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HomeMy WebLinkAbout03 - Assessment District 101 - Sale of BondsCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 3 September 9, 2008 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Dennis C. Danner, Administrative Services Director (949) 644 -3123 or ddanner(&citv.newport- beach.ca.us Dan Matusiewicz, Finance Officer (949) 644 -3126 or dmatusie(&-city.newport- beach.ca.us SUBJECT: Sale of Bonds for Assessment District No. 101 —Area Generally Bounded by Buena Vista Boulevard, Balboa Boulevard, Adams Street, and Edgewater AvenuefEdgewater Place Recommendation: Adopt the resolution authorizing: 1. The sale of 1915 Act Assessment bonds not to exceed $2,481,399 million for Assessment District 101; 2. The execution and delivery of one or more Indentures in substantially the form presented; 3. The execution and delivery of one or more Official Statements and Continuing Disclosure Agreement in substantially the form presented; 4. The execution and delivery of one or more Bond Purchase Contracts in substantially the form presented; and 5. Staff to take the necessary steps to provide for the sale and issuance of the bonds. Discussion: Assessment District 101 was formed by Public Hearing vote on July 22, 2008. Of the ballots submitted, 61.97% were in favor of the district and 33.03% of the ballots were submitted in opposition to the district. A Statement of Assessment and Notice of Recordation of Assessment and Diagram was published in the Daily Pilot on July 28, 2008 and August 4, 2008. Letters were mailed July 23, 2008 to residents of Assessment District No. 101 with instructions for assessment payment and the cash - payment deadline of August 22, 2008. The total assessment levied for the District amounted to $4,749,060 which represents the cost of the improvement project and financing costs. To date, the City has received $2,106,674 in prepaid contributions from property owners that amounted to a total levy credit of $2,267,661, which includes the exercised financing discount of $160,987. The remaining amount of unpaid assessments amounts to $2,481,399, as depicted below. Sale of Bonds for Assessment District No. 101 September 9, 2008 Page 2 Assessment levied — cost of improvement project and financing $4,749,060 City received — prepaid contributions from property owners $2,106,674 Exercised financing discount $160,987 Remaining unpaid assessment amount $2,481,399 The unpaid assessment amount will be sold as bonds to ML Stern, on a negotiated basis. ML Stern is a qualified underwriter with extensive experience with 1915 Act assessment district bonds. On the date of the bond sale, Fieldman Rolapp & Associates, the City's Financial Advisor, will assist the City in pricing the bonds. The decision to sell the bonds, at the negotiated price, will be delegated to the Administrative Services Director. The attached resolution approves all formal terms, and a condition related to the sale of bonds through approval of the Bond Indenture, and approves the Bond Purchase Contract, subject to modifications as necessary with approval by the City Manager. The remaining financing schedule is expected as follows: September 10th, 2008 Print and electronically distribute Preliminary Official Statement September 16th, 2008 Pre Pricing of Bonds September 17th, 2008 Price Bonds September 24th' 2008 Bond Closing (Proceeds Available) Environmental Review: This project qualifies for a Class 2 California Environmental Quality Act (CEQA) exemption under Section 15302, item "d" of the Implementing Guidelines as follows: "Conversion of overhead electric utility distribution system facilities to underground including connection to existing overhead electric utility distribution lines where the surface is restored to the condition existing prior to the undergrounding." Funding Availability: Funds will be available subject to the sale of bonds for this Assessment District. Prepared by: an Matusiewicz Finance Officer Submitted by: Dennis C. 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AugusV2 Asses Di5rOl01 Detail m d M P1 7 f� E� 3, e � a,e / a•'l/ %-C h h oM1��B ^1 >2 P \YI Y)I( I RESOLUTION NO. 2008 RESOLUTION AUTHORIZING ISSUANCE OF BONDS AND APPROVING THE FORM OF CERTAIN BOND DOCUMENTS FOR ASSESSMENT DISTRICT NO. 101 WHEREAS, this City Council previously adopted a Resolution of Intention and initiated proceedings for the acquisition of certain public works of improvement, namely, the conversion of certain overhead electrical and communication facilities to underground locations, together with appurtenances and appurtenant work, in a special assessment district designated as Assessment District No. 101 (hereinafter referred to as the "Assessment District ") pursuant to the terms and provisions of the "Municipal Improvement Act of 1913 ", being Division 12 of the Streets and Highways Code of the State of California, as adopted and modified by Ordinance No. 2000 -17 of the City of Newport Beach (together, the 'Improvement Act "); WHEREAS, this City Council, to finance the acquisition and construction of such improvements, declared in its Resolution of Intention to issue bonds against any unpaid assessments as certified by the Treasurer, such bonds to issue pursuant to the terms and provisions of the 'Improvement Bond Act of 1915 ", being Division 10 of the Streets and Highways Code (the 'Bond Act'); WHEREAS, this City Council desires to set forth the general terms and conditions relating to the authorization, sale, delivery, and administration of such bonds; WHEREAS, the bonds are to be sold by negotiated sale to M.L. Stem & Co., LLC pursuant to the provisions of a bond purchase contract (the "Bond Purchase Contract'); WHEREAS, the City of Newport Beach has caused to be prepared and filed with the City Clerk drafts of the Bond Purchase Contract, a bond indenture (the Bond Indenture "), a preliminary official statement describing the Assessment District, the improvements, and the bonds (the "Preliminary Official Statement'), and an agreement to provide continuing disclosure of certain information contained in the Preliminary Official Statement (the "Continuing Disclosure Agreement'), which drafts have been reviewed by this City Council; NOW, THEREFORE, it is hereby Resolved, Determined, and Ordered as follows: SECTION 1. Recitals. The above recitals are true and correct. SECTION 2. Bonds Authorized. Pursuant to the Bond Act, this Resolution and the Bond Indenture, limited obligation improvement bonds of the City for the benefit of the Assessment District and designated as "City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds" (the "Bonds ") are hereby approved and authorized to be issued, sold and delivered. The Bonds shall be in an aggregate principal amount equal to the aggregate unpaid assessments in the Assessment District as certified by the City Treasurer. The date, manner of payment, interest rate or rates, interest payment dates, denominations, form, registration privileges, manner of execution, place of payment, terms of redemption and other terms, covenants and conditions of the Bonds shall be as provided in the Bond Indenture and Bond Purchase Contract. SECTION 3. Authorization and Conditions. The City Manager, Director of Administrative Services, City Treasurer, Finance Officer and such other officials of the City as may be designated by the City Council, or any of them (each an "Authorized Officer "), are hereby authorized and directed to execute and deliver the various documents and instruments described in this Resolution and the Bond Purchase Contract with such additions and changes as the Authorized Officer deems advisable, provided that no additions or changes shall authorize an aggregate principal amount of Bonds in excess of the aggregate unpaid assessments. The approval of such additions or changes shall be conclusively evidenced by the execution and delivery of such documents or instruments by an Authorized Officer, upon consultation with and review by the City Attorney and bond counsel. SECTION 4. Bond Indenture. The form of Bond Indenture with respect to the Bonds as presented to this City Council and on file with the City Clerk is hereby approved. The Authorized Officer is hereby authorized and directed to cause the same to be completed and executed on behalf of the City. SECTION 5. Official Statement and Continuing Disclosure Aareement. This City Council hereby approves the forms of Preliminary Official Statement and the Continuing Disclosure Agreement on file with the City Clerk. The Authorized Officer is authorized to approve corrections and additions to the Preliminary Official Statement and to certify on behalf of the City that the approved Preliminary Official Statement is final as of its date except for the omission of certain information as permitted by Section 240.15c2- 12(b)(1) of Title 17 of the Code of Federal Regulations. The Authorized Officer is further authorized and directed to cause the completion of the Preliminary Official Statement into the form of a final official statement (the "Final Official Statement ") and to execute a statement that the facts contained in the Final Official Statement, and any supplement or amendment thereto (which shall be deemed an original part thereof for the purpose of such statement) were, at the time of sale of the Bonds, true and correct in all material respects and that the Final Official Statement did not, on the date of sale of the Bonds, and does not, as of the date of delivery of the Bonds, contain any untrue statement of a material fact 2 or omit to state material facts required be stated where necessary to make any statement made therein not misleading in the light of the circumstances under which it was made. The Authorized Officer shall take such further action as the Authorized Officer deems necessary or appropriate to verify the accuracy thereof. The form of Continuing Disclosure Agreement as presented to this City Council and on file with the City Clerk is hereby approved. The Authorized Officer is hereby authorized and directed to cause the same to be completed and executed on behalf of the City. SECTION 6. Sale of Bonds. This City Council hereby authorizes and approves the sale of the Bonds by negotiated sale. The form of the Bond Purchase Contract as presented to this City Council and on file with the City Clerk is hereby approved and the Authorized Officer is hereby authorized and directed to sell and deliver the Bonds subject to the following conditions: the aggregate principal amount of the Bonds does not exceed the unpaid assessments within the Assessment District, the underwriter's discount does not exceed two percent (2 %), and the net interest rate on the bonds shall not exceed seven percent (7 %) per annum. SECTION 7. Bonds Prepared and Delivered. Upon the sale of the Bonds, the Bonds shall be prepared, authenticated and delivered, all in accordance with the applicable terms of the Bond Act and the Bond Indenture, and the Authorized Officer and other responsible City officials are hereby authorized and directed to take such actions as are required under the Bond Purchase Contract and the Bond Indenture to complete all actions required to evidence the delivery of the Bonds upon the receipt of the purchase price thereof from the purchaser. SECTION 8. Annual Assessment Installments. A copy of the resolution confirming the assessments, which assessments shall constitute the security for the Bonds, shall be delivered to the City Treasurer, and the City Treasurer shall keep or cause to be kept the record showing the several installments of principal and interest on the assessments which are to be collected each year during the term of the bonds. An annual portion of each assessment, together with annual interest on the assessment, shall be payable in the same manner and at the same time and in the same installment as the general property taxes of the County of Orange and shall be payable and become delinquent at the same time and in the same proportionate amount. Each year the annual installments shall be submitted to the County Auditor for purposes of collection. SECTION 9. Covenant to Initiate Foreclosure Proceedings. This legislative body does further specifically covenant for the benefit of the bondholders to commence and prosecute to completion foreclosure actions regarding delinquent installments of the assessments in the manner, within the 3 time limits and pursuant to the terms and conditions as set forth in the Bond Indenture as submitted and approved through the adoption of this Resolution. SECTION 10. Actions. All actions heretofore taken by the officers and agents of the City with respect to the establishment of the Assessment District and the sale and delivery of the Bonds are hereby approved, confirmed and ratified, and the proper officers of the City are hereby authorized and directed to do any and all things and take any and all actions and execute any and all certificates, agreements, contracts, and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance, sale and delivery of the Bonds in accordance with Bond Act, this Resolution, the Bond Indenture, the Bond Purchase Contract, the Continuing Disclosure Agreement, and any certificate, agreement, contract, and other document described in the documents herein approved. SECTION 11. Effective Date. This resolution shall take effect from and after its adoption. PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council of the City of Newport Beach on the 9th day of September, 2008 by the following vote: AYES: NOES: ABSENT: ABSTAIN: ATTEST: City Clerk 4 Mayor BONDINDENTURE by and between City of Newport Beach, California and U.S. Bank National Association, as Paying Agent Dated as of September 1, 2008 $2,481,399* City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds * Subject to change. 08!28!08 Draft TABLE OF CONTENTS 08/28/08 Draft Page SECTION 1. Authorization, Designation and Amount ................................. ............................... 1 SECTION 2. Issuance, Unpaid Assessments ...................................................... ............................... 1 SECTION 3. Alternative Procedure for Advance Payment ............................. ............................... 1 SECTION 4. Registered Bonds; Denominations and Book -Entry Only ......... ............................... 1 SECTIONS. Date of Bonds ................................................................................. ............................... 1 SECTION6. Maturity ......................................................................................... ............................... 1 SECTION7. Interest ............................................................................................ ............................... 1 SECTION 8. Place of Payment ........................................................................... ............................... 2 SECTION9. Redemption .................................................................................... ............................... 2 SECTION 10. Transfer of Registered Bonds ....................................................... ............................... 4 SECTION 11. Exchange of Bonds ........................................................................ ............................... 4 SECTION 12. Books of Registration .................................................................... ............................... 5 SECTION 13. Execution of Bonds ........................................................................ ............................... 5 SECTION14. Authentication ............................................................................... ............................... 5 SECTION 15. Ownership of Bonds ...................................................................... ............................... 5 SECTION 16. Mutilated, Destroyed, Stolen or Lost Bonds ............................... ............................... 5 SECTION 17. Cancellation of Bonds ................................................................... ............................... 6 SECTION 18. Application of Bond Proceeds ...................................................... ............................... 6 SECTION 19. Creation of Funds .......................................................................... ............................... 6 SECTION20. Investments .................................................................................... ............................... 8 SECTION 21. No City Liability ............................................................................ ............................... 8 SECTION 22. Covenant for Superior Court Foreclosure .................................. ............................... 8 SECTION 23. Covenant to Maintain Tax - Exempt Status .................................. ............................... 9 SECTION 24. Order to Print and Authenticate Bonds ...................................... ............................... 9 SECTION25. Paying Agent .................................................................................. ............................... 9 SECTION 26. Liability of Paying Agent ............................................................ ............................... 10 SECTION 27. Provisions Constitute Contract .................................................. ............................... 11 SECTION 28. Unclaimed Funds ......................................................................... ............................... 11 SECTION 29. Modification or Amendment to this Indenture ......................... ............................... 11 SECTION 30. Notices to and Demands on City and Paying Agent ................. ............................... 12 SECTION 31. Partial Invalidity ......................................................................... ............................... 12 SECTION 32. Applicable Law ............................................................................ ............................... 12 SECTION 33. Conflict with Act .......................................................................... ............................... 12 SECTION 34. Payment on Business Day ........................................................... ............................... 13 SECTION 35. Insurer Provisions ....................................................................... ............................... 14 SECTION36. Defeasance .................................................................................... ............................... 18 SECTION37. Counterparts ................................................................................ ............................... 19 Exhibit A Maturity Schedule Exhibit B Book Entry Provisions Exhibit C Form of Bond Exhibit D Authorized Investments 9 08128108 Draft BONDINDENTURE This Bond Indenture (the "Indenture") dated as of September I, 2008, is entered into by and between the City of Newport Beach, a California municipal corporation (the "City'), and U.S. Bank National Association, as paying agent, registrar and transfer agent (the "Paying Agent "), to establish the terms and conditions pertaining to the issuance of bonds in a special assessment district known and designated as Assessment District No. 101 (the "Assessment District "). SECTION 1. Authorization, Designation and Amount. Pursuant to the provisions of the "Improvement Bond Act of 1915" (the "Act"), being Division 10 of the Streets and Highways Code of the State of California, the City does hereby authorize the issuance of a bond or bonds to represent the unpaid assessments within the Assessment District in an aggregate principal amount of $2,481,399.00, and to be designated as the City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds (the `Bonds'). SECTION 2. Issuance; Unpaid Assessments; No Parity Bonds. The City shall determine the assessments that are unpaid and the aggregate amount thereof and issue, sell and deliver bonds therefor as authorized by the Act. The Bonds shall be secured by, and the City does hereby pledge, (1) the unpaid assessments within the Assessment District and (2) the amounts held in the Redemption Fund and the Reserve Fund maintained pursuant to this Indenture and any earnings thereon (except to the extent earnings are to be transferred to the Rebate Fund under this Indenture). Except for refunding bonds, if any, no additional bonds or other obligations will be issued or incurred that will be secured by or payable from the assessments of the Assessment District. SECTION 3. Alternative Procedure for Advance Payment. The provisions of Part 1 1.1 of the Act, providing an alternative procedure for the advance payment of assessments and the calling of all or a portion of the Bonds shall apply. SECTION 4. Registered Bonds; Denominations and Book-Entry Only. The Bonds shall be issued only as fully registered Bonds in the denomination of $5,000, or any integral multiple thereof, except for one Bond (which Bond if a series of Bonds is issued shall be the Bond maturing in the first year of maturity) which shall include the amount by which the total aggregate principal amount of the Bonds exceeds the maximum integral multiple of $5,000. Notwithstanding any provisions herein to the contrary, the Bonds shall be initially issued in book -entry form in accordance with the terns of Exhibit B attached hereto and incorporated herein by this reference. SECTION 5. Date of Bonds. All of the Bonds shall be dated as of the date of the delivery of the Bonds to the initial purchase thereof (the "Date of Delivery"), and interest shall accrue from that date at the rates set forth in Exhibit A attached hereto and incorporated herein by this reference. SECTION 6. Maturity. The Bonds may be issued as serial bonds, term bonds, or both. The principal of the Bond or Bonds shall be payable on September 2 of every year, commencing September 2, 2009, until the whole is paid. The principal amount maturing or payable each year shall be the principal amounts maturing or payable in the respective years as shown on Exhibit A hereto. SECTION 7. Interest. Each serial Bond shall be of a single maturity and shall bear interest at the rate for its maturity as set forth in Exhibit A attached hereto. Interest on the Bonds shall be paid in lawful money of the United States of America on March 2 and September 2 of each year (each, an "Interest Payment Date "), commencing March 2, 2009, by check of the Paying Agent mailed by first -class mail, postage prepaid, on each Interest Payment Date to the registered 08/28/08 Draft owners thereof at the owner's addresses as they appear on the Paying Agent's books of registration on the 15th day of the month immediately preceding said Interest Payment Date regardless of whether such day is a business day (the "Record Date') or by wire transfer to an account in the United States of America made on an Interest Payment Date upon written instructions received by the Paying Agent on or before the Record Date from an owner of $1,000,000 or more in aggregate principal amount of Bonds. Interest shall be calculated on the basis of a 360 -day year composed of twelve 30 -day months. Interest on any Bond shall be payable from the Interest Payment Date next preceding the date ofauthentication of that Bond, unless (i) the date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from that Interest Payment Date, or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest'shall be payable from the Date of Delivery, provided, however, that if at the time of authentication of any Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or from the Date of Delivery, if no interest has been paid or made available for payment. SECTION 8. Place of Payment. The principal of, and any premium due on the redemption of the Bonds, shall be payable in lawful money of the United States of America upon surrender thereof at the corporate trust office of the Paying Agent in St. Paul, Minnesota (the "Principal Office "), or at such other office as the Paying Agent may designate, or at the corporate trust office of such other registrar, transfer agent, paying agent or fiscal agent as appointed by Section 25 hereof. SECTION 9. Redemption. (a) Optional Redemption. Any Bond or any portion of a Bond may be redeemed, in whole or in part in increments of $5,000, in advance of maturity on any Interest Payment Date, commencing March 2, 2009, from any source of funds including, without limitation, the prepayment of assessments, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, together with accrued interest to the date of redemption: Redemption Date Redemption Price March 2, 2009 through September 2, 2013 103% March 2, 2014 and September 2, 2014 102% March 2, 2015 and September 2, 2015 101% March 2, 2016 and thereafter 100% (b) Purchase of Bonds. In lieu of payment at maturity or redemption under this Section 9, monies in the Redemption Fund (other than monies representing prepaid assessments) may be used and withdrawn by the Paying Agent for purchase of outstanding Bonds which mature on the next principal payment date, upon the filing with the Paying Agent prior to the selection of Bonds for redemption of a written request from the City requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such request may provide, but in no event may Bonds be purchased at a price in excess ofthe principal amount thereof, the premium, if any, plus interest accrued to the date of maturity or redemption that would otherwise be payable. (c) Selection of Bonds for Redemption. If less than all of the outstanding Bonds or portions thereof are to be redeemed, the Paying Agent shall select the Bonds to be redeemed in authorized denominations in such a 08/28/08 Drat way that the ratio of outstanding Bonds to issued Bonds shall be approximately the same for each annual maturity insofar as possible. (d) Notice of Redemption. When the Paying Agent shall receive notice from the City of its election to redeem Bonds at least sixty (60) days prior to the applicable redemption date, or when Bonds are otherwise to be redeemed pursuant to this Section 9, the Paying Agent shall give notice, in the name and at the expense of the City, of the redemption of such Bonds. Such notice of redemption shall (a) specify the numbers of the Bonds selected for redemption, except that where all the Bonds are subject to redemption or all the Bonds of a maturity date are subject to redemption, the numbers thereof need not be specified; (b) state the date fixed for redemption; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the case of Bonds to be redeemed only in part, state the portion of the Bond which is to be redeemed; and (f) the CUSIP numbers of the Bonds to be redeemed. Such notice shall further state that on the date fixed for redemption there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 45 days prior to the redemption date, the Paying Agent shall mail by registered or certified mail, postage prepaid, or deliver by personal service, a copy of such notice, to the respective owners of the Bonds to be redeemed at their addresses appearing on the bond register. The actual receipt by the owner of any Bond of notice of such redemption shall not be a condition precedent thereto, and failure to receive such notice shall not affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Paying Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties, and it shall not be open to any Bond owner to show that he or she failed to receive notice of such redemption. In addition to the notice described in the foregoing paragraph, such redemption notice shall be given by the Paying Agent (i) by first class mail, postage prepaid, or (ii) by facsimile transmission on the same day as the date of the mailing required by the preceding paragraph, to M.L. Stern & Co., LLC and to The Depository Trust Company. In addition to the foregoing notices, on the same day as the date of the mailing required by the second paragraph preceding this paragraph, such redemption notice shall be given by the Paying Agent by (i) first- class mail, postage prepaid, or (ii) facsimile transmission, to at least one of the Nationally Recognized Municipal Securities Information Repositories selected by the City. Neither failure to give the notice described in the two immediately preceding paragraphs nor any defect therein shall in any manner affect the redemption of the Bonds. (e) Partial RedemRtion of Bonds. Upon surrender of any Bond to be redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Bond owner, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bond surrendered, with the same interest rate and the same maturity. (f) Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in this Section 9, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in this Indenture, anything in this Indenture or in the Bonds to the contrary notwithstanding; 08/28/08 Draft (2) Upon presentation and surrender thereof at the Principal Office of the Paying Agent, such Bonds shall be redeemed at the specified redemption price; (3) From and after the redemption date, the Bonds or portions thereof so designated for redemption shall be deemed to be no longer outstanding and such Bonds or portions thereof shall cease to bear further interest; (4) From and after the date fixed for redemption, no owner of any of the Bonds or portion thereof so designated for redemption shall be entitled to any of the benefits of this Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. (g) Bonds Subject to Refunding. The Bonds shall be subject to refunding pursuant to Division 11.5 ofthe Streets and Highways Code of the State of California. (h) No Mandatory Call. There shall be no mandatory redemption of the Bonds upon an event or determination of taxability or otherwise. SECTION 10. Transfer of Registered Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books of registration required to be kept pursuant to the provisions of Section 12, by the owner in whose name it is registered, or by his or her duly authorized attorney or legal representative, upon surrender of such Bond for registration of such transfer, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent and duly executed by the owner of said Bonds. The Paying Agent may require the payment by the Bond owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer and such charges as provided for in the system of registration for registered debt obligations. The Paying Agent shall not be required to register the transfer of any Bonds during the fifteen (15) days preceding the selection of any Bonds for redemption prior to the maturity thereof, nor with respect to any Bond which has been selected for redemption prior to the maturity thereof. Upon any registration of transfer, a new Bond or Bonds shall be authenticated and delivered by the Paying Agent in exchange for such Bond, in the name of the transferee, in any denomination or denominations autho- rized by this Indenture, and in an aggregate principal amount equal to the principal amount of such Bond or principal amount of such Bond or Bonds so surrendered. In all cases in which Bonds shall be exchanged or transferred, the Paying Agent shall authenticate Bonds in accordance with the provisions ofthis Indenture. All Bonds surrendered in such exchange or registration transfer shall forthwith be canceled. SECTION 11. Exchange of Bonds. Bonds may be exchanged at the principal corporate trust office of the Paying Agent for a like aggregate principal amount of Bonds of the same series, interest rate and maturity, subject to the payment of any tax or governmental charges, if any, upon surrender and cancellation of the Bond. Upon such transfer and exchange, anew registered Bond or Bonds of any authorized denomination or denominations of the same series and maturity for the same aggregate principal amount will be issued to the transferee in exchange therefor. The Paying Agent shall not be required to register the exchange of any Bonds during the fifteen (15) days preceding the selection of any Bonds for redemption prior to the maturity thereof, nor with respect to any Bond which has been selected for redemption prior to the maturity thereof. 08128108 Draft SECTION 12. Books of Registration. There shall be kept by the Paying Agent sufficient books for the registration and transfer of the Bonds and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said register, Bonds as hereinbefore provided. SECTION 13. Execution of Bonds. The Bonds shall be executed manually or in facsimile by the Treasurer and by the City Clerk of the City. The Bonds shall be delivered to the Paying Agent for authentication and registration. In case an officer who shall have signed or attested to any of the Bonds by facsimile or otherwise shall cease to be such officer before the authentication, delivery and issuance of the Bonds, such Bonds nevertheless may be authenticated, delivered and issued, and upon such authentication, delivery and issue, shall be as binding as though those who signed and attested the same had remained in office. SECTION 14. Authentication. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form below, manually executed by the Paying Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Paying Agent shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder, and are entitled to the benefits of this Indenture. FORM OF CERTIFICATE OF AUTHENTICATION This Bond has been authenticated on: [Date] U.S. Bank National Association, as Paying Agent, Transfer Agent and Registrar By: Authorized signatory SECTION 15. Ownership of Bonds. The person in whose name any Bond shall be registered shall be deemed and regarded by the Paying Agent and the City as the absolute owner thereof for all purposes and shall not be affected by any notice to the contrary, and payment of or on account of the principal and redemption premium, if any, of any such Bond, and the interest on any such Bond, shall be made only to or upon the order of the registered owner thereof or his legal representative shown on the books of registration. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid. SECTION 16. Mutilated, Destroyed, Stolen or Lost Bonds. In case any Bond secured hereby shall become mutilated or be destroyed, stolen or lost, the City shall cause to be executed and authenticated a new Bond of bike date and tenor and principal or maturity amount in exchange and substitution for and upon the cancellation of such mutilated Bond or in lieu of and in substitution for such Bond mutilated, destroyed, stolen or lost, upon the owner's paying the reasonable expenses and charges in connection therewith, and, in the case of a Bond destroyed, stolen or lost, his filing with the Paying Agent and City of evidence satisfactory to them that such Bond was destroyed, stolen or lost, and of his ownership thereof, and furnishing the Paying Agent and City with indemnity satisfactory to them. SECTION 17. Cancellation of Bonds. Any Bond paid or redeemed either at or before maturity shall be canceled upon the payment or redemption of such Bond and shall be delivered to the Paying Agent when such payment or redemption is made. All Bonds canceled under any of the provisions of this Indenture shall be destroyed by the Paying Agent and the Paying Agent shall execute a certificate describing the Bonds so destroyed and retain said executed certificate in its permanent files for the issue. 08/28/08 Draft SECTION 18. Application of Bond Proceeds. The proceeds of the sale of the Bonds in the aggregate principal amount of$ .00 (beingthe par amount of the Bonds less the underwriter's discount in the amount of $ .00), shall be received by the City and deposited or transferred as follows: (1) $ .00 of the sale proceeds, which represents the initial Reserve Requirement (as defined below), shall be deposited in the Reserve Fund established pursuant to Section 19 (b) hereof, and (2) $ .00 of the sale proceeds, together with $ collected by the City as prepaid assessments, shall be deposited into the Improvement Fund established pursuant to Section 19 (c) (1) hereof. SECTION 19. Creation of Funds. The Paying Agent and the City, as applicable, are hereby authorized and directed to establish the following funds for purposes of collecting assessment installments, making payment for the hereinafter designated costs and expenses and payment of principal and interest on the Bonds. The funds to be created are designated and subject to the terms as follows: (a) Redemption Fund: The Paying Agent is hereby authorized and directed to establish and maintain a Redemption Fund (the "Redemption Fund') designated by the name of the Assessment District and to deposit therein from time to time (i) the amount of the proceeds of the Bonds which represents accrued and capitalized interest, if any, on the Bonds, (ii) all sums received from the City representing the collection ofthe assessments (other than assessments for administrative costs) and the interest thereon, and (iii) any surplus in the Improvement Fund to the extent as provided below. There shall be established by the Paying Agent a prepayment subaccount within the Redemption Fund to be known as the Prepayment Account ( "Prepayment Account "). The Paying Agent shall not be required to establish the Prepayment Account until the time when deposits are required to be made therein. The City shall transfer to the Paying Agent for deposit in the Prepayment Account all monies received by the City representing the prepayment the principal of, and interest and redemption premium on, any Bonds. Such monies shall be applied solely to the payment of the principal of, and interest and premium on, Bonds to be redeemed prior to maturity pursuant to the provisions of Section 9 of this Indenture. Except for money received with respect to assessment surcharges for administrative costs, the City shall transfer or cause to be transferred to the Paying Agent at least five days prior to each Interest Payment Date all sums received and not previously transferred from the collection of the assessments and any interest thereon and all sums received for the partial or full prepayment of assessments as required by Streets and Highways Code Section 8767. Any transfer representing the payment of delinquent assessment installments or the proceeds of the redemption of or foreclosure on any property with respect to which any assessment installments are delinquent shall be accompanied by written instructions as to the amount, if any, of such transfer which is required to be transferred to the Reserve Fund. Any transfer representing the prepayment of assessments shall be accompanied by written instructions as to the disposition of such sums to redeem Bonds prior to maturity or to pay accrued interest on any Bonds to be redeemed. Principal of and interest on the Bonds shall be paid by the Paying Agent to the registered owners out of the Redemption Fund to the extent funds on deposit in said Redemption Fund are available therefor. In all respects not recited herein, said Bonds shall be governed by this Indenture or such other direction ofthe City to the Paying Agent in writing given in accordance with the provisions of the Act. The Paying Agent may conclusively rely upon any statement or certification of the City that any such direction is given by the City in accordance wit the Act. Under no circumstances shall the Bonds or interest thereon be paid out of any other fund except as provided herein. 08/28/08 Draft (b) Reserve Fund: The City shall create and maintain a special reserve fund for the Bonds (the "Reserve Fund ") to be designated by the name of the Assessment District. Pursuant to Section 18 of this Indenture, the Reserve Fund shall be initially funded from a portion of the Bond proceeds in an amount equal to 6% of the original principal amount of the Bonds. The City shall also deposit in the Reserve Fund funds which represent the proceeds of (i) payments made to redeem delinquent assessment installments or (ii) thejudicial foreclosure sale of parcels pursuant to Section 22 below, in each case if and to the extent that any advance was made from the Reserve Fund to the Redemption Fund as a result of such delinquencies. Monies in the Reserve Fund shall be applied as follows (1) Amounts in the Reserve Fund shall be transferred to the Paying Agent for deposit in the Redemption Fund if there are insufficient monies in said Redemption Fund to pay principal of and interest on the Bonds when due. Amounts so transferred shall be repaid to the Reserve Fund from proceeds from the redemption or foreclosure of property with respect to which an assessment is unpaid and from payments ofthe delinquent assessments. (2) Interest earned on the permitted investment of monies on deposit in the Reserve Fund shall remain in the Reserve Fund to the extent required to maintain the Reserve Fund at the Reserve Requirement. Not later than July 15 of each fiscal year the amount on deposit in the Reserve Fund in excess of the "Reserve Requirement" shall be transferred from the Reserve Fund to the Redemption Fund and credited to the unpaid assessment installments payable during such fiscal year. "Reserve Requirement" shall mean the least of the maximum annual debt service on the outstanding Bonds, (ii) 125% of the average annual debt service on the outstanding Bonds, or (iii) 6% of the original principal amount of Bonds (the "Reserve Requirement'). The City Auditors record shall reflect the credits against each of the unpaid assessments in amounts equal to each parcel's proportionate share of such transfer. Notwithstanding the above, interest earnings on monies on deposit in the Reserve Fund in excess of the "yield" on the Bonds, as that term is defined in the Internal Revenue Code of 1986 (the "Code'), shall be subject to transfer and rebate to the United States Treasury. (3) Whenever monies in the Reserve Fund, together with available funds in the Redemption Fund, are sufficient to fully and timely pay and redeem all outstanding Bonds, plus accrued interest thereon, the money shall be transferred to the Redemption Fund and collection of corresponding amount ofthe remaining unpaid assessments shall cease. (4) In the event an assessment is prepaid in cash, the City shall credit the prepaid assessment with a proportionate share of the Reserve Fund and transfer an amount equal to such credit to the Redemption Fund to be utilized for the advance retirement of Bonds. (c) Improvement Fund (1) General. The City shall create and maintain an improvement fund for the Bonds (the "Improvement Fund ") to be designated by the name of the Assessment District. (2) Project Costs. The monies in the Improvement Fund shall be used only for the payment of Project Costs as that term is defined hereinafter. "Project Costs" shall mean the costs of the conversion of certain overhead electrical and communication facilities to underground locations, together with appurtenances and appurtenant work in connection therewith (the "Improvements ") as authorized in the assessment proceedings and all incidental costs related thereto including the costs of issuing the Bonds, all as more 08/28/08 Draft particularly described in the Assessment Engineers Report for the Assessment District on file in the Office of the City Clerk of the City, as the report may be amended from time to time pursuant to the Municipal Improvement Act of 1913. The Treasurer of the City shall be responsible for the safekeeping and investment ofthe monies held in the Improvement Fund. Interest earned on the investment of the monies held in the Improvement Fund shall be deemed at all times to be part of the Improvement Fund. Upon completion of the acquisition and construction of the Improvements, the Superintendent of Streets of the City shall file a certificate of completion with the Treasurer. Any surplus in the Improvement Fund after completion of the Improvements but prior to September 30, 2010 shall remain in the Improvement Fund until at least September 30, 2010 and thereafter shall be utilized or distributed in any manner authorized by the Act. (d) Rebate Fund: The City shall establish and maintain a Rebate Fund. Amounts, if any, on deposit in the Rebate Fund shall be paid to the United States of America. Notwithstanding any other provisions of this Indenture, all earnings on amounts on deposit in the Rebate Fund shall remain therein until all amounts payable to the United States of America have been paid. SECTION 20. Investments. Obligations purchased as investments of monies in any of the funds in which investments are authorized shall be deemed at all times to be part of such funds. Subject to the restrictions set forth herein, monies in said funds may from time to time be invested by the Paying Agent, as to money in the Redemption Fund, at the written direction of the Treasurer of the City, which written direction shall contain a certification to the Paying Agent that such investments are Authorized Investments as defined in Exhibit D hereto. In the absence of written direction from the City, the Paying Agent shall invest the moneys deposited in the Redemption Fund and any account of such fund in investments described in paragraph (vii) of Exhibit D. Such monies shall be invested only in obligations which will by their terms mature on such dates so as to ensure the payment of principal of and interest on the Bonds as the same become due; provided, investments of money in the Reserve Fund shall mature not later than five years from the date of purchase except such money may be invested in a repurchase agreement or an investment agreement without such five year limitation so long as the repurchase agreement or investment agreement provides for withdrawals at par on or before any Interest Payment Date. The City and, if applicable, the Paying Agent shall sell at the best price reasonably obtainable or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide monies to meet any payment or transfer for such funds or from such funds. For the purpose of determining at any given time the balance in any such funds, any such investments constituting a part of such funds shall be valued at their market value. Notwithstanding anything herein to the contrary, the Paying Agent shall not be responsible for any loss from any investments pursuant to this Indenture, except for its own negligence or willful misconduct. The Paying Agent may act as principal or agent in the acquisition or disposition of investments. The Paying Agent and the City may commingle the funds established hereunder for investment purposes, but shall nonetheless account for each separately. The Paying Agent is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Paying Agent or for any third person or dealing as principal for its own account. 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. 08128/08 Draft Notwithstanding the preceding sentence, the Paying Agent will deliver confirmations to the City upon the written request of the City with respect to any specific transaction identified in the request. The Paying Agent will furnish the City periodic cash transaction statements that include detail for all investment transactions made by the Paying Agent hereunder. SECTION 21. No City Liability. It is hereby further determined and declared that the City will not obligate itself to advance any available funds from its treasury to cure any deficiency or delinquency which may occur in the Redemption Fund by failure of property owners to pay annual special assessments. This determination shall be clearly stated in the title of the Bonds to be issued as authorized and required by Section 8769 of the Streets and Highways Code of the State of California. SECTION 22. Covenant for Superior Court Foreclosure. The City will review the public records of the County of Orange, California, in connection with the collection of the assessment installments not later than August I of each year to determine the amount of assessment installments collected in the prior Paying Year. If the City determines that any parcel or parcels are delinquent in the payment of assessment installments, then the City will cause judicial foreclosure proceedings to be filed in the Superior Court not later than December I of such year, and will prosecute diligently such foreclosure proceedings to judgment and judicial foreclosure sale; provided, however, the commencement of any foreclosure action may be deferred in the sole discretion of the City if, and only so long as, the amount in the Reserve Fund is not less than seventy percent (70 %) of the Reserve Requirement. Upon the redemption or sale of the real property responsible for any such delinquent assessment installment, the City will apply the net proceeds thereof to: (a) deposit to the Reserve Fund the amount of any delinquency advanced therefrom to the Redemption Fund for payment of interest on or principal of the Bonds, and (b) the balance, if any, will be disbursed as set forth in the judgment of foreclosure or as required by law. SECTION 23. Covenant to Maintain Tax - Exempt Status. The City covenants that it will not make any use of the proceeds of the Bonds issued hereunder which would cause the Bonds to become "arbitrage bonds" subject to federal income taxation pursuant to the provisions of Section 148(k) of the Internal Revenue Code of 1986, as amended (the "Code'), or to become "federally- guaranteed obligations" pursuant to the provisions of Section 149(b) of the Code, or to become "private activity bonds" pursuant to the provisions of Section 141(a) of the Code. To that end, the City will comply with all applicable requirements of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements are, at the time, applicable and in effect. Additionally, the City agrees to implementand follow each and every recommendation provided by bond counsel and deemed to be necessary to be undertaken by the City to ensure compliance with all applicable provisions of the Code in order to preserve the exclusion of interest on the Bonds from gross income for federal income tax purposes. SECTION 24. Order to Print and Authenticate Bonds. The Treasurer is hereby instructed to cause Bonds, in form substantially similar to Exhibit C attached hereto, to be printed, and to proceed to cause said Bonds to be authenticated and delivered to an authorized representative of the purchaser, upon payment ofthe purchase price as set forth in the accepted proposal for the sale of Bonds. SECTION 25. Paying Agent. The City hereby appoints U.S. Bank National Association, and U.S. Bank National Association, hereby accepts appointment as Paying Agent for the Bonds. The Paying Agent is hereby authorized to and shall mail or wire transfer interest payments to the Bond owners, select Bonds for redemption, give notice of redemption of Bonds, maintain the Bond register and maintain and administer the Redemption Fund. The Paying Agent is hereby authorized to pay the principal of and premium, if any, on the Bonds when the same are duly presented to it for payment at maturity or on call and redemption, to provide for the registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the 08/28/08 Draft cancellation of Bonds, all as provided in this Indenture, and to provide for the authentication of Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Indenture. The Paying Agent shall keep accurate records of all funds administered by it and al l Bonds paid and discharged by it. The Paying Agent initially appointed, and any successor thereto, may be removed by the City and a successor or successors may be appointed. So long as any Bonds are outstanding and unpaid the Paying Agent and any successor or successors thereto designated by the City shall continue to be Paying Agent of the City for all of said purposes until the designation of a successor or successors as Paying Agent. The City shall compensate the Paying Agent at its normal fee and charges pursuant to the schedule of fees and charges to be provided to the City for the performance of its services hereunder. The Paying Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Paying Agent may consult with counsel, who may be 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 and in accordance therewith. Whenever in the administration of its duties under this Indenture the Paying Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Paying Agent, be deemed to be conclusively proved and established by a certificate of the City, and such certificate shall be full warrant to the Paying Agent for any action taken or suffered under the provisions of this Indenture or any Supplemental Indenture upon the faith thereof, but in its discretion the Paying Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence of such matter or may require such additional evidence as to it may seem reasonable. The City shall pay to the Paying Agent from time to time reasonable compensation for all services rendered as Paying Agent under this Indenture, and also all reasonable expenses, charges, counsel fees and other disbursements, including those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under this Indenture, and the Paying Agent shall have a lien therefor on any funds at any time held by it under this Indenture. The City further agrees, to the extent permitted by applicable law, to indemnify and save the Paying Agent, its officers, employees, and agents harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or willful misconduct. The obligation of the City under this Section shall survive resignation or removal of the Paying Agent under this Indenture and payment of the Bonds and discharge of this Indenture. A Paying Agent appointed hereunder may resign at any time upon written notice to the City and after appointment of a successor, provided the successor is either the Treasurer of the City or is a bank or trust company having (or, if such bank or trust company is a member of a bank holding company, its bank holding company has) combined capital (excluding borrowed capital) and surplus of at least $50,000,000 and is subject to State or federal supervision. Any company into which the Paying 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 it shall be a party or any company to which the Paying Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under this Section 25, shall succeed to the rights and obligations of such Paying Agent without the execution or filing of any paper or further act. If a successor to the Paying Agent is not appointed by the City within sixty (60) calendar days after notice of resignation by the Paying Agent, the Paying Agent may petition a court of competent jurisdiction to appoint a successor. 10 08/28/08 Draft SECTION 26. Liability of Paying Agent. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds shall be taken as statements, promises, covenants and agreements of the City, and the Paying Agent assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of this Indenture or of the Bonds, and shall incur no responsibility in respect thereof other than in connection with its duties or obligations herein, or in the Bonds or in the certificate of authorization assigned to or imposed upon the Paying Agent. No implied duties or obligations shall be read into this Indenture against the Paying Agent. The Paying Agent shall be under no responsibility or duty with respect to the issuance ofthe Bonds for value. The Paying Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Paying Agent shall be protected in acting on any notice, resolution, request, consent, certificate or other document believed by it to be genuine and to have been signed or presented by the proper per• The Paying Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds. The Paying Agent shall not be liable for any error of judgment made in good faith by a responsible officer of the Paying Agent unless it shall be proved that the Paying Agent was negligent in ascertaining the pertinent facts. No provision of this Indenture shall require the Paying Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. All indemnification and releases from liability granted herein to the Paying Agent shall extend to the officers and employees of the Paying Agent. The Paying Agent shall not be chargeable with taking any actions hereunder in accordance with the Act but shall solely be charged with taking action in accordance with this Indenture and any other written direction furnished by the City. SECTION 27. Provisions Constitute Contract. The provisions of this Indenture and the Bonds shall constitute a contract between the City and the Bond owners and the provisions hereof and thereof shall be enforceable by any Bond owner for the equal benefit and protection of all Bond owners similarity situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized under the laws of the State of California in any court of competent jurisdiction. Said contract is made under and is to be construed in accordance with the laws of the State of California. After the issuance and delivery of the Bonds, this Indenture shall not be subject to rescission, but shall be subject to modification to the extent and in the manner provided in this Indenture, but to no greater extent and in no other manner. SECTION 28. Unclaimed Funds. Notwithstanding any provisions of this Indenture, subject to applicable state escheat laws, any monies held by the Paying Agent in trust forthe payment ofthe principal or premium, if any, or interest on, any Bonds and remaining unclaimed for one year after the principal of all ofthe Bonds has become due and payable (whether at maturity or upon call for redemption or by declaration as provided in this Indenture), if such monies were held at such date, or one year after the date of deposit of such monies if deposited after said date when all of the Bonds became due and payable, shall be repaid to the City free from the lien created by this Indenture, and all liability of the Paying Agent with respect to such monies shall thereupon cease and the Bond owners shall, upon such payment, look only to the City for payment; provided, however, that before the repayment of such monies to the City as aforesaid, the Paying Agent shall (at the written request and cost of the City) first publish at least once in a nationally recognized financial publication published in New York, New York, and Los Angeles, California, a notice, in such form as may be deemed 08/28/08 Draft appropriate by the Paying Agent, with respect to the provisions relating to the repayment to the City of the monies held for the payment thereof. SECTION 29. Modification or Amendment to this Indenture (a) This Indenture and the rights and obligations of the City and of the owners of the Bonds may be modified or amended at any time by a supplemental indenture pursuant to the affirmative vote at a meeting of the owners, or with the written consent without a meeting, of the owners of at least a majority in aggregate principal amount of the Bonds then outstanding. No such modification or amendment shall (i) extend the maturity of any Bond or the time for paying interest thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, withoutthe express consent of the owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the assessments superior to or on a parity with the pledge and lien created for the benefit of the Bonds, (iii) reduce the percentage of Bonds required for the amendment hereof, or (iv) reduce the principal amount of or redemption premium on any Bond or reduce the interest rate thereon. Any such amendment may not modify any of the rights or obligations of the Paying Agent without its written consent. The Paying Agent may obtain an opinion of counsel that any such supplemental indenture entered into by the City and the Paying Agent complies with the provisions of this Section 29 and the Paying Agent may conclusively rely on such opinion. (b) This Indenture and the rights and obligations of the City and the owners may also be modified or amended at any time by a supplemental indenture, without the consent of any owners, only to the extent permitted by law and only for any one or more of the following purposes: (1) to add to the covenants and agreements of the City contained in this Indenture, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the City; (2) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provisions of this Indenture, or in regard to questions arising under this Indenture, as the City and the Paying Agent may deem necessary or desirable and not inconsistent with this Indenture, and which shall not materially adversely affect the rights of the owners; or (3) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of excess earnings to the United States of America or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the federal tax regulations. SECTION 30. Notices to and Demands on City and Paying Agent. Any notice or demand which by any provision of this Indenture is required or permitted to be given to or served on the City or the Paying Agent may be given or served by first class mail, postage prepaid, addressed (until another address is filed by the City or the Paying Agent) as follows: Paving Agent: U.S. Bank National Association 633 West Fifth Street, 24h Floor Los Angeles, CA 90071 Attn: Corporate Trust Services 12 08/28/08 Draft CW City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92658 Attn: Finance Officer SECTION 31. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Indenture shall for any reason be held by a court of competent jurisdiction to be illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Indenture. The City hereby declares that it would have executed and delivered this Indenture and each and every other section, paragraph, sentence, clause or phrase thereof and authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more sections, paragraphs, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. SECTION 32. Applicable Law. This Indenture shall be governed by and enforced in accordance with the laws of the State of California applicable to contracts made and performed in the State of California. SECTION 33. Conflict with Act. In the event of a conflict between any provision ofthis Indenture with any provision of the Act as in effect on the closing date, the provision of the Act as in effect on the closing date shall prevail over the conflicting provision of this Indenture. SECTION 34. Payment on Business Day. In any case where the date of the payment of principal of or interest (and premium, if any) on the Bonds or the date fixed for redemption is other than a business day (i.e., any day other than a Saturday or Sunday or any day the Paying Agent is authorized or obligated by law or executive order to be closed), the payment of interest or principal (and premium, if any) need not be made on the scheduled date but may be made on the next succeeding date which is a business day with the same force and effect as if made on the date required, and no interest shall accrue for the period from and after the scheduled date SECTION 35. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of that certain Disclosure Dissemination Agent Agreement dated as of September 1, 2008 by and between the City and the Digital Assurance Certification, L.L.C., acting as dissemination agent (the "Disclosure Agreement'). Notwithstanding any other provision of this Indenture, failure of the City to comply with the Disclosure Agreement shall not be considered an event of default; however, any Participating Underwriter (as such term is defined in the Disclosure Agreement) or any Bond 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. SECTION 36. Defeasance. If the City shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in this Indenture, then other than as set forth below, all covenants, agreements and other obligations of the City to the Owner of such Bond under the Bond Indenture shall thereupon cease, terminate and become void and discharged and satisfied. Any outstanding Bond shall be deemed to have been paid within the meaning expressed in the preceding paragraph if such Bond is paid in any one or more of the following ways: (1) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; (2) by depositing with the Paying Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds established pursuant to this Indenture (exclusive of the Rebate 13 08/28/08 Draft Fund) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or (3) by depositing with an escrow bank appointed by the City, in trust, noncallable United States Treasury Obligations, in such amount as a certified public accountant shall determine (as set forth in a verification report from such accountant) will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the funds established under this Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the City, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the City under this Indenture with respect to such Bond shall cease and terminate, except for the obligation of the Paying Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District to preserve the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Notice of such election shall be filed with the Paying Agent not less than ten (10) days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Paying Agent. In connection with a defeasance under (2) or (3) above, there shall be provided to the Paying Agent a certificate of a certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Paying Agent or the escrow bank, together with the interest to accrue thereon and moneys then on deposit in the funds established under this Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon to pay and discharge the principal of, premium, if any, and interest on all such Bonds to be defeased in accordance with this Indenture as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with this Indenture. [Remainder of page intentionally blank.] 14 08/28/08 Draft SECTION 37. Counterparts. This Indenture may be executed in counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have executed this Bond indenture effective the date first written hereinabove. City of Newport Beach 12 Dennis Danner Director of Administrative Services U.S. Bank National Association, as Paying Agent, Transfer Agent, and Registrar By: Authorized Officer 15 08/28/08 Pratt EXHIBIT A MATURITY SCHEDULE Year Amount Rate 2009 ,000 00 2010 ,000 00 2011 ,000 00 2012 ,000 00 2013 ,000 00 2014 ,000 00 2015 ,000 00 2016 ,000 00 2017 ,000 00 2018 ,000 00 2019 ,000 00 2020 ,000 00 2021 ,000 00 2022 ,000 00 2023 ,000 00 Total 1000 A -1 08/28/08 Draft EXHIBIT "B" Book -Entry Provisions The Bonds (other than the first maturity bonds) shall be initially issued in the form of a single, fully registered Bond for each maturity (which may be typewritten). Upon initial issuance, the ownership of such Bonds shall be registered in the name of the Nominee identified below as nominee of The Depository Trust Company, New York, and its successors and assigns (the "Depository" or "DTC'). Except as hereinafter provided, all of the Bonds shall be registered in the name of the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to this Section (the "Nominee "). With respect to the Bonds registered in the name of the Nominee, neither the Issuer nor the Paying Agent shall have any responsibility or obligation to any broker - dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository (the "Participant ") or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, neither the Issuer nor the Paying Agent shall have any responsibility or obligation (unless the Issuer is at such time the Depository) with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other person, her than an owner of a Bond as shown in the register, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Issuer redeems the Bonds in part, or (iv) the payment to any Participant or any other person, other than an owner of Bond as shown in the register, of any amount with respect to principal of or interest on the Bonds. The Issuer and the Paying Agent may treat and consider the person in whose name each Bond is registered as the holder and absolute owner of such Bond for the purpose of payment of principal and interest with respect to such Bond, for the purpose of giving notices of prepayment if applicable, and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent shall pay all principal of and interest on the Bonds only to or upon the order of the respective owner of a Bond, as shown in the register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer's and the Paying Agent's obligations with respect to payment of principal of and interest on the Bonds to the extent of the sum or sums so paid. No person other than an owner of a Bond, as shown in the register, shall receive a Bond evidencing the obligation of the Issuer to make payments of principal and interest pursuant to this Indenture. Upon delivery by the Depository to the owners of the Bonds, and the Issuer 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 Indenture shall refer to such nominee of the Depository. In order to qualify the Bonds for the Depository's book -entry system, the Issuer is executing and delivering to the Depository a Representations Letter. The execution and delivery ofthe Representations Letter shall not in any other way limit the provisions of this Section or in any other way impose upon the Issuer any obligation whatsoever with respect to persons having interests in the Bonds other than the owners of the Bonds, as shown on the register. In addition to the execution and delivery of the Representations Letter, the Issuer shall take such other actions, not inconsistent with this Indenture, as are reasonably necessary to qualify the Bonds for the Depository's book -entry program. In the event (i) the Depository determines not to continue to act as securities depository forthe Bonds, or (ii) the Depository shall no longer so act and gives notice to the Issuer of such determination, then the Issuer will discontinue the book -entry system with the Depository. If the Issuer determines to replace the Depository LDl 08/28/08 Draft with another qualified securities depository, the Issuer shall prepare or direct the preparation of anew, single, separate, fully registered Bond, per maturity, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Issuer fails to identify another qualified securities depository to replace the Depository, then the Bonds shall no longer be restricted to being registered in the register in the name of the Nominee, but shall be registered in whatever name or names owners of the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of this Indenture, and the Issuer shall prepare and deliver Bonds to the owners thereof for such purpose. In the event of a reduction in aggregate principal amount of Bonds or an advance refunding of part of the Bonds, DTC, in its discretion, (a) may request the Issuer to prepare and issue a new. Bond or (b) may make an appropriate notation on the Bond indicating the date and amounts of such reduction in principal, but in such event the Issuer records maintained by the Paying Agent shall be conclusive as to what amounts are on the Bond, except in the case of final maturity, in which case the Bond must be presented to the Paying Agent prior to payment. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments of principal and interest with respect to such Bond and all notices with respect to such Bonds shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed by the Depository and acceptable to the Issuer. The initial Nominee shall be Cede & Co., as Nominee of DTC. M No. R -_ Interest Rate: EXHIBIT "C" FORM OF BOND United States of America State of California City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bond Maturity Date: Bond Date: September 2, 20_ , 2008 REGISTERED OWNER: Cede & Co. PRINCIPAL SUM: Dollars 08/28/08 Draft CUS1P: Under and by virtue of the Improvement Bond Act of 1915, being Division 10 of the Streets and Highways Code of the State of California (the "Act'), the City of Newport Beach, California (the "Issuer"), will, out of the Redemption Fund for the payment of the Bonds issued upon the assessments in Assessment District No. 101 as more fully described in the Resolution of Intention for said Assessment District, being Resolution No. 2008 -_ adopted by the City Council of the Issuer on April 8, 2008, pay to the registered owner stated above, on maturity date stated above, the principal sum stated above in lawful money of the United States ofAmerica upon presentation at the corporate trust office or agency of U.S. Bank National Association (together with any successor paying under the Bond Indenture, the "Paying Agent ") in St. Paul, Minnesota (or such other office designated by the Paying Agent, herein called the "Principal Office" of the Paying Agent), with interest thereon from the Interest Payment Date next preceding the date on which this Bond is authenticated, unless this Bond is authenticated as of an Interest Payment Date, in which case it shall bear interest from said Interest Payment Date, or unless this Bond is authenticated and registered prior to the fast Interest Payment Date, in which case it shall bear interest from its date or unless interest is in default on this Bond on such date, in which case it shall bear interest from the last date interest was paid in full or from its dated date if no interest has been paid, until payment of such principal sum has been discharged, at the rate per annum stated above, all as is hereinafter specified. This Bond is one of a series of Bonds of like date, tenor and effect, but differing in amounts, interest rates and maturities, issued by the Issuer under the Act for the purpose of providing means for paying for the work and improvements described in said Resolution of Intention, is secured by the monies in said Redemption Fund and by the unpaid assessments made for the payment of said work, and, including principal and interest, is payable exclusively out of the Redemption Fund. Further terms and conditions of the Bonds are provided for by a Bond Indenture by and between the Issuer and the Paying Agent, dated as ofSeptember 1, 2008 (the `Bond Indenture "), and this reference incorporates the Bond Indenture herein and by acceptance hereofthe owner ofthis Bond assents to the terms and conditions of the Bond Indenture. All capitalized terms used herein shall have the same meanings given such terms in the Bond Indenture unless otherwise specified herein. C -1 08/28108 Draft The interest on this Bond is payable semiannually on March 2 and September 2 in each year, commencing March 2, 2009 (each an "Interest Payment Date "), to the registered owner hereofby check mailed by fast class mail to the registered owner at the registered owner's address as it appears on the registration books of the Issuer kept by the Paying Agent on the fifteenth day of the month immediately preceding said Interest Payment Date regardless of whether such day is a business day (the "Record Date ") or by wire transfer to an account in the United States of America made on an Interest Payment Date upon written instructions received by the Paying Agent on or before the Record Date from an owner of $1,000,000 or more in aggregate principal amount of Bonds. This Bond will continue to accrue interest after maturity at the rate above stated, provided it is presented at maturity and payment thereof is refused upon the sole ground that there are not sufficient monies in the Redemption Fund with which to pay same. If this Bond is not presented at maturity, interest hereon will cease to accrue at maturity. The Bonds are issuable only as fully registered Bonds in denominations of $5,000.00 or any integral multiple thereof, except for one Bond maturing in the first year of maturity which shall include the amount by which the total aggregate principal amount of the Bonds exceeds the maximum integral multiple of $5,000. This Bond is transferable by the registered owner hereof in person or by the registered owner's attorney duly authorized in writing at the Principal Office of the Paying Agent, subject to the payment of any tax or governmental charges, if any, upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of any authorized denomination or denominations ofthe same maturity, for the same aggregate principal amount, will be issued to the transferee in exchange therefor. The Bonds are limited obligations of the Issuer and are not a lien or charge upon the funds or property of the Issuer, except to the extent of the funds in the Redemption Fund. The Bonds are not a debt of the Issuer or the State of California or any subdivision thereof, and neither the Issuer nor the State of California or any subdivision thereof is liable for the payment of the Bonds. THE ISSUER DETERMINED AND DECLARED THAT THE ISSUER WILL NOT OBLIGATE ITSELF TO ADVANCE AVAILABLE FUNDS FROM ITS TREASURY TO CURE ANY DEFICIENCY WHICH MAY OCCUR IN THE REDEMPTION FUND. This Bond or any portion of thereof may be redeemed, in whole or in part in increments of $5,000, in advance of maturity on any Interest Payment Date, from any source of funds including, without limitation, the voluntary prepayment of assessments, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, together with accrued interest to the date of redemption: Redemption Date Redemption Price March 2, 2009 through September 2, 2013 103% March 2, 2014 and September 2, 2014 102% March 2, 2015 and September 2, 2015 101% March 2, 2016 and thereafter 100% In lieu of payment at maturity or redemption as described above, monies in the Redemption Fund (other than monies representing prepaid assessments) may be used and withdrawn by the Paying Agent upon the direction of the Issuer for purchase of outstanding Bonds which mature on the next principal payment date, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, the premium, if any, plus interest accrued to the date of maturity or redemption that would otherwise be payable. Notice of redemption in advance of maturity shall be given in accordance with the provisions of the Bond Indenture. If notice of redemption has been duly given and the amount necessary for the redemption has been made available for that purpose on the date fixed for such redemption, then from and after the redemption date, the Bonds or portions thereof so designated for redemption shall be deemed to be no longer outstanding and such Bonds or portions thereof shall cease to accrue further interest and no owner of any ofthe Bonds or portion thereof so designated for redemption shall be entitled to any of the benefits of the Bond Indenture, or to any other rights, C -2 08/28/08 Draft except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. This Bond is subject to refunding pursuant to the Act. The Bond Indenture and the rights and obligations of the Authority and of the owners of the Bonds and of the Paying Agent may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Bond Indenture; provided that no such modification or amendment shall (i) extend the maturity of any Bond or the time for paying interest thereon, or otherwise alter or impair the obligation of the Issuer to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the assessments superior to or on a parity with the pledge and lien created for the benefit of the Bonds, (iii) reduce the percentage of Bonds required for the amendment, or (iv) reduce the principal amount of or redemption premium on any Bond or reduce the interest rate thereon. This Bond shall not be entitled to any benefit under the Act or the proceedings or become valid or obligatory for any purpose until the Certificate of Authentication hereon endorsed shall have been dated and signed by the designated transfer agent, registrar and fiscal agent. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed by the Treasurer of the Issuer and by the City Clerk, as of September 24, 2008. Treasurer CERTIFICATE OF AUTHENTICATION This Bond has been authenticated on September 24, 2008. ASSIGNMENT City Clerk U.S. Bank National Association, as Paying Agent, Transfer Agent, and Registrar La Authorized Officer For value received the undersigned do(es) hereby sell, assign and transfer unto (Name, Address, and Tax Identification or Social Security Number of the within - mentioned registered Bond and hereby irrevocably constitute(s) and attorney, to transfer the same on the books of the Paying Agent with full power of substitution in the premises. Dated: Guaranteed: Signature NOTICE: Signature must be guaranteed by a qualified guarantor. NOTICE: The signature on this assignment must correspond with the name as it appears on the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever. C -3 08128108 Draft EXHIBIT D AUTHORIZED INVESTMENTS "Authorized Investments" is defined to mean the following types of investments: (i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America) and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are unconditionally guaranteed by the full faith and credit of the United States of America. (ii) any of the following obligations of federal agencies not guaranteed by the United States: (a) debentures issued by the Federal Housing Administration; (b) participation certificates or senior debt obligations of the Federal Home Loan Mortgage Corporation or Farm Credit Banks (consisting of Federal Land Banks, Federal Intermediate Credit Bank or Banks for Cooperatives); (c) bonds or debentures of the Federal Home Loan Bank Board established under the Federal Home Loan Bank Act, bonds of any federal home loan bank esta(il7ished under said act and stocks, bonds, debentures, participations or other obligations of or issued by the Federal National Mortgage Association, the Student Loan Marketing Association, the Government National Mortgage Association and the Federal Home Loan Mortgage Corporation; and (d) bonds, notes or other obligations issued or assumed by the International Bank for Reconstruction and Development; (iii) interest- bearing demand or time deposits (including certificates of deposit) in federal or State of California chartered savings and loan associations or banks (including the Trustee and its affiliates), provided that (a) in the case of a savings and loan association, such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation, or the unsecured obligations of such savings and loan association shall be rated in one ofthe two highest rating categories by a nationally recognized rating service, and (b) in the case of a bank, such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation, or the unsecured obligations of such bank (or the unsecured obligations of the parent bank holding company of which such bank is the lead bank) shall be rated in one ofthe two highest rating categories by a nationally recognized rating service; (iv) repurchase agreements collateralized by Federal Securities with a registered broker /dealer subject to Securities Investors Protection Corporation liquidation in the event of insolvency, or any commercial bank provided that: (a) the unsecured obligations of such bank shall be rated in one of the two highest rating categories by a nationally recognized rating service, or such bank shall be the lead bank of a bank holding company whose unsecured obligations are rated in one of the two highest rating categories by a nationally recognized rating service; (b) the most recent reported combined capital, surplus and undivided profits of such bank shall be not less than $100,000,000; and (c) the entity holding such repurchase agreement shall have a perfected first security interest in the collateral securities for the benefit of the City under the California Commercial Code or pursuant to the book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq.; (v) bankers acceptances endorsed and guaranteed by banks described in clause (iv) above; D-1 08/28/08 Draft (vi) obligations, the interest on which is exempt from federal income taxation under Section 103 of the Code and which are rated in one of the two highest rating categories by a nationally recognized rating service; (vii) money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm -G," "AAA -m" or "AA -m" and, if rated by Moody's, rated "Aaa," "Aal" or "Aa2" by Moody's; (viii) units of a taxable government money market portfolio (including portfolios of the Trustee and its affiliates) comprised solely of obligations listed in clause (i) or (ii) above; (ix) investment agreements; (x) commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating by Moody's or Standard & Poor's of issuing corporations that are organized and operating within the United States and have total assets in excess of $500,000,000 and have an "Aa," "AA" or higher rating for the issuer's debentures, other than commercial paper, as provided by Moody's or Standard & Poor's, respectively, and provided that purchases of eligible commercial paper may not exceed one - hundred eighty (180) days' maturity nor represent more than ten (10) percent of the outstanding paper of an issuing corporation; (xi) any general obligation of a bank or insurance company whose long -term debt obligations are rated in one of the two highest rating categories of a nationally recognized rating service; and (xii) the Local Agency Investment Fund in the State Treasury of the State of California as permitted by the State Treasurer pursuant to Section 16429.1 of the California Government Code; (xiii) any other investment which at the time of investment is a legal investments under the laws of the State of California for the moneys proposed to be invested therein. The Paying Agent shall be entitled to rely upon any written investment direction from the City as a certification to the Paying Agent that such investment constitutes a Authorized Investment. D -2 E o PRELIMINARY OFFICIAL STATEMENT DATED , 2008 p ?� NEW ISSUE - BOOK ENTRY ONLY NOT RATED �' y .$r' In the opinion of Robert E Hessell, Esq., San Diego, California, Bond Counsel, subject to certain qualifications described herein, under existing laws. as .?, regulations, rulings andcourt decisions, interest on the Bands is excluded from gross Income far federal income im purposes and is not an item for purposes of the C federal alternative minimum tax imposed on individuals and corporations, although far the purpose ofcomputing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from co California personal income taxes. See "CONCLUDiNGINF'ORb ax fATION —T Matters "herein. 4 52,467,597' ° CITY OF NEWPORT BEACH o ASSESSMENT DISTRICT NO. 101 LIMITED OBLIGATION IMPROVEMENT BONDS c' Dated: September 1, 2008 Dan: September 2, as shown below 0 The City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds (the `Bonds") are limited obligations of the City of „moo, 'f o 'g Newport Beach, California (the "Cilv') secured by special assessments on real property located within the City's Assessment District No. 101 (the "District'). The installation and construction of District improvements and the levy of special assessments will be undertaken as provided by the Municipal Improvement Act of 1913. The Bonds are issued pursuant to provisions of the Improvement Bond Act of 1915 and a Bond Indenture dated as of September 1, 2008 s. 7 (the `Indenture') by and between the City and U.S. Bank National Association as Paving Agent (the "Paying Agent'). 0 C — The Bonds are being issued in book -entry form and, when issued. will be registered in the name of Cede & Co., as nominee of The Depositary Trawl a % ;; Compare}', New York, New York. Purchasers of Bonds will not receive certificates representing their beneficial ownership thereof but will receive credit balances an `o the books of their respective nominees. The Bonds will not be transferable or exchangeable except for transfer to soother nominee of The Depository Trust Company o or as otherwise described herein. Individual purchases may be made in principal smouns of $5,000 and integral multiples thereof, except for one Bond (which shall T 0 0 be the Bond maturing in the first year of maturity) which shall include the amount by which the total aggregate principal amount of the Bonds exceeds the maximum E m 0 integral multiple of $5,000. v Interest on the Bands will be payable on March 2, 2009 and semiannually thereafter on each September 2 and March 2. Principal of and interest on the 6 Bonds will be paid by the Paying Agent to Cede & Co., and such payments are expected to be disbursed to the beneficial owners of the Bonds through their nominees. pThe Bonds are subject to redemption prior to maturity as described under "THE BONDS— Redemption of Bonds" herein. Under the provisions of the Improvement Bond Am of 1915, installments of principal and interest sufficient to meet annual debt service on the Bonds will . ';i 2 be billed by the County of Orange (the "County') to owners of property within the District against which there are unpaid assessments. Upon receipt by the Paying rn `0 Agent from the City, these annual installments are to be paid into the Redemption Fund to be held by the Paying Agent and used to pay debt service on the Bonds as it becomes due. c3 Unpaid assessments constitute fixed liens on the lots and parcels assessed within the District and do not constitute a personal indebtedness of the �, 4 respective owners of such loss and parcels. Accordingly, in the event of delinquency, proceedings may be had only against the real property securing the 0` as § delinquent esaessmem. Thus, the value of land within the District is a critical factor in determining the Investment quality of the Bands. C - n R.£ � The City will establish a Reserve Fund and deposit therein Bond proceeds in the amount of the Reserve Requirement to provide funds for a3 payment of principal and interest on the Bonds in the event of any delinquent assessment installments. The City's obligation to advance funds to the 0 Redemption Fund as a result of delinquent installments is limited to the balance in the Reserve Fund. The City has covemosted to initiate judicial o ' - y foreclosure in the event of a delinquency as described herein. See "SECURITY FOR THE BONDS --- Covenam for Superior Court Fomclosms." y Neither the faith and credit nor the taxing power of the City, the County, the Site of California or any political subdivision thereof is pledged to the v 0 payment of the Bonds, and the payment thereof is not second by any encumbrance, mortgage or other pledge of property of the City except the pledge of the E=, o assessments and moneys on deposit in the Redemption Fund and Reserve Fund The City has determined not to obligate itself W advance available funds from is oqq treasury in the event of delinquencies in the payment of assessments. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors most read the entire 0ificial Statement, v including, without limitation, "BONDOWAERS' RISKS, "to obtain it formation essential to the making of an informed investment decision. c 6 g Ev MATURITY SCHEDULE $ `a z Base CAMP` No. v c Ffamrity Rirmcipd interest CUSP dlmuriry Principal /Mw'ear CUS /P aQ September Amount Rate Tidd Price Not September Amount Rah Held Price No.r - 0 3 c c � c � 0 9 M a T The Bonds are offered when, as and if issued subject to the approval of Robert L Hassell. Esq., San Diego, California. Bond Counsel. Certain matters '8 v will be passed upon far the City by the City Attorney and by Stradling Yocca Carlson & Routh, a Professional Corporation, Newport Beach. California, as Disclosure Counsel. It is anticipated that the Bomb will be available far delivery to The Depository Trust Company or its agent on or about _ 2008. o Dated: , 2008 � � C m c v Preliminary, subject to change. z t Copyright 2008, American Bankers Association CUSIP data herein is provided by Standard & Pan's, CUSIP Service Bureau, a division of TheMcGroww-Hill w Companies, lnc. This data is not intended to create a database and does net serve in anyway as a substitute far the CUSIP Services. 0 m E y� w c « � DOCSOCi 1294032v51022459 -0019 CITY OF NEWPORT BEACH MAYOR AND CITY COUNCIL Edward D. Selich, Mayor, District 5 Michael F. Henn, District l Steven Rosansky, District 2 Don Webb, District 3 Leslie Daigle, District 4 Nancy Gardner, District 6 Keith D. Curry, District 7 CITY STAFF Homer Bludau, City Manager Robin Clausen, City Attorney LaVonne M. Harkless, City Clerk Dennis Danner, Director of Administrative Services Dan Matusiewicz. Finance Officer Stephen Badum, Public Works Director David Webb, City Engineer BOND COUNSEL Robert E. Hessell, Esq. San Diego, California FINANCIAL ADVISOR Fieldman, Rolapp & Associates Irvine, California ASSESSMENT ENGINEER W illdan/MuniFinancial Temecula, California PAYING AGENT U. S. Bank National Association Los Angeles, California DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California UNDERWRITER M.L. Stem & Co., LLC Beverly Hills, California DISSEMINATION AGENT Digital Assurance Certification, LLC DOCSOC/ 12940320/022459 -0019 The issuance and sale of the Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. All information for investors regarding the City, the District and the Bonds is contained in this Official Statement. While the City maintains an intemet website for various purposes, none of the information on that websile is intended to assist investors in making any investment decision or to provide any continuing information with respect to the Bonds or any other bonds or obligations of the City. No dealer, broker, salesperson or other person has been authorized by the City to provide any information or to make any representations other than as contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of Bonds. Statements contained in this Official Statement that 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 obtained from the City and certain other sources believed to be reliable. The information and expressions of opinion herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or of the owners sources of property within the District or any matters expressed herein since the date hereof. C4 UTIONARY INFORMATION REGARDING FORWARD- LOOSING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute "Forward- Looking Statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used, such as `plan," "expect," "estimate," "budget' and other similar words. The achievement of certain results or other expectations contained in such forward - looking statements involves 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. While the City has agreed to provide certain on -going financial and operating data for a limited period of time (see "CONCLUDING INFORMATION —Continuing Disclosure" and Appendix F hereto), it does not plan to issue any updates or revisions to those forward - looking statements if or when its expectations or events, conditions or circtumstances on which statements are based change. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONITNUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENTS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF, AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. DOC SOC/ 1294032v5/022459 -0019 TABLE OF CONTENTS CITY OF NEWPORT BEACH AND VICINITY MAP .................. ............................... i SUMMARY STATEMENT .. ............................... ii INTRODUCTION .................. ............................... I THE FINANCING PLAN ...... ............................... I Purpose of the Bonds ....... ............................... I Sources and Uses of Funds ............................. 2 THEBONDS ......................... ............................... 2 Authority for Issuance ..... ............................... 2 Description of the Bonds . ............................... 2 Redemption..................... ............................... 3 Improvement Fund .......... ............................... 4 Redemption Fund ............ ............................... 4 Reserve Fund ................... ............................... 5 RebateFund ..................... ............................... 6 Investments ...................... ............................... 6 Annual Debt Service ....... ............................... 7 SECURITY FOR THE BONDS ........................... 7 General............................ ............................... 7 Reserve Fund ................... ............................... 8 Covenant for Superior Court Foreclosure ...... 8 Covenant to Maintain Tax - Exempt Status.:.... 9 Bonds Create a Lien ...... ............................... 10 Limited City Obligation Upon APPENDIX H Delinquency .................................... :......... 10 THE DISTRICT ................... ............................... 10 Description .................... ............................... 10 The Improvement Project .t. ............................ 10 Assessments .................. ............................... 10 Teeter Plan ..................... ............................... I I Estimated Direct and Overlapping Indebtedness ............... ............................... I I Assessed Value -to -Lien Ratios ..................... 13 Top Ten Property Owners ............................ 14 BONDOWNERS' RISKS .... ............................... 14 General.......................... ............................... 14 Property Tax Delinquencies ......................... 14 Delinquency Resulting in Ultimate or Temporary Loss on Bonds ........................ 15 Non -Cash Payments of Assessments............ 15 LandValues ................... ............................... 15 Limited City Obligation Upon Delinquency............... ............................... 16 Collection of the Assessments ...................... 16 Availability of Funds to Pay Delinquent Assessment Installments ........................... 16 Owner Not Obligated to Pay Assessments... 17 Parity Taxes and Special Assessments......... 17 Bankruptcy and Foreclosure ......................... 17 FD1C/Fedeml Government Interests in Parcels........................ ............................... 18 Natural Disasters ........... ............................... 18 Hazardous Substances ... ............................... 19 DOC SOC/ 1294032v5.i022459 -0019 Loss of Tax Exemption .... .............................19 THE NEWPORT BEACH Limited Secondary Market ............................19 Ballot Initiatives ............... .............................19 B- I Constitutional Amendment — Articles IIIC SUMMARY OF BOND andIIID ........................ .............................20 CONCLUDING INFORMATION ......................20 C-1 Continuing Disclosure ..... .............................20 FORM OF LEGAL Legal Opinion .................. .............................21 Tax Matters ...................... .............................21 D -I NoLitigation .................... .............................22 INFORMATION Financial Interests ............ .............................22 Underwriting .................... .............................22 Financial Advisor ............. .............................22 DEPOSITORY TRUST Miscellaneous .................. .............................22 APPENDIX A ASSESSMENT DIAGRAM ... A -1 APPENDIX B INFORMATION ABOUT THE NEWPORT BEACH AREA..................................... B- I APPENDIX C SUMMARY OF BOND INDENTURE ......................... C-1 APPENDIX D FORM OF LEGAL OPINION ............................... D -I APPENDIX E INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY ............................ E-1 APPENDIX F DISCLOSURE DISSEMINATION AGENT AGREEMENT ....................... F -I APPENDIX G FINAL ENGINEER'S REPORT . ............................... G -1 APPENDIX H LIST OF UNPAID ASSESSMENTS AND MAP OF THE DISTRICT .............. H -1 CITY OF NEWPORT BEACH AND VICINITY MAP DOC SOC/ 1294032v5/022459 -0019 SUMMARY STATEMENT Purpose Proceeds of the $2,481,400" principal amount of the City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds (the "Bonds "), together with certain investment earnings, and certain other moneys will be used to finance the costs of undergrounding overhead utility lines (including trenching, installing new utility vaults needed to receive the conduits and transformers, laying the conduit lines into the trenches, re- paving the street, switching service to the underground system and removing the existing overhead poles and wires) (the "Improvement Project'). See "THE DISTRICT —The Improvement Project" herein Bond proceeds will also be used to establish a debt service reserve fund and to pay the costs of issuance of the Bonds. The District The City of Newport Beach Assessment District No. 101 ( "the District') is located in Newport Beach, California (the "City "). The District generally includes the properties east of Buena Vista, south of East Edgewater Avenue, west of Adams Street, and north of Balboa Boulevard, excluding certain properties located on Island Avenue that are included in Assessment District 74. The District is made up of 354 assessable parcels, of which 78 are condominiums, 2 are non - residential and 274 are single or multi - family residential. The District was formed by the City on July 22, 2008. The amount of assessments levied in the District was $4,749,060 of which $2,119,497 has been prepaid. Tyre are currently 184 parcels in the District with unpaid assessments in the amount of $2,467,597. Security for the Bonds The Bonds are issued upon and secured by a pledge of revenues received by the City in each Fiscal Year from the collection of annual installments of unpaid assessments. including penalties and interest and proceeds from the sale of property for delinquent assessments, on parcels within the District, but excluding amounts collected by the City for the payment of administration costs ( "Assessment Revenues "). See "SECURITY FOR THE BONDS — Reserve Fund—No Additional Bonds" herein. The unpaid assessments represent fixed liens on the assessed parcels. They do not however, constitute a personal indebtedness of the owners of such parcels. Pursuant to the Improvement Bond Act of 1915, installments of principal of assessments and interest thereon sufficient to meet annual debt service on the Bonds will be billed by the County of Orange (the "County") to owners of parcels within the District against which there are unpaid assessments (the "Assessment Installments.") Upon receipt by the Paying Agent from the City, these Assessment Installments are to be deposited into the Redemption Fund, which will be held by the Paying Agent and used to pay Bond principal and interest as they become due. The Assessment Installments billed against each parcel each year represent pro rata shares of the total principal and interest coming due that year, based on the percentage which the unpaid assessment against that parcel bears to the total of unpaid assessments levied to repay the Bonds. The Paying Agent will deposit $ . from Bond proceeds into a Reserve Fund (the "Reserve Fund "). The Reserve Fund will be a source of available funds to advance to the Redemption Fund in the event of delinquent installments. The City's obligation to advance funds to the Redemption Fund in the event of delinquent Preliminary, subject to change. DOC SOC/ 1294032v5/022459 -0019 installments is limited to the balance in the Reserve Fund. Pursuant to the Indenture, the City has no obligation to replenish the Reserve Fund except to the extent that delinquent assessments are paid or proceeds from foreclosure sales are realized. See "SECURITY FOR THE BONDS— Reserve Fund." The City covenants with and for the benefit of the Owners of the Bonds that it will commence judicial foreclosure proceedings against properties with delinquent Assessment Installments under certain circumstances. See "SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure." Redemption Arty Bond or any portion of a Bond may be redeemed in whole or in part in increments of $5,000, in advance of maturity on any Interest Payment Date, commencing March 2, 2009, from any source of funds including, without limitation, the prepayment of assessments, together with accrued interest to the date of redemption at the redemption prices shown on the table under "THE BONDS — Redemption of Bonds — Redemption" herein. Bondowners' Risks Unpaid assessments do not constitute a personal indebtedness of the owners of the parcels within the District There is no assurance that such owners will be able to pay the Assessment Installments or that they will pay such installments even though financially able to do so. Because the City has not obligated itself to advance funds to pay debt service on the Bonds in the event of delinquent Assessment Installments, failure by owners of the parcels to pay Assessment Installments when due, depletion of the Reserve Fund, or the inability of the City to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent Assessment Installments levied against such parcels may result in the inability of the City to make full or punctual payments of debt service on the Bonds, and owners of the Bonds would therefore be adversely affected. See `BONDOWNERS' RISKS " lll IOC SOC/1294032 v5/022459 -0019 $2,467,597' CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 LIMITED OBLIGATION IMPROVEMENT BONDS INTRODUCTION The purpose of this Official Statement, which includes the cover page and the appendices hereto, is to provide certain information concerning the City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds (the `Bonds "). Assessment District No. 101 (the "District") was formed by the City of Newport Beach (the "City") on July 22, 2008 to underground overhead utility lines. The Bonds are being issued pursuant to the Improvement Bond Act of 1915 (the "1915 Act") and a Bond Indenture dated as of September 1, 2008 (the "Indenture "), by and between the City and U.S. Bank National Association, as paying agent (the "Paying Agent "). Unpaid assessments represent liens on the parcels in the District on which they have been confirmed; they do not, however, constitute a personal indebtedness of the owners of the parcels. Installments of principal of assessments and interest thereon sufficient to meet annual debt service on the Bonds will be billed by the County of Orange (the "County") to owners of parcels within the District against which there are unpaid assessments (the "Assessment Installments "). Unpaid assessments and all moneys and securities from time to time held by the City or by the Paying Agent in certain specified funds and accounts under the Indenture are pledged to the payment of the principal of and interest on the Bonds. The Bonds do not constitute a debt of the City, and the City will not be liable thereon except for amounts pledged under the Indenture. The full faith and credit of the City is not pledged to the payment of the Bonds; and the payment of the Bonds is not secured by any encumbrance, mortgage or other pledge of property of the City except the pledge described under the beading "SECURITY FOR THE BONDS." There follow brief descriptions of the Bonds, the District, the Indenture, the Continuing Disclosure Agreement, dated as of September 1, 2008, by and between the City and Digital Assurance Certification, LLC ( "DAC ") (the "Disclosure Agreement") and certain other matters. Such descriptions do not purport to be comprehensive or definitive. All references herein to any of the aforesaid documents are qualified in their entirety by reference to the forms thereof, which are available for inspection at the office of the Paying Agent in Los Angeles, California and at the office of the City Clerk in Newport Beach, California. Capitalized terms not defined herein shall have the respective meanings ascribed to them in the Indenture. THE FINANCING PLAN Purpose of the Bonds Proceeds from the sale of the Bonds will be used to finance the cost of undergrounding utility lines including trenching, installing new utility vaults needed to receive the conduits and transformers, laying the conduit lines into the trenches, re- paving the street, switching service to the underground system and removing the existing overhead poles and wires (the "Improvement Project ") to serve the property within the District, as further described in the section herein entitled "THE DISTRICT —The Improvement Project." The estimated costs of the Improvement Project, is $4,41 1,895 (excluding financing costs of $175,199). The total amount of ' Preliminary, subject to change. DOC SOC/ 1294032 v 5 /022459 -0019 assessments levied in the District was $4,749,060. The total amount of assessments prepaid is $2,119,497 and the total amount of unpaid assessments is $2,467,597. Sources and Uses of Funds The Paying Agent will receive the proceeds from the sale of the Bonds upon delivery of such Bonds to the purchasers thereof. The proceeds of the Bonds will be applied as set forth in the following table: Sources and Uses of Funds SOURCES: Par Amount of Bonds $ Less Underwriter's Discount Plus Accrued Interest Total Sources USES: Improvement Fund $ Reserve Fund Costs of Issuance ct> Total Uses $ Costs of issuance include legal fees, printing costs, Paying Agent Fees and other miscellaneous issuance costs. See Table 2 under the caption "THE DISTRICT —The Improvement Project' for a more detailed statement of all sources and uses of funds relating to the Project. THE BONDS Authority for Issuance The proceedings for the District were conducted pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the "1913 Act'). The Bonds, which represent the unpaid assessments levied against the property in the District. are issued pursuant to the provisions of the Improvement Bond Act of 1915 (the "1915 Act') and the Indenture. Pursuant to the 1913 Act and Proposition 218, which added Article XIIID to the California Constitution, the City held a hearing on July 22, 2008. The City received a favorable response from the landowners casting assessment ballots upon the conclusion of the public hearing. Description of the Bonds The $2,467,597* principal amount of Bonds are dated as of September 1, 2008 and will mature in the amounts and on the dates set forth on the cover hereof. Interest will be paid at the rates set forth on the cover commencing on March 2, 2009, and semiannually thereafter on March 2 and September 2 of each year (each an "Interest Payment Date ") until maturity. The Bonds are issued only as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof, except for one Bond (which shall be the Bond maturing in the first year of maturity) which shall include the amount by which the total aggregate principal amount of the Bonds exceeds the maximum integral multiple of $5,000. The Bonds will be executed and delivered as fully registered Bonds in the name of CEDE & Co., nominee of The Depository Trust Company, New York, New York ( "DTC "), as registered owner of all Bonds. The principal of and interest with respect to the Bonds will be paid directly to CEDE & Co. by the Paying Agent as long as DTC or its y Preliminam subject to change. DOC SOU 1294032x5/022459 -0019 nominee, CEDE & Co., is the registered owner of the Bonds. For information relating to DTC and the DTC book -entry system as it relates to the Bonds, see APPENDIX E— "INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY." The information presented therein is based solely on information provided by DTC and no representation is made by the City concerning the accuracy thereof. Principal and redemption premium, if any, will be payable at the principal corporate trust office of the Paying Agent on presentation of the Bonds. Interest will be calculated on the basis of a 360 -day year composed of twelve 30 -day months. Each Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof unless otherwise specified in the Indenture. Redemption Optional Redemption. Any Bond or any portion of a Bond may be redeemed. in whole or in part in increments of $5,000, in advance of maturity on any Interest Payment Date, commencing March 2, 2009 from any source of funds including, without limitation, the prepayment of assessments, at the following redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed). together with accrued interest to the date of redemption: Redemption Date Redemption Price March 2, 2009 through September 2, 2013 103% March 2, 2014 and September 2, 2014 102 March 2, 2015 and September 2, 2015 101 March 2, 2016 and thereafter 100 Purchase of Bonds. In hen of payment at maturity or redemption, moneys in the Redemption Fund (other than moneys representing prepaid assessments) may be used and withdrawn by the Paying Agent for purchase of Outstanding Bonds which mature on the next principal payment date, upon the filing with the Paying Agent prior to the selection of Bonds for redemption of a written request from the City requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such request may provide, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, the premium, if any, plus interest accrued to the date of maturity or redemption that would otherwise be payable. Selection of Bonds for Redemption. If less than all of the outstanding Bonds or portions thereof are to be redeemed, the Paying Agent shall select the Bonds to be redeemed in authorized denominations in such a way that the ratio of outstanding Bonds to issued Bonds shall be approximately the same for each annual maturity insofar as possible. Notice of Redemption. When the Paying Agent receives notice from the City of its election to redeem Bonds at least sixty (60) days prior to the applicable redemption date, or when Bonds are otherwise to be redeemed pursuant to the Indenture, the Paying Agent shall give notice, in the name and at the expense of the City, of the redemption of the Bonds. Such notice of redemption shall (a) specify the nwnbers of the Bonds selected for redemption, except that where all the Bonds are subject to redemption or all the Bonds of a maturity date are subject to redemption, the numbers thereof need not be specified; (b) state the date fixed for redemption; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the case of Bonds to be redeemed only in part, state the portion of the Bond which is to be redeemed; and (f) the CU SIP numbers of the Bonds to be redeemed. Such notice shall further state that on the date fixed for redemption there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 45 days prior to the redemption date, the Paving Agent shall mail by registered or certified mail, postage prepaid, or deliver by personal service, a copy of such notice, to the respective owners of the Bonds to be redeemed at their addresses appearing on the bond register. The actual receipt by the owner of any Bond of DOC SOCi 1294032v5/022459 -0019 notice of such redemption shall not be a condition precedent thereto, and failure to receive such notice shall not affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Paying Agent that notice of such redemption has been given as provided in the Indenture shall be conclusive as against all parties, and it shall not be open to any Bondowner to show that he or she failed to receive notice of such redemption. Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Bondowner, at the expense of the City. a new Bond or Bonds of authorized denominations equal in aggregate amount to the unredeemed portion of the Bond surrendered, with the same interest rate and the same maturity. Effed of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in the Indenture. and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (l) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Indenture, anything in the Indenture or in the Bonds to the contrary notwithstanding; (2) Upon presentation and surrender thereof at the Principal Office of the Paying Agent, such Bonds shall be redeemed at the specified redemption price; (3) From and after the redemption date, the Bonds or portions thereof so designated for redemption shall be deemed to be no longer outstanding and such Bonds or portions thereof shall cease to bear further interest; (4) From and after the date fixed for redemption, no owner of any of the Bonds or portion thereof so designated for redemption shall be entitled to any of the benefits of the Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. Improvement Fund Moneys in the Improvement Fund will be used only for the Improvement Project as authorized in the assessment proceedings and all incidental costs related thereto including the costs of issuing the Bonds, all as more particularly described in the Assessment Engineer's Report for the Assessment District on file in the Office of the City Clerk of the City, as the report may be amended from time to time pursuant to the Municipal Improvement Act of 1913. Upon completion of the Improvement Project, the Superintendent of Streets of the City will file a certificate of completion with the Treasurer. Any surplus in the Improvement Fund after completion of the Improvement Project but prior to September 30, 2010 will remain in the Improvement Fund until at least September 30, 2010 and thereafter will be utilized or distributed in any manner authorized by the Act. Redemption Fund The Paying Agent will establish and keep a Redemption Fund designated by the name of the Assessment District and to deposit therein from time to time (i) the amount of the proceeds of the Bonds which represents accrued and capitalized interest, if any, on the Bonds (ii) all sums received from the City representing the collection of the assessments (other than assessments for administrative costs) and the interest thereon and (iii) any surplus in the Improvement Fund to the extent provided in the Indenture. Prepayment Account. There will be established by the Paying Agent a prepayment subaccount within the Redemption Fund to be known as the Prepayment Account (the "Prepayment Account"). The Paying 4 DOC SOC/ 1294032v5/022459 -0019 Agent will not be required to establish the Prepayment Account until the time when deposits are required to be made therein. The City will transfer to the Paying Agent for deposit in the Prepayment Account all moneys received by the City representing the prepayment of the principal of, and interest and redemption premium on, any Bonds. Such moneys will be applied solely to the payment of the principal of, and interest and premium on, Bonds to be redeemed prior to maturity pursuant to the Indenture. Except for money received with respect to assessment surcharges for administrative costs, the City will transfer or cause to be transferred to the Paying Agent at least five days prior to each Interest Payment Date all sums received and not previously transferred from the collection of the assessments and any interest thereon and all sums received for the partial or full prepayment of assessments as required by Streets and Highways Code Section 8767. Any transfer representing the payment of delinquent assessment installments or the proceeds of the redemption of or foreclosure on any property with respect to which any assessment installments are delinquent will be accompanied by written instructions as to the amount, if any, of such transfer which is required to be transferred to the Reserve Fund. Any transfer representing the prepayment of assessments will be accompanied by written instructions as to the disposition of such stuns to redeem Bonds prior to maturity or to pay accrued interest on any Bonds to be redeemed. Principal of and interest on the Bonds will be paid by the Paying Agent to the registered owners out of the Redemption Fund to the extent funds on deposit in the Redemption Fund are available therefor. Reserve Fund The City will create and maintain the Reserve Fund to be designated by the name of the Assessment District. The Reserve Fund will be initially funded from a portion of the Bonus proceeds in an amount equal to 6% of the original principal amount of the Bonds. The City will also deposit in the Reserve Fund funds which represent the proceeds of (i) payments made to redeem delinquent assessment installments or (it) the judicial foreclosure sale of parcels pursuant the Indenture, in each case if and to the extent that any advance was made from the Reserve Fund to the Redemption Fund as a result of such delinquencies. Moneys in the Reserve Fund will be applied as follows: (1) Amounts in the Reserve Fund will be transferred to the Paying Agent for deposit in the Redemption Fund if there are insufficient moneys in the Redemption Fund to pay principal of and interest on the Bonds when due. Amounts so transferred will be repaid to the Reserve Fund from proceeds from the redemption or foreclosure of property with respect to which an assessment is unpaid and from payments of delinquent assessments. (2) Interest earned on the permitted investment of moneys on deposit in the Reserve Fund will remain in the Reserve Fund to the extent required to maintain the Reserve Fund at the "Reserve Requirement" Not later than July 15 of each fiscal year the amount on deposit in the Reserve Fund in excess of the "Reserve Requirement` will be transferred from the Reserve Fund to the Redemption Fund and credited to the unpaid assessment installments payable during such fiscal year. "Reserve Requirement" means the least of (i) the maximum annual debt service on the outstanding Bonds, (ii) 125% of the average annual debt service on the outstanding Bonds, or (iii) 6% of the original principal amount of Bonds. The City Auditor's record will reflect the credits against each of the unpaid assessments in amounts equal to each parcel's proportionate share of such transfer. Notwithstanding the above, interest earnings on moneys on deposit in the Reserve Fund in excess of the "yield" on the Bonds, as that term is defined in the Internal Revenue Code of 1986 (the "Code "), will be subject to transfer and rebate to the United States Treasury. (3) When moneys in the Reserve Fund, together with available funds in the Redemption Fund, are sufficient to fully and timely pay and redeem all outstanding Bonds, plus accrued interest thereon, the DOCSOC/ 1294032v5/022459 -0019 money will be transferred to the Redemption Fund and collection of a corresponding amount of the remaining unpaid assessments will cease. (4) In the event an assessment is to be prepaid in cash, the City will credit the prepaid assessment with a proportionate share of the Reserve Fund and cause the Paying Agent to transfer from the Reserve Fund to the Redemption Fund an amount equal to such credit to be utilized for the advance retirement of Bonds. Rebate Fund The City will establish and maintain a Rebate Fund. Amounts, if any, on deposit in the Rebate Fund will be paid to the United States of America. All earnings on amounts on deposit in the Rebate Fund will remain therein until all amounts payable to the United States of America have been paid. Investments Obligations purchased as investments of moneys in any of the funds in which investments are authorized will be deemed at all times to be part of such funds. Subject to the restrictions set forth in the Indenture, monies in the Redemption Fund may from time to time be invested by the Paying Agent, as to money in the Redemption Fund at the written direction of the Treasurer of the City, which written direction will contain a certification to the Paying Agent that such investments are Authorized Investments as defined in the Indenture. In the absence of written direction from the City, the Paying Agent will invest the moneys deposited in the Redemption Fund and arty account of such funds in investments described in the Indenture. Such moneys will be invested only in obligations which will by their terms mature on such dates so as to ensure the payment of principal of and interest on the Bonds as the same become due; provided, investments of money in the Reserve Fund will mature not later than five years from the date of purchase except such money may be invested in a repurchase agreement or an investment agreement without such five year limitation so long as the agreement provides for withdrawals at par on or before any Interest Payment Date. The City, and if applicable, the Paying Agent, will sell at the best price reasonably obtainable or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer for such funds or from such funds. For the purpose of determining at any given time the balance in any such funds, any such im estments constituting a part of such funds will be valued at their market value. Notwithstanding anything to the contrary, the Paying Agent will not be responsible for any loss from any investments pursuant to the Indenture, except for its own negligence of willful misconduct. The Paying Agent may act as principal or agent in the acquisition or disposition of investments. The Paying Agent and the City may commingle the funds established under the Indenture for investment purposes, but will nonetheless account for such separately. 6 DOC SOC/1294032v5r022459 -0019 Annual Debt Service Table I below sets forth the annual debt service on the Bonds based on the maturity schedule and interest rates set forth on the cover page of this Official Statement. TABLE 1 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 LIMITED OBLIGATION IMPROVEMENT BONDS ANNUAL DEBT SERVICE Year Ending September 2 Principal interest Total Totals $ SECURITY FOR THE BONDS General The Bonds are issued upon and secured by a pledge of Assessment Revenues. All the Bonds are secured by the moneys in the Redemption Fund and the Reserve Fund and any earnings thereon (except to the extent earnings are to be transferred to the Rebate Fund under the Indenture) and by the unpaid assessments. Principal of and interest on the Bonds are payable exclusively out of the Redemption Fund. The payment of the amount of each Assessment Installment, interest and any penalties and collection costs is secured by an assessment lien upon the applicable property in the District. Such lien is coequal with the latest lien thereon to secure the payment of general ad valorem property taxes, is not subject to extinguishment by the sale of any property on account of the non - payment of general property taxes, and is prior and superior to all liens, claims, encumbrances and titles other than the liens of assessments, special taxes and general property taxes. The Assessment Installments are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds, and, as received by or otherwise credited to the City, will immediately be subject to the lien of such pledge. Although the unpaid assessments constitute liens upon the parcels assessed, they do not constitute a personal indebtedness of the owners of said parcels. There can be no assurance as to the financial or legal ability, or the willingness, of such property owners to pay the unpaid assessments. DOCSOC /1294032v5 /022459 -0019 The failure of a property owner to pay an Assessment Installment will not result in an increase in Assessment Installments applicable to other parcels within the District. The unpaid assessments will be collected in semi - annual installments, together with interest on the declining balances, on the County tax roll on which general taxes on real property are collected, and the unpaid assessments are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do general taxes, and the assessment parcels are subject to the same provisions for sale and redemption as are properties for nonpayment of general tares. See also the section herein below entitled "Covenant for Superior Court Foreclosure." Reserve Fund The Reserve Fund will be a source of available funds to advance to the Redemption Fund in the event of delinquent Assessment Installments. See "THE BONDS — Reserve Fund" herein. The City's obligation to advance funds to the Redemption Fund in the event of delinquent Assessment Installments is limited to the balance in the Reserve Fund. Pursuant to the Indenture, the City has no obligation to replenish the Reserve Fund except to the extent that delinquent Assessment Installments are paid or proceeds from foreclosure sales are realized. However, the determination by the City not to obligate itself to advance available funds to cure delinquencies will not prevent the City from, in its sole discretion, advancing such funds. No Additional Bonds. No additional bonds or other obligations will be issued or incurred that will be secured by or payable from the assessments of the Assessment District. Covenant for Superior Court Foreclosure The City has covenanted to institute judicial foreclosure in the event of a delinquency and thereafter to prosecute diligently to completion, court foreclosure proceedings upon the hen of any and all delinquent assessments and interest. Pursuant to Part 14 of Division 10 of the California Streets and Highways Code, as amended, in the event am Assessment Installment is not paid when due, the City may order the institution of a court action to foreclose the hen of the delinquent unpaid Assessment Installments. In such an action, the property subject to the unpaid Assessment Installments may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory. However, the City will review the public records of the County of Orange, California, in connection with the collection of the assessment installments not later than August I of each year to determine the amount of assessment installments collected in the prior Paying Year. If the City determines that any parcel or parcels are delinquent in the payment of assessment installments, then the City will cause judicial foreclosure proceedings to be filed in the Superior Court not later than December I of each year, and will prosecute diligently such foreclosure proceedings to judgment and judicial foreclosure sale; provided, however, the commencement of arry foreclosure action may be deferred in the sole discretion of the City if, and only so long as, the amount in the Reserve Fund is not less than seventy percent (701/6) of the Reserve Requirement. Judicial Foreclosure Proceedings. The Act provides that the court in a foreclosure proceeding has the power to order property securing delinquent Assessment Installments to be sold for an amount not less than all Assessment Installments, interest, penalties. costs, fees, and other charges that are delinquent at the time the foreclosure action is ordered, and certain other fees and amounts as provided therein (the "Minimum Price "). The court may also include subsequent delinquent Assessment Installments and all other delinquent amounts. The City may, at its discretion, but is not required to, become the purchaser of any property sold in a foreclosure proceeding. If the City becomes the purchaser, it shall pay into the Redemption Fund an amount necessary to satisfy the judgment, less any advances by the City to cover delinquent Assessment Installments 3 DOC SOC/ 1294032x5/022459 -0019 plus simple interest on such net amount, at the interest rates bome by the Bonds, from the dates of delinquency. Unless such property is subsequently resold, the City must transfer to the Redemption Fund any future Assessment Installments pending redemption. The City may thereupon be reimbursed for any amount advanced from the City to the Redemption Fund to cover such future Assessment Installments with respect to the property so sold from the proceeds of such sale. If the property is sold to a purchaser other than the City, the City shall deposit the proceeds from the sale of the property into the Redemption Fund. From such amount, the City shall reimburse the Reserve Fund the amount, if any, of funds advanced from the Reserve Fund to the Redemption Fund to cover the delinquent Assessment Installments with respect to the property which is sold. After reimbursement of the Reserve Fund, the City may be reimbursed for any other amounts advanced from it to the Redemption Fund to cover delinquent Assessment Installments and interest with respect to the property sold in such proceedings. Any funds in excess of the amount necessary to reimburse the City may be applied by the City to pay interest and penalties, costs, fees and other charges, to the extent they were included in the sales proceeds. If the property to be sold fails to sell for the Minimum Price, the City may petition the court to modify the judgment so that the property may be sold at a lesser price or without a Minimum Price. Notice of the hearing on such petition must be given to all Bondowners. In certain circumstances, the court may modify the judgment after the hearing to permit the sale of the property at a price lower than the Minimum Price if the court makes certain determinations, including determinations that the sale at less than the Minimum Price will not result in an ultimate loss to Bondowners or that Bondowners of at least 75% of the principal amount of Bonds outstanding have consented to the petition and certain other circumstances described in the statute exist. Neither the property owner nor any holder of a security interest in the property nor any defendant in the foreclosure action may purchase the property at the foreclosure sale for less than the Minimum Price. A period of 140 days must elapse after the date notice of levy of the interest in real property is served on the judgment debtor before the sale of such lot or parcel with not more than 4 dwelling units can be made. However, pursuant to Streets and Highways Code Section 8832, the 140 day period may be shortened to 20 days for undeveloped property. If the judgment debtor fails to redeem, and if the purchaser at the sale is the judgment creditor (e.g., the City), an action may be commenced by the delinquent property owner within 90 days after the date of sale to set aside such sale. The constitutionality of the repeal of the one year redemption period has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. In the event such Superior Court foreclosure or foreclosures are necessary, there may be a delay in payments to Bondowners pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale; it is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See the section herein entitled "BONDOWNERS' RISKS." Covenant to Maintain Tax- Exempt Status The City covenants that it will not make any use of the proceeds of the Bonds which would cause the Bonds to become "arbitrage bonds" subject to federal income taxation pursuant to the provisions of Section 148(k) of the Code, or to become "federally- guaranteed obligations" pursuant to the provisions of Section 149(b) of the Code, or to become "private activity bonds" pursuant to the provisions of Section 14I(a) of the Code. To that end, the City will comply with all applicable requirements of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements are, at the time, applicable and in effect Additionally, the City agrees to implement and follow each and every recommendation provided by bond counsel and deemed to be necessary to be undertaken by the City to ensure compliance with all applicable provisions of the Code in order to preserve the exclusion of interest on the Bonds from gross income for federal income tax purposes. 9 DOC SOC/ 1294032v5/022459 -0019 Bonds Create a Lien The Assessment Installments and any interest and penalties thereon constitute a hen against the parcels on which they were imposed until the same is paid. Such lien has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. Such lien is co- equal to and independent of the lien for general and special taxes. Limited City Obligation Upon Delinquency The City's obligation to advance moneys to pay debt service on the Bonds in the event of delinquent Assessment Installments is limited to the balance in the Reserve Fund. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof is pledged to the payment of the Bonds. THE DISTRICT Description The District generally includes the properties east of Buena Vista Boulevard, south of East Edgewater Avenue, west of Adams Street, and north of Balboa Blvd., excluding certain properties located on Island Avenue that are included in Assessment District 74. The District is made up of 354 assessable parcels, of which 78 are condominiums,, 2 are non - residential and 274 are single or multi- family residential. The District was formed by the City on July 22, 2008. The amount of assessments levied in the District was $4,749,060. There are currently 184 parcels in the District with unpaid assessments in the amount of $2,467,597. The Improvement Project The following is a summary of the District Improvement Project Cost Estimate as contained in the Final Engineer's Report prepared by Willdan/MuniFinancial, Temecula, California, Assessment Engineers attached hereto as APPENDIX G. TABLE 2 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 ENGINEER'S ESTIMATE OF COSTS AND EXPENSES Construction Costs Electrical Improvements $ 2,817,731 Telephone Improvements 1,309,527 Street Rehabilitation Contingency 19,000 Incidental Expenses(!) 265,638 Financing Costs (2) 175,199 Total $ 4,587,095 Includes costs for inspect ion, engineering, administration, printing, consultants and legal fees. Includes Reserve Requi,e,nenl and Underwriter's discount. Source: willdan/MuniFinancial. Assessments The City Council has taken proceedings under the 1913 Act for the formation of the District and has confirmed an assessment, which assessment and a related diagram were recorded in the office of the City Engineer, acting as the Superintendent of Streets, and with the County Recorder of the County of Orange. A 10 DOC SOC/ 1294032v5/022459 -0019 notice of assessment, as prescribed in Section 3114 of the Streets and Highways Code, has been recorded with the County Recorder of the County of Orange, whereupon the assessment attached as a lien upon the property assessed within the District as provided in Section 3115 of the Streets and Highways Code. On July 22, 2008, the City Council conducted a duly noticed public hearing and election regarding the formation of the District and the issuance of the Bogs. At the election, the property owners approved the levy of the assessments. At the end of the 30 day cash collection period, a list of unpaid assessments will be filed with the City Treasurer pursuant to Section 8620 of the 1915 Act. The amount of assessments prepaid during the 30 day cash collection period was $2,119,497 and the Superintendent of Streets has listed all unpaid assessments in the aggregate amount of $2,467,597. The amounts to be assessed against the parcels of property to pay the costs and expenses of the work and improvements have been based on the estimated benefits to be derived by the various properties within the District. Teeter Plan A Teeter Plan is an alternative method for the distribution of secured property taxes to local agencies. Teeter Plan provisions are set forth in Sections 4701 to 4717 of the California Revenue and Taxation Code. If a Teeter Plan is adopted and implemented by a County Board of Supervisors, local agencies for which a county acts as "bank" and certain other public agencies and taxing areas located in that county receive annually the full amount of their share of property taxes on the secured rolls, including delinquent property taxes which have vet to be collected. No Teeter Plan applies to the District. Estimated Direct and Overlapping Indebtedness Within the District's boundaries are numerous overlapping local agencies providing public services. Some of these local agencies have outstanding bonds which are secured by taxes and assessments on the parcels within the District and others have authorized but unissued bonds which, if issued, will be secured by taxes and assessments levied on parcels within the District. The approximate amount of the direct and overlapping debt secured by such taxes and assessment on the parcels within the District for fiscal year 2007 -08 is shown in Table 3 below (the "Debt Report"). The Debt Report has been derived from data assembled and reported to the District by California Municipal Statistics, Inc. Neither the District nor the City have independently verified the information in the Debt Report and do not guarantee its completeness or accuracy. DOCSOC/ 1294032v5/022459 -0019 TABLE 3 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 DIRECT AND OVERLAPPING DEBT CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 (Includes Parcels with Preuaid Assessments) 2007 -08 Local Secured Assessed Valuation: $214,751,10011' DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Aunlicable Debt 8/1/08 Orange County Teeter Plan Obligations 0.058% $ 71,761 Metropolitan Water District 0.168 549,721 Coast Community College District 0.229 782,422 Newport Mesa Unified School District 0.469 778,885 City of Newport Beach Assessment District No. 101 100. - ('-) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $2,182,789 OVERLAPPING GENERAL FUND DEBT Orange County General Fund Obligations 0.058% $281,048 Orange County Pension Obligations 0.058 41,850 Orange County Board of Education Certificates of Participation 0.058 11,362 Municipal Water District of Orange County Water Facilities Corporation 0.069 12,203 Newport Mesa Unified School District Certificates of Participation 0.483 4,927 City of Newport Beach Certificates of Participation 0.611 28,503 Orange County Sanitation District Certificates of Participation 0.166 149.367 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $529,260 Less: MWDOC Water Facilities Corporation (100% self - supporting) 12.203 TOTAL NET OVERLAPPING GENERAL FUND DEBT $517,057 GROSS COMBINED TOTAL DEBT $2,712,049 13) NET COMBINED TOTAL DEBT $2,699,846 11I Includes the $1,064 value of APN 048 - 032 -14 which is a remainder parcel that will not be assessed by the District. t2i Excludes 1915 Act bonds to be sold. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non -bonded capital lease obligations. Ratios to 2007 -08 Assessed Valuation: DirectDebt ............................................ ............................... - % Total Direct and Overlapping Tax and Assessment Debt ...... 1.02% Gross Combined Total Debt .................... ............................... 1.26% Net Combined Total Debt ....................... ............................... 1.26% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30108: $0 source: California Municipal statistics. 12 DOC SOC/ 1294032v5/022459 -0019 Assessed Value -to -Lien Ratios The assessed value of the parcels as of August 1, 2008 that did not prepay the assessments during the cash collection period is $107,639,749. The total amount of unpaid assessments is $2,467,597'. The overall value -to -lien ratio for parcels with unpaid assessments is 43.62 -to -l. The numbers provided in the following Tables 4, 5, and 6 exclude parcels that prepaid all of the assessment. Table 4 provides information breaking down the overall value -to -lien ratio of groups of parcels with unpaid assessments. TABLE 4 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 ASSESSED VALUE TO LIEN RATIOS Table 5 provides information breaking down the overall value -to -lien ratio of parcels by land use within the District. TABLE 5 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 ASSESSED VALUE TO LIEN RATIOS BY PERMITTED LAND USE Number Fiscal Year 2007 108Assessed Value Fiscal Year 2007/08 Remaining Of Land Assessed Value Total l Assessment Percent of Value to Lien Ratio Parcels Land Structure Total Lien Lien Greater than 100:1 18 $ 30,142,948 $ 4,418,540 $ 34,561,488 $ 220,287 8.93% 50:1 to 99.99:1 46 30,919,525 7,063,356 37,982,881 537,580 21.79 25:1 to 49.99:1 52 19,273,575 5,655,937 24,929,512 661,058 26.79 10:1 to 24.99:1 24 3,932,473 2,327,085 6,259,558 344,799 13.97 Less than 9.99:1 44 2,717350 1,188,560 3,906,310 703,873 28.52 Totals 184 $86,986,271 $ 20,653,478 $107,639,749 $ 2,467,597 100.00% Source: Willdan/MuniFinancial Financial Services. Table 5 provides information breaking down the overall value -to -lien ratio of parcels by land use within the District. TABLE 5 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 ASSESSED VALUE TO LIEN RATIOS BY PERMITTED LAND USE source: Willdan MuniFinancial Financial Services Jamihninary. subject to change. 13 DOC SOC /I 294032v5/022459 -0019 Number Fiscal Year 2007 108Assessed Value of Land Structure Total l Assessment Value Percent Land Use Category Parcels Lien to Lien of Lien Single - Family Residential 95 $ 54,428.246 $ 12,077,828 $ 66.506,074 $ 1,411,681 47.11:1 57.21% Multi- Family Residential 54 22,439,791 4,208,132 26,647,923 847,861 31.43:1 34.36 Condominiums 35 10.118234 4367.518 14.485,752 208.056 69.62:1 8.43 Totals 184 $ 86,986.271 $ 20,653,478 $ 107,639,749 $ 2,467,597 43.62:1 100.00% source: Willdan MuniFinancial Financial Services Jamihninary. subject to change. 13 DOC SOC /I 294032v5/022459 -0019 Top Property Owners The property owner within the District with the largest unpaid assessments was responsible for 1.21% of the assessments in the District. The next eight largest property owners were responsible for between I and 0.65% of the lien. Property Tax Delinquencies As of August 26, 2008, $16,669 of the property taxes levied in Fiscal Year 2007 -08 within the boundaries of the District was delinquent. Property taxes for Fiscal Year 2008 -09 have not yet been assessed. The level of delinquency relating to property taxes in Fiscal Year 2007 -08 and prior years may or may not be indicative of future delinquencies for the Assessment Installments. Table 6 sets forth delinquencies for properties in the District for Fiscal Years 2004 -05 through 2007 -08. ri FM, 048- 072 -15 932 -940 -01 936 - 520 -34 936 - 520-35 TABLE 6 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEARS 2004 -05 THROUGH 2007 -08 Delinquencies(') Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2004 -05 2005 -06 2006 -07 2007 -08 $ 1,326 $ $ 1,326 $ 1,211 $ 1,097 4,912 4,336 3,192 5,618 3.192 5.618 $ 12,507 $ 16,669 Aggregate Amount Delinquent Plus Penalty $ 3,649 9,263 8,825 8,825 $ 30,5621'-1 ft As of August 2008. In The aggregate remaining delinquent amount represents 1.43% of 1.00:0 of the Assessed Value of all properties within the District. Source: Willdan�AluniFinancial Financial Se ieea. BONDOWNERS' RISKS General In order to pay debt service on the Bonds, it is necessary that unpaid Assessment Installments on land within the District are paid in a timely manner. The Reserve Fund will be used to pay delinquent Assessment Installments should they occur. The assessments are a lien on the parcels of land and the City can institute foreclosure proceedings to sell land with delinquent Assessment Installments for the amount of such delinquent installments in order to obtain funds to pay debt service on the Bonds. Failure by owners of the parcels to pay Assessment Installments when due, depletion of the Reserve Fund or the inability of the City to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent Assessment Installments for such parcels may result in the inability of the City to make full or punctual payments of debt service on the Bonds, and Bondowners would therefore be adversely affected. Amendments to the 1915 Act enacted in 1988 and effective January 1, 1989 provide that under certain circumstances property may be sold upon foreclosure at a lesser Minimum Price or without a Minimum Price. 14 DOC SOC/1294032 v51022459 -0019 "Minimum Price" as used in the 1915 Act is the amount equal to the delinquent installments of principal or interest of the assessment or assessment, together with all interest penalties, costs, fees, charges and other amounts more fully detailed in the 1915 Act. The court may authorize a sale at less than the Minimum Price if the court determines that sale at less than the Minimum Price will not result in an ultimate loss to the Bondowners or, under certain circumstances, if owners of 75% or more of the outstanding Bonds consent to such sale. There can be no assurance that foreclosure proceedings will occur in a timely manner so as to avoid depletion of the Reserve Fund and a delay in payments of debt service on the Bonds. See "SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure Judicial Foreclosure Proceedings." Unpaid Assessment Installments do not constitute a personal indebtedness of the owners of the parcels within the District. There is no assurance the owners will be able to pay the Assessment Installments or that they will pay such installments even if financially able to do so. Delinquency Resulting in Ultimate or Temporary Loss on Bonds If a temporary deficiency occurs in the Redemption Fund with which to pay Bonds that have then matured, past due interest or the principal and interest on Bonds coming due during the current year, but it does not appear to the City Treasurer that there will be an ultimate loss to the Bondowners, the City Treasurer shall cause the Paying Agent to pay the principal of Bonds which have matured as presented and make interest payments on the Bonds when due, as long as there are available funds in the Redemption Fund, in the order of priority and as required by the Indenture. If it appears to the City Treasurer that there is a danger of an ultimate loss accruing to the Bondowners for any reason, he or she is required pursuant to the 1915 Act to withhold payment on all matured Bonds and interest on all Bonds and report the facts to the City Council so that the City Council may take proper action to equitably protect all Bondowners. Non -Cash Payments of Assessments The 1915 Act may permit the owner of a parcel that is subject to an unpaid Assessment Installment to tender any bond secured by such assessment in payment or partial payment of any installment of the assessment or interest or penalties thereon which may be due or payable. A bond so tendered is to be accepted at the par amount thereof and credit is to be given for any interest thereon accrued to the date of the tender. Thus, if Bonds can be purchased at a discount, it may be to the advantage of a property owner to pay amounts due with respect to an assessment by tendering a Bond. Such a practice would decrease the cash flow available to the City to make payments with respect to other Bonds then outstanding and could result in a default in payment on the Bonds. Land Values The value of the property within the District is a critical factor in determining the investment quality of the Bonds. if a property owner is delinquent inthe payment of Assessment Installments, the District's only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay The delinquent Assessment Installments. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, foes or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the assessments. See "THE DISTRICT— Assessed Value -to -Lien Ratios" herein The assessed values of the property within the District contained herein do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, adjusted annually by an amount determined by the County Assessor, not to exceed an increase or more than 2% per fiscal year. No assurance can be given that a parcel could actually be sold for its assessed value. No assurance can be given that the values of the property within the District will not decline in the future, if one or more events, such as natural disasters or adverse economic conditions. occur. 15 DOC SOC/ 1294032v5i022459 -0019 No assurance can be given that any bid will be received for a parcel with delinquent Assessment Installments offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Assessment Installments. See "SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure." Limited City Obligation Upon Delinquency Pursuant to the 1915 Act, the City has elected not to be obligated to advance funds from the treasury of the City for delinquent Assessment Installments. The only obligation of the City with respect to such delinquencies and the consequent deficiencies in the Redemption Fund is to advance money to the Redemption Fund from the Reserve Fund. The City has no obligation to replenish the Reserve Fund except to the extent that delinquent Assessment Installments are paid or proceeds from foreclosure sales are realized. There is no assurance that the balance in the Reserve Fund will always be adequate to pay all delinquent Assessment Installments and if during the period of delinquency there are insufficient funds in the Reserve Fund, a delay may occur in payments to the Bondowners. Collection of the Assessments The Assessment Installments are to be collected in the same manner as ordinary ad valorem real property taxes are collected and, except as provided in the special covenant for foreclosure in the Indenture, are to be subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem real property taxes. Pursuant to these procedures, if taxes are unpaid for a period of five years or more, the property may be deeded to the State and then is subject to sale by the County. Pursuant to the Bond Law, in the event any delinquency in the payment of an Assessment Installment occurs, the City may commence an action in superior court to foreclose the lien therefor within the specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale. Such judicial foreclosure action is not mandatory. Amendments to the Bond Law enacted in 1988 and effective January I, 1989 provide that under certain circumstances property may be sold upon foreclosure at a lesser Minimum Price or without a Minimum Price. "Minimum Price" as used in the Bond Law is the amount equal to the delinquent installments of principal or interest of the assessment or reassessment, together with all interest penalties, costs, fees, charges and other amounts more fully detailed in the Bond Law. The court may authorize a sale at less than the Minimum Price if the court determines that sale at less than Minimum Price will not result in an ultimate loss to the Bondowners or, under certain circumstances, if owners of 75% or more of the outstanding Bonds consent to such sale. See "SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure — Judicial Foreclosure Proceeding." There can be no assurance that foreclosure proceedings will occur in a timely manner so as to avoid a delay in payments of debt service on the Bonds. The City has covenanted that the City will commence foreclosure upon the occurrence of a delinquency as provided in the Indenture, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of the delinquent Assessment Installments against parcels of land in the District for which such installment has been billed but has not been paid, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale, all as provided in the Indenture. See `SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure." In the event that sales or foreclosure of property are necessary, there could be a delay in payments on the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the City of the proceeds of sale. Availability of Funds to Pay Delinquent Assessment Installments Upon receipt of the proceeds from the sale of the Bonds, the City will initially establish the Reserve Fund in an amount of the "Reserve Requirement." The moneys in the Reserve Fund constitute a trust fund for the benefit of the Owners of the Bonds, will be held by the Paying Agent and administered by the Paying Agent in accordance with and pursuant to the provisions of the Indenture. If a deficiency occurs in the 16 DOCSOC/ 1294032x5/022459 -0019 Redemption Fund for payment of interest on or principal of the Bonds, the Paying Agent will transfer into such funds an amount out of the Reserve Fund needed to pay debt service on the Bonds. There is no assurance that the balance in the Reserve Fund will always be adequate to pay the debt service on the Bonds in the event of delinquent Assessment Installments. If, during the period of delinquency. there are insufficient funds in the Reserve Fund to pay the principal of and interest on the Bonds as it becomes due, a delay may occur in payments of principal and/or interest to the owners of the Bonds. Owner Not Obligated to Pay Assessments Unpaid assessments do not constitute a personal indebtedness of the owner of parcels within the District and the property owners have made no commitment to pay the principal of or interest on the Bonds or to support payment of the Bonds in any manner. There is no assurance that the property owners have the ability to pay the Assessment Installments or that even if they have the ability, they will choose to pay such Assessment Installments. An owner may elect to not pay the assessments when due and cannot be legally compelled to do so. If an owner decides it is not economically feasible to develop or to continue owning its property encumbered by the lien of the assessment, or decides that for any other reason it does not want to retain title to the property, such owner may choose not to pay assessments and to allow the property to be foreclosed. Such a choice may be made due to a decrease in the market value of the property. A foreclosure of the property will result in such owner's interest in the property being transferred to another party. Neither the City nor any Bondholder will have the ability at any time to seek payment directly from any owner of property within the District of any assessment or any principal or interest due on the Bonds, or the ability to control who becomes a subsequent owner of any property within the District. Parity Taxes and Special Assessments The ability or willingness of a property owner in the District to pay the Assessment Installments could be affected by the existence of other taxes and assessments imposed upon the property. The assessments and any penalties thereon constitute a lien against the lots and parcels of land on which they have been levied until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is co -equal to and independent of the lien for general property taxes and other special assessments regardless of when they are imposed upon the same property. The assessments have priority over all existing and future private hens imposed on the property. In addition, other public agencies whose boundaries overlap those of the District could, with or in some circumstances without the consent of the owners of the land in the District, impose additional taxes or assessment liens on the property in the District in order to finance public improvements to be located inside or outside of the District. The City, however, has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the property in the District In addition, the City is not prohibited itself from establishing assessment districts, community facilities districts or other districts which might impose assessments or taxes against property in the District. The imposition of additional liens on a parity with the assessments could reduce the ability or willingness of the owners of parcels in the District to pay the assessments and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent assessments or the principal of and interest on the Bonds when due. See "THE DISTRICT— Estimated Direct and Overlapping Indebtedness." Bankruptcy and Foreclosure The payment of the assessments and the ability of the City to foreclose the lien of a delinquent unpaid assessment, as discussed in "SECURITY FOR THE BONDS — Covenant to Commence Superior Court Foreclosure," may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or 17 DOCSOC /1294032v 5.!022459 -0019 by the laws of the State of California relating to judicial foreclosure. In addition, the prosecution of a foreclosure action could be delayed due to crowded local court calendars or delays in the legal process. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases. Although bankruptcy proceedings would not cause the assessments to became extinguished bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings and could result in delinquent assessment installments not being paid in full. Where property is encumbered by liens securing mortgage loans, it is highly probable that bankruptcy of a property owner would delay foreclosure for an extended period of time. Such a delay would increase the likelihood of a delay or default in payment of the principal and interest on the Bonds. FDIC /Federal Government Interests in Parcels The ability of the City to collect interest and penalties specified by the 1915 Act and to foreclose the lien of delinquent Assessment Installments may be limited in certain respects with regard to parcels in which the Federal Deposit Insurance Corporation (the "FDIC ") has or obtains an interest. Specifically, in the event that any financial institution making a loan which is secured by parcels is taken over by the FDIC and the applicable Assessment Installment is not paid, the remedies available to the City may be constrained. The FDIC's policy statement regarding the payment of state and local real property taxes (the "Policy Statement ") provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of non- ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, 1995. Moreover, the Policy Statement provides that with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the non - payment of taxes. The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a portion of the parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale. The City's remedies may also be limited in the respect to parcels in which other federal agencies (such Enforcement Administration) have or obtain an interest. Natural Disasters case of delinquent Assessment Installments with as the Internal Revenue Service and the Drug Property within the District may be subject to unpredictable seismic activity, fires, flood, or other natural disasters. Southern California is a seismically active area. Seismic activity represents a potential risk for damage to buildings, roads and property within the District. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. Homes within the District near the shore of the Pacific Ocean are susceptible to flooding as a result of high tides from the Pacific Ocean. The City currently uses a "tidal valve" system to prevent flooding and to protect the homes. No assurances can be given that such system will always protect homes in the District near the shore of the Pacific Ocean from high tides and flooding. Should such homes be damaged or destroyed as a 18 DOC SOC/ 1294032v5/022459 -0019 result of flooding, owners of such homes may be unable or unwilling to pay the Assessment Installments when due. In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in the District. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Assessment Installments when due. In addition, the value of land in the District could be diminished in the aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Assessment Installments. Hazardous Substances While government taxes, assessments and charges are a common claim against the value of a parcel, other less common claims may also be relevant. The value of a parcel may be reduced as a result of a claim with regard to a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Super Fund Act ", is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar in effect. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of a parcel whether or not the owner (or operator) had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels within the District be affected by a hazardous substance, is to reduce the marketability and value by the costs of remedying the condition because the prospective purchaser of such a parcel will, upon becoming the owner of such parcel, become obligated to remedy the condition just as the seller of such a parcel is. Loss of Tax Exemption As discussed under the heading "CONCLUDING INFORMATION —Tax Matters," interest on the Bonds could cease to be excluded from gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of future acts or omissions of the City. In addition, it is possible that future changes in applicable federal tax laws could cause interest on the Bonds to be included in gross income for federal income taxation or could otherwise reduce the equivalent taxable yield of such interest and thereby reduce the value of the Bonds. Limited Secondary Market There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Although the City has committed to provide certain statutorily- required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Ballot Initiatives From time to time constitutional initiatives or other initiative measures may be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the County or local districts to increase revenues or to increase appropriations. 19 DOCSOC/ 1294032v5/022459-0019 Constitutional Amendment — Articles IIIC and IIID An initiative measure commonly referred to as the "Right to Vote on Taxes Act' (the "Initiative ") was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article X111C ( "Article X111C ") and Article X111D ("Article XIIID") to the California Constitution. According to the "Title and Summary" of the Initiative prepared by the California Attorney General, the Initiative limits "the authority of local governments to impose taxes and property- related assessments, fees and charges." Article X1IID requires that, beginning July 1, 1997, the proceedings for the levy of any assessment by the City under the Act (including, if applicable, any increase in such assessment or any supplemental assessment under the Act) must be conducted in conformity with the provisions of Section 4 of Article XI11D. The City completed its proceedings for the levy of assessments in the District on July 27, 2004, after complying with the procedural requirements of Section 4 of Article X111D. Under Section 10400 of the Act, any challenge to the proceedings or the Assessment must be brought within 30 days after the date the assessment was levied. Article X1IIC removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. Article X111C does not define the term "assessment ", and it is unclear whether this term is intended to include assessments levied under the Act In the case of the unpaid assessments which are pledged as security for payment of the Bonds, the 1915 Act provides a mandatory, statutory duty of the City and the County Auditor to post Assessment Installments on account of the unpaid assessments to the property tax roll of the County each year while any bonds are outstanding, commencing with property tax year 2004/05, in amounts equal to the principal of and interest on the Bonds coming due in the succeeding calendar year plus certain administrative costs. It is unlikely that the initiative power can be used to reduce or repeal the unpaid assessments which are pledged as security for payment of the Bonds or to otherwise interfere with performance of the mandatory, statutory duty of the City and the County Auditor with respect to the unpaid assessments which are pledged as security for payment of the Bonds. The interpretation and application of the Initiative will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. CONCLUDING INFORMATION Continuing Disclosure The City has agreed to execute a Continuing Disclosure Agreement (the "Disclosure Agreement ") prior to delivery of the Bonds for the benefit of the Undervriter, holders and beneficial owners of the Bonds to provide certain financial information and operating data relating the District within 270 days after the end of the City's fiscal year (the "Annual Report') and to provide notices of the occurrence of certain enumerated events (the "Listed Events "). The Annual Reports will be filed on behalf of the City by the Dissemination Agent with each Nationally Recognized Municipal Securities Information Repository and the State Repository, if am' . Notices of Listed Events will be filed by the Dissemination Agent with the Municipal Securities Rulemaking Board. The specific nature of the information to be included in the Annual Report and the notices of Listed Events is set forth in APPENDIX F— "DISCLOSURE DISSEMINATION AGENT AGREEMENT." The City has agreed to execute the Disclosure Agreement in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5) (the "Rule "). See APPENDIX F— "DISCLOSURE DISSEMINATION AGENT AGREEMENT." It should be noted that the City is required to file certain financial statements with the Annual Report. This requirement has been included in the Disclosure Agreement solely to satisfy the provisions of the Rule. The inchusion of this information does not mean that the Bonds are secured by any resources or property of the 20 DOC SOC/1294032v5/022459 -0019 City other than as described hereinabove. See "BONDOWNERS' RISKS— Limited City Obligation Upon Delinquency." It should also be noted that the list of significant events which the City has agreed to report includes one item which has absolutely no application to the Bonds. These items have been included in the list solely to satisfy the requirements of the Rule. Any implication from the inclusion of these items in the list to the contrary notwithstanding, the Bonds have not been assigned a credit rating. The City has never failed to comply in all material respects with any previous undertakings with regard to the Rule to provide annual reports or notices of material events. Legal Opinion All proceedings in connection with the issuance of the Bonds are subject to the approval of Robert E. Hessell, Esq., San Diego, California, Bond Counsel (`Bond Counsel "). The opinion of Bond Counsel attesting to the validity of the Bonds will be delivered with each Bond. A form of the opinion to be delivered by Bond Counsel is set forth in Appendix D hereto, The descriptions of the Bonds and statements of law and legal conclusions set forth in this Official Statement under the heading "THE BONDS," "SECURITY FOR THE BONDS," "CONCLUDING INFORMATION —Tax Matters' and Appendices C and D herein have been reviewed by Bond Counsel. Bond Counsel's engagement is limited to a review of the legal procedures required for the authorization of the Bonds and the exemption of interest on the Bonds from income taxation See "CONCLUDING INFORMATION —Tax Matters" herein. The opinion of Bond Counsel will not consider or extend to any documents, agreements, representations, offering circulars or other material of any kind concerning the Bonds, including the Official Statement, not mentioned in this paragraph. Tax Matters In the opinion of Robert E. Hessell, Esq., San Diego, California, Bond Counsel, under existing statutes, regulations, rules and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from personal income taxation imposed by the State of California. Bond Counsel is further of the opinion that interest on the Bonds is not a speck preference item for purposes of the alternative minimum tax provisions of the Irternal Revenue Code of 1986, as amended (the "Code"), However, with respect to the Bonds owned by corporations (as defined for federal income tax purposes), interest on the Bonds may be included in adjusted current earnings, a portion of which may increase the alternative minimum taxable income of such corporations. In addition, although interest on the Bonds is excluded from gross income for federal income tax purposes, the accrual or receipt of interest on the Bonds and the ownership of the Bonds may otherwise affect the federal income tax liability of certain persons or entities. Bond Counsel expresses no opinion regarding any such consequences. The Code sets forth certain requirements which must be met subsequent to the issuance and delivery of the Bonds for interest paid with respect thereto to be and remain exempt from federal income taxation Noncompliance with such requirements might cause the interest paid on the Bonds to be subject to federal income taxation retroactive to the date of issue and the Bonds. These requirements include, but are not limited to, provisions which prescribe yield and other limits within which the proceeds of the Bonds and other amounts are to be invested and require that certain investment earnings on the foregoing must be rebated on a periodic basis to the Treasury Department of the United States. Pursuant to the Indenture, the City has covenanted to comply with all such requirements. In rendering such opinions, Bond Counsel is assuming that the City will comply with its covenants in the Indenture to comply with the requirements of the Code. Noncompliance with the Code might cause the interest on the Bonds to be subject to federal income taxation retroactive to the date of issuance and delivery of the Bonds. 21 DOCSOC/ 1294032v5/022459 -0019 No Litigation There is no action, slit, or proceeding known by the City to be pending at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds or any proceedings of the City taken with respect to the execution or delivery thereof. A no litigation certificate executed by the City will be required to be delivered to the Underwriter simultaneously with the delivery of the Bonds. Financial Interests The fees being paid to the Financial Advisor, Disclosure Counsel and Bond Counsel are contingent upon the issuance and delivery of the Bonds. Underwriting The Bonds were sold to ML Stem& Co. LLC (the "Underwriter") at a negotiated sale. The Underwriter has agreed to purchase the Bonds at a price of $ ($ parvalue, less an Underwriter's discount of $ ). The Underwriter is committed to purchase all of the Bonds if arty are purchased. The Underwriter may offer and sell Bonds to certain dealers and others at prices lower than the offering prices stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriter. Financial Advisor Fieldman, Rolapp & Associates of Irvine, California, served as financial advisor to the City with respect to the sale of the Bonds. Fieldman, Rolapp & Associates will receive compensation contingent upon the sale and delivery of the Bonds. Miscellaneous All quotations from, and summaries and explanations of, the Indenture and other statutes and documents contained herein do not purport to be complete, and reference is made to said documents, the Indenture and statutes for full and complete statements of their provisions. This Official Statement is submitted only in connection with the sale of the Bonds by the City. All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the City. The information contained herein should not be construed as representing all conditions affecting the City or the Bonds. The execution and delivery of this Official Statement have been authorized by the City. CITY OF NEWPORT BEACH 0 22 DOC SOC/ I294032v5/022459 -0019 Mayor APPENDIX A ASSESSMENT DIAGRAM A -1 DOC SOC/ 1294032v5i022459 -0019 APPENDIX B INFORMATION ABOUT THE NEWPORT BEACH AREA This appendix sets forth general information about the Newport Beach area. This information is included only for general background purposes. It is not intended to suggest that the Bonds are payable from any source other than the assessments and certain funds and accounts created by the Indenture. General Description The City of Newport Beach (the "City") was incorporated September 1, 1906. The Council- Manager form of government was established by Municipal Charter on January 7, 1955. The City is located in Orange County, California, and is 75 miles north of San Diego, 15 miles south of Long Beach, and 50 miles south of Los Angeles. The tourist population is high throughout the year. Its harbor, recreation and special attractions draw many to the City. Climate & Topography The City's climate is moderate. Because the City is a beach city, temperatures are generally cooler in the summer and warmer in the winter than other Southern California areas. While much of the City is just above sea level, the City does rise inland. The total area of the City in square miles is: Land -25, Bay -2.5, and Ocean - 23.00, for a total of 50.5 square miles. Population The table below shows the recent population of the City and County of Orange (the "County "). POPULATION GROWTH, 2004 -08 City of Newport Beach and the County of Orange County of Orange 3,021,568 3,050,403 3,071,924 3,089,707 3,121,251 Source: California State Department of Finance, E-4 Population Estimates for Cities, Counties and the State, 2001 -2009 with 2000 DRU Benchmark B -1 DOC SOC /1294032x5/022459 -0019 City of Year Newport Beach 2004 82,344 2005 82,984 2006 83,503 2007 83,834 2008 84,554 County of Orange 3,021,568 3,050,403 3,071,924 3,089,707 3,121,251 Source: California State Department of Finance, E-4 Population Estimates for Cities, Counties and the State, 2001 -2009 with 2000 DRU Benchmark B -1 DOC SOC /1294032x5/022459 -0019 Employment The following table summarizes wage and salary employment in the County from 2003 to 2007. The total wage and salary employment in the County increased by 5.7% between 2003 and 2007. Service Providing is the largest employment sector in the County. ANNUAL AVERAGE INDUSTRY EMPLOYMENV) Orange County Primary PMSA B -2 DOC SOC/ 1294032v5/022459 -0019 2003 2004 2005 2006 2007 Total Farm 7,200 6,700 5,600 5,300 5,000 Total Nonfarm 1,429,000 1,456,700 1,491,000 1,518,900 1,513,000 Total Private 1,274,800 1.303,300 1,335,600 1,362,200 1,353,700 Goods Producing 268,100 276,300 283,500 289,900 284.500 Natural Resources and Mitring 500 600 700 600 600 Construction 83,700 92,200 99,900 106,600 103,700 Manufacturing 183,900 183,500 182,900 182,700 180,300 Service Providing 1,160,900 1,180,500 1,207,400 1,229,000 1,228,400 Trade, Transportation and Utilities 265,000 264,900 269,800 272,800 276,500 Wholesale Trade 83,200 82,400 83,000 83,700 87,100 Retail Trade 152,800 153,200 158,100 160,800 160,700 Transportation, Warehousing and Utilities 29,000 29,200 28,700 28,200 28,700 Information 35,200 33,800 32,800 31,900 31,300 Financial Activities 122,200 132,300 138,400 138,200 128,500 Professional and Business Services 252,600 254.900 264,300 274,500 272,300 Educational and Health Services 126,000 131,000 133,500 137,700 141,600 Government 154 -200 153.400 155300 156,700 159,200 Total, All Industries 1,436,200 1.463,400 1,496,500 1,524,300 1.518,000 Note: The "Total, All Industries" data is not directly comparable to the employment data found herein. n) Employment is reported by place of work; it does not include persons involved in labor - management disputes. Figures are rounded to the nearest hundred. Columns may not add to totals due to rounding. Source: State of California, Employment Development Department, Orange PMSA Industry Employment & Labor Force by AmualAverage, March 20071?mchmark. B -2 DOC SOC/ 1294032v5/022459 -0019 The following table summarizes civilian labor force, employment, and unemployment in the City, the County, the State of California (the "State ") and the United States of America from 2003 to 2007. , CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT City of Newport Beach, County of Orange, State of California and United States of America Annual Averages, 2003 -07 Civilian Labor Civilian ChZan Civilian Year and Area Force Employment°( Unemploymenta" Unenrloymenl Rated 2003 rr1 Includes persons involved in labor- management trade disputes. r �1 Includes all persons withouljobs who are actively seeking work. o3 The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. (4) Not strictly comparable with data for prior years. Source: State of California, Employment Development Department, and U.S. Department of labor, Bureau of Labor Statistics. B -3 DOC SOC/ 1294032v5/022459 -0019 Newport Beach 47,730 46,600 1,130 2.4% Orange County 1,575,600 1,515,900 59,700 3.8 California 17,460,000 16,282,700 1,177,300 6.7 United States (4) 146,510,000 137,736,000 8,774,000 6.0 2004 Newport Beach ") Orange County 1,589,300 1,521,300 68,000 4.3 California 17,655,000 16,576,000 1,080,000 6.2 United States(41 147,401,000 139,252,000 8,149,000 5.5 2005 Newport Beach(" Orange County 1,602,262 1,541,800 60,400 3.8 California 17,695,600 16,746,900 948,700 5A United States (4) 149,320,000 141,730,000 7,591,000 5.1 2006 Newport Beach 45,900 44,900 1,000 2.1% Orange County 1,623,700 1,568,300 55,400 3.4 California 17,907,200 17,029,900 877,300 4.9 United States (4) 151,428,000 144,427,000 7,001,000 4.6 2007 Newport Beach 46,000 44,900 1,100 2.4% Orange County 1,633,100 1,568,800 64,300 3.9 California 18,188,100 17,208,900 979,200 5.4 United States(4) 153,124,000 146,047,000 7,078,000 4.6 rr1 Includes persons involved in labor- management trade disputes. r �1 Includes all persons withouljobs who are actively seeking work. o3 The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. (4) Not strictly comparable with data for prior years. Source: State of California, Employment Development Department, and U.S. Department of labor, Bureau of Labor Statistics. B -3 DOC SOC/ 1294032v5/022459 -0019 Major Employers The principal employers as of June 30, 2007 in the City are as follows: PRINCIPAL EMPLOYERS(') City of Newport Beach W ?!}1;' Hoag Memorial Hospital Pacific Life Insurance Downey Savings & Loan City of Newport Beach Jazz Semiconductor Conexant Systems Inc. The Island Hotel Pacific Investment Management Co. Newport Beach Marriott & Tennis Club Mindspeed Technology Figures reflect number of employees of each employer as of June 30, 2007 and do not reflect current number of employees for each employer. Source: Newport Beach Chamber of Commerce. ME DOC SOC/ 1294032v5/022459.0019 Number Type of Business or Entity Engrloyed hospital and health care 4,390 life insurance, investment 2,788 banking 2,566 city government 814 semiconductor networking solutions 730 semiconductor networking solutions 650 hotel, resort 550 investment company 530 hotels, resorts 500 semiconductor networking solutions 390 Figures reflect number of employees of each employer as of June 30, 2007 and do not reflect current number of employees for each employer. Source: Newport Beach Chamber of Commerce. ME DOC SOC/ 1294032v5/022459.0019 Construction Activity The following table shows building permit valuations and new housing units in Newport Beach for years 2003 through 2007. City of Newport Beach Building Permit Valuation and New Housing Units (Dollar Amounts Are Stated Fully) B -5 DOCSOC/ 1294032x5/022459 -0019 2003 2004 2005 2006 2007 Residential Single Family $ 64,150,467 $ 56,021.134 $ 73,381,227 5 82,967,310 $ 68,054,930 Multi- Family 7,987,086 31,833,538 7,658,741 7,450,000 11,283,560 Alteration /Additions 44.089A03 50.009A11 53.783,612 56.805.626 58.058.723 Total $116,226,956 $137,864,083 $ 136.823.580 S 147,222.936 $137,397,213 Non - Residential New Commercial S 3,781,500 $ 7,746.165 $ 18,235,000 S 36,300,000 5 57,666,475 New Industry 0 0 0 0 2,000,000 Other(t) 19,089,752 18,442,820 34,025,725 37,093,731 29,236,976 Alteration /Additions 37.462.146 46.776,521 54.026.316 53.803.425 40A31.975 Total S 60,333,398 $ 72,965,506 $106,287,041 $ 127,197,156 $ 129,335,426 T tat A1I Indust rvta) $176 60 u $210.829,f$9_ 5243.1 10.621 $ 274A20.092 266 New Housing Units Single Family Units 142 100 141 126 107 Multi - Family Units 40 231 34 34 40 Total 182 331 175 160 147 Includes churches and religious building, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings and non - residential alterations and additions. ('l May not add due to rounding. Source: Construction Industry Research Board. B -5 DOCSOC/ 1294032x5/022459 -0019 Taxable Sales Taxable sales in the City are shown below. Taxable sales in the City increased by 43% between 2002 and 2006. The largest taxable sales sectors in the City are automotive, other retail stores and eating and drinking places. $227074,712,813 1,372,432,950 24,591,599,249 1,484,019,033 267677,681,287 TAXABLESALES 30,050,714,559 1,569,867,249 32,993,340,291 City of Newport Beach 2003 - 20070) (In Thousands) Taxable Sales 2003 2004 2005 2006 2007n) Apparel $ 116,461 $ 138.308 $ 159,346 $ 168,773 $ 43,740 General Merchandise 216.676 237,968 256,604 259,294 58,705 Food Stores 75.576 76,493 82,662 86,262 21,952 Eating and Drinking Places 309,219 344,205 381,592 392,918 103,600 Home Furnishings & Appliances 82,783 81,027 99,458 96,501 24,642 Building Materials and Farm Implements 21,369 25,548 29,130 30,566 7.087 Automotive 350,740 382,748 430,653 538,993 173,030 Service Station 61,231 74,715 89,411 105,462 32,887 Other Retail Stores 276.253 288,372 327.910 334.155 54.578 Total Retail Stores $1,510,308 $1,649,348 $1,856,766 $2,012,924 $ 520.221 All Other Outlets $ 402,738 $ 475,161 $ 501,875 $ 559,897 $ 159,909 Total All Outlets $1,913,046 $2,124,545 $2,358,641 $2,572,821 S 680,130 (') Figures through second quarter 2007 Source: California Board of Equalization. Assessed Valuation Below is a table which indicates the secured, unsecured and total assessed valuations for the City for the fiscal years 2002 -03 through 2006 -07: Fiscal Year Secured Valuation 2002 -03 $20,9907583,190 2003 -04 23,202,634,794 2004 -05 25,193,608,944 2005 -06 28,136,554,256 2006 -07 31,423J73,042 Public Utility $16,531,505(') 16,531,505('} 53,310 53,310 53,310 Unsecured Total Assessed Valuation Value $1,067,598,118 $227074,712,813 1,372,432,950 24,591,599,249 1,484,019,033 267677,681,287 1,914,106,993 30,050,714,559 1,569,867,249 32,993,340,291 �') Pacific Bell acquired property significantly affecting the Public Utility Value. Source: County of Orange Auditor - Controller's Office. B -6 DOC SOC/ 1294032v5l022459 -0019 APPENDIX C SUMMARY OF THE INDENTURE C -1 DOC SOC/ 1294032v5/022459 -0019 APPENDIX D FORM OF LEGAL OPINION [Closing Date] City of Newport Beach Newport Beach, California CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 LIMITED OBLIGATION IMPROVEMENT BONDS Bond Opinion Ladies and Gentlemen: In my capacity as bond counsel to the City of Newport Beach, California (the "City'). I have examined the record of the proceedings of the City Council of the City for the levy of special assessments, and authorization and issuance of the above captioned Bonds in the aggregate principal amount of S upon unpaid assessments, in what is designated as Assessment District No. 101. The proceedings were taken pursuant to the provisions of the Municipal Improvement Act of 1913, being Division 12 of the Streets and Highways Code of the State of California. with the Bonds issued pursuant to the provisions of the Improvement Bond Act of 1915, being Division 10 of said Code. The Bonds are payable solely from the special assessments as provided in the Bond Indenture, dated as of September 1, 2008 (the "Indenture"), by and between the City and U.S. Bank National Association, as Paying Agent. Capitalized terms used herein not otherwise defined herein shall have the meanings given to them in the Indenture. As to questions of fact material to this opinion, I have relied upon the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I have also assumed the genuineness of the signatures appearing upon such records, proceedings, certifications, documents and opinions. Based upon my examination and subject to the foregoing, I am of the opinion, as of the date hereof, that 1. The City is duly organized and validly existing and has duly and validly authorized all the acts undertaken by it in connection with the authorization, execution and delivery of the Bonds. 2. The Bonds and the Indenture are legal, valid and binding obligations enforceable in accordance with their terms and the owners of the Bonds are entitled to the benefits of the Indenture; it should be noted, however, that the rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization and other similar laws affecting creditors' rights, to equitable principles relating to or limiting creditors' rights, and to limitations on remedies applicable to governmental entities. 3. Under existing laws, regulations, rulings and judicial decisions, the interest on the Bonds is excluded from gross income for federal income tax purposes, is exempt from personal income taxation by the State of California, and is not an item of tax preference for purposes of the federal alternative minimum tax imposed upon individuals and corporations; it should be noted, however, that for the purpose of computing the D- I DOC SOC/ 1294032x5/022459 -0019 alternative minimum tar imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. This opinion presumes that the City complies with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal or state income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. I express no opinion regarding other federal or state tax consequences pertaining to the Bonds. Respectfully submitted, Robert E. Hessell D -2 DOC SOC/ I294032v5/022459 -0019 APPENDIX E INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY The information in this section concerning DTC and DTC'S book -entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company ( "DTC "), New York, NY, will act as securities depository for the Bonds (the "Bonds "). The Bonds will be issued as fully - registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered Bond certificate will be issued for each maturity of the Bonds, 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 on such websites is not incorporated herein by reference. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (`Beneficial Owner ") is in tam to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC The deposit of Bonds with DTC and their registration in the name of E -1 DOC SOC/ 1294032 v5 /022459 -0019 Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds 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. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds 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. Redemption notices shall be sent to DTC If less than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption price and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the District or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant to the Trustee, and shall effect delivery of such Bond by causing the Direct Participant to transfer the Participant's interest in the Bonds, on DTC's records, to the Trustee. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership nights in the Bonds are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered Bonds to the Trustee's DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, physical Bonds are required to be printed and delivered. The District may decide to discontinue use of the system of book - entry-only transfers through DTC (or a successor securities depository). In that event. Bond certificates will be printed and delivered to DTC. E -2 DOCSOC(1294032v5i022459 -0019 APPENDIX F DISCLOSURE DISSEMINATION AGENT AGREEMENT This Disclosure Dissemination Agent Agreement (the "Disclosure Agreement'), dated as of September 1, 2008, is executed and delivered by the City of Newport Beach (the `Issuer") and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the "Disclosure Dissemination Agent' or "DAC. ") for the benefit of the Holders (hereinafter defined) of the Bonds (hereinafter defined) and in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2 -12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the "Rule "). SECTION 1. Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings: "Annual Report" means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement. "Annual Filing Date" means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the Repositories. "Annual Financial Information" means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement. "Audited Financial Statements" means the financial statements (if any) of the Issuer for the prior fiscal year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement. "Bonds" means the bonds as listed on the attached Exhibit A, with the 9 -digit CUSIP numbers relating thereto "Central Post Office" means the Disclosure USA website maintained by the Municipal Advisory Council of Texas or any successor thereto, or any other organization or method approved by the staff or members of the Securities and Exchange Commission as an intermediary through which issuers may, in compliance with the Rule, make filings required by the Disclosure Agreement "Certification" means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice required to be submitted to the Repositories under this Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the Issuer and include the full name of the Bonds and the 9 -digit CUSIP numbers for all Bonds to which the document applies. "Disclosure Representative" means the Finance Officer of the Issuer, or such other person as the Issuer shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent. F -1 DOC SOC/ 1294032v5/022459 -0019 "Disclosure Dissemination Agent" means Digital Assurance Certification, L.L.C, acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the Issuer pursuant to Section 9 hereof. "Holder" means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income lax purposes. "Information" means the Annual Financial Information, the Audited Financial Statements (if any) the Notice Event notices, and the Voluntary Reports. "Notice Event" means an event fisted in Sections 4(a) of this Disclosure Agreement. "MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section 1513(b)(1) of the Securities Exchange Act of 1934. "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Official Statement" means that Official Statement prepared by the Issuer in connection with the Bonds, as listed on Exhibit A. issued. "Paying Agent" means the institution identified as such in the document under which the Bonds were "Repository" means the MSRB, each National Repository and the State Depository (if am). "State Depository" means any public or private depository or entity designated by the State of California as a state information depository (if any) for the purpose of the Rule. The list of state information depositories maintained by the United States Securities and Exchange Commission shall be conclusive as to the existence of a State Depository. "Underwriter" shall mean any underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Voluntary Report" means the information provided to the Disclosure Dissemination Agent by the Issuer pursuant to Section 7. SECTION 2. Provision of Annual Reports. (a) The Issuer shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, together with a copy to the Paying Agent and the Underwriter, not later than 30 days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to each National Repository and the State Depository (if any) not later than 270 days after the end of each fiscal year of the Issuer, commencing with the fiscal year ending June 30, 2005. Such date and each anniversary thereof is the Annual Filing Date. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross reference other information as provided in Section 3 of this Disclosure Agreement. (b) If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of due Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind F -2 DOCSOC/1294032v5/022459 -0019 the Issuer of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification) no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Issuer will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Notice Event as described in Section 4(a)(12) has occurred and to immediately send a notice to each National Repository or the MSRB and the State Depository (if any) in substantially the form attached as Exhibit B. (c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 12:00 noon on the first business day following the Annual Filing Date for the Annual Report, a Notice Event described in Section 4(a)(12) shall have occurred and the Issuer irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to each National Repository or the MSRB and the State Depository (if any) in substantially the form attached as Exhibit B. (d) If Audited Financial Statements of the Issuer are prepared but not available prior to the Annual Filing Date, the Issuer shall, when the Audited Financial Statements are available, provide in a timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certificate, together with a copy for the Paying Agent, for filing with each National Repository and the State Depository (if any). (e) The Disclosure Dissemination Agent shall (i) determine the name and address of each Repository each year prior to the Annual Filing Date; (ii) upon receipt promptly file each Annual Report received under Section 2(a) with each National Repository, and the State Depository, (if any); (iii) upon receipt, promptly file each Audited Financial Statement received under Section 2(d) with each National Repository, and the State Depository (if any); (iv) upon receipt, promptly file the text of each disclosure to be made with each National Repository and the State Depository (if any) together with a completed copy of the Event Notice Cover Sheet in the form attached as Exhibit C, describing the event by checking the box indicated below when filing pursuant to the Section of this Disclosure Agreement indicated: 1. "Principal and interest payment delinquencies," pursuant to Sections 4(c) and 4(a)(1); 2. "Non- Payment related defaults," pursuant to Sections 4(c) and 4(a)(2); 3. "Unscheduled draws on debt service reserves reflecting financial difficulties," pursuant to Sections 4(c) and 4(a)(3); 4. "Unscheduled draws on credit enhancements reflecting financial difficulties," pursuant to Sections 4(c) and 4(a)(4); 5. "Substitution of credit or liquidity providers, or their failure to perform," pursuant to Sections 4(c) and 4(a)(5); 6. "Adverse tax opinions or events affecting the tax-exempt status of the security," pursuant to Sections 4(c) and 4(a)(6); F -3 DOCSOC/ I 294032v5/0224 59-0019 7. "Modifications to rights of securities holders," pursuant to Sections 4(c) and 4(a)(7); 8. `Bond calls," pursuant to Sections 4(c) and 4(a)(8); 9. "Defeasances," pursuant to Sections 4(c) and 4(a)(9); 10. "Release, substitution, or sale of property securing repayment of the securities," pursuant to Sections 4(c) and 4(a)(10); 11. "Ratings changes," pursuant to Sections 4(c) and 4(a)(11); 12. "Failure to provide annual financial information as required," pursuant to Section 2(b)(ii) or Section 2(c), together with a completed copy of Exhibit B to this Disclosure Agreement; 13. "Other material event notice (specify)," pursuant to Section 7 of this Agreement, together with the summary description provided by the Disclosure Representative. (v) provide the Issuer evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement. (f) The Issuer may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Paying Agent (if any) and the Repositories, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year. Notwithstanding any other provision of this Disclosure Agreement, any of the required filings hereunder may be made through a Central Post Office in lieu of filing with the Repositories. SECTION 3. Content of Annual Reports. (a) Each Annual Report shall contain Annual Financial Information with respect to the Issuer, including (1) the audited financial statements of the City; (2) the principal amount of Bonds outstanding, (3) the status of the public improvements which have been financed by the City with proceeds of the Bonds; (4) a table setting forth the percentage of delinquent Assessment Installments as of June 30 of each fiscal year and a description of the status of any foreclosure actions being pursued by the City with respect to delinquent Assessment Installments; (5) the Reserve Fund balance; and (6) the total assessed value of property within the District. (b) Audited Financial Statements prepared in accordance with GAAP as described in the Official Statement will be included in the Annual Report. If audited financial statements are not available, then unaudited financial statements, prepared in accordance with generally accepted accounting principles ( "GAAP ") will be included in the Annual Report. Audited Financial Statements (if any) will be provided pursuant to Section 2(d). Any or all of the items listed above may be included by specific reference from other documents. including official statements of debt issues with respect to which the Issuer is an `obligated person' (as defined by the Rule), which have been previously filed with each of the National Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Issuer will clearly identify each such document so incorporated by reference. F -4 DOCSOC/ 1294032v5/022459 -0019 Any annual financial information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided. SECTION 4. Reporting of Notice Events. (a) The occurrence of any of the following events, with respect to the Bonds constitutes a Notice Event: I Principal and interest payment delinquencies; 2. Non - payment related defaults; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements relating to the Bonds 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 Bonds; 7. Modifications to rights of Bond holders; 8. Bond calls; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Bonds; II. Rating changes on the Bonds; 12. Failure to provide annual financial information as required; and The Issuer shall promptly notify the Disclosure Dissemination Agent in writing upon the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c). Such notice shall be accompanied with the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information. (b) The Disclosure Dissemination Agent is under no obligation to notify the Issuer or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within five business days of receipt of such notice, instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c), together with the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information. (c) If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure F -5 DOCSOCi 1294032v5/022459 -0019 Dissemination Agent shall promptly file a notice of such occurrence with the State Depository (if any) and (i) each National Repository, or (ii) the MSRI3 in accordance with Section 2 e (iv) hereof. SECTION 5. CUSIP Numbers. Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Audited Financial Statements, notices of Notice Events, and Voluntary Reports filed pursuant to Section 7(a), the Issuer shall indicate the full name of the Bonds and the 9 -digit CUSIP numbers for the Bonds as to which the provided information relates. SECTION 6. Additional Disclosure Obligations. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule IOb -5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that the failure of the Disclosure Dissemination Agent to so advise the Issuer shall not constitute a breach by the Disclosure Dissemination Agent of any of its duties and responsibilities under this Disclosure Agreement. The Issuer acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement. SECTION 7. Voluntary Reports. (a) The Issuer may instruct the Disclosure Dissemination Agent to file information with the Repositories, from time to time pursuant to a Certification of the Disclosure Representative accompanying such information (a "Voluntary Report"). (b) Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice, in addition to that required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in arty future Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice. SECTION 8. Termination of Reporting Obligation The obligations of the Issuer and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds when the Issuer is no longer an obligated person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required. SECTION 9. Disclosure Dissemination Agent. The Issuer has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement, The Issuer may, upon thirty days written notice to the Disclosure Dissemination Agent and the Paying Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC's services as Disclosure Dissemination Agent, whether by notice of the Issuer or DAC. the Issuer agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor. the Issuer shall remain liable until payment in full for arty and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days' prior written notice to the Issuer. SECTION 10. Remedies in Event of Default. In the event of a failure of the Issuer or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders' rights to F-6 DOCSOC/ 1294032v5 /0224 59 -00 19 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 parties' obligation under this Disclosure Agreement. Any failure by a party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein. SECTION 11. Duties. Immunities and Liabilities of Disclosure Dissemination Agent. (a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent's obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Issuer has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify anv Information or any other information, disclosures or notices provided to it by the Issuer and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Holders of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Issuer's failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the Issuer has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon certifications of the Issuer at all times. The obligations of the Issuer under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, redemption or payment of the Bonds. (b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either in -house or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the Issuer. SECTION 12. Amendment Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel exTert in federal securities laws acceptable to both the Issuer and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule; provided neither the Issuer or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto. Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the Issuer, No such amendment shall become effective if the Issuer shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer. the Paying Agent of the Bonds, the Disclosure Dissemination Agent, the underwriter. and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. F -7 DOC SOC/ 1294032 v 5 /0224 59 -0019 SECTION 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of Florida (other than with respect to conflicts of laws). SECTION 15. Counternarts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. F -8 DOCSOC/ 1294032v5/022459 -0019 The Disclosure Dissemination Agent and the Issuer have caused this Continuing Disclosure Agreement to be executed, on the date first written above, by their respective officer; duly authorized. DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent 0 Title: CITY OF NEWPORT BEACH, as Issuer 0 Title: F -9 DOC SOC/ 1294032v5/022459 -0019 Name of Issuer Obligated Person(s) Name of Bond Issue: EXHIBIT A NAME AND CUSIP NUMBERS OF BONDS City of Newport Beach Date of Issuance: Date of Official Statement CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: DOC SOC /I 294032v 5/022459 -0019 $ City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds .2008 2008 F -10 EXHIBIT B NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Issuer: City of Newport Beach Obligor: Name of Bond Issue: $ City of Newport Beach Assessment District No. 101 Limited Obligation Improvement Bonds Date of Issuance: 12009 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above named Bonds as required by the Disclosure Agreement, dated as of September 1, 2008 between the Issuer and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Issuer has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by Dated: Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Issuer cc: Issuer Obligated Person F -11 DOC SOC/1294032v5/022459 -0019 EXHIBIT C EVENT NOTICE COVER SHEET This cover sheet and material event notice will be sent to all Nationally Recognized Municipal Securities Information Repositories, and any State Information Depository, if applicable, pursuant to Securities and Exchange Commission Rule 15c2- 12(b)(5)(i)(C) and (D). Issuer's and/or Other Obligated Person's Name: Issuer's Six -Digit CUSIP Number: m Nine -Digit CUSIP Number(s) of the bonds to which this material event notice relates: Number of pages of attached:._,_,. _„ _ Description of Material Event Notice (Check One): 1 —...Principal and interest payment delinquencies 2. -Non-Payment related defaults 3. Unscheduled draws on debt service reserves reflecting financial difficulties 4. _Unscheduled draws on credit enhancements reflecting financial difficulties 5. Substitution of credit or liquidity providers, or then failure to perform 6. _.—Adverse tax opinions or events affecting the tax - exempt status of the security 7. ­.Modifications to rights of securities holders 8. Bond calls 9. - .- ....Deloasances 10. _Release, substitution, or sale of property securing repayment of the securities 11. _Rating changes 12. _Other material event notice (specify): Failure to provide annual financial information as required I hereby represent that I am authorized by the issuer m its agent to distribute this information publicly: Signature: Name: Title: Employer: Digital Assurance Certification, L.L.C. Address: City, State, Zip Code: Voice Telephone Number: F -12 DOCSOC/ 1294032 v5 /022459 -0019 APPENDIX G FINAL ENGINEER'S REPORT G -1 DOCSOCi 1294032v5/022459 -0019 APPENDIX H LIST OF UNPAID ASSESSMENTS AND MAP OF THE DISTRICT H -1 DOC SOC/ 1294032x5/022459 -0019 $ CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 LIMITED OBLIGATION IMPROVEMENT BONDS BOND PURCHASE CONTRACT 12008 City of Newport Beach 3300 Newport Blvd. Newport Beach, California 92663 Ladies and Gentlemen: The undersigned (the "Underwriter"), acting not as fiduciary or agent for you, but on behalf of itself, offers to enter into this Purchase Contract with the City of Newport Beach (the "City") in connection with Assessment District No. 101 (the "Assessment District') which, upon acceptance, will be binding upon the City and upon the Underwriter. This offer is made subject to acceptance of it by the City on the date hereof, and, if not accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the City, at any time prior to the acceptance hereof by the City. 1. Purchase. Sale and Delivery of the Bonds. (a) Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter agrees to purchase from the City, and the City agrees to sell to the Underwriter, all (but not less than all) of $ aggregate principal amount of the City of Newport Beach, Assessment District No. 101 Limited Obligation Improvement Bonds (the "Bonds "), bearing interest (payable semiannually on March 2 and September 2 in each year, commencing March 2, 2009) at the rates per annum and maturing on the dates and in the amounts set forth in Appendix A attached hereto and incorporated herein. The purchase price for the Bonds shall be $ (representing a price of par less an Underwriter's discount of$ ). The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable and subject to redemption as provided in, a Bond Indenture by and between the City and U.S. Bank National Association, as paying agent, dated as of 2008 (the "Indenture ") approved by a resolution (the "Resolution "), adopted by the City Council of the City sitting as the legislative body of the Assessment District (the "City Council ") on . 2008. The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable and be subject to redemption as provided in, the Indenture. (b) Pursuant to the authorization of the City, the Underwriter has distributed copies of the Preliminary Official Statement, dated . 2008, relating to the Bonds, which, DOC SOC/ I294386v3/022459 -0019 together with the cover page and all appendices thereto, is herein called the "Preliminary Official Statement" and which, as amended with the prior approval of the Underwriter and executed by the City, will be referred to herein as the "Official Statement ". The City hereby ratifies the use by the Underwriter of the Preliminary Official Statement and the Official Statement and authorizes the Underwriter to use and distribute the Indenture, the Official Statement, the Continuing Disclosure Agreement dated as of 2008, by and between the City and Digital Assurance Certification, L.L.C. ( "DAC "), as dissemination agent (the "Continuing Disclosure Agreement ") and other documents or contracts to which the City is a party, including this Purchase Contract, and all information contained therein, and all other documents, certificates and statements furnished by the Citv to the Underwriter in connection with the transactions contemplated by this Purchase Contract, in connection with the offer and sale of the Bonds by the Underwriter. (c) The Underwriter agrees to make a bona fide public offering of the Bonds at the initial offering price set forth in the Official Statement; however, the Underwriter reserves the right to make concessions to dealers and to change such initial offering price as the Underwriter shall deem necessary in connection with the marketing of the Bonds. The Underwriter agrees that, in connection with the public offering and initial delivery of the Bonds to the purchasers thereof from the Underwriter, the Underwriter will deliver or cause to be delivered to each purchaser a copy of the Official Statement prepared in connection with the Bonds. The Underwriter also agrees to notify the City by phone or in writing of the "end of the underwriting period" as defined in Rude 15c2 -12 promulgated under the Securities Exchange Act of 1934 ( "Rule 15c2 -12 "). Terns defined in the Official Statement are used herein as so defined. (d) The City shall deliver, or cause to be delivered, to the Underwriter two (2) executed copies of the final Official Statement prepared in connection with the Bonds, in such form as shall be approved by the City and the Underwriter and such additional conformed copies thereof as the Underwriter may reasonably request. The City deems the Preliminary Official Statement (the "Preliminary Official Statement ") to be "final" as of its date for purposes of Rule 15c2 -12. By acceptance of this Purchase Contract, the City hereby authorizes the use of copies of the Official Statement in connection with the public offering and sale of the Bonds, and ratifies and approves the distribution by the Underwriter of the Preliminary Official Statement. (e) At approximately 8:00 a.m., Pacific Time, on 2008, or at such earlier or later time or date, as shall be agreed upon by the City and the Underwriter (such time and date herein referred to as the "Closing Date "), the City shall deliver to (i) the Depository Trust Company in New York, New York (all Bonds being book -entry form registered in the name of Cede & Co. and having the CUSIP numbers assigned to them printed thereon) duly executed by the officers of the City as provided in the Indenture and with facsimile seals printed thereon, and (ii) to the Underwriter at the offices of Robert E. Hessell, Esq., the other documents herein mentioned, and the Underwriter shall accept such delivery and pay the purchase price of the Bonds in same day funds (such delivery and payment being herein referred to as the "Closing'). The Bonds, as so registered, shall be made available to the Underwriter for inspection not later than the first business day before the Closing Date. 2. Representations. Warranties and Agreements of the City. The City represents, warrants and covenants to and agrees with the Underwriter that: (a) The City is duly organized and validly existing as a municipal corporation under the laws of the State; and has, and at the Closing Date will have, as the case may be, full legal DOC SOC/ 1294386v3/022459 -0019 right, power and authority (i) to execute, deliver and perform its obligations under this Purchase Contract, the Indenture, the Resolution and the Continuing Disclosure Agreement (collectively, the "City Documents") and to carry out all transactions contemplated by each of the City Documents, (ii) to adopt the Resolution approving the Indenture and enter into the other authorizing documents, (iii) to issue, sell and deliver the Bonds to the Underwriter pursuant to the Indenture as provided herein, and (iv) to carry out, give effect to and consummate the transactions contemplated by the Official Statement and the City Documents; (b) The City Council has duly and validly (i) taken or caused to be taken, all proceedings necessary under the Constitution and the laws of the State of California in order to form the Assessment District and to confirm assessments (the "Assessments ") on the parcels located within the Assessment District in the respective amounts shown in the report of the Assessment Engineer approved by the City Council on , 2008 (the "Engineer's Report"), to cause each of the Assessments to be a valid lien upon the parcel upon which it was confirmed and to authorize the sale and issuance of the Bonds, (ii) authorized and approved the execution and delivery of the City Documents and the Bonds, (iii) authorized the preparation and delivery of the Official Statement and (iv) approved the performance by the City of its obligations contained in, and the taking of any and all action as may be necessary to carry out, give effect to and consummate the transactions contemplated by each of the City Documents (including, without limitation, the collection of the Assessments and the Assessment District has been validly formed, the Assessments have been validly confirmed and constitute liens on the respective parcels within the Assessment District, and (assuming due authorization, execution and delivery by other parties thereto, where necessary) the City Documents and the Bonds will constitute the valid, legal and binding obligations of the City and will be enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (c) The City is not in breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the performance by the City of its obligations under the Bonds or the City Documents, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound; (d) Except as may be required under the "blue sky" or other securities laws of any jurisdiction, all approvals, consents, authorizations, elections and orders of or filings or registrations with any State governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the City of its obligations hereunder, or under the City Documents or the Bonds have been obtained and are in full force and effect; DOCSOC/ 1294396v31022459 -0019 (e) Except as disclosed in the Official Statement, there are, to the best knowledge of the City, no outstanding assessment liens against any of the properties within the City which are senior to or on a parity with the Assessments; (f) Each of the Assessments has been duly and lawfully confirmed, may be collected in installments under the laws of the State, and constitutes a valid and legally binding lien on the property on which it has been confirmed; (g) As of the date thereof, to the best knowledge of the City, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The information contained in the Official Statement is, as of the date hereof and will be, as of the Closing Date and as of the date of any supplement or amendment thereto pursuant to paragraph (i) below, true, correct and complete in all material respects and does not, as of the date hereof and will not, as of the Closing Date or as of the date of any supplement or amendment thereto pursuant to paragraph (i) below, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (h) Until the date which is twenty -five (25) days after the "end of the underwriting period" (as hereinafter defined) if any event shall occur of which the City becomes aware as a result of which it may be necessary to supplement the Official Statement in order to make the statements therein, in light of the circumstances existing at such time, not misleading, the City shall forthwith notify the Underwriter of any such event, and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary so that the statements therein as so amended or supplemented will not be misleading in light of the circumstances existing at such time; and the City shall promptly fumish to the Underwriter a reasonable number of copies of such supplement (as used herein, the term "end of the underwriting period" means the later of such time as (i) the City delivers the Bonds to the Underwriter, or (ii) the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public); (i) The Indenture creates a valid pledge of the Assessments and the moneys in the Redemption Fund, the Improvement Fund and the Reserve Fund established pursuant to the Indenture, including the investments thereof, subject in all cases to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein; and said pledge constitutes a first lien on and security interest in all of the foregoing; 0) Except as disclosed in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or, to the knowledge of the City, threatened against the City (1) which would materially adversely affect the ability of the City to perform its obligations under the City Documents or the Bonds, or (ii) seeking to restrain or to enjoin: (A) the development of any of the land within the Assessment District, (B) the issuance, sale or delivery of the Bonds, (C) the application of the proceeds thereof in accordance with the Indenture, or (D) the collection or application of the Assessments, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the City Documents, any tentative or fmal subdivision map or building permits applicable to property within the Assessment District, any other instruments relating to the DOC SOC/ 1294386v3/022459 -0019 development of any of the property within the Assessment District, or any action contemplated by any of said documents, or (iii) in any way contesting the completeness or accuracy of the Preliminary Official Statement, or the Official Statement or the powers or authority of the City with respect to the Bonds, the City Documents, or any action of the City contemplated by any of said documents; nor is there any action pending or, to the knowledge of the City, threatened against the City which alleges that interest on the Bonds is not excludable from gross income for federal income tax purposes or is not exempt from California personal income taxation; (k) The City will famish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter to qualify the Bonds for offer and sale under the "blue sky" or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; provided, however, the City shall not be required to register as a dealer or a broker of securities or to consent to service of process in connection with any blue sky filing; (1) Any certificate signed by any authorized official of the City authorized to do so shall be deemed a representation and warranty to the Underwriter as to the statements made therein; (m) The City will apply the proceeds of the Bonds in accordance with the Indenture and as described in the Official Statement; (n) Based upon projections which the City believes are reasonable, the Assessments supporting the Bonds when levied and collected by the City in accordance with the terms of the Assessments formula, assuming normal and reasonable delinquency rates, will provide a yearly cash flow at least sufficient to make timely payment of principal and interest on the Bonds; (o) The City is not aware of any toxic waste conditions or adverse soils condition which would impair development within the Assessment District; (p) The City will undertake, pursuant to a continuing disclosure agreement dated 2008 (the "Continuing Disclosure Agreement "), by and among the City and DAC as dissemination agent thereunder, to provide annual reports, the City Annual Report and notice of certain events; (q) The Official Statement (except the portions thereof entitled "CONCLUDING INFORMATION — Legal Opinion" and "— Tax Matters," and "APPENDIX E — INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY ", as to which no view need be expressed) is, as of the date thereof, and will be, as of the Closing Date, true, correct and complete in all material respects; and the Official Statement (except the portions thereof mentioned above, as to which no view need be expressed), does not, as of the date thereof, and will not, as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (r) The Preliminary Official Statement heretofore delivered to the Underwriter has been deemed final by the City as of its date, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(1) of Rule 15c2 12. The City hereby covenants and agrees that, within seven (7) business days from the date hereof, or (upon reasonable 5 DOC SOC/ 1294386.3/022459 -0019 written notice from the Underwriter) within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the City shall cause a final printed form of the Official Statement to be delivered to the Underwriter in a quantity mutually agreed upon by the Underwriter and the City so that the Underwriter may comply with paragraph (b)(4) of Rule 15c2 12 and Rules G 12, G 15, G 32 and G 36 of the Municipal Securities Rulemaking Board. 3. Conditions to -the Obligations of the Underwriter. The obligations of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and agreements on the part of the City contained herein, as of the date hereof and as of the Closing Date, to the accuracy in all material respects of the statements of the officers and other officials of the City made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the City of its obligations to be performed hereunder at or prior to the Closing Date and to the following additional conditions: (a) At the Closing Date, the City Documents, the Resolution of Formation and any other applicable agreements shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds and with the transactions contemplated thereby and by this Purchase Contract, all such actions as, in the opinion of Robert E. Hessell, Esq., Bond Counsel for the City, shall be necessary and appropriate; (b) Between the date hereof and the Closing Date, the market price or marketability of the Bonds at the initial offering prices set forth in the Official Statement shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the City terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following: (1) legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or recommended to the Congress by the President of the United States, the Department of the Treasury, the Internal Revenue Service, or any member of Congress, or favorably reported for passage to either House of Congress by any committee of such House to which such legislation had been referred for consideration or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department or the Internal Revenue Service of the United States of America, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon the interest as would be received by the owners of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof; (2) legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America, or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds; or the Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general DOC SOCi 1294396v3/022459 -0019 character of the Bonds, or of the Bonds, including any or all underwriting arrangements, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securities laws, rules or regulations as amended and then in effect; (3) any amendment to the federal or State Constitution or action by any federal or State court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the City, its property, income, securities (or interest thereon), the validity or enforceability of the Assessments or the ability of the City to construct or acquire the improvements as contemplated by the City Documents, the Resolution of Formation and the Official Statement; or (4) any event occurring, or information becoming known, which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official Statement, or results in the Official Statement containing any untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On the Closing Date, the Underwriter shall have received counterpart originals or certified copies of the following documents, in each case satisfactory in form and substance to the Underwriter: (1) The City Documents and the Resolution of Formation together with a certificate dated as of the Closing Date of the City Clerk of the City, as applicable, to the effect that each such document is a true, correct and complete copy of the one duly adopted by the City Council and that it has not been amended, modified or rescinded since its adoption (except as may have been agreed to by the Underwriter) and is in full force and effect as of the Closing Date; (2) The Official Statement duly executed; (3) An unqualified approving opinion, dated the Closing Date and addressed to the City, of Robert E. Hessell, Esq., Bond Counsel for the City, in customary form for such transactions, to the effect that the Bonds are legal, valid and binding obligations of the City, the City has the full right, power and authority to levy and pledge the Assessments to the payment of the Bonds, interest on the Bonds is excluded from gross income for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax, and is exempt from State personal income taxation, and an unqualified opinion of such counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the City may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it; (4) A supplemental opinion, dated the Closing Date and addressed to the Underwriter, of Robert E. Hessell, Esq., Bond Counsel for the City, to the effect that (i) the Resolution of Formation has been duly adopted by the City Council and this Purchase Contract and the Indenture have been duly authorized, executed and delivered by, 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 terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors rights in general and to the application of equitable principles if equitable remedies are sought; (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; (iii) the information 7 DOC SOC/ 1294386v3/022459 -0019 contained in the Official Statement under the headings "INTRODUCTION," "THE BONDS," "SECURITY FOR THE BONDS," "TILE DISTRICT," "CONCLUDING INFORMATION — Legal Opinion," and "— Tax Matters," is accurate insofar as it purports to summarize certain provisions of the Act, the Bonds, the Indenture, the Resolution and the statements contained under such captions in the Preliminary Official Statement and the Official Statement, as of their respective dates, and in the case of the Official Statement as of the Closing Date, contained no untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were,made, not misleading in any material respect; (iv) the Bonds are secured by Assessments to be levied for the payment of principal of, premium, if any, and interest on the Bonds; (v) principal of, premium, if any, and interest on, the Bonds are payable out of the Redemption Fund; (vi) installments of Assessments are to be collected on the tax roll on which general taxes on real property are collected; (vii) the Assessments have been duly and validly authorized in accordance with the provisions of the Act and, when levied, the Assessments will be valid and binding obligations of the affected property owners enforceable by the City in accordance with the provisions of the Indenture and the Act; (viii) the legislative body of the City has a valid and binding obligation to annually fix and levy that amount of Assessments required for the payment of principal and interest on the Bonds for the ensuing year, including any necessary replenishment of the Reserve Account; and (ix) based upon the information provided to such counsel in the course of their participation in the preparation of the Official Statement and (except as provided in (iii) above) without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement (except for the financial and statistical data included therein and assumptions with respect thereto, as to which no view need be expressed) as of the date of the Official Statement omitted, or as of the Closing Date omits, to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (5) An opinion, dated the Closing Date and addressed to the City and the Underwriter, of Stradling Yocca Carlson & Rauth, Disclosure Counsel, to the effect that, without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, but on the basis of their participation in conferences with representatives of the City, Bond Counsel, representatives of the Underwriter and others, and their examination of certain documents, nothing has come to their attention which would lead them to believe that the Official Statement as of its date and as of the Closing Date contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to the Appendices of the Official Statement or any other financial or statistical data, any forecasts, any assumptions or any expressions of opinion contained in the Official Statement); (6) A Certificate, dated the Closing Date and signed by an authorized representative of the City, ratifying the use and distribution by the Underwriter of the Preliminary Official Statement and the Official Statement in connection with the offering and sale of the Bonds; and certifying that (i) the representations and warranties of the City contained in Section 2 hereof are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; (ii) to the best of his or her knowledge, no event has occurred since the date of the Official Statement affecting the matters contained therein which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make the statements and information contained in the Official Statement not misleading in any material respect and the Bonds DOC SOC.' 1294386v3./022459 -0019 and the City Documents conform as to form and tenor to the descriptions thereof contained in the Official Statement and (iii) the City has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied under the City Documents and the Official Statement at or prior to the Closing Date; (7) An opinion, dated the Closing Date and addressed to the Underwriter, of counsel to the City, to the effect that (i) to the best of his or her knowledge, except as described in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or threatened in any way affecting the existence of the City or the titles of its officers to their respective offices, or seeking to restrain or to enjoin the development of property within the City, the issuance, sale or delivery of the Bonds or the exclusion from gross income for federal income tax purposes or State personal income taxes of interest on the Bonds, or the application of the proceeds thereof in accordance with the Indenture, or the collection or application of the Assessments to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture, the Resolution of Formation, this Bond Purchase Contract or any action of the City or the City contemplated by any of said documents; (ii) the City is duly organized and validly existing under the laws of the State, with, as the case may be, full legal right, power and authority to issue the Bonds and to perform all of their obligations under this Purchase Contract, the Bonds and the Indenture; (iii) to the best of his or her knowledge after due inquiry, the City has obtained all approvals, consents, authorizations, elections and orders of or filings or registrations with any State governmental authority, board, agency or commission having jurisdiction which constitute a condition precedent to the levy of the Assessments, the issuance of the Bonds or the performance by the City of its obligations thereunder or under the Indenture, except that no opinion is expressed regarding compliance with "blue sky" or other securities laws or regulations, whatsoever; (iv) the City Council has duly and validly adopted the resolutions and the Resolution of Formation at meetings of the City Council which were called and held pursuant to law and with all public notice required by law, and the resolution and the Resolution of Formation are now in full force and effect and have not been amended; and (v) the City has duly authorized, executed and delivered this Purchase Contract, the Indenture, and the Bonds and has duly authorized the preparation and delivery of the Official Statement, and this Purchase Contract, the Bonds, and the Indenture constitute legal, valid and binding agreements of the City, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (8) One counterpart original or copy certified by the Clerk of the City of a transcript of all proceedings relating to the authorization, issuance, sale and delivery of the Bonds; (9) The Certificate of the Paying Agent, dated the Closing Date, to the effect that (i) the Paying Agent is duly organized and existing as a state banking corporation under the laws of the State having the full power and authority to perform its duties under the Indenture; (ii) the Paying Agent is duly authorized to accept the obligations created by the Indenture and to authenticate the Bonds pursuant to the terms of the Indenture; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Paying Agent that has not been obtained is or will be required for the authentication of the Bonds or the consummation by the Paving Agent of the other transactions contemplated to be performed by the Paying Agent in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Indenture; and (iv) compliance with the terms of the DOC SOC/ 1294386v3/022459 -0019 Indenture will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Paying Agent is a parry or by which it is bound, or any law or any rile, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Paying Agent or any of its activities or properties; and (10) An opinion, dated the Closing Date and addressed to the Underwriter and the City, of counsel to the Paying Agent in form and substance acceptable to the Underwriter; (11) The Continuing Disclosure Agreement; (12) A certificate of MuniFinancial/Willdan dated the Closing Date, to the effect that the statements contained in the Official Statement relating to the size and location of the Assessment District, the amounts of the Assessments and the Engineer's Report and all other information famished by it therein do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (13) A certificate of the City dated the Closing Date, in a form acceptable to Bond Counsel, that the Bonds are not arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; (14) Evidence satisfactory to the Underwriter that, other than as disclosed in the Official Statement, there are no ad valorem taxes, special taxes or assessments applicable to the property within the Assessment District that are delinquent; and (15) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the statements and information contained in the Preliminary Official Statement and the Official Statement, of the City's representations and warranties contained herein, and the due performance or satisfaction by the City at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the City in connection with the transactions contemplated hereby and by the Official Statement. If the City shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase Contract, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriter nor the City shall be under any further obligation hereunder, except that the respective obligations of the City and the Underwriter set forth in Section 4 and Section 5 hereof shall continue in full force and effect. 4. Conditions of the City's Obligations. The City's obligations hereunder are subject to the Underwriter' performance of their obligations hereunder, and are also subject to the following conditions: (a) As of the Closing Date, no litigation shall be pending or, to the knowledge of the duly authorized officer of the City executing the certificate referred to in Section 3 hereof, threatened, to restrain or enjoin the issuance or sale of the Bonds or in any way affecting any 10 DOC SOC/ 1294386v3/022459 -0019 authority for or the validity of the Bonds or the City Documents or the existence or powers of the City; and (b) As of the Closing Date, the City shall receive the approving opinions of Bond Counsel and Underwriter's Counsel referred to in Section 3 hereof, dated as of the Closing Date. Expenses. Whether or not the Bonds are delivered to the Underwriter set forth herein: (a) The Underwriter shall be under no obligation to pay, and the City shall pay or cause to be paid (out of any legally available funds of the City) all expenses incident to the performance of the City's obligations hereunder, including, but not limited to, the cost of printing and delivering the Bonds to DTC, the cost of printing, distribution and delivery of the Indenture, the Preliminary Official Statement, the Official Statement and all other agreements and documents contemplated hereby (and drafts of any thereof) in such reasonable quantities as requested by the Underwriter; the cost of the overlapping debt statement and the fees and disbursements of the Paying Agent for the Bonds, Disclosure Counsel and the Bond Counsel and any accountants, engineers or any other experts or consultants the City have retained in connection with the Bonds; and (b) The City shall be under no obligation to pay, and the Underwriter shall pay, CUSIP Bureau and CDIAC fees; the cost of preparation of any "blue sky" or legal investment memoranda; expenses to qualify the Bonds for sale under any "blue sky" or other state securities laws; and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Bonds (except those specifically enumerated in paragraph (a) of this section), including the fees and disbursements of its counsel any advertising expenses. 6. Notices. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing to the City of Newport Beach, 3300 Newport Blvd., Newport Beach, California 92663; any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to M.L. Stem & Co. LLC, 8350 Wilshire Blvd., Beverly Hills, California 90211, Attention: Miles L. Benickes, Executive Vice President. 7. Parties in Interest. This Purchase Contract is made solely for the benefit of the City and the Underwriter (including their successors or assigns), and no other person shall acquire or have any right hereunder or by virtue hereof. 8. Survival of Representations, Warranties and Agreements. The representations, warranties and agreements of the City set forth in or made pursuant to this Purchase Contract shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Contract and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the City and regardless of delivery of and payment for the Bonds. 9. Effective, This Purchase Contract shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance. This Purchase Contract may be signed in counterparts by each party. DOC SOC/ 12943 86x3/022459 -0019 10. No Prior AMements. This Purchase Contract supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto in relation to the sale of Bonds for the City. 11. Govemine Law. This Purchase Contract shall be governed by the laws of the State of California. 12. CounWERarts. This Purchase Contract may be executed simultaneously in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. Very truly yours, M.L. STERN & Co.. LLC By: Executive Vice President ACCEPTED. CITY OF NEWPORT BEACH City Manager of the City of Newport Beach 12 DOC SOC/ 1294396v3/022459 -0019 APPENDIX A MATURITY SCHEDULE CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 101 LIMITED OBLIGATION IMPROVEMENT BONDS Maturity Date (September 2) Principal Interest Rate A -1 DOC SOC/ 1294386c3 %022459 -0019 Yield Price