevelopment or renovation of all or a portion of the Leased Premises if the following conditions precedent are satisfied: (i) The City receives an opinion of Special Counsel, a copy of which the City shall furnish to the Corporation and the Trustee, that (1) such replacement does not adversely affect the federal income tax exclusion or the State tax- exempt status of the Interest Component evidenced by the 2010A Certificates and Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax exempt Certificates) or would cause the City to lose the subsidy payments from the United States Treasury relating to the City's obligation to pay the Interest Component of the 2010B Lease Payments, and (2) the Lease will remain the legal, valid, binding and enforceable obligation of the City; (ii) In the event such replacement, redevelopment or renovation would result in the temporary abatement of Lease Payments as provided in the Lease the City shall have notified any rating agency then providing a rating on the Certificates and shall deposit moneys with the Trustee in advance for payment of Lease Payments from the proceeds of Additional Certificates or from special funds of the City or other moneys, the application of which would not, in the opinion of Special Counsel (a copy of which shall have been delivered to the Trustee), result in such Lease Payments constituting indebtedness of the City in contravention of the Constitution and laws of the State; (iii) The City shall certify to the Trustee that it has sufficient funds to complete such replacement, redevelopment or renovation; and (iv) In the case of replacement(s), redevelopment or renovation other than from the proceeds of Additional Certificates, the City and the Trustee receive an independent appraisal from a California certified general appraiser that the annual fair rental value of Leased Premises following the replacement, redevelopment or renovation will be at least equal to the annual Lease Payments immediately prior to such replacement, redevelopment or renovation. C -50 Encumbrances; Alternative Financing Methods. (a) Encumbrances. Except as provided in the Lease, the City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of the Corporation and the City as herein provided. Except as expressly provided in the Lease, the City shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that the City may contest such liens if it desires to do so. The City shall reimburse the Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. (b) Alternative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims shall at any time while any of the Certificates or Additional Certificates remain Outstanding be and remain subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the benefit of the Owners and (2) the City shall have first delivered to the Trustee an opinion of Special Counsel substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result in the inclusion of the interest with respect to the 2010A Certificates and the Additional Certificates (to extent such Additional Certificates are executed and delivered as tax exempt Certificates) in the gross income of the owners thereof for purposes of federal income taxation or impair the State tax - exempt status of such interest payments and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Corporation's Disclaimer of Warranties. THE CORPORATION MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event shall the Corporation be liable for incidental, indirect, special or consequential damages, in connection with or arising out of the Lease, the Site Lease, the Assignment Agreement, the Agency Agreement or the Trust Agreement for the existence, furnishing, functioning or the City's use and possession of the Leased Premises. The City's Right to Enforce Warranties of Vendors or Contractors. The Corporation hereby irrevocably appoints the City its agent and attorney -in -fact during the Term of the Lease, so long as the City shall not be in default hereunder, to assert from time to time whatever claims and rights, including without limitation, warranty claims, claims for indemnification and claims for breach of any representations, respecting the Leased Premises which the Corporation may have against any vendor or contractor. The City's sole remedy for the breach of any such warranty, indemnification or representation shall be against the vendor or contractor with respect thereto, and not against the Corporation, nor shall such matter have any effect whatsoever on the rights and obligations of the Corporation with respect to the 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 Corporation shall, upon the City's request and at the City's expense, do all things and take all such actions as the City may request in connection with the assertion of any such claims and rights. C -51 Substitution or Release of the Leased Premises. The City shall have the right to substitute alternate real property for any portion of the Leased Premises described in Exhibit B hereto or to release a portion of the Leased Premises from the lien of the Lease by providing the Trustee with a supplement to the Lease substantially in the form attached as Exhibit D hereto and by satisfying the conditions set forth in the Lease . All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution pursuant to this section, there shall be no reduction in or abatement of the Lease Payments due from the City hereunder as a result of such substitution. No substitution or release shall be permitted hereunder unless: (a) In the case of a substitution, the City provides the Trustee with a certificate that the substituted real property has an equivalent or greater useful life as the Leased Premises to be released and that the useful life of the substituted Leased Premises exceeds the remaining term of the Lease Payments hereunder; (b) an independent California Certified General or equivalent certified real estate appraiser selected by the City finds (and delivers a certificate to the City and the Trustee setting forth its findings) that the Leased Premises following any release or substitution has an annual fair rental value greater than or equal to the corresponding Lease Payments due hereunder so that the Lease Payments payable by the City pursuant to the Lease will not be abated. Notwithstanding the foregoing, upon the filing by the City of the Completion Certificate, the City may release all of the Leased Premises other than the Civic Center Site and the Central Library Site, provided that the City certifies to the Trustee that at least 90% of the proceeds of the Certificates deposited into the Project Fund have been applied toward the construction of the Project on either the Civic Center Site or the Central Library Site. (c) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) or CLTA title insurance policy with respect to any substituted property, with an endorsement so as to be payable to the Trustee for the benefit of the Owners, showing no prior liens thereon other than Permitted Encumbrances. Such policy shall comply with the Lease, shall be in the amount equal to the principal component of Lease Payments attributable to the substituted property, and shall insure the leasehold interest or the fee simple interest of the Corporation or the City, as applicable, to the substituted property; (d) the City provides the Corporation and the Trustee with an opinion of Special Counsel that such substitution or release does not cause, in and of itself, the interest evidenced and represented by the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be included in gross income for federal income tax purposes or cause a loss of the cash subsidy payments from the United States Treasury with respect to the 2010B Certificates; (e) the City shall give, or cause to be given, any notice of the occurrence of such substitution or release required to be given pursuant to the Continuing Disclosure Agreement; and (f) upon the substitution of any real property and improvements thereon for all or a portion of the Leased Premises then existing, or the release of any portion of the Leased Premises, the City, the Corporation and the Trustee shall execute and the City shall record with the office of the County Recorder, County of Orange, California, any document necessary to reconvey to the City the portion of the Leased Premises being released and to include any substituted real property and /or improvements as all or a portion of the Leased Premises. C -52 Compliance with Law, Regulations, Etc. (a) Except as described in subsection (b) below, the City has, after due inquiry, no knowledge and has not given or received any written notice indicating that the past or present use of the Leased Premises or any practice, procedure or policy employed by it in the conduct of its business materially violates any applicable (including federal, state, county and local) law, regulation, code, order, rule, judgment or consent agreement, including, without limitation, those relating to zoning, building, use and occupancy, fire safety, health, sanitation, air pollution, ecological matters, environmental protection, hazardous or toxic materials, substances or wastes, conservation, parking, architectural barriers to the handicapped, or restrictive covenants or other agreements affecting title to the Leased Premises (collectively, "Laws and Regulations "). Without limiting the generality of the foregoing, to the best of its knowledge, after due inquiry, neither the City nor any prior or present owner, tenant or subtenant of the Leased Premises has, other than as set forth in subsections (a) and (b) of this section or as may have been remediated in accordance with Laws and Regulations, (i) used, treated, stored, transported or disposed of any material amount of flammable explosives, polychlorinated biphenyl compounds, heavy metals, chlorinated solvents, cyanide, radon, petroleum products, asbestos, methane, radioactive materials, pollutants, hazardous materials, hazardous wastes, hazardous, toxic, or regulated substances or related materials, as defined in CERCLA, RCRA, CWA, CAA, TSCA and Title 11I, 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) of the Lease with respect to Hazardous Materials are those Hazardous Materials in the amounts ordinarily found in the inventory of, or used in the maintenance of the City's City Hall or related buildings, the use, treatment, storage, transportation and disposal of which has been and shall be in compliance with all Laws and Regulations (the "Permitted Use "). (c) No portion of the Leased Premises located in an area of high potential incidence of radon has an unventilated basement or subsurface portion which is occupied or used for any purpose other than the foundation or support of the improvements to the Leased Premises. Environmental Compliance. (a) Other than the Permitted Use, the City shall not use or permit the Leased Premises or any part thereof to be used to generate, manufacture, refine, treat, store, handle, transport or dispose of, transfer, produce or process Hazardous Materials, except, and only to the extent, if necessary to maintain the improvements on the Leased Premises and then, only in compliance with all Environmental Regulations, and any state equivalent laws and regulations, nor shall it permit, as a result of any intentional or unintentional act or omission on its part or by any tenant, subtenant, licensee, guest, invitee, contractor, employee and agent, the storage, transportation, disposal or use of Hazardous Materials or the Release or threat of Release of Hazardous Materials on, from or beneath the Leased Premises or onto any other Leased Premises excluding, however, those Hazardous Materials in those amounts ordinarily found in the inventory of a municipal corporation, the use, storage, treatment, transportation and disposal of which shall be in compliance with all Environmental Regulations. Upon the occurrence of any Release or threat of Release of Hazardous Materials other than the Permitted Use, the City shall promptly commence and perform, or cause to be commenced and performed promptly, without cost to the Trustee, all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to C -53 clean up and remove all Hazardous Materials so released, on, from or beneath the Leased Premises, in compliance with all Environmental Regulations. Notwithstanding anything to the contrary contained herein, underground storage tanks shall only be permitted subject to compliance with subsection (d) and only to the extent necessary to maintain the improvements on the Leased Premises. (b) The City shall comply with, and shall cause all tenants, subtenants, licensees, guests, invitees, contractors, employees and agents on the Leased Premises to comply with, all Environmental Regulations, and shall keep the Leased Premises free and clear of any liens imposed pursuant thereto; provided, however, that notwithstanding that a portion of this covenant is limited to the City's use of its best efforts, the City shall remain solely responsible for ensuring such compliance and such limitation shall not diminish or affect in any way the City's obligations contained in subsection (c) of the Lease as provided in subsection (c) of the Lease. Upon receipt of any notice from any person with regard to the Release of Hazardous Materials other than the Permitted Use on, from or beneath the Leased Premises, the City shall give prompt written notice thereof to the Trustee prior to the expiration of any period in which to respond to such notice under any Environmental Regulation. (c) Irrespective of whether any representation or warranty contained in the Lease is not true or correct, the City shall, to the extent permitted by law, defend, indemnify and hold harmless the Trustee, the Owners, the Corporation and each of their respective employees, agents, officers, directors, trustees, successors and assigns, from and against any claims, demands, penalties, fines, attorneys' fees (including, without limitation, attorneys' fees and expenses incurred to enforce the indemnification contained in the Lease, consultants' fees and expenses, investigation and laboratory fees and expenses, liabilities, settlements (five Business Days' prior notice of which the Trustee shall have delivered to the City) court costs, damages, losses, costs or expenses of whatever kind or nature, known or unknown, contingent or otherwise, occurring in whole or in part, arising out of, or in any way related to, (i) the presence, disposal, Release, threat of Release, removal, discharge, storage or transportation of any Hazardous Materials on, from or beneath the Leased Premises, (ii) any personal injury (including wrongful death) or Leased Premises damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any lawsuit brought or threatened, settlement reached (five Business Days' prior notice of which the Trustee shall have delivered to the City), or governmental order relating to Hazardous Materials on, from or beneath the Leased Premises, (iv) any violation of Environmental Regulations or subsection (a) or (b) of the Lease by it or any of its agents, tenants, employees, contractors, licensees, guests, subtenants or invitees, and (v) the imposition of any governmental lien for the recovery of environmental cleanup or removal costs. To the extent that the City is strictly liable under any Environmental Regulation, its obligation under the foregoing indemnification shall likewise be without regard to fault on its part with respect to the violation of any Environmental Regulation which results in liability to any indemnitee. The obligations and liabilities under the Lease shall survive the payment and satisfaction of all Certificates and Additional Certificates or resignation or removal of the Trustee. (d) The City shall conform to and carry out a reasonable program of maintenance and inspection of all underground storage tanks, and shall maintain, repair, and replace such tanks only in accordance with Laws and Regulations, including but not limited to Environmental Regulations. Condemnation of Leased Premises. The City hereby covenants and agrees, to the extent it may lawfully do so, that, except as described in the Site Lease, so long as any of the Certificates or Additional Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Leased Premises. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City shall fail or refuse to abide by such covenant and condemns the Leased Premises, then the appraised value of the Leased Premises shall not be less than the sum of. (i) as to Certificates and Additional Certificates then subject to optional prepayment, the principal and interest components of such Certificates and Additional C -54 Certificates outstanding through the date of their prepayment, and (ii) as to Certificates and Additional Certificates not then subject to optional prepayment, the amount necessary to defease such Certificates and Additional Certificates to the first available prepayment date in accordance with the Trust Agreement. Assignment, Subleasing and Amendment Assignment by the Corporation. Except as provided herein, in the Trust Agreement and the Assignment Agreement, the Corporation will not assign the Lease to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in the Lease. Assignment and Subleasing by the Ci (a) Assignment. The Lease may be assigned by the City, so long as such assignment does not, in the opinion of Special Counsel, adversely affect the State tax - exempt status or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds or affect the validity of the Lease. In the event that the Lease is assigned by the City, the obligation to make Lease Payments hereunder shall remain the obligation of the City. (b) Sublease. The City may sublease all or any portion of the Leased Premises subject to all of the following conditions: (i) The Lease and the obligation of the City to make Lease Payments and Additional Payments hereunder shall remain obligations of the City; (ii) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Corporation and the Trustee, a true and complete copy of such sublease; and (iii) The City shall furnish to the Corporation and the Trustee, an opinion of Special Counsel to the effect that the sublease will not cause the interest due with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments which have been designated as Build America Bonds. Amendments and Modifications. The Lease may be amended or any of its terms modified with the written consent of the City, the Corporation and the Trustee in accordance with Article X of the Trust Agreement. Events ofDefault and Remedies Events of Default Defined. The following shall be "events of default" under the Lease and the terms "events of default" and "default" shall mean, whenever they are used in the Lease, any one or more of the following events: (a) Payment Default. Failure by the City to pay any Lease Payment required to be paid hereunder by the corresponding Lease Payment Date; and C -55 (b) Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed hereunder or otherwise with respect hereto or in the Trust Agreement or in the Site Lease, other than as referred to in clause (a) of this section, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation, the Trustee, or the Owners of not less than twenty percent (20 %) in aggregate principal amount of Certificates and Additional Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Corporation, such Owners, as the case may be, shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected. (c) Bankruptcy or Insolvency. The Sling by the City of a case in bankruptcy, or the subjection of any right or interest of the City under the Lease to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter be enacted. Remedies on Default. Whenever any event of default referred to in the Lease shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything herein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default hereunder, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. (a) No Termination; Repossession and Re -Lease on Behalf of The City. In the event the Corporation does not elect to terminate the Lease in the manner hereinafter provided for in subparagraph (b) of the Lease, the Corporation may, with the consent of the City, which consent is hereby irrevocably given, repossess the Leased Premises and re -lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City shall remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re- enters or not. The City agrees to and shall remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained herein and shall reimburse the Corporation for any deficiency arising out of the re- leasing of the Leased Premises, or, in the event the Corporation is unable to re -lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments and Additional Payments hereunder, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation. The City hereby irrevocably appoints the Corporation as the agent and attomey -in -fact of the City to repossess and re -lease the Leased Premises in the event of default by the City in the performance of any covenants contained herein to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in C -56 the County of Orange, for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re- leasing of the Leased Premises. The City hereby waives any and all claims for damage caused or which may be caused by the Corporation in repossessing the Leased Premises as provided herein and all claims for damages that may result from the destruction of or the injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that may be in or upon the Leased Premises. The City agrees that the terms of the Lease constitute full and sufficient notice of the right of the Corporation to re -lease the Leased Premises in the event of such repossession without effecting a surrender of the Lease, and further agrees that no acts of the Corporation in effecting such re- leasing shall constitute a surrender or termination of the 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 the Lease shall vest in the Corporation to be effected in the sole and exclusive manner provided for in subparagraph (b) below. The City shall retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re- leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement. In the event that the liability of the City under this subsection (a) is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies provided in this subsection (a). (b) Termination; Repossession and Re- Lease. In the event of the termination of the Lease by the Corporation at its option and in the manner hereinafter provided on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re- leasing of the Leased Premises), the City nevertheless agrees to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided herein in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re -lease or other disposition of the Leased Premises by the Corporation shall be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Any surplus received by the Trustee, as assignee of the Corporation, from such re- leasing over total Lease Payments shall be remitted to the City. Additional Payments that would have been due hereunder and the fees, expenses and costs of the Trustee as assignee of the Corporation on re- leasing the Leased Premises shall be remitted to the City. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding taken by the Corporation to recover possession of the Leased Premises shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the City of the election on the part of the Corporation to terminate the Lease. The City covenants and agrees that no surrender of the Leased Premises for the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No such termination shall be effected either by operation of law or act of the parties hereto, except only in the manner herein expressly provided. (c) Opinion of Special Counsel. The re- leasing of the Leased Premises as provided herein shall be subject to the opinion of Special Counsel that such re- leasing will not cause the interest with respect to the 2010A Certificates and any Additional Certificates (to the extent such Additional C -57 Certificates are executed and delivered as tax - exempt Certificates) to be subject to State personal income tax or adversely affect the exclusion from gross income for federal income tax purposes of such amounts and would not result in the loss of the federal subsidy with respect to the City's obligation to make 2010B Lease Payments with respect to the 2010B Certificates which have been designated as Build America Bonds. (d) No Termination by The City. Under no circumstances may the City terminate the Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation hereunder. No Remedy Exclusive. No remedy conferred herein upon or reserved to the Corporation is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under the 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 Corporation to exercise any remedy reserved to it in this Article it shall not be necessary to give any notice, other than such notice as may be required in this Article or by law. Agreement to Pay Attorneys' Fees and Expenses. In the event either party to the Lease (except for the Trustee, as assignee of the Corporation) should default under any of the provisions hereof and the nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party. No Additional Waiver Implied by One Waiver. In the event any agreement contained in the 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. Application of the Proceeds from the Re -Lease of the Leased Premises. All amounts received by the Corporation under the Lease pursuant to an Event of Default shall, subject to the Trust Agreement, be deposited by the Trustee in the Lease Payment Fund and credited towards the Lease Payments in order of Lease Payment Dates, and proportionally among 2010A Lease Payments and 2010B Lease Payments. Trustee and Owners to Exercise Rights. Such rights and remedies as are given to the Corporation under this Article IX have been assigned by the Corporation to the Trustee under the Assignment Agreement, to which assignment the City hereby consents. Such rights and remedies shall be exercised by the Trustee and the Owners as provided in the Trust Agreement. In addition to the rights and remedies assigned by the Corporation to the Trustee, to the extent that the Trust Agreement and the Lease confer upon or gives or grant to the Trustee any right, remedy or claim under or by reason of the Trust Agreement or the Lease, the Trustee is hereby explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred given or granted. Prepayment of Lease Payments Security Deposit. Notwithstanding any other provision of the 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 the Trust Agreement. In such event, and provided that the City has paid any other amounts due and owing under the Lease and the Trust Agreement, all obligations of the City under the Lease, and all security provided by the Lease for said obligations, shall C -58 cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such deposit. On the date of said deposit, title to the Leased Premises shall vest in the City automatically and without further action by the City or the Corporation (except as provided herein). Said deposit shall be deemed to be and shall constitute a special fund for the payment of Lease Payments in accordance with the provisions of the Lease. The Corporation shall execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the title transfer of the Leased Premises. 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 Certificates and any Additional Certificates) pursuant to the Trust Agreement. The City and the Corporation hereby agree that such Net Proceeds or other moneys shall be credited towards the City's obligations hereunder (except in the case of such Prepayment of the Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual Lease Payments will be proportional to the initial annual Lease Payments. Optional Prepayment. Subject to the terms and conditions of this section, the Corporation hereby grants an option to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment prices set forth in the Trust Agreement and in any Supplemental Agreement. The City shall provide notice to the Trustee at least 45 days prior to the date fixed for prepayment of the Certificates (or on such later date as shall be consented to by the Trustee). The City and the Corporation agree that such prepayments shall be credited toward the City's obligations hereunder corresponding to the resulting prepayment of the Certificates and Additional Certificates in accordance with the Trust Agreement and any Supplemental Agreement on the dates and at the prepayment prices provided therein. Miscellaneous Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed to have been received on the earlier of the day of actual receipt or five Business Days after deposit in the United States mail in first -class or certified form, postage prepaid, to the City or the Corporation, as the case may be, at the addresses indicated in the Trust Agreement, The Corporation, the City, and the Trustee, by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Binding Effect. ffect. The Lease shall inure to the benefit of and shall be binding upon the Corporation and the City and their respective successors and assigns. Severability. In the event any provision of the Lease shall be held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision of the Lease. Applicable Law. The Lease shall be governed ay and construed in accordance with the laws of the State of California. C -59 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX D BOOK -ENTRY SYSTEM THE INFORMATION IN THIS Appendix D CONCERNING THE DEPOSITORY TRUST COMPANY, NEW YORK, NEW YORK AND ITS BOOK -ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CORPORATION, THE CITY AND THE UNDERWRITERS BELIEVE TO BE RELIABLE, BUT THE CORPORATION, THE CITY AND THE UNDERWRITERS TAKE NO RESPONSIBILITY FOR THE ACCURACY THEREOF. The Depository Trust Company ( "DTC "), New York, New York, will act as securities depository for the Certificates. The Certificates will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered bond certificate will be issued for each coupon and maturity of each Series of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository is a limited - purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information set forth on such websites is not incorporated by reference. Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate (`Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmations from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. D -1 To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates: DTC records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The Corporation and the City will not have any responsibility or obligation to such Direct Participants and Indirect Participants or the persons for whom they act as nominees with respect to the Certificates. Beneficial Owners of the Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as prepayments, tenders, defaults, and proposed amendments to the Certificates. For example, Beneficial Owners of the Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Prepayment notices will be sent to DTC. If less than all of the Series of a particular maturity are being prepaid, DTC's usual practice is to determine by lot the amount of the interest of each Direct Participant in the Certificates of such maturity to be prepaid. None of the Corporation, the City or the Trustee can provide any assurance that DTC, the Direct Participants or the Indirect Participants will allocate prepayments of the Certificates of a particular maturity among Beneficial Owners on such a proportional basis. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments evidenced by the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Trustee, on payable dates in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC or the Trustee, subject to any statutory, or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. THE CORPORATION, THE CITY AND THE TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF D -2 DTC WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE CERTIFICATES (i) PAYMENTS OF PRINCIPAL OF AND INTEREST EVIDENCED BY THE CERTIFICATES, (ii) CONFIRMATIONS OF THEIR OWNERSHIP INTERESTS IN THE CERTIFICATES OR (iii) OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS PARTNERSHIP NOMINEE, AS THE REGISTERED OWNER OF THE CERTIFICATES, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. NONE OF THE CORPORATION, THE CITY OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OF DTC OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC; (2) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST EVIDENCED BY THE CERTIFICATES; (3) THE DELIVERY BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO OWNERS UNDER THE TERMS OF THE INDENTURE; OR (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS OWNER OF THE CERTIFICATES. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the Corporation, the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered to DTC. D -3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX E PROPOSED FORMS OF SPECIAL COUNSEL OPINIONS Upon the issuance of the 2010A Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form: [Date of Delivery] City of Newport Beach Newport Beach, California Re: $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City") in connection with the authorization, execution and delivery by the City of that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchaser of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates "), which will evidence undivided proportionate interests in certain other lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010B Certificates or the 2010B Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement "), the Corporation has assigned to the Trustee the Corporation's right to receive 2010A Lease Payments from the City under the Lease. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: E -1 (1) The obligation of the City to pay 2010A Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2010A Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, 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 minimum tax imposed on individuals and corporations and with respect to corporations will not be included as an adjustment in the calculation of alternate minimum taxable income. (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. Original issue discount that accrues to a Certificate owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph (3) above) and is exempt from State of California personal income tax. (6) The amount by which a Certificate owner's original basis for determining loss on sale or exchange in a 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. The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the E -2 "Code "), that must be satisfied subsequent to the delivery of the Certificates to assure that such 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 interest (and original issue discount) with respect to the Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The City and the Corporation have covenanted to comply with all such requirements. Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any tax consequences with respect to the Certificates. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate executed by the City and other documents related to the Certificates may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax - exempt obligations. We express no opinion as to the effect on the tax consequences on and after the date on which any such change occurs or action is taken or omitted upon advice or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted, E -3 Upon the issuance of the 2010B Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form: [Date of Delivery] City of Newport Beach Newport Beach, California Re: $106,575,000 City of Newport Beach Certificates of Participation 2010E (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease/Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchasers of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) (the "2010A Certificates") which will evidence direct and undivided proportionate interests in certain other lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010A Certificates or the 2010A Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement "), the Corporation has assigned to the Trustee the Corporation's right to receive 2010B Lease Payments from the City under the Lease. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay 2010B Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on E-4 legal remedies against municipalities in the State of California. The obligation of the City to make 2010B Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) evidenced by the Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) Except for certain exceptions, the difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. (6) The District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable as a part of the 2010B Lease Payments evidenced by Certificates on or about each interest payment date. The cash payment does not constitute a full faith and credit guarantee of the United States Government, but is required to be paid by the United States Treasury under the American Recovery & Reinvestment Act of 2009. Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any tax consequences with respect to the Certificates. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction, and express no opinion as to the enforceability of the choice of law provisions contained in the Trust Agreement. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such E -5 authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. Any federal tax advice contained herein with respect to the Certificates is not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties under the Code. The federal tax advice contained herein with respect to the Certificates was written to support the promoting and marketing of the Certificates. Before purchasing any of the Certificates, all potential purchasers should consult their independent tax advisors with respect to the tax consequences relating to the Certificates and the taxpayer's particular circumstances. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Certificates or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted E -6 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement, dated as of November 1, 2010 (the "Agreement'), by and between the City of Newport Beach (the "City") and Digital Assurance Certification, L.L.C. (the "Dissemination Agent'), is executed and delivered in connection with the $20,085,000 aggregate principal amount of City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the $106,575,000 aggregate principal amount of City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Certificates) (Civic Center Project) (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates ") executed and delivered pursuant to the Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement'), by and among the City, the Newport Beach Public Facilities Financing Corporation (the "Corporation") and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee "). Capitalized terms used in this Agreement which are not otherwise defined in the Trust Agreement shall have the respective meanings specified above or in Article W hereof. The City and the Dissemination Agent agree as follows: ARTICLE I The Undertakin¢ Section I. L Purpose. This Agreement is being executed and delivered solely to assist the Underwriter in complying with subsection (b)(5) of the Rule. Section 1.2. Annual Financial Information. (a) The City shall provide Annual Financial Information with respect to each fiscal year of the City, commencing with fiscal year 2009 -10, by no later than 270 days after the end of the respective fiscal year, to the MSRB. (b) The City shall provide, in a timely manner, notice of any failure of the City to provide the Annual Financial Information by the date specified in subsection (a) above to the MSRB. Section 1.3. Audited Financial Statements. If not provided as part of Annual Financial Information by the date required by Section 1.2(a) hereof, the City shall provide Audited Financial Statements, when and if available, to the MSRB. Section 1.4. Material Event Notices. (a) If a Material Event occurs, the City shall provide, in a timely manner, notice of such Material Event to (i) the MSRB and (ii) the Dissemination Agent. (b) Any notice of a defeasance of Certificates shall state whether the Certificates have been escrowed to maturity or to an earlier redemption date and the timing of such maturity or redemption. (c) The Dissemination Agent shall promptly advise the City whenever the Dissemination Agent has actual notice of an occurrence which, if material, would require the City to provide notice of a Material Event hereunder; provided, however, that the failure of the Dissemination Agent so to advise the City shall not constitute a breach by the Dissemination Agent of any of its duties and responsibilities under this Agreement. F -1 Section 1.5. Additional Information. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of Material Event hereunder, in addition to that which is required by this Agreement. If the City chooses to do so, the City shall have no obligation under this Agreement to update such additional information or include it in any future Annual Financial Information or notice of a Material Event hereunder. Section 1.6. Additional Disclosure Obligations. The City acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 as amended, and Rule lOb -5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the City and that, under some circumstances, compliance with this Agreement without additional disclosures or other action may not fully discharge all duties and obligations of the City under such laws. Section 1.7. No Previous Non - Compliance. The City represents that in the previous five years it has not failed to comply in all material respects with any previous undertaking in a written contract or agreement specified in paragraph (b)(5)(i) of the Rule. ARTICLE II Operating Rules Section 2.1. Reference to Other Filed Documents. It shall be sufficient for purposes of Section 1.2 hereof if the City provides Annual Financial Information by specific reference to documents (i) available to the public on the MSRB Internet Web site (currently, www.enum.msrb.org) or (ii) filed with the SEC. The provisions of this Section shall not apply to notices of Material Events pursuant to Section 1.4 hereof. Section 2.2. Submission of Information. Annual Financial Information may be set forth or provided in one document or a set of documents, and at one time or in part from time to time. Section 2.3. Dissemination Agents. The City may from time to time designate an agent to act on its behalf in providing or filing notices, documents and information as required of the City under this Agreement, and revoke or modify any such designation. Digital Assurance Certification, L.L.C. is hereby appointed the initial dissemination agent hereunder. Section 2.4. Transmission of Notices, Documents and Information. (a) Unless otherwise required by the MSRB, all notices, documents and information provided to the MSRB shall be provided to the MSRB's Electronic Municipal Markets Access (EMMA) system, the current Internet Web address of which is www.emma.msrb.org. (b) All notices, documents and information provided to the MSRB shall be provided in an electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 2.5. Fiscal Year. (a) The City's current fiscal year is July 1 to June 30, and the City shall promptly notify (i) the MSRB and (ii) the Dissemination Agent of each change in its fiscal year. (b) Annual Financial Information shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. F -2 ARTICLE III Effective Date, Termination, Amendment and Enforcement Section 3.1. Effective Date; Termination. (a) This Agreement shall be effective upon the issuance of the Certificates. (b) The obligations of the City and the Dissemination Agent under this Agreement shall terminate upon a legal defeasance, prior redemption or payment in full of all of the Certificates. (c) This Agreement, or any provision hereof, shall be null and void in the event that the City (1) delivers to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that those portions of the Rule which require this Agreement, or such provision, as the case may be, do not or no longer apply to the Certificates, whether because such portions of the Rule are invalid, have been repealed, or otherwise, as shall be specified in such opinion, and (2) delivers copies of such opinion to the MSRB. Section 3.2. Amendment. (a) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates (except to the extent required under clause (4)(ii) below), if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the City or the type of business conducted thereby, (2) this Agreement as so amended would have complied with the requirements of the Rule as of the date of this Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the same effect as set forth in clause (2) above, (4) either (i) the City shall have delivered to the Dissemination Agent an opinion of Counsel or a determination by an entity, in each case unaffiliated with the City (such as counsel or the Dissemination Agent), addressed to the City and the Dissemination Agent, to the effect that the amendment does not materially impair the interests of the holders of the Certificates or (ii) the holders of the Certificates consent to the amendment to this Agreement pursuant to the same procedures as are required for amendments to the Trust Agreement with consent of holders of Certificates pursuant to the Trust Agreement as in effect at the time of the amendment, and (5) the City shall have delivered copies of such opinion(s) and amendment to the MSRB. (b) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) an amendment to the Rule is adopted, or a new or modified official interpretation of the Rule is issued, after the effective date of this Agreement which is applicable to this Agreement, (2) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that performance by the City and the Dissemination Agent under this Agreement as so amended will not result in a violation of the Rule and (3) the City shall have delivered copies of such opinion and amendment to the MSRB. (c) This Agreement may be amended by written agreement of the parties, without the consent of the holders of the Certificates, if all of the following conditions are satisfied: (1) the City shall have delivered to the Dissemination Agent an opinion of Counsel, addressed to the City and the Dissemination Agent, to the effect that the amendment is permitted by rule, order or other official pronouncement, or is consistent with any interpretive advice or no- action positions of Staff, of the SEC, F -3 and (2) the Dissemination Agent shall have delivered copies of such opinion and amendment to the MSRB. (d) To the extent any amendment to this Agreement results in a change in the type of financial information or operating data provided pursuant to this Agreement, the first Annual Financial Information provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (e) If an amendment is made pursuant to Section 3.2(a) hereof to the accounting principles to be followed by the City in preparing its financial statements, the Annual Financial Information for the fiscal year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. Section 3.3. Benefit; Third -Party Beneficiaries; Enforcement. (a) The provisions of this Agreement shall constitute a contract with and inure solely to the benefit of the holders from time to time of the Certificates, except that beneficial owners of Certificates shall be third -party beneficiaries of this Agreement. The provisions of this Agreement shall create no rights in any person or entity except as provided in this subsection (a) and in subsection (b) of this Section. (b) The obligations of the City to comply with the provisions of this Agreement shall be enforceable (i) in the case of enforcement of obligations to provide financial statements, financial information, operating data and notices, by any holder of Outstanding Certificates, or by the Dissemination Agent on behalf of the holders of Outstanding Certificates, or (ii) in the case of challenges to the adequacy of the financial statements, financial information and operating data so provided, by the Dissemination Agent on behalf of the holders of Outstanding Certificates; provided, however, that the Dissemination Agent shall not be required to take any enforcement action except at the direction of the holders of not less than a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided the Trust Agreement) who shall have provided the Dissemination Agent with adequate security and indemnity. The holders' and Trustee's rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the City's obligations under this Agreement. in consideration of the third -party beneficiary status of beneficial owners of Certificates pursuant to subsection (a) of this Section, beneficial owners shall be deemed to be holders of Certificates for purposes of this subsection (b). (c) Any failure by the City or the Dissemination Agent to perform in accordance with this Agreement shall not constitute a default or an Event of Default under the Trust Agreement, and the rights and remedies provided by the Trust Agreement upon the occurrence of a default or an Event of Default shall not apply to any such failure. (d) This Agreement shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Agreement shall be instituted in a court of competent jurisdiction in the State; provided, however, that to the extent this Agreement addresses matters of federal securities laws, including the Rule, this Agreement shall be construed in accordance with such federal securities laws and official interpretations thereof. F -4 ARTICLE IV Definitions Section 4.1. Definitions. The following terms used in this Agreement shall have the following respective meanings: (1) "Annual Financial Information" means, collectively, (i) updated versions of the following financial information and operating data contained in the tables with the following headings in Appendix A to the Official Statement, for each applicable fiscal year of the City, as follows: (A) City of Newport Beach General Fund Balance Sheets; (B) City of Newport Beach General Fund Statement of Revenues, Expenditures and Change in Fund Balance; (C) City of Newport Beach General Fund Budgets; (D) City of Newport Beach Selected Major Revenue Sources; (E) City of Newport Beach Property Tax Rates; (F) City of Newport Beach Assessed Valuation; (G) City of Newport Beach Property Tax Levies and Collections; (H) City of Newport Beach Fifteen Principal Taxpayers; (1) City of Newport Beach Employee Labor Organizations; (J) City of Newport Beach PERS Annual Pension Costs; (K) City of Newport Beach PERS Schedule of Funding Progress; (L) City of Newport Beach Annual OPEB Cost and Net OPEB Obligation; (M) City of Newport Beach Long Term Debt of the City; (N) City of Newport Beach Estimated Direct and Overlapping Debt; and (0) City of Newport Beach Schedule of Investments; and (ii) the information regarding amendments to this Agreement required pursuant to Sections 3.2(d) and (e) of this Agreement. Annual Financial Information shall include Audited Financial Statements, if available, or Unaudited Financial Statements. The descriptions contained in Section 4.1(1)(i) hereof of financial information and operating data constituting Annual Financial Information are of general categories of financial information and operating data. When such descriptions include information that no longer can be generated because the operations to which it related have been materially changed or discontinued, a statement to that effect shall be provided in lieu of such information. Any Annual Financial Information containing modified financial information or operating data shall explain, in narrative form, the reasons F -5 for the modification and the impact of the modification on the type of financial information or operating data being provided. (2) "Audited Financial Statements" means the annual financial statements, if any, of the City, audited by such auditor as shall then be required or permitted by State law or the Trust Agreement. Audited Financial Statements shall be prepared in accordance with GAAP applicable to governmental entities; provided, however, that pursuant to Sections 3.2(a) and (e) hereof, the City may from time to time, if required by Federal or State legal requirements, modify the accounting principles to be followed in preparing its financial statements. The notice of any such modification required by Section 3.2(a) hereof shall include a reference to the specific Federal or State law a regulation describing such accounting principles, or other description thereof. (3) "Counsel" means nationally recognized special counsel or counsel expert in federal securities laws. (4) "GAAP" means generally accepted accounting principles as prescribed from time to time for governmental units by the Governmental Accounting Standards Board, the Financial Accounting Standards Board, or any successor to the duties and responsibilities of either of them. (5) "Material Event' means any of the following events with respect to the Certificates, whether relating to the City or otherwise, if material: (i) principal and interest payment delinquencies; (ii) non - payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax- exempt status of the Certificates; (vii) modifications to rights of Certificateholders; (viii) bond calls (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Certificates; and (xi) rating changes. (6) "MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Agreement. F -6 (7) "Official Statement" means the Official Statement dated November 17, 2010 of the City relating to the Certificates. (8) "Rule" means Rule 15c2 -12 promulgated by the SEC under the Securities Exchange Act of 1934 (17 CFR Part 240, §240.15c2 -12), as amended, as in effect on the date of this Agreement, including any official interpretations thereof issued either before or after the effective date of this Agreement which are applicable to this Agreement. (9) "SEC" means the United States Securities and Exchange Commission. (10) "Unaudited Financial Statements" means the same as Audited Financial Statements, except that they shall not have been audited. ARTICLE V Miscellaneous Section 5.1. Duties, Immunities and Liabilities of the Dissemination Agent under this Agreement. The Dissemination Agent shall have only such duties under this Agreement as are specifically set forth in this Agreement, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct in the performance of its duties hereunder. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. Section 5.2. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. F -7 IN WITNESS WHEREOF, the parties have each caused this Agreement to be executed by their duly authorized representatives, and the City has caused its corporate seal to be hereunto affixed and attested by an authorized representative, all as of the date first above written. [SEAL] APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY: David R. Hunt, City Attorney APPROVED AS TO FORM: SPECIAL COUNSEL: LIM Hawkins Delafield & Wood LLP M CITY OF NEWPORT BEACH M An Authorized Representative DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Dissemination Agent M (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) 1 MIX J� Frere reavanaroia FSC sources FSC" C017146 Printed by: ImageMaster, Inc. $20,085,000 CITY OF NEWPORT BEACH CERTTFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS). (CIVIC CENTER PROJECT) - UNDERWRITERS' RECEIPT FOR THE CERTIFICATES The undersigned, on behalf of Stone & Youngberg LLC, as representative of the underwriters (the "Underwriters "), hereby certifies that it has received from The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), under that certain 'Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among the Trustee, the Newport Beach Public Facilities Corporation .(the "Corporation ") and the City of Newport Beach (the "City "), the $20,085,000 .aggregate principal amount of City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") and the $106,575,000 aggregate principal amount of City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates "). The Underwriters hereby further acknowledge the receipt of, or waive the requirement for, each opinion, document and certificate required by Section 9(f) of the Purchase Contract dated November 17, 2010, by and between the Underwriters and the City, and, subject to the Purchase Contract, agrees that each such opinion, document and certificate, to the extent received, is satisfactory to the Underwriters as to form and substance. Dated: November 30, 2010 STONE & YOUNGBERG LLC, as "Representative By: Its: Managing Director D OCS OC/1445072v3/022459 -0014 $: ♦ 12 HE t I NO m October 19, 2010 City of Newport Beach 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658- -8915 Attention: Mr. Dave Kiff, City Manager Re: Issuer Credit Rating, City of Newport Beach, California Dear Mr. Kiff: One Market Steuart Tourer, 15th Floor San Francisco, CA 94105.1000 tat 4153713000 reference no.: 1145070 Pursuant to your request for a Standard & Poor's rating on the above - referenced issuer, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AAA ". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above - assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer /obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial Mr. Dave Kiff Page 2 October 19, 2010 information and the documents. Standard & Poor's may change, suspend, withdraw, or place on CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041 -0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at ilpublicfinanceQastandardandnoors .com, Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a Standard & Poor's Financial Services LLC business r vb enclosures cc: Mr. Paul D. Pender, Assistant Vice President Filedman Rolapp & Associates &POOICS Standard & Poor's Ratings Services Terms and Conditions Applicable To Ratings You understand and agree that General. The ratings and other views of Standard & Poor's Ratings Services ( "Ratings Services ") are statements of opinion and not statements of fact. A rating is not a recommendation to purchase, hold, or sell any securities nor does it comment on market price, marketability, investor preference or suitability of any security. While Ratings Services bases its ratings and other views on information provided by issuers and their agents and advisors, and other information from sources it believes to be reliable, Ratings Services does not perform an audit, and undertakes no duty of due diligence or independent verification, of any information it receives. Such information and Ratings Services' opinions should not be relied upon in making any investment decision. Ratings Services does not act as a "fiduciary" or an investment advisor. Ratings Services neither recommends or will recommend how an issuer can or should achieve a particular rating outcome nor provides or will provide consulting, advisory, financial or structuring advice. All Rtltinia Actions in Ratines Services' Sole Discretion. Ratings Services may assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, at any time, in Ratings Services' sole discretion. Ratings Services may take any of the foregoing actions notwithstanding any request for a confidential rating or a withdrawal of a rating, or termination of this Agreement. Ratings Services will not convert a public rating to a confidential rating. Publication. Ratings Services reserves the right to use, publish, disseminate, or license others to use, publish or disseminate the rating provided hereunder and any analytical reports, including the rationale for the rating, unless you specifically request in connection with the initial rating that the rating be assigned and maintained on a confidential basis. If, however, a confidential rating or the existence of a confidential rating subsequently becomes public through disclosure other than by an act of Ratings Services or its affiliates, Ratings Services reserves the right to treat the rating as a public rating, including, without limitation, publishing the rating and any related analytical reports. Any analytical reports published by Ratings Services are not issued by or on behalf of you or at your request. Notwithstanding anything to the contrary herein, Ratings Services reserves the right to use, publish, disseminate or license others to use, publish or disseminate analytical reports with respect to public ratings that have been withdrawn, regardless of the reason for such withdrawal. Ratings Services may publish explanations of Ratings Services' ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Ratings Services' ability to modify or refine its ratings criteria at any time as Ratings Services deems appropriate. Information to be Provided by You. For so long as this agreement is in effect, in connection with the rating provided hereunder, you warrant that you will provide, or cause to be provided, as promptly as practicable, to Ratings Services (i) all information requested by Ratings Services in accordance with its published ratings criteria, and (ii) any other information relevant to the rating and, if applicable, surveillance of the rating, including, without limitation, information on material changes to information previously provided by you, your agents or advisors to Ratings Services, other than information you reasonably believe is not material to the rating or such surveillance. The rating, and the maintenance of the rating, may be affected by Ratings Services' opinion of the information received from you or your agents or advisors. You further warrant that all information provided to Ratings Services by you or your agents or advisors regarding the rating or, if applicable, surveillance of the rating, contains no untrue statement of material fact and does not omit a material fact necessary in order to make such information, in light of the circumstances in which it was provided, not misleading. A material breach of the warranties in this paragraph shall constitute a material breach of this Agreement. To the extent permitted by applicable law, you will be liable to Rating Services and its affiliates for all losses, damages, liabilities, judgments, costs, charges and expenses (including reasonable attorneys' fees) ( "Losses ") (x) resulting from a material breach of the warranties in this paragraph, including but not limited to all Losses arising from claims asserted by any third party against Ratings Services, or (y) that arise out of or relate to any claim that the information provided by you Ratings U.S. (5/21/10) or your agents or advisors infringes or violates the intellectual properly rights of a third party, except in either case, to the extent such Losses are judicially determined to result from gross negligence or willful misconduct of Ratings Services. Confidential Information. For purposes of this Agreement, "Confidential Information" shall mean information that you or your agents or advisors have provided to Ratings Services and, in a specific and particularized manner, have marked or otherwise indicated in writing that such information is "Proprietary and Confidential." Notwithstanding the foregoing, information disclosed by you or your agents or advisors to Ratings Services shall not be deemed to be Confidential Information, and Ratings Services shall have no obligation to treat such information as Confidential Information, if such information (i) was known by Ratings Services or its affiliates at the time of such disclosure and was not known by Ratings Services to be subject to a prohibition on disclosure, (ii) was known to the public at the time of such disclosure, (iii) becomes known to the public (other than by an act of Ratings Services or its affiliates) subsequent to such disclosure, (iv) is disclosed to Ratings Services or its affiliates by a third party subsequent to such disclosure and Ratings Services reasonably believes that such third party's disclosure to Ratings Services or its affiliates was not prohibited, (v) is developed independently by Ratings Services or its affiliates without reference to the Confidential Information, (vi) is approved in writing by you for public disclosure, or (vii) is required by law or regulation to be disclosed by Ratings Services or its affiliates or publicly disclosed by you. Ratings Services' Use of Information. Except as otherwise provided herein, Ratings Services shall not disclose Confidential Information to third parties. Ratings Services may use Confidential Information to assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, and may share Confidential Information with its affiliates engaged in the ratings business, provided that, in each case, the Confidential Information is not presented publicly in a way that can be attributed to you and such affiliates are bound by appropriate confidentiality obligations. Ratings Services may also use, publish and share Confidential Information with any of its affiliates or agents engaged in the ratings or other financial services businesses who are bound by appropriate confidentiality obligations ("Relevant Affiliates and Agents "), for modelling, benchmarking and research purposes, provided that, in each case, Confidential Information is not presented publicly in a way that can be attributed to you. With respect to structured finance ratings not maintained on a confidential basis, Ratings Services may publish data aggregated from Confidential Information, excluding data that is specific to and identifies individual debtors ( "Relevant Data "), and share such Confidential Information with any of its Relevant Affiliates and Agents for general market dissemination of Relevant Data; you confirm that, to the best of your knowledge, there are no third parties whose rights would be adversely affected by any such publication. Ratings Services and its affiliates reserve the right to use, publish, disseminate, or license others to use, publish or disseminate any non- Confidential Information provided by you, your agents or advisors. Ratings Services Not an Expert Underwriter or Seller under Securities Laws. Ratings Services has not consented to and will not consent to being named an "expert" or any similar designation under any applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation, Section 7 of the U.S. Securities Act of 1933. Ratings Services is not an "underwriter" or "seller" as those terms are defined under applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation Sections 11 and 12(a)(2) of the U.S. Securities Act of 1933. Rating Services has not performed the role or tasks associated with an "underwriter" or "seller" under the United States federal securities laws or other regulatory guidance, rules or recommendations in connection with this engagement. Office of Foreign Assets Control. Neither you nor the issuer (if you are not the issuer) is subject to economic, trade, or transactional sanctions imposed by the United States Government or any state government. None of you, the issuer (if you are not the issuer), or any of your or the issuer's owners, directors, officers, employees, or group companies appears on any list of known or suspected terrorists, terrorist organizations or other prohibited persons maintained by any agency of the United States Government or of any other jurisdiction in which you or the issuer or any of your or the issuer's group of companies are doing business, including but not limited to the List of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury. Neither you nor the issuer (if you are not the issuer) is owned or controlled, directly or indirectly, by any entity subject to such sanctions or appearing on such lists. For so long as this agreement is in effect, you will promptly notify Ratings Services if any of these circumstances change. Ratings Services' Use of Confidential Ratings -. Ratings Services may use confidential ratings in its analysis of the debt issued by collateralized debt obligation (CDO) and other investment vehicles. Ratings Services may disclose a Ratings U.S. (5/21/10) confidential rating as a confidential credit estimate to the managers of CDO and similar investment vehicles. Ratings Services may permit CDO managers to use and disseminate credit estimates on a limited basis and subject to various restrictions; however, Ratings Services cannot control any such use or dissemination. Entire Agreement. Nothing in this Agreement shall prevent Ratings Services from acting in accordance with applicable laws, regulations and Ratings Services' policies as published from time to time. Subject to the prior sentence, this Agreement constitutes the complete and entire agreement between the parties regarding its subject matter. The terms of this Agreement supersede any other terms and conditions relating to information provided to Ratings Services by you or your agents and advisors, including without limitation, terms and conditions of websites through which you or your agents and advisors make such information available to Ratings Services, and such terms and conditions shall not apply to Ratings Services. Limitation on Damages. Ratings Services does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information. RATINGS SERVICES GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Ratings Services, its affiliates or third party providers, or any of their officers, directors, shareholders, employees or agents shall not be liable to you, your affiliates or any person asserting claims on your behalf, directly or indirectly, for any inaccuracies, errors, or omissions, in each case regardless of cause, actions, damages (consequential, special, indirect, incidental, punitive, compensatory, exemplary or otherwise), claims, liabilities, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in any way arising out of or relating to the rating provided hereunder or the related analytic services even if advised of the possibility of such damages or other amounts except to the extent such damages or other amounts are judicially determined to result from gross negligence or willful misconduct of Ratings Services. In furtherance and not in limitation of the foregoing, Ratings Services will not be liable to you, your affiliates or any person asserting claims on your behalf in respect of any decisions alleged to be made by any person based on anything that may be perceived as advice or recommendations. In the event that Ratings Services is nevertheless held liable to you, your affiliates, or any person asserting claims on your behalf for monetary damages under this Agreement, in no event shall Ratings Services be liable in an aggregate amount in excess of three times the aggregate fees paid to Ratings Services for the rating giving rise to the cause of action during the twelve- months preceding the date the alleged claim has arisen, up to a maximum of US$1,000,000 except to the extent such limitation is unenforceable by law. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. Neither party waives any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Termination of Agreement._ This Agreement may be terminated by either party at any time upon written notice to the other party. Except where expressly limited to the term of this Agreement, these Terms and Conditions shall survive the termination of this Agreement. N_o Third —Party Beneficiaries. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary of this Agreement or of the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severabilitv. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Amendments. This Agreement may not be amended except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties irrevocably agree that the state and federal courts of New York located in the County of New York shall be Ratings U.S. (521/10) the exclusive forums for any dispute arising out of or relating to this Agreement and the parties hereby consent to the personal jurisdiction of such courts. Ratings U.S. (5/21/10) ♦ ,'.S'.. October 19, 2010 City of Newport Beach 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658- -8915 Attention: Mr. Dave Kiff, City Manager One Market SteuartTower, 15th Floor San Francisco, CA 941054000 tel 415 371 .5000 reference no.: 1146866 Re: US$28,670,000 City of Newport Beach, California, Certificates Of Participation, Series A, dated: Date of Delivery, due: July 1, 2040 US$94,130,000 City of NewportBeach, California, Certificates Of Participation, (Build America Bonds), Series B, dated. Date of Delivery, due: July 1, 2040 Dear Mr. Kiff: Pursuant to your request for a Standard & Poor's rating on the above - referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA + ". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert' under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above - assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer /obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. Mr. Dave Kiff Page 2 October 19, 2010 To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing as on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041 -0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nypublicfinance(t standardandpoors.com. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a Standard & Poor's Financial Services LLC business vb � enclosures cc: Mr. Paul D. Pender, Assistant Vice President Filedman Rolapp & Associates STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To Ratings You understand and agree that General. The ratings and other views of Standard & Poor's Ratings Services ( "Ratings Services ") are statements of opinion and not statements of fact. A rating is not a recommendation to purchase, hold, or sell any securities nor does it comment on market price, marketability, investor preference or suitability of any security. While Ratings Services bases its ratings and other views on information provided by issuers and their agents and advisors, and other information from sources it believes to be reliable, Ratings Services does not perform an audit, and undertakes no duty of due diligence or independent verification, of any information it receives. Such information and Ratings Services' opinions should not be relied upon in making any investment decision. Ratings Services does not act as a "fiduciary" or an investment advisor. Ratings Services neither recommends or will recommend how an issuer can or should achieve a particular rating outcome nor provides or will provide consulting, advisory, financial or structuring advice. A11 Ratine Actions in Ratings Services' Sole Discretion. Ratings Services may assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, at any time, in Ratings Services' sole discretion. Ratings Services may take any of the foregoing actions notwithstanding any request for a confidential rating or a withdrawal of a rating, or termination of this Agreement. Ratings Services will not convert a public rating to a confidential rating. Publication. Ratings Services reserves the right to use, publish, disseminate, or license others to use, publish or disseminate the rating provided hereunder and any analytical reports, including the rationale for the rating, unless you specifically request in connection with the initial rating that the rating be assigned and maintained on a confidential basis. If however, a confidential rating or the existence of a confidential rating subsequently becomes public through disclosure other than by an act of Ratings Services or its affiliates, Ratings Services reserves the right to treat the rating as a public rating, including, without limitation, publishing the rating and any related analytical reports. Any analytical reports published by Ratings Services are not issued by or on behalf of you or at your request. Notwithstanding anything to the contrary herein, Ratings Services reserves the right to use, publish, disseminate or license others to use, publish or disseminate analytical reports with respect to public ratings that have been withdrawn, regardless of the reason for such withdrawal. Ratings Services may publish explanations of Ratings Services' ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Ratings Services' ability to modify or refine its ratings criteria at any time as Ratings Services deems appropriate. Information to be Provided by You. For so long as this agreement is in effect, in connection with the rating provided hereunder, you warrant that you will provide, or cause to be provided, as promptly as practicable, to Ratings Services (i) all information requested by Ratings Services in accordance with its published ratings criteria, and (ii) any other information relevant to the rating and, if applicable, surveillance of the rating, including, without limitation, information on material changes to information previously provided by you, your agents or advisors to Ratings Services, other than information you reasonably believe is not material to the rating or such surveillance. The rating, and the maintenance of the rating, may be affected by Ratings Services' opinion of the information received from you or your agents or advisors. You further warrant that all information provided to Ratings Services by you or your agents or advisors regarding the rating or, if applicable, surveillance of the rating, contains no untrue statement of material fact and does not omit a material fact necessary in order to make such information, in light of the circumstances in which it was provided, not misleading. A material breach of the warranties in this paragraph shall constitute a material breach of this Agreement. To the extent permitted by applicable law, you will be liable to Rating Services and its affiliates for all losses, damages, liabilities, judgments, costs, charges and expenses (including reasonable attorneys' fees) ( "Losses ") (x) resulting from a material breach of the warranties in this paragraph, including but not limited to all Losses arising from claims asserted by any third party against Ratings Services, or (y) that arise out of or relate to any claim that the information provided by you Ratings U.S. (5121/10) or your agents or advisors infringes or violates the intellectual property rights of third party, except in either case, to the extent such Losses are judicially determined to result from gross negligence or willful misconduct of Ratings Services. Confidential Information. For purposes of this Agreement, "Confidential Information" shall mean information that you or your agents or advisors have provided to Ratings Services and, in a specific and particularized manner, have marked or otherwise indicated in writing that such information is "Proprietary and Confidential." Notwithstanding the foregoing, information disclosed by you or your agents or advisors to Ratings Services shall not be deemed to be Confidential Information, and Ratings Services shall have no obligation to treat such information as Confidential Information, if such information (i) was known by Ratings Services or its affiliates at the time of such disclosure and was not known by Ratings Services to be subject to a prohibition on disclosure, (ii) was known to the public at the time of such disclosure, (iii) becomes known to the public (other than by an act of Ratings Services or its affiliates) subsequent to such disclosure, (iv) is disclosed to Ratings Services or its affiliates by a third party subsequent to such disclosure and Ratings Services reasonably believes that such third parry's disclosure to Ratings Services or its affiliates was not prohibited, (v) is developed independently by Ratings Services or its affiliates without reference to the Confidential Information, (vi) is approved in writing by you for public disclosure, or (vii) is required by law or regulation to be disclosed by Ratings Services or its affiliates or publicly disclosed by you. Ratings Services' Use of Information. Except as otherwise provided herein, Ratings Services shall not disclose Confidential Information to third parties. Ratings Services may use Confidential Information to assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, and may share Confidential Information with its affiliates engaged in the ratings business, provided that, in each case, the Confidential Information is not presented publicly in a way that can be attributed to you and such affiliates are bound by appropriate confidentiality obligations. Ratings Services may also use, publish and share Confidential Information with any of its affiliates or agents engaged in the ratings or other financial services businesses who are bound by appropriate confidentiality obligations ( "Relevant Affiliates and Agents "), for modelling, benchmarking and research purposes, provided that in each case, Confidential Information is not presented publicly in a way that can be attributed to you. With respect to structured finance ratings not maintained on a confidential basis, Ratings Services may publish data aggregated from Confidential Information, excluding data that is specific to and identifies individual debtors ( "Relevant Data"), and share such Confidential Information with any of its Relevant Affiliates and Agents for general market dissemination of Relevant Data; you confirm that, to the best of your knowledge, there are no third parties whose rights would be adversely affected by any such publication. Ratings Services and its affiliates reserve the right to use, publish, disseminate, or license others to use, publish or disseminate any non - Confidential Information provided by you, your agents or advisors. Ratings Services Not an Expert. Underwriter or Seller under Securities Laws. Ratings Services has not consented to and will not consent to being named an "expert" or any similar designation under any applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation, Section 7 of the U.S. Securities Act of 1933. Ratings Services is not an "underwriter" or "seller" as those terms are defined under applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation Sections 11 and 12(a)(2) of the U.S. Securities Act of 1933. Rating Services has not performed the role or tasks associated with an "underwriter" or "seller" under the United States federal securities laws or other regulatory guidance, rules or recommendations in connection with this engagement. Office of Foreign Assets Control. Neither you nor the issuer (if you are not the issuer) is subject to economic, trade, or transactional sanctions imposed by the United States Government or any state government. None of you, the issuer (if you are not the issuer), or any of your or the issuer's owners, directors, officers, employees, or group companies appears on any list of known or suspected terrorists, terrorist organizations or other prohibited persons maintained by any agency of the United States Government or of any other jurisdiction in which you or the issuer or any of your or the issuer's group of companies are doing business, including but not limited to the List of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury. Neither you nor the issuer (if you are not the issuer) is owned or controlled, directly or indirectly, by any entity subject to such sanctions or appearing on such lists. For so long as this agreement is in effect, you will promptly notify Ratings Services if any of these circumstances change. Ratings Services' Use of Confidential Ratines. Ratings Services may use confidential ratings in its analysis of the debt issued by collateralized debt obligation (CDO) and other investment vehicles. Ratings Services may disclose a Ratings U.S. (5/21110) confidential rating as a confidential credit estimate to the managers of CEO and similar investment vehicles. Ratings Services may permit CDO managers to use and disseminate credit estimates on a limited basis and subject to various restrictions; however, Ratings Services cannot control any such use or dissemination. Enfr_Aareement. Nothing in this Agreement shall prevent Ratings Services from acting in accordance with applicable laws, regulations and Ratings Services' policies as published from time to time. Subject to the prior sentence, this Agreement constitutes the complete and entire agreement between the parties regarding its subject matter. The terms of this Agreement supersede any other terms and conditions relating to information provided to Ratings Services by you or your agents and advisors, including without limitation, terms and conditions of websites through which you or your agents and advisors make such information available to Ratings Services, and such terms and conditions shall not apply to Ratings Services. Limitation on Damages. Ratings Services does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information. RATINGS SERVICES GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Ratings Services, its affiliates or third party providers, or any of their officers, directors, shareholders, employees or agents shall not be liable to you, your affiliates or any person asserting claims on your behalf, directly or indirectly, for any inaccuracies, errors, or omissions, in each case regardless of cause, actions, damages (consequential, special, indirect, incidental, punitive, compensatory, exemplary or otherwise), claims, liabilities, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in any way arising out of or relating to the rating provided hereunder or the related analytic services even if advised of the possibility of such damages or other amounts except to the extent such damages or other amounts are judicially determined to result from gross negligence or willful misconduct of Ratings Services. In furtherance and not in limitation of the foregoing, Ratings Services will not be liable to you, your affiliates or any person asserting claims on your behalf in respect of any decisions alleged to be made by any person based on anything that may be perceived as advice or recommendations. In the event that Ratings Services is nevertheless held liable to you, your affiliates, or any person asserting claims on your behalf for monetary damages under this Agreement, in no event shall Ratings Services be liable in an aggregate amount in excess of three times the aggregate fees paid to Ratings Services for the rating giving rise to the cause of action during the twelve- months preceding the date the alleged claim has arisen, up to a maximum of US$1,000,000 except to the extent such limitation is unenforceable by law. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. Neither party waives any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Termination of Agreement. This Agreement may be terminated by either party at any time upon written notice to the other party. Except where expressly limited to the term of this Agreement, these Terms and Conditions shall survive the termination of this Agreement. No Third —Party Beneficiaries. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary of this Agreement or of the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Amendments. This Agreement may not be amended except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties irrevocably agree that the state and federal courts of New York located in the County of New York shall be Ratings U.S. (5121/10) the exclusive forums for any dispute arising out of or relating to this Agreement and the parties hereby consent to the personal jurisdiction of such courts. Ratings U.S. (5/21/10) Newport Beach, California; Appropriations; General Obligation Primary Credit Analyst: Bea Chiem, San Francisco 1(4151371 -5070; bea_chiem @standardandpoors.com Secondary Credit Analyst: Paul Dyson, San Francisco (1) 415- 371 -5079; paul_dyson @standardandpoors.com Table Of Contents Rationale Financial Management Assessment: 'Good' Pension Obligation and Other Post Employment Benefits (OPEB) Outlook Related Criteria And Research www. standardandpoors .com /ratingsdirect 1 &16709190136"91'13 F1W I Ron _' Standard & Poor's Ratings Services assigned its 'AAA' issuer credit rating JCR) to the City of Newport Beach, Calif. In addition, Standard & Poor's assigned its 'AA +' long -term rating to the city's series 2010A certificates of participation (COPS) and 2010B COPS. We understand that the series 2010B will be issued as federally taxable direct -pay Build America Bonds (BABs). The outlook on all ratings is stable. The ICR reflects our opinion of the city's: • Diverse economy located in Orange County; • Extremely strong wealth levels with a market value per capita of $446,254; • Track record of very strong general fund balances; and • Good financial management practices and policies. The COP ratings reflect our view of the city's: • General creditworthiness; • Covenant to budget and appropriate lease payments; and • Appropriation risk associated with appropriation- backed obligations. The COPS represent an interest in the city's base rental payments, which the city covenants to budget and appropriate. Payments on the COPS come from base rental payments made by the city, as lessee, to the Newport Beach Public Facilities Financing Corp., as lessor, for the use of the city's community center, senior center, two libraries, four fire stations, police station, and corporation yard. The leased assets are consistent with our seismic risk assessment during the life of the bonds. Under the lease agreement, the city covenants to annually budget and appropriate lease payments for the use of the leased properties. Base rental payments are subject to abatement for damage or destruction, which we believe is partially mitigated by the city's covenant to maintain business interruption insurance sufficient to cover rent for 24 months. We understand that the city intends to designate the series 2010B bonds as BABs and elect to receive a direct federal subsidy equal to 35% of interest on the BABs. We also understand that the city will appropriate for 100% of the interest on the BABs. Standard & Poor's I RatingsDirect on the Global Credit Portal I October 19, 2010 626795 1101,65013 Newport Beach,, California; Appropriations; General Obligation We understand that there will not be a debt service reserve requirement for these bonds Management reports that it will use COP proceeds to refund roughly $4 million of the city's 1998 central library COPS and to fund a new civic center complex. The City of Newport Beach is located 45 miles southwest of Los Angeles and 15 miles south of Long Beach in Orange County (AA- !Stable). The city's population in 2010 was roughly 86,738 and has grown steadily at an annualized rate of roughly 2% since 2000. The largest employment sectors in the city include professional services, health care, lodgingltourism, and government. Some of the city's largest employers include Hoag Memorial Hospital (4,001 employees), Conexant systems (1,650), Pacific Life Insurance Co- (1,51.3), and the city (940). As of August 2010, Newport Beach's unemployment rate (not seasonally adjusted) stood at 6.1 %, lower than the state's rate of 12.4 %. Income levels are very strong in our opinion, with median household effective buying income (EBI) at 190% and per capita EBI at 282% of the national average. Market value per capita, an indicator of wealth, is in our view extremely strong at $446,254. Based on data provided by the city, median all owner - occupied housing value stood at slightly over $1 million in fiscal 2009. In our opinion, the city's assessed valuation (AV) has shown good growth, increasing by a 5% average annual rate over the past five years to $38.7 billion in fiscal 2011. Management does not expect AV to decline, because of the city's maturity and high home values. The tax base is diverse, in our view, with the top 10 taxpayers making up 7.5% of fiscal 2011 AV and the largest taxpayer at approximately 4.8 %. The city's general fund revenue sources are property taxes (47% of fiscal 2009 revenues), sales taxes (17 %), transient occupancy tax (7.5 %), and other taxes and revenues. The city has maintained what we consider to be very strong fund balances, and has been building reserves since fiscal 2001, reaching a peak unreserved fund balance of roughly 62% of operating expenditures in 2010 (unaudited). In fiscal 2009, the city's total revenues declined by roughly 5.4 %, its sales tax by nearly 18 %, its transient and occupancy tax (TOT) tax by 12 %, and investment earnings by nearly 54 %, reflecting the weaker economy. Still, the city ended fiscal 2009 with an operating surplus of roughly $551,825 (net of transfers, including $20.3 million to its tidelands fund, which is ongoing) and an unreserved fund balance at what we consider a still very strong level of 57.8% of operating expenditures. Management's unaudited fiscal 2010 results reflect an operating surplus of about $2.5 million and what we consider a very strong unreserved fund balance of roughly 62% of operating expenditures. For fiscal 2010, management estimates that sales tax revenues declined by 6.6% and TOT taxes grew 2.1% because of the completion of a new hotel. To offset the fiscal 2010 revenue decline, management implemented $5 million in cost reductions, including an early retirement incentive program (generating savings of $3 million annually), midyear reductions, contracting -out of services, and requiring employees to pick up additional shares of their pension costs. The city's fiscal 2011 budget shows an operating deficit of roughly $1.5 million. This reflects the city's conservative budgeting of revenues and public safety expenses. Management expects at least a balanced budget for fiscal 2011 and that reserves will remain flat or grow slightly. Management has identified roughly $8.2 million in additional savings for fiscal 2011, and has already implemented roughly $6 million in cost reductions. We consider the city's financial practices to be "good" under our Financial Management Assessment (FMA) methodology. An FMA of "good" indicates our view that practices exist in most areas, although not all may be formalized or regularly monitored by governance officials. Including this debt issuance, overall debt levels are what we consider high on a per capita basis at $8,131 and low as www.standardandpoors .cam /ratingsdirect 3 K67981201385013 Newport Beach, California; Appropriations, General Obligation a percentage of market value at 1.8 %. Roughly 82% of the city's debt is overlapping debt from school districts, the county, and water districts. Carrying charges are low, representing roughly 2% of government expenditures. City management does not plan on issuing new debt in the near term. Financial Management Assessment: 'Good' We consider the city's financial practices to be "good" under our FMA methodology. An FMA of "good" indicates our view that practices exist in most areas, although not all may be formalized or regularly monitored by governance officials. Highlights include multiyear financial forecasting, monthly finance committee meetings with quarterly updates to the budget, the maintenance of a rolling 30 -year master capital improvement plan with funding sources identified, and the maintenance of a formal investment management policy that is reviewed annually and that requires the submission of quarterly investment reports to city council. The city also has a formal reserve policy of maintaining a contingency reserve of at least 12% of annual general fund operating expenditures and an operating reserve funded by operating surpluses with no set target. The city does not have a comprehensive debt management policy, but has a policy that debt service and capital contributions cannot exceed 5% of budget each year. Pension Obligation and Other Post Employment Benefits (OPEB) The city has a policy of 100% funding its annual required contribution to its public employees retirement fund (PERS) and has a pension rate stabilization fund of roughly $5 million to meet its policy. As of June 2008, the city's PERS unfunded accrued actuarial liability (UAAL) was roughly $93 million. Historically, the city has made the entire pension contribution of city safety employees on their behalf. Recently, management mandated that all of its safety employees contribute 3.5% of their base pay to offset the city's 9% contribution. Miscellaneous employees have contributed 3.4% to their pension costs since 2008. Due to the 24% investment loss experienced in fiscal 2009, PERS will implement a three -year phase in which it will increase the city's pension costs. To offset the expected additional contributions, management aims to have the remainder of its employees pick up additional shares of their pension costs and introduce a second tier of contribution rates for new miscellaneous employees. Management projects PERS costs to rise by roughly $2.9 million in fiscal 2013 and $5.9 million in fiscal 2014 if no adjustments are made. The city's total OPEB UAAL, consistent with Government Accounting Standards Board Statement 45, was roughly $43.8 million based on a 2009 estimated valuation. Management prefunds a portion of the liability associated with a previous plan over a 20 -year amortization. The remaining portion of the OPEB liability is paid on a pay -as- you -go basis. The implied subsidy UAAL was roughly 50% as of June 2009. The stable outlook reflects our view that the city will maintain very strong fund balances and consistent financial operations in the event of revenue challenges and rising pension costs. Our assessment of the city's very strong tax base, wealthy income levels, and good financial management practices further support our view of the stability of the credit. Standard & Poor's ( RatingsDirect on the Global Credit Portal ( October 19, 2010 8267901301305011 Newport Beach, California; Appropriations; General Obligation Related Criteria And Research • USPF Criteria: GO Debt, Oct. 12, 2006 • USPF Criteria: Appropriation- Backed Obligations, June 13, 2007 • USPF Criteria: Financial Management Assessment, June 27, 2006 wvjw.standardandpoers.com/ratingsdirect 826798130131,501- Copyright 20H) by Standard& Poofs Financial, sFONT COLOR= "BLUE'>Smvices LLC(S &P)dFONT>, a subsidiary of The McGraw -Hill Companies, No content (including ratings, credit - related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S &P. The Content shall not be used for any unlawful or unauthorized purposes. S &P, its affiliates, and any third -party providers, as well as their directors, officers, shareholders, employees or agents (collectively S &P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S &P Parties are not responsible for any offers or omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user, The Content is provided on an "as is" basis. S &P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE WARE OR HARDWARE CONFIGURATION. In no event shall S &P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or lasses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the passibility of such damages. Credit- related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S &P assumes no obligation to update the Content following publication in any form or format The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and /or clients when making investment and other business decisions. S &P's opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S &P has obtained information from sources it believes to be reliable, S &P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. S &P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S &P business units. S &P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S &P may receive compensation for its ratings and certain credit - related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, wwwstandardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscriptionl, and may be distributed through other means, including via S &P publications and third -party redistributors. Additional information about our ratings fees is available at www. standardandpoors .com /usratingsfees. Standard & Poor's I RatingsGirect on the Global Credit Portal I October 19, 2010 BY579913at3 5e',9 MOODY'S INVESTORS SERVICE November 29, 2010 Ms. Tracy McCraner Director of Administrative Services City of Newport Beach 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 Dear Ms. McCraner. One Front Street, Suite 1900 San Frencism, CA 94111 11 5.274.1700 tel mvw.tu.odys.mm We wish to inform you that on October 21, 2010, Moody's Investors Service assigned a rating of Aa2 to the City of Newport Beach, California Certificates of Participation 2010A (Civic Center Project/Central Library Refunding) and 2010B (Civic Center Project). In order for us to maintain the currency of our ratings, we request that you provide ongoing disclosure of current financial and statistical information. Moody's will monitor this rating and reserves the right, at its sole discretion, to revise or withdraw this rating at any time in the future. The rating, as well as any revisions or withdrawals thereof, will be publicly disseminated by Moody's through normal print and electronic media and in response to verbal requests to Moody's Rating Desk. Should you have any questions regarding the above, please do not hesitate to contact me or the analyst assigned to this transaction, Michael Wertz at 415 - 274 -1722. Sincerely, Veww _'�,�C " - °i� Kenneth B. Kurtz G, Senior Vice President KBK:MW /cm cc: Mr. Paul Pender Feldman Rolapp 19900 MacArthur Boulevard Suite 1100 Irvine, CA 92612 OODY'S INVESTORS SERVICE New Issue: MOODY°S ASSIGNS Aaa ISSUER RATING TO CITY OF NEWPORT BEACH; Aa2 RATING ASSIGNED TO THE CITY'S COPS Global Credit Research - 21 Oct 2010 APPROXIMATELY $122 MILLION IN DEBT AFFECTED INCLUDING CURRENT ISSUE Newport Beach (City of) CA Municipality CA Moodys Rating ISSUE RATING 2010ACivic Center Project/Central Library Refunding COPS Pat Sale Amount $25,200,000 Expected Sale Date 11/16/10 Rating Description Certificates of Participation 20108 Civic Center Project/Central Library Refunding COPS Pat Sale Amount $94,100,000 Expected Sale Date 11/16/10 Rating Description Certificates of Participation Opinion NEW YORK, Oct 21, 2010 -- Moodys Investors Service has assigned an Aaa Issuer Rating to the City of Newport Beach. We have also assigned an Aa2 rating to the city's 2010Aand 20108 Certificates of Participation (COPs). The two notch rating distinction between the current COP rating and the city's Issuer Rating represents lvbodys standard notching for essential purpose, fixed asset leases relative to a California issuer's general obligation or Issuer Rating. Broadly speaking the two notches reflect the risk of abatement (and the related lack of seismic insurance coverage) and the narrower, general fund security pledge for leases compared to the unlimited property tax pledge securing general obligation bands. RATINGS RATIONALE The rating assignments are determined bythe city's exceptionally strong socioeconomic profile, which includes very high wealth levels, an economy that has weathered the recession well compared to other cities, and sound prospects for continued economic stability. The city's healthy fiscal position features notably ample reserves and a standard debt profile. The lease provisions are mostly typical with the exception of not having a reserve for the COPS. However, this is only a minor weakness in light of the citys overall credit strengths and was also factored into the rating. The Issuer Rating signals our expectation that despite the pressured statewide economy, the city will continue to perform significantly better than other California and national cities with respect to its local economy and fiscal operations. The COPS will be issued by the Newport Beach Public Facilities Financing Corporation, which will make debt service payments derived from lease payments received from the city. The city has covenanted to budget and appropriate lease payments for use and occupancy of the leased assets, which include several fire stations, a police station, and central library. EXCEPTIONALLY STRONG COASTAL SOUTHERN CALIFORNIA ECONOMY Newport Beach is a full service city of 87,000 people in Orange County located 45 miles south of the city of Los Angeles. The community is bounded to the west by coastline, which is a major draw for tourists and a significant contributor to the local economy. The city is approximately 90% built out and residential but has grown in recent years by annexing adjacent unincorporated areas. A major strength of the city's credit profile is the substantial wealth of the community and local economy. City residents cam per capita incomes that are almost three times greater than the national median and are second only to the City of Beverly Hills among Moody's -rated Aaa California cities. The median home price in the city is $1.3 million, which is also among the highest in the nation. The Newport Beach economy has been impacted by the economic recession as indicated by an increase in unemployment. However, the level of joblessness is still just 6% and, though well above the ten -year average of 3.1 %, it is still only half of the statewide mark. One factor helping to curb unemployment is the citys location, which provides residents with access to the diverse job centers of both greater Orange County and Las Angeles. The citys local economy maintains a sound level of diversity among its taxpayers and employment base. The city's principal employers represent a wide range of industries including healthcare, professional services, technology and hospitality. The top ten taxpayers combine to contribute just 7.5% of the total $38.7 billion assessed valuation. This level of valuation results in an impressive assessed valuation per capita of $446,000. The assessed valuation continued to grow in both 2010 and 2011, albeit by very modest rates, at a time when many other tax bases around the state were diminished as a result of the recession. The rise in unemployment and slowdown in assessed valuation clearly indicate that the city has not been immune to the effects of the recession. However, the rating incorporates our expectation that the city's economy and socioeconomic profle will continue to withstand the recession significantly more resiliently than other cities within the state and around the nation. VERY HEALTHY FISCAL POSITION HIGHLIGHTED BY AMPLE RESERVES The city has consistently maintained a very healthy fiscal position that has resulted in the accumulation of a considerable level of reserves and a strong cash position. The citys general fund balance has averaged 47.5% of total general fund revenues over the last six years including a very healthy 55.2% in 2010. These figures are consistent with the Asa rating level within the state and well above the national median for the rating level. Including other unrestricted funds outside of the city's general fund, the total available reserves rise to 96% for fiscal 2D10. The city's general fund cash position has also been consistently stout while averaging 46% since fiscal 2005. The city's fiscal 2010 general fund balance was preserved by mid -year budget cuts that reduced an $8 million budget gap. These reductions allowed the city to refrain from using reserves to address the budget and maintain structural balance. For fiscal 2011, the city anticipates balanced operations that will enable the maintenance of a healthy reserve position. The city plans to transfer $31 million from the general fund to the facilities financing special revenue fund. Despite the transfer, the monies will remain available for use in the general fund on an unrestricted basis, which will keep the total available fund balance at an unusually high level. As it has for more than a decade, the city will also transfer approximately $20 million to its Tidelands fund in recognition of the costs associated with providing primarily public safety service to the beaches and marina. This subsidy has been level and consistent and is not expected to change in the foreseeable future. The citys finances have remained robust through the economic downturn, in part, because the city has a below average reliance upon sales tax revenues, which have been particularly volatile during the recession. Sales tax revenues only comprise 14% of the citys total revenue base versus the 20% to 25% level more common in California cities. The city's sales tax base also beneftted from not having a single auto dealership close as opposed to other communities, which last meaningful portions of sales tax revenues following a dealership loss. Though sales tax revenue did decline in both 2009 and 2010, the level of deterioration given the limited exposure to the revenue stream was not enough to significantly disrupt the city's fiscal operations. Here again the city benefits from the wealth of its citizenry who, despite the recession, retain well - above average purchasing power to help support sales tax revenue. So far for fiscal 2011, sales tax revenues are on pace to improve from the previous year with auto dealers, retail, and restaurants recognizing the biggest gains. Property tax revenues are typically half of the city's revenues and have continued to grow slowly over the last two years reflecting the general weakness in the housing market. The city is a well - established community that did not undergo rapid growth resulting from high volumes of new housing starts as was the case in other portions of the state. As a result, the city is also not undergoing as severe a home price correction and property tax revenues have remained stable. Moody's anticipates that the city will continue to effectively manage operations to retain its overall fiscal strength despite ongoing economic uncertainty that could pressure revenues and require swift expenditure adjustments. SOUND DEBT POSITION W rrH NO FIRM ADDITIONAL DEBT PLANS The current issue will be the citys only general fund debt obligation and will result in manageable annual lease payments of approximately 5% of total general fund revenues. Following the sale, the city will have direct and overall debt levels 0.3% and 1.8% respectively, which is typical for a Meodys -rated city. The new money proceeds from the sale will be used to finance constmcfion of the city's new civic center including city hall, civic center park, parking structure, and library expansion. The city will also refund its 1998 Library CO Ps and receive level annual debt service savings with no extension of the maturity schedule. The leased assets have a combined appraised value of $140 million as established by a third -party appraisal firm. Once construction is complete, the city expects to substitute the new civic center as the leased asset. The city will also budget debt service for the Build America Bonds portion of the debt on a gross basis inclusive of expected subsidies. The city has no additional borrowing plans. MOSTLY STANDARD LEGAL STRUCTURE AND COVENANTS BUT NO RESERVE FUND FOR COPS The legal provisions of the sale are largely standard with the exception of there being no reserve for the COPS. This weakness is sufficiently offset by the city's available reserves and move to transfer general fund resources to the facility financing fund to support the debt (though these funds are not solely restricted for the COPs). Other elements of the legal provisions are more typical and include two -years of rental interruption insurance, title, liability, property and casualty insurance. The lease purchase agreement also allows the city to substitute leased assets in the event that it loses use and occupancy of all or a portion of one of the current leased assets. WHAT COULD CHANGE THE RATING -UP WA WHAT COULD CHANGE THE RATING- DOWN The rating could become pressured if the city's fiscal position materially deteriorates while the city's socioeconomic profile becomes significantly weaker. KEY STATISTICS Fiscal 2011 assessed valuation: $38.7 billion Assessed valuation per capita: $446,000 Fiscal 2010 general fund balance (unaudited actual): 55.2% Direct debt burden: 0.3 Overall debt burden: 1.8% The principal methodology used in rating Newport Beach Public Facilities Financing Corporation, CAwas The Fundamentals of Credit Analysis for Lease - Backed Municipal Obligations rating methodology published in October 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. REGULATORY DISCLOSURES Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, confidential and proprietary Moodys Investors Service's information, confidential and proprietary Ivbodys Analytics' information. Mcodys Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third -party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Please see ratings tab on the issuerlentity page on Nbodys.com for the last rating action and the rating history. The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Nbodys Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information. Please see the Credit Policy page on Nloodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery. Analysts Michael Wertz Analyst Public Finance Group Moody's Investors Service Dan Bartel Backup AnaNst Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553 -0376 Research Clients: (212) 553 -1653 Moody's Investors Service 250 Greenwich Street New York, NY 10007 USA MOODY'S INVESTORS SERVICE © 2010 Mbody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S "). All rights reserved. CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC: S ( "MIS ") CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY, CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OFAN INVESTMENT FORANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WTH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAYBE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, INANY FORM OR MANNER OR BYANY MEANS WHATSOEVER, BYANY PERSON WITHOUT MOODYS PRIOR W RIITEN CONSENT. Al information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable, including, when appropriate, independent third -party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODYS have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOOBY'S IN ANY FORM OR MANNER WHATSOEVER. MIS, a wholly -owned credit rating agency subs !diary of Maodys Corporation ( "MCO "), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated smiles, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in NCO of more than 5 %, is posted annually at www.moodvs com under the heading "Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy." Any publication into Australia of this document is by MOODYS affiliate, Moody's Investors Service Ply Limited ABN 61 003 399657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to'wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODYS that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moody's Japan K.K. ( "MJKK ") are M11KK's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt -like securities. In such a case, "MIS" in the foregoing statements shall be deemed to be replaced with "WKK ". MIKK is a wholly -owned credit rating agency subsidiary of Moodys Group Japan G.K., which is wholly owned by Moody's Overseas Holdings Inc., awholly -owned subsidiary of NCO. This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. it would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser. 3 t % d Public Finance TaxSupported Newport Beach, California NewIssue Ratings Rating Rationale Certificates of Participation, Series 2010A (Tax Exempt; . The`AA +'certificates of participation (COP ) rating reflects asolid legal structure Civic Center Project /Central with essential leased assets and the city of Newport Beach's very strong financial Library Refunding) AA. Certificates of Participation, operations, demonstrated by high fund balances, years of surplus operations, a Series 2010B (Federally Taxable productive relationship with labor, plans to mitigate likely increases to pension Direct -Pay Build America laborcosts ,andprudentmanagementpractices. Bonds; Civic Center Project) AA,. Implied General . Economic characteristics are very strong, reflective of the area's low unemployment, Obligation Rating AAA very high wealth levels, stable housing market, and resilient tax base. Rating Outlook • The debt profile is strong overall, reflecting low debt levels, progress toward pre - Stable funding the city's other post- employment benefits (OPEB) liability, a pension rate stabilization fund, and manageable capital needs; however, debt amortization is slow Analysts due to a level debt service structure. Scott Monroe Key Rating, Drivers ,1415 732 -5618 scott.monroeC"fitchratings.com The city's financial performance has been very strop and is expected to remain so in Y' P ry P spite of a large, planned general fund balance transfer to a new capital projects fund. Alan Gibson +1 415 732 -7577 . Economic performance has been impressive, and Fitch Ratings believes it will likely P P g Y alan.;ibson @fitchratings.com remain so through the economic downturn. NewIssueDetails Credit Summary Sale Information: $28,670,000 Certificates of Participation, Series 2010A (Tax Exempt; Civic Center Project /Central Library Refunding), and $94,130,000 Certificates of Participation, Series 2010B (Federally Taxable Direct - Pay Build America Bonds; Civic Center Project), to sell on or about Nov.18 via negotiation. Security: A standard lease- leaseback arrangement between the city and the Newport Beach Public Facilities Financing Corporation. Purpose: To fund a new civic center and refund existing certificates. Final Maturity: July 1, 2040. RelatedResearch Applicable Criteria For information on Build America Bonds, visit www.fitchradnos.com /BABs. Applicable Criteria • Tax- Supported Rating Criteria, Aug. 16, 2010 • U.S. Local Government Tax - Supported Rating Criteria, Oct. 8, 2010 Newport Beachservesapopulationofabou t87 ,000alongtheOrangeCountycoast .The economy benefitsfrom the city's maturity, base of verywealthy residents, and strong shopping, festival, and tourism draw. The city's stabletax base is supported by home values that are among the highest in the U.S., despite recent price declines, and assessed valuation (AV) growth has remained positive through the recession, although recent growth has been subdued. Unemployment is low, and income levels are extremelyhigh. w ,,vvv.fate, h OCtobeY25,20101 f � ' Pubilic Finance –� -- The city's financial profit Leis strong. The last three audited fiscal years and estimated Rating History —COPS actual results forfiscal2010 all produced surplus generalfund operations, resultingin the maintenance of high general fundbala nceleveLs.Financial management practices are im ressive,andmanagement hastakenste P stodealwithbothitsOPEBliabilit p y Rating Action Watch Date AA+ Assigned Stable 10119/10 and pensioncoststhatarelikelytoincrease. Debt - -- - - - - -- - -- Proceeds from this issuance will Rating History — Implied GO predominantly fund the construction of Debt Statistics a new civic center, which will include a o�tl °oR1 city hall building, a 450 -space parking ($000) Rating Action Watch Date structure, a library expansion, and a This Issue 122,800 AAA Assigned Stable 10/19/10 park. A small portion of proceeds will Outstanding Debt 6,806 refund outstanding COPS. The COPS are Refunding Portion (3,990) secured b a standard lease - leaseback y Total Direct Debt 125,616 Overlapping Debt 586,966 arrangement between the city and the Total Overall Debt 712,582 Newport Beach Public Financing Corporation for use of various essential Debt Ratios Direct Debt per Capita ($)' 11448 assets, subject to abatement. Upon As% of Assessed Valueb 0.3 completion, the city may substitute the Overall Debt per Capita 1$)' 8,215 civic center for the current Leased As% of Assessed Valueb 1.8 assets. The city covenants to budget ' Population: 86,738(2007 estimate). and appropriate lease payments and bAssessed value: $38,707,165,000 (fiscal 2011). Note: Numbers insurance provisions are standard, may not add due to rounding. - - - - - -- - - -- - -- including 24 -month rental interruption insurance. However, there is no debt service reserve fund. The city's debt profi leis strong. Although net debt percapitais high at about $8,200, net debt as a percentage of assessed value is a low 1.8%, reflective of the strength of the property tax base. Capital needs are limi ted, but amortization is slow, with just 11 %and 25% of debt maturing within five and 10 years, respectively, due to aleveL debt service structure. The city's OPEB pt an is partially pre- funded, and costs are manageable. Management is exploring ways to deal with likely rising pension costs, including two- tiered systems, and has already had some success in negotiating increased employee contributions. The city prudently established a pension rate stabilization fund with abala nceof $5 million. Pe nsion costs are estimated to rise by approximately $10 million –$12 million annually over the next five to seven years with outf u rth eracti o n bym an agement. Management sensibly developed a 30 -year general lifecycLe replacement plan for its capital facilities. Its financing sources include capital reserves, developer fees, and general fund contributions of up to 5% of general fund expenditures. The city's financial position is notably strong. Financial operations have produced surpluses in each of the past four fiscal years, some of them sizable, resulting in large and growing fund balances. Fiscal 2010 operations are estimated to have produced a $2.5 million general fund surplus, raising the total and unreserved general fund balances to $82 million (56.2% of expenditures and transfers out) and $76.6 million (52.4 %), respectively. The city could also transfer up to $38.5 million to its general fund from workers compensation and vehicle replacement funds, if necessary, raising the city's total unreserved financial cushion to yet higher levels. 2 NewportBeach, California October25, 2010 t &) h s Pubtic Finance General Fund Financial Summary ($000, Audited Fiscal Years Ended June 30) General Government 2007 2008 2009 201 Oa Property Taxes 63,003 67,389 70,127 72,000 Sales Tax 21,088 21,855 17,926 16,742 Sales Tax in Lieu 7,348 8,018 7,503 4,540 Transient Occupancy Tax 12,059 12,752 11,171 11,401 Other Taxes 8,309 8,289 8,487 7,976 Intergovernmental 3,812 3,083 2,597 2,690 Licenses and Permits 3,109 4,994 4,396 2,607 Charges for Services 14,369 14,935 14,374 16,028 Fines and Forfeitures 3,706 3,958 3,711 3,840 Investment Income 3,176 3,655 1,697 1,415 Net Change in Value of Investments (546) 508 1,097 - Property Income 6,471 6,604 6,553 6,080 Donations 1,324 1,202 261 145 Other 1,967 1,459 235 1,608 Total Revenue 149,195 158,702 150,134 147,072 General Government 13,624 14,426 15,478 15,027 Public Safety 50,425 53,650 57,286 56,051 Public Works 24,403 25,454 26,221 25,553 Community Development 7,223 7,770 8,302 8,070 Community Services 11,749 12,639 13,282 13,091 Capital Outlay 10,369 10,456 5,910 6,811 Debt Service 2,000 1,643 1,571 - Total Expenditures 119,793 126,037 128,050 124,603 Operating Income /(Deficit) 29,402 32,664 22,084 22,469 Transfers In 1,027 5,521 690 1,519 Transfers Out (20,103) (29,040) (22,222) (21,513) Proceeds from Long -Term Debt 5,000 - - - Net Income /(Deficit) 15,326 9,146 552 2,476 Total Fund Balance 69,913 79,059 79,611 82,087 As % of Expenditures and Transfers Out 50.0 51.0 53.0 56.2 unreserved Fund Balance 62,426 72,252 73,704 76,593 As % of Expenditures and Transfers Out 44.6 46.6 49.0 52.4 'Fiscal 2010 results are estimated. Financial operations have benefited so far from stable and growing property tax revenues (49%of fiscal 2010 estimated re venues). However, sales tax revenues (12%) have been hitsignificantly bytheeconomic downturn, falling 18 %in fiscal 2009, with an estimated 7% decline in fiscal 2010. Management has prudently implemented expenditure reductions to mitigate falling sales tax revenues. Fiscal 2011 budgeted reductions amount to $18 million, of which $8.6 million is in operational reductions. These include early retirement incentiv a plan savings, increased employee contributions to pension plans, contracting out jobs, and salary freezes. The city is budgetingforamodestoperationaldeficitinfi sca1 2011; however, thecityhistorically has outperformed its budgets. Atransferoutof$ 31.5 Fri Rion fora newcapitalreserve fund in fiscal 2011 will lowerthe total gene ralfund balance tostill strong levels, or approximately 24.4% of expend itures. There are no plansto use the transferred cash, anditcouldbetransferredbackto thegeneralfund,ifnecessary. Financial management policie s are impressive. They include a contingency reserve equalto12 %ofthegeneralfundoperating budget, operational reserves, astabilization reserve funded by operating surpluses, an d a 15 -step fiscal sustainability plan adopted by the City Council this year. Alth ough the operational reserve is designed NewportBeach,California October25,2010 3 Public in c to be used in times of financial hardship, the council has decided not to use it in thisecon omi cdowntu rn. commy The city's economy is very strong. Comp ared with the prior year, the city's unemploymentrosebyasma 110.1 %to6.1 %in August2010andislessthan one-half the state and regional averages. The larges t local employers include Hoag Memorial Hospital(4,OOtemployees)an dConexant(1,650),asemico nductormanufacturingfirm. Other major local employers include Pacific Life, US Bank, and PIMCO. The city's income profile is extremely strong, with per capita income levels about three times higherthanthoseoftheregion , state, and nation. Populationgrowthhasbeenvery tow for years and is expected to remain so given that most of the area is built -out. However, limited opportunitiesfor new developmentexist in infill development and a smallamountofvacantspacethatcouldbedeveloped. AV benefits from a very strong housing market. Home prices are among the highest in the count ry, although median home pr ices fell from about $1.8 million in 2007 to $1.3 million in 2009. Despite price declines, AV rose 1.8% in fiscal 2010 and 0.2% in fiscal 2011. The property tax base is somewhat concentrated in the top payer, The Irvine Company, which makes up 4.8% of AV and is a major regional real estate investment company with multiple holdings within the city. AV stability is supported byamaturehousingstock ,ongoin ginfilldevelopment ,andenhancementsto existinghomes. 4 NewportBeach ,California0ctober25,2010 Publkic Finance ALL FTCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP:// FITCHRATINGS. COM /UNDERSTA.NDINGCREDIIRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCYS PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCHS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. Copyright rD 2010 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1- 800. 753 -4824, (212) 908 -0500. Fax: (212) 480 -4435. Reproduction or retransmission in whole or in part is prohibited except by permission. Ali rights reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third -party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and /or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre- existing third -party verifications such as audit reports, agreed -upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third -party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings should understand that neither an enhanced factual investigation nor any third -parry verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward - looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sate of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a pardw ar investor, or the tax- exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicabte currency equivalent) per issue. In certain cases, Fitch WILL rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publimtion, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. NewportBeach,Catifornia October25,2010 1 October 20, 2010 Mr, Dan Matusiewicz Deputy Director Newport Beach Administrative Services Department 3300 Newport Blvd Newport Beach, CA 92663 Dear Mr. Matusiewicz Fitch Ratings has assigned one or more ratings and/or otherwise taken rating action(s), as detailed on the attached Notice of Rating Action. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third -party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre- existing third -party verifications such as audit reports, agreed -upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third -party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings should understand that neither an enhanced factual investigation nor any third -party verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward- looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. Fitch seeks to continuously improve its ratings criteria and methodologies, and periodically updates the descriptions on its website of its criteria and methodologies for securities of a given type. The criteria and methodology used to determine a rating action are those in effect at the time the rating action is taken, which is the date of the related rating action commentary. Each rating action commentary provides information about the criteria and methodology used to arrive at the slated rating, which may differ from the general criteria and methodology for the applicable security type posted on the website at a given time. For this reason, you should always consult the applicable rating action commentary for the most accurate information on the basis of any given rating. Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer. Ratings do not comment on the adequacy of market price, the suitability of any investment, loan or security for a particular investor (including without limitation, any accounting and /or regulatory treatment), or the tax - exempt nature or taxability of payments made in respect of any investment, loan or security. Fitch is not your advisor, nor is Fitch providing to you or any other party any financial advice, or any legal, auditing, accounting, appraisal, valuation or actuarial services. A rating should not be viewed as a replacement for such advice or services. The assignment of a rating by Fitch does not constitute consent by Fitch to the use of its name as an expert in connection with any registration statement or other filings under US, UK or any other relevant securities laws, It Is important that you promptly provide us with all information that may be material to the ratings so that our ratings continue to be appropriate. Ratings may be raised, lowered, withdrawn, or placed on Rating Watch due to changes in, additions to, accuracy of or the inadequacy of information or for any other reason Fitch deems sufficient. Nothing in this letter is intended to or should be construed as creating a fiduciary relationship between Fitch and you or between us and any user of the ratings. Nothing in this letter shall limit our right to publish, disseminate or license others to publish or otherwise to disseminate the ratings or the rationale for the ratings. In this letter, "Fitch" means Fitch, Inc. and Fitch Ratings Ltd and any subsidiary of either of them together with any successor in interest to any such person. We are pleased to have had the opportunity to be of service to you. If we can be of further assistance, please feel free to contact us at any time. Sincerely, Amy S. Doppelt Managing Director U.S. Public Finance AD1fv Enc: Notice of Rating Action (Doc ID:152090) Notice of Rating Action (Doc ID: 152090) Page 1 of 1 Outlookl Bond Description Rating Type Action Rating Watch Eff Date Notes Newport Beach (CA) (Civic Center Project) COPS Long Term New Rating AA+ RO:Sta 19- Oct -2010 (Federally Taxable - Build America Bonds - Direct Pay) ser20108 Newport Beach (CA) (Civic Center /Cental Library Long Term New Rating AA+ RO:Sta 19- Oct -2010 Project) COPS rfdq bonds ser 2010A Newport Beach (CA) implied GO bonds Long Term New Rating AAA RO:Sta 19 -Oct -2010 Key: RO: Rating Outlook, RW: Rating Watch; Pos: Positive, Nog: Negative, Sta: Stable, Eve: Evolving (Doc ID: 152090) Page 1 of 1 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. OFFICER'S CERTIFICATE I do hereby certify that: (i) I am the duly elected Officer of The Bank of New York Mellon Trust Company, N.A.; (the "Association "); (ii) attached hereto is a true, correct copy of Signing Authorities extracts from by -laws of the Association adopted by action of the Board of Directors of the Association and presently in effect; (iii) attached hereto is a list of the persons who, as of the date hereof, are certain duly elected officers of the Association, which lists sets forth the title of each such officer next to his or her typed name, with which officers I am personally familiar; and IN WITNESS WHEREOF, I have hereunto executed this Certificate as its Vice President of the Association this 30th day of November, 2010. Officer's . Gregory B. Chenail Title: We6 President I hereby certify that as of the date hereof that Gregory B. Chenail is the duly elected Officer of The Bank of New York Mellon Trust Company, N.A. and that the signature which appears on the foregoing pages is the signature of Gregory B. Chenail and that it is a signature with which I am personally familiar and do certify as to its authenticity: 7 Dated: November 30, 2010 r' By: ena Kajita Title: Senior Associate 01W INWORDC,THEMTHD� .k of New YoA T.st Co, NA, 5ECREfARY'S CERTIFICATE THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. I, the undersigned, Barbara J. Parrish, Assistant Secretary of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States (the "Association') and located in the State of California, DO HEREBY CERTIFY that the following individuals are duly appointed and qualified Officers of the Association: Officer Title Signing Authori Los Angeles (700 South Flower Street) Frank P. Sulzberger Managing Director Maria E. Allison Vice President Eladia Burgos Vice President Ma. Rose Bystrom Vice President & Assistant Secretary Gregory B. Chenail Vice President Sandee Collazo Vice President Patricia Cronin Vice President Teresa R. Fructuoso Evelyn T. Furukawa Mark A. Golder Lisa Infusino Richard Lopez Jacqueline M. Nowak Linda G. Ojeda Teresa Petta Johanna K.Tokunaga Fe R. Tuzon Gonzalo Urey Deborah Young Melonee Young Fanny Chen Christopher Davy Betty Dozier Cristina Garchitorena Christopher Johnson Rena Kajita Tina Kiani Kitty Kwong Aaron Masters Helen B. McNulty Marina Meza Matthew Moon Melinda Murrell Aurora Y. Quiazon Raymond Torres Zenaida (Gaby) Rodriguez Karen Yu Vice President Vice President & Assistant Secretary Vice President Vice President Vice President Vice President Vice President & Assistant Secretary Vice President Vice President Vice President Vice President Vice President Vice President Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate Senior Associate X (Senior) A, Cl, J A, C2, J A, Cl, J A, C2, J A, Cl, J A, C3, J A, C2, J A, Cl, J A, C2, J A, C2, J A, C3, J A, C2, J A, Cl, J A, C2, J A, C2, J A, C4, J A, C4, J A, C2, J A, C2, J A, C3, J A, C4, J A, C3, J A, C3, J A, C3, J A, C3, J A, C3, J A, C3, J A, C3, J A, C4, J A, C3, J A, 0, J A, C4, J A, C4, J A, C3, J A, C4, J A, C3, J SAN FRANCISCO. CA (550 Kearney Street) Milly P. Canessa Vice President Josephine Libunao Vice President & Assistant Secretary Rosalinda B. Ronquillo Vice President & Assistant Secretary Julia (Ding) Sun Vice President Priscilla Dedoro Senior Associate Choua J. Vang Senior Associate Calvin Woo Senior Associate TEMPE. AZ (1225 W. Washin0on St.. Suite 12 Gregory G. Cross Vice President Mark Krietemeyer Vice President & Assistant Secretary Deborah M: Scherer Vice President Scott Blair Senior Associate Nancy Wakefield Senior Associate DENVER. CO (1775 Sherman Street) Donna F. Edmondson Vice President Elaine D. Renn Vice President Ryan M. Pollihan Senior Associate SEATTLE. WA (601 Union Street Michael S. Brunstad Vice President Kathleen L. Graves Vice President Kathleen Gylland Vice President Erin J. Haslam Vice President & Assistant Secretary Steven A. Horman Michael A. Jones Carol J. Nelson Perry Tobe Gene H. Romaine Denice Duncan Janelle Farooque Vice President Vice President & Assistant Secretary Vice President & Assistant Secretary Vice President Senior Associate Associate Associate A, C2, J A, C2, J A, C4, J A, C2, J A, C4, J A, C3, J A, C4, J A, C2, J A, C2, J A, C2, J A, C3, J A, C4, J A, Cl, J A, C2, J A, C3, J E, H A, C3, J A, C3, J X E, H A A, Cl, J A, C3, J A, C3, J E A, C4, J I further certify that as of this date they have been authorized to sign on behalf of the Association in discharging or performing their duties in accordance with the senior and limited signing powers provided under Article V, Sections 5.2 and 5.3 of the By -Laws of the Association and the paragraphs indicated above of the signing authority resolution of the Board of Directors of the Association. Attached hereto are true and correct copies of e tcerpts of the By -Laws of the Association and the signing authority resolution, which have not b .3an ev,mended or revised since July 4, 2009 and are in fnel force and effect. IN WITNESS WHEREOF, d have hereunto set my hand and affixed the seal of The Bank of New Fork Mellon Trust Company, N.A. this 6m day of July 2009. Barbara I Parrish, �sistant Secretary 2- Extracts from By -Laws Of The Bank of New York Mellon Trust Company, N.A. As Amended January 20, 2005, July 1, 2008 and July 4, 2009 ARTICLE V SIGNING AUTHORITIES Section 5.1 Real Property. Real property owned by the Association in its own right shall not be deeded, conveyed, mortgaged, assigned or transferred except when duly authorized by a resolution of the Board. The Board may from time -to -time authorize officers to deed, convey, mortgage, assign or transfer real property owned by the Association in its own right with such maximum values as the Board may fix in its authorizing resolution. Section 5.2. Senior Signing Powers. Subject to the exception provided in Section 5.1, the President and any Executive Vice President is authorized to accept, endorse, execute or sign any document, instrument or paper in the name of, or on behalf of, the Association in all transactions arising out of, or in connection with, the normal course of the Associations business or in any fiduciary, representative or agency capacity and, when required, to affix the seal of the Association thereto. In such instances as in the judgment of the President, or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing from time -to -time any other officer to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer within his or her particular division or function. Any officer of the Association authorized in or pursuant to Section 5.3 to have any of the powers set forth therein, other than the officer signing pursuant to this Section 5.2, is authorized to attest to the seal of the Association on any documents requiring such seal. Section 5.3. Limited Signing Powers. Subject to the exception provided in Section 5. 1, in such instances as in the judgment of the President or any Executive Vice President, may be proper and desirable, any one of said officers may authorize in writing from time -to -time any other officer, employee or individual to have the limited signing powers or limited power to affix the seal of the Association to specified classes of documents set forth in a resolution of the Board applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function. Section 5.4. Powers of Attorney. All powers of attorney on behalf of the Association shall be executed by any officer of the Association jointly with the President, any Executive Vice President, or any Managing Director, provided that the execution by such Managing Director of said Power of Attorney shall be applicable only to the performance or discharge of the duties of said officer within his or her particular division or function. Any such power of attorney may, however, be executed by any officer or officers or person or persons who may be specifically auds.orized to execute the same by the Board of Directors. Section 5.5. Auditor. The Auditor or any officer designated by the Auditor is authorized to certify in the name of, or on behalf of the Association, in its own right or in a fiduciary or representative capacity, as to the accuracy and completeness of any account, schedule of assets, or other document, instrument or paper requiring such certification. certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $10,000,000: (C5) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit: money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $5,000,000. (C6) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $1,000,000. (C7) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $250,000. (C$) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money, check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $50,000. (C9) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $5,000. *Dual authorization is required by any combination of senior officer and /or Sector Head approved designee for non - exempt transactions. Single authorization required for exempt transactions. (Dl) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $1,000,000. (D2) : Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $250,000. (D3) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $50,000. (D4) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $5,000. (E) Authority to accept, endorse, execute or sign any guarantee of signature to assignments of stocks, bonds or other instruments; certification required for transfers and deliveries of stocks, bonds or other instruments; and document, $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEAC14 CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AN ERICA BONDS) (CIVIC CENTER PROJECT) CLOSING CERTIFICATE OF TRUSTEE The undersigned, an authorized officer of The Bank of New York Mellon Trust Company, N.A. ( "Bank of New York") in its capacity as "Trustee" under that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement"), by and among the Trustee, the Newport Beach Public Facilities Corporation (the "Corporation ") and the City of Newport Beach (the "City ") and under that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement"), by and between the Corporation and the Trustee, and as "Calculation Agent" under that certain Calculation Agency Agreement dated as of November 1, 2010 (the "Calculation Agency Agreement' and together with the Trust Agreement and the Assignment Agreement, the "Trustee Documents "), by and between the City and the Trustee, hereby certifies as follows: 1. The Trustee is duly organized and existing as a national banking association under the laws of the United States of America, in good standing under the laws of the State, and has the full power and authority to enter into and perform its duties under the Trustee Documents and to execute and deliver the Certificates to the Underwriters pursuant to the terms of the Trust Agreement. 2. The Trustee is duly authorized to enter into the Trustee Documents. 3. The execution and delivery by the Trustee of the Trustee Documents, and compliance with the terms thereof, will not, in any material respect, conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties, which conflict breach or default would materially adversely affect the ability of the Trustee to perform its obligations under the Trustee Documents or (except with respect to the lien of the Trust Agreement) result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Trustee. 4. Exclusive of federal or state securities laws and regulations, other than routine filings required to be made with governmental agencies in order to preserve the Trustee's authority to perform a trust business (all of which routine filing, to the best of the Trustee's knowledge, have been made), no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee is or will be required for the execution and delivery by the Trustee of the Trustee Documents or the execution and delivery of the Certificates. DO CS OC/ 1445072v3/022459 -0014 5. To the best of the Trustee's knowledge, there is no litigation pending or threatened against or affecting the Trustee to restrain or enjoin the Trustee's participation in, or in any way contesting the powers of the Trustee with respect to the transactions contemplated by the Certificates, the Trust Agreement and the Assignment Agreement. Dated: November 30, 2010 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee 2 DOCSOC/14450720/022459 -0014 $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) TRUSTEE'S RECEIPT OF PROCEEDS The undersigned, on behalf of The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), hereby acknowledges receipt from Stone & Youngberg LLC, as representative of the Underwriters (the "Underwriters ") the following amount as the net purchase price of the $21,129,832.05 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) and $105,998,837.50 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (collectively, the "Certificates ") which the Underwriters have represented to be computed as follows: Principal Amount Plus Original Issue Premium Less Underwriter's Discount NET PROCEEDS RECEIVED BY TRUSTEE Series 2010A Certificates $ 20,085,000.00 1,155,299.55 (110.467.50) $ 21.129.832.05 Series 2010B Certificates $106,575,000.00 0.00 (586,162.50) $105.998.837.50 Total $126,660,000.00 1,115,299.55 _(696,630.00) $127,118.669.55 Trustee has deposited and transferred the aforesaid amounts into the accounts and in the amounts specified in Section 2.05 of the Trust Agreement dated as of November 1, 2010 (the "Trust Agreement'), by and among the Trustee, the Newport Beach Public Facilities Corporation and the City of Newport Beach (the "City ") in accordance with the Instructions to Trustee, executed by the Mayor of the City of Newport Beach dated the date hereof. Dated: November 30, 2010 DOCS OC/ 1445072v3/022459 -0014 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By. �? Its: Authorized cer U.S. BANK NATIONAL ASSOCIATION AUTHORIZED SIGNERS) I hereby certify that the following is a true and exact extract of Article VI of the Bylaws presently in effect for U.S. Bank National Association, an association organized and existing under the laws of the United States: ARTICLE VI. CONVEYANCES, CONTRACTS, ETC. All transfers and conveyances of real estate, mortgages, and transfers, endorsements or assignments of stock, bonds, notes, debentures or other negotiable instruments, securities or personal property shall be signed by any elected or appointed officer. All checks, drafts, certificates of deposit and all funds of the Association held in its own or in a fiduciary capacity may be paid out by an order, draft or check bearing the manual or facsimile signature of any elected or appointed officer of the Association. All mortgage satisfactions, releases, all types of loan agreements, all routine transactional documents of the Association, and all other instruments not specifically provided for, whether to be executed in a fiduciary capacity or otherwise, may be signed on behalf of the Association by any elected or appointed officer thereof. The Secretary or any Assistant Secretary of the Association or other proper officer may execute and certify that required action or authority has been given or has taken place by resolution of the Board under this Bylaw without the necessity of further action by the Board. I further certify that Martin Meza of U.S. Bank National Association, has been duly elected and qualified and now holds the office listed herein, and that the signature of such officer is authentic: Martin Meza Vice President WILL SIGN: I IN WITNESS WHEREOF, I have hereunto set my hand to be affixed hereto this 30' day of November, 2010. U.S. Bank National Association By: Julia Hommel Vice President $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A CIAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT REACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CLOSING CERTIFICATE OF ESCROW AGENT The undersigned, an authorized officer of U.S. Bank National Association, as escrow agent (`Escrow Agent ") under that certain Escrow Agreement dated as of October 29, 2010 (the "Escrow Agreement "), by and between the Escrow Agent and the City of Newport Beach (the "City "), hereby certifies as follows: 1. The Escrow Agent is duly organized and existing as a national banking association in good standing under the laws of the United States of America and has the full power and authority to enter into and perform its duties under the Escrow Agreement. 2. The Escrow Agent has duly authorized, executed and delivered the Escrow Agreement and assuming due authorization, execution and delivery by the City, the Escrow Agreement constitutes the legal, valid and binding agreement of the Escrow Agent enforceable in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws or equitable principles relating to or limiting creditors' rights generally. 3. The execution and delivery by the Escrow Agent of the Escrow Agreement, and compliance with the temrs thereof, will not, in any material respect, conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Escrow Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Escrow Agent or any of its activities or properties, which conflict breach or default would materially adversely affect the ability of the Escrow Agent to perform its obligations under the Escrow Agreement or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Escrow Agent. 4. Exclusive of federal or state securities laws and regulations, other than routine filings required to be made with governmental agencies in order to preserve the Escrow Agent's authority to perform a trust business (all of which routine filing, to the best of the Escrow Agent's knowledge, have been made), no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Escrow Agent is or will be required for the execution and delivery by the Escrow Agent of the Escrow Agreement. DOCSO C/1445072v3/022459 -0014 5. To the best of the Escrow Agent's knowledge, there is no litigation pending or threatened against or affecting the Escrow Agent to restrain or enjoin the Escrow Agent's participation in, or in any way contesting the powers of the Escrow Agent with respect to, the transactions contemplated by the Escrow Agreement. Dated: November 30, 2010 U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent By. Its: Authorizell Officer 2 DOCS OC/ 1445072v3/022459 -0014 $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) ESCROW AGENT'S RECEIPT The undersigned, an authorized officer of U.S. Bank National Association, as escrow agent (the "Escrow Agent ") under that certain Escrow Agreement dated as of October 29, 2010 (the "Escrow Agreement "), by and between the Escrow Agent and the City of Newport Beach (the "City "), hereby acknowledges that it has previously received $3,525,858 from the City of Newport Beach (the "City ") which together with funds on deposit in the reserve fund for the City of Newport ' Beach Refunding Certificates of Participation, Series 1998 (the "1998 Certificates ") will be sufficient to prepay the outstanding 1998 Certificates on December 1, 2010 at the prepayment price equal to the principal amount to be prepaid together with accrued interest to December 1, 2010. Dated: November 30, 2010 DO C SOC/ 1445072v3/022459 -0014 U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent By: " i -- Its: Authorized Officer STRADi✓1NG YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ORANGE COUNTY (949) 725.4000 ATTORNEYS AT LAW SAN DIEGO 660 NEWPORT CENTER DRIVE, SUITE 1600 (856) 926.3000 NEWPORT BEACH, CA 92660-6422 SAN FRANCISCO (415) 283 -2240 TELEPHONE (949) 725 -4000 SANTA BARBARA FACSIMILE (949) 725 -4100 (805)730.6800 SACRAMENTO (916) 449 -2350 November 30, 2010 City of Newport Beach Newport Beach, California Re: $20,085,000 City of Neu port Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement'), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchaser of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "2010B Certificates "), which will evidence undivided proportionate interests in certain other lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010B Certificates or the 2010B Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement "), the Corporation has assigned to the Trustee the Corporation's right to receive 2010A Lease Payments from the City under the Lease. DOCSOC/ 1445 05 7 v3/022459 -0014 City of Newport Beach November 30, 2010 Page 2 Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay 2010A Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2010A Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, 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 minimum tax imposed on individuals and corporations and with respect to corporations will not be included as an adjustment in the calculation of alternate minimum taxable income. (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. Original issue discount that accrues to a Certificate owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph (3) above) and is exempt from State of California personal income tax. DOC S OC/ 1445057v3/022459 -0014 City of Newport Beach November 30, 2010 Page 3 (6) The amount by which a Certificate owner's original basis for determining loss on sale or exchange in a 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. The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to the delivery of the Certificates to assure that such 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 interest (and original issue discount) with respect to the Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The City and the Corporation have covenanted to comply with all such requirements. Except as expressly set forth in paragraphs (3), (4), (5) and (6), we express no opinion regarding any tax consequences with respect to the Certificates. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate executed by the City and other documents related to the Certificates may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax- exempt obligations. We express no opinion as to the effect on the tax consequences on and after the date on which any such change occurs or action is taken or omitted upon advice or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to DOC SO C/ 1445057v3/022459 -0014 City of Newport Beach November 30, 2010 Page 4 inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted, DOCSO C/ 1445057v3/022459 -0014 STRADLING YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ORANGE COUNTY (949) 725 -4000 ATTORNEYS AT LAW SAN DIEGO 660 NEWPORT CENTER DRIVE, SUITE 1600 (85,) 926 -3000 NEWPORT BEACH, CA 92660 -6422 SAN FRANCISCO (415) 283 -2240 TELEPHONE (949) 725 -4000 SANTA BARBARA (806) 730 -6600 FACSIMILE (949) 725 -4100 SACRAMENTO (916) 449 -2350 November 30, 2010 City of Newport Beach Newport Beach, California Re: 5106, 575, 000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Newport Beach (the "City ") in connection with the authorization, execution and delivery by the City of that certain Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Newport Beach Public Facilities Corporation (the "Corporation ") and the City. We have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchasers of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined. Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) (the "Certificates ") evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the "2010B Lease Payments ") to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) (the "2010A Certificates ") which will evidence direct and undivided proportionate interests in certain other lease payments (the "2010A Lease Payments ") to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2010A Certificates or the 2010A Lease Payments. Pursuant to that certain Assignment Agreement dated as of November 1, 2010 (the "Assignment Agreement"), the Corporation has assigned to the Trustee the Corporation's right to receive 2010B Lease Payments from the City under the Lease. DOCS OC/ 1445051 v3/022459 -0014 City of Newport Beach November 30, 2010 Page 2 Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay 2010B Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2010B Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease, the Site Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) evidenced by the Certificates is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code "). (4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California. (5) Except for certain exceptions, the difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment 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 a Certificate owner before receipt of cash attributable to such income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. (6) The District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable as a part of the 2010B Lease Payments evidenced by Certificates on or about each interest payment date. The cash payment does not constitute a full faith DOCSOC/ 1445051 v3/022459 -0014 City of Newport Beach November 30, 2010 Page 3 and credit guarantee of the United States Government, but is required to be paid by the United States Treasury under the American Recovery & Reinvestment Act of 2009. Except as expressly set forth in paragraphs (3), (4), (5) and (6), we express no opinion regarding any tax consequences with respect to the Certificates. We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction, and express no opinion as to the enforceability of the choice of law provisions contained in the Trust Agreement. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery. Any federal tax advice contained herein with respect to the Certificates is not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties under the Code. The federal tax advice contained herein with respect to the Certificates was written to support the promoting and marketing of the Certificates. Before purchasing any of the Certificates, all potential purchasers should consult their independent tax advisors with respect to the tax consequences relating to the Certificates and the taxpayer's particular circumstances. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Certificates or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement. Respectfully submitted, DOCSOC/ 144505 I v3/022459 -0014 STRADUNG YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ATTORNEYS AT LAW 660 NEWPORT CENTER DRIVE, SUITE 1600 NEWPORT BEACH, CA 926606422 TELEPHONE (949) 725 -4000 FACSIMILE (949) 7254100 November 30, 2010 The Bank of New York Mellon Trust Company, N.A. Los Angeles, California Re: $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) $106,575, 000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: ORANGE COUNTY (949) 725 -4000 SAN DIEGO (858) 926 -3000 SAN FRANCISCO (415) 283 -2240 SANTA BARBARA (805) 730 -6800 SACRAMENTO (916) 449 -2350 In our capacity as Special Counsel relative to the execution and delivery of the above - referenced certificates of participation (the "Certificates "), we have this day tendered to the City Council of the City of Newport Beach (the "City ") our opinions (the "Approving Opinions ") as to certain matters relating to the execution and delivery of the Certificates pursuant to a Trust Agreement dated as of November 1, 2010, by and among The Bank of New York Mellon Trust Company, N.A., as Trustee, the Newport Beach Public Facilities Corporation and the City. You are hereby authorized to rely upon the Approving Opinions as if addressed to you. We have not been engaged by you and are not acting as your counsel in connection with the execution and delivery of the Certificates. Our engagement with respect to the Certificates terminates as of the date hereof and we expressly disclaim any obligation to update our Approving Opinions or this letter. This letter may be relied upon only by you, and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person to whom it is not specifically addressed without our prior written consent. Respectfully submitted, ;7Y DOCSOC /1449303v 1/022459-0014 STRADLING YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ORANGE COUNTY (949) 725 -4000 ATTORNEYS AT LAW SAN DIEGO 660 NEWPORT CENTER DRIVE, SUITE 1600 (858) 926.3000 NEWPORT BEACH, CA 926606422 SAN FRANCISCO (415) 283.2240 TELEPHONE (949) 725 -4000 SANTA BARBARA FACSIMILE (949) 725 -4100 (805)730.6800 SACRAMENTO (916) 4492350 November 30, 2010 Stone & Youngberg LLC, as Representative San Diego, California Re: $20,085, 000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding) $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: On the date hereof, we rendered our final approving opinions (the "Approving Opinions ") with respect to the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project /Central Library Refunding), in the principal amount of $20,085,000 and City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project), in the principal amount of $106,575,000 (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates "). The Certificates are being delivered pursuant to a Trust Agreement dated as of November 1, 2010 (the "Trust Agreement'), by and among The Bank of New York Mellon Trust Company, N.A., as trustee, the Newport Beach 'Public Facilities Corporation (the "Corporation') and the City of Newport Beach (the "City "). You may rely upon the Approving Opinions as if they were addressed to you. Capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Contract dated November 17, 2010 (the "Purchase Contract'), by and between Stone & Youngberg LLC, as Representative of the Underwriters, and the City. in connection with rendering this opinion, we examined the record of proceedings submitted to us relative to the execution and delivery of the Certificates and originals or copies certified or otherwise identified to our satisfaction of (i) the Purchase Contract, (ii) the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement and the Continuing Disclosure Agreement, (iii) the Official Statement of the City for the Certificates dated November 17, 2010 (the "Official Statement'), (iv) the letters, certificates and opinions delivered to you pursuant to the provisions of Section 9(f) of the Purchase Contract, and (v) such other documents, certificates, instructions and records as we have considered necessary or appropriate as a basis for our opinion. Unless otherwise indicated, capitalized terms used herein have the respective meanings given to such terms in the Purchase Contract. DOCS OC/ 1449302v2/022459 -0014 Stone & Youngberg LLC, as Representative November 30, 2010 Page Two We have assumed, but not independently verified, that the signatures on all documents, letters, opinions and certificates which we have examined are genuine, that all documents submitted to us are authentic and were duly and properly executed by the parties thereto and where applicable have been duly recorded with the County Recorder of the County of Orange, and that all representations made in the documents, certificates, instructions and records that we have reviewed are true and accurate, and that the conclusions stated in the opinions that we have reviewed are correct as a matter of law. Based upon the foregoing and such other information and documents as we consider necessary to render this opinion, we are of the opinion that: (i) the Purchase Contract has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding agreement of the City, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance or transfer, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on remedies against public agencies in the State of California; provided, however, that we express no opinion as to indemnification, penalty, contribution, choice of law, choice of forum or waiver provisions contained therein; (ii) the Certificates are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Trust Agreement is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended; and (iii) the statements contained in the Official Statement on the cover page and under the captions "THE CERTIFICATES," "SECURITY FOR THE CERTIFICATES AND SOURCES OF PAYMENT" (except for any information relating to DTC and its book -entry system), and "TAX MATTERS" and in Appendix C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" and Appendix E — "FORMS OF SPECIAL COUNSEL OPINIONS," insofar as such statements purport to summarize certain provisions of the Certificates, the Lease, the Site Lease, the Assignment Agreement, the Trust Agreement and the Approving Opinions concerning certain federal tax matters relating to the Certificates, are accurate in all material respects. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions are limited to matters governed by the laws of the State of California and federal securities laws, and we assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. Additionally, other than as set forth in paragraph (iii) above, we express no view as to the accuracy or completeness of the Official Statement. Except as expressly set forth in the Approving Opinions, we express no opinion regarding any tax consequences with respect to the Certificates. No opinion is expressed herein with respect to the compliance with, or applicability of, any "blue sky" laws of any state as they relate to the offer or sale of the Certificates. DO CSOC/ 14493 02v2/022459 -0014 Stone & Youngberg LLC, as Representative November 30, 2010 Page Thiree We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We call attention to the fact that the foregoing opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions or events are taken (or not taken) or occur (or do not occur). This letter is furnished by us as Special Counsel to the City. No attorney - client relationship has existed or exists between our firm and you in connection with the Certificates or by virtue of this letter. This letter is delivered to you as the Representative of the Underwriters of the Certificates, is solely for your benefit as the Underwriter and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose without our prior written consent. This letter is not intended to and may not be relied upon by owners of Certificates. Our engagement with respect to the Certificates terminates as of the date hereof, and we have not undertaken any duty, and expressly disclaim any responsibility, to advise you as to events occurring after the date hereof with respect to the Certificates or other matters discussed herein or in the Official Statement. Respectfully submitted, DOCSOC/ 1449302v2/022459 -0014 STRADLING YOCCA CARLSON & RAUTH A PROFESSIONAL CORPORATION ORANGE COUNTY (849) 725 -4000 ATTORNEYS AT LAW SAN DIEGO 660 NEWPORT CENTER DRIVE, SUITE 1600 (858) 926 -3000 NEWPORT BEACH, CA 92660 -6422 SAN FRANCISCO (415) 263 -2240 TELEPHONE (949) 7254000 SANTA BARBARA FACSIMILE (949) 725 -0100 (805) 730 -6600 SACRAMENTO (916) 449 -2350 November 30, 2010 Stone & Youngberg LLC, as Representative 4350 La Jolla Village Drive, Suite 140 San Diego, California 92122 City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 U.S. Bank National Association 633 West Fifth Street, 24th Floor Los Angeles, California 90071 Re: $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) Ladies and Gentlemen: We have acted as Special Counsel to the City of Newport Beach (the "City ") in connection with the $20,085,000 aggregate principal amount of City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) dated November 30, 2010 (the "2010A Certificates ") and of $106,575,000 aggregate principal amount of City of Newport Beach Certificates of Participation 201013 (Federally Taxable Direct Pay Build America Bonds)(Civic Center Project) dated November 30, 2010 (the "2010B Certificates" and together with the 2010A Certificates, the "Certificates "), executed and delivered under and pursuant to that certain Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement'), by and among the City , the Newport Beach Public Facilities Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A., as trustee. In connection with the execution and delivery of the 2010A Certificates, the City has entered into an Escrow Agreement dated as of October 29, 2010, by and between the City and U.S. Bank National Association, successor trustee to U.S. Bank Trust National Association (the "1998 Trustee ") pursuant to which the City has taken or made arrangements to take all actions required by the defeasance provisions of that certain Trust Agreement, dated as of July 1, 1998 (the "1998 Trust Agreement'), by and among the City, the Corporation and the 1998 Trustee relating to the $7,330,000 City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "1998 Certificates "). DO CSOC/ 1449614v 1 /022459 -0014 Stone & Youngberg LLC, as Representative City of Newport Beach U.S. Bank National Association November 30, 2010 Page 2 Based upon our examination of the foregoing, including a receipt and acknowledgment of payoff from the 1998 Trustee, and in reliance thereon and on all maters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that upon the deposit of cash as provided in the Escrow Agreement, the 1998 Certificates will no longer be deemed Outstanding and unpaid under the 1998 Trust Agreement and the liens established thereunder will be discharged, terminated and extinguished. The opinion expressed herein is solely for your benefit, in connection with the above - referenced matter and may not be relied on in any manner or for any purpose by any other person or entity. This opinion is not to be used, circulated, quoted or otherwise referred to for any other purpose. The rendering of this opinion to you is undertaken in our capacity as Special Counsel with respect to the execution, sale and delivery of the Certificates and does not create an attorney - client relationship between us and no such relationship exists between us with respect to the matters stated herein. We have not undertaken to advise you or any other person as to matters occurring after the date hereof or as to their effect, if any, on the matters stated herein, and we expressly disclaim any responsibility to do so. Respectfully submitted, DO CSOC/ 1449614v 1 /022459 -0014 • is OF'F'ICE OF THE CITY ATTORNEY David R. Hunt, City Attorney FORM OF OPINION OF CITY ATTORNEY November 30, 2010 City of Newport Beach Newport Beach, California Stone & Youngberg LLC, as Representative San Diego, California Stradling Yocca Carlson & Rauth Newport Beach, California Re: $20,085,000 City of Newport Beach Certificates of Participation 2010A _.(Tax Exempt). (Civic,.Center Project/Central Library Refunding)- .. - $106,575,000 City of Newport Beach. Certificates of Participation _2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: . I have acted as the City Attorney to the City of Newport Beach, California (the "City ") in connection with the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding), in the principal amount of $20,085,000 and City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project), in the principal amount of $106,575,000 (the "2010B Certificates," and together with the 2010A Certificates, the "Certificates "), and the proceedings between the City and the Newport Beach Public Facilities Corporation (the "Corporation ") in connection with the authorization, execution and delivery by the City and the Corporation of that certain Lease Agreement dated as of November 1, 2010 (the "Lease ") and Site Lease dated as of November 1, 2010 (the "Site Lease "), by and between the City and the Corporation. I have also reviewed that certain Trust Agreement dated as of November 1, 2010 (the 'Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City, the Agency Agreement dated as of November 1, 2010 (the "Agency Agreement'), by and between the City and the Corporation, the Continuing Disclosure Agreement dated as of November 1, 2010 (the "Continuing Disclosure Telephone: (949) 644 -3131 - Fax: (949) 644 -3139 City Hall ^ 3300 Newport Boulevard o Post Office Box 1768 Newport Beach California 92658 -8915 ^ www.city.newport- beach.ca.us City of Newport Beach Stone & Youngberg LLC, as Representative Stradling Yocca Carlson & Rauth November 30, 2010 Page Two Agreement'), by and between the City and The Bank of New York Mellon Trust Company, N.A., as Dissemination Agent, the Escrow Agreement dated as of October 29, 2010 (the "Escrow Agreement') by and between the City and U.S. Bank National Association, the Purchase Contract dated November 17, 2010 (the "Purchase Contract," and collectively with the Lease, the Site Lease, the Trust Agreement, the Agency Agreement, the Escrow Agreement and the Continuing Disclosure Agreement, the "City Documents "), by and between Stone & Youngberg LLC, as Representative of the Underwriters, and the City, the Official Statement dated November 17, 2010 (the "Official Statement'), and such other information and documents as I consider necessary to render this opinion. All capitalized terms not defined herein shall have the meaning set forth in the Purchase Contract. In rendering the opinion set forth, I have made no search, inquiry, investigation or other examination concerning the records or files of any court, public board or body, or other public records, other than the City, and my opinion as expressed herein does not extend to any matter. which might be disclosed as a result of any further search, inquiry, investigation or other examination. As to questions of fact material to this opinion, I have relied upon representations of City officials and employees and upon the certified proceedings and other certifications, documents and written opinions provided to me by persons believed to be responsible. I have also assumed the genuineness of the signatures appearing upon such records, proceedings, certifications, documents and opinions. . Whenever a statement herein is qualified "to the best of my knowledge," it is intended to indicate that, during the course of my representation of the City in connection with this transaction, no information that would give me actual knowledge of the inaccuracy of such statement has come to my attention. I have not undertaken any independent investigation to determine the accuracy of such statements, and any limited inquiry undertaken by me during the preparation of this opinion letter should not be regarded as such investigation. No inference as to my knowledge of any matters bearing on the accuracy of any such statements should be drawn from the fact of my representation of the City. Based upon the foregoing and under existing laws, regulations, rulings and judicial decisions, I am of the opinion, as of the date hereof, that: 1. The City is a chartered city duly organized and validly existing under the Constitution and the laws of the State of California. 2. The City Resolution approving and authorizing the execution and delivery of the City Documents and approving the Official Statement was duly adopted at a meeting of the City Council of the City which was called and held City of Newport Beach Stone & Youngberg LLC, as Representative Stradling Yocca Carlson & Rauth November 30, 2010 Page Three pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and the City Resolution is in full force and effect and has not been amended or rescinded. 3. Except as disclosed in the Official Statement, there is no action, suit or proceeding pending or, to the best knowledge of such Counsel, threatened against the City to (i) restrain or enjoin the execution or delivery of any of the Certificates or the City Documents, (ii) in any way contesting or affecting the validity of the Certificates, the City Documents, the City Resolution or the authority the City to enter into the City Documents, or (iii) in any way contesting or affecting the powers of the City in connection with any action contemplated by the Official Statement, the City Resolution or the City Documents. 4. The execution and delivery of the City Documents, the adoption of. the City Resolution, the approval of the Official Statement, and compliance with the .provisions thereof and hereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under, any _agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is.subject. 5. The City Documents have been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the other parties thereto constitute legal, valid and binding agreements of the City enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally and by the application of equitable principles if equitable remedies are sought and by the limitations on legal remedies imposed on actions against counties in the State of California. 6. No authorization, approval, consent, or other order of the State of California or any other governmental authority or agency within the State of California, other than the City Council pursuant to the City Resolution, is required for the valid authorization, execution and delivery of the City Documents and the approval of the Official Statement. 7. Based upon examinations made and discussions in conferences with certain officials of the City and others with respect to the Official Statement and without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement City of Newport Beach Stone & Youngberg LLC, as Representative Stradling Yocca Carlson & Rauth November 30, 2010 Page Four (including the Appendices attached thereto), no information has come to my attention which would lead me to believe that the Official Statement (other than financial and statistical data therein and incorporated therein by reference, and other than information relating to the DTC Book -Entry System, as to which no opinion is expressed) as of its date and as of the date of Closing, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion is furnished by me to each of you and is solely for your benefit, and may not be relied upon by others without our prior written consent. Respectfully submitted, OFFICE OF THE CITY ATTORNEY t 0 David R. Hunt, City Attorney [A10- 00112] City Attorney Opinion -LM Final OFFICE OF THE CITY ATTORNEY David R. Hunt, City Attorney FORM OF OPINION OF COUNSEL TO THE CORPORATION November 30, 2010 Newport Beach Public Facilities Corporation Newport Beach, California Stone & Youngberg LLC, as Representative San Diego, California The Bank of New York Mellon Trust Company, N.A Los Angeles, California Stradling Yocca Carlson & Rauth Newport Beach, California Re: $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) $106,575,000 City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: In my capacity as counsel to the Newport Beach Public Facilities Corporation (the "Corporation "), I have examined a certified record of the proceedings of the Corporation taken in connection with the execution and delivery of the City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding), in the principal amount of $20,085,000 (the "2010A Certificates ") and the City of Newport Beach Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project), in the principal amount of $106,575,000 (the "20106 Certificates" and together with the 2010A Certificates, the "Certificates "), and such other information and documents as I consider necessary to render this opinion. All capitalized terms used herein which are not defined herein have the meanings set forth in the Purchase Contract, as hereinafter defined. The Certificates evidence the fractional interests of the holders thereof in lease payments to be made by the City of Newport Beach (the "City") to the Corporation as Telephone: (949) 644 -3131 - Fax: (949) 644 -3139 City Hall m 3300 Newport Boulevard • Post Office Box 1768 Newport Beach California 92658 -8915 • www.city.newport- beach.ca.us Newport Beach Public Facilities Corporation Stone & Youngberg LLC, as Representative The Bank of New York Mellon Trust Company, N.A. Stradling Yocca Carlson & Rauth November 30, 2010 Page Two rental for certain real property and improvements thereon (the "Leased Premises "), as described in the Lease /Purchase Agreement dated as of November 1, 2010 (the "Lease "), by and between the Corporation and the City. The Certificates are being prepared, executed and delivered pursuant to a Trust Agreement dated as of November 1, 2010 (the "Trust Agreement "), by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "), the Corporation and the City. The Corporation's right to receive Lease Payments from the City and enforce the remedies provided under the Trust Agreement have been assigned to the Trustee pursuant to an Assignment Agreement dated as of November 1, 2010 (the '"Assignment Agreement "). The Corporation has also executed and delivered the Site Lease dated as of November 1,2010 (the "Site Lease "), by and between the City and the Corporation and the Agency ..Agreement dated as of November 1, 2010 (the. "Agency Agreement "), by and between the City and the Corporation. The Certificates have been sold to Stone & Youngberg LLC, as Representative of the underwriters (the "Underwriters ") pursuant to that certain Purchase Contract dated November 17; 2010 ,(tFie "Purchase Contract")_ . by and' between the Underwriter and the City,. and the Letter of Representations of the Corporation dated November 17, 2010 (the "Letter of Representations' and; together _ with the Lease; the Site Lease; the Trust Agreement and the Agency Agreement, collectively, the "Corporation Legal Documents "). In rendering the opinion set forth, I have made no search, inquiry, investigation or . other examination concerning the records or files of any court,, public board or body, or other public records, other than the City, and my opinion as expressed herein does not extend to any matter which might be disclosed as a result of any further search, inquiry, investigation or other examination. As to questions of fact material to this opinion, I have relied upon representations of City officials and employees and upon the certified proceedings and other certifications, documents and written opinions provided to me by persons believed to be responsible. I have also assumed the genuineness of the signatures appearing upon such records, proceedings, certifications, documents and opinions. Whenever a statement herein is qualified "to the best of my knowledge," it is intended to indicate that, during the course of my representation of the City in connection with this transaction, no information that would give me actual knowledge of the inaccuracy of such statement has come to my attention. I have not undertaken any independent investigation to determine the accuracy of such statements, and any limited inquiry undertaken by me during the preparation of this opinion letter should not be regarded as such investigation. No inference as to my knowledge of any matters bearing on the accuracy of any such statements should be drawn from the fact of my representation of the City. Newport Beach Public Facilities Corporation Stone & Youngberg LLC, as Representative The Bank of New York Mellon Trust Company, N.A. Stradling Yocca Carlson & Rauth November 30, 2010 Page Three Based upon the foregoing and under existing laws, regulations, rulings and judicial decisions, I am of the opinion, as of the date hereof, that: 1. The Corporation is a nonprofit public benefit corporation duly organized and validly existing under and by virtue of the laws of the State of.California. 2. The Corporation has full legal power and adequate authority to adopt the Corporation Resolution, to enter into the Corporation Legal Documents, and to own or lease its properties and to carry on its business as now conducted and as contemplated by the Legal Documents and the Official Statement. 3. The Corporation Resolution has been duly adopted by the Corporation at. . a meeting -of the Board of Directors of the Corporation at which a quorum was present and, acting throughout .and is in full force and effect and the Corporation Legal Documents have, been duly authorized by all necessary official. action on the part of the , Corporation, have been. duly authorized, executed and delivered by the Corporation and, assuming due authorization, execution and delivery by the other parties thereto,. . constitute legal, valid and binding agreements of the Corporation, enforceable, in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization,' moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally and by the application of equitable principles if equitable remedies are sought and by the limitations on legal remedies imposed on actions against counties in the State of California. 4. The description of the Corporation in the Official Statement is correct and does not omit any statement necessary to make such description not misleading in any material respect. 5. Except as disclosed in the Official Statement, there is no action, suit or proceeding pending or, to the best knowledge of such Counsel, threatened against the Corporation to (i) restrain or enjoin the execution or delivery of any of the Certificates or the Corporation Legal Documents, (ii) in any way contesting or affecting the validity of the Certificates, the Corporation Legal Documents, the Corporation Resolution or the authority the Corporation to enter into the Corporation Legal Documents, or (iii) in any way contesting or affecting the powers of the Corporation in connection with any action contemplated by the Official Statement, the Corporation Resolution or the Corporation Legal Documents. 6. The execution and delivery of the Corporation Legal Documents, and the adoption of the Corporation Resolution, by the Corporation and performance by the Corporation of its obligations thereunder will not conflict with or result in a breach of any Newport Beach Public Facilities Corporation Stone & Youngberg LLC, as Representative The Bank of New York Mellon Trust Company, N.A. Stradling Yocca Carlson & Rauth November 30, 2010 Page Four of the terms, conditions or provisions of any agreement or instrument to which the Corporation is a party or constitute a default thereunder. 7. All consents, approvals, authorizations and orders of a governmental or regulatory authority, if any, which are required to be obtained by the Corporation for the consummation of the transactions contemplated by the Official Statement or as conditions precedent to the execution and delivery of the Certificates have been obtained (provided no opinion need be expressed as to any action required under state securities or blue sky laws in connection with the purchase or distribution of the Certificates by the Underwriters). This opinion, is.furnished to each of you and is solely for :your benefit, and may not. be relied upon by others without my prior written consent. Respectfully submitted, [A10- 00112] Counsel to the Corporation Opinion -LM Final THE BANK OF NEW YORK MELLON The Bank of New York Mellon Trust Company, N.A. November 30, 2010 City of Newport Beach Newport Beach, California Stone & Youngberg LLC, as representative of the underwriters San Diego, California Re: City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) and Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) Ladies and Gentlemen: I am a Senior Counsel in the Legal Department of The Bank of New York Mellon Trust Company, N.A. ( "BNY Mellon ") and I am delivering this opinion in connection with the execution and delivery of (i) that certain Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement'), among the Newport Beach Public Facilities Corporation (the "Corporation "), the City of Newport Beach and BNY Mellon, as trustee, and (ii) that certain Assignment Agreement, dated as of November 1, 2010 (together with the Trust Agreement, the "Agreements "), between the Corporation and BNY Mellon, as trustee. All capitalized terms used herein not otherwise defined shall be as defined in the Agreements. In rendering the opinions set forth below, I have examined the originals, or copies certified to my satisfaction, of such agreements (including, without limitation, the Agreements), certificates and other statements of government officials and corporate officers of BNY Mellon, documents and other papers as I deemed relevant and necessary as a basis for such opinion and have relied as to factual matters on representations, warranties and other statements therein. With respect to parties other than BNY Mellon, in such examination, I have assumed the authenticity of all documents submitted to me as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to me as copies. In my examination of documents (including, without limitation, the Agreements) executed by parties other than BNY Mellon, I have also assumed that, if the opinions set forth in paragraphs (1) through (4) below referred to such parties and such documents, such opinions would be true and correct with respect to such parties and such documents. The opinions expressed herein are limited to the laws of the State of California and the Federal law of the United States, and I do not express any opinion herein concerning any other law. 700 South Flower Street, Suite 500, Los Angeles, CA 90017-4104 Based upon the foregoing, I am of the opinion that: (1) BNY Mellon is a national banking association duly organized and validly existing under the laws of the jurisdiction of its organization and has the corporate power to execute and deliver the Agreements, and any other documentation relating to the Agreements, and to perform its obligations under the Agreements. (2) The execution and delivery by BNY Mellon of the Agreements and any other documentation relating to the Agreements, and its performance of its obligations under the Agreements, have been and are as of the date hereof duly authorized by all necessary corporate action. (3) No approval, authorization or other action by, or filing with, any governmental body or regulatory authority (which has not been obtained) is required in connection with the due execution, delivery and performance by BNY Mellon of the Agreements. (4) The Agreements have been duly executed and delivered and constitute the valid and legally binding obligations of BNY Mellon enforceable against it in accordance with their terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought as a proceeding in equity or at law). My opinions are subject to the following assumptions and qualifications: I express no opinion as to (a) any transactions not specifically referred to herein; (b) any provision of the Agreements to the extent it provides that a party is entitled to recover more than its actual damages under such Agreements; (c) any right, remedy or provision of the Agreements (including without limitation any termination payment provisions thereof) which, if determined to be a penalty, a court or other authority or body may have the discretion to invalidate or decline to enforce; (d) the enforcement of rights with respect to indemnification and contribution obligations; (e) any provision relating to severability; (f) any provision purporting to waive or limit rights to trial by jury, oral amendments to written agreements or rights of set -off, (g) any provision relating to submission to jurisdiction, venue or service of process, (h) any provision purporting to prohibit, restrict or require the consent of the other party for the transfer of, or the creation, attachment or perfection of a security interest in, an Agreement or an interest therein, which may be limited by applicable law or considerations of public policy; (i) any provision that provides that the rights of the parties to an Agreement may not be assigned by a party without the prior written consent of the other party or parties, which may be limited by Sections 9406 or 9408 of the Uniform Commercial Code of the State of California; 0) the tax consequences of any transaction under the Agreements; (k) any Federal securities laws, pension and employee benefit laws (e.g., ERISA), anti -money laundering laws, trading with the enemy laws, or other laws of special or general application not normally covered in an opinion on capacity and enforceability, in accordance with market practice; or (1) the priority, perfection, attachment or validity of any security interest created under the Agreements or the enforcement of remedies in connection therewith. This opinion is based upon facts and law in existence on the date hereof and I disclaim any obligation to advise you of any changes therein occurring after the date hereof. This opinion is given for the use and benefit of the addressees and no other party or entity is entitled to rely on it. Very truly yours, t r d' Rhea L. Murphy Senior Counsel JONES HALL November 30, 2010 Stone & Youngberg LLC 4350 La Jolla Village Dr #140 San Diego, CA 92122 Re: $20,085,000 City of Newport Beach Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/ Central Library Refunding) of Newport Beach Certificates of Participation 2010B Ladies and Gentlemen: 650 California Street 18th Floor San Francisco, CA 94108 t. 415.391.5780 f. 415.391.5784 We have acted as counsel to you, acting on your own behalf and as representative of E.J. De La Rosa & Co., Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James (collectively, the "Underwriters'), in connection with the Underwriters' purchase of the referenced certificates of participation (the "Certificates ") pursuant to that certain Purchase Contract, dated November 17, 2010 (the 'Purchase Contract "), between the City of Newport Beach (the "City') and you, acting on your own behalf and as representative of the Underwriters. Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Purchase Contract. The Bonds are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010 (the "Trust Agreement "), by and among the City, the Newport Beach Public Facilities Corporation (the "Corporation ") and The Bank of New York Mellon Trust Company, N.A. We are of the opinion that the Certificates are exempt from registration under the Securities Act of 1933, as amended, and that the Trust Agreement is exempt from qualification under the Trust Indenture Act of 1939, as amended. We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. However, to assist the Underwriters in their investigation concerning the Official Statement, we have reviewed certain documents and have participated in conferences in which the contents of the Official Statement and related matters were discussed. During the course of our work on this matter, no facts have come to our attention that cause us to believe that the Official Statement (except for any financial and statistical data and forecasts, numbers, estimates, assumptions and expressions of opinion, and information concerning the Depository Trust Company and the book -entry system for the Certificates, contained or incorporated by reference in the Official Statement, and the appendices to the Official Statement, which we expressly exclude from the scope of this sentence) as of the date of the Official Statement or the date hereof contains any untrue statement of a material fact or omits to state any material fact A PROFESSIONAL LAW CORPORATION WWW.joneshall.corn Stone & Youngberg LLC November 30, 2010 necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding paragraph is not an opinion but in the nature of negative observations based on certain limited activities performed by specific lawyers in our firm in our role as counsel to the Underwriters. The scope of those activities performed by us for purposes of delivering this letter were inherently limited and do not purport to encompass all activities necessary for compliance with applicable securities laws. In addition, those activities performed by us relied on third party representations, warranties, certifications and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein. This letter is furnished by us solely for the Underwriters' benefit and may not be relied upon by any other person or entity. We disclaim any obligation to supplement this letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in the law that may hereafter occur, and our engagement with respect to this matter has terminated as of the date hereof. Respectfully submitted, A Professional Law Corporation A PROFESSIONAL LAW CORPORATION 333 SOUTH GRAND AVENUE LOS ANGELES, CA 90071 W W W.HAWKINS.COM November 30, 2010 City of Newport Beach Newport Beach, California Newport Beach Public Facilities Corporation Newport Beach, California Ladies and Gentlemen: We have acted as Disclosure Counsel to the City of Newport Beach (the "City") in connection with the execution and delivery of its Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) in the aggregate principal amount of $20,085,000 (the "2010A Certificates ") and its Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $106,575,000 (the "2010B Certificates" and, together with the 2010A Certificates, the "Certificates "). The Certificates are being delivered to Stone & Youngberg LLC, as representative (the "Representative ") of the underwriters (collectively, the "Underwriters "), today pursuant to the Purchase Contract, dated November 17, 2010 (the "Purchase Contract "), by and between the City and the Representative. During the course of our engagement, we have examined and relied upon the following (a) certified copies of the resolutions of the City adopted on October 26, 2010 and November 9, 2010 pursuant to which the City approved the execution and delivery of the Certificates and certain matters relating thereto; (b) a certified copy of the resolution of the Newport Beach Public Facilities Corporation (the "Corporation ") adopted on November 9, 2010 pursuant to which the Corporation approved the execution and delivery of the Certificates and certain matters relating thereto; (c) an executed original of the Trust Agreement, dated as of November 1, 2010, by and among the City, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee thereunder; (d) an executed original of Site Lease, dated as of November 1, 2010, by and between the City and the Corporation; (e) an executed original of the Lease/Purchase Agreement, dated as of November 1, 2010, by and between the City and the Corporation; (f) an executed copy of the Official Statement dated November 17, 2010 (the "Official Statement ") relating to the Certificates; and (g) an executed copy of the Purchase Contract and the agreements, certificates and opinions of counsel delivered pursuant thereto. In addition, we have examined and relied on originals or copies, certified or otherwise identified to our satisfaction, of such other resolutions, documents, instruments or corporate records, and have made such investigation of law, as we have considered necessary or appropriate for the purpose of this opinion. In accordance with our understanding with you, we rendered legal advice and assistance to you in the course of your investigation and negotiations pertaining to, and your participation in the preparation of, the Official Statement and the issuance and sale of the Certificates. Rendering such assistance involved, among other things, examinations, inquiries and discussions concerning various legal and related subjects, and reviews of and reports on certain documents and proceedings. We also participated in personal and telephone conferences with representatives of the City, the Office of the City Attorney, Fieldman, Rolapp & Associates, the City's Financial Advisor, Bond Counsel, the Underwriters and their counsel, and others during which the contents of the Official Statement and related matters were discussed and reviewed. The limitations inherent in the independent verification of factual matters and the character of determinations involved in the preparation of the Official Statement are such, however, that we have necessarily assumed the accuracy, completeness and fairness of and take no responsibility for any of the statements made in the Official Statement. We have also assumed but have not independently verified that the signatures on all documents and certificates that we examined were genuine. On the basis of the information developed in the course of the performance of the services referred to above, considered in light of our understanding of the applicable law and experience we have gained through our practice thereunder, we are of the opinion, subject to the limitations expressed in the preceding paragraph, that as of the date hereof we have no reason to believe that the Official Statement (excluding therefrom financial, engineering and statistical data, forecasts, projections, estimates, assumptions and expressions of opinions, and information relating to The Depository Trust Company and the book -entry only system, as to all of which we express no opinion) as of its date and as of the date hereof contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2 This opinion is issued as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any action hereafter taken or not taken, or any facts or circumstances, or any changes in law or in inteipretations thereof, that may hereafter arise or occur, or for any other reason. This letter is furnished by us as Disclosure Counsel and is solely for your benefit and it is not to be used, circulated, quoted, or otherwise referred to for any purposes other than the offering of the Certificates and may not be relied upon by any other person or entity without our express written permission, except that references may be made to it in any list of closing documents pertaining to the delivery of the Certificates. Very truly yours, 1 hg (WRgdl g- 3 333 SOUTH GRAND AVENUE LOS ANGELES, CA 90071 WW V.HAWKINS.COM November 30, 2010 Stone & Youngberg LLC E.J. De La Rosa & Co., Inc. Merrill Lynch, Pierce, Renner & Smith Incorporated Raymond James as Underwriters under the Purchase Contract for the hereinafter referred to Certificates Ladies and Gentlemen: We deliver to you herewith a copy of our opinion as Disclosure Counsel to the City of Newport Beach (the "City") in connection with the execution and delivery of its Certificates of Participation 2010A (Tax Exempt) (Civic Center Project/Central Library Refunding) in the aggregate principal amount of $20,085,000 (the "2010A Certificates ") and its Certificates of Participation 2010B (Federally Taxable Direct Pay Build America Bonds) (Civic Center Project) in the aggregate principal amount of $106,575,000 (the "201013 Certificates" and, together with the 2010A Certificates, the "Certificates "). You are entitled to rely on such opinion as if the same were addressed to you. This letter is furnished by us in our capacity as Disclosure Counsel to the City. No attorney- client relationship has existed or exists between our firm and you in connection with the Certificates or by virtue of this letter. This letter is furnished by us to you as Underwriters of the Certificates, is solely for your benefit as such and may not, without our prior express written consent, be provided, quoted or otherwise referred to or be relied upon for any other purpose or by anyone other than the addressee. Very truly yours, �u/jGfdt4 � f rr�l �. 4�BDaA L�' STRADLING YOCCA CARLSON & RAUTH November 24, 2010 VIA EMAIL AND MESSENGER Mr. David C. James Vice President- Senior Commercial Title Officer Fidelity National Title Company 1300 Dove Street, Suite 310 Newport Beach, California 92660 Email: david.james @fnfcom Re: Title No. 10- 725132034 (Newport Coast Community Center, 6401 San Joaquin Hills Road); Title No. 10- 725132035 (Mariner's Library, 1300 Irvine Avenue); Title No. 10- 725132036 (Fire Station 7, 20401 Acacia Avenue); Title No. 10- 725132038 (Central Library, 1000 Avocado Avenue); Title No. 10- 725- 132039 (Oasis Senior Center, 800 Marguerite Avenue); Title No. 10- 725132041 (Fire Station 3/Police Station, 868 -870 Santa Barbara Drive); Title No. 10- 725132044 (Fire Station 4,124 Marine Avenue); Title No. 10- 725132711 (1100 and 1300 Avocado); and Title No. 10- 725132712 (1450 Avocado). Dear Mr. James: These instructions are being submitted to you in connection with: (i) that certain Memorandum of Lease/Purchase Agreement, dated as of November 1, 2010 (the "Memorandum "), by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California (the "City "), and the NEWPORT BEACH PUBLIC FINANCING CORPORATION, a 501(e)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation "); (ii) that certain Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee (the "Trustee "); and (iii) that certain Site Lease, dated as of November 1, 2010 (the "Site Lease," and together with the Memorandum and the Assignment Agreement, the "Documents "), by and between the City and the Corporation. This letter contains the recording instructions of the City and the Corporation in connection with the recording of the above - referenced Documents and the issuance of title insurance policies described below (the "Transaction "). The recording of the Documents is DOCS OC/1448946v1/022459 -0014 A PROFESSIONAL CORPORATION ORANGE COUNTY (949) 725 -4000 ATTORNEYS AT LAW SAN DIEGO BRIAN P. FORBATH 680 NEWPORT CENTER DRIVE, SUITE 1600 (859) 926 -3000 DIRECT DIAL: (949) 725 -4193 NEWPORT BEACH, CA 92660b422 SAN FRANCISCO (415) 233 -2240 3F0RBATHOQSYCR.00M TELEPHONE (949) 725 -4000 SANTA BARBARA FACSIMILE (949) 725 -0100 (805) 730 -6800 SACRAMENTO (916) 449 -2350 November 24, 2010 VIA EMAIL AND MESSENGER Mr. David C. James Vice President- Senior Commercial Title Officer Fidelity National Title Company 1300 Dove Street, Suite 310 Newport Beach, California 92660 Email: david.james @fnfcom Re: Title No. 10- 725132034 (Newport Coast Community Center, 6401 San Joaquin Hills Road); Title No. 10- 725132035 (Mariner's Library, 1300 Irvine Avenue); Title No. 10- 725132036 (Fire Station 7, 20401 Acacia Avenue); Title No. 10- 725132038 (Central Library, 1000 Avocado Avenue); Title No. 10- 725- 132039 (Oasis Senior Center, 800 Marguerite Avenue); Title No. 10- 725132041 (Fire Station 3/Police Station, 868 -870 Santa Barbara Drive); Title No. 10- 725132044 (Fire Station 4,124 Marine Avenue); Title No. 10- 725132711 (1100 and 1300 Avocado); and Title No. 10- 725132712 (1450 Avocado). Dear Mr. James: These instructions are being submitted to you in connection with: (i) that certain Memorandum of Lease/Purchase Agreement, dated as of November 1, 2010 (the "Memorandum "), by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California (the "City "), and the NEWPORT BEACH PUBLIC FINANCING CORPORATION, a 501(e)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation "); (ii) that certain Assignment Agreement, dated as of November 1, 2010 (the "Assignment Agreement "), by and between the Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee (the "Trustee "); and (iii) that certain Site Lease, dated as of November 1, 2010 (the "Site Lease," and together with the Memorandum and the Assignment Agreement, the "Documents "), by and between the City and the Corporation. This letter contains the recording instructions of the City and the Corporation in connection with the recording of the above - referenced Documents and the issuance of title insurance policies described below (the "Transaction "). The recording of the Documents is DOCS OC/1448946v1/022459 -0014 David C. James November 24, 2010 Page Two scheduled for 8:00 a.m. on Monday, November 29, 2010 (the "Recording Date ") and the issuance of the Policies described herein is scheduled for 8:00 a.m. on Tuesday, November 30, 2010 (the "Issuance Date "). A. Documents. You have received or will receive the following in connection with the Transaction: (1) From the City: a. An original of the each of the Documents; b. An executed original signature page to the Memorandum and the Site Lease; and C. An executed original notarial acknowledgement page to the Memorandum and the Site Lease; (2) From the Corporation: a. An executed original signature page to each of the Documents; and b. An executed original notarial acknowledgement page to each of the Documents; and (3) From the Trustee: a. An executed original signature page to the Assignment Agreement; and b. An executed original notarial acknowledgement page to the Assignment Agreement. B. Conditions of Recording. You may record the Documents upon fulfillment of all of the conditions set forth below: (1) You hold the original executed pages referred to in Paragraph A above, and you have confirmed that: a. Each such page has been executed and duly notarized, if applicable; b. Each such page is identical to the corresponding page of the Documents delivered to you by the City; C. You have inserted all signature pages and related notarial acknowledgements, DOCSOC/1448946v1/022459 -0014 David C. James November 24, 2010 Page Three if applicable, from the City, the Corporation and the Trustee in order to create a fully- executed original of each of the Documents; d. You have filled in the words "concurrently herewith" in lieu of the recording information of the Site Lease in the appropriate place in the second paragraph of the Memorandum; and e. You have confirmed that the legal description attached as Exhibit A to each of the .Documents matches exactly the legal description set forth in the title insurance policies (the "Policies ") that you will issue in connection with other aspects of the Transaction; (2) You understand and acknowledge that you will receive the title insurance policy premium before the close of business on the Issuance Date and you are unconditionally prepared and irrevocably coinuritted to issue, at 8:00 a.m. on the Issuance Date, to the City and to the Corporation the Policies in the exact form set forth as Exhibits I through 9 hereto (including, without limitation, all endorsements and handwritten changes thereto and only those title exceptions set forth on Schedule B of each of the proforma Policies) and insuring the respective interests of the City and the Corporation in the properties described therein; (3) You have countersigned these instructions where indicated below and have delivered a copy to the undersigned via electronic mail; and (4) You have received electronic mail confirmation from the undersigned that all other conditions required by the City and the Corporation to be fulfilled outside of this letter have been fulfilled to the satisfaction of the City and the Corporation. C. Recording Procedures. In recording the Documents, you will strictly adhere to the procedures set forth in these instructions. All requirements with respect to the recording of the Documents and the issuance of the Policies shall be considered as having taken place simultaneously, and no delivery or payment shall be considered as having been made until all deliveries, payments and closing transactions have been accomplished. (1) Record the Documents in the Official Records of the County of Orange in the following order: a. First, the Site Lease; b. Second, the Memorandum; and C. Third, the Assignment Agreement; (2) Deliver to the undersigned as soon as possible following the actual recordation of each of the Documents conformed copies of each Document showing all recording information, with originals to follow within 30 days; and DOCSOCI 1448 946v 1(022459 -0014 David C. James November 24, 2010 Page Four (3) If applicable, deliver to the undersigned a closing statement certified by you by no later than 5:00 p.m. Pacific Standard Time on the Recording Date. D. Issuance Procedures. In issuing the Policies, you will strictly adhere to the procedures set forth in these instructions. All requirements with respect to the recording of the Documents and the issuance of the Policies shall be considered as having taken place simultaneously, and no delivery or payment shall be considered as having been made until all deliveries, payments and closing transactions have been accomplished. (1) Provide to the Trustee and the undersigned your invoice for all fees and title insurance policy premia in connection with the issuance of the Policies by no later than 12:00 noon on the Recording Date (the day before the Issuance Date); and (2) Deliver to the undersigned a fully executed electronic copy of the Policies, including all recording information with respect to the Documents, by no later than 8:00 a.m. Pacific Standard Time on the Issuance Date, with at original executed copy to follow within 30 days. E. General Instructions. (1) You are authorized to act based upon a .pdf version of this letter sent by electronic mail; (2) You shall present the Documents for recording by no later than 9:00 a.m. Pacific Standard Time on the Recording Date. If you are unable to comply with these instructions on or before such time, or if there are to be any changes therein, you are not to proceed without further written authorization from the undersigned. If there are any questions concerning the above, please contact the undersigned immediately; (3) All documents to be delivered to the undersigned shall be delivered to the attention of Brian P. Forbath, Esq., Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, or bforbath @sycr.com. These instructions may be amended only by written amendment signed by the undersigned; and (4) If for any reason, including the relusat of the Recorder of the County of Orange to accept any Document for recording, you are unable to complete all required actions herein, you are instructed to contact the undersigned immediately. Please acknowledge your receipt of these instructions and your agreement to proceed in accordance herewith by signing and dating the acknowledgement below and returning it to the undersigned by electronic mail, with the original to follow with deliveries to the undersigned as referenced above. In any event, your recordation of the Documents shall constitute your acceptance of and agreement to abide by these instructions. We reserve the right to amend or modify these instructions at any time. DOCS OC/1448946v 1/022459 -0014 David C. James November 24, 2010 Page Five Thank you for your assistance in this matter. STRADLING YOCCA CARLSON & RAUTH 1 Enclosures DOCSOC /1448946v1 /022459 -0014 THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE WITHIN INSTRUCTIONS AND AGREES TO PROCEED IN STRICT ACCORDANCE HEREWITH. FIDELITY NATIONAL TITLE COMPANY Title: Date: November , 2010 DOCSOC/1448946v 1/022459 -0014 EXHIBIT 1 PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132034 (Newport Coast Community Center, 6401 San Joaquin Hills Road) DOCS OC/1448946Y 1/022459 -0014 SCHEDULE A Policy No.: Proforma Order No. 725132034 ( / °l Amount of Insurance: $ 126AW,000.00 Premium: $ TBD Date of Policy: Date and time of recording 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and ezisti6`00nder the Constitution and laws of the State of California; The Bank of New Yurip"A oiiTrust Company, N.A., as Trustee, as assignee of the Newport Beach PalihcF cilities Corporation, a 501(c)(4) nonprofit public benefit corporation drllrorganizednd existing under and by virtue of the laws of the State of Californial 2. The estate or interest in the land which is covered by this A leasehold as created by that certain lease dated Noverber 1 -010, executed by City of Newport Beach, a California municipal corporation and chartered`aty, as lespc and Newport Beach Public Facilities Corporation, as lessee, as referenced in th d' ment entitled Site Lease ", which recorded —J—/2010, Instrument No 201000 of #� ioal Records, for the term, upon and subject to all the provisions contained in ssaidy -do ent aid �cYsaid lease. d A subleasehold as created by at certain Lease /Pu,.ehase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities pol ton, as sublessor, and City of Newport Beach, a California municipal corporationy n °`charteredcity, as sublessee, as referenced in the document entitled "Memorandum of Lease /Pur Isn� reement ", which recorded _/_/2010, Instrument No. 201000 of OT aV cord for the term, upon and subject to all the provisions contained in said document andln,saidslease. Matters contai V- A, th`rtin'document entitled "Assignment Agreement" dated November 1, 2010,1--a xecui R and between Newport Beach Public Facilities Corporation and The Bank of New Yor�tMll onrrut.Eompany, N.A., a national banking association organized under the laws of the .-t n,..,,.,.., united S dies of Am'e f e3; as trustee uRecor Iae>a- .� €€tt recorded —/_f 2010, Instrument N� 2010000 , of Official Records. Referreq�e Is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISATTACHED O_TA Ste ftd C.e MR, -1990 PolicyNo. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: A PORTION OF PARCEL 1 OF LOT LINE ADJUSTMENT 94 -006, IN THE CITY OF NEWPOR,Y,0BACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED MARCH 22, 1994, AS INSTRUMENT NUMBER�941L40202108 OF OFFICIAL RECORDS, ORANGE COUNTY RECORDERS OFFICE, STATE OF CALIFANIABEIIN,G ORE PRACTICALLY DESCRIBED AS FOLLOWS: COMMENCING AT THE CENTERLINE INTERSECTION OF NEWPORT COAST DRIVE ANDTSAN JOAQUIN HILLS SAN ROAD ON SAID TRACT MAP; THENCE ROAD A DISTANCE OF 441.70 FOEEI THENCE LEA�A D CENTERLI E NORTH OS° 32'44" EAST DISTANCE OF 61.49 FEET TO THE NORTHERLY RIG,'T;fOF WAY'L N - OF LAST SAID ROAD, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THEN, NO TH 05 32' 44" EAST A DISTANCE OF 345.01 FEET TO A POINT ON ANON- TANGENT CURVE CONCAVE NO ERLY HAVING A RADIUS OF 142.54 FEET TO WHICH A RADIAL LINE BEARS SOUTH 480 5051" WEST; T CE CONTINUING ALONG THE NORTHERLY LINE OF SAID LOT LINE ADJUSTMENT THE FALLOWING MULTIPLE COURSES; THENCE SOUTHEASTERLY ALONG SAID NON - TANGENT CURVE"Y,WQUG �TRAL ANGLE OF 370 02'25" AN ARC LENGTH OF 92.15 FEET; THENCE SOUTH�7„8R,D7 3dp- 'Wf*,,BISTANCE OF 36.87 FEET; THENCE NORTH 740 03'52' EAST DISTANCE OF 79.69 FE , THENCR6i, ORTH 64°'42' 53" EAST A DISTANCE OF 58.38 FEET TO THE BEGINNING OFA TANGENTCURV ONGAVETSDUTHER HAVING A RADIUS OF 50.00 FEET; THENCE EASTERLY ALONG SAID TANGENT CURV�ROUdW EN-T L ANGLE OF 25° 58'33r' AN ARC LENGTH OF 22.67 FEET, THENCE SOUTH 890 18 34,,4TAST A DISTANCE OF 123.01 FEET; THENCE NORTH 770 16' 30" EAST A DISTANCE OF 18.90 FEET TO WESTERL RIGHT OF WAY LINE OF SAID NEWPORT COAST DRIVE AND THE BEGINNING OF A NON JA FNT CURE= CONCAVE WESTERLY HAVING A RADIUS OF 2291.00 FEET TO WHICH A RADIAL LINKYEARS` ,%TH 85° 40'34" EAST; THENCE CONTINUING ALONG LAST SAID WESTERLY RIGHT OF WAY LINTHE FOLLQWING MULTIPLE COURSES; THENCE SOUTHERLYALONG SAID NON- TANGENT CURVE THRO<}GH A CENTRAL ANGLE OF 03° 11' 42" AN ARC LENGTH OF 127.75 FEET TO THE BEGINNING OF A C�OMPOUj�VB�C RVE CONCAVE WESTERLY HAVING A RADIUS OF 201.00 FEET; THENCE SOIT,IERLYLQNG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 80 19'02" AN ARC LENGTH _q 29f, 8, EET, TIjENCE SOUTH 15° 50' 10" WEST A DISTANCE OF 30.62 FEET TO THE BEGINNING b; .p OF A TANGENT C ? RVE COVE EASTERLY HAVING A RADIUS OF 219.00 FEET; THENCE SOUTHERLY ALQID TANGENT CURV THROUGH A CENTRAL ANGLE OF 07° 34' 07" ANA LENGTH OF 28.93 FEET TO THE ' NING OF A REVERSE CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2929.50 FEET TO WHICH A Rab�AL LINE BEARS SOUTH 81° 23' 57" EAST; THENCE SOUTHERLY ALONG SAID REVERSE CURVE w am THROUGH A CE. YL ANGLE OF 2° 09' 07" AND ARC LENGTH OF 110.03 FEET; THENCE SOUTH 79° 14' 50" EAST AD ISTAErOF 4.00 FEET TO THE BEGINNING OF ANON- TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2925.50 FEET TO WHICH A RADIAL LINE BEARS SOUTH 79° 14' 50" EAST; THENCE SOUTHERLY ALONG SAID NON- TANGENT CURVE THROUGH A CENTRAL ANGLE OF 00 34' 09" AN ARC LENGTH OF 29.06 FEETTO AN ANGLE POINT ON SAID WESTERLY RIGHT OF WAY LINE; THENCE LEAVING SAID RIGHT OF WAY LINE SOUTH 480 11' 54" WEST A DISTANCE OF 29.57 FEET TO A POINT ON SAID NORTHERLY RIGHT OF WAY LINE OF SAN JOAQUIN HILLS ROAD; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE SOUTH 890 52'33" WEST A DISTANCE OF 51.85 FEET; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE NORTH 850 17' 57" WEST A DISTANCE OF 305.86 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS CI.TA Smndard Coverage Policy -1990 EXHIBIT'A "(continued) PolicyNo. RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM ARID ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM OTHER LANDS OTHER THAN THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, REIUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT THE RIGHT TO ENTER UPON OR USE THE SURFACE OF THE PROPERLY TO DRILL, MINE, STORE, EXPLORE, OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, FOR USE OF SURFACE OR SUBSURFACE WATER BY,,THE COj1N -"q FOR LOCAL PARK PURPOSES ON THE PROPERTY, ANY AND ALL WATER, SOLAR-HEATED MATER, REC_', IMED RIGHTS, WHETHER SURFACE OR SUBSURFACE, APPURTENANT OR RELATIN 0 THEkjPRORERTY, OR OWNED OR USED BY OFFEROR IN CONNECTION WITH THE PROPERTY TOGET ER)WITH k RIGHT TO EXPLORE, DRILL, REDRILL AND REMOVE SUCH WATER FROM THE PROPERTr fT0 STORE SUCH WATER IN THE GROUND -WATER BASIN UNDERLYING THE PROPERTY BYPERCOLA�C7 SPREADIf G ORINJECTING WATER INTO SUCH BASIN FROM LOCATIONS ON LANDS LYING OUTSIDE -SHE RROPERTY, AND TO DIVERT OR OTHERWISE UTILIZE SUCH WATER, RIGHTS, OR I ?RESTS ONI,Nf OTHER PROPERTY OWNED OR LEASED BY OFFEROR, BUT WITHOUT THE RIGHT TiOR�Y PONOR USE THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RIGHT, AS RESERVED BY THE . NE COMPANY, A MICHIGAN CORPORATION, IN IRREVOCABLE OFFER OF DEDICATION,LA ARDED AP?IL 8, 1993, AS INSTRUMENT NO. 93- 0234810, AND IN GRANT DEED RECORDED JANUARY 2,1997./ S INSTRUMENT NO. 19970000564, BOTH OF OFFICIAL RECORDS. g , i ! .lmu �r �v QTA Sandard Coverage Poilq -1990 PolicyNo. SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including an1assessmeht`s;callected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Com y; 1 Isas Truusstee in and to said land. V 2. The lien of supplemental taxes, if any, assesrol, 'Bursuant. Wthe provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue ane TN't)on code of the State of California. �p Affects: The interest of The Ban lto ft"NewYAMellonglirustgtimpany, N.A., as Trustee in and to said land, at A I «tea 3. The property covered hereirtiesfwlthin the dundaries of the Community Facilities District No. 1 of Irvine Ranch Water District, as disc ased byan Assessment District Map flied in Book 32, Page 37 s of Assessment Maps, recgtcj4d mbe , 1986, Instrument No. 86- 591442, Official Records. And as disclosed/ b a�nAssessment District Map filed in Book 33, Page 31 of Assessment Maps, recorded Januar9, 1987;,Tntn- "YGment No. 87- 051901, Official Records. �3 4 The property cove " d`herein lies within the boundaries of Newport Mesa Unified School District, y 4Co�mmuty Facilities istrict No. 90 -1, as disclosed by an Assessment District Map filed in Book 52, P.,pgy2'6 to 28 of Assessment Maps, recorded June 14, 1990, Instrument No. 90- 315398, Official S. The property covered herein lies within the boundaries of Assessment District No. 92 -1, as disclosed by an Assessment District Map filed in Book 60, Page 43 of Assessment Maps, recorded February 8, 1993, Instrument No. 93- 0083761, Official Records. And as disclosed by an Assessment District Map filed in Book 60, Page 46 of Assessment Maps, recorded March 26, 1993, Instrument No. 93- 0200733, Official Records. QTA Standard Cmemge Foliq -1990 (4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 6. Water rights, claims or title to water, whether or not disclosed by the public records. 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: American Telephone and Telegraph Company, a corporation, its successors and assigns Purpose: Road Recorded: March 11, 1963, Instrument No. 7132, Book 6460, Page 435, of Official Records Affects: That portion of said land as delineated on the map of T.rQkQ 14509. "� 8. Covenants, conditions and restrictions, but omitting any covenaor resN)cbons If any, including, but not limited to those based upon race, color, religion, see sexuul anent ion, familial status, marital status, disability, handicap, national origin, ancestry , of, ource.,'o nco e, as setforth in applicable state or federal laws, except to the extent that said S�ean t or ree�o is permitted by applicable law, asset forth in the document referred to in the numfigeed item last above shown. 9. Matters contained in that certain document entitled " Kt of W`a Agreement" dated May 4, 1965, executed by and between County of Orange, a body p�lrate and�p6litic of the State of California; Southern California Edison Company, a California corporation; and The Irvine Company, a West Virginia corporation, recorded May 18 1965XBo'o 75524;PpIgef449, of Official Records. Reference is hereby made to slid docume,Rt for full paiticulars. An unrecorded Disposal Station,1268s,& %dated August 6, 1993, between the Irvine Company, a West Virginia corporation, as Lessor, and f e ounty of Orange, as Lessee, as disclosed by the above agreement.�y C, 411 Affects: 91M, b he here described land and other land. 10. Ar'crinrftip, tided Disposal Station Lease, dated August 6, 1963, between the Irvine Company, a west Virg'. is coi-X� ttiioi'i, and the County of Orange, as disclosed by an easement dated May 4, 965, be een said ygWunty of Orange, the Irvine Company and Southern California Edison Company, t ration, recorded May 18, 1965, in Book 7524, Page 449, Official Records. The herein described land and other land. CLTA Smndard C "mge Policy -1990 (4111110) SCHEDULEB — PARTII(continued) PolicyNo. 11. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Orange County Radiotelephone Services Inc. Purpose: Road and incidental purposes Recorded: Book 9353, Page 536, of Official Records Affects: A 20' strip of land as shown on the map of Tract No. 14509 12. An unrecorded lease with certain terms, covenants, conditions and provisions set forth therein as disclosed by the document Entitled: Memorandum of Refuse Gas Lease Lessor: The Irvine Company, a Michigan corporation Lessee: Gas Recovery Systems, Inc., a California cori Recorded: October 6, 1982, Instrument No. 82- 352128, The present ownership of the leasehold created by said of the lessee are not shown herein. Affects: The herein described land 13. Easement(s) for the pu offered for dedication, on Purpose: side Affects: The d [al Rte�cotds the interest thereto as delineated or as to the County of Orange 14. The fact that the ow Vership ofs (d laA does not include rights of access to or from the street, Ir highway, or freeway a" utting sail and, such rights having been relinquished by the map of said Tract,rry Affects San oaquin Hills Road, except at approved access locations E:F� Y /✓ 15An ease ent over nd across Lots 1 to 45 of said tract, for the purpose of lot and slope drainage to N&Ia v in said Lots 1 to 45, as reserved by the Irvine Company, its successors and assigns, together 4" „” with Fl e' right to grant and transfer all or a portion of the same, by recital on the map of said tract. Said easement shall be non - exclusive and the Irvine Company retains the right to use and grant to <' others tl)erightto use or any portion of the area covered by the easement for all lawful purposes, as recited do the map of said tract. UTA SdndadC mge Polity- 1990(4111)10) SCHEDULEB - PARTII(continued) 16. The recital on the map of said tract that: PolicyNo. "Building permit issuance shall be phased in accordance with any Board of Supervisors Approved Growth Management Phasing Plan pertaining to the timely provision of public services and facilities. A valid Board of Supervisors approved Development Agreement pertaining to the property which includes A Development Phasing Plan shall satisfy the requirements of this condition." 17. The recital on the map of said tract that the land covered by this map is located in a very high fire hazard area due to wildland exposure. This declaration shall run with the land until a determination is made by the fire agency that the property is no longer located in a very high fire hazard area. ORO .:4 18. The recital on the map of said tract that this property may be subject to i pacts � f frome San Joaquin Hills Transportation Corridor.3 OrIA F 19. The terms, easements, provisions and conditions contam`fi i §a docUinent entitled "San Joaquin Hills Local Parks Irrevocable Offer of Dedication', recprd Apriln$;,1993 Instrument No. 93- 0234810, Official Records, and as amended by document rec `red Fetifl'a'r,17, 1995, Instrument No. 95- 0066788, Official Records. /Wf�k y' 20. Matters contained in that certain document entitled 'Easement Deed and Agreement", executed by and between The Irvine Company, a Michigen�oYyporatio a.d the County of Orange, a political subdivision of the State of California record` May'28i 199 nstrument No. 93- 0362589, of Official Records. r� Reference is hereby made to said documen fort [if part culars. £a 4 . 21. Easements, covenant;, -;Ai cond)ti0TS contained in the deed from Irvine Community Development Com an;; a D161 are corporation, as rantor, to Newport Ride Community P P 1 P 9 P 9 b Association, a California nonprofitxmutual benefit corporation, as grantee, recorded November 8, 1999 Instrumen Np. 9907786, Official Records. Reference is made to said document for full particulars. n ms , ment eniitldd "Assignment and Grant of Easements ", recorded November 30, 2006, ?0- 11- strument No 2006600801750, Official Records. is made to said document for full particulars. CLTA Snndard Coverage Pd1w -1990 (4/11110) SCHEDULEB - PARTII(continued) PolicyNo. 22. The effect of a map purporting to show the herein described and other land recorded in Book 231, Page 15 of Record of Surveys. 23. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: _/_/2010, Instrument No. 201000, of Official Records 24. The terms, provisions and other matters of a document entitled "ASSIGNMENT F)GREEMENT" dated November 1, 2010, executed by Newport Beach Public Facilities Corporation,ras Assignor, to The .> r � sl Bank of New York Mellon Trust Company, N.A., recorded (Pro Forma), of Officay Records =� 25. The effect of any failure to comply with the terms, leases described or referred to in Schedule A. 26. Any facts, rights, interests or claims which are not be ascertained by making inquiry of the lessors and described or referred to in Schedule A. A: 27. The transaction contemp approval of the Company's Cc add additional items or make of the ic`- records but which could in interest, in the leases :his Report is subject to the review and tment. The Company reserves the right to such review. 28. This is a Pro Forma Pglicyit does ;hot reflect the present state of the Title and is not a commitment to (i) insure the Fite or,,(li) issue any of the attached endorsements. Any 0 19 commitment must be axpress ,ritten undertaking on appropriate forms of the Company. END OF SCHEDULE B such ❑.TA Standard NVe ge Polity- 1990(4/11/10) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary, to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy._ b. "Lease ": the lease agreement described in Schedule A. ' � s � fit C. "Leasehold Estate ": the right of possession for the Lease Term d. "Lease Term the duration of the Leasehold Estate, including any renewal pf&tended term if a valid option to renew or extend is contained in the Lease" cc e, "Personal Property ": chattels located on the Land and'p�rperty which; because of their character and manner of affixation to the Land, can be sevee from thLand without causing appreciable damage to themselves or to the Land to whiff ey are affixed. f. "Remaining Lease Term ": the port!on, rthevease Ted remaining after the Insured has been Evicted as a result of a magi cover d by th s�Dollcu(d�� g. "Tenant Leasehold Impro+{ements' hose improvements, including landscaping, required or permitted to be built on tiff e�3 d by then 1a -hat have been built at the Insured's expense or in which the Insured has an itert greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest ITT If in computing loss or damage it bee t mes necessary to value the Title as the result of a covered matter that results in an Eviction ottbhe Te�h�a�nt, the that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate aA any r RO It- easehold Improvements existing on the date of the Eviction. The Insured Claim g shall f.We, the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued elthe fia`sra v5,�. ole 6rs, arately. In either event, this determination of value shall take into account rent no longer�requiredt6 be paid�oY the Remaining Lease Term. 3. - Adr)Itto al "items of loss covered by this endorsement ;I F If the InsFed;is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by tie Insured, but not to the extent that the same are included in the valuation of the Title. 1 a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. lof3 ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17106) CLTA Endorsement Form 119.5 -06 Attachedto PolicyNo. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. �ffef. Reasonable costs incurred by the Insured to secure a replacement lease�iold °egoivalent to the Leasehold Estate. f g. If Tenant Leasehold Improvements are not substant ally completed amt the time of -vlction, the actual cost incurred by the Insured, less the salvage value `fo(-,'Me Te ant Leasehold Improvements up to the time of Eviction. Those costs indud costs incaiilr(L ro obtain land use, zoning, building and occupancy permits, architectural �andegineerinfees, construction management fees, costs of environmental testing and, rrrAewsa tlalandscaping costs. This endorsement is issued as part of the policy. Except a t express's, states it does not (i) modify any of the terms and provisions of the policy, 54i6 extend p cy, (ii) modify any prior enorsementsuextend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a pro IM the policy or a previous endorsement is inconsistent with an express provision of this endorse�n ent tt,1O ndorsement controls. Otherwise, this endorsement is subject to all of the terms ark provisjons�eifbe pol and of any prior endorsements. Dated: PROFORMA s' ,5 �f // Eof3 Fidelity National Title INSURANCE COMPANY PROFORMA ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6117/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(1) of the Conditions of this policy, the%l available to cover the Company's liability for loss or damage under this policy at tl e time hereunder shall be the aggregate of the Amount of Insurance under this policy ad the oth above. At no time shall the Amount of Insurance under this policy and the other Nolici in the aggregate $ Subject to the provisions of 54tjo 10(a) of "YY policies, all payments made by the Company under this policy or any of the other pol des i r the payments made for costs, attorney's fees, and expenses, shall reduc the aggregatff'Am the amount of the payment.' This endorsement is issued as part of the policy. Except as it terms and provisions of the policy, (ii) modify any prior en( increase the Amount of Insurance. To the extent a�pr;9,i inconsistent with an express provision otf is endorsem endorsement is subject to all of the term and provisions of Dated: PROFORMA pis 010 _ b� 3 L-3 ayient of loss &ibs identified iabove exceed mditions of the J above, except of Insurance by state § %it does not (i) modify any of the (iii) extencl the Date of Policy, or (iv) 7; 1*4a,II l��a PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132035 (Mariner's Library, 1300 Irvine Avenue) D OCSOC/1448946v 1/022459 -0014 SCHEDULE A Policy No.: Proforma Order No. 725132035 /� k3 _r� Amount of Insurance: $ 126,E 000.00 Premium: $ TBD Date of Policy: Date and time of recording 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing „finder the Constitution and laws of the State of California; The Bank of New YorI�MelloiTrust Company, N.A., as Trustee, as assignee of the Newport Beach pAlic r Zlitfes t".,kx3m o Corporation, a 501(c)(4) nonprofit public benefit corporation d01y organizednd existing under and by virtue of the laws of the State of California? 2. The estate or interest in the land which is covered by this A leasehold as created by that certain lease dated November 12010, executed by City of Newport Beach, a California municipal corporation and chaderr�e scity, as�le�ssaf;atid Newport Beach Public Facilities Corporation, as lessee, as referenced in the documentent t)ed 'Site Lease ", which recorded —I—J2010, Instrument No. 201000 0111 cial Records, for the term, upon and subject to all the provisions contained in said,docu ent add said lease. A subleasehold as created by at a ainy1 ease /Pu base Agreement dated November 1, 2010, executed by Newport Beach PUbhc FaClllbes G potion, as sublessor, and City of Newport Beach, a California municipal corporation.an�dpchartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement ", which recorded _/_/2010, Instrument No. 201000 of,- Offfdal Reco a' for the term, upon and subject to all the provisions contained in said docu0ent, aWiNsaidsease. Matters contalnq,d`in tlia>: rtaiwdocument entitled "Assignment Agreement" dated November 1, 2010, execute'& &, r and between Newport Beach Public Facilities Corporation and The Bank of New Y�o?MeIO TrustCompany, N.A., a national banking association organized under the laws of the �nited Ses of Ameca; as trustee recorded _J_J2010, Instrument No. 2010000 of is hereby made to said document for full particulars. 3. Title toAhe estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISATTACHED CITA 5Wndatl Coverage Policy -1990 PollcyNo. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL A: A PARCEL OF LAND CONTAINING 9.019 ACRES AND BEING A PORTION OF BLOOK 53, AS +SM,QWN UPON A MAP OF IRVINE'S SUBDIVISION RECORDED IN MISCELLANEOUS MAPS, BOOK 1 PA 8,6R€C R S OF ORANGE COUNTY, CALIFORNIA AND MORE PARTICULARLY DESCRIBED AS FOLLOW 0= "WIT, BEGINNING AT THE INTERSECTION OF ALINE LYING SOUTHWESTERLY OF, PAELa0, ADD DISTANT 17 FEET FROM THE SOUTHEASTERLY PROLONGATION OF THE CENTER LINE OF 19Th S REET AS SHOWN UPON A MAP OF NEWPORT HEIGHTS, RECORDED IN MISCELLANEOUS MdP�,BOOK4, P 83, RECORDS OF ORANGE COUNTY, SAID LINE ALSO BEING THE NORTHWESTERLY ,g�wROLONGATION OF THE SOUTHWESTERLY LINE OF THE ORANGE COUNTY FLOOD CONTLdCHANNELRS CONVEYED TO THE COUNTY OF ORANGE BY DEED RECORDED APRIL 7, 1954, IN BOO 705 PAGE 539, OFFICIAL RECORDS OF SAID ORANGE COUNTY, AND A LINE LYING SOUTHEASTERLY Px, PARA LL EL - AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53, TENC.E SOUTH�521° 11' 30" EAST ALONG SAID NORTHWESTERLY PROLONGATION AND ALONG SAID SOUTH`W.ESTERLY LINE OF SAID FLOOD CONTROL CHANNEL A DISTANCE OF 277 FEET TO THE BEGINNING 09 'Ili MGENT CURVE, CONCAVE TO THE SOUTHWEST AND HAVING A RADIUS Or $68 FEES; THENrSOUIEASTERLY ALONG SAID CURVE AND SAID SOUTHWESTERLY LINE OF THE F OD CONTROL CHAN A DISTANCE OF 713.99 FEET; THENCE SOUTH 30 03'42" EAST, TANGENT TO LAST MENTIONED CURVE, AND ALONG SAID SOUTHWESTERLY LINE a e OF THE FLOOD CONTROL CHANNEL A D'STANCE OF'S8 FEET; THENCE SOUTH 160 55' 29" EAST ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROY CHANNEL A DISTANCE OF 10.46 FEET; THENCE SOUTH 860 56' 18" WEST A DISTANCE 0' A, 6,77 _FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHEAST �Aj�iDnHAVING ARADIUS OF 710 FEET; SAID LINE ALSO BEING THE SOUTHWESTERLY PROLONGATION OF'"THE CENTER LINE OF MARINERS DRIVE, 60 FEET IN WIDTH, AS SHOWN UPON A MAP OFTRAOI NO. 3004 ECORDED IN MISCELLANEOUS MAP BOOK 92, PAGES 1 AND 2, RECORDS OF SAID ORANGE NTY; T, ENCE WESTERLY ALONG SAID CURVE A DISTANCE OF 152.14 FEET; THENCE NORTLlb° 20 2WETeRADIAL TO LAST MENTIONED CURVE, A DISTANCE OF 30 FEET; THENCE NORTON 50° 1119s WEST A`yDISTANCE OF 758.99 FEET TO A POINT OF INTERSECTION WITH THE AFOREMEN�iON1;1 PARALLEL LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM,THE NOR`TWESTERLYtLINE OF SAID BLOCK 53; THENCE NORTH 390 48' 55" EAST ALONG SAID PA OPAL L�ELL, LINE'DISTANCEEJF 495.70 FEET TO THE POINT OF BEGINNING. a EXCEPTINGf}iEREFROM, THAT PORTION OF THE LAND CONVEYED TO NEWPORT -MESA UNIFIED SCHOOL DISTRICT IN U1 (CLAIM DEED RECORDED JANUARY 14, 2003 AS INSTRUMENT NO. 2003000045873, DESCRIBED AS;Qf =LOWS: BEGINNING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED INDEED TO THE CITY OF NEWPORT BEACH HAVING A BEARING AND DISTANCE OF N 15 020'20" W 30.00 FEET, SAID NORTHWESTERLY TERMINUS BEING THE INTERSECTION OF THE SOUTHWESTERLY LINE OF SAID CERTAIN PARCEL OF LAND DEEDED TO THE CITY OF NEWPORT BEACH AND THE NORTHERLY LINE OF MARINERS DRIVE, 60.00 FEET WIDE, AS SHOWN ON MAP OF TRACT NO. 1896 FILED IN BOOK 114, PAGE 43 THROUGH 45 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG SAID SOUTHWESTERLY LINE N 50 011'06" W 498.00 FEET; THENCE N 39 048'55" E 38.00 FEET; THENCE S 50 °11'05" E 526.60 FEET TO A POINT IN SAID NORTHERLY LINE OF MARINERS DRIVE, SAID NORTHERLY LINE BEING A CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 740.00 FEET, A dTA Standard Coverage Policy -1990 EXHIBr A "(continued) PolicyNo. RADIAL TO SAID POINT BEING N 11 °49'06" W; THENCE WESTERLY ALONG SAID NORTHERLY LINE AND CURVE, THROUGH A CENTRAL ANGLE OF 03 °41'14 ", AN ARC LENGTH OF 47.62 FEET TO THE POINT OF BEGINNING. PARCEL B: A PORTION OFTHAT CERTAIN PARCEL OF LAND IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED IN DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT, FILED IN BOOK 3970, PAGE 3 OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND SHOWN AS ASSESSOR'S PARCEL NO. 425 - 071 -01 FILED IN BOOK 425, PAGE 7OFASSESSOR'S MAPS IN THE OFFICE OF THE COUNTY ASSESSOR OF SAID COUNTY, SAID PORTION MORE PARTICULARLY DESCRIBED AS FOLLOWS: —A N COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT HAVING A BEAR) 50 011'05" W 758.99 FEET, SAID CERTAIN COURSE BEING THE NORTHEASTERS PARCEL DEEDED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DII( NORTHEASTERLY LINE S 50 011'05" E 50.00 FEETTO ITS INTERSECTIONWITt�T OF IRVINE AVENUE AS DESCRIBED IN DEED TO THE CITY OF NEW PORTBEAG1 542 OF SAID OFFICIAL RECORDS, SAID INTERSECTION BEING THE POIN CONTINUING ALONG SAID NORTHEASTERLY LINES 50 011'05" Uk' .99;FEET; TF FEET; THENCE N 50 °11'05" W 120.99 FEET; THENCE S 39-48'9 ' W 10ODIF�E' 90.00 FEET TO SAID SOUTHEASTERLY LINE OF IRVINE AVE I')1E' THENCE, "LOP LINE N 39 048'55" E 102.00 FEET TO THE TRUE POINT OF'BEGNNING. APN:425- 071 -03 +� w� cIy AND DISTANCE OF N q'5 #�INE OFK:- RAID' CERTAIN THNCE ALONG SAID SOU THEASTERLYLINE .ED A BOOK 3978, PAGE )OBEGINNING; THENCE 4CE S 39 °48'55" W 92.00 THENCE N 50011'05" W '.SAID SOUTHEASTERLY CLTA Rnndard Coveage Policy -1990 u A 4 T AND DISTANCE OF N q'5 #�INE OFK:- RAID' CERTAIN THNCE ALONG SAID SOU THEASTERLYLINE .ED A BOOK 3978, PAGE )OBEGINNING; THENCE 4CE S 39 °48'55" W 92.00 THENCE N 50011'05" W '.SAID SOUTHEASTERLY CLTA Rnndard Coveage Policy -1990 PolicyNo. SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including an as ftsmentt�coliected with taxes to be levied for the fiscal year 2010 -2011. � , Affects: The interest of The Bank of New York Mellon Trust Coomipa y; -N., as Trustee in and to said land. r l WW 2. The lien of supplemental taxes, if any, assesse' n ursuant f he provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and 'I'A' code of the State of California. `2 Affects: The interest of The Bank flew York Mellon4T ust Company, N.A., as Trustee in and to said land. ry 3. Water rights, claims or title, r, whetier or not disclosed by the public records. 4. Easement(s) for the4p rpose (s) shown" below and rights incidental thereto as set forth in a document; e S. Purpose: Purpose: Recorded: Affects: - < Sewer�C,tunk main p July i$, 1952, Book 2358, Page 401, of Official Records portion of said land t,xNr �.f for the purpose(s) shown below and rights incidental thereto as reserved in a The Irvine Company, a corporation organized under the laws of the State of West Virginia Road and utility purposes July 11, 1957, Book 3970, Page 3, of Official Records A strip of land 50 feet in width along a portion of the Northwesterly side CLTA Standard C Vem9. Polity -1990 (4/11110) SCHEDULEB — PARTII(continued) PolicyNO. 6. Easement(s) for the purpose(s) shown below and rights incidental thereto as set forth in a document; Purpose: Road and utilities Recorded: July 19, 1957, Book 3978, Page 537, of Official Records Affects: A portion of said land 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation o , Purpose: Street purposes 6 Recorded: July 19, 1957, Book 3978, Page 542, of Official Records Affects: A portion of the land 8. An instrument entitled "City of Newport Beach Deed Res tnctI, i p o :deal Pro Upon Which is Located the City of Newport Beach Mariners Branch Library" record a 41 arch 4,x2008 as Instrument No. 2008000099106 of Official Records.. v Reference Is made to said document for full 9. Title to, and easements in, any portion of the land lylng„wgithin any highways, roads, streets, or other ways. 10. A lease entitled "Site Lease f r Yee Yerm t man subject to all the provisions contained in said document, and in said lease Lessor: ph"ff; - "'por7t e h, a California municipal corporation and chartered city Lessee: dReewporkB1each Public Facilities Corporation Recorded: 1�_/_/2T0, Instrument No. 201000 , of Official Records 11. The ter s, pro�lslons and bUT& matters of a document entitled "ASSIGNMENT AGREEMENT" dated f oven 120 4zexecuted by Newport Beach Public Facilities Corporation, as Assignor, to The ,Bank o (V( e York�iellon'Trust Company, N.A., recorded (Pro Forma), of Official Records. 12. The'ect of any failure to comply with the terms, covenants, conditions and provisions of the leasesjfprjbed or referred to in Schedule A. 13. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. QTA Smod.,d Coveage Policy -1990 (4/11110) SCHEDULEB - PARTII(continued) PolicyNo. 14. The transaction contemplated in connection with this Report is subject to the review and approval of the Company's Corporate Underwriting Department. The Company reserves the right to add additional items or make further requirements after such review. 15. This is a Pro Forma Policy. It does not reflect the present state of the Title and is not a commitment to (i) insure the Title or (ii) issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms of the Company. END OF SCHEDULE B a CLTA SUndard Covem, Polity - 1999 (4 /31 1ID) 1. 2. ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy, VV N Aq Mal b. "Lease ": the lease agreement described in Schedule A. �3 C. "Leasehold Estate ": the right of possession for the Lease Term�A d. "Lease Term ": the duration of the Leasehold Estate, valid option to renew or extend is contained in the e. "Personal Property": chattels located on the Land nd pr` and manner of affixation to the Land, can be severe damage to themselves or to the Land to wh!01,j&y are f. "Remaining Lease Term ": the Evicted as a result of a mate g. "Tenant ": the tenant accordance with the Claimant. h. "Tenant Leaseh permitted to be in which the Ins Valuation of has by term if a because of their character without causing appreciable after the Insured has been er acquisition of all or any part of the Title in of the Conditions of this policy, the Insured )se improvements, including landscaping, required or Lease that have been built at the Insured's expense or ter than the right to possession during the Lease Term. IPlr comjlbh�g Ios ordamage it becomes necessary to value the Title as the result of a covered matter that result m an Euietion of tF dTenant, then that value shall consist of the value for the Remaining Lease Term of thLe eholdstate and any Tenant Leasehold Improvements existing on the date of the Eviction. The In Ca %�nC'shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued eithervasa who or separately. In either event, this determination of value shall take into account rent no longer requietoAlb paid for the Remaining Lease Term- 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection I of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of.the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leaseholdf �Esta#e or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublesMs$gn acco,b,(tof the breach of any lease or sublease made by the Tenant as lessor of all or art oF;the Leasehold Estate or the Tenant Leasehold Improvements caused by the Ewctlon 'rein f. Reasonable costs incurred by the Insured to secure Leasehold Estate. g. If Tenant Leasehold Improvements are actual cost incurred by the Insured, Improvements up to the time of Eviction zoning, building and occupancy perfi management fees, costslof nviror en This endorsement is issued as partbf ti of the terms and provisions of the policy, (if, (iv) increase the Amount of Insurance. io tliE inconsistent with an express provision -of tl endorsement is subject to all of thd-V msN�pd Dated: PROFORMA r b S equivalent to the y com l(efed at the time of Eviction, the age value, for the Tenant Leasehold elude costs incurred to obtain land use, afand engineering fees, construction reviews, and landscaping costs. cep0s it expressly states, it does not (i) modify any iy pno endorsements, (iii) extend the Date of Policy, or a provision of the policy or a previous endorsement is (rsement, this endorsement controls. Otherwise, this ns of the policy and of any prior endorsements of 3 0 Fidelity National. Title INSURANCE COWANY PROFORMA ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17/06) CLTA Endorsement Form 119.6-06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, themou`nE nsurance available to cover the Company's liability for loss or damage under this policy at the ti ne ok paymen of loss hereunder shall be the aggregate of the Amount of Insurance under this policy and the otherolides identified above. At no time shall the Amount of Insurance under this policy and the other pcieshdentifibove exceed in the aggregate $150,000,000.00. Subject to the provisions of Section 10(a) of the on ons of the policies, all payments made by the Company under this policy or any of the other oboes identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the�ggregafe Amount f Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly stat e M;tydoes not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (m) Rtend the Date of Policy, or (iv) r increase the Amount of Insurance. To the extent a provision, n -o ,the policy or a previous endorsement is inconsistent with an express provision of this endorsement thi ndorsement controls. Otherwise, this endorsement is subject to all of the terms,af prov signs of 're' oh" and of any prior endorsements. of Dated: PROFORMA t a 2of3 0 Fidelity National Title INSURANCE CONIl'ANY PROFORMA Custom Endorsement 5E -55 li Y_ PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132036 (Fire Station 7, 20401 Acacia Avenue) DOCSOC/1448946v 1/022459 -0014 SCHEDULE A Policy No.: Proforma Order No. 725132036 " -0 Amount of Insurance: $ 126,M,000.00 Premium: $ TBD Date of Policy: Date and time of recording 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and eAstirig- tinder the F '$ . Constitution and laws of the State of California; The Bank of New grl[N'MeIIdF+ITrust Company, N.A., as Trustee, as assignee of the Newport Beach Public facilities r _Y Corporation, a 5O1(c)(4) nonprofit public benefit corporation dj�b {ganizedY and existing under and by virtue of the laws of the State of California 41, 2. The estate or interest in the land which is covered by this polwy`� A leasehold as created by that certain lease dated Novembe,� 10 e [ d by City of Newport h7 Beach, a California municipal corporation and in ed blty, as le,ssor. and Newport Beach Public Facilities Corporation, as lessee, as referenced in thud 4ument ent'tled "Site Lease ", which recorded _J_/2010, Instrument No. 201000 of #bffclal Records, for the term, upon and subject to all the provisions contained in Bald QQturnent, a5rm said lease. A subleasehold as created by that certam` ease / Purchase Agreement dated November 1, 2010, executed by Newport Beach Publ FaclhhesCgj porgy jon, as sublessor, and City of Newport Beach, a California municipal mrporatiorahhartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease / Purchae Agreement ", which recorded _/_/2010, Instrument No. 201000 oAQ�fc1all Records for the term, upon and subject to all the provisions contained in said document, a ditq said.lease. Matters contame '96 tF ahertainldocument entitled "Assignment Agreement" dated November 1, 2010, executPd,,by and between Newport Beach Public Facilities Corporation and The Bank of New t <f- ik4 etlon'TruWc- ompany, N.A., a national banking association organized under the laws of the nited Sues of Amer ca;'as trustee recorded _/_/2010, Instrument No. 2010000 of is hereby made to said document for full particulars. Title to,the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISAT TACHED CITA Standard Covemge Policy -1990 PolicyNo. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: LOTS 57 THROUGH 60 AND THE SOUTHWESTERLY 66 FEET OF LOT 56, TRACT NO. 706, PER MAP RECORDED IN BOOK 21, PAGES 25 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDqGOUNTY OF ORANGE, CALIFORNIA. APN: 439 - 391 -29 aTASbndaN Cov mge Policy -1990 PolicyNo. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II a) J 1. Property taxes, which are a lien not yet due and payable, including an ass ssmeYlected with taxes to be levied for the fiscal year 2010 -2011. f +a tAT p=p Affects: The interest of The Bank of New York Mellon Trust Co an as Tru r y fJ� stee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenge akd- axatib -code of the State of California. h M, Affects: The interest of The Banl�'of New Ytlrk Mellon Trust Company, N.A., as Trustee in and to said land. fin. �� IR A 3. Water rights, claims or t,tj e 4t4 wate` aether or not disclosed by the public records. A r' 4. The right to us�ll streets, road,, and drives shown on said map of Tract No. 706, for pipelines, telephone, po re and elec t I�glfway lines and the provisions concerning the same, contained in the deed from thjffi,(ne Company, recorded June 19, 1924 in Book 530, page 128, of Deeds. S. The restrictions and`-conditions that none of said land shall be sold to be used, nor shall any of it be 3r used for the purpose of oil refining or any other purpose which would constitute a nuisance or be o'f ensjve to the senses, health or safety of persons residing on or occupying any of said land or adjoiKlb$lar�ds, as contained in the deed from the Irvine Company to the Title guarantee and Trust company1; ecorcled June 19, 1924, in book 530, Page 128, of Deeds. QTA SWndaW C vemge Policy -1990 (4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 6. Easement(s) for the purpose(s) shown below and rights incidental thereto as reserved in a document; Reserved by: Title guarantee and Trust Company Purpose: Pole lines and conduits Recorded: July 27, 1929, Book 297, Page 147, of Official Records Affects: A portion of said land as more particularly described in said document. and re- recorded January 5, 1944, Book 1229, Page 238, of Official Records 7. Covenants, conditions and restrictions in the declaration of restrictions bubMMitting any covenants or restrictions, if any, including, but not limited to those based upon ace6m fiat, ion, sex, sexual orientation, familial status, marital status, disability, handicap national ogggm�apcestry, or source of income, as set forth in applicable state or federal laws, except to the' nt that said covenant or restriction is permitted by applicable law. { Recorded: Book 297, Page 147, of Official Recgr ss a Said covenants, conditions and restrictions provide that�a'Violation f erebf shall not defeat the lien of any mortgage or deed of trust made in good faith ?for value. Oft 8. Easement(s) for the purpose(s)@�shownrAelow M rig, h ss incidental thereto as reserved in a document; J Reserved by: Title Gd antee and IJ5 • Eompany Purpose: PipelingXQ itches Recorded: July 27, 1929 Book 297, Page 147, of Official Records Affects: A- poiion.of sat•, lafid as more particularly described in said document. 9. Covenants, conditia0 and restrictions in the declaration of restrictions but omitting any covenants or restriction fkny� ihcluding, but not limited to those based upon race, color, religion, sex sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of mcome'as set forth in applicable state or federal laws, except to the extent that said Z-1 enant onr restnctioh -,* permitted by applicable law. ordd: Book 500, Page 164, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any mortgage or deed of trust made in good faith and for value. 10. Land use regulations under which development will be governed for the area referred to as the Santa Ana Heights Specific Plan, as disclosed in an instrument recorded May 4, 1990, as Instrument No. 90- 235869, of Official Records. Reference is being made to said document for full particulars. QTA SUndard C vemge Policy -1990 (4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 11. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted In a document. Granted to: County of Orange Purpose: Slope Recorded: May 29, 1997, Instrument No. 19970246151, of Official Records Affects: A portion of said land as more particularly described in said document. 12. Matters disclosed by maps filed for record in Book 183, Pages 10 through 17, inclusive; Book 176, Pages 45 through 50, inclusive; and Book 138, Pages 28 through 32, inclusive all of Records of Survey in the Office of the County Recorder of said County. Reference is being made to said document for full particulars. i ' .h 13. A lease entitled "Site Lease" for the term, upon and subject to'all the pr v)sions contained in said document, and in said lease. fl °6 iJ Lessor: City of Newport Beach, a California, rr n10 pal Co oration and chartered city Lessee: Newport Beach Public Facilities rahJon Recorded: _/_/2010, Instrument No.„2000 of Official Records 14. The terms, provisions and other matters of November 1, 2010, executed byA- �Vport Bank of New York Mellon Trust-Zompanyll 15. The effect of any failure to co leases described or referred to In L "ASSIGNMENT AGREEMENT" dated es Corporation, as Assignor, to The Forma), of Official Records. covenants, conditions and provisions of the 16. Any facts, rights, inirgrests or el" ims which are not shown by the public records but which could be ascertained by;rnal )fig mquir of the lessors and their successors in interest, in the leases described or rgfeNd b A S�heaOle A. 17,'e transaction contemplated in connection with this Report is subject to the review and a 'o aloft e Company's Corporate Underwriting Department. The Company reserves the right to additional items or make further requirements after such review. 18. This isya Pro Forma Policy. It does not reflect the present state of the Title and is not a commitment to (i) insure the Title or (ii) issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms of the Company. END OF SCHEDULE B 5 QTA Spndud Coveaye Policy -1990 (411111D) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. b� c. "Leasehold Estate ": the right of possession for the Lease Ter d. "Lease Term ": the duration of the Leasehold Estate, valid option to renew or extend is contained in the e. "Personal Property": chattels located on the Land ztid p'r'( and manner of affixation to the Land, can be sevefed fror damage to themselves or to the Land to wh cA4&y are f. "Remaining Lease Term ": the Evicted as a result of a maL g. "Tenant ": the tenant accordance with the Claimant. h. "Tenant Leaseholdw -60, permitted to be Pu It on in which the Insded has 2. Valuation of a term if a ;'because of their character without causing appreciable after the Insured has been �&r acquisition of all or any part of the Title in of the Conditions of this policy, the Insured ;'Those improvements, including landscaping, required or the Lease that have been built at the Insured's expense or greater than the right to possession during the Lease Term. It Wtbrrqu�hng loss,,o> amage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of theTenant, then thatvalue shall consist of the value for the Remaining Lease Term oft 11 "1 ehold E late and aSh Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Cla Mapf shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as(a,whole or separately. In either event, this determination of value shall take into account rent no longer requi( paid for the Remaining Lease Term. 1 Additional' items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection 1 of ALTA Endorsement Form 13.1 -06 (Leasehold— Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest %Vg,% Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Es "take- ;o�the Tenant Leasehold Improvements. ; e. Damages that the Insured is obligated to pay to lessees or sublessees on acco ntnf the breach of any lease or sublease made by the Tenant as lessor of all or;pa t of e Leasehold Estate or the Tenant Leasehold Improvements caused by the Evi ction, f. Reasonable costs incurred by the Insured to secure Leasehold Estate. g. If Tenant Leasehold Improvements are not actual cost incurred by the Insured, less Improvements up to the time of Evictionn, J zoning, building and occupancy permita;: management fees, costsugf= n'�iron�ental This endorsement is issued as pa °rt�ofM, t of the terms and provisions of the policy, (n ; (iv) increase the Amount of Insurance. i`o the inconsistent with an express prov✓�or,)n of ti endorsement is subject to all of the terrM `hand x r Dated: PROFORMA x v /of 3 equivalent to the Y corfi[eted at the time of Eviction, the ige value, for the Tenant Leasehold xtude costs incurred to obtain land use, I and engineering fees, construction reviews, and landscaping costs. xcept as it expressly states, it does not (i) modify any pnot endorsements, (iii) extend the Date of Policy, or provision of the policy or a previous endorsement is ament, this endorsement controls. Otherwise, this of the policy and of any prior endorsements. >a Fidelity National Title INSURANCE COMPANY PROFORMA ALTA Endorsement Form 13.1 -06 (Leasehold - Loan) (6/17106) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(1) of the Conditions of this policy, themofcfsurance zW available to cover the Company's liability for loss or damage under this policy at the tuna o0payment of loss hereunder shall be the aggregate of the Amount of Insurance under this policy and the otheolicis dentified above. At no time shall the Amount of Insurance under this policy and the other poi c"d�dent fe�afi0ve exceed in the aggregate $ Subject to the provisions of SectioV 10(a} ofi't e Conditions of the policies, all payments made by the Company under this policy or any of theothet.ollciesdeprf edabove, except the payments made for costs, attorney's fees, and expenses shall reduce e agog gate A ount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it erVessly states itydoes not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endoeSQ,_r ents, (ill end the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision�Q'ahe policy or a previous endorsement is inconsistent with an express provision of this endor5gfn�n this erfdorsement controls. Otherwise, this endorsement is subject to all of the terms,+ dliprovts"ons ofttl. g,policy and of any prior endorsements. Dated: PROFORMA A01 /% 3 £of3 Fidelity National. Title INSURANCE COMPANY PROFORMA Custom Endorsement SE -55 I�:il�lll[! PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132038 (Central Library, 1000 Avocado Avenue) DOCS OG1448946v 11022459 -0014 SCHEDULE A Policy No.: Proforma Order No. 725132038 Amount of Insurance: $ 126,41116,000.00 Premium: $ TBD Date of Policy: Date and time of recording Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and e3ektin „„gg';�under the Constitution and laws of the State of California; The Bank of New YorkfFle11 Vf, rust Company, N.A., as trustee, as assignee of the Newport Beach Ppilict acilities Corporation, a501( c)( 4) nonprofit public benefit corporation ddi ofganized ndexisting under and by virtue of the laws of the State of California V, D 2. The estate or interest in the land which is covered by this po>cy IS: IF A leasehold as created by that certain lease dated Novembe l zOI executed by City of Newport Beach, a California municipal corporation and chartered cty, as lessor and Newport Beach Public er,F .a.,,,av Facilities Corporation, as lessee, as referenced in the documenten 1. a "'d "Site Lease ", which recorded J 12010, Instrument No. 201000 z� Yo official Records, for the term, upon and subject to all the provisions contained in saidp4Cocutnent n�cri3$'said lease. A subleasehold as created by t that certaiR Lease /Pu�hase Agreement dated November 1, 2010, executed by Newport Beach Pub11 N'dlihes C�rporat on, as sublessor, and City of Newport Beach, a California municipal corporation, nrcha tered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agl Bement ", which recorded _ /_J2010, Instrument No. 201000 , of,0rjal Recdrd for the term, upon and subject to all the provisions contained in said docur bnt, a d yy, said lease. Matters contai, e0 -n t erta Ii i d cument entitled "Assignment Agreement' dated November 1, 2010, exeecutd " &hy and between Newport Beach Public Facilities Corporation and The Bank of New V®RM,l fr�sCGompany, N.A., a national banking association organized under the laws of the United Sues of Ame "'nd as trustee un �t recorded _/2010, Instrument No. 2010000 .� , of Official Records. Referee ce is hereby made to said document for full particulars. 3. Title tolfie estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISATTACHED MTA Randard Co mge Polity - 199D PollcyNo. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1: (APN: 442 - 014 -26)�: THE SOUTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ®,R.�ANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 7 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA'ro'"a'Ea EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTF DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING ANq OPE AND REMOVING THE SAME FROM THE LAND OR ANY OTHERWD, IF OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHERS AN TH WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROS's %hE f BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLYDRIL� WEDS BENEATH OR BEYOND THE EXTERIOR LW,;I°,�8 THERCOF,a"0 R[ REPAIR, DEEPEN AND OPERATE ANYSLff WELLSR MINES+ IITHC MINE, STORE, EXPLORE AND OPERAiT THROUGH THE SURFACE SUBSURFACE OF TH PA 1992, AS INSTRUMENT NO. 92- 304758, 7F I LR RDS. PARCEL 1A: RI %VVATURA�G%�S RIGHTS, AND EAR AL �T,,EAM AND ALL PRODUCTS §NDERPffiLkAD TOGETHER WITH g� NG THEREFOR AND STORING IN C .UD WTHE RIGHTTO WHIPSTOCK )SE CONVEYED HEREBY, OIL OR GAS UBSGRFACE OF THE LAND, AND TO ,fl FUNNELS AND SHAFTS UNDER AND RILL, RETUNNEL, EQUIP, MAINTAIN, UT, HOWEVER, THE RIGHT TO DRILL, OR THE UPPER 500 FEET OF THE JY IN THE DEED RECORDED MAY 8, A PERMANENT NONEXCLUSIVE EASEMENTIIN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCF�'='a') Q;VER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON I ARCEC MAE�Nygl90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALI,j9RN�� ECORDEDIN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID,CANfI .(THE INCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDES'TRTAN ACSS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIV�UJ�1Y5 CI��RBS, CUR�CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCA.GrIRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMf=•NTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES�TD�IIy,MPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEME r AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING ACERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL I TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL CLTA Rendard Coverage Po9ry -1990 EXHIBIT"A "(continued) Policyllo. AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENTAREA IN CONNECTION WITH IMPROVEMENTOR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESSTO THE BENEFTTTED PARCELAT ALLTIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 18: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANT TO PARCEL S DESCRIBEDABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENfQTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90 -361, IN THE CITY OF NEWPORT BEACH, "- UN€�i�%YOFQI ANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, W.,ARCEL�APS `R CORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSEOF,CULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEf ENT AND,M�AINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS '1,�R FFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER,,ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREI M&NTEE`S L'L�PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREl ND TOVMAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER Ol PARCII PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OR,' PAN OR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED P C_EL 3. UPON OBTAINING CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTEf ;D IT .iE BUR`' FI ED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OFT, HE BENEFI N PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES - F MAINifflANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERU�,CE ACCESS�EASEM�NTAREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY .'.,TOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURD'EtEp PARCE 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALL$,,,,FiI�DE,.6ENCES 1DSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGN0AND`LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENTAREA IN CONNECTION WITH IMPROVEMENTOR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDF.NED�PA�WI 3;,,PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROUIDE` SO LE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CO 445- TRUGT70J OF SUCK'`E 'DESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDEN€ Pjf�z}}C�- 3 S.. LL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE d n Wyq PRINCIPAL EASEMENT ARFJ.CBYs'CONSTRUCTION ACTIVITIES. THE NORTHW � TEALIY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CAL FOMIA AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OFcPARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OFTHE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHERTHAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND UTA Standard Coverage Policy -1990 EXHIBIT'A "(continued) PolicyNo. BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE - COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304759, OF OFFICIAL RECORDS. PARCEL 2A: A PERMANENT NONEXCLUSIVE EASEM ENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90-361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO IS INCLUSIVE, OF PARCEL:�NIAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE QF VEF.(ICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT ANDINAINTE[V``I��CE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRA,MC SIGNS SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHEIRoADWAY SIGiySAND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA. GRANTEE SHWAS 'A FOR ALL COSTS AINU tAPtNbtb I IMPKUVt I Mt PRINCIPAL AC( ACCESS EASEMENT AREA PRIOR TO THE TIME ( "BURDENED PARCEL 1 ") OBTAINS A CERTII IMPROVEMENTS TO BE CONSTRUCTED ON SUCH OF OCCUPANCY FOR IMPROVEMENTS CONSTRU( BURDENED PARCEL 1 AND THE OWNER OFTHE E PERCENT (50 %) OF THE COSTS AND EXPENSES IMPROVEMENTS LOCATED ON THE PRINCIPAL A THE ISSUANCE OF SUCH CERTIFICATE OFR,WCUP BENEFIT OF THE OWNER OF THE BURDENED F IMPROVE THE DRIVEWAYS, CURB CTS, CURE SIDEWALKS, PERMANENT WALLS AND F�NCES, I AND OTHER ROADWAY SIGNS AND LA �PzR EASEMENT AREA IN CONNECTION WITH IMPRUUI LOCATED ON THE BURDENED PA &ECt, V, l PROW PARCEL I SHALL PROVIDE REASONAr TERM DURING CONSTRUCTION OF S�1CH REDESIGNEE BURDENED PARCEL 1 SHALL REPAIR ALLbAMA, PRINCIPAL EASEMENT,,' AR A BY CONSTRUCTION tSS EASEMENT AREA AND°TO MAINTA�I,N 'THE PRINCIPAL FHE OWNER OF PARCEL 1 Q�T<;�,PARCEL MAP NO. 90 -361 TCATE OF OCCI�ICY FORkMANENT BUILDING BURDENED PARGEL `,SUPONQBTAININGACERTIFICATE TED ON THE IURDENE[PARCEL 1, THE OWNER OF THE ENEFITTEP_A�tCEL SHALI'EACH CONTRIBUTE TO FIFTY OF MAINTEAICE, REPAIR AND RESTORATION OF ALL ,CEO 6ASEMENAREA WHICH ARISE SUBSEQUENT TO \(fCY. G�lTOR fEREBY RESERVES THE RIGHT, FOR THE �CEL 1 TO, REDESIGN, REMOVE, RECONSTRUCT AND SENTRYV YS, LIGHT STANDARDS, TRAFFIC SIGNS, ANDSCA},PI' G, IRRIGATION, MONUMENT, DIRECTIONAL )VEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS MENTOR RECONSTRUCTION OF PERMANENT BUILDINGS )ED, HOWEVER, THAT THE OWNER OF THE BURDENED ,TIVE ACCESS TO THE BENEF117ED PARCEL AT ALL TIMES OR UPGRADED IMPROVEMENTS. THE OWNER OF THE ;E CAUSED TO IMPROVEMENTS LOCATED WITHIN THE ACTIVITIES. A PERMANENT fyNEXCLUSIUE EASEMENT IN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE BENEFTED PARCEL ") OVER THAT PORTION OF PARCEL i IDENTIFIED IN EASEMENT NOTE 3, SET FORTH A �D „SHOWN ON PARCEL MAP N0.90 -361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CAL - -i R� A, RECORDED IN BOOK 270, PAGES 15 T018INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNIY(THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND AND OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFITTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY CLTA Standard C vemge Pallq -1990 EXHIBIT"A "(continued) PolicyNo. PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENTAREA WHICH ARISE SUBSEQUENTTO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCA,TEDeWITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. NN m � rte, ' ��. CLTAS ndard Co mga Policy -1990 PolicyNo. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part Iof Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including ar yoals esssments coflected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Com any, „A as T ustee in and to said land. 2. The lien of supplemental taxes, if any, asses "sed" i7rsuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenueja�d „flaxa {Q cc de of the State of California. ANy w Affects: The interest of The Bam of New k Mellon 11. st Company, N.A., as Trustee in and to said land.�o 3. Waiver of any claims for dam' said property by reason of the location, construction, landscaping or maintenancegf;the free l ay adjoining said property, as contained in the deed to the State of California, reclo�ed Ma2,0), 1931, Book 487, Page 3, of Official Records. 4. The dedication' d therStIate�oECalifornia of the right of ingress and egress to and from said land from thefreeayadjoining along the Southeast side, by deed recorded July 25,1940, in Book 1047, Pa�e57SOffiaa Records , and by a deed recorded October 1, 1952, in Book 2390, Page 458, ,.. - S. They rivilege and right to extend and maintain drainage structures, excavation slopes and embank en, lopes on said land, as contained in an instrument Granted The State of California Recorded: July 25, 1940, in Book 1047, Page 557, Official Records 6 MA St ndad o erage Palmy -1990 (4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 6. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted In a document. 7. S. 9. Granted to: Southern California Edison Company, a corporation Purpose: Pole lines, steel towers Recorded: June 19, 1947, Book 1528, Page 321, of Official Records Affects: Lies within the proposed right -of -way of MacArthur Boulevard The exact location and extent of said easement is not disclosed of record. Said easement was modified by an instrument dated January 15, 1S Company, a Michigan corporation, in favor of the Southern California terms and conditions as therein contained, recorded January 21, 1986 Official Records. Waiver of any claims for damages to said property landscaping or maintenance of the freeway adjoining said State of California, recorded Book 1750, Page 437, of Off Matters contained in that certain document entitled" Irvine Company, a Michigan corporation andrtK- C of I �! SCHEDULEB — PARTII(continued) PolicyNo. 11. All vehicular access rights to East Coast Highway and MacArthur Boulevard, except at street intersections, have been released and relinquished to the City of Newport Beach on said parcel map. Said land abuts on a dedicated street other than the one above mentioned 12. All vehicular access rights to Avocado Avenue, except at street intersections and the two approved driveways shown hereon, together with three additional driveways to be approved by the Director of Public Works of the City of Newport Beach, have been released and relinquished to the City of Newport Beach on said parcel map. 13. Recitals as shown on that certain map, which, among other things states the owing improvements are required to be constructed: "Asphalt or concrete access roads to all public utilities, vaults, manhAibId juctnstructure locations, and street, drainage and utility improvements for Avocado lrvenue East Coast Highway, MacArthur Boulevard and San Miguel Drive".� Reference is made to said map for full particulars.> 14. Recitals as shown on that certain map, which, amo igrother thin -,states: "A 10 foot wide relocatable pedestrian /bicycle„easem,�ent s " I be dedicated to the city of Newport Beach by separate documents ac,�ross;�MacAW or Boihq ardaf the prolongation of Crown Drive. The easement is to provide to both Parcel 2 1-31,nd Avocado Avenue with the precise alignment to be determined when MacArthur �oulevard %s; idenedif the bridge is not constructed with the MacArthur Boulevard widening pr,,, then` "li"e cement will be relinquished ". i . An, Reference is made to said map for fulparticulars. 15. The terms, conditidns and easements contained in the deed by and between The Irvine Company, as grantor, t%Mhe City of Newport Beach, as grantee, recorded May 8, 1992, Instrument No 92-3047 OfFcial "ReGO � re . eferen�cq)s mato said document for full particulars. luitclaim Deed, recorded August 27, 1998, Instrument No. 19980568123, Official Records. 16. The terconditions and easements contained in the deed by and between The Irvine Compan as grantor, to the City of Newport Beach, as grantee, recorded May 8, 1992, Instrument No. 92- 304759, Official Records. Reference is made to said document for full particulars. QTA SWdard Coverage Poky -1990 (4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 17. Matters contained in that certain document entitled "Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase ", executed by and between The Irvine Company and the City of Newport Beach, recorded May 8, 1992, Instrument No. 92- 304757, Official Records. Reference is hereby made to said document for full particulars 18. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation, ,irts"':L'ccessors and r' c"+ assigns �v Purpose: Electrical supply systems and communication systems Recorded: June 9, 1992, Instrument No. 92- 385867, of 0 icial Records Affects: A portion of said land as more particularly de�s`�ri�`;'ddn saY O ument. 19. Matters contained in that certain document entitled Agreement" dated October 16, 1992, executed by and bi municipal corporation and chartered city, recorded Octobe Official Records. 4�ts `rl Reference is hereby made to said document for ful pac 20. Ah unrecordedl6ase with disclosed by the docigent Lessor: \ The Lessee: \ Rdsl The of ti Parcel 21. IntenCi Illy Deleted � 22. Intentionally Deleted 23. Intentionally Deleted �1'covenantsd ion ' bns and provision t ~ any,sa 'chigan corporation Nalifornia rporation Instrumen o. 19970059860, o eked by said lease a d other matters 0 mane Easement parry, a California No. 92- 711127, of CLTA SWndardC emge Poky - 1990(9/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 24. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Pacific Bell, its successors and assigns Purpose: Underground communication facilities Recorded: September 28, 1998, Instrument No. 19980651843, of Official Records Affects: A portion of said land as more particularly described in said document. 25. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. & a Lessor: City of Newport Beach, a California municipal corporat aqn a h tered city Lessee: Newport Beach Public Facilities Corporation E Recorded: —1-12010, Instrument No. 201000 of Oftt�facfal ec rds A� N "I 26. The terms, provisions and other matters of a document entitled ",&SIGNME T REEMENT' dated November 1, 2010, executed by Newport Beach Public FaciIRS Corpora,tion,2s Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded (PrgkForma), o(tOfffcial Records. 27. The effect of any failure to comply with the term'";'pvenants, '�dhditions and provisions of the leases described or referred to in Schedule A. " 28. Any facts, rights, interests o claims which are n6f0shown by the public records but which could be ascertained by making inquiry q& the and' their successors in interest, in the leases described or referred to in Schedu�eJ� �� ' 29. The transaction contemplat dt \in conmection with this Report is subject to the review and approval of the Compa' y s Corpof' to Underwriting Department. The Company reserves the right to add additional itenlSS origmake further requirements after such review. �Cb`•S� V,kyt� Goa,". 30 Thrs�rs�a «.Pro Farma Policy. It does not reflect the present state of the Title and is not a ��"commitm�nt to (i)4i,��lTre the Title or (ii) issue any of the attached endorsements. Any such yv.cgmmitlnent must an express written undertaking on appropriate forms of the Company. END OF SCHEDULE B 10 CLTA Standard C qe Pdfq -1990 (4111/10) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Termxo'fi -��,,, d. "Lease Term ": the duration of the Leasehold Estate, includingil�a�py renewalllbl"extended term if a valid option to renew or extend is contained in the Leisej Pv e. "Personal Property ": chattels located on the Landed rd whichbecause of their character and manner of affixation to the Land, can be sevefed fromhLand without causing appreciable damage to themselves or to the Land to whi they are affixed. cM1'{�q f. "Remaining Lease Term ": the portion of Lease ierin "remaining after the Insured has been Evicted as a result of a matEer?covered bvhis b llcvi g. "Tenant Leasehold Impr vements'W -,nose imp`r'ovements, including landscaping, required or permitted to be built on tfi`e Land byM`L,a ,es`hat have been built at the Insured's expense or in which the Insured has ar IF erest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest gured If in computing loss or da age it b6' es necessary to value the Title as the result of a covered matter that results in an Eviction o t, a ant, the at value shall consist of the value for the Remaining Lease Term of the Leasehold Estate aand�any a �t L•e Behold Improvements existing on the date of the Eviction. The Insured Claimant shall au,e the right to have the Leasehold Estate and the Tenant Leasehold Improvements tG valued eitheea iaswho e o�"eparately In either event, this determination of value shall take into account rent no long quire td be pald's. the Remaining Lease Term. 3. Addifi l`items of loss covered by this endorsement t_Inas If the I smredds Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred`by,"the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. J. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. I of ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6117106) CLTA Endorsement Form 119.5 -06 AttachedtoPolicyNo. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f Reasonable costs incurred by the Insured to secure a replacement leasehodi qu alent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially compleje" the tll eon Eviction, the 11 actual cost incurred by the Insured, less the salvage vale, forte 'e`Wt Leasehold Improvements up to the time of Eviction. Those costs Include costs incurre to obtain land use, zoning, building and occupancy permits, architectural ndgengmeerin " fees, construction management fees, costs of environmental testing an views, l,j�q s9caping costs. This endorsement is issued as part of the policy. Except aPexprssl stag, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior ' dorsemen (i !) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a prmpisig of the policy or a previous endorsement is inconsistent with an express provision of this endorse. ent, th[s endorsement controls. Otherwise, this endorsement is subject to all of the terms atndprov 11 isloof ii polQAnd of any prior endorsements. Dated: PROFORMA I �of� 0 Fidelity National Title INSURANCF COMPANY PROFORMA ALTA Endorsement Form 13-06 (Leasehold — Owners) (6117/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Pmforma) Notwithstanding the provisions of Section 6(a)(i) of the Conditions of this policy, ti available to cover the Company's liability for loss or damage under this policy at the hereunder shall be the aggregate of the Amount of Insurance under this policy and, tP above. At no time shall the Amount of Insurance under this policy and the other P�lide in the aggregate $150,000,000.00. Subjectto the provisions of Section 10(a) offle Co payments made by the Company under this policy or any of the othere�es !der payments made for costs, attorney's fees, and expenses, shall reduce the Yaggregaer amount of the payment. 'MU This endorsement is issued as part of the policy. Except as it terms and provisions of the policy, (ii) modify any prior end increase the Amount of Insurance. To the extent a provis inconsistent with an express provision of this endot�rfi endorsement is subject to all of the terms aAnd(provisions oft Dated: PROFORMA #e 5 Gx+Y' vVg kyfi� i yY 3 r.f3 of loss above exceed !f the policies, all ove, except the Insurance by the n§' does not (i) modify any of the )`extend the Date of Policy, or (iv) licy or a previous endorsement is rsement controls. Otherwise, this of any prior endorsements. 0 fidelity National Title INSURANCE COW-ANY PROFORMA Custom Endorsement SE -55 EXHIBIT 5 PROFORMA TITLE INSURANCE POLICY Title No. 10 -725- 132039 (Oasis Senior Center, 800 Marguerite Avenue) DOCSOC/ 1448946v 1/022459 -0014 SCHEDULE A Policy No.: Proforma Order No. 725132039 X 6 0 Amount of Insurance: $ 126,,000.00 Premium: $ TBD Date of Policy: Date and time of recording 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and eidstin -ftcler the Constitution and laws of the State of California; The Bank of New orwMello�Trust Company, N.A., as trustee, as assignee of the Newport Beach pd&c,fa0cilities ' Corporation, a501( c)( 4) nonprofit public benefitcorporation d lyo anize a�rdexisting under and by virtue of the laws of the State of California ry 1 The estate or interest in the land which is covered by this poli As: 4P A leasehold as created by that certain lease dated Nove —rin r 010, executed by City of Newport Beach, a California municipal corporation and charteretl c ty, as lessor and Newport Beach Public Facilities Corporation, as lessee, as referenced in theocument entifjEd "Site Lease ", which recorded JJ2010, Instrument No. 201000 Official Records, for the term, upon and subject to all the provisions contained in said, doEUmentai „in'said lease. A subleasehold as created by !at certain ease /PuRthase Agreement dated November 1, 2010, executed by Newport Beach Publi alines Edtp oration, as sublessor, and City of Newport Beach, a California municipal corporatiocyan� chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchse,Agreement ",which recorded _/_/2010, Instrument No. 201000 of,',f c Recorip or the term, upon and subject to all the provisions contained in said docun�Sent, andj'saido-�ease. G� Matters tooter ern that certin}'document entitled "Assignment Agreement" dated November 1, 2010,..executelby and be[ween Newport Beach Public Facilities Corporation and The Bank of New Yqr �- on`i'rus�yGompany, N.A., a national banking association organized under the laws of the United Sta�es ofAmerWas trustee recorded _/_/2010, Instrument No. 2010000 of is hereby made to said document for full particulars. 3. Title to <Ahe estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A” ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISAT TACHED CLTA Standard Coverage PO -199 PollcyNo. LEGAL DESCRIPTION EXHIBIT "A" PARCEL I OF PARCEL MAP NO. 2008 -161, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 367, PAGES 26, 27 AND 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE ABOVE DESCRIBED PROPERTY, TOGETHER WITH THE RIGHT TO EXPLORE FOR, DEVELOP`EXTRACTAND REMOVE THE SAME THEREFROM BY SLANT DRILLING OR OTHER LIKE METHODS WITH ib IICKS OR DRILL RIGS LOCATED OUTSIDE OF THE BOUNDARIES OF SAID PROPERTY, AS RESERD;BY HEIRVINE COMPANY IN THE DEED RECORDED MAY 5, 1959, IN BOOK 4698, PAGE 478, O FFICIA REC(SRDS. ALSO EXCEPTING ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATO L GAIGHS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAMA D ALL P�QDUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PARIE -L�OFgLA�fVD HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DLUL'CING, tING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THRSAM A OM S #ID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTION LLY DRIP AND'MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLSg tyNNELS A 1'D SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINAEO Wq'ESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELD TUNNELS Rg SHAFTS UNDER AND BENEATH OR 0 BEYOND THE EXTERIOR LIMITS THEREG)Pf AND hb REDRI�L, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MILS, WITHODUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE, AND OPERATE THRO JGH7.TkIE �S RFACE C THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIB , AS MET2,VEI7 BY THE IRVINE COMPANY, IN THE DEED RECORDED ARPIL 29, 1986, AS INSTRUMENTJVO. 86- 70658, OF OFFICIAL RECORDS. APN: 458- 651 -02, 458- 651 -11, 4�8 65 ?x,13 pEs'vt� 3 �Y CLTA Sbadard Cove., Policy -1990 PolicyNo. SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. 1. 2. 3. 4. S. PART II Property taxes, which area lien not yet due and payable, including taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust land. with in and to said The Tien of supplemental taxes, if any, asses "sedpursuant to the provisions of Chapter 3.5 (Commencing with Section 75 of the RevenkJe ( g ) andTaxatiancode of the State of California. Affects: The interest of The Bank "of New Yo ,jk Mellon TPA Company, N.A., as Trustee in and to said land.y o lei a, Water rights, claims or title to waelr wDether or not disclosed by the public records. 1Q F ' Easement(s) for theP"%purpose(A'sshown below and rights incidental thereto as granted in a document. Gra to: So ern California Edison Company Pu pose':?,' Public utilities and incidental purposes ded' ,Y ebruary 14, 1918, Book 318, Page 90, of Official Records A�tfects� Said land The to "��` s,a d provisions contained in the document entitled "Modification Agreement" recorded May 18, 194 71n Book 1845, Page 120 of Official Records, by and between the Irvine Company and Southere6lifornia Edison Company. The effect of a map purporting to show the land and other property, filed in Book 80, Page 11 of Record of Surveys. QTA Standard rnv ., P.11, -1990 (4111/10) SCHEDULEB — PARTII(continued) PolicyNo. 6. The effect of a map purporting to show the land and other property, filed in Book 88, Page 35 of Record of Surveys. Covenants, conditions and restrictions in the declaration of restrictions but omitting any covenants or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of income, as set forth in applicable state or federal laws, except to the extent that said covenant or restriction is permitted by applicable law. Recorded: June 10, 1977, Book 12237, Page 693, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shalnot defealaelien of any mortgage or deed of trust made in good faith and for value. '' and re- recorded June 24, 1977, Book 12261, Page 941, of 8. Easement(s) for the purpose(s) shown below and document. ,. Granted to: Purpose: Recorded: Affects: 9. The effect of a map Record of Surveys. Southern California Either or both undE Said as granted in a its and incidental purposes 467, of Official Records the land and other property, filed in Book 102, Page 46 of 10. Matters contained in tat certain`d6cument entitled "Short Form - Memorandum" dated None shown, executed by and betwe� The Iry e Company and Donald L. Bren Company recorded April 17, 1986, InstrumentNo�Ss 1532 ", fcialRecords. R,e eq -is he e ,made to said document for full particulars. 11 Covenants, conditions and restrictions in the declaration of restrictions but omitting any code a.ts or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, se al orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source o� income, as set forth in applicable state or federal laws, except to the extent that said covenantor restriction is permitted by applicable law. Recorded: April 29, 1986, Instrument No. 86- 170657, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any mortgage or deed of trust made in good faith and for value. UTA St nd@yd Cweage Pelf y -1990 (4 /11/10) SCHEDULEB - PARTII(continued) PolicyNO. 12. The right to place on, under or across said land, transmission lines and other facilities for a community antenna television system and the right to enter upon said land to service, maintain, repair, reconstruct and replace said lines and facilities; provided, however, that the exercise of such rights shall not unreasonably interfere with land owner's reasonable use and enjoyment of said land, as reserved by the Irvine Company in deed recorded April 29, 1986 as Instrument No. 86- 170658 of Official Records. The exact location and extent of said easement is not disclosed of record. 13. Intentionally Deleted » >ro 14. The following matters shown or disclosed by Tract Map No. 11949: Letterelotsp ancj 8re for park purposes. 15. Easement(s) for the purpose(s) shown below and rights mcirl ereto -`--b elineated or as offered for dedication, on the Map of said Tract No 11949.T' M Purpose: Public emergency and security �in�gyretI ress and public utility purposes Affects: Said map I', f Ir� 16. Easement(s) for the purpose(s) shown belowand ngFjtv -i incidental thereto as granted in a xk document. � t � g Granted to: Southeim, illforni �d son Clompany Purpose: Public utirjiwes and ir4cide i aapurposes Recorded: October fi86, Ins ment No. 86- 467792, of Official Records Affects: As described`th'ereI 12MWI 17. A lease entitled Site; Lease for to term, upon and subject to all the provisions contained in said document, and ims idKlea e Lessor, Less N a h Bea Public Facilities Corporation California municipal corporation and chartered city Newport Be e,G° x Record" "4 A _JJ_/2010, Instrument No. 201000 of Official Records 18. Th"NOEer s, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT" dated Nove'Mif 4,,rQ010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank A ew York Mellon Trust Company, N.A., recorded (Pro Forma), of Official Records. 19. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. aTA 5bndard Coverage Polio/ -1990 (4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 21. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. 22. The transaction contemplated in connection with this Report is subject to the review and approval of the Company's Corporate Underwriting Department. The Company reserves the right to add additional items or make further requirements after such review. END OF SCHEDULE IS F 3# ¢ ,! Is' , I& 5mndard C Ve2ge Pd fq - 19%(4/11(10) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term��," d. "Lease Term ": the duration of the Leasehold Estate, valid option to renew or extend is contained in the e. "Personal Property ": chattels located on the Land d d p7 and manner of affixation to the Land, can be seu wed fror damage to themselves or to the Land to whi, hey are f. "Remaining Lease Term ": Evicted as a result of a m g. "Tenant ": the tenant accordance with the Claimant. h. "Tenant Leasehold2Itnp permitted to be built oni in which the Ins,apd has 2. Valuation of by term if a because of their character withoutcausing appreciable after the Insured has been er acquisition of all or any part of the Title in of the Conditions of this policy, the Insured Those improvements, including landscaping, required or the Lease that have been built at the Insured's expense or greater than the right to possession during the Lease Term. If. n£compuY'ng lossS that res „or damage it becomes necessary to value the Title as the result of a covered matter u�l1t,s In ant) ofEheTenant, then that value shall consist of the value for the Remaining Lease Term of the-Vi a°sehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured chant` shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued eitherasa whole or separately. In either event, this determination of value shall take into account rent no longer requ'ifM to�be paid for the Remaining Lease Term. 3. Additions items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Propertyfor the initial one hundred miles incurred in connection I of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of„the Insured in any t:a lease or sublease made by Tenant as lessor of all or part of the Leasehold, Esfat&gthe Tenant Leasehold Improvements. [#S e. Damages that the Insured is obligated to pay to lessees or sublesseeson accirtaf the breach of any lease or sublease made by the Tenant as lessor of all orrt of Gee Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction � -" f. Reasonable costs incurred by the Insured to secure Leasehold Estate. _ g. If Tenant Leasehold Improvements are not actual cost incurred by the Insured, les Improvements up to the time of Eviction,31 zoning, building and occu mss§ 9, 9 ��cy pef Its;, managementfees, costs,pf -en ironmental I This endorsement is issued as par"E`bftr of the terms and provisions of the policy, Qt.j;p (iv) increase the Amount of Insurance. Tb tha inconsistent with an express provisro�n of tl endorsement is subject to all of tlh�ermsd Dated: PROFORMA C 1? (of 3 equivalent to the y coffil6fed at the time of Eviction, the 1ge value, for the Tenant Leasehold xlude costs incurred to obtain land use, 4T and engineering fees, construction reviews, and landscaping costs. § xcepyas it expressly states, it does not (i) modify any pN endorsements, (iii) extend the Date of Policy, or provision of the policy or a previous endorsement is ement, this endorsement controls. Otherwise, this of the policy and of any prior endorsements. 0Fidelity National Title INSURANCE COWANY •� �[w-, ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, It available to cover the Company's liability for loss or damage under this policy at the hereunder shall be the aggregate of the Amount of Insurance under this policy and,h above. At no time shall the Amount of Insurance under this policy and the other pglioie in the aggregate $150,000,000.00. Subject to the provisions of Section lo(a) of kF e Coi payments made by the Company under this policy or any of the other Me >s 1 e payments made for costs, attorney's fees, and expenses, shall reduce the aggreg� Ai amount of the payment.mj This endorsement is issued as part of the policy. Except as it terms and provisions of the policy, (ii) modify any prior end increase the Amount of Insurance. To the extent a provE inconsistent with an express provision of this endorSa E endorsement is subject to all of the terms aprovons oft Dated: PROFORMA �pgS (f3 of loss ifl fftibove exceed s of the policies, all above, except the of Insurance by the es" jtdoes not (1) modify any of the )ITXtend the Date of Policy, or (iv) licy or a previous endorsement is rsement controls. Otherwise, this of any prior endorsements. 0 ridelity National Title INSURANCE COWANY PROFORMA Custom Endorsement SE -55 EXHIBIT 6 PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132041 (Fire Station 3/Police Station, 868 -870 Santa Barbara Drive) DOCSOC/ 1448946x7 /022459.0014 Policy No.: Proforma Date of Policy: Date and time of recording Name of Insured: SCHEDULEA Order No. 725132041 G 6-0 Amount of Insurance: $ 126AIG6000.00 Premium: $ TED CITY OF NEWPORT BEACH, a chartered city duly organized and 4—sta g u[ de'r the Constitution and laws of the State of California; The Bank of blew Yor :Mellon Trust Company, N.A., as Trustee, as assignee of the Newport 1§eaeh Public Facilities Corporation, a 501 c 4 nonprofit p OO p public benefit corporation duly, organized and existing under and by virtue of the laws of the State of q`�fornia�g 2. The estate or interest in the land which is covered by this pralp is: A leasehold as created by that certain lease datGdj IJovembe _ 010, executed by City of Newport Beach, a California municipal corporahor j chartere Kity, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as re grenced in the document entitled "Site Lease ", which recorded _%2010, Instrumen Nq 2 11000 of Official Records, for the term, upon and sub;e -,,all t1�e provi oils contained m said document, and in said lease. a• A subleasehold as created by tth �certam L?e'`5o %Purchase Agreement dated November 1, 2010, executed by Newport Beach p �i11 11,acilities C rporation, as sublessor, and City of Newport Beach, a California municipal corpo a ign,and chartered city, as sublessee, as referenced in the .t, document entitled "Mem I'll rantlu of Lease /Purchase Agreement ", which recorded _1_12010, Instrument No. 20100Q ,.of Official Records, for the term, upon and subject to all the provisions contained in said d,111111 ment, and in said lease. i that certain document entitled "Assignment Agreement" dated November 1, and between Newport Beach Public Facilities Corporation and The Bank of company, N.A., a national banking association organized under the laws tares of America, as trustee recorded _/_J2010, Instrument No. of Official Records. made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISATTACHED MTA Standard Coverage Poky, 1990 PolicyNo. LEGAL DESCRIPTION EXHIBIT "X' THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP, IN THE CITY OF NEWPORT BEACH, COUNTY OF Oj2ANGES,AE OF CALIFORNIA, AS PER MAP FILED IN BOOK 55, PAGE 31 OF PARCEL MAPS, IN TH O FILE OF THE COUNTY RECORDER OF SAID COUNTY. : EXCEPTING THEREFROM ALL OIL, GAS, PETROLEUM AND OTHER I CONVENIENT RIGHT TO EXPLORE AND EXTRACT AND TAKE ON AND 500 FEET FROM THE SURFACE OF SAID LAND BY MEANS OF WELLS FROM THE SURFACE LOCATIONS AS RESERVED BY THE IRVINE E-b 28, 1970 IN BOOK 9357, PAGE 805 AND FEBRUARY 1, 1973- N tsC RECORDS. APN: 442 - 261 -07, 08 AND 09 30 SUBSTANCES AND BELONlTHE DEPTH OF OF OTHER EQUIPMENT 'DEED RECORDED JULY PAGE 27 OF OFFICIAL QTA SprMard Coverage Policy - IM PolicyNo. SCHEDULES EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. M &„ 1. 2. 4. PART II Property taxes, which are a lien not yet due and payable, includi "g any with taxes to be levied for the fiscal year 2010 -201: _ `1 Affects: The interest of The Bank of New York Mellon said land. , collected as Trustee in and to The lien of supplemental taxe`sT; if a#' , assessed. pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) b h Revenue and Tkation code of the State of California. .& �ti Affects: The interest of The Bani(New YbrkMe on Trust Company, N.A., as Trustee in and to C said land. �"^ R-,+ , Water rights, claims4i title t gWatelf,, whether or not disclosed by the public records. f Easements) the purpo5e(s) shown below and rights incidental thereto as granted in a �'RAPacific Postal Telegraph -Cable Company, a corporation 3 Pole lines, ingress and egress May 26, 1893, Book 81, Page 202, of Deeds The exact location and extent of said easement is not disclosed of record. CITA Standard Coverage Polity -199D (4111110) SCHEDULEB — PARTII(continued) PolicyNo. S. A perpetual air or flight easement, and rights incidental thereto, sometimes referred to as avigation rights, in and to all the air space above those portions of particular planes or imaginary surfaces that overlay said land for use by aircraft, present or future, from or to the Orange County Airport, said easements and rights being more particularly described and defined in a document; 6. 8. 9. Granted to: County of Orange Recorded: March 17, 1964, in Book 6965, Page 721 of Official Records The planes above which said easement(s) lie are more particularly described in said document, and shown on a map referred to therein. Easement(s) for the purpose(s) shown below and rights document. Granted ta: City of Newport Beach, a municipal Purpose: Public utility Recorded: March 3, 1966, Book 7857, Page 5( Affects: Commencing at a point on the cenl wide, said point being the2he Southeasterly having a r 1 26' 42 "; thence North 43° 30,1 fine; thence at right'i,U., to s 60.00 fee"t,to thds`True'Polnt ots center!! ne North I3° 30' 3I ast I in a of Jars, boree Road, 100.00 feet Drminus of a curve concave Meet and a central angle of 90 `490.00 feet along said center erline South 460 29' 29" East )ing; thence parallel with said feet. lying within Tract No. 6015. Easement(s) for the pu_r -'&( show " r k6elow and rights incidental thereto as granted it document. t° I�=CIty of Newport Beach, a municipal corporation s x J� S{r4Wand highway December 17, 1970, Book 9493, Page 359, of Official Records A portion of said land as more particularly described in said document. Conditions and Easements reserved by the Irvine Company in Grant Deed 28, 1970, in Book 9357, Page 805, Official Records. Granted to: Purpose: Conditions and Easements reserved by the Irvine Company in Grant Deed recorded February 1, 1973, in Book 10538, Page 27, Official Records. CLTA Sbnd.r Coverage Policy- 19%(4/11110) SCHEDULEB — PARTII(continued) PolicyNo. 30. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Underground electrical supply systems and communication systems Recorded: December 31, 1973, Book 11048, Page 418, of Official Records Affects: A portion of said land as more particularly described in said document. 11. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. N Lessor: City of Newport Beach, a California municipal corporatiorand c( filtered city F p x Lessee: Newport Beach Public Facilities Corporation ANVb k Recorded: _JJ2010, Instrument No. 201000oOff is al Records 12. The terms, provisions and other matters of a document?i titled ASS GNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beac ffll xF"Cilit(es�Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N A, rL corded (,P,ro, orma), of Official Records. 13. The effect of any failure to comply with tthhgx,TWTM cove] arifs, conditions and provisions of the leases described or referred to iSefieduleA. �i 14. Any facts, rights, interests d' s not shown by the public records but which could be ascertained by making ingGiry of the lessors and their successors in interest, in the leases described or referred to in Sc' i d le Ae /f iv 15. The transaction oil emplatein connection with this Report is subject to the review and approval of theCOmpasCOr{5rate Underwriting Department. The Company reserves the right to a{Idaddithtems or make further requirements after such review. Pro Forma Policy. It does not reflect the present state of the Title and is not a it to (1) insure the Title or (ii) issue any of the attached endorsements. Any such it must be an express written undertaking on appropriate forms of the Company. END OF SCHEDULE B 5 CLTA 52ndard fnverage Polity -1990 (4113J30) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improveme rsil o°�n the purposes permitted by the Lease, in either case, as a result of a matter covered by this �h s Ali b. "Lease ": the lease agreement described in Schedule A. 0 C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term": the duration of the Leasehold Estate, if a valid option to renew or extend is contained in tl or extended term e. "Personal Property ": chattels located on th,�ttdnd anid fpfoperty that, because of their character and manner of affixation to theATAVd, can beJsevered from the Land without causing appreciable damage to themselves or toft e, Land to which they are affixed. f. "Remaining Lease Term ,jthe po tlon of teease Term remaining after the Insured has been Evicted as a result of a matter covereddbb"' his policy. g. Tenant ": the tenant and Leas and,�after acquisition of all or any part of the Title in accordance with the provisroms of Section 2 of the Conditions of this policy, the Insured Claimant. h. "Tenant Leasehod Imprdve entV: Those improvements, including landscaping, required or permitted to be` -,uilt on the; and by the Lease that have been built at the Insured's expense or in whicha�ledsured hasan interest greater than the right to possession during the Lease Term. , 2. Va(klatfofgfEstate"Ipterest Insured I}com�� Ming loss qr' damage it becomes necessary to value the Title as the result of a covered matter thatxree u' in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of to Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insi'r dPClaimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent, no longer required to be paid for the Remaining Lease erm. 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of 1of3 ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6117106) CLTA Endorsement Form 119.6 -06 AttachedtoPolicyNo. transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted d. The fair market value, at the time of the Eviction, of the estate or interest cf the�jpsured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold 616 a or the Tenant Leasehold Improvements. e. Damages that the Insured Is obligated to pay to le breach of any lease or sublease made by the Tenant Estate or the Tenant Leasehold Improvements cause; f. Reasonable costs incurred by the Insured to the Leasehold Estate. g. If Tenant Leasehold Improvements the actual cost incurred b tl7je Im Improvements up to the4 fffm " "e&of N .. use, zoning, building and Poccu s construction management fees cos! costs. KIM This endorsement is issued any of the terms and provisions o Policy, or (iv) increase the Amur endorsement is inconsiste witi, Otherwise, this endorsement is u endorsements. .� 4 the see$un account of the or part of the Leasehold leasehold equivalent to ally completed at the time of Eviction, wage value, for the Tenant Leasehold :s include costs incurred to obtain land architectural and engineering fees, ll testing and reviews, and landscaping s part of ti eiolicy. Except as it expressly states, it does not (i) modify he >o icy, (ii'M p odify any prior endorsements, (iii) extend the Date of of Insurance. To the extent a provision of the policy or a previous i express provision of this endorsement, this endorsement controls. eft kovall of the terms and provisions of the policy and of any prior -2- r3 _'°° Fidelity National Title INSURANCE COMPANY 00001110 ALTA Endorsement Form 13.1 -06 (Leasehold - Loan) (6117/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, available to cover the Company's liability for loss or damage under this policy at tk hereunder shall be the aggregate of the Amount of Insurance under this,pol identified above. At no time shall the Amount of Insurance under this policy, and t above exceed in the aggregate $150,000,000.00. Subject to the prow sios oecti of the policies, all payments made by the Company under this poll off' , any, ti above, except the payments made for costs, attorney's fees an fpenses,'sf Amount of Insurance by the amount of the payment. "o. This endorsement is issued as part of the policy. Except as the terms and provisions of the policy, (ii) modify any prior' ('iv) increase the Amount of Insurance. To the extenr�00 o inconsistent with an express provision af�fthis e#rsem4 endorsement is subject to all of the terms and pr(PA.Rions of Dated: PROFORMA l Y e' fa(3��`�y — r. MIS- �t 4` /// -3 (3 3 ayf"aeht of loss he�gther policies policies identified of the Conditions policies identified e the aggregate ly staE`es, it does not (i) modify any of ents, (iii) extend the Date of Policy, or id1policy or a previous endorsement is ndorsement controls. Otherwise, this and of any prior endorsements Fidelity National Title LtiSURANCE COMPANY ;• •;y: Custom Endorsement 5E -55 EXHIBIT 7 PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132044 (Fire Station 4,124 Marine Avenue) DOCSOC/1448946vl/022459 -0014 SCHEDULEA Policy No.: Proforma Order No. 725132044 Amount of Insurance: $ 126,60,000.00 Premium: $ TBD Date of Policy: Date and time of recording 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and efttirfigL der the Constitution and laws of the State of California; The Bank of New for�rile`ll Trust Company, N.A., as Trustee, as assignee of the Newport Beach PrblicFACilities a �v= Corporation, a5O1( c)( 4) nonprofit public benefitcorporation dilyoganize[ ndexisting under and by virtue of the laws of the State of California' s 2. The estate or interest in the land which is covered by this A leasehold as created by that certain lease dated Novem°LaAr`1, 2010 exrcuted by City of Newport Beach, a California municipal corporation and chartere IIt ass lessor; and Newport Beach Public Facilities Corporation, as lessee, as referenced in thedoeument entitred "Site Lease ", which recorded _1__12010, Instrument No. 201000 gffiicial Records, for the term, upon and subject to all the provisions contained in said do e Qment,' d .4m'said lease. 13 2 A subleasehold as created by t at certa (Lez'se' /Puri chase Agreement dated November 1, 2010, executed by Newport Beach Pubil a A le E vr�aton, as sublessor, and City of Newport Beach, a jr California municipal corporation a red city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purc asehA Neement ", which recorded _/_/2010, Instrument No. N 201000 Ott al, Records for the term, upon and subject to all the provisions Matters contai ef1`n th3te ai document entitled "Assignment Agreement" dated November 1, 2010,4e( utly and between Newport Beach Public Facilities Corporation and The Bank of New Yo *fu Tr6fteompany, N.A., a national banking association organized under the laws of the United-St s of Ame[ica as trustee recorded _ 1_12010, Instrument No. 2010000 of Is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISAT TACHED QTA S=in tl C A.qe P01 -1990 PolicyNo. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP 92 -139, IN THE CITY OF NEWPORT BEACH, COUNTY OF O,RA%E, STATE OF CALIFORNIA, AS PER MAP FIILED IN BOOK 314, PAGES 36 AND 37 OF PARCEL MAPS IN T41--0- ICE OF THE COUNTY RECORDER OF SAID COUNTY. .w r^ 99 CITA Standard Cw m9e Policy -1990 PolicyNo. SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs i through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including arafj'ass�ssmehQ- ,Fc_bllected with taxes to be levied for the fiscal year 2010 -2011. �e Affects: The interest of The Bank of New York Mellon Trust Com any 5A, as Trtustee in and to said land.e, 2. The lien of supplemental taxes, if any, asses'se0pyrrssuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenlae�nd - Taxati%ihldde of the State of California. y �s .IT Affects: The interest of The Ban�of New York Mellon st Company, NA., as Trustee in and to said land...„ 3. Water rights, claims or title to wate whether or not disclosed by the public records. G 42 4. Conditions and restritions contained in the deed from Newport Land Company, a corporation, to George R. Wilton, and ENS, Gilmoref dated December 1, 1913, and recorded in Book 243, Page 392, R+hry f`j' Fj3 of Deeds, in the q"ifice of�he�coafity recorder of said Orange County, omitting restrictions based upon race g lor, re iglon, etc. e � 5 ,,- Easemek(s) for t e purpose(s) shown below and rights incidental thereto as granted in a Affects: City of Newport Beach, a municipal corporation Street and highway October 8, 1968, Book 8746, Page 169, of Official Records As described therein CLTA S2.dard Coverage Policy -1990 (4111(10) SCHEDULEB — PARTII(continued) PolicyNo. 6. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: _J_/2010, Instrument No. 201000 , of Official Records 7. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded (Pro Forma), of Official Records. S. The effect of any failure to comply with the terms, covenants, conditions and provisi6risof the leases described or referred to in Schedule A. 9. Any facts, rights, interests or claims which are not shown be ascertained by making inquiry of the lessors and their, described or referred to in Schedule A. JX 10. The transaction contemplated in connection approval of the Company's Corporate Underwritifag add additional items or make furrttf��',requirement OR- M4' 11 it which could in the leases epot is subject to the review and q' The Company reserves the right to review. CITA Standard @usage Policy -1990 (4111/10) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. -, 0 b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Ter 'Vfm RIP n d. "Lease Term ": the duration of the Leasehold Estate, valid option to renew or extend is contained in the e. "Personal Property ": chattels located on the Land ,,and pR and manner of affixation to the Land, can be seveied fror damage to themselves or to the Land to whicthey are f. "Remaining Lease Term ": Evicted as a result of a m g. "Tenant ": the tenant accordance with the Claimant. h. "Tenant Leaseholdilf-iot permitted to be puilt onl n which the Insured has by term if a because of their character without causing appreciable after the Insured has been ter acquisition of all or any part of the Title in of the Conditions of this policy, the Insured 'Those improvements, including landscaping, required or the Lease that have been built at the Insured's expense or greater than the right to possession during the Lease Term. 2. Valuation of Estat or Intere%�'siTred §v e If } compur g loss `E mage it becomes necessary to value the Title as the result of a covered matter that results in an �vction of ehant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold 1 Cate and jny Tenant Leasehold Improvements existing on the date of the Eviction. The Insured C�tma, -t shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued eitheraa�whole or separately. In e ther event, this determination of value shall take into account rent no longer requ e 9,be paid for the Remaining Lease Term. 3. Additional' items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection 1 of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17106) CLTA Endorsement Form 119.6 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold .ts a e g the Tenant Leasehold Improvements. Clio ! �h e. Damages that the Insured is obligated to pay to lessees or sublessn account of the breach v of any lease or sublease made by the Tenant as lessor of all or,p art su offhe asehoI Estate or the Tenant Leasehold Improvements caused by the Evictgn ? f. Reasonable costs incurred by the Insured to secure Leasehold Estate. _ g. If Tenant Leasehold Improvements are not actual cost incurred by the Insured, les Improvements up to the time of Eviction - T;I -4 zoning, building and occupancy permits; management fees, costs.4fnvironiental This endorsement is issued as paff_ofl of the terms and provisions of the policy, W)' (iv) increase the Amount of Insurance. llo the inconsistent with an express provision of tl endorsement is subject to all of t e`ft�rrr Ffrind 7 N Dated: PROFORMA !� 5 T� r2--1 1 of equivalent to the y coNlefed at the time of Eviction, the age Alue, for the Tenant Leasehold i&de costs incurred to obtain land use, I and engineering fees, construction reviews, and landscaping costs. xceptI s it expressly states, it does not (1) modify any 3or endorsements, (iii) extend the Date of Policy, or provision of the policy or a previous endorsement is ement, this endorsement controls. Otherwise, this of the policy and of any prior endorsements. 0 Fidelity National Title INSURANCE CONTANY PROFORMA ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6117/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another; (Proforma) Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, t available to cover the Company's liability for loss or damage under this policy at the hereunder shall be the aggregate of the Amount of Insurance under this policy and.th above. At no time shall the Amount of Insurance under this policy and the other R_00e in the aggregate $ Subject to the provisions of " policies, all payments made by the Company under this policy or any of they a p�olicie the payments made for costs, attorney's fees, and expenses, shall reduce the aggregat the amount of the payment. 'Its' This endorsement is issued as part of the policy. Except as it terms and provisions of the policy, (ii) modify any prior end increase the Amount of Insurance. To the extent a provV inconsistent with an express provision of this endosemE endorsement is subject to all of the terms slid k,provlsibns of Dated: PROFORMA y F (.-f 3 3 of loss above exceed editions of the above, except f Insurance by =jtrdoes not (i) modify any of the extend the Date of Policy, or (iv) icy or a previous endorsement is rsement controls. Otherwise, this of any prior endorsements. 0 Fidelity National Title INSURANCE. COMPANY PROFORMA Custom Endorsement 5E -55 PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132711 (1100 and 1300 Avocado) DOCSOC/ 1448946v1/022459 -0014 SCHEDULE Policy No.: Proforma Order No. 725132711 U-0 Amount of Insurance: $ 126,66,000.00 Premium: $ TBD Date of Policy: Date and time of recording 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and eistin'ffi�ondejr the Constitution and laws of the State of California; The Bank of New M.Pir Met .0i1rust Company, N.A., as trustee, as assignee of the Newport Beach Pudic Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation dul °jwrganiz [ `anti existing under and by virtue of the laws of the State of California' �D 2. The estate or interest in the land which is covered by this pohcy' "is 'k A leasehold as created by that certain lease dated Nove, er 010, ex cuted by City of Newport . Beach, a California municipal corporation and charterer, as9e5sor and Newport Beach Public Facilities Corporation, as lessee, as referenced in thkt, 0 ent ent�le5d "Site Lease ", which recorded _J2010, Instrument No. 201000 ", of£sOcial Records, for the term, upon and MVk subject to all the provisions contained In saidr ocgrrtyent, Sr@qin said lease. A subleasehold as created by khaat certai�Lease /Pu %ase Agreement dated November 1, 2010, executed by Newport Beach PubU,I x cilitle L o loon, as sublessor, and City of Newport Beach, a California municipal corporatior�,Iffi Xthartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /PurclIft Agreement" ' which recorded _J_J2010, Instrument No. 201000 o fficial Rec r"ssor the term, upon and subject to all the provisions contained in said docun?e end i saW ase. � m, s Matters contain e rn tha ai document entitled "Assignment Agreement" dated November 1, 20i0, _ gcuted�b and between Newport Beach Public Facilities Corporation and The Bank of New Yod�M l o Trust Company, N.A., a national banking association organized under the laws of the nitedilta[nes of Amei�;as trustee recorded _JJ2010, Instrument No. 2010000 , of is hereby made to said document for full particulars. 3. Title to:the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISATTACHED QTA Rendar Coverage Poriq -3990 PolicyNO. LEGAL DESCRIPTION EXHIBIT "W' THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 3 OF PARCEL MAP 90 -361, IN THE CITY OF NEWPORT BEACH, AS PER MAP RECORDED IN BOOK 270, PAGE(S) 15 THROUGH 18, INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUW,.RECORDER OF ORANGE COUNTY, CALIFORNIA. APN: 442 - 014 -27 aTAb ndard Coverage Policy -199D PolicyNo. SCHEDULE EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II J 1. Property taxes, which area lien not yet due and payable, including a j sse assme t�scoI ected with taxes to be levied for the fiscal year 2010 -2011. V \r 2. 3. 4 Affects: The interest of The Bank of New York Mellon Trust land. The lien of supplemental taxes, if any, (Commencing with Section 75) of the Revem Affects: The interest of The land. The herein described District ( "CFD "), as follo New YArk Mellon as Trustee In and to said the provisions of Chapter 3.5 of the State of California. N.A., as Trustee in and to said boundaries of a Mello -Roos Community Facilities CFD No.: 90-1 For. (e New ,'art-Mesa Unified School District `x Disclosed By <Npjrgg f Special Tax Lien Recorded:t August 24, 1990, Instrument No. 90- 453226, of Official Records t° ftli Fein described property lies within the boundaries of a Mello -Roos Community Facilities D)srtcG:( "CFD "), as follows: CFD 1\1024 Special Improvement District No. 95 -1 For: City of Newport Beach Disclosed By: Notice of Special Tax Lien Recorded: July 6, 1995, Instrument No. 95- 0288272, of Official Records and recorded: December 13, 1995, Instrument No. 19950556213, of Official Records MA Standard Coverage Pdfq -1990 (4)11110) SCHEDULEB - PARTII(cordinued) PolicyNo. and recorded: December 13, 1995, Instrument No. 19950556214, of Official Records 5. Intentionally Deleted 6. Water rights, claims or title to water, whether or not disclosed by the public records. 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation sag Purpose: Public utilities 611 1 Recorded: February 14, 1918, Book 318, Page 90, of Deeds - Affects: A portion of said land as more particularly desUlb d,jn sai bcument. Included within said deed is a Grant of Easement for ingress aniegressbyer the lands of the Irvine Company. Said easement was modified by an agreement;recorded Ma 18 1949, in book 1845, Page 120, of Official Records. ''m'- .;51%„ ; 8. Easement(s) for the purpose(s) shown below and�Ithhts incidental thereto as granted in a document.�� Granted to: Laun' Beach County Wate istrct Purpose: P. 1.%,k ipe K IN Recorded: Novem er0 1928 221, Page 76, of Official Records Affects: A portion ofd land as more particularly described in said document. Restrictions on the uses bybtthe 3 vners of said land, of the easement area as set forth in the easement document shown her einabove. Reference is rga4 fo safdF ucun%nt for full particulars. ,;r��:ra -b a dee`i dated March,& 1953 certain rights and interests in said easement were conveyed to the of Nlewport Bea' 4 together with the agreements, terms and conditions contained in said deed cl� sf� corded April 14, 1955, in Book 3031, Page 117, of Official Records. 9. A waiver; ih favor of the State of California, of any right to grant any franchise of any kind along the highway adjoining said land on the Northwest, as contained in the deed to the State of California, recorded May 20, 1931, in Book 487, Page 33, of Official Records. 10. the dedication to the State of California of the right of ingress and egress to and from said land from the freeway adjoining along the Southeast side, by deed recorded July 25, 1940, Page 557, Official Records, and by a deed recorded October 1, 1952, in Book 2390, Page 458, of Official Records. 4 CLTA SWdaN Coverage NOW - 3990 SCHEDULEB — PARTH(continued) PolicyNo. 11. the privilege and right to extend and maintain drainage structures, excavation slopes and embankment slopes on said land adjacent tot he freeway abutting thereon, as granted to the State of California, upon the terms and conditions in a deed recorded July 25, 1940, in Book 1047, Page 557, of Official Records. 12. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Pole lines and steel towers Recorded: June 19, 1947, Book 1528, Page 321, of Official Records�.::.''r, Affects: A portion of said land as more particularly described msaid doc ment. The exact location and extent of said easement is not disclosed of rec, , A modification to Grant of Easement, by and between The I company, a Michigan corporation and Southern California Edison Company, a California corporatn ,up on thete'r'ms, covenants therein provided, recorded January 21, 1986, as Instrument Notu�B- 02493, of Official Records. 13. Waiver of any claims for damages to said landscaping or maintenance of the freeway aoo State of California, recorded Bookv350, Page 4 14. Easement(s) for the document. Granted to: Purpose: Recorded: Affects: 1 of the location, construction, as contained in the deed to the rights incidental thereto as granted in a Company 1950, Book 2063, Page 182, of Official Records 'said land as more particularly described in said document. I.S. �perptoal arror flight easement, and rights incidental thereto, sometimes referred to as avigatw fights, I (n a to all the air space above those portions of particular planes or imaginary r "4rf'aces tl at overlaysaid land for use by aircraft, present or future, from or to the Orange County Aijpo h said easements and rights being more particularly described and defined in a document; Graneta; , County of Orange 0 Recorded, March 17, 1964, in Book 6965, Page 721 of Official Records The planes above which said easement(s) lie are more particularly described in said document, and shown on a map referred to therein. QTA Sbn0ard Coverage Polity -1990 (4/11110) SCHEDULEB — PARTII(continued) PolicyNo. 16. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: State of California Purpose: Public highway and pipe lines Recorded: August 25, 1967, Book 8354, Page 25, of Official Records Affects: A portion of said land as more particularly described in said document. 17. Waiver of any claims for damages to said property by reason of the location, construction, landscaping or maintenance of the freeway adjoining said property, as contained in the deed to the State of California, recorded August 25, 1967, Book 8354, Page 25, of Official R rd'& SS. Easement(s) for the purpose(s) shown below and rights incidenta[ thereto a granted in a document. Granted to: Southern California Edison Company, all,„c -ration��" Purpose: Public utilities Recorded: January 13, 1971, Book 9517, Pagf7.�4, of Officia�i ecords Affects: A portion of said land as more, paytcu�arly,descri ed in said document. 19. Easement(s) for the purpose(s) shown below and'afig,ts incidental thereto as granted in a document. °; 7+ !'s 20. 21 Granted to: City of Newport Beach T Purpose: Streetcd highwal9pi„m Recorded: July 6, 19 T Book°122K, Page 1310, of Official Records Affects: A portion oFAs kl land as more particularly described in said document. Easement(s) for the urpose sho below and rights incidental thereto as granted in a document. p 1' 1 Granted to: (N '`'ty�of�7 wport Beach M. Street and highway December 24, 1980, Book 13887, Page 1358, of Official Records 1 portion of said land as more particularly described in said document. Purpose: Recorded: Affects: for the purpose(s) shown below and rights incidental thereto as granted in a City of Newport Beach Storm drain March 3, 1981, Book 13967, Page 424, of Official Records A portion of said land as more particularly described in said document. 6 ■SA R ndard C veage Policy -1990 (4/11/10) SCHEDULER — PARTII(continued) PolicyNo. 22. Recitals as shown on that certain Parcel Map 90 -361, which, among other things states: 1. All vehicular access rights to Mac Arthur Boulevard, except at street intersections are hereby released and relinquished to the City of Newport Beach. 2. All vehicular access rights to Avocado Avenue are hereby released and relinquished to the City of Newport Beach, except at street intersections and the two approved driveways shown herein. Together with three additional driveways to be approved by the Director of Public Works of the City of Newport Beach. 3. The recital on the Parcel Map 90 -361 that states the following improvements are required to be constructed: 5", Asphalt or concrete access roads to all public utilities, vaults, manholes ar&ju ct!R,.W'�cture locations„ and street, drainage and utility improvements for Avocado Avenue, East coast Fhghway, Mac Arthur Boulevard and San Miguel Drive. - � 7 The recital on said Parcel Map 90 -361 that: rF%. A 20 foot wide relocatable pedestrian /bicycle easement shat be dedicatedtto the City of Newport Beach by separate documents across Parcel 3 to provid, .ac if a pedestrian /bicycle bridge is t. constructed across Mac Arthur Boulevard at the pro }gngaTion o kgp�vn Drive. the easement is to provide to both Parcel 2 and Avocado Avenue with thise Ait to be determined when Mac Arthur Boulevard is widened If the bridge is not constructed with the Mac Arthur Boulevard Widening Project, then the easement will be retmowshed - Reference is made to said map4,far full particulars, 3; r 23. Easement(s) for the purpose(s)` sh wn below and rights incidental thereto as delineated or as offered for dedication, on the Parcel l la -061. Purpose: ;�rngre egress Affects: y A portlot`f Parcel 3 for the benefit of Parcel 2. 24. Easements)o� the pur�pose�(s) shown below and rights incidental thereto as granted in a City of Newport Beach, a municipal corporation Street and highway January 23, 1991, Instrument No. 91- 031787, of Official Records A portion of said land as more particularly described in said document. 25. Matters contained in that certain document entitled "Circulation Improvement and Open Space Agreement (Pursuant to Government Code Section 65864- 65869.5)" dated June 30, 1993, executed by and between The City of Newport Beach, California, a municipal corporation and charger city and The Irvine Company, a Michigan corporation recorded July 19, 1993, Instrument No. 93- 0479122, of Official Records. Reference is hereby made to said document for full particulars. CLTA Snndard Covemge Poky -1990 (9/11/10) SCHEDULEB - PARTII(mntinued) PolicyNo. Resolution No. 99 -3, A Resolution of the City Council of the City of Newport Beach, accepting the dedication as offered of Parcel 3 of Parcel Map 90- 361(Resubdivision No. 973) recorded in book 270, Pages 15 and 16 of Parcel Maps, in the Office of the Orange County Recorder, recorded March 20, 2000, as Instrument No. 20000143528, of Official Records. 26. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Highway easement Recorded: March 11, 1996, Instrument No. 19960118594, of OfFcia1 Zecords Affects: A portion of said land as more particularly described i ' aigAd1 cume t, 27. Easement(s) for the purpose(s) shown below and rights incident tftetoto 1" ted in a document. y Granted to: City of Newport Beach, a municipal mrporatlon , Purpose: Slope and drainage Recorded: March 11, 1996, Instrument No 96 L 8 95, of,Off(cial Records Affects: A portion of said land as moretparticula ly` estribed in said document. Restrictions on the use, by the owners of said nd of f@ easement area as set forth in the �yl-' -vL ' E easement document shown here na(iove r p .:a Reference is made to said docu&r�en for Mill. particulars. 4� 28. Easements, Covenants and Conditionontained in the deed from The Irvine Company LLC, a Delaware limited liability eotljpan , , succ�,ssor to the Irvine Company, a Michigan corporation, as aq Grantor, to The City ogkeW orf4ilBeachrfa California municipal corporation, and chartered city, as Grantee, recorded November 28, 2007, as Instrument No. 2007- 0704013, of Official Records. Reference is beJn@"madW,%V-F i�documenC for full particulars. � Artd�mnded an 'gestated in Grant Deed recorded June 2, 2008, as Instrument No. 2008000262433, f o 0ffias1 Records 29. A Lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said documen - rid in said lease. Lessor :4r City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: _/_/2010, Instrument No. 201000, of Official Records 30. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded (Pro Forma), of Official Records. QTA Standard P Vemge Pdiry -1990 (4/11110) SCHEDULEB - PARTII(continued) PolicyNo. 31. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 32. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to In Schedule A. 33. The transaction contemplated in connection with this Report is subject to the review and approval of the Company's Corporate Underwriting Department. The Company rese'"r`es the rightto add additional items or make further requirements after such review. n END OF SCHEDULE B�°x M aTA 6 ndard C emge Polity -1990 (4/11/10) I. a ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy. �a�1 %s, , b. "Lease ": the lease agreement described in Schedule A. �) r gr f C. "Leasehold Estate ": the right of possession for the Lease Term�xi d. "Lease Term ": the duration of the Leasehold Estate, valid option to renew or extend is contained in the e. "Personal Property": chattels located on the I and manner of affixation to the Land, can be damage to themselves or to the Land to wh f. "Remaining Lease Term ": the Evicted as a result of a matte g. "Tenant Leasehold Imp permitted to be built on in which the Insured hay Valuation of Estate or are if a k because oftheircharacter without causing appreciable after the Insured has been s' Those impfovements, including landscaping, required or by thease that have been built at the Insured's expense or ist greater than the right to possession during the Lease Term. If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction o the 01-KNE nt, thedfihat value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any,,e n0easehold Improvements existing on the date of the Eviction. The Insured Claimant shall the right to have the Leasehold Estate and the Tenant Leasehold Improvements V alued elnupo hole or separately. In either event, this determination of value shall take into account rent no Ionge'requlre 2 be pa I' of the Remaining Lease Term. All! o 3 A bgndllitems of loss covered by this endorsement 411 h. If the Instited i5 Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles Incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. 1 of ALTA Endorsement Forth 13 -06 (Leasehold — Owners) (6/17/06) CLTA Endorsement Form 119.5 -06 AttachedtoPolicyNo. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold eUvalent to the Leasehold Estate.a g. If Tenant Leasehold Improvements are not substantially complet�edtat the ti Fi me of( viction, the actual cost incurred by the Insured, less the salvage Vail Tenant Leasehold Improvements up to the time of Eviction. Those costs include. psts inccPir etl -.to obtain land use, zoning, building and occupancy permits, architectural andteh ineering fees, construction management fees, costs of environmental testing and, Te -lews, afi_, lap scaping costs. This endorsement is issued as part of the policy. Except a t>t%xpre N state "s, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior en> orsements;�iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a proy slog f the policy or a previous endorsement is inconsistent with an express provision of this endorsement thrsendorsement controls. Otherwise, this endorsement Is subject to all of the terms apd„prcr ftehh 1„ g poles nd of any prior endorsements. Dated: PROFORMA Y 110-4 rs� �f� Fidelity National Title INTSURANCE COMPANY PROFORMA ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the,A"mouttitA.g Insurance available to cover the Company's liability for loss or damage under this policy at the ti melo�paALNn of loss hereunder shall be the aggregate of the Amount of Insurance under this policy and`t a other=pol'cils identified above. At no time shall the Amount of Insurance under this policy and the other pol�cr V s identif, above exceed n the aggregate $ Subject to the provisions of Sectro10(a)o e Conditions of the �n ' r policies, all payments made by the Company under this policy or any of the ofheepodl cies identified above, except the payments made for costs, attorney's fees, and expenses, shall reducet)ie aggr gate A cunt of Insurance by the amount of the payment. 4' This endorsement is issued as part of the policy. Except as it expressly statestdoes not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorserrlents, (iii) xtend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision - W e policy or a previous endorsement is inconsistent with an express provision of this endorsement, thisaelpdorsement controls. Otherwise, this endorsement is subject to all of the terms at�prov lion fe poh y and of any prior endorsements. Dated: PROFORMA �v" i 2of3 °'° Fidelity National Title INSURANCE COMPANY PROFORMA Custom Endorsement SE -55 EXHIBIT 9 PROFORMA TITLE INSURANCE POLICY Title No. 10- 725132712 (1450 Avocado) D0050 C/1448946v 1/022459 -0014 SCHEDULEA Policy No.: Proforma Order No. 725132712 '06V Amount of Insurance: $ 126,1,000.00 Premium: $ TBD Date of Policy: Date and time of recording Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and gcfsting under the Constitution and laws of the State of California; The Bank of New orkMeliq Trust Company, N.A., as Trustee, as assignee of the Newport Reach Public 'Facilities Vn— Corporation, a 501(c)(4) nonprofit public benefitcorporation duiyorganizeWnd existing under and by virtue of the laws of the State of California 1 2. The estate or interest in the land which is covered by this A leasehold as created by that certain lease dated Novernb(e'ry14,R 10, ex&uted by City of Newport cty Beach, a California municipal corporation and charte e , as I ?r and Newport Beach Public Facilities Corporation, as lessee, as referenced in th dcument entitled "Site Lease ", which recorded _/_/2010, Instrument No 201000 o Official Records, for the term, upon and subject to all the provisions contained in saidp- tic , ent, d jri said lease. A subleasehold as created by 't1at certarr�Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Publip, aalitiesGdp oration, as sublessor, and City of Newport Beach, a California municipal corporatlonari`d�chartered" "city , as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase �gmerri which recorded JJ2010, Instrument No. 201000 of- gfficial Remrds�fnr the term, upon and subject to all the provisions contained in said docume Y andt0,said l ase. Matters conta ned in Eha cent of document entitled "Assignment Agreement" dated November 1, a sz 2010L executed by and between Newport Beach Public Facilities Corporation and The Bank of New YoEI C1eIfQ Trus mpany, N.A,, a national banking association organized under the laws of the ff 4t . ited Sta „es of AMVricaf trustee recorded _/_/2010, Instrument No. 2010000 of is hereby made to said document for full particulars. 3. Title totfie estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A” ATTACHED HERETO AND MADE A PART HEREOF THISPOLICYVALIDONLYIFSCHEDULEBISATTACHED UTA Sbndar Cmenge Policy -1990 PolicyNo. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: THAT PORTION OF PARCEL MAP NO. 88 -163, AS SHOWN ON A MAP FILED IN BOOK 253, PAGES 34 AND 35 OF PARCEL MAPS, IN THE OFFICE OF THE COUNT RECORDER OF ORANGE COUNTY, CALIFORNIA, SHOWN AS "REMAINING PARCEL". I lo. w EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL�LiGHTSj,.NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOW, GEOTHER aAk STd',l' Y OTHER MATERIAL RESOURCES AND ALL PRODUCTS DERIVED FROM ANY OF THEOREGOIG,fTHAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETU��IGHT OFRI'LLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN ANDS fIEMOVIIV6 THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIP,Qy C K OR DIEITONALLY DRILL AN D MINE FROM LANDS OUTSIDE THE PROPERTY, OIL OR GAS WELI9NLSAND;SHAFT SIN TQ THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AN DA", TO BOTT�'I SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFAI UNDER AN�BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUN�L EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOU QWEVER��HE RIGHT TO DRILL, MINE, STORE, EXPLORE OR OPERATE THROUGH THE SIRFACE OR THE PER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. m ALSO EXCEPTING THEREFROM, ANY'i APPURTENANT TO, UNDERLYING OR REJUI CONNECTION WITH THE PROPERTY OR GRANTOR, AND INCLUDING BUTQNOT APPROPRIATNE, PRESCRIPTNEfPERC- I BUT WITHOUT, HOWEVER, 4 Y RIGHT' EXERCISE OF SUCH RESER;, Ef?,IGHTS, A INSTRUMENT NO. 20080�048050FI�OROF F= ALL I'ff � Ptr WATER RIGHTS, OR INTEREST THEREIN 3 TO THE ROPERTY, OR OWNED OR USED BY GRANTOR IN R. ,ANY USE, NO MATTER HOW ACQUIRED BY EU;fTO THE RIGHTS THAT ARE RIPARIAN, OVERLYING, ;�; LITTORAL, ADJUDICATED, STATUTORY OR CONTRACTUAL, ENTER UPON THE SURFACE OF THE PROPERTY IN THE SERVED IN GRANT DEED RECORDED OCTOBER 17, 2008, AS AL RECORDS. MA 5 aodard Coverage Policy- 199 PolicyNo. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, Including anyasssmeiitscallected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Com,��r �y A„ as Trustee in and to said land. ,rte. yam. 2. The lien of supplemental taxes, if any, assessed p rsuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Rev u axati(l -ode of the State of California. Affects: The interest of The Ba k of New York Mellon st Company, N.A., as Trustee in and to said land. Al § 3. An assessment by the improvemehWAstrict shown below land. is colfected with the county /city property taxes. to follow from Title -Tax. interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said 3 QTA Se dard Coverage Policy -1990 (9(11/10) wm cn '� ' Assessment 41 (or Bond) No Series: PARCEL �J 95 1' District: �( tyewport Beach Fork, �F Pudic facilities B,gnd,Offigd, December 12, 1995 land. is colfected with the county /city property taxes. to follow from Title -Tax. interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said 3 QTA Se dard Coverage Policy -1990 (9(11/10) SCHEDULEB — PARTII(continued) PolicyNO. 4. The herein described property lies within the boundaries of a Mello -Roos Community Facilities District ( "CFD "), as follows: CFD No.: Community Facilities District No. 90 -1 For: Community Facilities Disclosed By: Notice of Special Tax Lien Recorded: August 25, 1990, Instrument No. 90- 453226, of Official Records T is prop ty, alon ith all of arcels i e CFD, i 'able for a nual ss !al tax. is spe I ta�sinclud with an ayable wi he gene rope es of the ounty o'F range. a tax mays be pre�rr�� S. The herein described property lies within the boundaries of a Mello -Roos Comm n'i ac I" b pistrict ( "CFD "), as follows: CFD No.: Special Improvement District No, 95 -1 N� For: Community Facilities Disclosed By: Notice of Special Tax Lien Recorded: July 6, 1995, Instrument No. 95- 0288272, RfC1 icial Rerds is r alon th all arcels in CFD is' e Po�r an ualso �c' I tax. hiss al tax pinclude It an able wi he genera perry to of tF e ty of nge. \ \\ and recorded: December 13, 1995, InstrumgfiVflo� a 199SQ;556213, of Official Records and recorded: December 13 X995, Instrument No�995O556214, of Official Records a ' Mill 6. Intentionally Deleted . . =�, pO 'Vi 7. Water rights, claim r title to ater, whether or not disclosed by the public records. S. Th4dedication"rto the State of California of the right of ingress and egress to and from said land rom fhe fre - a dJoining along the Southeast side, by deed recorded July 25, 1940, in Book 1047, Page 557 bf Offaa1itecords, and by a deed recorded October 1, 1952, in Book 2390, Page 458, of 9. The -6 iv�lege and right to extend and maintain drainage structures, excavation slopes and embanq'ent slopes on said land adjoining to the freeway abutting thereon, as granted to the State of California, upon the terms and conditions in a deed recorded July 25, 1940, in Book 1047, Page 557, of Official Records. QTA Standard erage Polity- 1990(4/11/10) SCHEDULEB — PARTII(continued) PolicyNo. 10. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Pole lines Recorded: June 19, 1947, Book 1528, Page 321, of Official Records Affects: A portion of said land as more particularly described in said document. Document(s) declaring modifications thereof recorded January 21, 1986, as Instrument No. 86- 024793, of Official Records. �Celfre- 11. A perpetual air or flight easement, and rights incidental thereto, some to as avigation rights, in and to all the air space above those portions of particular pla ies or4 aginary surfaces that overlay said land for use by aircraft, present or future, from onto the 0)r nge County Airport, said easements and rights being more particularly describedond d" efied ir IL a document; Granted to: County of Orange Recorded: March 17, 1964, in Book 6965, The planes above which said easement(s) lie are n shown on a map referred to therein. Y IN 12. Any fact, rights, interests or claim at may exist that certain Record of Survey fifdd in Boo V641 Pag through 41, inclusive, and in Wpk 88 Page 34, all GSi in said document, and eason of matters, if any, disclosed by 123, inclusive, in Book 82, Pages 37 of Survey. 13. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in document. Ag7' F Granted to: Purpose: Recorded: Affects: 0" I 3. State of 4C "lifornia ubhc h(g way Wtig st,25, 1967, Book 8354, Page 25, of Official Records R A portion of said land as more particularly described in said document. %'W for tie purpose(s) shown below and rights incidental thereto as granted in a 14. Intentionally Deleted 15. Intentionally Deleted Southern California Edison Company, a corporation Public utilities January 13, 1971, Book 9517, Page 474, of Official Records A portion of said land as more particularly described in said document. CITA Swcard Coveage Policy -1990 (4/11110) SCHEDULEB — PARTII(continued) PolicyNo. 16. The fact that the ownership of said land does not include rights of access to or from the street, highway, or freeway abutting said land, such rights having been relinquished by the map of said Tract. Affects: Mac Arthur Boulevard. 17. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: State of California Purpose: Highway easement Recorded: August 4, 1987, Instrument No. 87- 443073, of Officia kec% s Affects: A portion of said land as more particularly described rttrsaidYdocument. 18. Easement(s) for the purpose(s) shown below and rights inadeMal thereto as granted in a document. ,v Granted to: The City of Newport Beach a munic(p I mrpor�trori" Purpose: Construction, reconstruction, operat on f aintenance and repair of a storm drain and appurtenances Recorded: December 11, 1990, Instru neat No. 90- 649873, of Official Records n Affects: A portion of said land as more, p i icularly described in said document. 19. Easement(s) for the purposes) show below andl rights incidental thereto as granted in a documents s, a Granted to: The G °ofa�Ne�wport Beach, a municipal corporation Purpose: Public highwayv Recorded: NAP Fiber 19, °1996, Instrument No. 19960118594, of Official Records Affects: y A po of said °land as more particularly described in said document. 20. 21 Eascinee,nt( "s) for the purpose(s) shown below and rights incidental thereto as granted in a ocumelat? a -t to: the City of Newport Beach, a municipal corporation PdPp -. e, Exclusive street and highway easement Recof 4& July 18, 2000, Instrument No. 20000375409, of Official Records Affects. A portion of said land as more particularly described in said document. 22. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the Parcel Map 88 -163 recorded in Book 253, Pages 34 and 35 of Parcel Maps. Purpose: Roadway purposes and storm drain Affects: As shown on said Parcel Map. 6 aTA Standard Coverage Policy -1999 (4111/10) SCHEDULEB — PARTII(continued) PolicyNo. 23. Intentionally Deleted 24. Covenants, conditions, restrictions and easements as set forth in Grant Deed recorded October 17, 2008, as Instrument No. 2008000480500, of Official Records. 25. Matters contained in that certain document entitled "Encroachment Agreement" dated October 1, 2008, executed by and between City of Newport Beach, a California municipal corporation organized and existing under and by virtue of its Charter and the Construction and laws of the State of California and The Irvine Company LLC, a Delaware limited liability company recorded October 17, 2008, Instrument No. 2008000480501, of Official Records. Reference is hereby made to said document for full particulars. 26. A lease entitled "Site Lease" for the term, upon and subject to all the' fusions o ed in said document, and in said lease. el 27 28. 29. Lessor: City of Newport Beach, a California Lessee: Newport Beach Public Facilities Co Recorded: _/_J2010, Instrument No. 20,tQi The terms, provisions and other matters of a November 1, 2010, executed by Newport Bi Bank of New York Mellon Trust Comiianv, rtlV: The effect of any failure to leases described or referred to Any facts, rights, be ascertained by described or refero A. and chartered city of Official Records "ASSIGNMENT AGREEMENT" dated 9s Corporation, as Assignor, to The Forma), of Official Records. covenants, conditions and provisions of the ims'which are not shown by the public records but which could )f the lessors and their successors in interest, in the leases A. 30 The transactionId- ntemplated in connection with this Report is subject to the review and ~� p rova�f the Company's Corporate Underwriting Department. The Company reserves the right to ,additional Items or make further requirements after such review. Ne W", �sa fj 31. This is,ai Pro Forma Policy. It does not reflect the present state of the Title and is not a commitment to (i) insure the Title or (ii) issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms of the Company. END OF SCHEDULE B CLTA Standard Covem0e Policy -1990 (4111 /10) ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this QWM" b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term�� a d. "Lease Term ": the duration of the Leasehold Estate, includin I y renewal r'extended term if a valid option to renew or extend is contained in the Leas e. "Personal Property": chattels located on the Land and propee, whi l b cause of their character and manner of affixation to the Land, can be severed from t karid without causing appreciable damage to themselves or to the Land to wh Wilt: ey are affirmed, f. "Remaining Lease Term': the portion�of t Lease Terrremaining after the Insured has been Evicted as a result of a matt`e'l'covered i �tfi s olio g. "Tenant Leasehold Imp r` #moments" &ose improvements, including landscaping, required or lix permitted to be built on thIland bytlke "Lease,that have been built at the Insured's expense or in which the Insured has an in�eaESt greater than the right to possession during the Lease Term. 2. Valuation of Estate or InterestPIfasured If in computing loss or d e it bbmes necessary to value the Title as the result of a covered matter that results in an Eviction of th TS grit, the that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate�a any T�erl an easehold Improvements existing on the date of the Eviction. The Insured Claimant-shall hae the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued elthet asap o(e or eparately. In either event, this determination of value shall take into account rent no longer requiredifg be paidaf�dtt'e Remaining Lease Term. 1 Ad 1tl�tems of loss covered by this endorsement If the fhsu ecut Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred`b ",yEhe Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. I of ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17106) CLTA Endorsement Form 119.5 -06 AttachedtoPolicyNo. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement lease4dld eq ivalent to the Leasehold Estate.`_ „x g. If Tenant Leasehold Improvements are not substantially comp le e��dsat,the hale of°,Eviction, the actual cost incurred by the Insured, less the salvage val e,1 5 1 Tenant Leasehold Improvements up to the time of Eviction. Those costs nclude,.c osts incu '- to obtain land use, zoning, building and occupancy permits, architectural. nd meeri glees, construction management fees, costs of environmental testing and?reliews,, lapdscaping costs. This endorsement is issued as part of the policy. Excel of the terms and provisions of the policy, (ii) modify any prior (iv) increase the Amount of Insurance. To the extent a prow inconsistent with an express provision of this endorsemel endorsement is subject to all of the terms ai? provisions of Dated: PROFORMA r t, l of xprQs�y tate5, it does not (i) modify any �ments, (ynTextend the Date of Policy, or the policy or a previous endorsement is enoorsement controls. Otherwise, this 'and of any prior endorsements. Fidelity National Title INSURANCE COMPANY PROFORMA ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6117106) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: (Proforma) Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, themo unf4o Insurance available to cover the Company's liability for loss or damage under this policy at the time o - payr� eept of loss hereunder shall be the aggregate of the Amount of Insurance under this policy a otherpolicies identified above. At no time shall the Amount of Insurance under this policy and the other licie Udentl(d dove exceed in the aggregate $150,000,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other poh p identifie above, except the payments made for costs, attorney's fees, and expenses, shall reduce tfje aggregt� mou t of Insurance by the amount of the payment., �, This endorsement is issued as part of the policy, Except as it expressly state J,-oes not (i) modify any of the terms and provisions of the policy, (ii) modify any pr or end "ISg ents, (in)�extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provisionro�t�e policy or a previous endorsement is inconsistent with an express provision of this endorsement thienr�orsement controls. Otherwise, this endorsement is subject to all of the terms,ai3�prov(iiss ons oaf t�olic and of any prior endorsements. Dated: PROFORMA'-.. 9� u ;} f fy � �f 3 °' Fidelity National Title INSURANCE COWANY PROFORMA Custom Endorsement SE -55 " "' Fidelity National Title Insurance Company n. CAFNT0972.0972- 0051. 0725132034- FNTIC- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount oflnsurance stated in Schedule A, sustained or incurred by the insured by reason of- 1. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land; and in addition, as to an insured lender only: S. The invalidity or unenforceability of the lien of the insured mortgage upon the title; 6. The priority of any lien or encumbrance over the lien of the insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assignee free and clear ofall liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITY NATIONAL TITLE INSURANCE COMPANY has causer[ this policy to be signed and sealed by its duly authorized officers. Countersigned Fidelity National Title In Company �e sY 1R iy /(surance /U�r -�/,V, I VFW � t i i SEAL � `" rre.�a.nr ATTEST secmmry CLTA Standard Coverage Policy - 1990 SCHEDULEA Policy No.: CAFNT0972- 0972 -0051- 0725132034- FNTIC- 2010 -01 -0 Order No. 725132034 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as Trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest In the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced In the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement', which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement' dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to'said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED (LTA Standard Coverage Policy -1999 Policy No. LEGAL EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: A PORTION OF PARCEL 1 OF LOT LINE ADJUSTMENT 94 -006, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED MARCH 22, 1994, AS INSTRUMENT NUMBER 94- 0202108 OF OFFICIAL RECORDS, ORANGE COUNTY RECORDERS OFFICE, STATE OF CALIFORNIA, BEING MORE PRACTICALLY DESCRIBED AS FOLLOWS: COMMENCING ATTHE CENTERLINE INTERSECTION OF NEWPORTCOAST DRIVE AND SAN JOAQUIN HILLS ROAD AS SHOWN ON SAID TRACT MAP; THENCE NORTH 840 27' 16" WEST ALONG SAID CENTERLINE OF SAN JOAQUIN HILLS ROAD A DISTANCE OF 441.70 FEET; THENCE LEAVING SAID CENTERLINE NORTH 050 32' 44" EAST A DISTANCE OF 61.49 FEET TO THE NORTHERLY RIGHT OF WAY LINE OF LAST SAID ROAD, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 050 32'44" EAST A DISTANCE OF 345.01 FEET TO A POINT ON A NON- TANGENT CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 142.54 FEETTO WHICH A RADIAL LINE BEARS SOUTH 48° 54'51'r WEST; THENCE CONTINUING ALONG THE NORTHERLY LINE OF SAID LOT LINE ADJUSTMENT THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHEASTERLY ALONG SAID NON- TANGENT CURVE THROUGH A CENTRAL ANGLE OF 370 02'25" AN ARC LENGTH OF 92.15 FEET; THENCE SOUTH 780 07'34" EAST A DISTANCE OF 36.87 FEET; THENCE NORTH 74° 03'52" EAST DISTANCE OF 79.69 FEET; THENCE NORTH 640 42'53" EAST DISTANCE OF 58.38 FEETTO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 50.00 FEET; THENCE EASTERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 250 58'33" AN ARC LENGTH OF 22.67 FEET; THENCE SOUTH 89° 18' 34" EAST A DISTANCE OF 123.01 FEET; THENCE NORTH 770 16 30" EAST A DISTANCE OF 18.90 FEET TO WESTERLY RIGHT OF WAY LINE OF SAID NEWPORT COAST DRIVE AND THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2291.00 FEET TO WHICH A RADIAL LINE BEARS SOUTH 850 40'34" EAST; THENCE CONTINUING ALONG LAST SAID WESTERLY RIGHT OF WAY LINE THE FOLLOWING MULTIPLE COURSES; THENCE SOUTHERLY ALONG SAID NON- TANGENT CURVE THROUGH A CENTRAL ANGLE OF 030 11'42" AN ARC LENGTH OF 127.75 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE WESTERLY HAVING A RADIUS OF 201.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 80 19'02" AN ARC LENGTH OF 29.18 FEET; THENCE SOUTH 15° 50' 10" WEST A DISTANCE OF 30.62 FEETTO THE BEGINNING OF A TANGENT CURVE CONCAVE EASTERLY HAVING A RADIUS OF 219.00 FEET; THENCE SOUTHERLY ALONG SAID TANGENT CURVE THROUGH A CENTRAL ANGLE OF 070 34' 07" AN ARC LENGTH OF 28.93 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2929.50 FEETTO WHICH A RADIAL LINE BEARS SOUTH 810 23'57- EAST; THENCE SOUTHERLY ALONG SAID REVERSE CURVE THROUGH A CENTRAL ANGLE OF 20 09'07" AND ARC LENGTH OF 110.03 FEET, THENCE SOUTH 79° 14'50" EAST A DISTANCE OF 4.00 FEET TO THE BEGINNING OF A NON - TANGENT CURVE CONCAVE WESTERLY HAVING A RADIUS OF 2925.50 FEETTO WHICH A RADIAL LINE BEARS SOUTH 790 14'50" EAST; THENCE SOUTHERLY ALONG SAID NON- TANGENT CURVE THROUGH A CENTRAL ANGLE OF 00 34' 09" AN ARC,, LENGTH OF 29.06 FEETTO AN ANGLE POINT ON SAID WESTERLY RIGHT OF WAY LINE; THENCE LEAVING SAID RIGHT OF WAY LINE SOUTH 480 11'54" WEST A DISTANCE OF 29.57 FEET TO A POINT ON SAID NORTHERLY RIGHT OF WAY LINE OF SAN JOAQUIN HILLS ROAD; THENCE CONTINUING ALONG LASTSAID RIGHT OF WAY LINE SOUTH 890 52' 33" WEST A DISTANCE OF 51.85 FEET; THENCE CONTINUING ALONG LAST SAID RIGHT OF WAY LINE NORTH 850 17' 57" WEST A DISTANCE OF 305.86 FEET TO THE TRUE POINT OF BEGINNING. EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS CUA Standard Overage Polity -1990 EXHIBIT "A" (continued) Policy No. RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM ARID ALL PRODUCTS DERIVED FROM ANY OFTHE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHTOF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR AND STORING IN AND REMOVING TH E SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM OTHER LANDS OTHER THAN THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYONDTHE EXTERIOR UMITSTHEREOF, ANDTO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT THE RIGHTTO ENTER UPON OR USETHE SURFACE OFTHE PROPERLYTO DRILL, MINE, STORE, EXPLORE, OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, FOR USE OF SURFACE OR SUBSURFACE WATER BY THE COUNTY FOR LOCAL PARK PURPOSES ON THE PROPERTY, ANY AND ALL WATER, SOLAR- HEATED WATER, RECLAIMED RIGHTS, WHETHER SURFACE OR SUBSURFACE, APPURTENANT OR RELATING TO THE PROPERTY, OR OWNED OR USED BY OFFEROR IN CONNECTION WITH THE PROPERTY TOGETHER WITH THE RIGHT TO EXPLORE, DRILL, REDRILL AND REMOVE SUCH WATER FROM THE PROPERTY, TO STORE SUCH WATER IN THE GROUND -WATER BASIN UNDERLYING THE PROPERTY BY PERCOLATING, SPREADING, OR INJECTING WATER INTO SUCH BASIN FROM LOCATIONS ON LANDS LYING OUTSIDE OF THE PROPERTY, AND TO DIVERT OR OTHERWISE UTILIZE SUCH WATER, RIGHTS, OR INTERESTS ON ANY OTHER PROPERTY OWNED OR LEASED BY OFFEROR, BUT WITHOUTTHE RIGHTTO ENTER UPON OR USE THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RIGHT, AS RESERVED BY THE IRVINE COMPANY, A MICHIGAN CORPORATION, IN IRREVOCABLE OFFER OF DEDICATION, RECORDED APRIL 8,1993, AS INSTRUMENT NO. 93- 0234810, AND IN GRANT DEED RECORDED JANUARY 2, 1997, AS INSTRUMENT NO. 19970000564, BOTH OF OFFICIAL RECORDS. CLTA SnndaW Covemge Poffc -1990 Policy No. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: fL13 &i All matters set forth in paragraphs I through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. The property covered herein lies within the boundaries of the Community Facilities District No. 1 of Irvine Ranch Water District, as disclosed by an Assessment District Map filed in Book 32, Page 37 of Assessment Maps, recorded December 2, 1986, Instrument No. 86- 591442, Official Records. And as disclosed by an Assessment District Map filed in Book 33, Page 31 of Assessment Maps, recorded January 29, 1987, Instrument No. 87- 051901, Official Records. 4. The property covered herein lies within the boundaries of Newport Mesa Unified School District, Community Facilities District No. 90 -1, as disclosed by an Assessment District Map filed in Book 52, Page 26 to 28 of Assessment Maps, recorded June 14, 1990, Instrument No. 90- 315398, Official Records. S. The property covered herein Iles within the boundaries of Assessment District No. 92 -1, as disclosed by an Assessment District Map filed in Book 60, Page 43 of Assessment Maps, recorded February 8, 1993, Instrument No. 93- 0083761, Official Records. And as disclosed by an Assessment District Map filed in Book 60, Page 46 of Assessment Maps, recorded March 26, 1993, Instrument No. 93- 0200733, Official Records. CLTA Standard [average Poky -1990 (4111)10) SCHEDULE 8 — PART II (continued) Policy No. 6. Water rights, claims or title to water, whether or not disclosed by the public records. 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: American Telephone and Telegraph Company, a corporation, its successors and assigns Purpose: Road Recorded: March 11, 1963, Instrument No. 7132, Book 6460, Page 435, of Official Records Affects: That portion of said land as delineated on the map of Tract No. 14509. 8. Covenants, conditions and restrictions, but omitting any covenants or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of income, as set forth in applicable state or federal laws, except to the extent that said covenant or restriction is permitted by applicable law, as set forth in the document referred to in the numbered item last above shown. 9. Matters contained in that certain document entitled "Right of Way Agreement" dated May 4, 1965, executed by and between County of Orange, a body corporate and politic of the State of California; Southern California Edison Company, a California corporation; and The Irvine Company, a West Virginia corporation, recorded May 18, 1965, Book 7524, Page 449, of Official Records. Reference is hereby made to said document for full particulars. An unrecorded Disposal Station Lease, dated August 6, 1993, between the Irvine Company, a West Virginia corporation, as Lessor, and the County of Orange, as Lessee, as disclosed by the above agreement. Affects: The herein described land and other land. 10. An unrecorded Disposal Station Lease, dated August 6, 1963, between the Irvine Company, a West Virginia corporation, and the County of Orange, as disclosed by an easement dated May 4, 1965, between said County of Orange, the Irvine Company and Southern California Edison Company, a corporation, recorded May 18, 1965, in Book 7524, Page 449, Official Records. Affects: The herein described land and other land. I 5 CUA Standard C mge Policy - 1990 (4/11110) SCHEDULE B — PART H (continued) Policy No. 11. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Orange County Radiotelephone Services Inc. Purpose: Road and incidental purposes Recorded: Book 9353, Page 536, of Official Records Affects: A 20' strip of land as shown on the map of Tract No. 14509 12. An unrecorded lease with certain terms, covenants, conditions and provisions set forth therein as disclosed by the document Entitled: Memorandum of Refuse Gas Lease Lessor: The Irvine Company, a Michigan corporation Lessee: Gas Recovery Systems, Inc., a California corporation Recorded: October 6, 1982, Instrument No. 82- 352128, of Official Records The present ownership of the leasehold created by said lease and other matters affecting the interest of the lessee are not shown herein. Affects: The herein described land and other land. 13. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the map of said tract. Purpose: Sidewalk purposes dedicated to the County of Orange Affects: The Southerly 10 feet 14. The fact that the ownership of said land does not include rights of access to or from the street, highway, or freeway abutting said land, such rights having been relinquished by the map of said Tract. Affects: San Joaquin Hills Road, except at approved access locations 15. An easement over and across Lots 1 to 45 of said tract, for the purpose of lot and slope drainage to and from said Lots 1 to 45, as reserved by the Irvine Company, its successors and assigns, together with the right to grant and transfer all or a portion of the same, by recital on the map of said tract. Said easement shall be non - exclusive and the Irvine Company retains the right to use and grant to others the right to use or any portion of the area covered by the easement for all lawful purposes, as recited on the map of said tract. G 6 CLTA Standard Carersge Polity- 090 (A /Ii /SO) SCHEDULE B — PART II (continued) 16. The recital on the map of said tract that: Policy No. "Building permit issuance shall be phased in accordance with any Board of Supervisors Approved Growth Management Phasing Plan pertaining to the timely provision of public services and facilities. A valid Board of Supervisors approved Development Agreement pertaining to the property which includes A Development Phasing Plan shall satisfy the requirements of this condition." 17. The recital on the map of said tract that the land covered by this map is located in a very high fire hazard area due to wildland exposure. This declaration shall run with the land until a determination is made by the fire agency that the property is no longer located in a very high fire hazard area. 18. The recital on the map of said tract that this property may be subject to impacts from the San Joaquin Hills Transportation Corridor. 19. The terms, easements, provisions and conditions contained in a document entitled "San Joaquin Hills Local Parks Irrevocable Offer of Dedication ", recorded April 8, 1993, Instrument No. 93- 0234810, Officiat Records, and as amended by document recorded February 17, 1995, Instrument No, 95- 0066788, Official Records. 20. Matters contained in that certain document entitled "Easement Deed and Agreement", executed by and between The Irvine Company, a Michigan corporation and the County of Orange, a political subdivision of the State of California, recorded May 28, 1993, Instrument No. 93- 0362589, of Official Records. Reference is hereby made to said document for full particulars. 21. Easements, covenants and conditions contained in the deed from Irvine Community Development Company, a Delaware corporation, as grantor, to Newport Ridge Community Association, a California nonprofit mutual benefit corporation, as grantee, recorded November 8, 1999, Instrument No. 19990778644, Official Records. Reference is made to said document for full particulars. An instrument entitled "Assignment and Grant of Easements ", recorded November 30, 2006, Instrument No. 2006000801750, Official Records. Reference is made to said document for full particulars. aTA Stoxidard Cwemye Policy -1990 (4111110) SCHEDULE B — PART II (continued) Policy No. 22. The effect of a map purporting to show the herein described and other land recorded in Book 231, Page 15 of Record of Surveys. 23. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 24. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 25. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 26. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE B CLTA 52ndwd Covemge Pollp -1990 (4111110) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 - 005 1- 0725 1 32 03 4- FNT'IC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. c. "Leasehold Estate": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property which, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. "Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. I of ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17/06) CLTA Endorsement form 119.5 -06 Attached to Policy No. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 Fidelity National Title INSURANCE COMPANY 2 of ALTA Endorsement Form 13 -06 (Leasehold - owners) (6/17/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 - 0051- 0725132034 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972-0972-0051-0725132034-FNTIC-20 10-0 1 -0 CAFNT0972-0972-0051-0725132035-FNTIC-20 10-0 1 -0 CAFNT0972-0972-0051-072513203 6-FNTIC-20 10-0 1 -0 CAFNT0972-0972-0051-072513203 8-FNTIC-201 0-0 1 -0 CAFNT0972-0972-0051-0725132039-FNTIC-20 10-0 1 -0 CAFNT0972 -0972- 0051 - 0725132041- FNTIC - 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132044 - FNTIC- 2010 -01.0 CAFNT0972- 0972 - 0051- 0725132711- FNTIC- 2010 -01 -0 CAFNT0972-0972-0051-0725132712-FNTIC-20 10-0 1 -0 Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 0 Fidelity National Title INSURANCE COMPANY 3of3 Custom Endorsement 5E -55 TM, MT. Fp M"v ^rlo pNn �b M v�b �M Nw pr6Tha �.ryryee��nd ryerMrJ4nrMF= �b �eimmr�F.vnnv�N 4u98no win.�k. xphi ep� eeM1mvb o�mtluomeMa nmrl r4N4 b N W O N O�p o 1�1 9�8 oo�n xa+n OVA 22� m nirn Yea (n bm �mv mk�o a N N b W 9 i�l 9 rr' O Z i� A A y 47e- l0 479 -03 �?6` Ilf �L� 0 �m m t�T'TT 3041 A P y v O J w�3 g N=.m V W ggg O N n W O N O�p o 1�1 9�8 oo�n xa+n OVA 22� m nirn Yea (n bm �mv mk�o a N N b W 9 i�l 9 rr' O Z i� A A y 47e- l0 479 -03 �?6` Ilf �L� 0 �m m EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of; 1, (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ij) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or govern rental regulations, exceptto the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Data of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured tender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. 1. DEFINITION OF TERMS The following tears when used is this policy mean: (a) "insured": the insured named in Schedule A, and, subject to any rights or defenses fie Company would have had against the named insured, those who succeed to the interest of the named insured by operation of law as distinguished bum purchase including, but not limited to, hairs, distributes, devisees, survivors, personal representatives, next of kin, or corporate or fidadery successors. The form "insured" also includes (i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the Provisions of Send. 12(e) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company weold have had against any predecessor insured, unless the successor acquired the indebtedness use purchaser for value without knowledge ofthe asserted defect, lien, encumbrance, adverse claim in other matter insured against by this policy as affecting title to the estate or interest in the land); (it) any governmental agency or govemmunial instrumentality which is an insurer or Barometer under an insurance correct or guaranty amount, or guaranteeing the indebtedness secured by the insured mortgage, or any part thereof, whether named as an insured herein or not; (iii) the parties designated in Section 2(a) of these Conditions and Sapulatones (b) "insured claimant ": an insured claiming loss or damage. (c) "msLimd leader'`, the owner ofan insured mortgage. (d) "marrod mottgegd': a mortgage shown in Schedule B, the owner of which is named as an insured in Schcdnle A. (e) "knowledge' or "known ": acmal knowledge, not constructive knowledge or notice which may be imputed to an insured by reason oftre public records as defined in this policy or any other records which impart constructive notice of matters affecting the land. O "land ": the land described, or refermd to in Schedule A, and improvements affixed thereto which by law constitute real property. The roan "land" does not include any property beyond the lines ofthe area described interested to in Schedule A, nor any right, tile, interest, estate or easement in abutting streets, mods, avenues, alleys, Imes, ways or waterways, butnothinghouchashall modify or Innis theextent to CONDITIONS AND STIPULATIONS which a right of access to and from the land is insured by this Policy. (g) "mormgage ": mar gage, decd of trust, trust dead, err other security Instrument. (h) "public moord4`, records establislsed under stale sutures a1 Date of Policy for the purpose of imparting constructive notice of matters relating to real property to initiation for value and without knowledge. O "nnmurketabiliw of ate title': an alleged or apparent maser affecting the title to the land, not excluded or excepted from coverage, wdtichwould cattle a purchaser ofthe estate or interest described in Schedule A or the insured mortgage to be released from the obligation to purchase by virtue of a ismum tual condition requiring the delivery of marketable title. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Title by Immond Lender. if this policy insures the ownerofthe indebtedness secured by the insured mortgage, the coverage of this policy shall conlinae in force as of Date of Policy in favor of (i) such insured lender who improve all ofany pan of the estate or interest in the land by foreclosures, trustee's sale, conveyance in lieu of foreclosure, or other, legal manner which discharges the lien of the insured mortgage; (ii) a aansferee ofare estate or interest so acquired from on insured corporation, provided the transferee is the parent or wholly -owned subsidiary of the insured corporation, and their corporate successors by operation of law and at by purchase, subject to any Tights or defenses the Company may have against any predecessor insureds; and (h) airy governmental agency or governmental instnrexci ality width acquires all or any part train estate or interest pursuant to a contract of insurance or gnarmdy insurnrg or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Tiae by an Insured. The coverage of this policy shall continue in £area as of Date of Policy in Favor of an insured ody an long as the insured retains an as= or interest in the lead, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason ofoavenants or warranty made by the insured in any aunsfer or conveyance of the estate or interest. This policy shall not continue in force in favor ofany purchaser from an insured ofeitherO an estate or interest in the land, or (ii) an indehtedese secured by a purchase money mortgage given to an insured. (c) Amount of Insurance. The amount of insurance after the acquisition ar after the conveyance by an insured lender shall in neither event exceed the least of: (ij the amount of insurance sorted in Schcdnle A; (ii) the amount of the principal of the indebtedness secured by the insured mortgage m of Date ofPolioy, interest thereon, expenses of foreclosury amounts advanced ptusuant to me insured mortgage to assure compliance with laws or to protect the lien athe insured mortgage prior to the time of acquisition of the estate or interest in the Ind and secured thereby and aromatic amounts expended to prevent deterioration ofhnprover ents, but reduced by the amount craft payments made; or (ii) the amount paid by any govemmmwtal agency or governmental instrumentality, iffhe agency or Instrumentality is the insured claimant, in the acquisition of the estate or interest in satisfaction crib insumuce contract or gnamnty. 3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT An insured shall notify the Company promptly in writing (i) in case crony litigation as set forth in 4(a) below, (ii) in case knowledge shall corn to an insured hereunder ofany claim of title or interval which is adverse to the title to the estate or interest or the lien of the insured mortgage, as insured, and which might cause has ordamage Forwhich the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable. lfpmmpt notice shall not be given to the Company, then as to that insured all liability of the Company shall remorse with regard to the matter or matters for which prompt notice is required; provided, however, that failum, to notify the Company shall in no case prejudice the rights ofany Insured trader Iris pelicy unless the Company shall be prejudiced by the fsf uen and then only to the extent of the prejudice. 4. DEFENSE AND PROSECUTION OF-kTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written request by an insured and subject to the options contained in Secliou6 of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of arch insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, bill only as to those stated causes of action alleging a defect. lien or evcumbmnce or other matter insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of such insured to object for reasonable cause) to represent the insured as to those staled causes of action and shall not be liable for and will not pay the fees of any other counsel, The Company will not pay any fees, costs or expenses CLTA Standard Coverage Policy -1990 (4 /11 /10) .. incnned by an insured in fire defense of those causes of action which allege matters not insured against by this policy. (b) The Company shall have the right, at its ovvn cost, to insfihue and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to an insured. The Company may take any appropriate action ruder the terms of this policy, whether or not it shall be liable lu murder, and shall not thereby concede liability or waive any provision of ibis policy. If the Company shall exercise its rights ander this paragraph, it shall do so diligently, (c) WhAmverthe Company shall havela tight enaction or interposed a defense as required or permitted by the provisions of this policy, the Company may puts.. any 11 degation to final determination by a court of competent jtuisdiciin and expressly reserves the right, in its sole .� discretion, to appeal from any mI ersojudgmAm or eider. I (d) In all cares .,here this policy permits or requires the ;1 Company to prosecute or provide for the defense ofavy action or proceeding, an orsurd shall seam to the Company the right to so prosecute or provide defense in the action or proceeding, and .11 appeals therein, and permit the Company to use, at its option, the name of such invited for this propose. Whenever requested by the Company, an insured, at the Company's expense, shall give the Company all remorable aid (i) in any action or proceeding, securing evidence, obtaining svitngsss, proncnfing or defending the action oYprmAcdi.& or effecting settlement and (ii) in any other lawful act which in the opinion of the Company may be necessary, or desirable to establish the fide to the estate or interest or the Use of the insured mengage, as insured. If the Company I. prejudiced by the failure of An insured to finish the required cooperation, the Compesy's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the mater or matters repairing such coopaation. 5. PROOF OF LOSS OR DAMAGE in addition to and after the nofices required undo, Section3 of these Conditions and Stipulations have been provided clue Camara , a proof of loss or damage sigacd and swam to by each battered claimant shall be furnished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise to the loss or damage. The proof of Ions ar damage shall describe the defect in, or lien or encuuabranee on the title, or other matter insured against by this d policy which constitutes the basis of loss or damage and shall 1 state, to the extent possible, the basis of calcufaung the sament of the loss or damage, If the Company is prejudiced by the Failure of an insured claimant to provide the required proof of ' loss or damage, the Company's obligations to such insured d under the policy shall terminate, including any liability or obligation to defend, proeecnle, or continue any litigation, with regard to the mailer or matters requiring such proof of loss or 3 demo,.. ;) he addition, an insured claimant may reasonably be mgnhed to submit to mamirmation under oath by my authorized = representative of the Company and shall produce for examination, inspection and copying, at such reasonable times aAd places as may be designated by nay nalmaind representative of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a > date before orefner Data of Poticy, which reasonably pertain to the loss or damage. Further, if requested by any authorized ictmemetativc ofthe Company, the insured claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect and copy all records, books, ledgers, cbooks, cmorespmdenee and memoranda in die custody or cantroI of a thud parry, which reasonably parkin to the loss or damage. All information designated An confidential by an insured claimant provided to the Company pursuant in this Section shall not be disclosed to others unless, in the reasonable judgment option Company, it is necessary in the admmistmfion of the claim. Failure of an insured claimant to submit for Examination under oath, produce other reasonably requested information or grant permission N secure reasonably necessary information from third parties as required m this paragraph, udses prohibited by law or governermte) regulation, Shag terminate any liability option Company under this policy as to that burned for that claim. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have the follmving additional options: (a) To Pay or Tender Payment of the Amount of Insurance or to Purchase the Indeldhish ss, (f) to pay or herder payment of the amount of insurance under this policy together with any costs, attomeys fees and expenses innmed by the insured claimant, which were authorized by the Company, up to the time of payment or tender of payment and which the Company is obligated to pay; or (it) in case loss or damage is claimed under this policy by the owner of the indebtedness secured by the insured mortgage, to purchase the indebtedness secured by the insured mortgage for the amount owing thereon together with any costs, attorneys' fees and expenses miumed by the insured claimant which were authorized by the Company up to the Lima of purchase and whialu the Company is obligated to pay. If the Company offers to purchase the indebtedness as herein provided, the owner of the indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with any callateml security, to the Company upon Payment therefore. Upon the exercise by the Company of the option provided for in paragraph a(i), all liability and obligations to the insured under this policy, other than to make the payment required in that paragraph, shall terminate, including any liability or obligation to defend, pr iscon to, or voodoo. nay litigafioq and the policy shall be surrendered to the Company for cancsfiadon. Upon [he exercise by the Company of the option provided for in paragraph a(ii) die Company's obligation to an barred Lewder under this policy for the claimed loss or damage, other than the payment required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. (b) To Pay or Otherwise Settle With Pnrdes OBmr than the Formed or With the Insured Claimant. (f) to pay or otherwise settle with other parties for or in the name of an insured claimant any claim insured against under this policy, together with any costs, afromeys fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or (ii) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred bythe insured claimant which were authorized by the Company tip to the time of payment and which the Company is obligated to pay. Upon the exerab a by the Company of either of the options provided for in paragraphs bf) or b(F), die Company's obligations to the insured under this policy for the claimed loss or damage, other that the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute a continue any litigation. 7. DETERMINATION AND EXTENT OF LIABILITY This policy is a contract of indemnity against same] monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described. (a) The liability of the Company under this polity to an insured lender shall not exceed the least of: (i) the Amount of Insurance stated in Schedule A, or, if applicable, the amount of insurance as defined in Section 2(c) of these Condilions and Stipulations; (ii) the amount of the unpaid principal indebtedness secured by the insured mongage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced trader Section 9 of these Conditions and Stipulations, at the lime the less m damage insured against by this policy occurs, together with interest thereon; or (iii) the difference between the value of the innmed estate or interest As insured and due value of the inured estate or interest subject to due defect lien or eaumbrance insured against by this policy. (b) Inthe evenOhe innmed icnduhas acquved the estate or interest in the manner described in Section 2(a) of these Conditions and Stipulations or has conveyed the title, then the liability of the Company shall continue as set forth in Section 7(a) of these Conditions and Stipulations. (e) The Fatality of the Company under this policy to an insured owner of the estate or interest in the lead described in Schedule A shall not exceed the least of: (i) die Amount of the insurance stated it, Schedule A; or, (ii) the difference bchveen the value of the insured estate or interest as innmed and the value of the innmed estate or interest subject to the defect, lien or encumbrance insured Against by this policy. (d) The Company will pay only those east., attomeys' fee. aad expenses incartad in oceonlmm. with Section 4 of these Conditions and Stipulations. 8. LIMITATION OF LIABILITY (a) If Nee Company establishes the title, or removes the alleged defect, lien or encumbrance, or cures the lack ofa right of access to or ftom the land, or cures the claim of un a arkembilify of title, or otherwise establishes the lien of the insured mortgage, all as insured, in a reasonably diligent usurer by any method, including litigation and the completion of any appeals there from, it shall have folly performed its obligatons adds respect lothat mauerand shall not be liable for my loss or damage caused thereby. (b) In the event of any litigation, including litigation by the Company or with the Company's consent, the Company shall have no liability far loss or damage until there has been a final determination by a court of competent jrnisdictim, and disposition of all appeals there from, adverse to the title, or, if Applicable, k [he lien of the insured mortgage, as insured. (e) The Company shall not be liable for loss or damage to any insured forliability volumarifyassumed by the insured in settling anyclaim orsnit without the prior written consent ofthe Company. (d) The Company shall not be liable to an insured lender Far. (i) any indebtedness coaled subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts expended to prevent deterioration of improremcnts: or (if) construction loan advances made subsequent to Date of Policy, except tonsuuciioa loan advances made subsequent to Date of Policy for the purpose of fftmncjmg in whole or in pan time constmction of an improvement to the land which at Date of Policy were secured by the innmed mortgage and width the insured was and continued to be obligated to advance at and after Date eff'oliey. 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments order ibis policy, except payments made for casts, attomeys' fees and expenses, shag ,.due. the amount of insmmnee pro tame. However, as to an insured leader, any payments made prior to the acquisition offitle to the estate or interest as provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro main the amount of it near a afforded under this policy as to arty such insured, except to the extent that the payments reduce the amount of the indebtedness secured by the insured mortgage, (b) Payment k pad by any person of @e principal of the indebtedness, or any other obligation seemed by the insured mortgage, or anyvohmtary pmb.1 satisfaction or rleneoffl e insured mortgage, to the extent of the payment, satisfaction or release, shall reduce the amount of insurance pro [unto. The amount of insurance may thereafter be increased by aecnuing interest and advances made to protect the lien of the vunred mortgage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater than the Ammmt of Irsmama stated w Schedule A. (c) Payment in fall by any person or the voluntary satisfaction or release of ilia insured mortgage shall mothers all liability of the Company to an insured lender except as provided in Section 2(a) of these Conditions and Stipulations, 10. LIABILITYNONCUMULATIVE It is expressly understood that the Amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy mending a mortgage to which exception is taken in Schedule B air to which the insured has agreed, assumed, or taken subject, ar which is hereafter executed by an insured and which is a charge or lien on the e nmembiterest described orrefened to in Schedule A, and the amount so paid Shall be deemed A payment under fhfs policy to the insured owner. The provisions ofthis Section shall not apply to an insured lender, unless such insured acquires title to Sam estate or interest m satisfaction of fire indebtedness secured by an insured mongage. 11. PAYMENTOFLOSS (a) No payment shall be made without producing tide policy for endorsement of the payment unless the policy has been lost or destroyed, in which case roof of loss or destruction shall be furnished to the satisfaction of the Company. (b) When liability and the extent of loss at damage has been definitely Fixed in accordance with there Conditions and Stipulations, the loss or damage shell be payablewithin 30 days thereafter. CLTA Standard Coverage Policy - 1990 (4 /I1 /10) 12, SUBROGNTION UPON PAYMENT OR SETTLEMENT (a) The Company's Right of Subrogaton, Whenever the Company shall have settled andpaida claim under this policy, all right of substitution shall vest in the Company unaffected by any act of the insured claimant. The Company shall be su erogeted to and be ..filled to all rights and remedies which the insured claimant would have had against any parents or property in respect to the claim had this policy not been issued. if requested by the Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to aunt, compromise or settle in the name of die insured claimant and to use the name of the insured claimant in any transaction or litigation involving these rights or remedies. its payment on account eft claim does not fully caverthe Ions of the insured claimant, the Company shall be snowbound (t) as to an insured notes, ;o all rights and remedies in the intimation which the Company's payment bears to the whole amount of the loss; and (ii) as to an insured lender, to all rights and remedies of the insured claimant age, the insured claimant shall have recovered its principal, interest, and costs of collection. if loss should result from any act of the insured claimant, as stated above, that not shall not void this policy, but the Company, in that event, shall be required to pay only that part ofany lasses insured against by this policy which shall exceed the =area, if any, lost to the Company by reonen of the impairment by the marred claimant of the Conrpanys right of subrogation. (b) The Insured's Rights and Limitations, Notwithstanding the foregoing, the owner of the indebtedness secured by an insured mortgage, provided the priority oftbc lien arrive insured mortgage or its enforceability is not affected, may release or substitute the personal liability of any debtor or guam rtoq or extend or otherwise modify the terms of payment, or release a portion of the estate or interest from lite lien of the manned mortgage, or release any collateral security for the indebtedness. Whin the permitted acts of the insured claimant occur and the insured has knowledge of any claim of title or interest adverse to the title to the estate or lutanist or We primity or enforceability crib. lien of an insured martgage, as insured, the Company shall be required to pay only not part of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (c) The Company's Rights Against Non- insured Obligors. The Cmag a ry+s right of mbrogntion against non - insured obligors shall exist and shall 'include, without [irritation, the rights of the insured in indemnities, pecraties, other policies ofinsuance or bonds, notwithslanding any terms or conditions contained in those inslnunents which provide for subrogation rights by reason of this policy. The Company's tight of subrogation shall Trot be avoided by acquisition of an insured mortgage by as obligor (except an obligor described in Section I(a)(il) of those Conditions and Stipulations) who acquires the insured mortgage as a result of an indemnity, invasion, other policy of insurance, or band and the oblige, will or bean imaread under this policy, notwithstanding Section I(a)(i) of these Conditions and Stipulations. 13. ARBITRATION Unless prohibited by applicable Imo, either the Company or the insured may demand arbitration pursuant or the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the branch are Policy provision or other obligation. All arbihablemanca when the Amount of insurance is $1,0000uff or less shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when the Amager of Insurance is in excess of$1,000,000 shall be arbitrated only wlsen agreed to by bath the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect on the date the demand for arbitration is made or, at the option of the insured, the Rules in effect at Date of Policy shall be binding up. the parties. The award may include attorney.' fees rely ifthe laws ofth. state in SCHEDULE EXCEPTIONS FROM COVERAGE which the land is located permit a court to award ettomeys' fees to a prevailing party. Judgment upon the award rendered by the Arbitator(s) may be entered in any court having jurisdiction tlmreof The law ofthe aims niche land shall apply to an arbitration Order the Title lnsmence Arbitration Rules. A copy of the Rules may be obtained From the Company upon request. 14. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT (a) This policy together with all endorsements, S any, attached hereto by the Company is the entire policy and contact between the insured and the Company. In interpreting any provision of this policy, this policy shall be conctnmd as a whole. (b) Any claim allow or damage, whether or not bared on negligence, and which miser ant of the status of the lien of the insured mortgage or the title in the estate or interact covered hereby or by any action asserting such claim, shall be restricted to this policy. (c) Noareacadmentoforendorsement to this policy can be made except byawriting endorsed hereon oratacbed hereto signed by either the President, a Vice President, the Secretary, and Assistant Secretary, or validating officer or milhodand signatory of the Company. I5. SEVERABTLITY In the event arty, prevision of the policy is held invalid or anerrmrceable under applicable law, the policy shall be demnd not to include that provision and all other provisions shalt remain in fall force and effect. Ili. NOTICES, WHERE SENT All notices required to be given the Company mid any statement in writingrequired to be finished the Company shall include the number of this policy and shall be addressed to the Company or ridelfty National Title insurance Company P.O. Box 45023 Jacksonville, FL 32232 -5023 Aran: Claims Department This policy does not insure against loss or damage (and the Company will not pav costs, attorneys fees or expenses) which arise by reason of: PART Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records, Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. Easemenls, liens or encumbrances, or claims thereof, which are not shown by the public records. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. (a) Unpainted mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy - 1990 (4111/10) Fidelity National Title Insurance Company POLICYNO.: CAP NT0972-0972-0051-0725132035-FNTIC-20 10-01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of I. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability ofthe title; 4. Lack of a right of access to and from the land; and, in addition, as to an insured lender only, S. The invalidity or unenforceability ofthe lien ofthe insured mortgage upon the title; 6. The priority ofany lien or encumbrance over the lien ofthe insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assignee free and clear of all liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITYNATIONAL TITLE INSURANCE COMPA IVY has caused this policy to be signed and sealed by its duly authorized officers. Fidelity National Tet1e Insurance Company BY /J P G m PMS[tlaM �� zSEAL" �� pTTESY Secretary Countersigned CLTA Standard Covemge Policy - 1990 SCHEDULE A Policy No.: CAFNT0972 -0972- 0051- 0725132035- FNTIC- 2010 -01 -0 Order No. 725132035 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY Of NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as Trustee, as assignee of the Newport Beach Public facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 21 The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement", which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement" dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. 1 Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED MA St de Wveage Poky -1990 Policy No. 4te"1167:pfei:iq:Af0J�I EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL A: A PARCEL OF LAND CONTAINING 9.019 ACRES AND BEING A PORTION OF BLOOK 53, AS SHOWN UPON A MAP OF IRVINE'S SUBDIVISION RECORDED IN MISCELLANEOUS MAPS, BOOK 1, PAGE 88, RECORDS OF ORANGE COUNTY, CALIFORNIA, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO -WIT: BEGINNING ATTHE INTERSECTION OFA LINE LYING SOUTHWESTERLY OF, PARALLELTO, AND DISTANT 17 FEET FROM THE SOUTHEASTERLY PROLONGATION OF THE CENTER LINE OF 19TH STREET AS SHOWN UPON A MAP OF NEWPORT HEIGHTS, RECORDED IN MISCELLANEOUS MAP BOOK 4, PAGE 83, RECORDS OF ORANGE COUNTY, SAID LINE ALSO BEING THE NORTHWESTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE ORANGE COUNTY FLOOD CONTROL CHANNEL, AS CONVEYED TO THE COUNTY OF ORANGE BY DEED RECORDED APRIL 7, 1954, IN BOOK 2705, PAGE 539, OFFICIAL RECORDS OF SAID ORANGE COUNTY, AND A LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE SOUTH 500 11' 30" EAST ALONG SAID NORTHWESTERLY PROLONGATION AND ALONG SAID SOUTHWESTERLY LINE OF SAID FLOOD CONTROL CHANNEL A DISTANCE OF 277 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHWEST AND HAVING A RADIUS OF 868 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE AND SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 713.99 FEET; THENCE SOUTH 30 03'42" EAST, TANGENT TO LAST MENTIONED CURVE, AND ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 58 FEET, THENCE SOUTH 160 55' 29" EAST ALONG SAID SOUTHWESTERLY LINE OF THE FLOOD CONTROL CHANNEL A DISTANCE OF 10.46 FEET; THENCE SOUTH 860 56' 18" WEST A DISTANCE OF 106.72 FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE TO THE SOUTHEAST AND HAVING A RADIUS OF 710 FEET; SAID LINE ALSO BEING THE SOUTHWESTERLY PROLONGATION OF THE CENTER LINE OF MARINERS DRIVE, 60 FEET IN WIDTH, AS SHOWN UPON A MAP OF TRACT NO. 3004, RECORDED IN MISCELLANEOUS MAP BOOK 92, PAGES I AND 2, RECORDS OF SAID ORANGE COUNTY; THENCE WESTERLY ALONG SAID CURVE A DISTANCE OF 152.14 FEET; THENCE NORTH 150 20'20" WEST, RADIAL TO LAST MENTIONED CURVE, A DISTANCE OF 30 FEET; THENCE NORTH 500 11' 05" WEST A DISTANCE OF 758.99 FEETTO A POINTOF INTERSECTION WITH THE AFOREMENTIONED PARALLEL LINE LYING SOUTHEASTERLY OF, PARALLEL TO, AND DISTANT 30 FEET FROM THE NORTHWESTERLY LINE OF SAID BLOCK 53; THENCE NORTH 390 48' 55" EAST ALONG SAID PARALLEL LINE A DISTANCE OF 495.70 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM, THAT PORTION OF THE LAND CONVEYED TO NEWPORT -MESA UNIFIED SCHOOL DISTRICT IN QUITCLAIM DEED RECORDED JANUARY 14, 2003 AS INSTRUMENT NO. 2003000045873, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN COURSE DESCRIBED IN DEED TO THE, CITY OF NEWPORT BEACH HAVING A BEARING AND DISTANCE OF N 15 020'20" W 30.00 FEET, SAID NORTHWESTERLY TERMINUS BEING THE INTERSECTION OF THE SOUTHWESTERLY LINE OF SAID CERTAIN PARCEL OF LAND DEEDED TO THE CITY OF NEWPORT BEACH AND THE NORTHERLY LINE OF MARINERS DRIVE, 60.00 FEET WIDE, AS SHOWN ON MAP OFTRACT NO. 1896 FILED IN BOOK 114, PAGE 43 THROUGH 45 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG SAID SOUTHWESTERLY LINE N 50011'06" W 498.00 FEET, THENCE N 39048'55" E 38.00 FEET; THENCE S 50011'05" E 526.60 FEET TO A POINT IN SAID NORTHERLY LINE OF MARINERS DRIVE, SAID NORTHERLY LINE BEING A CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 740.00 FEET, A MrA S W.,d Caw q9 P"liry -1990 EXHIBIT "A" (continued) Policy No, RADIAL TO SAID POINT BEING N 11 049'06" W; THENCE WESTERLY ALONG SAID NORTHERLY LINE AND CURVE, THROUGH A CENTRAL ANGLE OF 03041'14 ", AN ARC LENGTH OF 47.62 FEET TO THE POINT OF BEGINNING. PARCEL B: A PORTION OFTHAT CERTAIN PARCEL OF LAND IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED IN DEEDTO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT, FILED IN BOOK 3970, PAGE 3 OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND SHOWN AS ASSESSOR'S PARCEL NO. 425-071-01 FILED IN BOOK 425, PAGE 7 OF ASSESSOR'S MAPS IN THE OFFICE OF THE COUNTY ASSESSOR OF SAID COUNTY, SAID PORTION MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING ATTHE NORTHWESTERLY TERMINUS OFTHATCERTAIN COURSE DESCRIBED IN SAID DEED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT HAVING A BEARING AND DISTANCE OF N 50011'05" W 758.99 FEET, SAID CERTAIN COURSE BEING THE NORTHEASTERLY LINE OF SAID CERTAIN PARCEL DEEDED TO THE NEWPORT BEACH ELEMENTARY SCHOOL DISTRICT; THENCE ALONG SAID NORTHEASTERLY LINE S 50011'05" E 50.00 FEEITO ITS INTERSECTION WITH THE SOUTHEASTERLY LINE OF IRVINE AVENUE AS DESCRIBED IN DEED TO THE CITY OF NEWPORT BEACH FILED IN BOOK 3978, PAGE 542 OF SAID OFFICIAL RECORDS, SAID INTERSECTION BEING THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE S 50011'05" E 210.99 FEET; THENCE S 39048'55" W 92.00 FEET, THENCE N 50011'05" W 120.99 FEET; THENCE S 39048'55" W 10.00 FEET; THENCE N 50011'05" W 90.00 FEET TO SAID SOUTHEASTERLY LINE OF IRVINE AVENUE; THENCE ALONG SAID SOUTHEASTERLY LINE N 3904$'55" E 102.00 FEET TO THE TRUE POINT OF BEGINNING. APN:425- 071 -03 CLTA sa"dard r4wmge Pallcy - 1990 Policy No. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the coverof this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. water rights, claims or title to water, whether or not disclosed by the public records. 4. Easement(s) for the purpose(s) shown below and rights incidental thereto as set forth in a document; Purpose: Sewer trunk main Recorded: July 18, 1952, Book 2356, Page 401, of Official Records Affects: A portion of said land S. Easement(s) for the purpose(s) shown below and rights incidental thereto as reserved in a document; Reserved by: The Irvine Company, a corporation organized under the laws of the State of West Virginia Purpose: Road and utility purposes Recorded: July 11, 1957, Book 3970, Page 3, of Official Records Affects: A strip of land 50 feet in width along a portion of the Northwesterly side 4 CLTA SWdar Coverage Policy - 1990(9/11/10) SCHEDULE B— PART it (continued) Policy No. 6. Easement(s) for the purpose(s) shown below and rights incidental thereto as set forth in a document; Purpose: Road and utilities Recorded: July 19, 1957, Book 3978, Page 537, of Official Records Affects: A portion of said land 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Street purposes Recorded: July 19, 1957, Book 3978, Page 542, of Official Records Affects: A portion of the land 8. An instrument entitled "City of Newport Beach Deed Restriction on Real Property Upon Which is Located the City of Newport Beach Mariners Branch Library" recorded March 4, 2008 as Instrument No. 2008000099106 of Official Records. Reference is made to said document for full particulars. 9. Title to, and easements in, any portion of the land lying within any highways, roads, streets, or other ways. 10. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 31. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 12. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 13. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE B 5 CLTA sce "d "rd Co mge NJry - MO (4 /11110) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972- 0051- 0725132035- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property that; because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. "Tenant ": the tenant under the Lease and, after acquisition of all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy, the Insured Claimant. h. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term, 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of I of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6 /17/06) CLTA Endorsement Form 119.6 -06 Attached to Policy No. transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 =11" Fidelity National Title INSURANCE COMPANY 2of3 ALFA Endorsement Form 13.1 -06 (Leasehold — Loan) (6 /17/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. CAFNT0972-0972 - 0051- 0725132035- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972- 0972 -0051- 0725132034- FNTIC- 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132035- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132036- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132038- FNTIC- 2010 -01 -0 CAFNT0972 -0972- 0051 - 0725132039- FNTIC- 2010 -01 -0 CAFNT0972- 0972- 0051- 0725132041- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132044- FNTIC- 2010 -01 -0 CAFNT0972- 0972- 0051- 0725132711- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132712- FNTIC- 2010 -01 -0 Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 ="°' Fidelity National Title INSURANCE COMPANY 3 of Custom Endorsement SE -55 \ °\ 06 I re m in Yn ' 1333 se oe' ton sr. I EXCLUSIONS FROM COVERAGE 'Be following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: I. (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any ii improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcet of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from 1 coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; } (b) not (mown to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or Unenforceability of the lien I the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law, 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or ilia transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. 1, DEFINITION OF TERMS The fallowing terms when used in this policy mean: (a) "insuad": the insured named in Schedule A, and, subject to any rights or defenses Ilse Couvpany would hove had against the named insured, those who succeed to the interest of the named insured by operation of law, as distinguished from purchase including, but not limited to. heirs, dishimdus, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors. The terra "insured" also includes O the owner of the indebtedness seemed by the �l insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provisions of Section 12(e) of these Cordifions and Stipulations (reserving, however, all rights and defenses as to any successor that rise Company would have hod against any predecessor insured, unless the successor acquired the indebtedness as a purchaser for value without knowledge office asserted defect, lien, encumbrance, adverse claim or other matter insured against by this policy as affecting title to the estate or interest in the land); (ii) any govemmessol agency or governmental instrumentality which is on insurer or guarantor under an insurance contract or summary insuring or guaranteeing the g indebtedness secured by the insured mortgego, or any part thereof, wlmlher named as an insured herein or net (iii) the parties designated to Section 2(s) of them Conditions and Stipulations. (b) "insured claimant ": an insured claiming loss or damage. (c) "insured lender": the owner ofan insured mortgage. (d) "insured mortgage": a mortgage shown in Schedule B, the owner of which is named as an insured in Schedule A. (e) "knowledge' or "known ": achml Imowledge, not constructive knowledge or notice which may be imputed to an insured by reason ofthe public records as defined in this policy or any other records which impart constructive notice of matted affecting the land. - (f) "land ": the land described, or referred to in Schedule A, and improvements affixed thereto which by law constitute real property. The loam "land" does not include any property beyond the lines ofrhe area described Or referred to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to CONDITIONS AND STIPULATIONS which a right of s ocess to and from the laud is insured by this policy. (g) "mortgage ": mortgage, deed of most, trust deed, or other securily instrmnent. (h) "public records ": records established under state statutes at Date of Policy for the purpose of imparting consrmative notice of nutters relating to real property to purchasers for value and without knowledge. (i) 'Ymmadmmbility of the fitle "! an aaeged or appamnt matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a parchnser of the estate or interest described in Schedule A or the insured mortgage to be asexual from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Tine by Insured Lender, If this policy insmes the owner ofrhe indebtedness secured by the insured mortgage, the coven e, of this policy shall continue in tome as of Data of Policy in favor of (i) such insured lender who acquires all of any part of the estate or interest to the lead by foreclosures, meaces, sale, coawyanoc in lieu of foreclosure, or other legal manner which discharges the lien of the insured mortgage; (ii) a tonsferee ofrhe estate or interest so acquired From nn insured corporation, provided the transferee is the parent or wholly -owned subsidiary of the insured empomtion, and theiresurnow a successors by operation oflaw, and not by purchase, subject to any rights or defenses ere Company may have against any predecessor insureds; and (in) may governmental mnocy or governmental instrumentality wbich acquires of or any part office estate or interest personal to a conduct of insurance Or immunity insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Title by an Insured. The coverage of this policy shall continue in force art of Date of Policy in favor ofan insured only so long as the insured retains on estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shag haw liability byreasonofcovetures or wanantymade bythe insured in any transfer or conveyance of the cache or interest. This policy shall not continue in facet in favor army purchaser from an insured ofeither O an estate or interest in the land, or (i) an indebtedness secured by a purchase money mortgage given to an insured. (e) Amount of Insurance. The amount of insurance after the acquisition or after the conveyance by an insured lender shall in neither event exceed the least of.. (i) the amount of fic urancc stated in Schedule A; (i) the amount of the principal of the indcbu dowss secured by the mowed mortgage as of Date of Policy, interest theaon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable =.auto expanded to prevent deterfootion ofimpmwurenb, but reduced by the amount ofall payments made; or, (tit) the amount paid by any governmental agency or goverrunental Insmtmenmlity, ifthe agency or instrumentality is the mature claimant, m the acquisition of the estate or interest in satisfaction ofma insurance connect or famously. 3, NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT An insured shall nobly the Company promptly in writing I) in case army litigation as set forth in 4(a) below, (i) in cruse knowledge stint come to an named hereunder of any claim of title ar interest which is adverse to the title to the estate or interest or the lieu of the insured mortgage, as insured, and which might cause lass or damage for which the Company may be liable by virtue ofthis policy, or (iii) if title to the estate or interest or the lien of the Insured morts as insured, is rejected as untraceable. ffprompt notice shall starts given to the Company, then as to that insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the rights ofany insured under this policy unless the Company shall be prejudiced by the felum and than only to the extent of the prejudice, 4. DEFENSE AND PROSECUTION OF XCTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upmt written request by an insured and subject to the options contained in Section6 of these Conditions and Stipulations. the Company, at its awn east and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those acted onuses of action alleging a defect, lien or encumbrance or other matter insured against by this policy. The Company shall have the d flit Insolent counsel of its choice (subject to the rifts of such insured to object for reasonable cause) to represent the insured as to those stared causes of out. and shall not be liable for and will not pay the fees of any other counsel. The Company will act pay any fees, costa or expenses CLTA Standard Coverage Policy - 1990 (4111110) incurred by an insured in the defense of those causes of action which allege masers not insured against by ads policy. (b) The Company shall have the right. at its own cost, to insulate and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to an insured. The Company may take any appropriate action under the terms of this policy, whether or act it shall be liable hammed., and shall at thereby concede liability or waive any provision of this policy. If the Company shall exemise its rights un&e "a paragraph, it shall do so diligently, (c) whenever Ore Company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, fo appeal from Any adversejudgment or order. (d) In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding, an inserted shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of such insured for this purpose. Whenever requested by the Company, an insured, at the Companys expense, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (i) in any other lawful act which in the opinion colic Company may be necessary, or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured. If the Company is prejudiced by the failure of an insured to fiunish the required cooperation, the Company's obligations to such insured miler the policy shall terminate, including any liability or obligation to defend, moments. or continue coy litigation, with regard to [be matter or matters requiring such cooperation. 5. PROOF OF LOSS OR DAMAGE In addition to and after the notices required under Section3 of threw Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and sworn to by each insured claimant shall be famished to the Company within 90 days after the insured claimant shall ascertain the foes giving rise to the loss or damage. The proof of loss or damage shall describe the defect in, or lien or encumbrance on awhile, or abler mmcr insured against by this policy which constitutes the basis of lass or damage and shall state, to the extent possible, the basis ofeal.uhning the amount of the loss or damage. if the Company is prejudiced by the failure of an insured claimant to provide the required proof of loss or damage, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such proof of loss or damage, W addition, an insured claimant may Inexorably be required to submit to examination order oath by any audmrized representative of the Company and sbdl produce for examination, inspection and copying, at such reasonable times red places as may he designated by any auffmaked representative of The Company, all records, books, ledgers, checks, correspondence and memoranda, whedier bearing a data before or after Date ofPoliey, whhoh reasonably pertain to the loss or damage. Further, if requested by any authorized representative ofthe Company, the inmiad claimant shall grant its anim oom, to writing, for any authorized representative of the Company to examine, inspect and copy all records, bou ce, ledgers, checks, correspondence and memoranda in the custody or control of a third party, which reasonably pariah to the loss or damage. All information designated as confidential by an insured claimant pmvided IQ die Company pursuant to this Section shall not be disclosed to them artless, in the reasonable judgment of the Company, it is necessary N the admirdshation of die claim. Failure of an insured claimant to submit for examination under oath, produce other reasonably requested Information or grant permission to secure reasonably necessary, information from third parties m required in this paragraph, unless prohibited by law or gaverncromid regulation, shat terminate any liability of the Company under this policy as to Ilan inswed for that clahn. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have the fol)owing additional options: (a) To Pay or Tender Payment of the Amount of Ie, ... as or to Purchase the Indebtedness. (i) to pay or tender payment of the carried of bearmae trader this policy dogedrer with any costs, aftemeys fees and expenses incurred by the insured claimant, which were authorized by the Company, up to the time ofpayment or tender ofpay ncen and which the Company is obligated to pay, u U) as case lass or damage is claimed under tins policy by the owner oftbe indebtedness secured by the insured mortgage, to purchase the indebtedness second by the insured mortgage for the amount owing thereon together with any costs, avomeys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of purchase and which the Company is obligated to pay. If file Company offers to purchase the indebtedness as herein provided, the owner ofthe indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with arty collateral Imm pity, to the Company upon payment therefore. Upon the exercise by the Company of the option provided for in paragraph a(i), all liability and obligations to the insured under this policy, other than to make the payment implied in that paragraph, shall harmonic, including any liability or obligation to defend, prosecute, or continue any litigation, mid the policy shall be surrendered to the Company for cancellation. Upon the exercise by the Company of the option provided for in paragraph a(d) the Company's obligation to an insured Lender under this policy for the claimed loss or damage, other than the payment required to be made, shall hundreds, including any liability or obligation to defend, prosecute or continue any litigation. (h) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant. O to pay or otherwise scale with other parties for or in the name of an insured cluimant any claim insured against under this policy, together with any costs, attorneys fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or (ii) to pay or otherwise settle with the insured clainanf the loss or damage provided far order this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay. Upon the exercise by the Company efeither ofthe Options Provided for in paragraphs b(i) or b(ii), the Company's obligations to the insured under this policy for the clahned loss or damage, other man are payments milaired to be made, shall to ..drum, including awry liability or obligation to defend, prosecute or continue any litigation. 7. DETERMINATION AND EXTENT OF LIABILITY This policy is a contract of indemnity against actual monetary foss or damage sustained or incurred by the insured claimant who has suffered lass or damage by reason ofmatters insured against by thus Policy and only to the extent herein described. (a) The habaity of the Company under this policy to an insured lender shall art exceed the least or: (i) the Amount of Insurance stated in Schedule A' or, if applicable, the amount of insurance as defined in Section 2(c) of these Conditions and Stipulations; (it) the amount ofthe unpaid principal indebtedness secured by the insmed mortgage as limited or provided under Section 8 of these Comfit... and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or dem age insured against by this policy occurs, together with interest thereon; or (ii) the difference between the value of the insured estate or interest as inured and the value of file insured estate or interest subject to the defect, lien or ercumbrami, insured against by this policy. (b) mthe event the inswed tender has acqu'vcd the estate or interest in the manner described in Section 2(a) of these Conditions and Stipulations or has conveyed the title, than the liability of the Company shall continue as set forth in Section 7(a) of these Conditions and Stipulations. (e) The liability affil, Company under this policy to an banned owner of the estate or interest in the land described in Schedule A shall nol exceed the least of (if the Amount of the insurance stated in Schedule A; or, (i) the difference between the value of the heated estate or interest as innead and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. (d) The Company will pay only those costs, attorneys' fees and expenres incurred in accordance wuh Seine.4 of these Conditions and Stipulations. 8. LIMITATION OF LIABILITY (a) if the Company establishes the title, or removes the alleged defect, lien or onman xxarm, or cures the lack of to right of access to or from the land, m cares the clans of unmarketability oftitle, or otherwise establishes the lien offhe insured mortgage, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of say appeals there from, it shall have fully performed its obligmiee with respect to that matter and shall not be liable for any loss or damage used thereby. (b) in the event of any litigation, including litigation by the Company or with the Company's consent, the Company shall have no liability for less or damage until there has been a final determination by a carol of compliant jurisdiction, and disposition of all appeals there from, adverse to me title, or, if applicable, to the lien of the insured mortgage, as insured. (a) The Company shall net be liable for lass or damage to any insured fir liability voluntarily assumed byde, insured in sealingany claimormit witboutthe pdorwridan consent ofthe Company. (d) The Company shall not be liable to an insured lender for: (i) any indebtedness created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts expended to prevent deformation of improvements; or (ii) construction loan advances inside subsequent to Date of Policy, except construction loan advances made subsequent to Date of Policy for the purpose of financing in whole or in pan the eomang ion of an improvement to the land which at Data of Policy were secured by the insured mortgage and which the insured was and continued to be obligated to advance at and after Date of Policy. 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments under this policy, except payments made far costs, mtomeys' fees and expenses, shall reduce the amount of insurance pro taro. However. as to an insured lender, any payments made prior to the acquisition oftitle to the estate or interest me provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro fanto the formed of became. afforded under this policy as to any such insured, except to the extent that the payments reduce thre ..not oftho indebtedness secured by the insured mortgage. (b) Payment in part by any person ofthe, principal of the indebtedness, or any other obligation secured by the insured mortgage, or any voluntary paniai satisfaction or release again insured mortgage, to die extent ofthe paymcrd, satisfaction or release, shall reduce the meant of usurance pro taste. The amount of instance may thereafter be increased by aceming interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest Became, provided in no event shall the meant of iasurame, be greater than the Amount of femance stated to Schedule A- (c) Payment in full by any person or the voluntary satisfaction or release of the insured mortgage shall terminate all lability of the Company m an insured lender except as provided in Section 2(a) o£these Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE It is expressly understood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule B or to which the banned has agreed, assumed, or taken subject, or which is havefier executed by an insured and which is a charge or lien on the estate or muncial described or referred to in Schedule A, and the amount so paid dial) be deemed a Payment under this policy to the insured owner. The provisions of this Section shall not apply to an insured lender, udesx such banned acquires title to sold estate or interest to sedisfhction of the indebtedness seemed by an insured mortgage. 11, PAYMENTOFLOSS (a) No payment shall be inside without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or destruction shall be furnished to the aafisfemion of the Company. (b) When liability and the extent of loss m damage has been definitely Cued in accordance with these Conditions and Stipulations, the loss or damage shalt bepaya6le within 30 days thereaRU. CLTA Standard Coverage Policy- 1990 (4/11/10) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) The Company's Right of Subrojorke, Wheneverthe Company shall have settled and paid a claim order this policy, all right of subrogation shall vest in the Company un fracted by any act of the insured claimant. The Company shall be sub agated to sad be entitled to all rights and remedies which the insured claimant would have had against any person or property In respect to the claim bad this policy not been issued. If requested by the Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sun, compromise or settle in the name of the instead claimant and to use the new of the insured claimant in any transaction or litigation involving these rights m nsmedies. To payment on account ofa claim does not fully covertho loss of the insured claimant, the Company shall be subrogatod Oas to an insured owner, to all rights and remedies m the proportion which the Company's payment home to the whole amount of the loss; and (it) as to an insured tender, to all rights and remediesof the insured claimant after the insured claimant shall have recovered its principal, interest, and costs of collection. If less should result from any act of the Insured claimant, as stated above, that act shall not void this policy, but the Company, in that event, shall be required to pay only (bat part crony losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of 11. impairment by the insured claimant of the Ccmpany s right of subrogation. (b) The Insured'. Rights and Limitations. Notwithstanding the foregoing, the owner of the indebtedness seemed by an insured mortgage, provided the priority of the lien of the insured mortgage or hs enforceability is not affected, may release or substitute the personal liability of any debtor or guamntoq or extend or otherwise modify the terms of payment, or release a portion of the estate or interest from the lien of the insured mortgage, or release any collateral security for the indebtedness. When the pnnrdtted acts ofthe insured claimant ooccar a:d the insured has knowledge of any claim of title or interest adverse to the title to the estate or interest or the priority or enforceability ofthe lien ofan instued mortgage, m insured, the Company shall be requbed to pay only that pan of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant Of the Company's right ofsubrogatien. (c) The Company's (tights Against Non - hmured Obligors, The Companys right of sabrogefion against non- insured obligors shall exist and shall include, without limitation, the rights of the insured Wind ... itiar, anomalies. other policies ofmarmnce or bonds, notwithstanding any terms or conditions contained in those instmmcnts which provide for subrogation rights by reason fthis policy. The Company's right of subrogatiw shall not be avoided by acquisition area insured mortgage by an obligor (except an obligor described in Section I(a)(u) of these Conditions and Stipulations) who acquires die lanced mortgage as a result of on indcarnity, bmarachm. other policy ofinsumncq or bond and the obligor will not been insured under this policy, notwithstanding Section i(axp of these Conditions and Stipulations. 13, ARBITRATION Unless prohibited by applicable law, either the Company Or the insured may demand arbitration purmmnl W the Title insurance Arbitration Rates of the Americas Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the insured arising our of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision or other obligation. All Arbitrable matters when the Arnounl of Insurance is $1,000,000 or loss shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when dm Amount of Inmrame is in excess of$1,000.000 shall be arbitrated only when agreed to by both the Company and the insured, Arbitration pursuant to this policy and under the Rules N effect on the date the demand for arbitration is made or, at the option of the insured, the Rules in effect at Date of Policy shall be binding upon the parties. The award may include attorneys' fees oNy tithe laws of the state in SCHEDULE B EXCEPTIONS FROM COVERAGE which the land is located permit a coon to award mmanye fees to a prevailingpavy. lodgment upon the award rendered by the Arbitrator(s) may be entered in any court having jnrisdiatian ihowae The lawofthc aqua fthe land shall apply to an Arbitration under the'rid. Insurance Arbitration Rules. A copy of the Rules may be obtained from the Company upon request. 14. LIABILITY LIMITED TO THIS POLICY ( POLICY ENTIRE CONTRACT (a) This policy mgelher with all endamemenis, if any, attached hereto by the Company is the entire policy and contract between am insured and the Company. In interpreting my provision ofthis policy, this policy shall be construed as a whole. (b) Any claim oflass or damage, whetherornmt based on negligence, and which arises out of tho status of the lien of the hmured mortgage or of the title to the estate or Womst covered haroby or by amy action asnamgsuch claim, shall be restricted to this policy. (c) No amendment of or endorsement to this policy can be made exceptbya writing endorsed hereon oranached hereto signed by either the Resident, a Vice President, the Secretory, and Assistant Secretary, or validating officer or authorized signatory of the Company. 15. SEVERARILITY In the event any provision of the policy is held invalid or unenforceable nederapplicahle law, the policy shall be deemed not to include that provision and all other provisions shall remain in full force and effect. 16. NOTICES, WHERE SENT All notices req.imd to be given the Company and any slntement is writing required to be furnished the Company shall include the number afar. policy and shalt be addressed to the Company at: Fidelity National Title Insurance Company P.O. Box 45023 la.lan.vIDF bl 32232 -5023 Ago: Claims Department This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. 2. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. 3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. 5, (a) Unitmented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. 6. Any lien or right to a lien for services, labor or material not she" by the public records, CLTA Standard Coverage Policy - 1990 (4 /11 /IU) M0 ill ,;. Fidelity National Title Insurance Company POLICY NO.: CAFNT0972- 0972.0051- 0725132036- FNTIC- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of 1. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land; and, in addition, as to an insured lender only: 5. The invalidity or unenforceability ofthe lien of the insured mortgage upon the title; 6. The priority of any lien or encumbrance over the lien of the insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assigneefree and clear of all liens. The Company will also pay the costs, altorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITY NATIONAL TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers. Fidelity National /Title Insurance Company uxua---�'tt ATTEST ,y Sac[elery Countersigned CLTA Standard Coverage Policy - 1990 SCHEDULE A Policy No.: CAFNT0972- 0972- 0051- 0725132036- FNTIC- 2010 -01 -0 Order No. 725132036 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as Trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement', which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement' dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA Standard Covenge Policy -1990 Policy No. LEGAL DESCRIPTION EXHIBIT"A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: LOTS 57 THROUGH 60 AND THE SOUTHWESTERLY 66 FEET OF LOT 56, TRACT NO, 706, PER MAP RECORDED IN BOOK 21, PAGES 25 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER, COUNTY OF ORANGE, CALIFORNIA. APN: 439 - 391 -29 2 CLTA Randard Covenge Policy -1990 Policy No. SCHEDt1LE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: 71: -ii All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. Water rights, claims or title to water, whether or not disclosed by the public records. 4. The right to use all streets, roads, and drives shown on said map of Tract No. 706, for pipelines, telephone, power and electric railway lines and the provisions concerning the same, contained in the deed from the Irvine Company, recorded June 19, 1924 in Book 530, page 128, of Deeds. S. The restrictions and conditions that none of said land shall be sold to be used, nor shall any of it be used, for the purpose of oil refining or any other purpose which would constitute a nuisance or be offensive to the senses, health or safety of persons residing on or occupying any of said land or adjoining lands, as contained in the deed from the Irvine Company to the Title guarantee and Trust company, recorded June 19, 1924, in book 530, Page 128, of Deeds. CLTA Standand Covemp Policy -1990 (9111/10) SCHEDULE B — PART II (continued) Policy No. 6. Easement(s) for the purpose(s) shown below and rights incidental thereto as reserved in a document; Reserved by: Title guarantee and Trust Company Purpose: Pole lines and conduits Recorded: July 27, 1929, Book 297, Page 147, of Official Records Affects: A portion of said land as more particularly described in said document. and re- recorded January 5, 1944, Book 1229, Page 238, of Official Records Covenants, conditions and restrictions in the declaration of restrictions but omitting any covenants or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of income, as set forth in applicable state or federal laws, except to the extent that said covenant or restriction is permitted by applicable law. Recorded: Book 297, Page 147, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any mortgage or deed of trust made in good faith and for value. 8. Easement(s) for the purpose(s) shown below and rights incidental thereto as reserved in a document; Reserved by: Title Guarantee and Trust company Purpose: Pipelines and ditches Recorded: July 27, 1929, Book 297, Page 147, of Official Records Affects: A portion of said land as more particularly described in said document. 9. Covenants, conditions and restrictions in the declaration of restrictions but omitting any covenants or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of income, as set forth In applicable state or federal laws, except to the extent that said covenant or restriction is permitted by applicable law. Recorded: Book 500, Page 164, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any mortgage or deed of trust made in good faith and for value. 10. Land use regulations under which development will be governed for the area referred to as the Santa Ana Heights Specific Plan, as disclosed in an instrument recorded May 4,1990, as Instrument No. 90- 235869, of Official Records. Reference is being made to said document for full particulars. CLTA Standard Coverage Policy -1990 (4111(10} SCHEDULE B — PART II (continued) Policy No. 11. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: County of Orange Purpose: Slope Recorded: May 29, 1997, Instrument No. 19970246151, of Official Records Affects: A portion of said land as more particularly described in said document. 12. Matters disclosed by maps filed for record in Book 183, Pages 10 through 17, Inclusive; Book 176, Pages 45 through 50, inclusive; and Book 138, Pages 28 through 32, inclusive all of Records of Survey in the Office of the County Recorder of said County. Reference is being made to said document for full particulars. 13. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 14. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 15. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 16. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE El 5 CLTA StantlarA Coverage Potlq -1990 (91I1110) ENDORSEMENT Attached to Policy No. CAFNT0972 -0972 -0051- 0725132036- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property that, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. 'Tenant": the tenant under the Lease and, after acquisition of all or any. part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy, the Insured Claimant. h. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or In which the Insured has an Interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection I of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17106) CLTA Endorsement Form 119.6 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 0 Fidelity National Title INSURANCE COMPAW C-" s„` -rye ,. 2of3 ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/37/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 -0051- 0725.132036 - FNTIC- 2010.01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972- 0972 -0051- 0725132034- FNTIC- 2010 -01 - -0 CAFNT0972 -0972- 0051 - 0725132035 - FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132036 - FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 072513203$- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132039- FNTIC - 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132041- FNTIC- 20I0 -01 -0 CAFNT0972- 0972 - 0051 - 0725132044- FNTIC - 2010 -01 -0 CAFNT0972 -0972- 0051- 0725132711- FNTIC - 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132712- FNTIC - 2010 -01 -0 Notwithstanding the provisions of Section S(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (1) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 -' 11 Fidelity National Title INSURANCE COMPANY 3 of Custom Endorsement 5E -55 QO N ta.l rn M U X40 �n ¢MQ IQ°eU w OHS 0m� vljU p2•Z. Na0 vat 1 z IY c bl NN II q NN �R O ti 4 ti U U ti Q P V ll; E TM.MZp is being famished as a comonl000a to lc,o f Ne mrNnaeellbea bnd in Miatlonto edfolnma mreots and olMr Iandc7ft con,on)daea not pv ,dlmmsiono, dotaneoa, beadigs,oracrta, vW d(bonn., nor N 11 Inlonded to IMUM lagtl bulldblp sltea or supem.da Moo Cvmdyordlnaneee,I,. zoning and buiMlogoodu, ate. Cmdal lnfmmdlmconcernin2lM1e xeo annypemal ohould be oMalnetlfmmlocei gov<mmenlayntlas. M d lie R� s anrart arnpao s a A® Ar ^ It O h , V q N h .aet c Q I_ b _ _ ______ -------------- �e. o f AeG QOn dON O OIN g n IN I .six s.F re Q 40 ' e i x - 3 c v j � v m b O�� F V � N 2 It .a a 1 I I IVUR ABAMi $v]I' ` O 49 9 I I U $ I' aat� DPFVE MESA x 1£ -al x I t I QO N ta.l rn M U X40 �n ¢MQ IQ°eU w OHS 0m� vljU p2•Z. Na0 vat 1 z IY c bl NN II q NN �R O ti 4 ti U U ti Q P V ll; E EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: 1. (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, oTregulations) restricting, regulating prohibiting or relating to (j) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy, (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy, 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed Toby the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation o£federal bankruptcy, state insolvency, or similar creditors' rights laws. I. DEFINITION OF TERMS The following leans when used in this policy mean: (a) "insured ": the insured named in Schedule A. and, subject to any rights or defenses the Company would have had against the named roamed, those who succeed to the interest of the named insured by operation of law as distinguished from purchase including, but and limited to, heirs, distributes, devisees, anrvivors, personal representatives, next of kin, or corporate or fiduciary successors. The term "insured" also includes (i) the owner of the indebtedness secured by the Insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provisions of Section 12(e) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor insured, unless the successor acquired the indebtedness as a purchas e-farvaluewithout knowledge of the asserted defect, lien, xismob race, adverse claim or other matter insured against by this policy as affecting title to the estate or interest in the land); (ii) any governmental agency or governmental instrumentality which is an insurer or guarantor under an insurance contract or guaranty insuring or guaranteeing the indebtedness seemed by the insured mortgage, or nay part thereof, whether named as an insured lacmin or not; (iii) the parties designated in section 2(a) of these Conditions and Stipulations. (b) "inured claimant ", an insured claiming loss or damage. (e) " insnedlendce ' :thoorvnerofaninmodmoahage. (d) `insured mortgage': a mortgage shown in schedule B, die aurae, of which is named as an insured in Schedule A. (e) "knowledge" or "known": actual knowledge, not constructive knowledge or nodes, which may be included to an insured by reason ofthe public records as defined in this policy or any other records which impart constructive notice of matters affecting the land. (f) "sand': the land described, or refered to in Schedule A, and improvements affixed thereto which by law constitute mil property. The term "hand" does not include any property beyond the lines ofdte area described ar referred to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, rands, avenues, alleys, lanes, ways or %waterways, bra nothing herein shall modifyor limit the extent to CONDITIONS AND STIPULATIONS which a right of access to and from the land is insured by this policy. (g) "mortgage ": mortgage, deed optical, hurt deed, err other security instrument. (h) "public records": records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real properly to purohascrs far value and without knowledge. @ "unmarketabilay ofthetitle ": an alleged napparent matter affecting the tine to the land, not excluded or excepted from coverage, which would entitle a purchaser of an, estate or interest described fo Schedule A or the insured mortgage to be released from the obligation to purchase by virtue of a contractual condition requiring tho delivery of marketable title. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Title by Insured Lender. If this policyinsures the mvnerofthe indebtedness secured by the insured mortgage, the coverage of this policy shall continue is force as of Data of Policy in favor of (i) such insured leader who acquires all crony part of the estate or interest in the land by foreclosums, trustee's sale, conveyance in lieu of foreclosure, or other legal manner which discharges the lien of the insured mortgage; (ii) a transferee ofthec tide or interest so acquired from an instead corporation, provided the transferee is the parent or wholly -ewnat subsidiary of the insured corporation, and their corporatesuccessore by operation oflaw and not by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which ucquires all or any part of Ilia estate or interest pursuant to a contract of insurance or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Title by an Insured. The coverage of this policy shall continue in force as of Data of Policy in favor arm insured only so long as the insmed retains no estate or interest in ties land, or holds as indebtedness secured by a purchase money mortgage given by a purchaser from the insured, ar only so long as the insured shall have liability by reason efcovor atuor warrantymade by the insured in any Jennifer or conveyance of the estate or interest. This policy shall not continue in tome in favor of any purchaserfmrn an insured ofeitherO an estate or interest in the land, or (a) an indebtedness secured by a purchase mmey mortgage given to an insured. (a) Amount of Insurance. The amount of insurance after the acquisition or after the conveyance by an insured leader shall in neither event exceed the least of (i) the named attenuates stated in Schedule A; (ii) the amount of the principal of the indebtedness secured by the insumd mortgage as of Date of Yoliey, interest thereon, expenses of foreclosure, amomts advanced pursuant to the insured mortgage to names compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable amounts expended an prevent deterioration of improvements, but reduwd by the amount of all payments made; or (iii) the amount paid by any govemmeWal agency or governmental instrumentality, iftheagency or instrumentality is the insured claimant, in The acquisition of the estate or interest in satisfaction of its insurance contract or guaranty. 3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT An insured shall relify the Company promptly in writing (i) In case ofany litigation asset forth in d(a) below, (it) In case knowledge shall come to an insured hereunder of my claim of tide or interest which is adverse to the title to Me estate or interest or the lien of the insured mortgage, as turned, and which might cause loss ordamage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable. Uprompt notice shall not be given to the Company, then as to that insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the dgMs ofany insured under this policy notes%the Company shall be prejudiced by the thilum and than only to the extent of the prejudice. 4. DEFENSE AND PROSECUTION OF `ACTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written request by an insured and subject to the options contained in Seething of these Conditions and Stipulations, the Company, in its awn war and without ume.muchlc delay, shall provide for the defense of such leaned in litigation in which any third party asserts a claim adverse to the fine or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. The Company shall have the right to selectcoumsel offs choice (subject to the data of such insured to object for reasonable cause) to romaied the insured as to them stated rouses of action and shall not be liable for and will not lay the fees of any other counsel. The Company will not pay any fees, vests or expenses CLTA Standard Coverage Policy- 1990 (4111110) incurred by an insured in the defense of those causes of action which allege matters not insured against by this policy. (b) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any otheract which in its opinion may be necessary or desirable m establish the title to the estate or interest or the lien of the insured mortgage, as insured, or To prevent or reduce loss or damage to an insured. The Compaaymay take any appropriate action under Lite tears of this policy, whether or ant it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently, (c) Whenever the Company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final detern action by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adviaw judgment or order, (d) In all oases where this policy permits or requires the Company to prosecute or provide for the defense of any action Cr proceeding, an insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, r its option, the name of such insured for this purpose. Whenever requested by the Company, an leaned, at the Cempa rya expeauc, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, proacombig or defending the action ar proceeding or affecting settlement, and (i) in any other lawful act which in the opinion of the Company may be necessary or desirable m establish the title to the ¢stale ar interest or the lien ofthe insured mortgage, as insured. If the Company is preudlead by the failure open insured to famish the required cooperation, the Company's obligations to such insured under the policy shall Er minute, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such preparation. S. PROOF OF LOSS OR DAMAGE In addition to and after the node" required under Secton3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed ad sworn to by each insured claimant shall be furnished to [be Company within 90 days after the insured claimant shall ascertain the facts giving rise to the loss or damage. Tlhe proof of loss or damage shall describe the defect in, or lien a encumbrance on rte title, or other matter insured against by this policy which constitutes the basis of loss or damage and shall state, to the extent possible, the basis of calculating the amount of the loss or damage. If the Company is prejudiced by the failure of an insured claimant to provide the required proof of loss or damagu, the Company's obligations to such insured under.fie policy shall terminate, including pay liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such proof of loss or damage. in addition, an insured claimant may reasonably be required to submit to examination tinder oat, by any amhorzed representative of the Company and shall produce for examination, inspection and copying, at such reasonable limes and places as may be designated by my influenced reprcreatatve of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a date before or after Data of Policy, which reasonably panels m the Ion or damage. Further, if requested by any authorized representative of the Company, the insured claimant shall grant its permission, in witting, for any authorized representative of the Company to examine, inspect and copy all records, books, )edgers, checks, eonrespondence and memoranda in the custody or Control of a third parry, which reasonably pertain to the loss or damage, AD information designated as confidential by on insured claimant provided In We Company transient to this Section shall not be disclosed to others unless, in the reasonable judgment ofthe Company, it is necessary in the adminhshation of the claim. Failure of an insured claimant to submit for examination under oath, produce other reasonably requested information or goal permission m serum reasonably necessary information from third parties as required in this paragraph, when prohibited by law or governmeal regulation, shall terminate any liability of the Company tinder this policy as to that insured for that claim. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have The following additional options: (a) To Pay am Tender Payment of the Amount of Insurance or to Purchase the Indebtedness. (i) to pay or tender payment of the amount of insurance order this policy together with any costs, attorneys' kes and expenses incurred by the insured claimant, which were authorized by the Company, up to the time ofpayarent or tender of payment and which the Company is obligated to pay; or (ii) in case loss or damage is claimed trader this policy by the owner of the indebtedness secured by the insured mortgage, to phamhasethe indebtedness secured by the insured mortgage forthe amount owingthernow together with my coals, anomeys' fees and expenses incurred by the insured claimant which were authorized by the Company up to tluc lime of remain and which the Company is obligated to pay. If the Company offers to purchase the indebtedness as herein provided, the owner of the indebtedness shelf transfer, assign, and convey the indebtedness and the insured mortgage, together with any collateral security, to the Company upon payment therefore. Upon the exercise by the Company of the option provided for in paragraph a(i), all liability and obligations to the insured under this policy, other thou to make the payment required in That paragraph, shall lemmata, including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be surenderedto the Company for cancellation. Upon the exercise by the Company of the option provided far in paragraph dii) the Company's obligation to an insured Lender under this policy for the claimed loss or damage, other than the payment required to be made, along tomrimte, including any liability or obligation to defend prosecute or continue any litigation. (b) To Pay or Odrenvise Settle With Patties Other than the Insured or With the favored Claimant, (r) to pay or otherwise settle with other parties for or in the mine of as insured claimant any claim insured against hinder this policy, together wilt, any costs, attorneys fees and cxpersw incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or (h) to pay or otheiwise seft]e with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time afPaymem and which the Company is obligated to pay. Upon the exercise by the Company ofeither ofihe options provided for in paragraphs b(i) or b(d), the Company's obligations to the issued under this policy Far the claimed less ar damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. 7. DETERMINATION AND EXTENT OF LIABILITY This policy is a prntmct of indemnity against actual monetary lass or damage sustained or incurred by the insured claimant who has suffered loss or damage hydrator ofmatlers insured against by this policy and only to the extent herein described. (a) The liability orth , Company under this policy to an insured ]order shall not exceed the least op. (i) the Amount of Insurance stated in Schedule A, or, if applicable, the amount of insurance m defined In Section 2(c) offlese Conditions and Stipulations; (ii) the amount of the unpaid principal indebtedness seemed by the insured mortgage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced mace Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs, together with interest thereon; or (iii) the difference between the vrdue of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. (b) mike event the insured leader has acquired the estate or interest in the maaer described in Section 2(a) of these Conditions and Stipulations or has conveyed fire title, then the liability of the Company shall continue as set forth in Section 7(a) of these Conditions sad Stipulations. (c) The liability office Company under this policy to an insured owner ofihe estate or intemat in the land described in Schedule A shall not exceed die best of (i) the Amount of the Insurance stated in Schedule A; or, (ii) the difference between the value of the insured estate or interest as Insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. (d) The Company will pay only these costs, anomeys' fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations. S. LIMITATION OF LIABILITY (a) If the Company establishes the title, ar removes the alleged defect, lien or encumbrance, or cruet the lack of n right Of access to or from the land, or cares the plain, of unmarkewbility of title, or otherwise establishes the lion of the insured mortgage, all as insured, in a reasonably diligent manner by any method, including lifileation and the completion of any appeals there from, it shall have fully performed its obligations with respect an that matter and shall not be Gable for any loss or damage caused thereby. (b) In the event of any litigation, including litigation by the Company m with the Company's consent, the Company shall have no liability for loss or damage unfit there has been a But determination by a court of competent jurisdiction, and disposition of all appeals there from, adverse to the title, or, if applicable, to the had of the insured mortgage, es insured. (c) The Company shall not be liable for loss or damage to any insured for liability voluntarily assumed by the insisted in settling any claim or still without the prior written eonsmd of the Company. (d) The Company shall not be Gable tom insured lender for. (i) say indchtedmes r created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts ascended to prevent deterioration of improvements; or (b)ectro metier lone advances made absequcat to Date of Policy, except construction loan advances made subsequent to Date of Policy for the purpose of Immersing in whole or in part the construction of an improvement to the land which at Date or Policy were secured by the insured mortgage ead which the insured was and continued to be obligated to advance at and after Date of Policy. 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments under this policy, except payments made for costs, attorneys' fees and expenses, shall reduce the amount of insurance pro taro. However, as to an insured lender, any payments made prior to the acquisition of title to the estate or interest as provided in Section2(s) of these Conditions and Stipulations shall not reduce pro into the amount of insurance afforded under this policy as to any such insured, except to the extent that the payments reduce the amount of the indebtedness secured by the insured mortgage. (b) Payment in part by any person of if. principal of the indebtedness, or any other obligation secured by the insured mortgage, or any voluntary partial satisfaction or release of the insured mortgage, to the extent of the payment, satisfaction or release, shall reduce the amount of insurance pre lento. The amount of insurance may ihereader be increased by accming interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater than the Amount of Insurance staled in Schedule A- (a) Payment in fall by any person or the voluntary satisfaction or release of the insured mortgage shall terminate all liability of the Company to an insured lender except as provided in Section 2(a) of these Conditions and Stipulations. 10. LIABILITYNONCUMULATIVE It is expressly understood that the amount of insurance underdris policy shall be reduced by any amour the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule B or to which the insured has agreed, twinned, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate or internal described or referred to in Schedule A, and the amount so paid shall be deemed a payment under this policy to the insured miner. The provisions of ibis Sestina shall at apply to an insured leader, unless such inowed acquires title to said estate or interest in satisfaction of the indebtedness secured by an insured mortgage. IL PAYMENI'OFLOSS (a) No payment shall be made without producing this policy for endorsement of the payment unless the policy has hem last or destroyed, in which case proof of Ins or deseactioa shall be furnished to the satisfaction of the Company. (h) When liability and the extent of loss or damage has been defiitely faxed in accordance with these Conditions and Stipulations, the loss ordamage shall be payable within 30 days thereafter, CLTA Standard Coverage Policy - 1990 (4111/10) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) The Company's Right of Subrogation. Wheneverthe Company shall havesta led and paid aclaim under this policy, all right of submgadon shall vest in the Company unaffected by my act of ore insured claimant. The Company shall be subroga[ed to and be entitled to all rights and remedies which the insured claimant would have had against my persem or property in respect to the claim had this f policy not been issued. If requested by the Company, the j leaned claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogatimr, The insured claimant shall permit the Company to sue, compromise or settle in The name of the insured claimant sad to use the same of the insured claimant in any transaction or litigation involving these rights or remedies. Ifs payment on account ofa claim does not fully cover the loss of the insured claimant, the Company shall be subragnled (f) as to an insured owner, to all rights and remedies in the Proportion which the Company's payment bears to the whole amount ofthe loss; and (ii) as to an insured leader, to all rights and remedies of the insured claimant after the insured claimant shall have recovered its principal, interest, and costs of collection. if loss should result form any act of the insured claimant, as stated above, [bat act shall not void this policy, but the Company, in that event. shall he required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, lost to [lie Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (h) Thelnsumd's Rightarod Limimflins. Notwithstanding the fxegoing, the owner of the indebtedness secured by an insured mortgage, provided the priority cribs lien ofhe insured mortgage calls enforceability is Trot affected, may release or substitute the personal liability of any debtor or guarantor, or extend or otherwise modify the terns of payment, or release a portion offl a estate or interest from the lien of the insured mortgage, or release any collateral security for the indebtedness. When the permitted acts attire insured claimant occur and the insured has knowledge of any claim of tole or interest adverse to the title M the cstale or interest or the priority or enforceability of Ore lien ofee iesu cod mortgage, as insrned, the Company shall be required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right ofsubrogation. (o) The Company's Rights Against Nam- insured Obligors. The Company's right of subrogation against non -insured obligors shall exist and shall include, without limitation, the rights of the insured to hsdemnities, guaranties, other policies ofinmrance en bonds, notwithstanding any terms or conditions contained in those instruments which provide for subrogation rights by reason of this policy. The Company's right of subrogation shad not be avoided by acquisition of an insured mortgage by an obligor (except an obligor described in Section I(a)(ii) of time Conditions and Stipulations) who acquires the insured mortgage as a result of an i elemnily, guarantee, other policy of incurrence, or bond and the obligor will not bean insured under this policy, rmtwitlrslanding Section 1po@ of these Conditions and stipulations, 13. ARBITRATION Unless proldbiled by applicable law, either the Company or the insured may demand arbitration pursuant to the *title Iomiavice Arbitration Rules of the American Arbitration Associatien.Arbitrable matters may include, but am net limited to, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision orother obligation. All arbitrable matters when the Amount of Insurance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured. All arbitrable motions when the Amount of Insurance is in excess of$ 1,000,000 shall be arbitrated only when agreed to by both the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect on the data the demand for abitration is made or, at the option of the insured, the Rules in effect at Date of Policy shall be binding upon the parties. The award may include atlomeys' fees only ifthe laws ofthe sate in SCHEDULE B EXCEPTIONS FROM COVERAGE which the land is located permit a wort to awed aaomeys' fees to a prevailing party, Judgment upon the award mndcrcd by the Arbitmtor(s) may be entered in any court having jurisdiction thereof. The law arras silos ofohe land shall apply to an arbitration under the Title Incomes Arbitration Rules. A copy of the Rules may be obtained Dom the Company upon request. 14. LIABILITY LIMrT9D TO THIS POLICY; POLICY ENTIRE CONTRACT (a) This policy together with all andomements, if any, attached hereto by the Company is the entire pulley cad contract between the insured and the Company. In intemprefing any provision ofthis policy, this policy.ah ill be construed as n whole. (b) Any claim ofloss or damage, whe[heror not based on negligence, and which arises out of Bra status of the lien cribs insured mortgage urethra 011e to the estate or interest covered hereby or by any came asserting such claim, shall be restricted to this policy. (c) No amendment arm endorsement to this policy can be made execpt by a withal endorsed hereoa or attached hereto signed by either the President, a Vice President, the Secretary, mid Aod.lanl Secretary, or validating otfiesr or ardhmized signatory orthe Company. 15. SEVERABILITY In the event my provision of the policy is held invalid or unerdnrceablannder applicable law, the policy slWll be dtemed out to include that provision and all other provisions shall remain in fir force and effect. 16, NOTICES, WHERE SENT All notices required to be given the Company and any statement in writingrequired to be furnished the Company shall include the number of this policy and shall be addressed to the Company et: Fidelity Natural Title Insurance Company P.O, Box 45023 Jacksonville, FL 32232 -5023 Alm: Claims Department 17ris policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of; PART I. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the retards of such agency or by the public records. 2. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. 3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records, 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. S, (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. 6. Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy- 1990 (4111/10) Fidelity National Title Insurance Company POLICYNO.: CAFNT0972- 0972 -0051- 0725132038 -- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND 77YE CONDITIONS AND STIPULATIONS, java.lang.NullPointerException, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of L Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land, and in addition, as to an insured lender only: 5. The invalidity or unenforceability of the lien ofthe insured mortgage upon the title; 6 The priority of any lien or encumbrance over the lien of the insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceability of any assignment of the insured mortgage; provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assignee free and clear ofall liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations, IN WITNESS WHEREOF, FIDELITY NA TIONAL TITLE INSURANCE COMPANYIt as caused this policy to be signed and sealed by its duly authorized officers, Fidelity National //Title Insurance Company V PreGEent 5�� z SEAL �`/ /�� Soemcary Countersigned CLTA Smnda d Coverage Polley - 1990 SCHEDULE A Policy No.: CAFNT0972 -0972 -0051- 0725132038- FNT1C- 2010 -01 -0 Order No. 725132038 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement ", which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement" dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA Standard Coverage Policy -1990 Policy No, LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1: (APN: 442 - 014 -26) THE SOUTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHTTO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHERTHAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYONDTHE EXTERIOR LIMITS THEREOF, ANDTO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANYSUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHTTO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE - COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304758, OF OFFICIAL RECORDS. PARCEL 1A: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANTTO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90-361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 T013INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE 'PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENTAND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENTAREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 ('BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFIITED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENT TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL UTA 5f ndard C e2ye Policy -1999 EXHIBIT "A" (continued) Policy No. AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESSTOTHE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 16: A PERMANENT NONEXCLUSIVE EASEMENTIN GROSS AND APPURTENANTTO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL") OVER THAT PORTION OF PARCEL I IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90-361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENT AND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 ('BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFIJTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENTAREA WHICH ARISE SUBSEQUENTTOTHE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENTAREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE SENEFI17ED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 2: (APN: 442- 014 -25) THE NORTHWESTERLY ONE -HALF OF PARCEL 2, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 90 -361, FILED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA. L EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDERTHE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDINGTHE RIGHTTO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND CLTA R Wnd Cove29e Policy -1990 EXHIBIT "A" (continued) Policy No. BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATEANY SUCH WELLS OR MINES, WITHOUT, HOWEVER THE RIGHTTO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE - COMPANY IN THE DEED RECORDED MAY 8, 1992, AS INSTRUMENT NO. 92- 304759, OF OFFICIAL RECORDS. PARCEL 2A: A PERMANENT NONEXCLUSIVE EASEMENTIN GROSS AND APPURTENANT TO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFITTED PARCEL ") OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90-361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "PRINCIPAL ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENTAND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAY$, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH PRINCIPAL ACCESS EASEMENT AREA, GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE PRINCIPAL ACCESS EASEMENT AREA AND TO MAINTAIN THE PRINCIPAL ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 1 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 1 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 1. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 1, THE OWNER OF THE BURDENED PARCEL 1 AND THE OWNER OF THE BENEFIITED PARCEL SHALL EACH CONTRIBUTE TO FIFTY PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE PRINCIPAL ACCESS EASEMENT AREA WHICH ARISE SUBSEQUENTTO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FORTHE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 1 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 1; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 1 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESSTO THE BENEFITTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 1 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. PARCEL 26: A PERMANENT NONEXCLUSIVE EASEMENT IN GROSS AND APPURTENANTTO PARCEL 1, DESCRIBED ABOVE, (THE "BENEFIITED PARCEL') OVER THAT PORTION OF PARCEL 1 IDENTIFIED IN EASEMENT NOTE 3, SET FORTH AND SHOWN ON PARCEL MAP NO. 90-361, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED IN BOOK 270, PAGES 15 TO 18 INCLUSIVE, OF PARCEL MAPS, RECORDS OF SAID COUNTY (THE "SERVICE ACCESS EASEMENT AREA ") FOR THE PURPOSE OF VEHICULAR AND PEDESTRIAN ACCESS, INGRESS AND EGRESS AND CONSTRUCTION, REPLACEMENTAND MAINTENANCE OF DRIVEWAYS, CURBS, CURB CUTS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, LANDSCAPING, IRRIGATION, MONUMENTATION, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS WITHIN SUCH SERVICE ACCESS EASEMENT AREA. GRANTEE SHALL PAY FOR ALL COSTS AND EXPENSES TO IMPROVE THE SERVICE ACCESS EASEMENT AREA AND TO MAINTAIN THE SERVICE ACCESS EASEMENT AREA PRIOR TO THE TIME THE OWNER OF PARCEL 3 OF PARCEL MAP NO. 90 -361 ( "BURDENED PARCEL 3 ") OBTAINS A CERTIFICATE OF OCCUPANCY FOR PERMANENT BUILDING IMPROVEMENTS TO BE CONSTRUCTED ON SUCH BURDENED PARCEL 3. UPON OBTAINING A CERTIFICATE OF OCCUPANCY FOR IMPROVEMENTS CONSTRUCTED ON THE BURDENED PARCEL 3, THE OWNER OF THE BURDENED PARCEL 3 AND THE OWNER OF THE BENEFrFTED PARCEL SHALL EACH CONTRIBUTE TO FIFTY MA StandaM [overage Poky -1990 EXHIBIT "A" (continued) Policy No. PERCENT (50 %) OF THE COSTS AND EXPENSES OF MAINTENANCE, REPAIR AND RESTORATION OF ALL IMPROVEMENTS LOCATED ON THE SERVICE ACCESS EASEMENTAREA WHICH ARISE SUBSEQUENT-TO THE ISSUANCE OF SUCH CERTIFICATE OF OCCUPANCY. GRANTOR HEREBY RESERVES THE RIGHT, FOR THE BENEFIT OF THE OWNER OF THE BURDENED PARCEL 3 TO REDESIGN, REMOVE, RECONSTRUCT AND IMPROVE THE DRIVEWAYS, CURB CUTS, CURBS, ENTRYWAYS, LIGHT STANDARDS, TRAFFIC SIGNS, SIDEWALKS, PERMANENT WALLS AND FENCES, LANDSCAPING, IRRIGATION, MONUMENT, DIRECTIONAL AND OTHER ROADWAY SIGNS AND LIKE IMPROVEMENTS LOCATED WITHIN THE SERVICE ACCESS EASEMENT AREA IN CONNECTION WITH IMPROVEMENT OR RECONSTRUCTION OF PERMANENT BUILDINGS LOCATED ON THE BURDENED PARCEL 3; PROVIDED, HOWEVER, THAT THE OWNER OF THE BURDENED PARCEL 3 SHALL PROVIDE REASONABLE ALTERNATIVE ACCESS TO THE BENEFTTTED PARCEL AT ALL TIMES DURING CONSTRUCTION OF SUCH REDESIGNED OR UPGRADED IMPROVEMENTS. THE OWNER OF THE BURDENED PARCEL 3 SHALL REPAIR ALL DAMAGE CAUSED TO IMPROVEMENTS LOCATED WITHIN THE PRINCIPAL EASEMENT AREA BY CONSTRUCTION ACTIVITIES. 5 CLTA Sbndard Coverage Pollcy - 1990 Policy No. SCHEDULE H EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 Inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year. 2010-2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest ofThe Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. Waiver of any claims for damages to said property by reason of the location, construction, landscaping or maintenance of the freeway adjoining said property, as contained in the deed to the State of California, recorded May 20, 1931, Book 487, Page 3, of Official Records. 4. The dedication to the State of California of the right of ingress and egress to and from said land from the freeway adjoining along the Southeast side, by deed recorded July 25, 1940, in Book 1047, Page 557, Official Records , and by a deed recorded October 1, 1952, in Book 2390, Page 458, Official Records. S. The privilege and right to extend and maintain drainage structures, excavation slopes and embankment slopes on said land, as contained in an instrument Granted: The State of California Recorded: July 25, 1940, in Book 1047, Page 557, Official Records CLTA 5pndard Coverage PoHry -1990 (4/11110) SCHEDULE B - PART II (continued) 6. 7 8. 9. 10. Policy No. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Pole lines, steel towers Recorded: June 19, 1947, Book 1528, Page 321, of Official Records Affects: Lies within the proposed right -of -way of MacArthur Boulevard The exact location and extent of said easement is not disclosed of record. Said easement was modified by an instrument dated January 15, 1986, executed by The Irvine Company, a Michigan corporation, in favor of the Southern California Edison Company, upon the terms and conditions as therein contained, recorded January 21, 1986, Instrument No. 86- 024793, Official Records. Waiver of any claims for damages to said property by reason of the location, construction, landscaping or maintenance of the freeway adjoining said property, as contained in the deed to the State of California, recorded Book 1750, Page 437, of Official Records. Matters contained in that certain document entitled "Agreement ", executed by and between The Irvine Company, a Michigan corporation and the City of Newport Beach, a municipal corporation, recorded August 19, 1986, Instrument No. 86- 370223, of Official Records. Reference is hereby made to said document for full particulars. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the map of said tract. Purpose: Public utility Affects: Said easement is not plotted on the parcel map. Purpose: Storm drain Affects: A portion of Parcel 2 Purpose: Water line Affects: A portion of Parcel 2 The dedication to the City of Newport Beach of the storm drain system and appurtenances and the, water line system and appurtenances, as shown on the improvement plans for this parcel map. CLTA Standard C vemge policy -1996 (4111/10) SCHEDULE B— PART II (continued) Policy No, 11. All vehicular access rights to East Coast Highway and MacArthur Boulevard, except at street intersections, have been released and relinquished to the City of Newport Beach on said parcel map. Said land abuts on a dedicated street other than the one above mentioned. 12. All vehicular access rights to Avocado Avenue, except at street intersections and the two approved driveways shown hereon, together with three additional driveways to be approved by the Director of Public Works of the City of Newport Beach, have been released and relinquished to the City of Newport Beach on said parcel map. 13. Recitals as shown on that certain map, which, among other things states the following improvements are required to be constructed: "Asphalt or concrete access roads to all public utilities, vaults, manholes and junction structure locations, and street, drainage and utility improvements for Avocado Avenue, East Coast Highway, MacArthur Boulevard and San Miguel Drive ". Reference is made to said map for full particulars. 14. Recitals as shown on that certain map, which, among other things states: "A 10 foot wide relocatable pedestrian /bicycle easement shall be dedicated to the city of Newport Beach by separate documents across MacArthur Boulevard at the prolongation of Crown Drive. The easement is to provide to both Parcel 2 and Avocado Avenue with the precise alignment to be determined when MacArthur Boulevard is widened, if the bridge is not constructed with the MacArthur Boulevard widening project, then the easement will be relinquished ". Reference is made to said map for full particulars. 15. The terms, conditions and easements contained in the deed by and between The Irvine Company, as grantor, to the City of Newport Beach, as grantee, recorded May 8, 1992, Instrument No. 92- 304758, Official Records. Reference is made to said document for full particulars. Partial Quitclaim Deed, recorded August 27, 1998, Instrument No. 19980568123, Official Records. 16. The terms, conditions and easements contained in the deed by and between The Irvine Company, as grantor, to the City of Newport Beach, as grantee, recorded May 8, 1992, Instrument No, 92- 304759, Official Records. Reference is made to said document for full particulars. CLTA Standard rnvamge Pollcy - 1990 (4111110) SCHEDULE B— PART If (continued) Policy No. 17. Matters contained in that certain document entitled "Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase", executed by and between The Irvine Company and the City of Newport Beach, recorded May 8, 1992, Instrument No. 92- 304757, Official Records. Reference is hereby made to said document for full particulars. As amended by a document entitled "Amendment of Declaration of special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase..." recorded on November 24, 2010 as Instrument No. 2010000634195 of Official Records. The matters contained in a document entitled "Agreement of Mutual Understanding Regarding Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase..." recorded on November 24, 2010 as Instrument No. 2010000634193 of Official Records. 18. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation, its successors and assigns Purpose: Electrical supply systems and communication systems Recorded: June 9, 1992, Instrument No. 92- 386867, of Official Records Affects: A portion of said land as more particularly described in said document. 19. Matters contained in that certain document entitled "Grading and Maintenance Easement Agreement" dated October 16, 1992, executed by and between The Irvine Company, a California municipal corporation and chartered city, recorded October 20, 1992, Instrument No. 92- 711127, of Official Records. Reference is hereby made to said document for full particulars. 20. Intentionally deleted 21. Intentionally Deleted 22. Intentionally Deleted 23. Intentionally Deleted 24. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. C Granted to: Pacific Bell, its successors and assigns Purpose: Underground communication facilities Recorded: September 28, 1998, Instrument No. 19980651843, of Official Records Affects: A portion of said land as more particularly described in said document. 9 CLTA S ndwd C emge Mw -1990 (4111110) SCHEDULE B— PART II (continued) _ Policy No. 25. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/2912010, Instrument No. 2010000635816, of Official Records 26. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 27. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 28. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE 0 10 CLTA Sbnda Coverage Pdte( -1990 (4111/10) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 -0051- 0725132038- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction "; (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or theTenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property which, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy, g. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 1 Additional items of loss covered by this endorsement If the Insured is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramounttitle to that of the lessor in the Lease. I of 3 ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17/06) CLTA Endorsement Form 119.5 -06 Attached to Policy No. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. 9. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 0 Fidelity National Title INSURANCE �COMPANY ,K 20f ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 - 0051 -0725132038 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972- 0972 - 0051- 0725132034 - FNTIC- 2010 -01 -0 CAFNT0972. -0972- 0051- 0725132035- FNTIC- 2010 -01 -0 CAFNT0972- 0972. 0051- 0725132036- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132038- FNTIC- 2010 -01 -0 CAFNT0972- 0972.0051- 0725132039- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132041- FNTIC- 2010 -01 -0 CA FNT0972-0972-0051-0725132044-FNTIC-20 10-0 1 -0 CAFNT0972- 0972- 0051. 0725132711- FNTIC- 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132712 - FNTIC- 2010 -01 -0 Notwithstanding the provisions of Section 8(a)(1) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 0Fidelity National Title INSURANCE COMPANY 3 of3 Custom Endorsement SE-55 Mg �n o� ,z n /I N � Iw A P C A N� o A 0 y C A ti�W 4 1�f . to n m �A N 2 $ Ia W ow loc N lv N 1 I 4 it rr I ra r 27C 1; rl ll�I �I�e? IQ• I jQI°i dOyflTI4'OM _ xx xozpx o lour aorl 4;�1 ��gy�4o ro _ ct'mf FaE xS m�cm � m xm . «x < �•, m. __ .................. ..._ _ T hleMVlsbelndNralshWa saconrenknceklocatethe _ ...... herelndtacdbed kndlnRMDntoadjdnmg*ub vidomer N H �i � ^a `° v' — " .,kffimH° Imds.The Composrydoasnd9u tte dYamslons, to .. _ Astanoee,berolNorsCrage Wed IhMeog nor lsll .. khN odto9lushakkudWidinuslezusupersede Clyor Counyordwra,i.e.ionelAanobuRang Met, dc. • Official lnforrodon cmeemNA d101 ,9¢Oearv(pafial shwW {ebb 2y `p be ebfaaled hem Wit uavxnmordaumam { \yam. . a ,3o K`vv aNObO, J n. A C A m a 0 16 n wn > .[3BNS 3a5 zaa Wyd. b{ N / I K t a land and °d z f m 0 c EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: I . (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by The insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest Insured by this policy. 4. Unenforceability, of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. I, DEFINITION OF TERMS - The following terns when used in this policy mean: (a) "leered ": the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the armed insrued, those who succeed to the interest of the named insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributes, devisees, survivors, personal representatives, next of Ain, or corporate or fiduciary successors. The term "insured" also includes O the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is m obligor under the provisions of Section 12(c) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor insured, unless the successor acquired the indebtedness as a foreigner for value without knowledge ofthe asserted defect, lien, encumbrance, adverse claim or other .a., insured against by this policy as atr.ctiag fide to the estate or interest in the land); fit any goveromenml agency or gavemormal instrumentality which is an inswer or guarantor under an insurance contract or anomaly insuring or guaranteeing the indebtedness secured by the insured mod Pogo, or any part thereof, whether named as an insured herein or not; (iii) the parties designated in Section 2(a) of these Conditions and Stipulations. (b) "insured claimant ": an insured claiming loss or dinage, (a) "insured lender ": the owner area insured mortgage. (d) "insured mortgage ", a mortgage shown in Schedule B, the owner of which is named as an insured in Schedule A. (e) "knowledge" or "known ": actual knowledge, not constructive knowledge or notice which may be imputed to an insured by reason of the public records es defm d in rids policy or any other records which impart consmsctive rmtice of matters affecting the land. (f) "imd": the land described, or refereed to in Schedule A, and improvements affixed thereto which by law constitute real property. The term "land" does not include any Property beyond the ]ants of the men described madarded to in Schedule A, nor any right, tide, interest, estate or eamorteat in abutting streets, roads, avenues, alleys, lanes, ways or waterways, bra nothing herein shall modify ar knit the extent to CONDITIONS AND STIPULATIONS which a right or access to and from his land is insured by this policy. (g) "mortgage": mortgage, deed of Imst, post deed, or other security instrument. (h) "public records ": records established under state statutes at Date of Policy for the purpose of imparting a ... Inches notice of matters relating to real property to purchasers for value and without knowledge. (i) "unmarkefability of the title "; an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, whichwould entitle a purchaser ofthe estate or interest described in Schedule A or the insured mortgage to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery ofmarketable title. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Title by Insured Lender. if this policy insures the owner oftbe indebtedness severed by the insured mortgage, the coverage crime policy shall continue in force as of Data of Policy in favor of(i)such insured leader who acquires all of any part of the estate or interest in the land by foreclosures, trustee's sale, conveyance is lieu of foreclosure, or mhadlegal rouwner which discharges the annoy the insuredmortgngs;(ii) a tmnstbrce ofthe estate diinereat so acquired from as insured corporation, provided the transferee is due parent or wholly -owned subsidiary of the insured corporation, and their corporate successors by operation oflow and not by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (ifi) any governmental agency or governmental instrumentality which acquires all army part ofthe estate or interest Panama to a contract of insurance or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Title by an Insured. The coverage of this policy shall continue in fame as of Date of Policy in fever of-em insured only so long as the insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants or warmly made by the insured in any tmosfar or conveyance of the estate or interest. This policy shall not continue in farce in favor ofany pumhaser from an insured ofeither O an esmte or interest in the land, or (i) se indebtedness secured by a purchase money mortgage given to an insured. (c) Amount of Insurance. The amount of insurance slier the acquisition or after the conveyance by an insured tender shall in neither event exceed the least of. O the amount of inmrmce stated in Schedule A; (ii) the mnouut of the principal of the indebtedness secured by the insured mortgage as of Date orPolicy, interest thereon, expenses of foreclosure, amounts advanced parsmnt to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the Ind and secured thereby and reasonable amomis expended to prevent deterioration ofirepromudid., mtreduced by the amount area payments made; or (iii) the onmmt paid by any governmental agency or governmental instrumentality, iftheogency orinstmmentality is the insured claimant, in the acquisition of the estate or interest in satisfaction orits insurance contract or Firmly. 3, NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT An insured shall realty the Company promptly in writing (i) in case array litigmion as set forth in 4(a) below, (i) in case knowledge shall come to an instead hemander army claim of title or interest which is adverse to the she to the estate or interest or the lien of the insured madgage, as insured, and which might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable. I €prompt notice shall not be given to the Company, then as to that insured all liability of the Company shall totaling, with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the rights ofany insured under this policy unless the Company shall be prejudiced by the failure and then only to the extent of the prejudice. t 4, DEFENSE AND PROSECUTION OF ACTIONS, DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written request by an insured a ad subject to the options command in Seetionfi of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as in Notre stated ceases of notion alleging a defect, lien or mcumbrmce or other matter insured against by this policy. The Company shell have the tight to select counsel arils choke (subject ratio right of such insured to object for reummi le anus.) re represent the insured as to those stated curses of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not payany fees, costs or expenses CLTA Standard Coverage Policy -1990 (4/11/10) incurred by an in..red in the defense oflhose causes of action which allege maters not insured against by this policy. (b) The Company shall have the right, at its own cost, to hwtitme and prosecute any action or proceeding or to do any of ecract which in its opinion may be necessary or desimble m establish the fill. to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or mrbme loss or damage to an insured. The Company may take any appmpriam action under the terms of the, policy, whether or not it shall be liable ]remainder, and shall not thereby concede liability or wave any provisiea of this policy. If the Company shall exercise its rights under this paragraph, it shall do se diligently, (c) Whenever the Company shall have brought rah action or interposed a defense as required or permifted by the provisions of this policy, the Company may pursue any litigation to for determination by a court of competent jurisdiction and exp early troves the right, in its sole ;) discret ion, to appeal from any adverse judgment or order, (d) Ia all cases where this policy permits or requires the Company to prosecute or provide far the dctbr s, of say action or proceeding, an bee red shall se core to the Company the right to on prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of such Insured for this purpose. Whenever requested by Ole Company, an insured, at the Cumpary/s expense, shall give the Company all reasonable aid (i) in any action or proceeding, scanning evidence, obtaining witnesses, prosecuting or defending the action m proceeding, or effecting settlement, and (ii) in any other brerfrl act width in the upirtan of the Company may be necessary or Veritable to establish the title to the estate or interest or the lien of the insured mortgage, as insured. If the Company is prejudiced by the failure of an insured to famish tie required cooperation, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or maters requiring such cooperation. S. PROOF OF LOSS OR DAMAGE In addition to and after the notices required under Section 3 of these Conditions and Stipulations have been provided tie Commy, a proof of loss or damage signed and swam to by each insured claimant shill be famished to the Company within 90 days after the insured claimant shall I ascertain the facts giving rise to the loss or damage. The proof 3 of loss or damage shall describe the defect in, or lien or j encumbrance onthe tide, ormbernmterinsured againstby this .h policy which wastitetes the basis of loss or damage and shall jst ate, to the extent possible, the basis ofeahadming the=.net of the ]ass or damage, If the Company is prejudiced by the failure of an insured summer to provide the required proof of loss or damage, the Company's obligations to such insured under the policy shall terminate, including any liability or obligabon to defend, prowm e, accentuate any litigation, with regard to the mater or matters requiring such proof of loss or damage. In addition, an insured claimant may reasonably be required to submit to examination enderoath by any authorized mpmsentafive of the Company and Shull produce for examination, inspection and copying, at such reasonable times and places as may be designated by any authorized representative of the Company, all records, books, ledgers, checks, corespr deuce and memoranda, whether bearing a data before marflerDatc of Pc Hoy, which reasonably pertain to the loss or damage. Further, if requested by any authorized representative ofthc Company, the insured claimant shall gram '1 its permission, in writing, for any authorized representafive of the Company to examine, inspect and copy all records, books, ledgers, checks, correspondence and memoranda in the custody or control ofa third party, which reasonably pertain to the loss or damage. All information designated as confidenfial by an insured claimant provided to tae Company p rose nt to this Section shall not be disclosed to others unless, in the reasonable judgment of the Compwyg it is necessary, in the administration of the claim. Failure of an insured claimant to submit for examination under oath, produce other reasonably requested information or grant pendmien to s=we reasonably necessary information from third parties as required in this pamgmph, N unless prohibited by Inv or governmental rebndation, shall terminate any liability of the Company under this policy as to that insured for that claim. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In can of a claim under this policy, the Company shall . have the following additional options: (a) To Pay or Tender Payment of the Amount of Insurance m to Purchase the lodebfictim s. O to pay or tender payment of the amount of insurance under this policy together with any costs, attorneys' fees mad expenses incurred by the insured claimant, which were authorized by the Company,up to the time ofpayment or tender of payment and which the Company is obligated repay; or (h) in case loss or damage is claimed under this policy by the owner ofthe indebtedness seined by the insured mortgage, to purchase the indebtedness secured by the insured mortgage for the amohmt owing thereon together with any costs, allomeys' fees and expenses incurred by the insured claimant which were modernized by the Company op to Ore time of purchase and which the Company is obligated to pay. If the Company offers to purchase the indebtedness so therein provided, the owner of the indebtedness shall tmnsfeq assign, and convey the indebtedness and the insured mortgage, together with any collateral security, to the Company room payment t enefem. Upon the exercise by the Company ofthe option provided for in parmomb aQ , all liability and obligmioru to the inured under this policy, other than to make the payment required in that paragraph, shall Incident, including any liability or obligation to defend, prosecute, ar eontinne any litigation, and the policy shall be surrendered to the Company for cancellation. Upon the exemiss by the Company of the option provided for in paragraph arid) the Company's obligation to an darted Leader under this policy for the claimed loss or damage, other than the payment required to be made, shall terminate, including arty, liability or obligation to defend, prosecute or continue any litigation. (b) To Pay or Otherwise Settle With Par0es Other then the Insured or With the Insured Claimant, (f to pay or otherwise settle with other parties for or in the name of as insured claimant any claim insured against under this policy, together with any casts, attorneys fees and expenses incurred by the insured claimant which were sutmrized by the Company up to the lime of payment and which the Company is obligated to pay; or (ii) to pay or otherwise settle with (lie insured claimant the toss or damage provided for under this policy, together with any costs, ettomeys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which lire Company is obligated to pay. Upon the exercise by the Company efeither ofthe options provided for in paragraphs lilt) or b(ii), the Company's obligations to the insured under this policy for the claimed lass or damage, otax that/ the payments required to be made, shall terminate, including ary liability or obligation to defend, prosecute or continue any litigation. 7. DETERMINATION AND E%TENTOF LIABILITY This policy is a contract of arduously against actual moamary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage "saw ofmaters insured against by this policy, and only to the extent herein described. (a) The liability of the Company rurder this policy ton insured lender shall not exceed the least of (i) the Amount of trainmen stated in Schedule A, or, if appfimble, the amount of insurance as defied so Section 2(c) of these Conditions and Sdptdafious; (ii) tire .,metofdr. unpaid principal indebtedness secured by the insured mortgage m limited or provided under Section 8 of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by Otis policy occurs, together with interest thereon; or (ii) the difference between the value of the insured estate or interest as incurred and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. (b) mthe event the insured lenderhas acquvcd the estate or interest in the manner described in Section 2(a) of these Conditions and Stipulations or has conveyed the title, then the liability of the Company shall continue es set forth in Section 7(a) ofthese Conditions and Stipulations. (c) The liability of the Company coder this policy toan insured owner of the estate or interest in the land described in Schedule A shall not exceed the least of. (i) the Amount of the Insurance staled in Schedule A; or, (i) the difference between the value of the insured .star. or interest an insured and the value of the insured asta c or interest subject to the defect, lien m encumbrance insured against by this policy. (d) The Company toll pay only those costs, atomeyrs' fees and expenses incurred in accordance with Section d of View Conditions and Stipulations. 8. LIMITATION OF LIABILITY (a) If the Company establishes the tilde, or removes the alleged defect. Gen or mcuinbraneq or ewes the lack ofa right of access to ar from the land, or cures the claim of uhhmazketabtlity oftitle, or otlhehwise establishes the lien of the insured mortgage, all as insured, in a reasonably diligat manner by any method, including litigation and the completion of any appeals there (rain, it shall have Polly performed its obligations with respect to that matter and shall not be liable for any loss or damage caused thereby. (b) In the event of any litigation, including litigation by the Contrary or with the Company's consent, the Company shall have no liability for loss or damage until there has been a line] determination by a court of competent jurisdiction, and disposition of a0 appeals there from, adverse to the title, or, if applicable, to the lien of the insured mortgage, as insured. (c) The Company shall not be liable for loss or danage to any insured forliabilily voluntarily assumed by the insured in setfinganyclaim assail withoulltle prior written consent ofthe Company. (d) The Company shall hum be liable to an insured lender for. (1) any indebtedness created subsequent to Data of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and ressonablc amounts expended to prevent deterioration of improvements; or (ii) conservation loan advances made subsequent to Date of Policy, except construction loan advances made subsequent to Date of Policy for Om purpose of financing in whole or in part the construction of an improvement to the land which at Date of Policy were secured by the insured mortgage and which the insured was and combined to be obligated to advance at and aRor Data of Policy. 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments under this policy, except payments made for costs, adomeys' Fees and expenses, shall reduce the amount of Insurance pro Canto. However, as to an insured lender, anymycomm made priorte the acquisition ofthle to the estate or interest as provided in Section 2(a) of these Conditions and Stiphdations shall not reduce pro into @e amount of insurance afforded under tds policy as to any such insured, except to the extent that the payments reduce the amount ofthe indebtedness secured by the insured mortgage. (b) Payment in pan by any person ofthe principal of the indebtedness, or any other obligation seemed by the bound mortgage, or any voluntary, partial satisfaction or release of the insured mortgage, to the extent of the payment, satisfaction or returns, shall reduce the amount of insurance pro mute. Tlm meant of insurance may twrerfor be increased by aceming interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest thereon, provided I. no event shall the amount of insurance be greater than the Amount of Insurance sited in Schedule A- (c) Payment in Fill by any person or the voluntary smhsfacton or release of fie insured mortgage shall terminate all lability of the Company to an insured leader except as provided in Section 2(a) ofthese Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE It is expressly understood Ihst the amount of insmaew under Obis policy shall be reduced by any meant the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate minteresi described m aderfed loin Schedule A, and the amount so paid shall be deemed a payment under this policy to the insured owner. The provisions ofthis Section shall not apply to an insured lender, unless such [named acquires tide ter said estate or interest in satisfaction of the indebtedness secured by an insured mortgage. 11. PAYMENT OF LOSS (a) No payment shall be mete without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or destruction shall be famished to the satisfaction of the Company. (b) When liability and die extent of loss or damage has been definitely fixed in acoordanx with these Conditions and Stipulations, the loss or damage shall be payeblewithln 30 days thereafter. CLTA Standard Coverage Policy - 1990 (4111/10) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) TheCompany'sRightofSubroguticn- Wheneverthe Company shall have scaled and paid aelaim under this pficy, all right of subrogation shall vest in the Company unaffected by any act ofthe insured claimant. The Company shall be subrogaled to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to the claim had this policy not been issued. If requested by the Company, the insured claimant shall transfer to the Company tit rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sue, compromise or settle in the name of the insured claimant end to use the mine of the insured claimant in any transaction or litigation involving these rights orremedies. Up payment on aecounroAr claim does not fully coverihe Ion ofthe insured claimant, the Company shah be subrogated (i) as to an insured owner, to all rights and remedies in the proportion which the Company's payment boars to the whole amount of the loss; and (ii) as to an insured lender, to all rights and remedies of the insured claimant after the insured claimant shall have recovered its principal, interest, and costs of collection. If loss should result from any act of the insured claimant, as stated above, that act shall not void this policy, but the Company, in that event, shall be required to pay only that pan ofany, losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (b) Thelastred's Rightsaod Lindlafioaa. Notwithstanding the foregoing, the owner of the indebtedness secured by an insured mortgage, provided the priority of the lien o €the insured mortgage or its enforceability is not affected, may release or substitute the personal liability army debtor or gumanlor, or extend or otherwise modify the terms of payment, or release a portion ofthe estate or interest ftam the lien Offer insured mortgage, or release any collateral security far the indebtedness. When the permitted acts of the insured claimant occur and the insured has knowledge of any claim of title or interest adverse to the title to the estate or interest or the poorily or enforceability ofthe lien ofan insured mortgage, as banned. ed. Ilse Company shall be required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, lust to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (c) The Company's Rights .Against Non - insured Obligors. The Company's, right of subrogation against non - insured obligors shall exist and shall include, without limitation, the rights of the insured to indemnities, cowardice, when policies ofinsuranc , or bends, notwithstanding any tells or conditions contained in those instruments which provide for anticipation rights by reason of this policy. The Company's right of subrogation shall fait be avoided by acquisition ofan insured mongage by an obligor (except an obligor described in Section I(a (ib of these Conditions and Stipulations) who acquires the insured mortgage as a result of an indemnity, guarantee, other policy ofinsumnce, or bond and the obligor will not bean insured under this policy, notwithstanding Section 1(a)(i) of these Conditions and Stipulations. 13. ARBITRATION Unless prohibited by applicable law, either the Company or the insured may demand arbitration pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are not limited lo, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its is o m m, or the breach of a policy prevision an otheroblica(iou. All arbivabic matters when the Amount of Insurance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured. All mbitmble matters when the Amount of Insurance is in excess of$1,000,000 shall be arbitrated only when agreed to by both the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect an the date the demand for arbitration is made or, at the option of the insured, the Rules in effect or Date of Policy shall be binding upon the parties. The award may include nuomeys fees only irthe laws ofthe state in SCHEDULE B EXCEPTIONS FROM COVERAGE which the land is located permit s court to award attorneys fors to a prevailing party. Judgment upon the award rendered by the Arldhalor(s) may be entered in any court having jruisdiction thereof. The law ofthe situ, office land shall apply to an arbitration under the Title Insurance Arbitration Rules. A copy ofthe Rules may be obtained from the Camps" upon request. 14. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT (a) This policy together with all endorsements, if any, touched hereto by the Company is the entire policy and contract between the insured and the Company. In interprctiag any provision of th s policy, this policy shall be ementmcd as a whole. (b) Any claim ofloss or damage, whether or not based on negligence, and which arises out ofthe staffs of the lien of the insured mortgage or ofthe title to the estate or interest covered hereby or by any action asserting mob claim, shall be restricted to this policy. (c) No amendment of or endorsement to this policy can be made except by a writingerdorsed barren orattached hereto signed by either the President, a Vice President, tlse Secretary, and Assistant Secretary, or validating officer or authorized signatory ofthe Company. 15. SEVERABILITY M the event any provision of floc policy is held invalid or unenforceable underapplicable law, the policy shall be dimmed not to include that provision and all other provisions shall remain in full force and effect. 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writing required to he motioned the Company shall include the number of this policy and shall be addressed to the Company at Fidelity National Title insurance Company P.O. Box 45023 Jacksonville, FL 32232.5023 Attu: Claims Department This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of PART I . Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. 2. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. 3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (e) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. 6. Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy- 1990 (4 /11110) Fidelity National Title Insurance Company POLICYNO.: CAFNT0972- 0972 -0051- 0725132039 -- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE AND THE CONDITIONS AND STIPULATIONS, java.lang.NullPointerException, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of., 1. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2, Any defect in or lien or encumbrance on the title; 3. Unmarketahility ofthe title; 4. Lack of a right of access to and from the land, and, in addition, as to an insured lender only: 5. The invalidiy or unenforceability of the lien of the insured mortgage upon the title; 6. Thepriority ofany lien or encumbrance over the lien ofthe insured mortgage, said mortgage being shown in Schedule B in the order of its priority; Z The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assigneefree and clear ofall liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITY NATIONAL TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers. Fidelity Nationa(T "rule Insurance Company 9Y (t Countersigned CLTA Standard Coverage Policy - 1990 SCHEDULE A Policy No.: CAFNT0972 -0972- 0051- 0725132039- FNTIC- 2010 -01 -0 Order No. 725132039 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as trustee, as assignee of the Newport Beach Public Facilities Corporation, a 5O1(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provislons contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement", which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters 'contained in that certain document entitled "Assignment Agreement" dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA Standard Covemp Policy -1890 Policy No. LEGAL DESCRIPTION EXHIBIT "A" PARCEL I OF PARCEL MAP NO. 2008-161, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 367, PAGES 26, 27 AND 28 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE ABOVE DESCRIBED PROPERTY, TOGETHER WITH THE RIGHT TO EXPLORE FOR, DEVELOP, EXTRACT AND REMOVE THE SAME THEREFROM BY SLANT DRILLING OR OTHER LIKE METHODS, WITH DERRICKS OR DRILL RIGS LOCATED OUTSIDE OF THE BOUNDARIES OF SAID PROPERTY, AS RESERVED BY THE IRVINE COMPANY IN THE DEED RECORDED MAY 5, 1959, IN BOOK 4698, PAGE 478, OF OFFICIAL RECORDS. ALSO EXCEPTING ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHTTO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL ORGAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, REfUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE, AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED BY THE IRVINE COMPANY, IN THE DEED RECORDED ARPIL 29, 1986, AS INSTRUMENT NO. 86- 170658, OF OFFICIAL RECORDS, APN: 458- 651 -02, 458- 651 -11, 458 - 651 -13 CI.TA Standard Coveoge NNW - 3990 Policy No. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. Water rights, claims or title to water, whether or not disclosed by the public records. 4. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company Purpose: Public utilities and incidental purposes Recorded: February 14, 1918, Book 318, Page 90, of Official Records Affects: Said land The terms and provisions contained in the document entitled "Modification Agreement" recorded May 18, 1949 in Book 1845, Page 120 of Official Records, by and between the Irvine Company and Southern California Edison Company. L S. The effect of a map purporting to show the land and other property, filed in Book 80, Page 11 of .Record of Surveys. 3 UTA Standard Uvemge Popsy -1990 (4/11/10) SCHEDULE B — PART II (continued) Policy No. 6. The effect of a map purporting to show the land and other property, filed in Book 88, Page 35 of Record of Surveys. 7. Covenants, conditions and restrictions in the declaration of restrictions but omitting any covenants or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of income, as set forth in applicable state or federal laws, except to the extent that said covenant or restriction is permitted by applicable law. Recorded: June 10, 1977, Book 12237, Page 693, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any mortgage or deed of trust made in good faith and for value. and re- recorded June 24, 1977, Book 12261, Page 941, of Official Records S. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company Purpose: Either or both underground lines, conduits and incidental purposes Recorded: November 22, 1978, Book 12936, Page 467, of Official Records Affects: Said land 9. The effect of a map purporting to show the land and other property, filed in Book 102, Page 46 of Record of Surveys. 10. Matters contained in that certain document entitled "Short Form - Memorandum" dated None shown, executed by and between The Irvine Company and Donald L. Bren Company recorded April 17, 1986, Instrument No. 86- 153293, of Official Records. Reference is hereby made to said document for full particulars. 11. Covenants, conditions and restrictions in the declaration of restrictions but omitting any covenants or restrictions, if any, including, but not limited to those based upon race, color, religion, sex, sexual orientation, familial status, marital status, disability, handicap, national origin, ancestry, or source of income, as set forth in applicable state or federal laws, except to the extent that said covenant or restriction is permitted by applicable law. Recorded: April 29, 1986, Instrument No. 86- 170657, of Official Records Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any mortgage or deed of trust made in good faith and for value. CLTA SOndaM Covmga Polity- 1990 (4111/10) SCHEDULE B —PART II (continued) Policy No. 12. The right to place on, under or across said land, transmission lines and other facilities for a community antenna television system and the right to enter upon said land to service, maintain, repair, reconstruct and replace said lines and facilities; provided, however, that the exercise of such rights shall not unreasonably interfere with land owner's reasonable use and enjoyment of said land, as reserved by the Irvine Company in deed recorded April 29, 1986 as Instrument No. 86- 170658 of Official Records. The exact location and extent of said easement is not disclosed of record. 13. Intentionally Deleted 14. The following matters shown or disclosed by Tract Map No. 11949: Lettered Lots A and B are for park purposes. 15. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the Map of said Tract No. 11949. Purpose: Public emergency and security ingress, egress and public utility purposes Affects: Said map 16. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company Purpose: Public utilities and incidental purposes Recorded: October 6, 1986, Instrument No. 86- 467792, of Official Records Affects: As described therein 17. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 18. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT" dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 19. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. CLTA Standard Coverage Rg1W -1990 (4111110) SCHEDULE B - PART II (continued) Policy No. 21. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE B I 6 CLTA Standard Coverage PoRey -1990 (9111110) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 - 0051- 0725132039- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. J. "Lease ": the lease agreement described in Schedule A. c. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal orextended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property that, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. 'Tenant ": the tenant under the Lease and, after acquisition of all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy, the Insured Claimant. h. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection 1 of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements, e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is Inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated; November 29, 2010 0 Fidelity National Title INSURANCE COWANY 2 of ALTA Endorsement Form 13.1 -06 (Leasehold - Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 - 0051. 0725132039 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972- 0972 - 0051- 0725132034 - FNTIC- 2010 -01 -0 CAFNT0972- 0972- 0051- 0725132035- FNTIC - 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132036 - FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 -0725132038- FNTIC - 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132039- FNTIC - 2010 -01-0 CAFNT0972- 0972 -0051- 0725132041 - FNTIC - 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132044- FNTIC- 2010 -01 -0 CAFNT0972- 0972- 0051- 0725132711- FNTIC - 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132712- FNTIC- 2010 -01 -0 Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 "' Fidelity National Title INSURANCE COMPANY 3of3 Custom Endorsement SE -55 \ ! )b §( §� a�« \ \ \� \ kj\ § § §. ! ®|; � U a 2 _ :� NAMSOX # § � ! WHIP AM � 4 § ! ^�) p 7rm A &m U®m / ! § s !!!!! || m . ~ J t� \\ % 7 ,( � - §\ EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of I . (a) Any law, ordinance or governmental regulation.(including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge, 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured clajmang (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforceability, of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability, of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, I. DEFINITION OF TERMS The fallowing Icons when used in this policy mean: (a) "insured ": the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named heated, those who succeed to the interest of the named insured by operation of law m distinguished firm purchase including, but not limited to, heirs, distributes, devisees, survivors, personal representatives, next of lain, or corporate or fiduciary successors. The term "insured" also includes (i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is an obbgar under the provisions of Section 12(e) of these Conditions and Stipulations (reserving, however, all rights mM defenses m to any successor that the Company would have bad against any predecessor insured, unless the simmaner acquired the indebtedness as a purchaser for value without knowledge ofthe asserted defect, lien, encumbrance, adverse claim or other metier insured against by this policy as affecting tide to the estate or interest in the land); (ii) any girwrureutal agency or govermnental instrumentality which is an insurer or guarantor under an insurance contract or gum ady insuring or gvconsidering the indebtedness secured by the insured mortgage, or any part Manor,, whether named as an insured herein arms; (iii) the parties designated in Section 2(a) of these Conditions and Stipulations. (b) "insured claimml ": an insured claiming loss or damage. (c) "insured lender ": the owner of an insured mortgage. (d) "insured mortgage": a mortgage shown in Schedule D, the owner of which is named m an insured in Schedule A. (e) "knowledge" or "known": actual knowledge, not automotive knowledge or scene which may be imputed to an insured by, extra of the public records as defied in this policy or any other ..its which impart eonstmelive notice of matters affecting the land O "land ": the land described, or referred to in Schedule A, and improvements affixed thereto which by law constmte real property. The tens "land" does not include any property beyond the lists fthe men described or o famed to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to CONDITIONS AND STIPULATIONS which a right of access to and from the Ind is insured by this policy. (g) "onsomge", mortgage, deed of treat, font deed, or other security instrument. (h) "public records ": records established under state statutes at Date of Policy for the purpose of imparting enumerative notice of matters relating to real property to purchasers for value and without knowledge. (i) "nnmarkembil ty of the title ": an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would ..fill. a purchaser of the estate or interest described in Schedule A or the insured mortgage to be released from the obligation to purchase by value of a contrachral condition requiring the delivery of marketable title. 2.' CONTINUATION OFINSURANCE (a) After Acquisition of Tine by Insured Lender. If this policy insures the ownerofthe indebtedness secured by the insured mortgage, the coverage of this policy shell continue in force as of Date of Policy in favor of O such insured lender who acquires all of any part state estate or interest in the land by foreclosures, tmstec's sale, conveyance in lieu of foreclosure, or other least manner which discharges the lien of the insured mortgage: (ii) a transferee ofthe estate or interest so acquired from not insured corporation, provided the transferee is the parent or wholly -awned subsidiary of the insured corporation, and their corporate successors by operation oflaw and not by purchase, subject to my rights or defenses the Company may have against my predecessor - insureds; and (ii) any gmvernmenial agency or governmental instrumentality which acquires all or any pat of the estate or interest pumuam to a .correct of insurance or guaranty insuring or grmranteemg the indebtedness secured by the insured mortgage, (b) After Conveyance of Title by an Invited. The coverage of this policy shall continue in form as of Date of Policy in favor ofan insured only so hog no the insured rehins an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants or warranty made by the insured in any transfer or conveyance of the estate or iutcrest. "this policy shill riot continue in force in favor of arty purchaser from an insured ofeither (i) an estate or interest in the land, or (u) an indebtedness secured by a purchase money mortgage given he an insured. (e) Amount of Insurance. The amount of issuance .Her the acquisition or sit" the conveyance by an insured lender shall in neither event exceed the least of: (i). the amount of insurance stated in Schedule A; (ii) the amount of the principal of the indebtedness secured by the insured mortgage m ornate of Policy, interest thereon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the laud and secured thereby and reasonable amounts exicvded to prevent deterioration ofimprovements, but reduced by the amour call payments made; or (iii) theamonnt paid by any govormnental agency or governmental instrumentality, iftheagency orhstmmentality, is the insured claimant, in the acquisition of the estate or interest in satisfaction of its insurance contra.! ar guaranty. 3. NOTICE OF CLA IM TO RE GIVEN BY INSURED CLAIMANT An insured shall notify the Company promptly in willing O In can ofany litigation as set forth in 4(a) below, (i) is was knowledge shall come to an insured hereunder of my claim of title or interest which is adverse re the title to the estate or interest or the lien of the Issued mortgage, as insured, and whiob might causeless ordmrage for which the Company may be liable by some of this policy, or (iii) if title to the estate or interest or the lien of the heated mortgage, as insured, is rejected as unmarketable. If prompt notice shall units given to die Company, than as to that insured all liability of the Company shot terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the rights efmy insured under this policy mesas the Company shall be prejudiced by the failure and than only to the extent of the prejudice, e 4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written request by m insured and subject to the options contained in Section of these Conditions and straitness, the Company, at its own cost and without unreasonable delay, shall provide for the defense of such insured in htigation in which my thud party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect. lien or encumbrance or other matter insured against by this pricy, The Company shall havetheright to select counsel offs choice (subject to the right of such insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay my fees, costs or expenses CLTA Standard Coverage Policy - 1990 (4111110) incurred by An insured in the defense of those causes of action which allege matters not insured again[ by this policy. (b) The Company shall have the light, at its own cost, to Institute and prosecute any action or proceeding or to do any other act which in its opinion may he earoasary or desirable to establish the title to the estate or hderest of the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to an burred. The Company may take any Appropriate action ruder the terms of this policy, whether or not it shall be liable bar wtha, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exemise its rights order this paragraph, it shall do so diligently, (c) Whenever the Company shall have bronghl m action or interposed a debase as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sale discretion, ten appeal from any adverse judgment or miler. (d) In all casts where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding, an instead shall secure to the Company the tight to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its opium, the name of such insured far this purpose. Whenever requested by the Company, an insured, at the Company's expense, shall give the Company all reasonable aid O in any action or praceading, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (it) in any other lawful act which in the opinion of the Company may be necessary 9, desirable to establish the title to the estate or interwar or the lien of the insured morgage, as insured. If the Company is prejudiced by the failure of an insured to famish toe required cooperation, the Company's obligations to such insured under The policy shall temmate, including any liability or obligation to defend. prosecute, or continue any litigation, with regard to the matter or matters requiring such cooperation. S. PROOF OF LOSS OR DAMAGE In addition to and after the notew required under Section3 of these Conditions and Stipulations have been Provided the Company, a proof of loss or damage signed and swam to by each insured claimant shall be furnished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise to the lass or damage. The proof of loss or damage shall describe the defect in, or lien or eacmnbrance on me title, or agarmaftmin mad against by this policy which constitutes the basis of loss or damage and shall sum, he the extent possible, the basis of calood tioli the ammmt of the less or damage. IT the Company u prejudiced by the failure ofan ksrsrned claimant to provide the required proof of loss or damage, the Company's obligations so such insured rode, the policy shall terminate, including any liability or obligation to defend, prosocam, or cotaue pay litigation, with regard to the matter m mutters requiring such proof of less or dome,. In addition, an insured olaontim may reasonably be required to submit ro examination under oath by any authorized fepreemtative of [he Company eel shall produce for examination, inspection and copying, At such reasonable than and places as may he designated by any authorized representative of the Company, all records, books, ledgers, .becks, emrespoodence and memoranda, whether hearing a date before oraRer Date of Policy, which reasonably pertain to the loss or damage. Further, if requested by any authorized representative ofthe Company, the insured claimant shall grant its pemhissiom, in writing, for any autlrorized represenmbve of the Company to examine, inspect and copy at records, books, ledgers, checks, correspondence and commando m the cretody or control of a third party, which reasonably pertain to the loss or damage. All information designated as confidential by an insured claimant provided to the Company preauasd to this Section shall not bedisclosed tootlhers unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Fa has of an insured claimant to submit for oxaminatmor under oath, produce that reasonably requested information or grant permissim to secure reasmably necessary Information from (bird parties as required in this paragraph, unkss prohibited by law or governmental regulation, shall terminate any liability of the Company under this policy as to that insured for that calm. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have the following additional options: (a) To Pay or Trader Payment of the Amount of Insurance arts Purchase the lodebtedness. (i) to pay or tender payment of the amount of insurance under this policy together with any costs, attomeys' fees and expenses incurred by the insured claimant, which were authorized by Its, Company, up to the time ofpaymmt or tender ofpayment and which the Company u obligated to pay; or (i) in case loss or damage is claimed under this policy by the owner ofthe indebtedness secured by the insured mortgage, to purchase the indebtedness seemed by the insured mortgage for the amount owing thereon together with any costs, atorveys fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of purchase and which the Company is obligated to pay. If the Company offers to purchase the indebtedness as herein provided, the owner of the indebtedness shall transfer, assign, find convey the indebtedness and the insured mortgage, together with any collateral security, to the Company upon payment therefore. Upon the exercise by the Company of the option provided for in paragraph aO, all liability and obligations to the insured under this policy, other than to make the payment required in that paragraph, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be surrendered to the Company for cancellation. Upon the exercise by the Company ofthe option provided for in paragraph gi) the Company's obligation to an insured Lender under this policy for the claimed loss or damage, other than the payment required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. (b) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant. O to pay or otherwise settle with other parties for or in the name of= insured claimant any claim insured against under this policy, mgathar with any costs, attomeys fees and expenses incurred by the insured claimant which were anmoriend by the Company up to the time of payment and which the Company is obligated to pay; or (i) to pay or mhorwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fires and expenses incurred by the insured claimant which were authorized by the Company up to the time ofpayment and which the Company is obligated to pay. Upon the exercise by the Company ofeither ofthe options provided per in pamgmphs b(i) or b((i), the Company's obligations to the insured under this policy for the claimed loss or damage, that than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. 7. DETERMINATIONAND EXTENTOF LIABILITY This policy is a contract of indemnity against actual monetary loss or damage sustained at incurred by the insured claimant who has suffered loss ordamage by reason of manna insured against by this policy and only to the extent herein described. (a) The liability of the Company under this policy to an insured lender shall not exceed the least of (s) the Amount of Insurance stated in Schedule A, or, if fipplicable, the amount of insurance As defined in Section 2(e) of these Conditions and Stipulators; (i) the amount of the unpaid principal indebtedness secured by the insured mortgage as limited or provided under Section a of these Conditions and Stipulations or m reduced under &.lien 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy sours, together with interest thereon; or (ii) the difference between the value of the insured estate or interest As insured and the value of the insured estate or interest subject to the defect, lien or encumbrance immed against by this policy. (b) In the ewer the insured lender has acquired the estate or interest in the rummer described is Section 2(a) of these Conditions and Stipumtiors or bas conveyed the title, than the liability of the Company shall coatrme as set forth in Section 7(a) of these Conditions and Stipulatims. (c) The liability of the Company under thus policy to an insured owner of the estate or interest in the land described in Schedule A shall net exceed the least of. (i) the Amount of the fasmmro stated in Schedule A; or, (i) the difference between the value of the insured estate ar interest As insured and the value of the insured estate or interest subject to the defect, lien car encumbrance insured against by this policy. (d) The Company will pay only those costs, afterem' fees and exposes incurred in accordance with Section 4 of time Conditions mid Stipulations. 9. LIMITATION OF LIABILITY (a) If the Company establishes the ttle, or removes the alleged defect, lien or encumbrance, or cures the lack as right of access to or from the land, or ores the claim of unmarkembility oftitle, or otherwise establishes the fee of the insured mortgage, all as insured, in a reasonably diligent manner by any meted, including litigation And the completion of any appeals them from, it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused thereby. (b) In the event of any litigation, including litigation by me Company or with the Company's consent, the Company shall have no liability for loss or damage anti[ there has been a final determination by a court of competent junsdichon, and disposition of all appeals there from, adverse m the title, or, if applicable, to the lion ofthe insured mortgage, as insured. (c) The Company shall not be liable for lass or damage to any insured heritability voluntarily assumed by the insured in setlingarryclaim arsuitwithout the priurwrimm consent ofthe Company, (d) The Company shall not be liable to an insured lender for. (i) any indebtedness created subsequent to Date of Polity except for advances made to protect the lien of the instead mortgage and secured thereby and reasonable amounts expended to prevent deterioration of improvements; or (ii) construction loan advances made subsequent to Date of Policy, except containment loan advances made subsequent to Dale of Policy for the purpose of financing in whole or in part the construction of an improvement to the land which at Date of Policy were secured by the insured mortgage and which the Insured was and conlinued to be obligated to advance at and after Dale of Policy. 9. - REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (A) All payments finder this policy, except payments made for costs, attorneys' fees and expenses, shalt reduce the amount of insurance pro (onto. However, as to an insured lender, say payments madeprior to the acquisition oftitle to the estate or interest As provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro into the amount of insurance afforded under this policy as to any such insured, except to the extent that the payments reduce the smotmt of the indebtedness secured by the twined mortgage. (b) Paymmt m pan by any person of the principal of the indebtedness, or any other obligation secured by the insured mortgage, or any voluntary partial satisfaction or release ofthe insured mortgage, to the extent of the payment, satisfaction or release, shat reduce the amount of iumseance pro into. The amount of insmmree may thereafter be increased by coming interest and advances made to protect the lien of the insured me4gage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater then the Amount oflnsumAee stated in Schedule A. (o) Payment in full by any person or the v.].army satisfaction or release ofthe insured mortgage shall terminate all liability of the Company to an insured leader except ns provided in Section 2(a) of these Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE It is expressly understood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which exception is takes in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate or intmendescribed or refered to in Schedule A, and the amount so paid shall be deemed a payment undo, this policy to the insured owner. The provisions ofthis Section shat not apply to an insured leader, radon. each hawed acquires tide to swill estate or interest in satismetioa of the indebtedness secured by an insured mortgage. IL PAYMENTOFLOSS (a) No payment shall be made without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or destruction shall be famished /o the satisfaction of the Company. (b) When liability and the extent of mss or damage has been definitely fixed In accordance with these Conditions and Stipulations, the loss or damage shall be payable within 30 days thereafter, CLTA Standard Coverage Policy - 1990 (4/11110) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT '(a) The Company's Right of Subrogation. Whenever the Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company unaffected by any net ofthe insured claimant. The Company shall be subrogated to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to die claim had this policy not been issued. If requested by the Company, the insured claimant shall gonater to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sue, compromise or settle in the name of the insured claimant and to use the pope of the insured claimant in any transaction or litigation involving these rights orremedies. He payment an account are claim does not fully cover the loss ofthe insured claimant, the Company shall be sidumpted O as to an insured owner, to all rights and remedies in the proportion which the Company's payment bears to the whole amount ofthe loss; and (i) as to an insnrod lender, to all rights and remedies ofihe insured claimant after the insured claimant shall have recavered IN principal, interest, and costs of collection. If loss should result from Day act of die insnrod claimant, as stated above, that act shall not void this policy, but the Company, in that event, shall be required to pay only that part ofany lasses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (b) The Insured'. Rights a ad Limitations. Notwithstanding the foregoing, the owner of the indebtedness seemed by an insured mortgage, provided the priority of die lien ofthe mooned mortgage or its mforceabdity is not affected, may release "substitute the personal liability army debtor or guarantor, or extend or otherwise modify the forms of payment, or release a routine of the estate or interest from the lien cribs insured mortgage, or release any collateral security for the indebtedness. When the permined acts ofthe insured claimant occur and the msmmd has knowledge of any claim of title or interest adverse to the title to the estate or interest or the priority or enforceability, ofthe lien man insured mortgage, as insured, the Company shall be required to pay only that part crony losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant Drift Company's right ofsubrogation. (c) The Company's Rights Against Non- insured Obligors. the Company's right of subrogation against non - insnrod obligors shall exist and shall include, without limitation, the rights of tire instred to indemnities, guaranties, other policies of insurance or bonds, notwithstanding any fortis or conditions contained in those iusmnments which provide for subrogation rights by reason of this policy. The Company's right of subrogation shall Trot be avoided by acquisition of an insured mortgage by an obligor (except an obligor described in Section I (a)(ii) of these Conditions and Stipulations) who acquires the insured mortgage as a result of on indemnity, guarantee, other policy ofinsussom, or bond and the obligor will not bean insured under, this policy, notwithstanding Section I(a)(i) of these Conditions and Stipulations. 13. ARBITRATION Unless prohibited by applicable low, either the Company or the insured may demand ubilatim pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but me not limited to, say controversy or claim between the Company and the insured arising out of or relating to this policy, any service of llte Company in connection with its issuance or the breach DID policy prevision or other oNi gation. All arbitrable tuaners when fire Amount of Insurance is $1,000,000 or less shot) be arbitmud at the option of either the Company or the insured. All arbitrable matters when the Arnoart of hsionom is in excessof$1,000,000 shall be, opinionated only when agreed to by both the Company and the insured. Asbitiation panorama to this policy and under the Rules in effect on the date the demand for arbitration is made or, at the option ofthe insured, the Rules in affect at Daze of Polley shall be binding upon the parties. The swam may include moneys' fees onlyifthe laws ofthe state in which the lands located permit a court to award anomeys' fees to a prevailing party. Judgaunt upon the award rendered by the Arborarm(s) may be entered in any court having jurisdiction thereof. The law offer slits oftl:e land shall apply to an arbitration under the Title Insurance Arbitration Rules. A copy of the Rules may be obtained from the Company upon request. 14. LIABILITY LIMITED TOMS POLICYi POLICY ENTIRE CONTRACT (a) This policy together with alt endmormmrts, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company. In interpreting any provision ofthis policy, this policy shall be construed an a whole. (b) Any claim ofloss or damage, whether or not based on negligence, and which estate out of the status of the lien of the insured mortgage or of the title to the estate or interest covered hereby or by any eetion asserting such claim, shall be restricted m this policy. (c) No amendment of or endorsement to this policy can be madeexcept by a writingendamed hereon Dreamiest hereto signed by either the President, a Vice President, the Secretary, and Assistant Secretary, or validating officer or authorized signatory of the Company. 15. SEVERABILITY In the event any provision of the policy is held invalid or unenfomeabie order applicable law, the policy shall be deemed not to include that provision and all other provisions shall remain in full force and effect. 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writing Dequimdto be fnnished the Company shall include the number of this policy and shall be addressed to the Company at Fidelity National Title Insurance Company P.O. Box 45023 Imk,i..rRle, FL 32232 -5023 Ann: Claims Miarbnent SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of. PARTI 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. proceedings by a public agency which may result in takes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. 2. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. 3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. 6. Any lien or right to a lien for services, labor at material not shown by the public records, CLTA Standard Coverage Policy -1990 (4 111!10) ""' Fidelity National Title Insurance Company POLICYNO.: CAFNT0972- 0972 -0051- 0725132041- FNTIC- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a Caiifornia corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of L Title to the estate or interest described in Schedule A being vested other than as stated therein; 2 Any defect in or lien or encumbrance on the title; 3. Unmarketability ofthe title; 4. Lack of a right ofaccess to and from the land; and, in addition, as to an insured lender only: S. The invalidity or unenforceability ofthe lien ofthe insured mortgage upon the title; 6. The priority ofany lien or encumbrance over the lien ofthe insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assignee free and clear of all liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITYNATIONAL TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers. Countersigned itle Insurance A_V C CLTA Standard Coverage Policy - 1990 SCHEDULER Policy No.: CAFNT0972- 0972 - 0051 - 0725132041- FNTIC- 2010 -01 -0 Order No. 725132041 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as Trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11129/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehoid as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement ", which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement" dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA SWdar0 Coverage PoHc -1%D Policy No. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 55, PAGE 31 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS, PETROLEUM AND OTHER HYDROCARBON SUBSTANCES AND CONVENIENT RIGHT TO EXPLORE AND EXTRACT AND TAKE ON AND AT LEVELS BELOW THE DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND BY MEANS OF WELLS, DERRICK OF OTHER EQUIPMENT FROM THE SURFACE LOCATIONS AS RESERVED BY THE IRVINE COMPANY, IN DEED RECORDED JULY 28, 1970 IN BOOK 9357, PAGE 805 AND FEBRUARY 1, 1973, IN BOOK 10538, PAGE 27 OF OFFICIAL RECORDS. APN: 442 - 261 -07, 08 AND 09 2 CECA Standard Coverage P"Ocy -1990 G Policy No. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PARS II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. 2. 3. IP Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. The lien of supplemental taxes, If any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. Water rights, claims or title to water, whether or not disclosed by the public records. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Pacific Postal Telegraph -Cable Company, a corporation Purpose: Pole lines, ingress and egress Recorded: May 26, 1893, Book 81, Page 202, of Deeds Affects: The exact location and extent of said easement is not disclosed of record. 3 CLTA St ndaN Covemge Polley -1990 (4/11/10) G SCHEDULE B.— PART II (continued) Policy No. S. A perpetual air or flight easement, and rights incidental thereto, sometimes referred to as avigation rights, in and to all the air space above those portions of particular planes or imaginary surfaces that overlay said land for use by aircraft, present or future, from or to the Orange County Airport, said easements and rights being more particularly described and defined in a document; Granted to: County of Orange Recorded: March 17, 1964, in Book 6965, Page 721 of Official Records The planes above which said easement(s) lie are more particularly described in said document, and shown on a map referred to therein. 6. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Public utility Recorded: March 3, 1966, Book 7857, Page 568, of Official Records Affects: Commencing at a point on the center line of Jamboree Road, 100.00 feet wide, said point being the Northeasterly terminus of a curve concave Southeasterly having a radius of 1200.00 feet and a central angle of 90 26' 42 "; thence North 430 30' 31" East 490.00 feet along said center line; thence at right angles to said center line South 460 29' 29" East 60.00 feet to the True Point of Beginning; thence parallel with said center line North 430 30' 31" East 768.00 feet. Excepting therefrom any portion lying within Tract No. 6015. 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Street and highway Recorded: December 17, 1970, Book 9493, Page 359, of Official Records Affects: A portion of said land as more particularly described in said document. 8. Covenants, Conditions and Easements reserved by the Irvine Company In Grant Deed recorded July 28, 1970, in Book 9357, Page 805, Official Records. 9. Covenants, Conditions and Easements reserved by the Irvine Company in Grant Deed recorded February 1, 1973, in Book 10536, Page 27, Official Records. L 4 CLTAS nda`d Covem9e Polity- 1990(9111/10) SCHEDULE B — PART II (continued) Policy No. 10. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Underground electrical supply systems and communication systems Recorded: December 31, 1973, Book 11048, Page 418, of Official Records Affects: A portion of said land as more particularly described in said document. 11. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 12. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 13. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 14. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE 13 i 5 CLTA SbndaN Coverage Paliq - 1990 (4113110) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972- 0051- 0725132041- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property that, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. 'Tenant': the tenant under the Lease and, after acquisition of all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy, the Insured Claimant. h. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid.for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of I of ALTA Endorsement Form 13.1 -06 (Leasehold — Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 Attached to Policy No. transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate, g, If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 _°`; Fidelity National Title INSURANCE COMPANY 2 of ALTA Endorsement Form 13.1 -06 (Leasehold - Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972- 0051 - 0725132041 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972- 0972 -0051- 0725132034- FNTIC- 2010 -01 -0 CAFNT0972- 0972- 0051- 0725I32035- FNTIC-2010 -01 -0 CAFNT 0972 -0972 -0051- 0725132036- FNTIC - 2010 -01 -0 CAFN7'0972 -0972- 0051 - 0725132038- FNTIC- 2010 -0i -0 CAFNT0972 -0972-0051-0725132039-FNTIC-2 010-01 -0 CAFNT0972-0972-0051-0725132041 -FNTIC-2 010-01 -0 CAFNT0972 -0972- 0051- 0725132044- FNTIC- 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132711- FNTIC - 2010 -01 -0 CAFNT0972-0972-0051-0725132712-FNTIC-20 10-01 -0 Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 0 Fidelity National Title INSURANCE COMPANY V Elf .."?' °.v '- -•L,-- 303 Custom Endorsement SE -55 '.M1la Mnp Is being mmhpea ee a mnveNeno b Ioab tM1e M1altlbtlevellbetl 1. vain rvle11en1oetl fvinlna sbxln enaolM1n Ian4.Ttie Cempcnyaoe[polguaNnl+e &m[n[IOns. N mmgve[, b..a v[pcare.v meemer.anwa[rz 1 Inlma.me nlutli ulvpelaunaNa W. a LmMma.WWM2 b pen.a[ cXyar ceumy umin[n[+.,Ia. v.n[een,+rc. v om[qummm.uebeen=.buoemae abmpwn[nema P boMOlnoa ROmbeNeev +mm.nl eyvnd +.. °N n l QV y'o a b � U W NV mWK �¢h Q 2,2r Ov0 a OsloWY2 0J 4'vsi vm� I F °z iir24 O� EXCLUSIONS FROM COVERAGE The following matters ate expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: 1. (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not (mown to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (o) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy, 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5, Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. 1. DEFINITION OF TERMS The folhoving terms when used In this policy mean: (a) "insured ": the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named 'ms red, those who succeed to the interest of the coined insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributes, devisees, survivors, personal representatives, next of kin, or currents or fiduciary successors, The term "insured" also includes (i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness excepl a successor who is an obligor under, the provisions of Section 12(c) of these Cmrditious and Stipulations (reserving, however, all rights and defenses as to may successor that the Company would have had against any predecessor insured, inless the successor acquired the indebtedness as a purchaser forvalue, without knowledge of the asserted defect, fin, encumbrance, adverse claim or other matter insured against by this policy as offering title to the estate or into es( in the land); (it) any governmental agency or governmental instrumentality which is an banner or guarantor under an insurance moment or Summary insuring or guaranteeing the indebtedness secured by the insured mortgage, or any part thereof, whether named as an insured herein or not: (iii) the parties designated in Section 2(a) of these Conditions and Stipulations. (b) "insured elaimanr" an insured claiming loss or damage. (c) "insured lender ": die owner .fan insured mortgage. (d) "insured mortgage": a mortgage shown in Schedule B, the owner of which is maned as an insured in Schedole A. (e) "knowledge" or "known ": actual knowledge, not constructive knowledge or notice which may be imputed to an insured by reason of the public records as defined in this policy m any other records which impart connective notice of masers affecting the lend. (t) "land ": the land described, ar referred to to Schedule A, sal Improvemmis affixed thereto which by law constitute rend property, The tent. "land" does not include any property beyond the lines ofthe area described or refereed to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to CONDITIONS AND STIPULATIONS which a right of access to and from the land is insured by this policy. (g) "mortgage ": mortgage, deed of lnmt (rest deed, or other security insiumem. (h) "public records ": records camblished under into sfandes at, Date of Policy for the purpose of imparting constmctive notice of matters relating to real properly to purchasers for value and without knowledge. (i) "uamarketabilie, of the title": an alleged or apparent matter affecting lire title to the lend, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described to Schedule A or the insured mortgage to be released from the obligation to purchase by virNC of a contractual condition requiring the delivery of marketable title. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Title by Insured Lender. If nits policy insures the owner onto indebtedness secured by the insured mortgage, the coverage of this policy shall continue in force as of Date of Policy in favor of (i) such insured lender who acquires all cranny part of the estate or interest in the lend by far ebseares, marten's sale, conveyance to lieu of foreclosure, or other legal insurer which discharges the Jim of the insured mortgage; (it) a transferee offle estate or interest so acquired from an insured corporation, provided the irunsfmse is the patent or wholly -owned subsidiary of the insured corporation, and their corporate successors by operation.flaw and not by purchase, subject in any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which acquires all or ally pmt of the estate or interest pursuant to a contract of iruunnce or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Tide by an Insured, The coverage of this policy shall continue in force as of Date of Policy in favor o£an insured only so long as the insured rot'ehrs an estate or interest in the land, or holds an indebtedness secured by a purchase menay mortgage given by a purchaser from die insured, or only m long as the insured shall have liability by mean ufcevenants or warranty made by the insured in any Ismaili or conveyance of the, estate or interest. This policy shall not continua in force in favorofany purchaser from sun insured efolther (h) an estate or interest in the land, in (ii) an indeboul secured by a grandiose money mortgage given to ea insured. (c) Amount of ]mesa.. The amount of insurance after the acquisition or after the conveyance by an insured leader shall is neither event exceed the least of, (i) the amount of insurance stated in Schedule A; (it) the amount of the principal of the indebtedness secured by the insured mortgage as ofDato of Policy, interest therms, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the Jim of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable amounts expended to prevent deterioration ofimpravements, Int roduced by the amount ofnll payments made; or (iii) the amount paid by any govemmeetal agency or governmental immateriality, tffl a agencyorbournme ntality is the insured claimant, in the acquisition of the estate or interest in satisfaction of its insurance contract or guaranty. 3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT An insured shall notify the Company promptly in writing f) in case ofany litigation as set forth in 4(a) behmv, (ii) to case knowledge shall come to an insured hereunder agony claim of title or interest which is adverse to the title to the estate or interest or the lien of the insured mortgage, as insured, and which might cause loss or damage forwhich the Company may he liable by virtue of this policy, or (iii) if fitle to the estnro or interest or the Item of the insured mortgage, as insured, is rejected as unmarketable. Winners notice shall not be given to the Company, than as to that insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required: provided, however, that failure to notify die Company shall in no case prejudice The rights ofany insured underthis policy unless the Company shall be prejudiced by fl e, fadme and then only to the extent of the prejudice. 4. DEFENSE AND PROSECUTION OF XCTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Uponwdten« quest by an insured and subject tothe options contained in Sectionb of these Conditions and Stipulations, The Company, at its awn cost and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts is claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defeat, ten or encumbrance or other matter insured against by this policy, The Company shall have die right to select counsel ofits choice (subject to the right of such inumed in object for reasonable cause) to represent the insured as to these stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any Sees, costs m expenses CLTA Standard Coverage Policy- 1990 (4/11110) incurred by an insured in the defense of those causes of action which allege matters not insured against by this policy. (b) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish die title to the mew or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to an insured. The Company may take any appropriate action under the terms This policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently, (c) Whenever U,e Compay sltali have brought an action or interposed a defense an required or permined by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the tight, in its sole discretion, to appeal from any adwomitidgmeal or order. (d) In nil cases where this policy permits or requires the Company to prosecute orprovide for the defense of any action or proceeding, an insured shalt secure to the Company the right to so prosecute or provide defense in the action an proceeding, and all appeals therein, and permit the Company to use, at its option, the name of such insured for this purpose, Whenever requested by the Company, an insured, at the Company's expense, Shelf give the Company all reasonable aid (t) in any action or procoding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effm tang settlemoh arzd (l) in any other lawful act which in the opinion of the Company may be necessary m desirable to establish the filte, m the cattle or interest of the lien ofthe trained morigagq as insured. If fire Company is prejudiced by the failure of an insured to famish the required cooperation, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, pointer., in continue say litigation, with regard N the mega or msit. requiring such cooperation, S. PROOF OF LOSS OR DAMAGE In addition to and after the notices required under SecBon3 of these Comedies; and Stipulations have been provided the Company, a proof of Ions or damage signed and swum to by each insured claimant shall be famished to die Company within 90 days after the insured claimant shall ascertain the fads giving rise to the loss or damage, The proof of loss or damage shall describe the defect in, or lien or encumbrwce on die title, mother matter insured against by this policy which constitutes the basis of loss or damage and shall state, to the extent possible, the basis ofcaleulatingtheemount of the loss or damage. If the Company is prejudiced by the failure arm insured claimant to provide the required proof of loss or damage, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend prosecute, or continue any litigation, with regard to the matter or matters requiring such proof of loss at damage. In addition, an insured claimant may reasonably be required m submit to examinaion under oath by any authorized representative of the Company and shall produce for examination, inspection and copying, at such reasonable times and places as may be designated by any authorized representative of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a date before or-After Date dPoncy, which reasonably pertain to the lass or damage, Further, if requested by any authorized representative ofthe Company, the insured claimant shall grant its permission, in writing, for any turbanned representative of the Company to examine, inspect cod copy all records, books, ledgers, checks, correspondence and memoranda in the custody or control ofa thud party, which reasonably pertain to the loss or damage. All information designated as coafidwtial by an insured claimant provided to the Company purawat to this Section shall not be disclosed to others unless, in the reasonable judgment of the Company, it is necessary in the Administration of die claim. Failure of an insured claimant to submit for examination under oath, warrant other reasonably requested information orgmnt permission to secure reasonably necessary information from third parties as required in this paragraph, unless prohibited by Imo or governmental regulation, viral] terminate any liability of die Company under min policy as to that insured for that claim. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have the following additional options: (a) To Pay or Tender Payment of the Amount of Insurance or to Purchase the Indebtedness. (i) to pay or tender payment of the amount of insurance under this policy together with any costs, attomeys fees and expenses incurred by the insured claimant, which was authorized by the Company, up to the tone ofteyna nt or tender of payment and which the Company is obligated to pay; or (i) in .use loss or damage is claimed Argon this policy by the owner ofthe indebtedness sourced by the insured mortgage, to purchase the indebtedness secured by the insured mortgage far the amount Awing thereon together with any eosts, attorneys' fees and expenses iacumd by the insured claimant which were authorized by the Company up to the lime of purchase and which the Company, is obligated to pay, If the Company offers to purchase the indebtedness as herein provided, the owner of the indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with any collateral security, to the Company upon payment therefore, Upon the exercise by the Company of the option provided for hr paragraph Aft, all liability and obligations to the insured under this policy, other than to make the payment required in that paragraph, shall Inordinate, including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be mrvademd to the Company for cancellation. Upon the exercise by the Company.fphe option provided for in paragraph Aid) the Company's obligation to an insured Lender under this policy for the claimed toss or damage, other gum the payment required to be made, shall terminate, including any liability of obligation to defend, prosecute or continue any Iiiigatim, (b) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant. (. to pay or otherwise saute with other pains for orin the name ofan insured claimant any claim insured against under this policy, together with any costs, attorneys few and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or (it) to pay or otherwise settle with the insured claimant the loss or damage provided for wider this policy, together with any ...is. aftomeys' fees and expenses incurred by the insured claimant which were authorized by the Company tip to The time ofpayment and which the Company is obligated to pay. Upon the exercise by the Company ofeither ofthe options provided for in paragraphs b(i) or b(i), the Company's obligations to the insured under this policy far the claimed loss or doming., other that, die payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. 7. DETERMINATION AND EXTENTOF LIABILITY This policy is a contract of indemnity, against a1ua1 monetary loss or damage sustained or incurred by the insured claimant who has suffered loss ordamage by reason ofmottas insured against by this policy and only to the extant herein described (a) The liability ofthe Company under this policy to an insured lender shah not exceed the least of: (i) the Amount of Insurance stated in Schedule A, on, if applicable, the amount of insurance as defined in Section 2(c) fthese Conditions and Slipudhdims; (ii) the amount of the unpaid principal imnlilednm. secured by the insured mortgage as Former or provided trader Section g of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by dun policy occurs, together with interest theron; or (iii) the difference between the value of the Insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. (b) In the event the insured lender has acquired thowfam or interest in the manor described in Section 2(a) of these Conditions and Stipulations or has conveyed the title, then the liability of the Company shad continue As set bum in Section 7(a) ofthese Conditions and Stipulations. (c) The liability tribe Company under this policy to An insured owner of the estate m interest in the land described in Schedule A shall not exceed the least of. (i) the Amount of die Insurance stated in Sehedute A; or, (i) the difference between the value of the insured state or interest as insured and the value ofthe ;named estate or interest subject to the defect, lien or Attendance insured against by this policy. (d) The Company will pay only those costs, attomeys' fees and expenses incurred in accordance with Section 4' of these Conditions rand Stipalatme s. 8, LIMITATION OFLIABILITV (a) If the Company esmblishcs the title, or removes the alleged defect, lien or enambranee, or cures the lack ofa right of access to or from the land, or .urea the claim of war arketnbility of Utle, or otherwise esmbiishus the lien of the insured mortgage, all As insured, in a reasonably diligent mower by any method, including litigation and the completion of any appeals mere from, it shall have fully performed in obligations with respect to that matter and shall not be liable for any loss in damage caused thereby. (b) In The event of any litigation, including litigation by the Company or with the Company's comet, the Company shall have no liability for lass or damage until there has been a final determination by n court of competent jurisdiction, and disposition of all appeals them from, adverse to the title, or. if applicable, to the lien of the insured mortgage, as insured. (a) The Company shall not be liable for loss or damage to any insured forliabitity voluntarily assumed by the insured in settlingany claim mark without the prior written consent ofine Company. (d) The Company shall not be liable to an insured lender for: (i) nay indebtedness created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts expended to prevent detedomtion of improvements; or (t) construction loan advances made subsequent to Date of Policy, except eonsbnctiw loan advances made subsequent to Date of Policy for the purpose of financing in whole or in pmt the construction of m improvement to the land which a Date of Policy were secured by the insured mortgage and which the insured was and ersommed in be obligated to advance at and after Data ofp.licy. 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments kinder Ibis policy, except payments made for costs, marinate fees and expenses, shall reduce the amount of Insurance pm farm. However, as to an insured leader, any payments made prior to the acquisition of title to the estate or interest As provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro panda the amount of inmmno afforded under this policy as to any such insured, except to the extent that the payments reduce the amount of the indebtedness secured by the insured mortgage. (b) Payment in part by any person ofthe principal of the indebtedness, or any other obligation secured by the insured mortg6gq or any voluntary partial satisfaction or release of the insured mortgage, to the extent of the payment, satisfaction or release, shall reduce the amount of insurance pro made. The amount of insurance may thereafter be increased by aecming interest and advances made to protect the lien of the insured mortgage and soured thereby, with interest thrown, provided in no event shall the amount of insurance Ine Lneater than the Amount of Insurance stated in Schedule A. (e) Payment in full by any person or the voluntary salisfaction "release of the banned mortgage shall terminate all liability of the Contrary to an insured lender except as provided in Section 2(a) of these Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE it is expressly understood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule R or to which the insured has agreed, manned, or taken subject, or which w hereafter executed by an insured and which is a charge or lien on the estate or interest desenbed or referred to in Schedule A, and the amount so paid shall be deemed a payment under this policy to the insured owner. The provisions ofgds Section shall not apply to an insured lender, wines such insured acquires line to said estate or interest in satisfaction of the indebtedness secured by an irearedmortgage. It. PAYMENT OF LOSS (a) No payment shall be made without producing this policy for endorsement ofthe payment unless the policy has been lost or destroyed, in which case proof of Ins or destruction shall be furnished to the satisfaction of the Company. (b) When liability and the extent of loss or damage has been definitely cored in accordance with these Conditions and Stipulations, the loss or damage shall be payable within 30 days thereafter, CLTA Standard Coverage Policy- 1990 (4/11110) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) The Company's Right of Subrogation. Wheneverthe Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company mana ing by any act of the insured claimant. The Company shall he subrogated to and be emidcd to all rights and comedies which the blamed claimant would have had against any person or property in respect to the claim had this policy not been issued. If requested by the Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property roxweary in order to perfect this tight of subrogation. The insured claimant shall permit the Company to sue, compromise or settle to the time of the insured claimant and to use aw name of the insured claimant in any transaction or litigation involving these rights ,ommedies. Ifs paymenton account ofa claim does not Polly cover the loss of the insured claimant, the Company shall be submalmod (i) as to an insured owner, to all rights and remedies is the proportion which the Company's payment hears to the whole amount ofthe lass; and (it) as to an insured leader, to all rights and remedies oldie insaral claimant after the insured claimant shall have recovered Rs principal, interest, and costs of collection. If loss should result from any act ofthe insured demand, as stated above, that act shall not void this policy, but the Company, in that event, sball be required to pay may thus pars of any losses insured against by this policy which shall exceed Elie amount, if any, lost to the Company by reason of the impairment by the insured claimant cribs Company's right of subrogation. (b) The para red's Rights and Limitations. Notwithstanding the foregoing, the owner of the indebtedness secured by an insured mortgage, provided the priority orthe lien of are insured mortgage or its enforceability is not affected, may release or substitute the personal liability of any debtor or guarantor, or extend or otherwise modify the terms of payment, or release a portion of the estate or interest from the lien of the insured mortgage, or release any collateral security for the indebtedness. When the permitted acts of the insured claimant occur and the insured has knowledge of any claim of title or interest adverse to the title in the estate or interest or the priority or enforceability ofthe lien ofan insured mortgage, as insured, the Company shall be required to pay only that part of any losses Wanted against by this policy which shall exceed the amount, if any, lost to the Company by reason ofthe impairment by the insured claimant ofthe Company+s fight ofsubrogation. (c) The Company's Rights Against Non - insured Obligors. The Company's tight of subrogation against nonynsured obligors shall exist and shall include, without limitation, the rights of the insured to iMemnilies, guaranties, other policies of insurance or bonds, notwithstanding any terms incarnations contained in those instruments which provide for subrogation rights by reason clads policy. The Company's right of subrogation shall not be avoided by acquisition of m insured mortgage by an obligor (except an obligor described in Section 1(a)(ii) of these Conditions and Stimulations) who acquires the insured mortgage as a result of an indermrily, guarantee, other policy of insurance, or bond and The obligor will not bean insured under this policy, nohvhhsteuding Section I(a)(i) of these Conditions and Stipulations. 13. ARBITRATION Unless prohibited by applicable law, either die Company or the insured may demand arbivaaon pursing to the Title Insurance Arbitration R.I. of the American Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Contrary and the insured arising am of or relating to this policy, any service of the Company in estimation with its issuance or the breach of a policy provision or other obligation. All arbitrable mathaswhen the Amount of insurance is $2000.000 or less shall be arbitrated at fl ac option of either the Company or the insured, All arbitrable matters when the Amount of hematite is in excess of$I 000,000 shall be arbitrated only when agreed to by both the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect on the date the demand for arbitration is made or, at the option of the insured, the Rules in effort at Date of Policy shall be binding upon the partis. The award may include attorneys fees only Butte Imes ofthe state in which the land is located permit a coon to award atlomeys' Fees to a prevailing party. Judgment upon the award rendered by the Arbilraor(s) may be entered in any earn having jurisdiction thereof. "rite law ofthesiNS ofthe land shall apply to an rumboation under the Title Insurance Arbitration Rules. A copy ofthe Rules may be obtained from the Company upon request. 14, LIABILITY LIMITED TO TBI IS POLICY; POLICY ENTIRE CONTRACT (a) This policy together with all endorsements, if any, attached hereto by the Company is The embe policy and contract between the insured and the Company. in interpreting any provision ofthis policy, this policy shall be combined as a whole. (b) Any claim offices or damage, whether or not based on negligence, and which arises and of the status of the lien of the insured mortgage or o£ihe title to the estate or interest covered hereby m by any action asserting such claim, shall be restricted to this policy. (c) No amendment of or endorsement to this policy can be made except by a writing endorsed hereon or attached hereto signed by eidmr the President, a Vice President, the Secretary, and Assistant Secretary, or validating officer or aslhorlmd signatory ofthe Company. 15, SEVERABILITY In the event any provision of the policy is held invalid or unenforceable unduripplicable law, the policy shall be deemed not to include that provision and all other provisions shall remain in full fame and effect. 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writingrequiredto be famished the Company shall include the number of this policy and shall be addressed to the Company at: Fidelity No fiscal Title Insurance Company P.O. Box 45023 Jacksonville, FL 32232 -5023 AIM: Claims Department SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of.- PARTI 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. 2. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. 1 Easements, liens or encumbrances, or claims thereof, which are not shown bythe public records. 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. 6. Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy - 1990 (4/11110) ONE" "' Fidelity National Title Insurance Company POLICYNO.! CAFNT0972- 0972 -0051. 0725 1 3 2044- FNTIC- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of 1. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability ofthe title; 4. Lack of a right of access to and from the land,• 1 and, in addition, as to an insured lender only: 3. The invalidity or unenforceability of the lien ofthe insured mortgage upon the title; 6 The priority of any lien or encumbrance over the lien ofthe insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the narned insured assignee free and clear of all liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITY NATIONAL TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized qfflcers. Countersigned n u L 7 / CLTA Standard Coverage Policy - 1990 SCHEDULEA Policy No.: CAFNT0972 -0972 - 005 1 - 072 5 1 32 044- FN17C- 2010 -01 -0 Order No. 725132044 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. Name of Insured CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as Trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehoid as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement ", which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement" dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA Standard Coverage Polity - 1990 Policy No. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 1 OF PARCEL MAP 92 -139, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FIILED IN BOOK 314, PAGES 36 AND 37 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. APN:050- 173 -01 CLTO St dxd Cove ge Poky - 1990 Policy No. SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. Water rights, claims or title to water, whether or not disclosed by the public records. 4. Conditions and restrictions contained in the deed from Newport Land Company, a corporation, to George R. Wilton and E. S. Gilmore, dated December 1, 1913, and recorded in Book 243, Page 392, of Deeds, in the office of the county recorder of said Orange County, omitting restrictions based upon race, color, religion, etc. S. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Street and highway Recorded: October 8, 1968, Book 8746, Page 169, of Official Records Affects: As described therein CLTA Standard Co emge Polk/ -1990 (4/11110) SCHEDULE B — PART II (continued) Policy No. 6. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said �i document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee; Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 7. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT" dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 8. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 9. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE B L 4 CLT0. SfanddN Coverage Policy - 1990 (9133110) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 -0051- 0725132044- FNTIC- 2010 -0I -0 Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case, as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property that, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. 'Tenant ": the tenant under the Lease and, after acquisition of all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy, the Insured Claimant. h. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately.. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured acquires all or any part of the Title in accordance with the provisions of Section 2 of the Conditions of this policy and thereafter is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection 1 of ALTA Endorsement Form 13.1 -06 (Leasehold - Loan) (6/17106) CLTA Endorsement Form 119.5 -06 Attached to Policy No. with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is Issued as part of the policy. Except as it expressly states, it does not (1) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 °°°' Fidelity National Title INSURANCE COMPANY 2of3 ALTA Endorsement Form 13.1 -06 (Leasehold - Loan) (6/17/06) CLTA Endorsement Form 119.6 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 -0051- 0725132044 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972- 0972 - 0051- 0725132034 - FNTIC- 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132035- FNTIC- 2010 -01 -0 CAFNT0972 -0972- 0051- 0725132036 - FNTIC- 2010 -01 -0 CAFN70972- 0972 -0051- 0725132038 -FNTIC - 2010 -01 -0 CAFNT0972- 0972 - 0051- 0725132039- FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132041 -FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132044 -FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725132711 - FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 - 0725232712 - FNTIC- 2010 -01 -0 Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (li) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 Fidelity National Title INSURANCE COMPANY 3 of Custom Endorsement SE -55 � !< ■ � )\ &+§ \;\ \)\ ) \§ , 79 ! §§ m �7 §. �. |` \ , i \\ __ _ \ \ \;\ \)\ ) \§ , 79 ! §§ m �7 §. �. |` \ , EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: I. (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an 'insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. S. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. 1. DEFINITIONOFTCRMS The following terms when used in this policy mean: (a) "insured": the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named insured, those who ....ad to the interval of the named insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributes, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors. The term "insured" also includes () the owner of the indebtedness secured by die mu nd mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provisions of Section 12(c) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor insured, urdess the successor acquired the indeldre ness as a purchaser for value without knowledge of the asserted defect, lien, encumbrance, adverse claim or other matter insured against by this policy as affecting tine to the estate or Interest in the land); (is) any gownsmontal agency or govemmeatal instrumentality which is an insurer or guarantor under an insurance contract or guaranty insuring or guaranteeing die indebtedness secured by the insured mortgage, or any part thereof, whether named as an insured herein or not; (iii) the parties designated in Section 2(a) of these Conditions and Stipulations. (b) "insured claimant an insured claiming loss m damage. (c) "insured lender ": the owner of au insured mortgage. (d) "insured mortgage ": a mortgage shown is Schedule B, the owner of which is named as an insured in Schedule A. (a) "knowledge" or "known"; actual knowledge, not cnrsmrcEive knowledge in notice which may be imputed to an insured by reason ofihe public records as defined in this policy or any other records which impart eo eshuative notice of matter affecting the land. (t) "land ": the land described, or refsmod to in Schedule A, and improwernam affixed thereto which by law constitute real property, The tern "land" does not include any property beyond the lines ofihe area described or referred to in Schedule A, nor any right, due, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit die edam to CONDITIONS AND STIPULATIONS which a right of access to and from the land is insured by this policy. (g) "mortgage": mortgage, deed of trust, trust deed, or other security monverent. (h) "public records ": records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without knowledge. (i) "umnarketability of the title': an alleged or appareat matter affecting the title to die land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A or the insured mortgage to be released from the oblileadcal to purchase by virtue of a contractual condition requiring the delivery of marketable tdle. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Title by Insured Lender. If this policy insures the cwmero£the indebtednesssecured by the insured mortgage, the cavemga of this policy shall continue in fume as of Date of Policy in favor of (i) such insured lender who acquires all of any pact of the estate or interest in the land by foreclosures, trustee's sale, conveyance in lieu of foreelosme, or other legal manner which discharges the lien of the insured mortgage; (fi) a transferee of the estate or interest so acquired from an insured corporation, provided the transferee is due parent or wholly -owned subsidiary of the insured corporation, mud thew corporate successors by operation of law and not by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which acquires all or any pail of the estate or interest pursuant to a contract of insurance or guaranty insetringor guaranteeing the hudehtndness secured by [tic insured menacing. (b) After Conveyance of Title by an Insured. The coverage of this policy shall continue in force as of Data of Policy in favor of an insured only an long as the insured retains an estate or interest in the land, or holds an indebtedness seemed by a purchase money mortgage given by a purchaser from the insured, or only an long as the insured shall have liability by reason of covenants or warranty made by the insured in any transfer or conveyance of the estate or fmttast. This policysball not 000tinue in force in favor ofany purchaser from an insured ofeither(h an estate or interest in flee )and, or (ii) re indebtedness secured by a purchase money mortgage given to an insured. (c) Amount of Insurance. The amount of insurance after the acquisition or after the conveyance by an insured tender shall in neither event exceed the least oh (i) the mount ofinsurance stated in Schedule A; (ii) the amount ofihe principal crust indebtedness secured by die insured mudgage as of Date of Policy, interest thereon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage in assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition aF the estate or interest in the land and secured thereby and reasonable amounts expended to prevent deterioration ofimprovemer4s, but reduced by the amount ofall payments made; or (iii) the amount paid by any governmental agency or gavetnmental instrumentality, ifthe agency or monumentality is the insured claimant, in the acquisition of the estate or interest in sadsfactim of its insemnee contract or guaranty. 3. NOTICE OF CLAIM TO RE GIVEN BY INSURED CLAIMANT An insured shall notify the Company promptly in writing (i) in case of my litigation as set such m 4(e) below, (i) in case knowledge shall come to an insured hereunder of my claim of till. or interest which is adverse to the title to die estate or interest or the lien of the insured mortgage, as insured, and which might cause loss or damage forwhieh she Company may be liable by virtue of this policy, or (iii) if title to the estate or interest or the lien of @e insured mortgage, as insured, is rejected as unmarketable. Ifprompt notice shall not be given to die Company, then as to that insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to carry the Company shall in no one prejudice The rights ofany insured under this policy unless the Company shall be prejudiced by The failure and then only to the extent of The prejudice. 4. DEFENSE AND PROSECUTION OF XCTTONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Uponwriftiiregeestbymimwcdmdsubjeotte The options contained in Section G of these Conditions and Stipulations, The Company, at its own cost and without inummonable delay, shalt provide for the defense of such insured to litigation in which any third party asserts a clean adverse to hie title or interest as iicamd, but only as to those stated causes of action alleging a defect, lie or encumbrance or other matter insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of such heated m object for reasonable cause) to represent the insisted as to those stated causes of action and shall not be Rabic for and will not pay the fees of any other counsel. The Company will not pay any fees, costs or expenses CLTA Standard Coverage Policy - 1990 (4111/10) incurred by. insured in the defense of lbos , causes oFactiort which allege matters not insured against by Olds policy, (b) The Company, shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any. other act which in its opinion may be necessary or desirable to establish The title to the estate or interest or the Ban of the ignored mortgage, as insured, or to prevent or reduce loss in I' damage to an insured. The Company may take arty appropriate action under the terms of this policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall !� exercise its rights under this paragraph, it shall do so diligently, (c) Whenever the Company shall have brought an action At interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adversejudgmenl or order. (d) In all cases where this policy permits or requires the ACompany to prosecute or provide for the defense of any action At proceeding, an insured shall secure to the Company the right ,{ to so prosecute or provide defense in the action or proceeding and all appeals therein, and permit the Company to use, At its Option, the name of such insured for this purpose. Whenever requested by the Company, an insured, at the Company's 'a expense, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (4) in any other lawful act which in the opinion of the Company may be necessary ur desirable to establish the title to the estate or interest or Ilia lien ofthe insured mortgage, as imiumd. If the Company is prejudiced by the fail re of an insured to famish the required cooperation, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or armhme any litigation, with regard to the matte' or matters requidnganch cooperation. 5. PROOF OF LOSS OR DAMAGE In addition to and after the notices required under Seo6on3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and y swam in by each insured claimant shall be famished to tore Company whim 90 days after the insured claimant shall P ascertain the facts giving rise to the loss or damage. The proof yb; of loss or damage shall describe the defect m, or lien or eacurnbrance on the title, or other matter insured agamet by this policy which crosfiNtas the basis of loss or damage and shall pt store, to the extent possible, the basis ofcalculatng the meant of the loss or damage, If the Company is prejudiced by the failure of an insured claimant to provide the inquired proof of loss or damage, the Company's obligations to such insured most the policy shall temdnale, including any liability or Obligation to defend, preaeeute, or continue any litigation, with q mgard to the matter or matters requiring such proof of loss or damage. !3 m addition, an insured claimant may reasonably be required to submit It examination under oath by any antlmrized representative of the Company and shall produce for examination, inspection and copying, at such reasonable times and places as may be designated by any authorized representative of the Company, all records, books, ledgers, p checks, carespendenec and na m umn, whether burring a date before or after Date of Policy, which reasonably pedant to the loss or damage. Further, if requested by any authorized representative ofthe Company, the insured claimant shall grant its permission, in writing, for any Authorized representative of the Company to examine, inspect and copy dl records, books, edges, checks, correspondence and memomnda in the custody or control OF third party, which reasonably pertain to the loss or damage. All information designated as confidential by an named claimant provided to the Company pursuant to this Station shall not be disclosed to others unless, in the reasonable judgment nfda, Company, it is Accessory in the administration of the claim Failure of an insured claimant to submit for examination tinder oath, produce other reasonably requested information or grant permission to secure reasonably necessary information from third parties AS required in this paragraph, unless prohibited by law or governmental regulation, shall terminate any liability of the Company wider this policy as to that insured for that claim 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have the following additional options: (a) To Pay or Tori Payment of the Amount of Insurance or to Purchase the Indebtedness. Q) to pay or tender payment of the amount of huumnce under this policy together with any costs, attorneys' fees and exposes incurred by the insured claimant, which were authorized by the Company, up to the time ofpayment or tender of payment and which the Company is obligated to pay; or (!) in ease loss or damage is claimed under this policy by the owner of the indebtedness sewmd'oy the insured mortgage, to purchase the indebtedness seemed by the insured mrs"gageforthe amount owingtbemon togethawilh any costs, anomeys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of purchase and which the Company is obligated to pay. If the Company offers to purchase the indebtedness as herein provided, the own" of the indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with any collateral security, to the Company upon payment therefore. Upon the exercise by the Company ofthe option provided far in paragraph a(i), all liability and obligations to the insured under this policy, other than to make the payment required m that paragraph, shall terminate, including any liability or obligation to defend, prosecutq or continue any litigation, and the policy shall be surrendered to the Company for caaoeilation. Upon the exercise by the Company of the option provided for in paragraph a(B) the Company's obligation to an insured Lender under this policy far the claimed loss or damage, ether than the payment requhed to be made, shall ter ninety including any liability or oldbuiien to defend, prosecute or continue any litigation, (b) To Pay or Otherwise Settle With Parties Other than the IASUred or With the friend Claimant. O to pay or otherwise settle with other parties for or iv the name of an insured claimant any claim insured against trader this policy, together with any costs, attomeys fees and expenses incurred by the insured claimant which were Authorized by the Company up to the time of payment and which the Company is obligated to pay; or (it) to pay or oWerwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees mm expenses motored by the insured claimant which were authorized bytbe Company up to the time ofpaymcnt and which the Company is obligated to pay. Upon the exercise by the Company ofeith" oflhe options provided for in paragraphs lilt) At b(ii), the Company's obligations to the heated under this policy for the claimed loss or damage, other than the payments required to be made, shall mounted , including any liability or obligation to defend, prosecute or continue any litigation, 7. DETERMINATION AND EXTENT OF LIABILITY This policy is a contract of indemnity against actual immunity lass or damage sustained ur incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only no the extent herein described. (a) The liability of the Company under Ibis policy to an insured lender shall not exceed the least of (I) die Amount of Iusarmce stated In Schedule A, or, if applicable, the amount of insurance AS defined in Section 2(e) of these Conditions and Stipulations; (i!) the mnormt of fins unpaid principal indebtedness stained by the insured mortgage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipuatons, at lire time the loss or damage insured against by Ibis policy actors, together with interest thereon; or (iii) tlhe difference between the value of the insured estate or interest as banned and the value ofthe insured estate or interest subject to the defect, lien or encumbrance insured against by this policy, (b) mtlhe event the insured lender has acquired the estate or interest in the manner described m Section 2(a) of these Conditions and Stipulations or has conveyed the title, then the liability of the Company shall continue as set forth in Section 7(a) ofthese Conditions and Stipulations. (e) The liability of the Company wader dos policy b an insured o con er of the estate m wieres[ m fox laud described in Schedule A sled not exceed the least of (i) the Amount or the Insurance stated in Schedule A; al, (d) the difference between the value of flee burned estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance Insured against by this policy. (d) The Company will pay only those costs, anomeys fats and expenses inured m accordance with Section 4 of these Conditions and Stipulations. 8. LIMITATION OF LIABILITY (a) lF [he Company esablishes the tile, or removes the alleged defect, lien or encumbrance, or mores the lack are right of access to or From the land, or cams the claim of nummkefabilby oftitle, or otherwise establishes the lien oftha insured mortgage, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals there Bam, it shall have fully performed its Obligations with mcpem to that mntterand shall not be liable for any loss or damage caused thereby. (b) In the event of any litigation, including litigation by the Company or with the Company's consent, the Company shall have no liability for loss or damage until there has been a Final determmadou by a court of competent jurisdiction, and disposition of all appeals there from, adverse to the title, or, if applicable, to the lien of the insured mortgage, as insured, (c) The Company shall not be liable f" loss or damage to any insured forliabiliyvoluntmily assumed bythe insured in settling any claim or suit without the prior written consent of the Company. (d) The Company shall not be liable to an insured lender foe O any indebtedness created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and seemed thereby and reasonable amounts expended to prevent deterioration of improvements; or (ii) contraction loan Advances made subsequent to Date of Policy, except annunciation loan advances made subsequent to Date of Policy for Ile purpose of financing in whole or m parr the con ausea on of an improvement to the land which at Date of Policy were secured by the insured mortgage end which the .named was and continued to be obligated to edvmce at and after Date of Policy, 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) NI payments under this policy, except payments made for costs, attorneys' fees and expanses, shall reduce the meant of insurance pro fame. However, as to an !neared lender, any payments made prior to the mquisitina oftitle to the estate or interest as provided in Section2(a) of these Conditions and Stipulations stroll col reduce pro tonic the amount of insurance afforded trader this policy as to any such insured, except to the extent that the payments reduce the amount ofthe indebtedness secured by the insured mortgage. (b) Payment in part by any person ofthe principal or the indebtedness, or any other obligation seemed by the insured mortgage, or any voluntary partial satisfaction or release ofthe insured mortgage, to the canurd of the payment, satisfaction or release, shall reduce the amount of mStmnce pro brute. The amount of immance, may thereafter be increased by accruing interest and advances made to protect the Ben of The insured mortgage and seemed thereby, with interest thereon, provided in no event shall tee amount of insurance be greater than the Amount of Insurance slated in Schedule A. (a) Payment in full by any person or the voluntary satiafactien or release of the insured mortgage shall terminate all liability of the Company to an insured lender except as Provided in Section 2(a) ofthese Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE It is expressly understood thin the amount of insurance Order this policy shall be reduced by any amount the Company may pay under nay policy insuring a mortgage to which exception is taken in Schedule B or to which the insured has agreed, asstuaed, or taken Subject, or which is hereafter executed by an boomed and which is a charge or lien on ore estate or imerestdasanted ormferred to in Schedule A, and the aurount so paid shall be deemed a payment under this policy to the insured owner. The provisions ofthis Section shall not apply to an insured lender, unless such insured acquires tide to said estate or interest in satisfaction of the indebtedness secured by An insured mortgage. It. PAYMENTOFLOSS (a) No payment shall be made without producing This policy for endomemem of the payment unless the policy has born lost or destroyed, in which case proof of loss or destruction shall he famished to the satisfaction of tie Company, (b) When liability and the extent of loss or damage has been definitely fixed in accordance with these Conditions and Stipulations, the loss ordamage shall be payable widdn 30 days mummer. CLTA Standard Coverage Policy- 1990 (4111/10) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) The Company's Right of Subrogation. Whenever the Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company unaffected by arty net of the insured claimant. The Company shall be abrogated to and be o Wticd to all rights and remedies which the insured claimant would have had against any person or property in respect he the claim had This policy not been issued. If requested by the Company, the insured claimant And transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sue, compounds. or seats in the name of the insured claimant and to use the more of the insured claimant in any transaction or litigation involving these rights crremedies. Ifs payment on account ofa claim does net filly cover tire loss of the heated claimant, the Company shall be sedrogated (i) as to an insured owner, to all tights and remedies in the proportion which the Company's payment hems to the whole amount of the loss; and (ii) as as an mcnaed leader, to all rights and remedies of Ore insured claimant after the named claimant shall have recovered its plumped, interest, and casts of collection. If loss should result from any act of the insured claimant, as stated above, fled act shall not void this policy, hit the Company, in that event, shall be required to pay only that part of mg, losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (b) That .... ad's Rights and Limits from Notwithstanding the foregoing the owner of the indebtedness secured by an insured mortgage, provided the priority of tho lien ofthe insured mortgage or its enforceability is not affected. may mlease or substitute the personal liability of any debtor or guarantor, or extend or otherwise modify the torsos of payment, or miens. a portion of (he estate or interest from the hen after insured mortgage, or release any collateral security for the indebtedness. When the permitted acts of (be insured clearance accounted the insured has knowledge of any claim of title or incest adverse to the title ro the estute or interest or the priority or enforceability ofthe lien orate insured mortgage, as insmed, the Company shall be requhed to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (c) The Company's Rights Against Non-insured Obligors. The Company's right of subrogation against non - insmed obligors shall exist and shall imeluda, without Statistics, the rights of the insured to indemnities, summaries, other policies ofinsumnce or bonds, notwidatmaling my terms or conditions contained in those instruments which provide for subrogation rights by reason of this policy. The Company's right of subrogation shall not be avoided by acquisition of an insured mortgage by an obligor (except an obligor described in Section l(a)(ii) of these Conditions and Stipulations) who acquires the insured mortgage as a result of an indemnity, grmmntee, other policy ofinsuraaee, or bond and the oblige will not bean insured under this policy, notwithstanding Section looti) of these Conditions and stipulations. 13, ARBITRATION Unless prohibited by applicable law, either the Company or the warned may demand arbitration pursuant to the Title beamoce Arbitration Rules of the American Arbitration Associattes. Arbitrable matters may include, but are not limited to, any come veiny or claim between the Company and the is mood arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of policyprovisiun mot erobligation. All arbitrable matters when the Amount of Insurance is $1,00000 or less shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when Hue Amount of Insmance is in excess of$I,0010 00 shall be arbitrated only when agreed to by both the Company and the issued. Arbitration pursuant to this policy and order the Rules in effect on the date the demand for arbibation h made or, at the option of the insured, the Rules in affect m Date oFP.1iay shall be binding upon the parties. The award may include attorneys' fees only ifthe laws of the man in which the land is located permit a cons to award momcye fees to a prevailing party. Judgment upon the award rendered by the Arhitmeor(s) may be entered in any area having jurisdiction thereof. The law o @he sites of the land shall apply to an estimation tinder the Title Insurance Arbitration Rules. A copy of the Rules may be obtained from the Company upon request. 14. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT (a) This policy together with all endorsements, if any, attached hereto by the Company is (]or entire policy and contract between the treated and the Company. In interpreting any provision oft is policy, this policy shall be construed as a whole. (b) Any claim ofloss or damage, whether or not based on negligence, and which arises out of the saris of fee lien of the insured mortgage orofthe title to the estate or interest covered hereby or by any action asserting such claim, shall be restricted to this policy. (e) No amendment of or endorsemenl to this policy can be made except by a writing endorsed hereon or attached hereto signed by either the President, a Vice President, the Secretary, and Assistant Secretary, or validating officer or aulhorind signatory ofthe Company. 15. SEVERABILITY In the event any provision of the policy is held invalid or unenforceable under applicable law, the policy shall be deemed ,tat to include that provision and all other provisions shall remain in full force and effect. 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writing required to be famished the Company shall include the number ofthis policy and shall be addressed to the Company at Fidelity National Title Insurance Company P.O. Box 4507.3 Jacksonville, FL 32232 -5023 Attn: Claims Department SCHEDULEB EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I 1, Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. 2. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. 3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. 6. Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy- 1990 (4/11/10) ""' Fidelity National Title Insurance Company PQLICYNO.: CAFM0972 -0972- 0051- 0725132711- FNTIC- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL 'TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of. 1. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land, and, in addition, as to an insured lender only: 5. The invalidity or unenforceability ofthe lien ofthe insured mortgage upon the title; 6. The priority of arty lien or encumbrance over the lien of the insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceabiliiy of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule B to vest title to the insured mortgage in the named insured assignee free and clear of all liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insure4 but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITY NATIONAL TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers. Fidelity National Title Insurance Company 4 l \ \11��JJrV�V�11 Sum.ary Countersigned CLTA Standard Coverage Policy - 1990 SCHEDULE A Policy No.: CAFNT0972 -0972- 0051 - 0725132711- FNTIC- 2010 -01-0 Order No. 725132711 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and Taws of the State of California; The Bank of New York Mellon Trust Company, N.A., as trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No, 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced in the document entitled "Memorandum of Lease /Purchase Agreement', which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement' dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference Is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold"` estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to in this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA Standard Coverage Palmy -1999 Policy No. LEGAL DESCRIPI EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL 3 OF PARCEL MAP 90 -361, IN THE CITY OF NEWPORT BEACH, AS PER MAP RECORDED IN BOOK 270, PAGE(S) 15 THROUGH 18, INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. APN:442- 014 -27 2 CLTA SWdard @ ge Policy -1990 Policy No. SCHEDULE B This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 75) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee In and to said land. 3. The herein described property lies within the boundaries of a Mello -Roos Community Facilities District ( "CFD "), as follows: CFD No.: 90 -1 For: The Newport -Mesa Unified School District Disclosed fay: Notice of Special Tax Lien' Recorded: August 24, 1990, Instrument No. 90- 453226, of Official Records 4. The herein described property Iles within the boundaries of a Mello -Roos Community Facilities District ( "CFD"), as follows: CFD No.: Special Improvement District No. 95 -1 For: City of Newport Beach Disclosed By: Notice of Special Tax Lien Recorded: July 6, 1995, Instrument No. 95- 0288272, of Official Records and recorded: December 13, 1995, Instrument No. 19950556213, of Official Records CLTA Slendard Coverage Polley -1990 (4 /11110) SCHEDULE B - PART II (continued) and recorded: 51 Intentionally Deleted Policy No. December 13, 1995, Instrument No. 19950556214, of Official Records 6. Water rights, claims or title to water, whether or not disclosed by the public records. 7. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Public utilities Recorded: February 14, 1918, Book 318, Page 90, of Deeds Affects: A portion of said land as more particularly described in said document. Included within said deed is a Grant of Easement for ingress and egress over the lands of the Irvine Company. Said easement was modified by an agreement recorded May 18, 1949, in book 1845, Page 120, of Official Records, 8. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Laguna Beach County Water District Purpose: Pipe line Recorded: November 30, 1928, Book 221, Page 76, of Official Records Affects: A portion of said land as more particularly described in said document. Restrictions on the use, by the owners of said land, of the easement area as set forth in the easement document shown hereinabove. Reference is made to said document for full particulars. By a deed dated March 3, 1953 certain rights and interests in said easement were conveyed to the City of Newport Beach, together with the agreements, terms and conditions contained in said deed which recorded April 14, 1955, in Book 3031, Page 117, of Official Records. 9. A waiver, in favor of the State of California, of any right to grant any franchise of any kind along the highway adjoining said land on the Northwest, as contained in the deed to the State of California, recorded May 20, 1931, in Book 487, Page 33, of Official Records. 10. the dedication to the State of California of the right of ingress and egress to and from said land from the freeway adjoining along the Southeast side, by deed recorded July 25, 1940, Page 557, Official Records, and by a deed recorded October 1, 1952, in Book 2390, Page 458, of Official Records. 4 6LTA Sbndard Coverage Polity -1990 (4(11/10) SCHEDULE B — PART II (continued) Policy No. 11. the privilege and right to extend and maintain drainage structures, excavation slopes and embankment slopes on said land adjacent tot he freeway abutting thereon, as granted to the State of California, upon the terms and conditions in a deed recorded July 25, 1940, in Book,1047, Page 557, of Official Records. 12. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Pole lines and steel towers Recorded: June 19, 1947, Book 1528, Page 321, of Official Records Affects: A portion of said land as more particularly described in said document. The exact location and extent of said easement is not disclosed of record. A modification to Grant of Easement, by and between The Irvine company, a Michigan corporation and Southern California Edison Company, a California corporation, upon the terms, covenants therein provided, recorded January 21, 1986, as Instrument No. 86- 024793, of Official Records. 13. Waiver of any claims for damages to said property by reason of the location, construction, landscaping or maintenance of the freeway adjoining said property, as contained in the deed to the State of California, recorded Book 1750, Page 437, of Official Records. 14. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern Counties Gas Company Purpose: Gas pipes and mains Recorded: August 28, 1950, Book 2063, Page 162, of Official Records Affects: A portion of said land as more particularly described in said document. 15. A perpetual air or flight easement, and rights incidental thereto, sometimes referred to as avigation rights, in and to all the air space above those portions of particular planes or imaginary surfaces that overlay said land for use by aircraft, present or future, from or to the Orange County Airport, said easements and rights being more particularly described and defined in a document; Granted to: County of Orange Recorded: March 17, 1964, in Book 6965, Page 721 of Official Records The planes above which said easement(s) lie are more particularly described in said document, and shown on a map referred to therein. 5 CLTAS6 dar Co ge Polity- 1990(4/11(10) SCHEDULE B — PART II (continued) 16. 17 18. 19. 20. 21. Policy No. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: State of California Purpose: Public highway and pipe lines Recorded: August 25, 1967, Book 8354, Page 25, of Official Records Affects: A portion of said land as more particularly described in said document, Waiver of any claims for damages to said property by reason of the location, construction, landscaping or maintenance of the freeway adjoining said property, as contained in the deed to the State of California, recorded August 25, 1967, Book 8354, Page 25, of Official Records. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Public utilities Recorded: January 13, 1971, Book 9517, Page 474, of Official Records Affects: A portion of said land as more particularly described in said document. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach Purpose: Street and highway Recorded: July 6, 1977, Book 12277, Page 1310, of Official Records Affects: A portion of said land as more particularly described in said document. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach Purpose: Street and highway Recorded: December 24, 1980, Book 13887, Page 1358, of Official Records Affects: A portion of said land as more particularly described in said document. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document, Granted to: City of Newport Beach Purpose: Storm drain Recorded: March 3, 1981, Book 13967, Page 424, of Official Records Affects: A portion of said land as more particularly described in said document. 6 CITA 50ndaN C vemge Poliq -1999 (4/11/10) SCHEDULE B — PART II (continued) Policy No. 22. Recitals as shown on that certain Parcel Map 90 -361, which, among other things states: 1. All vehicular access rights to Mac Arthur Boulevard, except at street intersections are hereby released and relinquished to the City of Newport Beach. 2. All vehicular access rights to Avocado Avenue are hereby released and relinquished to the City of Newport Beach, except at street intersections and the two approved driveways shown herein. Together with three additional driveways to be approved by the Director of Public Works of the City of Newport Beach. 3. The recital on the Parcel Map 90 -361 that states the following improvements are required to be constructed: Asphalt or concrete access roads to all public utilities, vaults, manholes and junction structure locations„ and street, drainage and utility improvements for Avocado Avenue, East coast Highway, Mac Arthur Boulevard and San Miguel Drive. The recital on said Parcel Map 90 -361 that: A 20 foot wide relocatable pedestrian /bicycle easement shall be dedicated to the City of Newport Beach by separate documents across Parcel 3 to provide access, if a pedestrian /bicycle bridge is constructed across Mac Arthur Boulevard at the prolongation of Crown Drive. the easement is to provide to both Parcel 2 and Avocado Avenue with the precise Alignment to be determined when Mac Arthur Boulevard is widened. If the bridge is not constructed with the Mac Arthur Boulevard Widening Project, then the easement will be relinquished. Reference is made to said map for full particulars. 23. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the Parcel Map 90 -361. Purpose: Ingress and egress Affects: A portion of Parcel 3 for the benefit of Parcel 2. 24. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Street and highway Recorded: January 23, 1991, Instrument No. 91- 031787, of Official Records Affects: A portion of said land as more particularly described in said document. 25. Matters contained in that certain document entitled "Circulation Improvement and Open Space, Agreement (Pursuant to Government Code Section 65864 - 65869.5)" dated June 30, 1993, executed by and between The City of Newport Beach, California, a municipal corporation and charger city and The Irvine Company, a Michigan corporation recorded July 19, 1993, Instrument No. 93- 0479122, of Official Records. Reference is hereby made to said document for full particulars. CLTA Standard Coverage Policy -1990 (4/11/10) SCHEDULE B — PART II (continued) Policy No. Resolution No. 99 -3, A Resolution of the City Council of the City of Newport Beach, accepting the dedication as offered of Parcel 3 of Parcel Map 90- 361(Resubdivision No. 973) recorded in book 270, Pages 15 and 16 of Parcel Maps, in the Office of the Orange County Recorder, recorded March 20, 2000, as Instrument No. 20000143528, of Official Records. 26. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Highway easement Recorded: March 11, 1996, Instrument No. 19960118594, of Official Records Affects: A portion of said land as more particularly described in said document_ 27. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: City of Newport Beach, a municipal corporation Purpose: Slope and drainage Recorded: March 11, 1996, Instrument No. 96- 118595, of Official Records Affects: A portion of said land as more particularly described in said document. Restrictions on the use, by the owners of said land, of the easement area as set forth in the easement document shown hereinabove. Reference is made to said document for full particulars. 28. Easements, Covenants and Conditions contained in the deed from The Irvine Company LLC, a Delaware limited liability company, successor to the Irvine Company, a Michigan corporation, as Grantor, to The City of Newport Beach, a California municipal corporation, and chartered city, as Grantee, recorded November 28, 2007, as Instrument No. 2007 - 0704013, of Official Records. Reference is being made to said document for full particulars. And amended and restated in Grant Deed recorded June 2, 2008, as Instrument No. 2008000262433, of Official Records. And as amended by a document entitled "Agreement of Mutual Understanding Regarding amended and Restated Grant Deed (Parcel 3, Parcel Map 90- 361- Newport Village)..." recorded November 24, 2010, as Instrument No. 2010000634194, of Official Records. 29. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 8 CLTA S[antlar Coverage Poffq - 1990 (4(11130) SCHEDULE B - PART II (continued) Policy No. 30. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT" dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. 31. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 32. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. END OF SCHEDULE B 9 CUA SbWard Coverage Polity - 1990 (4111110) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972- 0051 - 0725132711- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property ": chattels located on the Land and property which, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. I of ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6(17(06) CLTA Endorsement Form 119.5 -06 Attached to Policy No. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those costs include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement.is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 -11'I Fidelity National Title INSURANCE COMPANY 2 of ALTA Endorsement Form 13 -06 (Leasehold - Owners) (6/17/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. CAFN'I' 0972- 0972 - 0051- 0725132711 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972-0972-0051-0725132034-FNTIC-20 10-0 1-0 CAFNT0972-0972-0051-072513 203 5 -FNTIC-20 10-0 1 -0 CAFNT0972- 0972 -0051- 0725132036 - FNTIC- 2010 -01 -0 CAFNT0972- 0972 - 0051 -072513 203 8-FNTIC-201 0-01 -0 CAFNT0972-0972-0051-072513 2039-FNTIC-20 10-0 1 -0 CAFN T0972- 0972- 0051 -0725132041- FNTIC- 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132044- FNTIC- 2010 -01 -0 CAFNT0972- 0972 -0051- 0725132711- FNTIC- 2010 -01 -0 CAFNT0972- 0972 -005 1- 0725 1 3 2712- FNTIC- 2010 -01 -0 Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (11) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 ="' Fidelity National Title INSURANCE COMPANY A 3of3 Custom Endorsement SE -55 'I b N y P P �F SSb N } fn o- � AV'M33b! N Ix_I P go- Ms " m a u ni 26 OVOb na -s 33! h i C£-0bb a o- Map I. balrg WMshaa va a conveMmoolo locale the h ... Ind. .crro.alanala rmenonm nalominy vbont,am atlin lea& TheCOmpan etloesn eyvuanlvo almena om alihnae[t nvnaed to 111=1[e . lvll.eeO roaty a laall.. lla. oa.uvp,vprve.ald a It Clfy ar counryarainanaa,onzonlny ana bu F.vcoaeai1. be bW-d frailorrcermeminv lha bay.fnny parcel vhould be obhinetl lrem Face l BOVemmminyenefez. yWl o aVW ]3a tl 0. �.q iE 21 9£ mm d 0 N N � t 1 y Ow 2�0 NOO ¢ 0 U b �Wa O=`2. WU3 �Qo bVp tl l J N N mfgi 3 M N FORT W2� 1 �Q�a *dke +k p O I ao N � h N�pMI � v' 0 hl YR 4 � h N SPCC dh o 0 9£ mm d 0 N N � t 1 y Ow 2�0 NOO ¢ 0 U b �Wa O=`2. WU3 �Qo h CC 2 J N 0 o 3 M N bl [ N p O I ao N � h N�pMI � v' 0 hl 1 h N� ^N ai +a SPCC dh o 0 F: ti i h O N.� U+=.CWaV s h CC 2 EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: I. (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of adefect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (e) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforecability, of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in. lending law. 6. Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, L DEFINITION OFTERMS The following terms when used in this policy mean: (a) "Insured': the insured named in Schedule A, and, subject to any debts or defenses the Company would have had against the named insured, those who succeed to the interest of the named insured by operation of law as distinguished From purchase including, but not limited W. heirs, distributes, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary sueenesos. 'rho term insured" also includes (i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provisions of Section 12(c) of these Conditions and Stipulations (reserving, however, all Tights and defenses as to any successor that the Company would have had against any predecessor insured, unless the successor acquired the indebtedness as a purchaser for wine without knowledge ofthe asserted defeat, lien, encumhrame, adverse claim or mher matter inured against by this policy as affecting title to the estate ar interest in the land); (i) any govemmearal agency or governmental instrumentality which is an insurer or guwantm under an insurance contract or formerly framing or guaranteeing the indebtedness secured by the insured mortgage, or any pan thereof, whether named as an insured herein or not; (iii) the parties designated in Secion 2(a) of these Conditions end Stipulations. (b) "insured claimmnf': an insured claiming loss or damage. (c) "insured l ender": the own. oFan insured mortgage. (d) "insured mortgage ": a mortgage shown in Schedule B, the owner of which is named as an aimed in Schedule A (a) "knowledge' or "known": actual knowledge, art constructive knowledge or notice which may be imputed to an insured by reason of the public records as defined in this policy or any other records which impart constructive notice of matters nab tmg the land. (1) "land": the land described, or asserted to In Schedule A, and improvements affixed thereto which by law constitute red property. The lain "land" does not include any property beyond the lines ofthe area described a referred to in Schedule A, nor any Tight, title, interest, estate or easement In abutting shwa, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent o CONDITIONS AND STIPULATIONS which a right of access to and from the land is insured by this policy. (g) "mortgage ": mortgage, deed of trost, trust deed, or other security imarmom. (h) "public records": records esmblished under Mare statutes at Date of Policy for the purpose of imparting constructive notice of mailers relating to real property to Purchasers for value and without knowledge. {i) 'hmmarketability of [he title ": an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, whdch would entitle a purchaser crow estate or interest described in Schedule A or the insured mortgage to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of mmketable title. 2, CONTINUATION OF INSURANCE (a) After Acquisition of Title by Insured Lender. If this policy insures the ownerofthe indebtedness secured by the insured mortgage, the covotage ofthis policy shall continue in fame as of Date of Pokey in favor of j) such insured tend. who acquires all crony part o1'the estate or interest in the land by foreclosnes, trustee's sale, conveyance in lieu of foreclosure, or other legal moaner which discharges the lien of the insured mortgage; (ii) a transfermofthe estate or interest so acquired from ao insured carproubm, provided the transferee is the parent or wholly -owned subsidiary of the insured corporation, and their corporate successors by operation oflaw and nm by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which acquhes all or any pad of the elate or interest pursuant to a contract of insurance or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Title by an Insured. The coverage of this policy shall continue in force as of Date of Policy in Favor ofan insured only so long as the insured retains an estate or interest in die land, or bolds an indebtedness secured by a purebase money ..do. c given by n pnrchascr from due insured, or only an, long as the insured shall have liability by reason ofcoverems orwaromy made by the insured in any transfer or conveyance of the estate or interval. This policy shall not comioue in frrec in moor ofany purchaser from an insured of either (b nonstarter interest in the land, m(h) an indebtedness assured by a purchase money mortgage given to an insured. (e) Attract of Insurance Tire amount of insurance after die acquisition or after the conveyance by an insured lender shall in neither event exceed the least of, (i) the amount of insmmrooe shed m Schedule A; (ii) the amount of the principal of the indebtedness secured by the insured mortgage as of Date of Policy, interest thereat, expenses of foreclosure, amounts advanced p ovessa to the insured mongage to assure compliance with laws m to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and seemed thereby and reasonable amounts expended to provend detedomlion ofimprovem0nm, but reduced by the amount ofall payments made; or (iii) the amount paid by any gm,mosmmml agerey or governmental instrumentality, ifthe agency or instrumentality is flat insured claimant, in the acquisition of the esters or interest in satisfaction of in insurance contract or guaranty. 3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT An !named shall notify the Company promptly in writing (i) in case ofany ddgation as setforth in 4(a) below, (it) in case knowledge shall come to an insured honsurder of any claim of title or fanned which is adverse to the title to the estate or interest or the lien of the insured mortgage, as insured, and which might cause loss or damage forwhich the Company may be liable by virtue of this policy, or (5i) if title to the estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable, If prompt notice shall not be given to the Company, then as to that insured all liability of the Company shall terminate with regard to the motet of matters for which prompt aeries is required; provided, however, that failure to notify due Company shall m no case prejudice the rights crony insured moderate policy unless the Company shall be prejudiced by due failure and than only to the extent of the prejudice. 4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written request by an insured and subject to the others contained in Secton ti of these Conditions and Stipulations, the Company, at its awn cast and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those Mated causes of action alleging a defect, lien or encumbrance or other matter insured against by furs policy. The Company shall Lave Tire right to select counsel Mite choice (subject to the right of such insured m objet for reasonable can.) to represent the insured as to those stated eausce of action and shall not be liable for and will not pay the fees of sty other counsel. The Company will not pay any fees, casts or expenses CLTA Standard Coverage Policy - 1990 (4 /11110) incurred by an insured in the defense of those causes of action .. which allege matters not insured against by Ibis policy. (b) The Company shall have the dght, at its own cost, to institute until pronoun, any action or proceeding or to do any other act which in its opirdon may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to an insured. The Company may take any appropriate action under the terns of this policy, whether or not it shall be liable hereunder, and shall net thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently, (c) Wheueverthe Companyshailhavebrought an action n interposed a defense as manned or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sale discretion, to appeal from any adverse judgment or order, (d) In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding, an insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of such insured for this purpose. Whenever requested by the Company, an insured, at the Company's expense, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and f) in any other lawful act which in the opinion of the Company may be necessary or desirable to establish the title to the came or interest or the lien ofthc learned mortgage, as insured. If the Company is prejudiced by !be failure of an insured to famish the required cooperation, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, prosee m, or continue any litigation, with regard to the matter or matters requiring such cooperation. 5. PROOF OF LOSS OR DAMAGE In addition to and after the notices mqubed under Smfien3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and swam to by each Insured claimant shall be famished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise to the foss or damage. The proof of less or damage shall describe the defect in, or lion or encumbrance an the title, or other matter insured against by this policy which constitutes the basis of loss or damage and shall state, to the extent possible, the basis of calculating the ..at of the loss or damage. If the Company is prejudiced by the failure of an insured claimant to provide the required proof of loss or damage, the Company's obligations to such insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue Ary litigation, with regard to the matter or matters requiring such proof of loss or damage. [n addition, an insured dahmant may reasonably be required to submit to examination under oath by any authorized representative of the Company and shall produce for exandaahon, inspection and copying, at such masonable times and places as may be designated by any amhmized representative of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a date before or after Date of Policy, which reasonably pertain to _ the loss or damage. Further, if requested by any authore etl representative ofthe Company, the insured claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect and copy all records, books, lodgers,ebeeks, correspondence and memoranda in the custody or eoctal oft third party, which reasonably pertain to the loss or damage. Al information designated as confidential by an insured claimant provided To the Company personal to this Section shall sot be diselosed to others unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Failure of an insured claimant to submit for examination under oath, produce after reasonably requested Information orgmnt permission m secure reasonably accessary information from third parties as required in this paragraph, unless prohibited by law or governmental regulation, shall terminate my liability of the Company ander this policy as to the insured for that claim. 6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY In case of a claim ander this policy, the Company shall have the following additional options: (a) To Pay or Tender Payment of the Amount of Insurance or In Purchase We Indebtedness. (t) to pay or lender payment of the amount of insurance under this policy mgether with any costs, attorneys' fees and expenses incurred by the insured claimant, which were authorized by the Company, up to the time ofpayment or tender ofpayment and which the Company is obligated to pay; or (if) in case loss or damage is claimed under this policy by the owner ofthe indebtedness secured by The insured mortgage, to purchase the indebtedness seemed by the insured mortgage for the amount owing thereon together with any costs, attorneys' fees and expenses incurred by the insured elaimani which were authorized by the Company rip to the time of purchase and which the Company is obligated to pay. If the Company offers to purchase the indebtedness as heroin provided, the owner ofthe indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with any collateral security, to the Company upon payment therefore. Upon The exercise by the Company ofthe option provided far in paragraph af), rill liability and obligations to the insured under this policy, other than to make tire payment inquired in that paragraph, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be surrendered to the Company for cancellation. Upon it. ,."rise by the Company ofthe option provided for in paragraph a(ii) the Company's obligation to an insured Lender ender this policy for the claimed lass or damage, other than the payment required to be made, shall lerm6mte, melndmg any liability or obligation In defend, prosecute or continue any litigation. (b) To Pay or Otherwise Settle With Part. Other than the Insured m With the Insured Claimant. (i) to pay or otherwise settle with other parties for or in the time of= insured claimant any claim banned against under this policy, together whit any costs, attorneys fees and expenses incurred by the insured claimant which were suthorind by the Company up to the time of payment and which the Company is obligated In pay; or (ii) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the fine ofpaymem and which the Company is obligated to pay. Upon the exercise by the Company of either of the options provided for in paragraphs b(i) or b(ii), the Company's obligations to the insured under this Doliey for the claimed loss or damage, other then the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. 7, DETERMINATION AND EXTENT OF LIABILITY This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the leaned claimant who has suffered loss or damage by reason of matures insured against by this policy and only to the extent herein described. (a) Thu liability of the Company mder this policy to an insured tender shall not exceed the beast of. (i) the Amount of mares me, sorted in Schedule A, or, if applicable, the summit of Insurance as defined is Section 2(c) of these Conditions and Stipulations; (i) the mount ofmc unpaid principal indebtedness sacred by the insured mortgage as limited n provided under Section 8 of these Conditions and Stilmhu car or as educed under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs, together with interest thereon; or (iii) the difference between the value of the learned estate or interest as insured and the value of the insured estate or interest subject to the defect lien or encumbrance insured against by this policy. (b) In the event the armed lender has acquired the estate or interest in die manner described in Section 2(a) of these Conditions and Stipulations or has conveyed the title, then the liability of the Company shall continue as set fntth in Section 7(a) fthese Conditions and Stipulations. (c) The liability of the Compmry under this policy to an Insured .comer of the estate or interest in the land described in Selmdala A shall not exceed the least of. O the Amount of the Insurance stated in Schedule A; or, (ii) the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or moumbrmme insured against by this policy. (d) The Company will pay only those costs, otomeye fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations. S. LIMITATION OF LIABILITY (a) If the Company establishes the Title, or tnmaves the Alleged defect, gin oroncumicance, or cures the Ink of a right of access to or face the land, or cures the claim of unmazkembility oftitle, or otherwise establishes the lien of the insured mortgage, All as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals them from, it shall have fully performed its obligmions with respect to firm matter and shall not be liable for any loss or damage caused thereby. (b) In The event of any litigation, including litigation by the Company or with the Company's consent, the Company shall have rm liability for loss or damage until there has been a final determination by a coup of competent jurisdiction, and disposition of all appeals there from, adverse to the title, or, if applicable. to the lien of the insured mortgage, as insured, (e) The Company shall not be liable for loss m damage to any insuredfor liability voluntarily assumed by the insured in settling any claim orsuit without the prior written consent ofthe Cam miy. (d) The Company shall ootbo liable to an insured lender for. (i) any indebtedness crated subsequent to Date of Policy except for advances made in protect the lien of the insured mortgage and secured Ibmeby mid masmable Amounts expended to prevent deterioration of improvamems; or (ii) construction hems advances made subsequent to Date of Policy, except co mmmfion Iran advances made subsequent to Data of Policy far Use purpose of fmmcmg in whole or in part the eamann tiou of an improvement to the land which in Date of Folicy were secured by The insured mortgage and which the insured was and continued to be obligated to advance m and after Date ofFo9ey. R REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments under this policy, except payments made for costs, attomeys' fees and expenses,. shall induce the amount of insurance pro time. Harywar, as to an insured lender, any payments made prior to the acquisition offi le to the estate or interest as provided rtr Section 2(a) of these Conditions and Stipulations shall not reduce pro lento the amount of insurance afforded trader this policy as to any such insured, except to the extent that the payments reduce the amount of the indebtedness second by the insured mortgage. (b) Payment input by any person ofthe principal of the indebedness, or any other obligation Accrued by the insured mortgage, or any voluntary partial satisfaction or release of the insured mortgage, As the extent of the payment, satisfaction or release, shall reduce dm amount of msmance pro ratio. -1 he meant of insurance may thunder be increased by acoming interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater than the Amount of mmrance stated in Schedule A. (c) Payment in full by any person or the voluumry satisfaction or release of the insured mortgage shall terminate all liability of the Company to an insured lender except as provided in Section 2(a) of these Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE It is expressly imderstood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which aseeption is taken in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter exemded by an insured and which is a charge or lien on the estate oriaterest described orreferred to in Schedule A, and lire amount so paid shall be deemed a payment under this policy to the insured owmor. The provisions ofthis Section shall not apply to an insured lender, unless such insured acquires title to said estate or interest in satisfaction of the indebtedness secured by an insured mortgage. 11. PAYMENTOFLOSS (a) No payuent shall he made without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or des motion shall be firmished to the satisfaction of the Company. (b) When liability and The extent of loss or drainage has been definitely fixed in accordance with these Conditions and Stipulations, the loss or damage shall be payable within 30 days thereafter. CLTA Standard Coverage Policy - 1990 (4111/10) 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) The Company's Rightof Subragatim. Whenever are Company shall have sealed and paid a claim under dais policy, all right of subrogation shall your in the Company uaaffected by any act of the fi sand claimant. The Company shall be submgated to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to the claim had this policy not been issued. If requested by due Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sue, compromise m senle in the name of the heated claimant and to use the mane of the insured claimant in any transaction or litigation involving these rights mremedies. Its payment on account urn claim does not fully cr the loss of the insured claimant, the Company shall be sabrogated (i) as to an insured owner, to all rights and remodies in the proportion which the Company's payment bears to the whole amount ofthe loss; and (ii) as to an roamed leader, to all rights and too edies ofthe insured claimant after the insured claimant shall have recovered its principal, interest, and costs of collection. Ifloss should result from any act of the insured claimant, as stated above, that act shall not void this policy, but the Company, in that event, shall be required to pay only and part Of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by mason of the impaiaent by the insured claimant ofthe Company s right of subrogation. (b) The Insured's Rights and Limitations. Notwithstanding the foregoing, the owner of the indebtedness somead by an insured reengage, provided Ilse priority oftbe lien ofthe insured mortgage or its enforceability is not affected, may release or substitute the personal liability of any debtor or grammar, or extend or otherwise modify the terms of payment, or release a portion ofthe estate or interest train the Gen of the insured mortgage, or release any collateral security for the indebtedness. When the permitted acts of the insured claimant occurand the insured has knowledge of any claim of title or interest adverse to the title to the estate or interest or the priority on enforceability of the lien of. insured mortgage, cs insured, the Company shall be required to pay only that pail crony losses insured minimally this policywhich shall exceed the amount, if any, lost to the Company by mean. of the impairment by the insured claimant of the Company's right of subrogation. (c) The Company's Rights Against Non- insured Obligors. The Companys right of subrogation agulast non - insured obligors shah exist and shall include, without Rotation, the rights ofthe insured to indcormities, guaranties, other policies ofinsumnce orbonds, notwithstanding any teas or conditiom contained in those instruments which provide fm subrogation rights by reason ofthis policy. The Company's right of cabalistic. shall not be avoided by acquisition Of an insured mortgage by an obligor (except an obligor described in Section l(a)(ii) of these Conditions and Stipulations) who acquires the insured mortgage as a result of an indemnity, guarantee, Other policy ofinsumnce, Or band and the obligor will not bean insured tinder Buis policy, notwithstanding Section I(a)(i) of these Conditions and Stipulations. 13. ARBITRATION Unless prohibited by applicable law, either the Company or the insured may demand arbitration pursuant to the Tide Insurance Arbitration Rules or the American Arbitration Association. Arblmablematters may include, buture not limited to, any controversy or claim between the Company end the insured arising out of or rolating to this policy, any service of the Company in connection with its issuance or the breach of a policy, provision or other obligation. All arbitrable inners when the Amount of Insurance is SI 000,000 or less shall be arbitrated at the option of either the Company or the insured. All robitmble matters when the Amount of msmance, is in euess of$1,000,000 shallbe arbitrated only when agreed to by both the Compmry sad the insured. Arbitration pursuant to this policy and and" the Rules in effect on the date hie demand for arbitration is made or, at the option of the insured, the Rules in affect at Date of Policy shall be binding upon the parties. The award may include attomeys'fees only ifthe laws ofthe state in SCIUMULE B EXCEPTIONS FROM COVERAGE which the land is located permit a could to award anomcys' fees to a prevailing parry. Judgment upon the award rendered by the Arbstralo(s) may be entered in any corn having jurisdiction thereof. The law crass sires ofthe land shall apply to an arbitration under the Titk Insurance Arbitration Rules. A copy of the Rules may be obtained from the Company upon request. 14. LIABILITY LIMITED TO THIS POLICY ; POLICY ENTIRE CONTRACT (a) This policy together with all endorsements, if mry, attached hereto by the Company is the entire policy and contract behveen the insured and the Company. In interpreting any provision crass policy, this policy shall be construed as a whole. (b) Any claim ofloss or damage, whether or not based on negligence, and which arises out ofthe status of the lien of the insured mortgage or ofthe tale to the estate or interest covered hereby at by any action asserting such claim, shall be restricted to this policy. (c) No amendment of or endorsement to this policy can bemae exceptby a writing endorsed hereon w attached hereto signed by either the President, a Vice President, the Secretary, and Assistant Secretary, or validating officer or authorized signatory of the Company. 15. SEVERABILITY In the event any provision of due policy is held invalid or umenforeeable under applicable law, the policy shall be deemed not to include that prevision and all other provisions shall remain in full force and intent. 16. NOTICES, WHERE. SENT All notices required to be given the Company and my statement in wrilingrequired who famished the Company shall include the number of this policy and shall be addressed to the Company at: Fidelity National Title Insurance Company P.O. Box 45023 Jacksonville, FL 32232 -5023 Attn: Claims Department This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by per in possession thereof. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records. Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy- 1990 (4111110) ""' Fidelity National Title Insurance Company POLICY NO.: CAFNT0972- 0972- 0051- 0725132712- FNTIC- 2010 -01 -0 CLTA STANDARD COVERAGE POLICY OF TITLE INSURANCE SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULEB AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of: I. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land- and in addition, as to an insured lender only: 5. The invalidity or unenforceability ofthe lien of the insured mortgage upon the title; 6 The priority of any lien or encumbrance over the lien ofthe insured mortgage, said mortgage being shown in Schedule B in the order of its priority; 7. The invalidity or unenforceabillty of any assignment of the insured mortgage, provided the assignment is shown in Schedule B, or the failure of the assignment shown in Schedule to vest title to the insured mortgage in the named insured assignee free and clear of all liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured but only to the extent provided in the Conditions and Stipulations. IN WITNESS WHEREOF, FIDELITY NATIONAL TITLE INSURA NCE COMPA NY h as caused this policy to be signed and sealed by its duly authorized officers. uua---� Countersigned Fidelity National Title Insurance Company �rt[; eY� /T 1 c {Als'n /`l(tt /WJI i-� /L/ P`n_ sitlem ?SEAL RTTEST / /��.� I/ --- Secrotery sue„/ CLTA Standard Coverage Policy - 1990 I- AlIM)I1144F:1 Policy No.: CAFNT0972- 0972 -0051- 0725132712- FNTIC- 2010 -01 -0 Order No. 725132712 Amount of Insurance: $ 126,660,000.00 Premium: $ CONTRACT Date of Policy: November 29, 2010 at 10:54 A.M. 1. Name of Insured: CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California; The Bank of New York Mellon Trust Company, N.A., as Trustee, as assignee of the Newport Beach Public Facilities Corporation, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California 2. The estate or interest in the land which is covered by this policy is: A leasehold as created by that certain lease dated November 1, 2010, executed by City of Newport Beach, a California municipal corporation and chartered city, as lessor, and Newport Beach Public Facilities Corporation, as lessee, as referenced in the document entitled "Site Lease ", which recorded 11/29/2010, Instrument No. 2010000635816, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. A subleasehold as created by that certain Lease /Purchase Agreement dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as sublessor, and City of Newport Beach, a California municipal corporation and chartered city, as sublessee, as referenced In the document entitled "Memorandum of Lease /Purchase Agreement ", which recorded 11/29/2010, Instrument No. 2010000635817, of Official Records, for the term, upon and subject to all the provisions contained in said document, and in said lease. Matters contained in that certain document entitled "Assignment Agreement" dated November 1, 2010, executed by and between Newport Beach Public Facilities Corporation and The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as trustee recorded 11/29/2010, Instrument No. 2010000635818, of Official Records. Reference is hereby made to said document for full particulars. 3. Title to the estate or interest in the land is vested in: City of Newport Beach, a California municipal corporation and chartered city, as to the leasehold estate conveyed by the Lease /Purchase Agreement; and The Bank of New York Mellon Trust Company, N.A., as Trustee, as to the leasehold estate conveyed by the Site Lease and the Assignment Agreement 4. The land referred to In this policy is described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF THIS POLICY VALID ONLY IF SCHEDULE B IS ATTACHED CLTA Standard Covemge Poky -1990 Policy No. LEGAL DESCRIPTION EXHIBIT "A" THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: THAT PORTION OF PARCEL MAP NO. 88 -163, AS SHOWN ON A MAP FILED IN BOOK 253, PAGES 34 AND 35 OF PARCEL MAPS, IN THE OFFICE OF THE COUNT RECORDER OF ORANGE COUNTY, CALIFORNIA, SHOWN AS "REMAINING PARCEL ". EXCEPTING THEREFROM, ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOW, GEOTHERMAL STEAM, ANY OTHER MATERIAL RESOURCES AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE PROPERTY OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OUTSIDE THE PROPERTY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE'SUBSURFACE OF THE PROPERTY AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; BUT WITHOUT, HOWEVER, THE RIGHTTO DRILL, MINE, STORE, EXPLORE OR OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE PROPERTY. ALSO EXCEPTING THEREFROM, ANY AND ALL WATER, WATER RIGHTS, OR INTEREST THEREIN APPURTENANT TO, UNDERLYING OR RELATING TO THE PROPERTY, OR OWNED OR USED BY GRANTOR IN CONNECTION WITH THE PROPERTY OR FOR ANY BENEFICIAL USE, NO MATTER HOW ACQUIRED BY GRANTOR, AND INCLUDING BUT NOT LIMITED TO THE RIGHTS THAT ARE RIPARIAN, OVERLYING, APPROPRIATIVE, PRESCRIPTIVE, PERCOLATING, LITTORAL, ADJUDICATED, STATUTORY OR CONTRACTUAL, BUT WITHOUT, HOWEVER, ANY RIGHT TO ENTER UPON THE SURFACE OF THE PROPERTY IN THE EXERCISE OF SUCH RESERVED RIGHTS, AS RESERVED IN GRANT DEED RECORDED OCTOBER 17, 2008, AS INSTRUMENT NO. 2008000480500, OF OFFICIAL RECORDS. APN: 442- 014 -24 CLTA Standard Coverage Policy -1990 Policy No, SCHEDULE B EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I All matters set forth in paragraphs 1 through 6 inclusive on the cover of this policy under the caption Part I of Schedule B. PART II 1. Property taxes, which are a lien not yet due and payable, including any assessments collected with taxes to be levied for the fiscal year 2010 -2011. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 2. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (Commencing with Section 7S) of the Revenue and Taxation code of the State of California. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. 3. An assessment by the improvement district shown below Assessment (or Bond) No: PARCEL Series: 95 -1 District: City of Newport Beach For: Public facilities Bond issued: December 12, 1995 Said assessment is collected with the county /city property taxes. Additional tax information to follow from Title -Tax. Affects: The interest of The Bank of New York Mellon Trust Company, N.A., as Trustee in and to said land. L 3 CLTA S ndard Coverage Policy -1990 (9111110) SCHEDULE B — PART II (continued) Policy No. 4. The herein described property lies within the boundaries of a Mello-Roos Community Facilities District ( "CFD "), as follows: CFD No.: Community Facilities District No. 90 -1 For: Community Facilities Disclosed By: Notice of Special Tax Lien Recorded: August 25, 1990, Instrument No. 90- 453226, of Official Records S. The herein described property lies within the boundaries of a Mello -Roos Community Facilities District ( "CFD "), as follows: CFD No.: Special Improvement District No. 95 -1 For; Community Facilities Disclosed By: Notice of Special Tax Lien Recorded: July 6, 1995, Instrument No. 95- 0288272, of Official Records and recorded: December 13, 1995, Instrument No. 19950556213, of Official Records and recorded: December 13, 1995, Instrument No. 19950556214, of Official Records 6. Intentionally Deleted 7. Water rights, claims or title to water, whether or not disclosed by the public records. 8. The dedication to the State of California of the right of ingress and egress to and from said land from the freeway adjoining along the Southeast side, by deed recorded July 25, 1940, in Book 1047, Page 557, of Official Records, and by a deed recorded October 1, 1952, in Book 2390, Page 458, of Official Records. 9. The privilege and right to extend and maintain drainage structures, excavation slopes and embankment slopes on said land adjoining to the freeway abutting thereon, as granted to the State of California, upon the terms and conditions in a deed recorded July 25, 1940, in Book 1047, Page 557, of Official Records. 10. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Pole lines Recorded: June 19, 1947, Book 1528, Page 321, of Official Records Affects: A portion of said land as more particularly described in said document. 4 CLTA S nda d Cbvemge Polity- 19M (4)11)10) SCHEDULE B — PART II (continued) Policy No. Document(s) declaring modifications thereof recorded January 21, 1986, as Instrument No. 86- 024793, of Official Records. 11. A perpetual air or flight easement, and rights incidental thereto, sometimes referred to as avigation rights, in and to all the air space above those portions of particular planes or imaginary surfaces that overlay said land for use by aircraft, present or future, from or to the Orange County Airport, said easements and rights being more particularly described and defined in a document; Granted to: County of Orange Recorded: March 17, 1964, in Book 6965, Page 721 of Official Records The planes above which said easement(s) lie are more particularly described in said document, and shown on a map referred to therein. 12. Any fact, rights, interests or claims that may exist or arise by reason of matters, if any, disclosed by that certain Record of Survey filed in Book 64, Pages 8 through 23, inclusive, in Book 82, Pages 37 through 41, inclusive, and in Book 88, Page 34, all of Records of Survey. 13. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: State of California Purpose: Public highway Recorded: August 25, 1967, Book 8354, Page 25, of Official Records Affects: A portion of said land as more particularly described in said document. 14. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: Southern California Edison Company, a corporation Purpose: Public utilities Recorded: January 13, 1971, Book 9517, Page 474, of Official Records Affects: A portion of said land as more particularly described in said document. 14. Intentionally Deleted 15. Intentionally Deleted 16. The fad that the ownership of said land does not include rights of access to or from the street, highway, or freeway abutting said land, such rights having been relinquished by the map of said Tract. Affects: Mac Arthur Boulevard. 5 CLTA Stmdamf Coverage Policy -1990 (9/11/10) SCHEDULE B — PART fI (continued) Policy No. 17. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted In a document. Granted to: State of California Purpose: Highway easement Recorded: August 4, 1987, Instrument No. 87- 443073, of Official Records Affects: A portion of said land as more particularly described in said document. 18. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: The City of Newport Beach, a municipal corporation .Purpose: Construction, reconstruction, operation, maintenance and repair of a storm drain and appurtenances Recorded: December 11, 1990, Instrument No. 90- 649873, of Official Records Affects: A portion of said land as more particularly described in said document. 19. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted in a document. Granted to: The City of Newport Beach, a municipal corporation Purpose: Public highway Recorded: November 19, 1996, Instrument No. 19960118594, of Official Records Affects: A portion of said land as more particularly described in said document. 20. Intentionally Deleted 21. Easement(s) for the purpose(s) shown below and rights incidental thereto as granted In a document. Granted to: the City of Newport Beach, a municipal corporation Purpose: Exclusive street and highway easement Recorded: July 18, 2000, Instrument No. 20000375409, of Official Records Affects: A portion of said land as more particularly described in said document. 22. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the Parcel Map 88 -163 recorded in Book 253, Pages 34 and 35 of Parcel Maps. Purpose: Roadway purposes and storm drain Affects; As shown on said Parcel Map. G 23. Intentionally Deleted 24. Covenants, conditions, restrictions and easements as set forth in Grant Deed recorded October 17, 2008, as Instrument No. 2008000480500, of Official Records. 6 UTA standard Covemga Pollq -1990 (4/11/10) SCHEDULE B — PART II (continued) Policy No. 25. Matters contained in that certain document entitled "Encroachment Agreement' dated October 1, 2008, executed by and between City of Newport Beach, a California municipal corporation organized and existing under and by virtue of its Charter and the Construction and laws of the State of California and The Irvine Company LLC, a Delaware limited liability company recorded October 17, 2008, Instrument No. 2008000480501, of Official Records. Reference is hereby made to said document for full particulars. 26. A lease entitled "Site Lease" for the term, upon and subject to all the provisions contained in said document, and in said lease. Lessor: City of Newport Beach, a California municipal corporation and chartered city Lessee: Newport Beach Public Facilities Corporation Recorded: 11/29/2010, Instrument No. 2010000635816, of Official Records 27. The terms, provisions and other matters of a document entitled "ASSIGNMENT AGREEMENT' dated November 1, 2010, executed by Newport Beach Public Facilities Corporation, as Assignor, to The Bank of New York Mellon Trust Company, N.A., recorded (Pro Forma), of Official Records. 28. The effect of any failure to comply with the terms, covenants, conditions and provisions of the leases described or referred to in Schedule A. 24. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by making Inquiry of the lessors and their successors in interest, in the leases described or referred to in Schedule A. r * L fOZ117 I F- Id:1 �Irl94 3 CLTA Standard Coverage Policy -1990 (411111➢) ENDORSEMENT Attached to Policy No. CAFNT0972- 0972- 0051- 0725132712- FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company 1. As used in this endorsement, these terms shall mean the following: a. "Evicted" or "Eviction ": (a) the lawful deprivation, in whole or in part, of the right of possession insured by this policy, contrary to the terms of the Lease or (b) the lawful prevention of the use of the Land or the Tenant Leasehold Improvements for the purposes permitted by the Lease, in either case as a result of a matter covered by this policy. b. "Lease ": the lease agreement described in Schedule A. C. "Leasehold Estate ": the right of possession for the Lease Term. d. "Lease Term ": the duration of the Leasehold Estate, including any renewal or extended term if a valid option to renew or extend is contained in the Lease. e. "Personal Property": chattels located on the Land and property which, because of their character and manner of affixation to the Land, can be severed from the Land without causing appreciable damage to themselves or to the Land to which they are affixed. f. "Remaining Lease Term ": the portion of the Lease Term remaining after the Insured has been Evicted as a result of a matter covered by this policy. g. 'Tenant Leasehold Improvements ": Those improvements, including landscaping, required or permitted to be built on the Land by the Lease that have been built at the Insured's expense or in which the Insured has an interest greater than the right to possession during the Lease Term. 2. Valuation of Estate or Interest Insured If in computing loss or damage it becomes necessary to value the Title as the result of a covered matter that results in an Eviction of the Tenant, then that value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. The Insured Claimant shall have the right to have the Leasehold Estate and the Tenant Leasehold Improvements valued either as a whole or separately. In either event, this determination of value shall take into account rent no longer required to be paid for the Remaining Lease Term. 3. Additional items of loss covered by this endorsement If the Insured is Evicted, the following items of loss, if applicable, shall be included in computing loss or damage incurred by the Insured, but not to the extent that the same are included in the valuation of the Title. a. The reasonable cost of removing and relocating any Personal Property that the Insured has the right to remove and relocate, situated on the Land at the time of Eviction, the cost of transportation of that Personal Property for the initial one hundred miles incurred in connection with the relocation, and the reasonable cost of repairing the Personal Property damaged by reason of the removal and relocation. b. Rent or damages for use and occupancy of the Land prior to the Eviction that the Insured as owner of the Leasehold Estate may be obligated to pay to any person having paramount title to that of the lessor in the Lease. 1 of ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6/17106) CLTA Endorsement Form 119.5 -06 Attached to Policy No. C. The amount of rent that, by the terms of the Lease, the Insured must continue to pay to the lessor after Eviction with respect to the portion of the Leasehold Estate and Tenant Leasehold Improvements from which the Insured has been Evicted. d. The fair market value, at the time of the Eviction, of the estate or interest of the Insured in any lease or sublease made by Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements. e. Damages that the Insured is obligated to pay to lessees or sublessees on account of the breach of any lease or sublease made by the Tenant as lessor of all or part of the Leasehold Estate or the Tenant Leasehold Improvements caused by the Eviction. f. Reasonable costs incurred by the Insured to secure a replacement leasehold equivalent to the Leasehold Estate. g. If Tenant Leasehold Improvements are not substantially completed at the time of Eviction, the actual cost incurred by the Insured, less the salvage value, for the Tenant Leasehold Improvements up to the time of Eviction. Those casts include costs incurred to obtain land use, zoning, building and occupancy permits, architectural and engineering fees, construction management fees, costs of environmental testing and reviews, and landscaping costs. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 Fidelity National Title INSURn24cE CONTANY y 2of3 ALTA Endorsement Form 13 -06 (Leasehold — Owners) (6117/06) CLTA Endorsement Form 119.5 -06 ENDORSEMENT Attached to Policy No. CAFNT0972- 0972 -0051- 0725132712 - FNTIC- 2010 -01 -0 Issued by Fidelity National Title Insurance Company Tie -In Endorsement The following policies are issued in conjunction with one another: CAFNT0972-0972-0051-0725132034-FNTIC-20 10-0 1-0 CAFNT0972 -0972 -0051- 072513203 5-FNTIC-201 0-0 1 -0 CAFNT0972- 0972 - 005 1 - 072 51 32 03 6-FNTIC-201 0-0 1 -0 CAFNT0972- 0972 -0051- 072 513203 8 - FNTIC - 2010 -01 -O CAFNT0972 -0972 -0051- 072513203 9-FNTIC-201 0-0 1 -0 CAFNT0972 -0972 -0051- 072 5132 041 -FN TIC- 2010 -01 -0 CAFNT0972-0972-0051-0725132044-FNTIC-201 0-0 1 -0 CAFN T0972-0972-0051-072513271 1 -FNT] C-201 0-0 1 -0 CAFNT0972- 0972- 0051- 072 5132712 -FN TIC- 2010 -01 -O Notwithstanding the provisions of Section 8(a)(i) of the Conditions of this policy, the total Amount of Insurance available to cover the Company's liability for loss or damage under this policy and the other policies identified above, at the time of payment of loss hereunder shall at no time exceed the aggregate Amount of $126,660,000.00. Subject to the provisions of Section 10(a) of the Conditions of the policies, all payments made by the Company under this policy or any of the other policies identified above, except the payments made for costs, attorney's fees, and expenses, shall reduce the aggregate Amount of Insurance by the amount of the payment. This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. Dated: November 29, 2010 -1 °" Fidelity National Title INSURANCE COMPANY i 3 Of Custom Endorsement 5E -55 V I N P P 4 J E9 esc M. Morris brdw trhtdasa mnvmlence WIocMeNe =tn described loop In M1la11vn 1. edfolnNp straale aMolh., lands. The Company doe, mtguaranle[ dlmempns, tllstancn,b<atlnOSAr aueage slated&meon,norla It Inlmdad Wglusbole leOalbOldi, slUa or supersede City or County oWlnancvs, Ec,:onNg and bulldNg coder, [[c omdm Informoticn conmmNa me uus ormryparcel spauld be abtalnad from lamlgovemmenl agendes, i to to L9-esb LE-estr �� yZ6 + -LU Q Maros � OCON nrs•33 h L£-06b 4 I ERAl' 1 2� 9£ ea � 1 a h �U �Qo N 4 Np0 In !` N O b ¢mv v V W �W4 'nFU oz: h�Z � i M I o W x �o 9 °d eri 0 n 0 P m °No all++�ry j�u tP�EB N $ � � e poFy a ' � � 0 4OM dkA�q T) 4 I b O ti ^y N 'F Q 3 h a lyg N I T Y ? W 0 0 r, 4 W a. b .� 9£ ea � 1 a h �U �Qo N 4 Np0 In !` N O b ¢mv v V W �W4 'nFU oz: h�Z � i M I o W x �o N 0 n all++�ry M M N N � O � 0 T) 4 I b O ti ^y N b,�M N^ lyg N I 0 0 �.y W a � W LO b . W yJySsJ U? 3V �H4 z b m EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay toss or damage, costs, attorneys' fees or expenses which arise by reason of: L (a) Any law, ordinance or governmental regulation (including but not limited to building or zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ij) the character, dimensions or location of any improvement now or hereafter erected on the land, (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy, 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any takingwhich has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage or for the estate or interest insured by this policy. 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6, Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rigbts laws. 1. DEFINITIONOFTERMS The following terms when used in this policy mean: (a) "insured": the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named insured, those who succeed to the musesl of the earned warned by operation of law as distinguished from purchase including, but not limited to, hairs, distributes, deviates, survivors, personal representatives, next of kin, or corporate or fiduciary successors. The term 'insured" also includes (i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the tudebtedocss except a successor who is an obligor under the provisions of Section 12(c) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor insured, unless the successor acquired the indebtedness as apurebaser farvalue without knowledge ofthe asserted defect, lien, encumbrance, adverse claim or other matter insured against by this policy as affecting title to the ¢slate or interest in the land); (i) any governmental agency or governmental instrumentality which is an insurer or guarantor under an insurance contract or guaranty insuring or guaranteeing are indebtedness secured by the insured mortgage, er any part thereof, whether named as an insured herein or not; (iii) the parties designated in Section 2(a) of these Conditions and Stipulations. du "insured claimant ": an insured claiming loss or damage. (c) "insured lender': the owner f an insured mortgage. (d) "insured mortgage": a mortgage shown in Schedule B. the owner of which is named as an insured in Schedule A. (e) "knowledge" or "known ": actual knowledge, not consmmdve knowledge or notice which may be imputed to an )rimmed by reason ofthe public records as defined in this policy or any other records which impart constructive notice of modern affecting the land, (f) "land ": the land described, or referred to in Schedule A, and hnprovements affixed thereto which by law constitute at property. Thu term "land" does net inched. any Property beyond the Imes often can described or referred to in Schedule A, nor any right, title, interest, estate or Canonical in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to CONDITIONS AND STIPULATIONS which a right of access to and from the load is insured by this policy. (g) "mortgage ": modgage, decd of trust. hurl deed, in other security instrument. (h) °public records': records established under state shames at Date of Policy for the purpose of importing constructive notice of maters relating to real property to parohusers for value and wabom Imowledge. d) "unmarketability, of the title": an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the esude or interest described in Schedule A or the insured mortgage to be released from the obligation la purchase by virbre of a contractual condition reaching the delivery of marketable title. 2, CONTINUATION OF INSURANCE (a) After Acquisition of Title by Insured Leader. If this policy insures the owner ofthe indebtedness secured by the insured mortgage, the Coverage of this policy shall continue in force as of Date of Policy in favor of (I) such msnred lender who acquires all of any part of the estate or interest in the land by foreclosures, trustees sale, conveyance in lieu of forcclosne, or other legal mmmer which discharges the lien of the insured mortgage; (ii) a nansfcree ofthe estate or interest so acquired from an insurad corporation, provided the transferee is the parent or wholly -owned subsidiary of the insured corporation, and their corporate successors by operation affirm and not by purchase, subject to any rights or defenses the Company may have against any predecessor insurods; and (iii) any governments] agency or governmental instrumentality which acquires all or any part of the estate or interest pursuant to a contract of insomm ce or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) Ancr Cerwaymee of Title by an Insured. The coverage of this policy shall continue in fares as of Date of Policy in favorof an insured only an long as the instead retains an estate or interest be ore land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the nomad, or only so long no the insured shall have liabilityby reason of covenants or warrantymade by the insured in any transfer or conveyance of the estate or interest. This policy shall not continue in form, in favor ofany, purchaser Gam an insured ofeither (i) an estate or interest in the land, or (ii) an indebtmbece. secured by a purchase money marine. given to an mStlRd. (e) Amount of Insurance. The am mat of insurance after die acquisition or after the conveyance by an insured lender shall in neither event exceed the least of. (I the amount of insurance stated in Schedule A; (ir) the amount of the principal of ties indebtedness accused by the insured mortgage as of Date of Policy, interest thereon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable amounts expended to prevent deterioration ofimprovements, but reduced by the amomaorfall payments made; or (iii) the amount paid by any governmental agency or governmental instmmemality, if the agency w instrumentality is the insured claimant, in the acquisition of the estate or interest in satisfaction of its insurance contract or guaranty. 7. NOTICE OF CLAIM TO BE GIVEN SV INSURED CLAIMANT An insured shall notify the Company promptly in writing (i) in case ofany litigation as set forth in 4(a) below, (ii) in case knowledge shall Come to an insured hereunder ofany claim of title or interest which is adverse to the title to die estate or interest or the lien ofthe insured mortgage, as insured, and which might cause loss or damage for which die Company may be liable by alone of this policy, or (iii) if till. to die estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable. If prompt notice shall not be given to the Company, ihen as to that insured all liability of the Company shag terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the rights ofany insured trader thin policy unless the Company shall be prejudiced by the failure and then only to die extent of the prejudice. 4. DEFENSE AND PROSECUTION OF kCTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written ralnestbyaninsured andsnbject l0 the options contained in Sectiond of these Conditions and Stipulations, the Company, at its man cost and without emreasonable delay, shall provide for the defense of such insured in litigation in which any third party assets a claim adverse in the title or interest as insuredt but only as to Those stated causes of action alleging a defect, lien or encumbrance or other mater insured against by this policy. The Company shall have the righter, select Counsel mills choice (subject to the right of such insmed to object for reasonable cause) to represent the insured as to those stated cans.. of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs or expenses CLTA Standard Coverage Policy - 1990 (4/11/10) immured by. insured in the defense of those causes of action which allege matters not insured against by this policy. (h) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss ur damage to an insured. Thecompasry may take any appropriate action under die terms ofthis policy, whether or nut it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. if the Company shall exercise its rights anchor this paragraph, it shall do so diligently, (c) Whenever the Company shall have b cculbi an action or interposed a defense as required or permitted by the provisions of this policy, flee Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adversejudgmeat or order. (d) In all cases where this policy permits or requires die Company to prosecute or provide for the defense ofany action or proceeding, an insured shall secure to fire Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of sock insured for this purpose. Whenever requested by the Company, an insured, at the Company's expense, shall give the Company all reasonable aid (i) in any action a proceeding, securing evidence, obtaining witwmxos, prosecuting or defending the action or proceeding, or effecting settlement, and (it) in any other lawful act which in the opinion of the Company may be necessary or desirable to establish the title to the estate or interest or the lien ofthe insured mortgage, as insured. If the Company is prejudiced by the failure of an Insured to famish the required cooperation, the Company's obligations to such insured under the policy shall modiste, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such cooperation. S, PROOF OF LOSS OR DAMAGE In addition to and .flat the notices required under Seetion3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and sworn to by each insured claimant shall be famished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise m the loss or damage. The proof of loss or damage shall describe the defect in, or lien or encumbrance on the title, or other matter insured against by this policy which .nstinime the basis of loss or damage an d shall state, to the extent possibly the basis of calculating the amount of the loss or dainage. If the Company is prejudiced by the failure of an irmred claimant to provide the required proof of lose or damage, the Company's obligations to such insured order the policy shall terminate, including any liability or obligation to defend, prosecute, or confine any litigation, with regard to the matter or matters requiring such proof of loss or damage. In addition, an insured claimant may reasonably be required to submit to examination under Bath by any authorized representative of the Company and shall produce for examination, inspection and copying, at such reasonable times and places as may be designated by any authorized representative o£ the Company, all re cords, books, ledgers, checks, correspoadeace, and memoranda, whether bearing a date before or after Date o[Tolicy, which reasonably pertain to the loss or damage. Ftml mq if requested by any authorized representative ofthe Company, die insured claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect and copy all records, books, ledgem , checks, emrespondmoc and memoranda in the custody or control of a third party, which reasonably pertain to the loss or damage. All information designated as confidential by an insured claimant provided to the Company insured to this Sector shall not be disclosed to others aNess, in the reasonable judgment of the Company, it is necessary, in the adminfstradon of the claim. Failure of an insured claimant to submit far examination antler oath, produce other reasonably requested information or giant permission to secme reasonably necessary information from third padres as required in this paragraph, unless prohibited by loan or governmental regulation, shall terminate any liability ofthe Company under this policy as to that insured for that claim. C OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY Ls case of a claim under this policy, the Company shalt have the fc0owing additional Options: (a) To Pay or Tender Payment of the Amount of Insurance or to Purchase the ladebtwlness. (i) to pay or tender payment of the amount of insurance ruder this policy together with any costs, atlamcys' fees and expenses incuredby the insured claimant, which were authorized by the Company, try to the time ofiewsse i orlender of payment and which the Company is obligated to pay; or (ii) in case loss or damage is claimed under this policy by the owner efthe indebtedness secured by the insured mortgage, to purchase the indebtedness secured by the insured mortgage forthe amount owing therean tegetherwith any cases, momeys' fees and expenses intoned by the insured .1mmarm which were authorized by the Company up to do, time of purchase and which the Company is obligated to pay. If the Company offers to purchase the indebtedness m herein provided, the owner of the indebtedness shall transfer, assign, and convey die indebiedneu and the insured mWSW, togeUmr with any collateral security, to the Company upon Payment therefore. Upon the exercise by the Company ofthe option provided for in paragraph a(i) all liability and obligations to the insured under this policy, other than to make the payment required in that paragraph, shall tchminam. Including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be surrendered to the Company for cancellation. Upon die exercise by the Company ofthe option provided for in paragraph a(ii) the Company's obligation to an hmmred Lender under this policy for the claimed loss or damage, other than the payment required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. (b) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant. (i) to pay or idherwlse sedle with other parties for or is the time nine insured claimant any claim insured against under this policy, together with any costs, ademeys fees and expenses incurred by the insuurd claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or (i) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any casts, attorneys' fees and expenses essined by the insured claimant which was authorized by the Company Up to the time ofpaymmt and which The Company is obligated to pay. Upon the exercise by the Company ofeither ofthe options provided for in paragraphs b(h) or tuff, the Compowe obligations to the insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, luosecrrte or continue any litigation. 7. DETERMINATION AND EXTENT OF LIABILITY This policy is a contract of indemnity against auto.[ monetary loss or damage sustained or incurred by the insured claimant who bas suffered loss or damage by reason ofmatters insured against by this policy and only to The extent herein described. (a) The liability of the Company under this policy m an insured lender shall not exceed the least of (t) the Amount of Insurance stated in Schedule A, on, if applicable, the amount of insurance as defined in Section 2(e) o£these Conditions and Stipulations; (B) the amount ofthe unpaid principal indebtedness secured by the insured mortgage as limited or provided under Section8 of these Conditions and Stipulatimrs or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs, together with interest thereon; or (iii) the difference between the value of the insured estate or interest as insured and the value of the insured estate m interest subject to the defect, lien or encumbrance insured against by this policy. (b) In the event the assured fender has acquhed the estate or interest in [line manner described in Section 2(a) of these Conditions and Stipulations or has .nveycd the title, then the liability of the Company shall serious, as net forth in Section 7(a) of these Conditions and Stipulations. (c) The liability of the Company under this policy to an omacd owner of the estate or interest in the land described in Schedule A shall not exceed the least of. (0 the Anhournt of the finance nce stated in Schedule A; or, (ii) the difference between the vane of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. (d) The Company will pay only those costs, attorneys' tees and expenses insured in accordance with Section 4 of thus. Conditions and Stipulations. 8. LIMITATIONOFLIABILITY (a) Rthe Ccmpany establishes tee title, or removes the alleged defect, lien or eocmnbtance, ar cures line lack oft right Of access to or from the land, or cures the claim of umuarketability oftitic, or otherwise establishes the lien of the insured madgmge, all as insured, in a reasonably diligent manner by any method, including litigation and the completion Of any appeals them from, it shall have filly performed its obligations with respect to that matterand shall not be liable for any loss or damage caused thereby, (b) In the event of say litigation, including litigation by the Company or with the Company's consent. the Company shall have no liability for loss or damage unfit then, has been a Real donandinahon by a court of competenl jurisdiction, and disposition of all appeals there firm, adverse to the lithe, or, if applicable, to the lien of the insured mortgage, as insured. (a) The Company shall not be Bahle for less or damage to any insured for liabili"hmti rely assumed by the insured in selling myclahn or suit without the prior written consent of the Company. (d) The Company shall not be liable to an insured lender for. (i) any indebtedness created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts expended to prevent deterioration of improvements; or (ii) constraclma loan advances made subsequent to Dale of Policy, except construction loan advances made subsequent to Date of Policy for the propose of financing in whole or in part the construction of an improvement to the land which at Dam of Policy were secured by the insured mortgage and which due insured was and continued to be obligated to advance at and after Date fpolicy. 9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY (a) All payments under this policy, except payments made for costs, attorneys' fees and expenses, shall reduce the emcee of insurance pro lento. However, as to an inured lender, any payments made prior to the acquisition of title to the estate or sexual as provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro tanto the amount of insurance afforded ander this policy an to any such insured, except to the extent that the payments reduce the amount of the indebtedness secured by the !named mortgage. (b) Payment in part by any person oftha principal of the indebtedness, or any other obligation secured by the insured mortgage, or any voluntary partial satisfaction or release of the insured mortgage, to the extent of the payment, satisfaction or release, shell induce the amount of insurance pro tanm. The amount of insurance may thereafter be increased by accruing interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater than the Amount of Insurer. stated in Schedule A. (e) Payment in full by any person or the voluntary satisfaction or release of the insured mortgage shall terminate all liability of the Company to an insured leader except as provided in Section 2(a) of these Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE It is expressly understood that the amount of insurance under this policy sball be reduced by any amount the Company may pay under any policy housing a mortgage to which exception is taken in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate or interest described orredound to in Schedule A, and the amount so paid shall be deemed a payment under this policy to the insured owner. .The provisions of this Section shall not apply to an insured lender, unless such insured acquires title to said estate or interest in satisfaction of the indebtedness secured by an insured modgage. It. PAYMENT OF LOSS (a) No payment shall be made without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of toss or destruction shall be famished to the satisfaction of the Company. (b) When liability and die extent ofloss or damage has been definitely fixed in accordance with these Conditions and Stipulations, the loss or damage shall be payable within 30 days thereafter. CLTA Standard Coverage Policy - 1990 (4111110) 12. SURROGAT /ON UPON PAYMENT OR SETTLEMENT (a) The Company's Rightofguhrogation. whenever the Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company unaffected by any act of ate insured clinical. The Company shall be subrogated to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to the claim ]red thf; policy not been issued. if requested by the Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogadoa. The insured claimant shall permit the Company to sue, compromise or settle in use name of the insured claimant and to use the time of the insured claimant in any transaction or Bille on involving these rights or remedies. Be payment on accomtofa claim does not fully cover the less of the insured claiumnl, the Company shall be subrogated (i) as to an insured owner, to all rights and remedies in the proportion which the Company's payment bears to the whole amount arms loss; and (ii) as to an insured lender, to a0 rights and remedies ofthe insured claimant after the insured claimant shall have recovered its principal, interest, mid costs of collection. If loss should result from any at of ilia insured claimant, as stated above, that net shall not void this policy, but the Company, in that event, shall be required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, last to the Company by reason of the impairment by the ficamed claimant of the Company's right of subrogation. (b) The Insured'. Rights and Limitations. Notwithstanding the foregoing, the owner of the indebtedness secured by an insured mortgage, provided the priority of the lien ofthe insured mortgage or its cnforaeablEty, is not affected, may release ar sabshtufe the personal liability of any debtor or guarantor, or extend or otherwise modify the terms of payment, or release a portion of the estate or interest from the lien mitt he Insured rimrgage, m rello so any collateral security for the indebtedness. When the pertained acts ofthe insured claimant ocean and the insured has knowledge of any claim of title or interest adverse to the title to the estate or itrteres't or the priority or enforceability ofthe lien also insured mortgage, as insured, the Company shall be required to pay only that pan of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (c) The Company's Rights Against Nan - insured Obligors, The Company's right of subrogation against non -ficam d obligors shall exist and shall include, without limitation, the rights of the insured to indemnities, guaranties, other policies ofiusurancc or bends, notwithstanding any terms or conditions contained in those instruments which provide for subrogation rights by reason ofthis policy. The Company's right of subrogation shall not be avoided by acquisition ofan insured mortgage by on obligor (except on obligor described in Section 1(a)(i) of these Conditions and Stipulations) who acquires the memed mortgage as a result OF an indemnity, gamentee, other policy ofinanaoco, orhead and tiro obligor will not been insured under this policy, notwithstanding Section i(a)(i) of these Conditions and Stipulations. 13. ARBITRATION Unless prohibited by applicable law, either the Company or the insured may demand abihutiw pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are act limited to, any controversy or claim between the Company and the insured wising out of or relating to this policy, any service of are Company in comxtion with its issuance or the breach of a policyprovision orotherobligafiion. All arbitrable matters when the Amount of harmance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when the Ammmt of tax mm. ce is in excess of$1,000,10) shall be arbitrated only when agreed to by both the Company and the insured. Atlantic. pursuant to this policy and rider the Rules in effect on the dote the demand for arbitmtton is made or, at 6. optima ofthe featured, the Rules in effect at Dole of Policy shall be binding upon the parties. The award may include attumeys' fees only true laws ofthe state in SCHEDULE B EXCEPTIONS FROM COVERAGE which the land is located permit a court to award attomeys' fees to a prevailing party. Judgment upon the award rendered by the Arbilmtor(s) may be entered in any court having Jurisdiction thereof. The law of the sites ofthe laud shall apply to m arbitration under the Title InsuranceArbihu6on Rules. A copy of are Rrdes Dray, be obtained from the Company upon request. 14. LIABILITY LIMFTEDTOTHTSPOLICV ;POLICY ENTIRE CONTRACT (a) This policy together with all endomements, if any, attached hereto by the Company is the antire policy and contract between the insured and the Company. In imemre6ng any provision of Van policy, this policy shall be cmistrued as a whole. (b) Any claim oflosa ordamage, whether nrnot based on negligence, and which arises out of the semis of the Bea of the insured mortgage or ofthe But; to the estate or interest covered hereby orby any action asserting such claim, shall be restricted to this policy. (c) No amendment of or endorsement to this policy caa be made except by writing endorsed hereon or attached hereto signed by either the President, a Vice President, the Secretary, and Assistant Secretary, or validating officer or authorized signatory of tile Company. 15. SEVERABILITY In the event any provision of the policy is held invalid or unenforceable order applicable low, the policy shall be deemed not to include that provision and all other provisions shall remain in full force and effect. 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writing required to be furnished the Company shall include the number of this policy and shall be addressed to the Company at: Fidelity National Title Insurance Company P.O. Rox 45023 Jacksonville, FL 32232 -5023 Ann: Claims Department This policy does not insure against loss or damage (and the Company will not pay costs, attomeys' fees or expenses) which arise by reason of: PART Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. Any facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or which may be asserted by persons in possession thereof. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b) or (c) are shown by the public records, Any lien or right to a lien for services, labor or material not shown by the public records. CLTA Standard Coverage Policy - 1990 (4111/10) RECORDING REQUESTED BY: CITY OF NEWPORT BEACH WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 -6441 Attn: Brian P. Forbath, Esq. Recorded In Official Records, Orange County Tom Daly, Clerk- Recorder NO FEE 2010000617021 02:17pm 11/18/10 93 401 T01 6 0.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 T7.'`JV t a�a 3 g� o [Space above for Recorder's use.] l� This document is recorded for the benefit of the City of Newport Beach and the recording is fee - exempt under § 27383 of the Government Code. TERMINATION OF PROJECT LEASE by and between CITY OF NEWPORT BEACH, CALIFORNIA and NEWPORT BEACH PUBLIC FACILITIES CORPORATION Dated as of November 1, 2010 DOCSOC/ 1446638 v2/022459 -0014 TERMINATION OF PROJECT LEASE THIS TERMINATION OF PROJECT LEASE (this "Agreement ") is dated as of November 1, 2010 and effective as of the date of recordation hereof, by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California (the "City"), and the NEWPORT BEACH PUBLIC FINANCING CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation "). RECITALS: A. WHEREAS, the City, as lessor, and the Corporation, as lessee, entered into that certain Site Lease, dated as of July 1, 1998 (the "Site Lease "), and recorded August 11, 1998 as Instrument No. 19980521855 in the Official Records of the County of Orange, State of California (the "Official Records "), pursuant to which the City leased certain property described therein (the "Demised Premises ") to the Corporation. B. WHEREAS, for the purposes of financing and refinancing the acquisition of the Project (as defined in the hereinafter defined Project Lease), that certain Project Lease, dated as of July 1, 1998 (the "Project Lease "), and recorded August 11, 1998 as Instrument No. 19980521856 in the Official Records, was executed by and between the Corporation, as lessor, and the City, as lessee, and pursuant thereto the Demised Premises were leased back to the City. C. WHEREAS, pursuant to the Project Lease, the Corporation made available to the City a portion of the proceeds of the City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) in the aggregate principal amount of Seven Million Three Hundred Thirty Thousand and No /100 DOLLARS ($7,330,000.00) in order to refinance the acquisition of the Project. D. WHEREAS, the Corporation has assigned its interest in the Site Lease and the Project Lease to U.S. Bank National Association, as trustee (the "Trustee "), pursuant to that certain Assignment Agreement dated as of July 1, 1998 (the "Assignment Agreement "), by and between the Corporation, as assignor, and the Trustee, as assignee, recorded August 11, 1993 as Instrument No. 19980521857 in the Official Records. E. WHEREAS, the City has notified the Corporation of its intention to exercise its option to prepay all Lease Payments (as defined in the Project Lease) pursuant to the terms of Section 10.2 of the Project Lease. F. WHEREAS, the City hereby certifies that it has caused to be delivered to the Trustee the prepayment price as described in Section 10.2 of the Project Lease. G. WHEREAS, to facilitate the City's exercise of the option to prepay the Lease Payments, the City and the Corporation now desire to terminate and discharge the Site Lease. DOC S OC/ 144663 8 v21022459 -0014 NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Recordation. This Agreement shall not be recorded until the City has deposited the prepayment price with the Trustee. 2. Termination of Project Lease. Effective as of the recordation of this Agreement, the Corporation and the City hereby acknowledge and agree that the Project Lease shall be terminated and discharged, and, except for the obligation of the City to pay Lease Payments from the moneys and securities deposited with the Trustee, shall be of no further force or effect, and from and after the date hereof, the Corporation shall have no further interest in the Demised Premises. 3. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. The signature and acknowledgment pages from each counterpart may be removed and attached to a single document in order to create one original instrument. DOCSOC/ 144663 8v2/022459 -0014 IN WITNESS WHEREOF, this Agreement has been executed by each party's respective duly authorized officers, as of the date first above written. ATTEST: City Clerk ATTEST: CITY OF NEWPORT BEACH Its: Cit}- nager NEWPORT BEACH PUBLIC FACILITIES CORPORATION C By: Its: ief Finan I Officer Ozt S -I DOCSOC/ 1 44663 8v2/022459-0014 STATE OF CALIFORNIA COUNTY OF ORANGE On l ky? M'k K Q0,10, before me, �JLJ,J -AN\ W&Y, A>1 7TP1J , Notary Public, personally appeared IV , who proved to me on the basis of satisfactory evidence to be the person whose names) ish�,subscribed to the within instrument and acknowledged to me that he /� /t/ey executed t e same in his* /Iir authorized capacity(*,, and that by hisNr /tKr signature( on the instrument the personb;• or the entity upon behalf of which the personcted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my ha and official seal SI URE OF NOTARY PUBLIC DOCSOC/ 1446638 v2 /022459 -0014 L. WASHINGTON Commission N 1840150 .:�� Notary Public • Ca0t0rnia Z Orange County my Comm. Expires Mar 12, 2013+ STATE OF CALIFORNIA COUNTY OF ORANGE On%I84y1 (Z A,jL)1 1), before me, LA -o\/J i��. -,Tc) &� , Notary Public, personally appeared I C MCC /�'f/-, , who proved to me on the basis of satisfactoq evidence to be the person( whose named subscribed to the within instrument and acknowledged to me that lt(she/tl)q executed the same in 1 /herNAt it authorized capacity(00 and that by Pi�/her /tlteir signat - on the instrument the person('k or the entity upon behalf o which the persocte ,executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. hand and official seal 1. WASHINGTON Commission a• 1840150 Z Notary Public - California Orange County OF NOTARY PUB IC M Comm. Expires Mar 12, 2013+ DOCSOC/ 144663 gv2 /022459 -0014 RECORDING REQUESTED BY: CITY OF NEWPORT BEACH WHEN RECORDED MAIL TO: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 -6441 Attn: Brian P. Forbath, Esq. -7R5133b3g.- Oq- Recorded In Official Records, Orange County Tom Daly, Clerk- Recorder NO FEE 2010000617020 02:17pm 11/18/10 93 401 T01 6 0.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 [Space above for Recorder's use.] This document is recorded for the benefit of the City of Newport Beach and the recording is fee - exempt under § 27383 of the Government Code. TERMINATION OF SITE LEASE by and between CITY OF NEWPORT BEACH and NEWPORT BEACH PUBLIC FACILITIES CORPORATION Dated as of November 1, 2010 DOC SOC/ 1446639v2/022459 -0014 TERMINATION OF SITE LEASE THIS TERMINATION OF SITE LEASE (this "Agreement') is dated as of November 1, 2010 and effective as of the date of recordation hereof, by and between the CITY OF NEWPORT BEACH, a chartered city duly organized and existing under the Constitution and laws of the State of California (the "City "), and the NEWPORT BEACH PUBLIC FINANCING CORPORATION, a 501(c)(4) nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation "). RECITALS: A. WHEREAS, the City, as lessor, and the Corporation, as lessee, entered into that certain Site Lease, dated as of July 1, 1998 (the "Site Lease "), and recorded August 11, 1998 as Instrument No. 19980521855 in the Official Records of the County of Orange, State of California (the "Official Records "), pursuant to which the City leased certain property described therein (the "Demised Premises ") to the Corporation. B. WHEREAS, for the purposes of financing and refinancing the acquisition of the Project (as defined in the hereinafter defined Project Lease), that certain Project Lease, dated as of July 1, 1998 (the "Project Lease "), and recorded August 11, 1998 as Instrument No. 19980521856 in the Official Records, was executed by and between the Corporation, as lessor, and the City, as lessee, and pursuant thereto the Demised Premises were leased back to the City. C. WHEREAS, pursuant to the Project Lease, the Corporation made available to the City a portion of the proceeds of the City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) in the aggregate principal amount of Seven Million Three Hundred Thirty Thousand and No /100 DOLLARS ($7,330,000.00) in order to refinance the acquisition of the Project. D. WHEREAS, the Corporation has assigned its interest in the Site Lease and the Project Lease to U.S. Bank National Association, as trustee (the "Trustee "), pursuant to that certain Assignment Agreement dated as of July 1, 1998 (the "Assignment Agreement'), by and between the Corporation, as assignor, and the Trustee, as assignee, recorded August 11, 1993 as Instrument No. 19980521857 in the Official Records. E. WHEREAS, the City has notified the Corporation of its intention to exercise its option to prepay all Lease Payments (as defined in the Project Lease) pursuant to the terms of Section 10.2 of the Project Lease. F. WHEREAS, the City hereby certifies that it has caused to be delivered to the Trustee the prepayment price as described in Section 10.2 of the Project Lease. G. WHEREAS, to facilitate the City's exercise of the option to prepay the Lease Payments, the City and the Corporation now desire to terminate and discharge the Site Lease. DOCSOC/ 1446639v2/022459 -0014 NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Recordation. This Agreement shall not be recorded until the City has deposited the prepayment price with the Trustee. 2. Termination of Site Lease. Effective as of the recordation of this Agreement, the Corporation and the City hereby acknowledge and agree that the Site Lease shall be terminated and discharged, and shall be of no further force or effect. 3. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. The signature and acknowledgment pages from each counterpart may be removed and attached to a single document in order to create one original instrument. DOCSOC/ 1446639v2/022459 -0014 IN WITNESS WHEREOF, this Agreement has been executed by each party's respective duly authorized officers, as of the date first above written. ATTEST: City Clerk CITY OF NEWPORT BEACH By: -&-�1�✓� 1, Its: City Manager REWPORT BEACH PUBLIC FACILITIES CORPORATION By C b(,Jo M-Prl� Its: Chief Fi t al Officer ATTEST: (i - �' Secretary S -1 DOCSOC/ 1446639v2/022459 -0014 STATE OF CALIFORNIA COUNTY OF ORANGE On NO 1 %'vvl I'� s2 A ) before me, UL L A N NV--4{ i Ai C� rj Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person whose namelo) is /* subscribed to the within instrument and acknowledged to me that he/Ok/th* executed the same in his /lR1/th}9r— authorized capacity(icg. and that by his /*tkteir- signature�"n the instrument the person( or the entity upon behalf of which the persort(Aacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hayo and official seal L. WASHINGTON Commission # 1840150 =d Notary Public - California i NOTARY PUByLIC Orange County My Comm. Expires Mar 12.2013 DOCSOC/ I446639v2/022459 -0014 STATE OF CALIFORNIA COUNTY OF ORANGE M X I b before I 1 C —,TD /\j , Notary Public, personally appeared L[- MC -(I , who proved to me on the basis of satisfactaiy evidence to be the personW)whose name§4is /asubscribed to the within instrument and acknowledged to me that Ik/she /tw executed the same to 'her /*k authorized capacit and that byWs/her /O signatureklon the instrument the pers6i't�Dr the entity upon behalf ofwhich the persofijq�acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS mAand and official seal TURE OF NOTARY PUBLIC DOCSOC/ 1446639.2/022459 -0014 L. WASHINGTON Commission 1 1840150 i Notary Public - California Orange OM Comm. Expires Mar 12.2013 r $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) CLOSING CERTIFICATE OF DISSENIINATION AGENT The undersigned, an authorized officer of Digital Assurance Certification, L.L.C. (the "Dissemination Agent "), in its capacity as Dissemination Agent under the Continuing Disclosure Agreement, dated as of November 1, 2010 (the "Disclosure Agreement"), by and between the Dissemination Agent and the City of Newport Beach (the "City "), hereby certifies as follows: 1. The Dissemination Agent is duly organized and existing as a Florida limited liability company under and by virtue of the laws of the State of Florida, having full power and being qualified and duly authorized to perform the duties and obligations of the Dissemination Agent pursuant to the Disclosure Agreement. 2. The Disclosure Agreement has been validly executed and delivered by the Dissemination Agent and, assuming due authorization and execution by the City, constitutes a valid, legal and binding obligation of the Dissemination Agent enforceable in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws or equitable principles relating to or limiting creditors' rights generally. 3. The Dissemination Agent has agreed to perform the duties and obligations of the Dissemination Agent as set forth in the Disclosure Agreement and, to the best of its knowledge, compliance with the provisions on the Dissemination Agent's part contained in the Disclosure Agreement, will not conflict with or constitute a breach of or default under any material law, administrative regulation, judgment, decree, loan agreement, indenture, resolution, bond, note, agreement or other instrument to which the Dissemination Agent is a party or is otherwise subject, as a result of which the Dissemination Agent's ability to perform its obligations under the Disclosure Agreement would be impaired. 4. To the best of its knowledge, the Dissemination Agent has not been served in any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, nor is any such action, suit, proceeding, inquiry or investigation threatened against the Dissemination Agent, affecting the existence of the Dissemination Agent, or in any way contesting the powers of the Dissemination Agent or its authority to enter into or perform its obligations under the Disclosure Agreement, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Disclosure Agreement. Dated: November 30, 2010 DOCS OC/1445072v3/022459 -0014 DIGITAL ASSURANCE CERTIFICATION, L.L.C. Its: Authorized Officer RECORDING REQUESTED By: FIDELITY NATIONAL TITLE INSURANCE CO. WHEN RECORDED MAIL TO: City ofNewpmt Beach Attn: City Clerk 3300 Newport Beach Blvd. P.O. Box 1768 Newport Beach, CA 92658.8915 This Document was electronically recorded by Fidelity National Major Accounts Recorded in Official Records, Orange County Tom Daly, Clerk - Recorder IIIIIIIIINIIIIIIIIIVIVIIIIIIVIIID NO FEE 2010000634193 04:30pm 11124/10 66 406 Al2 6 0.00 0.00 0.00 D.00 15A0 0.00 0.00 D.00 AGREEMENT OF MUTUAL UNDERSTANDING REGARDING DECLARATION OF SPECIAL LAND USE RESTRICTIONS, RIGHF OF FIRST REFUSAL, MORTGAGE LIEN AND OPTION TO REPURCHASE RECORDED ON MAY 8, 1992 AS INSTRUMENT NO. 92-304757 THIS PAGE ADDED TO PROVIDE ADEQUATE SPACE FOR RECORDING INFORMATION (ADDITIONAL RECORDING FEE APPLIES) Ica ?" 7':gnestod By Fldeti' y : 41,,uo gal Title RECORDED AT REQUEST OF, AND WHEN RECORDED MAIL TO: City of Newport Beach Attn: City Clerk 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 WITH A CONFORMED COPY TO: The Irvine Company LLC Attn: Legal Department 550 Newport Center Drive Newport Beach, CA 92660 (SPACEABOVE THIS LINE FOR RECORDER'S USE) This document is exempt from filing fees per Govt. Code § 6103, recording fees per Govt. Code § 27383 and is exempt from Document Transfer Tax per Rev. & Taxation Code § 11922 groff D't' Mutual Understanding Regarding Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase recorded on May 8,1992 as Instrument No. 92- 304757 WHEREAS, The Irvine Company LLC, A Delaware Limited Liability Company ( "Declarant ") granted to City of Newport Beach, a California Municipal Corporation ( "Grantee ") via a Declaration/Exchange Agreement/Transfer Agreement (collectively, "Declaration ") recorded May 8, 1992 as Orange County Document No. 92- 304757 those certain properties identified as: (1) the southwesterly one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County; and (2) the northwesterly one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County (collectively, "Parcel 2, Parcel Map No. 90. 361" or "Property"). WHEREAS, Grantee desires to construct a new Civic Center project on or adjacent to the Property pursuant to Newport Beach Charter Section 425. WHEREAS, Declarant and Grantee both desire to confirm that the Declaration allows the development of the Civic Center project. NOW THEREFORE, Declarant and Grantee agree as follows: Pursuant to the terms, restrictions, or conditions contained in the Declaration, the Grantee is authorized to develop the Property with a City Hall Office Building, Community Room, City Council Chambers, Parking Structure, Library addition and related improvements, including an approximately 600 square foot Food Service Facility which will provide deli food servce and limited catering for employees, library visitors, special event visitors and receptions ( "Project' ), which is consistent with the use restriction in the Declaration that no portion of the Property is used for retail, commercial, quasi - retail or quasi - commercial facilities that materially compete with the retail and commercial facilities in the Newport Center development or is otherwise improved, developed, used, operated, or maintained with any facilities or for any purpose whatsoever except as set forth above unless expressly approved by Declarant, which approval may be granted or withheld by Declarant in its sole discretion. Therefore, the Grantee is authorized to take any and all actions necessary to develop, alter, and maintain the Project, including, but not limited to, entering into leases and financing agreements, including leasing the Property to the Newport Beach Public Facilities Corporation in connection with the refinancing of the Library and the financing of the Project. The loan -to -value ratio set forth in Section 2.8 of the Declaration is hereby waived in connection. with such financing. The Grantee shall not materially expand or alter the use or square footage of the Food Service Facility unless expressly approved by the Declarant, which approval may. be granted or withheld by Declarant in its sole discretion. IN WITNESS WHEREOF, this instrument is duly executed this 29th day of October 2010. DECLARANT: THE IRVINE COMPANY LLC, A Delaware.Limited Liability Company Daniel H. Youn Executive Vice President rigid b ' cMahon Assistant Secretary GRANTEE:, CITY OF NEWPORT BEACH A California Municipal Corporation Its: Mayor L WHEREAS, The Declaration places certain limitations on the Property and requires Grantee to obtain Declarant's consent for certain improvements. WHEREAS, Declarant and Grantee both desire to confirm that the Declaration allows the development of the Civic Center project. NOW THEREFORE, Declarant and Grantee agree as follows: Pursuant to the terms, restrictions, or conditions contained in the Declaration, the Grantee is authorized to develop the Property with a City Hall Office Building, Community Room, City Council Chambers, Parking Structure, Library addition and related improvements, including an approximately 600 square foot Food Service Facility which will provide deli food service and limited catering for employees, library visitors, special event visitors and receptions ( "Project "), which is consistent with the use restriction in the Declaration that no portion of the Property is used for retail, commercial, quasi - retail or quasi - commercial facilities that materially compete with the retail and commercial facilities in the Newport Center development or is otherwise improved, developed, used, operated, or maintained with any facilities or for any purpose whatsoever except as set forth above unless expressly approved by Declarant, which approval may be granted or withheld by Declarant in its sole discretion. Therefore, the Grantee is authorized to take any and all actions necessary to develop, alter, and maintain the Project, including, but not limited to, entering into leases and financing agreements, including leasing the Property to the Newport Beach Public Facilities Corporation in connection with the refinancing of the Library and the financing of the Project. The loan -to -value ratio set forth in Section 2.8 of the Declaration is hereby waived in connection with such financing. The Grantee shall not materially expand or alter the use or square footage of the Food Service Facility unless expressly approved by the Declarant, which approval may be granted or withheld by Declarant in its sole discretion. IN WITNESS WHEREOF, this instrument is duly executed thist Ld ay of4 /YPf 20 _V. DECLARANT: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company 0 Its: Executive Vice President GRANTEE: CITY OF NEWPORT BEACH A California Municipal Corporation By:� a� Its: Mayor ea \��o"a�ecP lza 'L-' Its: Assistant Secretary APPROVED AS TO FORM: OIFtGE ®OF THE CITY ATTORNEY David R. Hunt City Attorney City of Newport Beach ATTEST: �T: I - D. V\ti'�/`YVU m Leilani Brown ' City Clerk City of Newport STATE OF CALIFORNIA COUNTY OF ORANGE On %V- 11yiL 20M , before me, Li Lk IM( the undersigned Notary Public in and for said County and State, personally appeared � -n+ 1), Cu U who proved to me on the basis of satisfactory evidence to be the persohK.whose name is /*@ subscribed to the within instrument and acknowledged to me that he /s &ftho executed the same in his /4r /heir authorized capacity( *Q, and that by his /V*lt*r signatureN on the instrument the person), or the entity upon behalf of which the person acted, executed the instrument. certify under PENALTY OF PERJURY under the laws of the State of California thatthe foregoing paragraph is true and correct. WITNESS my hand and official seal. /, Notary Public L. WASHINGTON STATE OF CALIFORNIA GM MISS1an:y 1840151) Notary public • calffornla l . Orange county COUNTY OF ORANGE MY COMM. Ex Ire5Mar12 201. On 20_ , before me, the undersigned Notary Public in and for said County and State, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) islare subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his /her /their authorized capacity(ies), and that by his /her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public . \. .. STATE OF CALIFORNIA COUNTY OF ORANGE On November 1, 2090, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Daniel H. Young who proved to me on the basis of satisfactory evidence. to be the personisPichthe e name"i are subscribed to the within instrument and acknowledged to me the /they executed the same in�is edtheir authorized capacityQW, and that by their signature(e)-� on the instrument the persons or the entity upon behalf of w persopKaeted, execu ted the instrument. I certify under PENALTY OF PERJURY under the laws of the State of Califomia that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public JONI GROSSMAN It STATE OF CALIFO_ RNIA commission # 1936091 e >� Notary Public- California COUNTY OF ORANGE orange county ' MyCamLE>17heSArx10,2U1i + On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said. County and State, personally appeared Brigid Dr.1 McMahon who proved to me on the basis of satisfactory evidence to be the personX whose names rare subscribed to the ithin instrument and acknowledged to me that hglj.- they executed the same in hi a Aheir authorized capaoity , and that by hi a their signaturpM on the instrurrien the personSsy—or the entity upon behalf of which the perso�j(sj'acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws.of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public RECORDING REQUESTED BY: FIDELM NATIONAL TITLE INSURANCE CO. WHEN RECORDED NWLTO: City of Newport Beach Attn: City Clerk 3300 Newport Beach Blvd P.O.Box1768 Newport Beach, CA 92658 -8915 This Document was electronically recorded by Fidelity National Major Accounts Recorded in Official Records, Orange County Tom Daly, Clerk- Recorder I��I��IfIIIIIIIUItII�I��N��l��lll�l��l�l� NO FEE 2010000634194 04:30pm 11/24110 66 406 N12 6 0.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 AGREEMENT OF MUTUAL UNDERSTANDING REGARDING AMENDED AND RESTATED GRANT DEED (PARCEL 3, PARCEL MAP 90- 361 - NEWPORT VILLAGE) RECORDED ON JUNE 2, 2008 AS INSTRUMENT NO.20DSM0262433 THIS PAGE ADDED TO PROVIDE ADEQUATE SPACE FOR RECORDING INFORMATION (ADDITIONAL RECORDING FEE APPLIES) Recording Requested By iiid,Oity NI,at4ona -J T tk� RECORDED AT REQUEST OF, AND WHEN RECORDED MAIL TO: City of Newport Beach Attn: City Clerk 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 WITH ACONFORMED COPY TO: The Irvine Company LLC Attn: Legal Department 550 Newport Center Drive Newport Beach, CA 92660 (SPACE ABOVE THIS LINE FOR RECORDERS USE) This document is exempt from filing fees per Govt. Code § 6103, recording fees per Govt. Code § 27383 and is exempt from Document Transfer Tax per Rev, & Taxation Code § 11922 41CM44/0kMutual Understanding Regarding Amended and Restated Grant Deed (Parcel 3, Parcel Map 90- 361 - Newport Village) recorded on June 2, 2008 as Instrument No. WHEREAS, The Irvine Company LLC, A Delaware Limited Liability Company ( "Grantor') previously granted to the City of Newport Beach, a California Municipal Corporation ( "Grantee ") via a Grant Deed recorded November 28, 2007 as Orange County Document No. 2007000704013 ( "Grant Deed ") that certain property identified as Parcel 3 of Parcel Map 90 -361, in the City of Newport Beach, County of Orange, State of California, as per Map filed in Book 270, Pages 15 to 18, inclusive, of Parcels, in the Office of the County Recorded of said County ( "Property "). WHEREAS, Grantee desires to construct a new Civic Center project on the Property pursuant to Newport Beach Charter Section 425. WHEREAS, The Grant Deed places certain limitations on the Property and requires Grantee to obtain Grantor's consent for certain improvements. NOW THEREFORE, Grantor and Grantee agree as follows: Pursuant to the terms, restrictions, and conditions contained in the Grant Deed, the Grantee is authorized to develop the Property with a City Hall Office Building, Community Room, City Council Chambers, Parking Structure, Library addition and related improvements, including an approximately 600 square foot Food Service Facility which will provide deli food service and limited catering for employees, library visitors, special event visitors and receptions ("Project"), which is consistent with the use restriction in Grant Deed Section i(a) that the Property may be used by the Grantee only for open spade-and public facilities uses. Therefore, Grantee is authorized to take any and all actions necessary to develop, after, and maintain the Project, including, but not limited to, entering into leases and financing agreements_ IN WITNESS WHEREOF, this instrument is duly executed this 29th day of October, 2010. GRANTOR: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company By: Daniel H. Young Its: Executive Vice President $y: rigid tY McMahon its: Assistant Secretary GRANTEE: CITY OF NEWPORT BEACH A California Municipal Corporation Z3 Its: Mayor. APPROVED AS TO FORM: �• David R. Hunt City Attorney WHEREAS, Grantor and Grantee both desire to confirm that the Grant Deed allows the development of the Civic Center project. NOW THEREFORE, Grantor and Grantee agree as follows: Pursuant to the terms, restrictions, and conditions contained in the Grant Deed, the Grantee is authorized to develop the Property with a City Hall Office Building, Community Room, City Council Chambers, Parking Structure, Library addition and related improvements, including an approximately 600 square foot Food Service Facility which will provide deli food service and limited catering for employees, library visitors, special event visitors and receptions ( "Project'), which is consistent with the use restriction in Grant Deed Section i(a) that the Property may be used by the Grantee only for open space-and public facilities uses. Therefore, Grantee is authorized to take any and all actions necessary to develop, alter, and maintain the Project, including, but not limited to, entering into leases and financing agreements. IN WITNESS WHEREOF, this instrument is duly executed this aday of _A4& 2a7. GRANTOR: GRANTEE: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company Its: Executive Vice President am Its: Assistant Secretary CITY OF NEWPORT BEACH A California Municipal Corporation By: e,*51 Its: Mayor APPROVED AS TO FORM: OEFIGE OF THE CITY ATTORNEY David R. Hunt City Attomey City of Newport Beach S\g�ed'�r CAU °ie�a� ATTEST: abip Leilani Brown City Clerk City of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE On cRa 20jB , before me, kL,l A� WA544,N67bh ) the undersl -ned Notary Public in and for said County and State, personally appeared e b6i�r ' • Q.t)( r q who proved to me on the basis of satisfactory evidence to be the per 6nM whose name( is /a- subscribed to the within instrument and acknowledged to me that he /We /tfyf3y executed the same in his /1�6r /toir authorized capacity(iM'), and that by hislh)$r/tW signature(o) on the instrument the personN, or the entity upon behalf of which the personKacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. STATE OF CALIFORNIA COUNTY OF ORANGE I., WASHINGTON Commission * 1840150 Nobly Public - CalRomia Orange County On 20_ , before me, , the undersigned Notary Public in and for said County and State, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his /her /their authorized capacity(ies), and that by his /her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument, I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public STATE OF CALIFORNIA COUNTY OF ORANGE On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Daniel N. Young who proved to me on the basis of satisfactory evidence to be the persoWwhose nameXCi�s re subscribed to the within instrument and acknowledged to me that he she /they executed the same in his er/their authorized capacity es), and that by hi her /their signature(sj on the instrument the person( , or the entity upon behalf of which the personw acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public AONI GROSSMAN STATE OF CALIFORNIA Co Wary Public li # 3aaaosa -m Nolaty Publlc - California € z Orange County COUNTY OF ORANGE &VCorrxn.E PlrmApr30.2on On November 1, 2010, before me, Joni Grossman, .the undersigned Notary Public in and for said County and State, personally appeared Bri gid D. McMahon who proved to me on the basis of satisfactory evidence to be the person(sj whose namee% are subscribed to the within instrument and acknowledged to me that h. sh they executed the same in hi her heir authorized capacityi ,, and that by hi he their signature(W on the instrLimen the persoK, or the entity upon. behalf of which the personWacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public L fie a; 1 rey� est Th;� Document was electronically recorded by UY Fidelity National Major Accounts ty Natio, -D.q ,t Recorded in Official Records, Orange county Tom Daly, Clerk- Recorder RECORDED AT E REQUEST OF, I��Ilp{p�IO�p�IIIO�m11ep� II��IIII�II NO FEE AND WHEN RECORDED MAIL TO: }IW li III II 2010000634195 04:30pm 11/24/10 City of Newport Beach 66 406 A17 6 Attn: City Clerk 0.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 3300 Newport Blvd. P.O. Box 1768 Newport Beach, CA 92658 -8915 WITH A CONFORMED COPY TO: The Irvine Company LLC Attn: Legal Department 550 Newport Center Drive Newport Beach, CA 92660 (SPACE ABOVE THIS LINE FOR RECORDER'S USE) This document is exempt from filing fees per Govt. Code § 6103, recording fees per Govt. Code § 27383 and is exempt from Document Transfer Tax per Rev. & Taxation Code § 11922 Amendment of Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Option to Repurchase recorded on May 8, 1992 as Instrument No. 92- 304757 THIS FIRST AMENDMENT TO DECLARATION OF SPECIAL LAND USE RESTRICTIONS, RIGHT AT FIRST REFUSAL, MORTGATE LIEN AND OPTION TO REPURCHASE ( "Amendment ") is made as of 14"AL,4 /, 2010 and shall be effective as ofN 1, 2010 ( "Amendment Effective Date ") by and between The Irvine Company LLC, A Delaware Limited Liability Company ("Declarant") and the City of Newport Beach, a California Municipal Corporation ( "Grantee "). RECITALS L WHEREAS, Declarant and Grantee entered into a Declaration of Special Land Use Restrictions, Right of First Refusal, Mortgage Lien and Optlon to Repurchase ( "Existing Declaration ") recorded May 8, 1992 as Orange County Document No. 92- 304757 with respect to those certain properties identified as: (1) the southwesterly one - half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County; and (2) the northwesterly WHEREAS, Exhibit 2 to the Existing Declaration places certain limitations on the development of the Property. WHEREAS, Declarant and Grantee both desire to amend Exhibit 2 to the Existing Declaration to allow the development of the Civic Center project. NOW THEREFORE, Declarant and Grantee hereby amend the Existing Declaration as follows: 1. Amendment to Exhibit B. Exhibit B to the Existing Declaration is hereby amended as follows: Maximum Gross Floor Area: 74,000 square feet 2. Continuing Effect. As amended hereby, the Declaration shall continue in full force and effect following the Amendment Effective Date. If there is any inconsistency between the provisions of this Amendment and the provisions of the Declaration, the provisions of this Amendment shall supercede and control. IN WITNESS WHEREOF, this instrument is duly executed this 29f" day of October, 2010. DECLARANT: GRANTEE: THE IRVINE COMPANY LLC, CITY OF NEWPORT BEACH A Delaware Limited Liability Company A Califomia Municipal Corporation By: By: Daniel Youn Its: Executive Vice esident Its: Mayor By: iBrlgidiVi. McMahon Its: Assistant Secretary APPROVED AS TO FORM: E.OF TH CITY ATTORNEY David R. Hunt City AttomeY City of Newport Beach Signed in Coiiste(W ATTEST: Eeilani'.Brown City Clerk one -half of Parcel 2 as shown on Parcel Map No. 90 -361, recorded in Book 270, Pages 15 to 18, inclusive, of Parcel Maps, Records of Orange County (collectively, "Parcel 2, Parcel Map No. 90 -361" or "Property "). WHEREAS, Grantee desires to construct a new Civic Center project on or adjacent to the Property pursuant to Newport Beach Charter Section 425. WHEREAS, Exhibit 2 to the Existing Declaration places certain limitations on the development of the Property. WHEREAS, Declarant and Grantee both desire to amend Exhibit 2 to the Existing Declaration to allow the development of the Civic Center project. NOW THEREFORE, Declarant and Grantee hereby amend the Existing Declaration as follows: 1. Amendment to Exhibit B. Exhibit B to the Existing Declaration is hereby amended as follows: Maximum Gross Floor Area: 74,000 square feet 2. Continuing Effect. As amended hereby, the Declaration shall continue in full force and effect following the Amendment Effective Date. If there is any inconsistency between the provisions of this Amendment and the provisions of the Declaration, the provisions of this Amendment shall supercede and control. IN WITNESS WHEREOF, this instrument is duly executed this Z,2day of?Lty, 20J. DECLARANT: GRANTEE: THE IRVINE COMPANY LLC, A Delaware Limited Liability Company am Its: Executive Vice President 0 Its: Assistant Secretary CITY OF NEWPORT BEACH A California Munici al///Corporation By: �� Its: Mayor APPROVED AS TO FORM: OF OF THE CITY ATTORNEY David R. Hunt City Attorney City of Newport Beach ATTEST: A'' Wk 2 Leilani Brown City Clerk City of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE On 20JO , before me, f-f Utz the undersi ned otary Public in and for said County and State, personally appeared �iG jtlJ`� who proved to me on the basis of satisfactory evidence to be the perso6(1�whose name(c) is /are, - subscribed to the within instrument and acknowledged to me that hels eltt y executed the same in his /I)h /t"( authorized capacity(i� and that by histi iJtf it signature() on the instrument the person(, or the entity upon behalf of which the person" acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public L L. WASHINGTON STATE OF CALIFORNIA commission s 1840150 Notary Public - CaOtoraia COUNTY OF ORANGE orange county M Comm. Ex Tres Mar 12, 2013 On 20--„ , before me, the undersigned Notary Public in and for said County and State, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is /are subscribed to the within instrument and acknowledged to me that he /she/they executed the same in his/her /their authorized capacity(ies), and that by his/herltheir signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. 1 certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public z STATE OF CALIFORNIA COUNTY OF ORANGE On November 1, 2010 , before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Daniel H. Young who proved to me on the basis of satisfactory evidence to be the personK whose nam" is re subscribed to the within instrument and acknowledged to me that he hetthey executed the same in his erltheir authorized capaci%iesf, and that by his erltheir signaturqK on the instrument the perso*) or the entity upon behalf of which the personWacted, executed the instrument. certify under PENALTY OF PERJURY under the Pews of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public @MV JONI GROSSIVIAN Commission # 1736043 'No tary Public - Calltomla Orange CountSTATE OF CALIFORNIA Camnr esAPOM2011. COUNTY OF ORANGE On November 1, 2010, before me, Joni Grossman, the undersigned Notary Public in and for said County and State, personally appeared Brigid D. McMahon who proved to me on the basis of satisfactory evidence to be the pers" whose namehgfOyare subscribed to th within instrument and acknowledged to me that sPh !they' executed the same in hi %he /their authorized capacltyjand that by hi he their signatureKon the instrument the persooW or the entity upon behalf of which the perso"cte.d „executed the instrument. certify, under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct: . WITNESS my hand and official seal. Notary Public i JONI GROSSMAN Commission # 1- 736033 z Notary Public - California .$ ..Orange County. .£ $20,085,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010A (TAX EXEMPT) (CIVIC CENTER PROJECT/ CENTRAL LIBRARY REFUNDING) Issuer City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92663 David Kiff, City Manager $106,575,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION 2010B (FEDERALLY TAXABLE DIRECT PAY BUILD AMERICA BONDS) (CIVIC CENTER PROJECT) INTERESTED PARTIES LIST Tracy McCraner, Director of Administrative Services Main Phone: 949 - 644 -3000 Fax: 949-644-3339 Phone: 949-644-3000 e -mail: dkiff @newportbeachca.gov Phone: 949 -644 -3123 e -mail: tmccraner @newportbeachca.gov Dan Matusiewicz, Deputy Director of Administrative Services Phone: 949 - 644 -3126 e -mail: dmatusie @newportbeachca.gov Trevor Power, Debt Manager Leilani I. Brown, City Clerk Kyle E. Rowen, Deputy City Attorney Leonie Mulvihill, Assistant City Attorney Public Works Department Steve Badum, Director of Public Works DOCSOC/1442484v1 /022459 -0014 Phone: 949-644-3125 e -mail: tpower @newportbeachca.gov Phone: 949- 644 -3005 e -mail: lbrown@newportbeachca.gov Phone: 949-644-3131 Fax: 949-644-3139 e -mail: krowen @newportbeachca.gov Phone: 949-644-3131 Fax: 949-723-3519 e -mail: Imulvihill@newpoitbeachca.gov Phone: 949-644-3311 e -mail: sbadum @newportbeachca.gov Page 1 of 5 Special Counsel Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 -6401 David R. McEwen, Esq. Phone: 949 - 725 -4162 Fax: 949-823-5162 e -mail: dmcewen @sycr.com Brian P. Forbath, Esq. Phone: 949 - 725 -4193 Fax: 949-823-5193 e -mail: bforbath @sycr.com Disclosure Counsel Hawkins Delafield & Wood LLP 333 South Grand Avenue Los Angeles, CA 90071 Arto C. Becker, Esq. Phone: 213 - 236 -9050 Fax: 213-236-9060 e -mail: abecicer @hawkinS.eom Diane K.Quan,Esq. Phone: 213-236-9068 Fax: 213-236-9060 e -mail: dquan@hawkins.com Hawkins Delafield & Wood LLP 601 Thirteenth Street, N.W. Washington, DC 20005 John M. McNally, Esq. Phone: 202 - 682 -1495 Fax: 202-682-1486 e -mail: jmcnally @hawkins.com Financial Advisor Fieldman, Rolapp & Associates 19900 MacArthur Boulevard, Suite 1100 Main Phone: 949 - 660 -7300 Irvine, CA 92612 Fax: 949 - 474 -8773 Tom DeMars, Principal Phone: 949 - 660 -7316 e -mail: tdemars@fieldman.com Robert Porr, Senior Vice President Phone: 949 - 660 -7323 e -mail: rporr @fieldman.com Paul Pender, Assistant Vice President Phone: 949 - 660 -7319 e -mail: ppender @fieldman.com Renee Christensen, Associate Phone: 949 - 660 -7305 e -mail: rhristensen @fieldman.com Page 2 of 5 DOCSOC/ 1442484v 1/022459 -0014 Senior Managing Underwriter Stone & Youngberg LLC 4350 La Jolla Village Drive, Suite 140 San Diego, CA 92122 Bill Huck, Managing Director Phone: 858- 795 -8701 Fax: 858 -452 -6131 e -mail: bhuck @syllc.com Ken Holman, Vice President Phone: 858- 795 -8703 Fax: 858- 452 -6131 e -mail: kholman @syllc.com Ben Gubatina, Analyst Phone: 858- 795 -8702 Fax: 858-452-6131 e -mail: bgubatina@sylle.com Senior Managing Underwriter's Counsel Jones Hall 650 California Street, 18th Floor San Francisco, CA 94108 Chris Lynch Phone: 415- 391 -5780 x 267 Fax: 415 391 -5784 e -mail: clynch @joneshall.com Co- Manager De La Rosa & Co. Phone: 415- 495 -8863 456 Montgomery Street, 19th Floor Fax: 415- 495 -8864 San Francisco, CA 94104 Eric Scriven, Senior Vice President Phone:415 -217 -33936 email: escriven @ejdelarosa.com Bank of America Merrill Lynch Phone: 415- 676 -3211 101 California Street, Suite 1225 Fax: 415- 984 -4051 Mail Code: CA5- 332 -12 -00 San Francisco, CA 94111 Grace Barvin, Director Phone:415- 676 -3211 e -mail: grace.barvin @baml.com John Houlberg, Vice President Phone:415- 676 -3219 e -mail: john.houlberg @baml.com Page 3 of 5 DOCSOC/ 1442484v 1/022459 -0014 Co- Manager (Continued) Raymond James 1 Embarcadero Center, Suite 650 San Francisco, CA 94111 Cheryl Hines, Managing Director Phone: 415- 616 -8939 Fax: 415-616-8936 e -mail: cheryl.hines @raymondjames.com Trustee The Bank of New York Mellon Trust Company, N.A. 700 S. Flower Street, Suite 500 Los Angeles, CA 90017 Greg Chenail, Vice President Phone: 213 -630 -6229 Fax: 213-630-6480 e -mail: greg.ehenail @bnymellon.com Trustee's Counsel The Bank of New York Mellon Trust Company, N.A. 700 S. Flower Street, Suite 500 Los Angeles, CA 90017 Rhea L. Murphy, Senior Counsel Phone: 213 - 630 -6476 Fax: (213) 630 -6285 e -mail: rhea.murphy@bnymellon.com Escrow Agent U.S. Bank National Association Corporate Trust Services 633 West Fifth Street, 241h Floor Los Angeles, CA 90071 Martin Meza, Vice President Phone: 213- 615 -6062 Fax: 213-615-6199 e -mail: martin.meza @usbank.com Dissemination Agent Digital Assurance Certification L.L.C. (DAC) 390 N. Orange Avenue, Suite 1750 Orlando, FL 32801 Jenny Emami, Client Service Manager Phone: 407 -515 -1100 Fax: 407 -515 -6513 e -mail: jennye @daebond.com Page 4 of 5 DOCSOC/1442484v1 /022459 -0014 Rating Agencies Fitch Ratings 650 California Street, 4th Floor San Francisco, CA 94104 Scott Monroe, Associate Director Amy Doppelt, Managing Director Standard & Poor's One Market Street, Steuart Tower, Floor 15 San Francisco, CA 94105 Bea Chiem, Analyst Paul Dyson, Director Moody's Investors Service 1 Front Street, Suite 1900 San Francisco, CA 94111 Michael Wertz, Analyst DOC S OC/ 1442484v1 /022459 -0014 Phone:415- 732 -5618 e -mail: scott.monroe @fitchratings.com Phone: 415-732-5612 Fax: 415-732-5610 Email: amy.doppelt @fitchratings.com Phone: 415-371-5000 Phone: 415-371-5070 email: bea_chiem @standardandpoors.com Phone:415- 371 -5079 Fax: 415-371-5090 email: paul_dyson @sandp.com Phone: 415-274-1722 email: michael.wertz @moodys.com Page 5 of 5