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Home My WebLink About22 - Underground Utility Assessment District No. 116 — Limited Obligation Improvement BondsTO: FROM CITY OF NEWPORT BEACH City Council Staff Report PREPARED BY: TITLE: ABSTRACT: June 25, 2019 Agenda Item No. 22 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL Dan Matusiewicz, Finance Director - 949-644-3123, dmatusiewicz@newportbeachca.gov Trevor Power, Senior Accountant - 949-644-3125, tpower _newportbeachca.gov Resolution No. 2019-62: Underground Utility Assessment District No. 116 — Authorization of Limited Obligation Improvement Bonds Staff requests City Council to authorize the issuance of limited obligation improvement bonds and the execution and delivery of all legal documents, substantially to form, necessary to issue limited obligation improvement bonds to finance the remaining unpaid assessments in Assessment District No. 116. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Adopt Resolution No. 2019-62, A Resolution of the City Council of the City of Newport Beach, California, Authorizing and Providing for the Issuance of Bonds Pursuant to the Provisions of the Improvement Bond Act of 1915 for City of Newport Beach Assessment District No. 116 and Approving Certain Documents and Authorizing Certain Actions in Connection Therewith; and c) Authorize the City Manager and or designee to take any and all actions necessary to execute and deliver any and all documents deemed necessary or advisable in consultation with the City Attorney and Bond Counsel in order to carry out the intent of this resolution, the Fiscal Agent Agreement and the Bond Purchase Agreement. FUNDING REQUIREMENTS: The cost of the project and financing are borne by the residents that elected to assess themselves for the cost of the project and financing. In no event shall the City be liable for the payment of the principal of or interest on the bonds. The City's proportionate share of the cost of the project related to City property within the district has been previously authorized and paid. 22-1 Resolution No. 2019-62: Underground Utility Assessment District No. 116 — Authorization of Limited Obligation Improvement Bonds June 25, 2019 Page 2 DISCUSSION: Underground Utility Assessment District No. 116 (AD 116) is the area bounded by 44th Street to 38th Street and Balboa Boulevard to Rivo Alto Channel. City Council has previously indicated its intention to issue limited obligation improvement bonds pursuant to the provisions of the Improvement Bond Act of 1915 (Act) in a principal amount not to exceed the unpaid assessments of AD 116. On January 12, 2016, a public hearing and vote was held, at which time it was determined that a weighted majority of the ballots received were in favor of forming AD 116. As such, Council adopted a resolution approving the Final Engineer's report, approving and confirming a total assessment of $1,925,000 on the parcels determined to be specially benefited by the undergrounding project as indicated in the Final Engineer's Report, designating AD 116 as an underground utilities district, and declaring the intention to issue bonds. In February 2016, a cash collection period opened to afford property owners the opportunity to prepay all or any portion of the assessments levied upon their parcel or parcels at a 7.3% discount. The prepay discount reflects the avoidance of the following finance costs: Bond Reserve 5.00% Capitalized Interest 1.30% Underwriter's Discount 1.00% Total 7.30% The cash collection period expired on April 30, 2019, and an Amended Notice of Assessment was recorded on May 15, 2019, in the official records of the County Recorder of the County of Orange, discharging the liens on those parcels for which the assessment had been fully paid. Cash payments totaling $321,391 were received, representing 18% of the discounted value of the assessments. The sum of the cash payments, together with the $25,013 assumed financing cost previously included in the total assessment, reduces the remaining amount of unpaid assessments to $1,578,596 as depicted below. Assessment levied — cost of improvement project and financing $1,925,000 Less: City received — prepaid contributions from property owners $321,391 Less: Exercised financing discount $25,013 Remaining unpaid assessment amount $1,578,596 If Council wishes to proceed with financing the remaining unpaid assessments, City Council should adopt a resolution, included with this report as Attachment A, to authorize the issuance of bonds pursuant to the Act, designated the "City of Newport Beach Assessment District No. 116," in a principal amount not to exceed $1,575,000, to complete the funding for the Undergrounding Project, to fund a reserve fund and to pay incidental costs of the Assessment District proceedings and the costs of issuance for the Bonds. 22-2 Resolution No. 2019-62: Underground Utility Assessment District No. 116 — Authorization of Limited Obligation Improvement Bonds June 25, 2019 Page 3 This resolution would also authorize the form, execution and delivery of all documents necessary to issue and deliver the bonds including: (1) Bond Purchase Agreement, under the terms of which, among other things, the City agrees to sell and Stifel, Nicolaus & Company, Incorporated (the "Underwriter") agrees to purchase the Bonds; (2) Preliminary Official Statement, which describes the Bonds, the Assessment District, the Undergrounding Project and related matters; (3) Fiscal Agent Agreement, a document between the City and US Bank National Association which governs the terms of the Bonds; and (4) Continuing Disclosure Agreement, included in the Preliminary Official Statement as Appendix F, for the purpose of making undertakings to provide certain annual financial information and notice of certain prescribed events as required for compliance with Rule 15c2-12 of the United States Securities and Exchange Commission. This resolution also authorizes officers of the City to take any and all actions necessary to execute and deliver any and all documents deemed necessary or advisable in consultation with the City Attorney, Bond Counsel and Disclosure Counsel in order to carry out the intent of this resolution, the Fiscal Agent Agreement and the Bond Purchase Agreement. In accordance with the City's Debt Management Policy (F-6), Exhibit A of this resolution provides additional information relating to the issuance of Bonds, including; the maximum term, estimated maximum annual debt service, call provisions, estimated cost of issuance and a list of consultants hired for this issuance. Also, as required by F-6, included as an attachment to this Staff Report, is a memo from KNN Public Finance, the Independent Registered Municipal Advisor (IRMA) for this issuance, recommending issuing non -rated, publicly offered bonds. The analyses of all financing scenarios considered is also included as an attachment to this staff report in order to comply with F-6. Finally, per the requirements of Senate Bill 450, Attachment G contains the good faith estimates provided by KNN Public Finance. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this project exempt from the California Environmental Quality Act (CEQA) pursuant to Class 2 Section 15302 (d) (conversion of overhead electrical utility distribution lines where the surface is restored to the condition existing prior to the undergrounding) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it will not have an adverse effect on the environment. 22-3 Resolution No. 2019-62: Underground Utility Assessment District No. 116 — Authorization of Limited Obligation Improvement Bonds June 25, 2019 Page 4 NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Resolution No. 2019-62 Attachment B — Location Map Attachment C — Bond Purchase Agreement Attachment D — Preliminary Official Statement (with Continuing Disclosure Agreement as Appendix F) Attachment E — Fiscal Agent Agreement Attachment F — Memo Recommending Financing Scenario and Financing Scenario Analyses Attachment G —Good Faith Estimates 22-4 Attachment A Resolution 2019- 62 Authorizing Issuance and Sale of Bonds 22-5 RESOLUTION NO. 2019- 62 A RESOLUTION OF THE CITY COUNCIL OF CITY OF NEWPORT BEACH, CALIFORNIA, AUTHORIZING AND PROVIDING FOR THE ISSUANCE OF BONDS PURSUANT TO THE PROVISIONS OF THE IMPROVEMENT BOND ACT OF 1915 FOR CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 AND APPROVING CERTAIN DOCUMENTS AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City Council of the City of Newport Beach ("City") has taken proceedings under the Municipal Improvement Act of 1913, Division 12 of the California Streets and Highways Code ("Code"), for the formation of City of Newport Beach Assessment District No. 116 ("Assessment District") and has confirmed an assessment in the amount of One Million Nine Hundred Twenty -Five Thousand Dollars and 00/100 ($1,925,000.00), which assessment and a related diagram were recorded in the office of the City's Public Works Director, acting as the Superintendent of Streets, and with the County Recorder of the County of Orange, State of California; WHEREAS, a notice of assessment, as prescribed in Code Section 3114, has been recorded with the County Recorder of the County of Orange, State of California, whereupon the assessment attached as a lien upon the property assessed within the Assessment District as provided in Section 3115 of the Code; WHEREAS, said proceedings provide that bonds ("Bonds") will be issued pursuant to the Improvement Bond Act of 1915, Division 10 of the Code ("Act") to represent and be secured by the unpaid assessments on the parcels within the Assessment District; WHEREAS, the City Council desires to delegate to the City Manager the authority to determine the amount of unpaid assessments upon the security of which such Bonds are to be issued in an amount not to exceed the unpaid assessments; WHEREAS, it is necessary and desirable that the City sell the Bonds to be issued to represent a portion of the unpaid assessments and that the Bonds be issued primarily to finance the undergrounding of utilities within the Assessment District; 22-6 Resolution 2019 - Page 2 of 5 WHEREAS, there has been presented to the City Council the forms of a Fiscal Agent Agreement between the City and U.S. Bank National Association, as Fiscal Agent ("Fiscal Agent Agreement"), a Continuing Disclosure Agreement by and between the City and Digital Assurance Certification, LLC ("Continuing Disclosure Agreement"), a Bond Purchase Agreement to be entered into between the City and Stifel, Nicolaus & Company, Incorporated ("Underwriter"), as the purchaser of the Bonds ("Bond Purchase Agreement"), and the form of a Preliminary Official Statement for the Bonds ("Preliminary Official Statement"); and WHEREAS, the City desires to approve the forms of the Fiscal Agent Agreement, the Continuing Disclosure Agreement and the Bond Purchase Agreement; to authorize the issuance of the Bonds and the sale thereof to the Underwriter on the terms approved hereby; to authorize the mailing of the Preliminary Official Statement to prospective purchasers of the Bonds and to authorize the officers of the City to take all actions required for the issuance of the Bonds. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1. The recitals provided in this resolution are true and correct and are incorporated into the operative part of this resolution. Section 2. The Fiscal Agent Agreement is approved in substantially the form presented to the City Council. The Mayor, the City Manager and the Finance Director, acting as Treasurer of the Assessment District, and their written designee(s) ("Authorized Officers"), are authorized and directed to execute, and the City Clerk, or his or her written designee(s), is authorized to attest to, the Fiscal Agent Agreement substantially in the form approved with such additions thereto and changes therein as the officer or officers executing the Fiscal Agent Agreement deem necessary to cure any ambiguity or defect therein, to insert the offering price(s), interest rate(s), selling compensation, principal amount per maturity, redemption dates and prices and such other related terms and provisions of the Bonds, or to conform any provisions therein to the Bond Purchase Agreement and the Official Statement, or as required by the City Attorney, and the City's Bond Counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation ("Bond Counsel"). Approval of such changes shall be conclusively evidenced by the execution and delivery of the Fiscal Agent Agreement by one or more Authorized Officers. 22-7 Resolution 2019 - Page 3 of 5 Section 3. Bonds in an aggregate principal amount not to exceed One Million Five Hundred Seventy -Eight Thousand Five Hundred Ninety -Six Dollars and 44/100 ($1,578,596.44) representing a portion of the amount of the unpaid assessments as determined by the City Manager shall be issued pursuant to the provisions of the Act upon the security of unpaid assessments levied within the Assessment District and as set forth in the Fiscal Agent Agreement. The Bonds shall be dated, be in such aggregate principal amount, bear interest at such rates, and mature on such dates and in such amounts as are set forth in the Bond Purchase Agreement upon the execution and delivery thereof in accordance with Section 7 below. The Bonds shall be issued substantially in the form of bonds set forth in the Act, except as such form may vary from the terms and conditions set forth in this Resolution and the Fiscal Agent Agreement. The principal amount of the Bonds to be sold will be determined by the City Manager, the Finance Director, or their designee(s). Neither the faith and credit nor the taxing power of the City, the County of Orange, the State of California or any political subdivision thereof is pledged to the payment of the Bonds. The City is not obligated to advance available funds from the City treasury to the Redemption Fund in the event of a delinquency in the payment of an assessment installment or installments. The Bonds are not general obligations of the City; they are limited obligations payable solely from the funds specified in the act and the Fiscal Agent Agreement. The Bonds are being issued in compliance with the City's Debt Management Policy, additional information relating to the Bonds is set forth in Exhibit A attached hereto and incorporated herein by reference. Section 4. The provisions of Part 11.1 (commencing with Section 8760) of the Act, providing an alternative procedure for the division of land and the Bonds, shall apply. Section 5. The Continuing Disclosure Agreement is approved in substantially the form presented to the City Council; and each Authorized Officer is hereby authorized and directed, for and in the name of and on behalf of the City, to execute, and the City Clerk, or her written designee(s), to attest to and deliver to Digital Assurance Certification, LLC, as Dissemination Agent, the Continuing Disclosure Agreement substantially in the form hereby approved, with such additions thereto and changes therein, including the selection of an alternate Dissemination Agent from time to time, as may be approved by the Authorized Officer executing such agreement or required by the City Attorney or Bond Counsel, such approval or requirement to be conclusively evidenced by the execution and delivery of the Continuing Disclosure Agreement. 22-8 Resolution 2019 - Page 4 of 5 Section 6. The form of the Preliminary Official Statement presented at this meeting is hereby approved, and the Underwriter is hereby authorized to distribute the Preliminary Official Statement to prospective purchasers of the Bonds in the form hereby approved, together with such additions thereto and changes therein as are determined necessary by the City Manager or the Finance Director, or the written designee of either, to make such Preliminary Official Statement final as of its date for purposes of Rule 15c2- 12 of the Securities and Exchange Commission, including, but not limited to, such additions and changes as are necessary to make all information set forth therein accurate and not misleading. Each of the Authorized Officers is hereby authorized to execute a final Official Statement in the form of the Preliminary Official Statement, together with such changes as are determined necessary by the City Manager, or his written designee, to make such Official Statement complete and accurate as of its date. The Underwriter is further authorized to distribute the final Official Statement for the Bonds and any supplement thereto to the purchasers thereof Upon its execution by one of the Authorized Officers. Section 7. Subject to Section 3 hereof, the sale of the Bonds to the Underwriter is hereby approved provided that (a) the Underwriter's discount, exclusive of original issue discount, shall not exceed one and seventh -tenths percent (1.7%) of the original aggregate principal amount of the Bonds, (b) the interest rates on the Bonds shall not exceed five percent (5.0%) per annum, and (c) the final principal amounts, discount and interest rates for the Bonds shall have been approved by the City Manager of the Finance Director, acting as Treasurer; and, subject to such approval, any one of the Authorized Officers is hereby authorized and directed to evidence the City's acceptance of the offer made by executing and delivering to the Underwriter a Bond Purchase Agreement substantially in the form hereby approved with such additions thereto and changes therein as may be approved by the Authorized Officer executing the agreement, or required by City Attorney or Bond Counsel, such approval or requirement to be conclusively evidenced by the execution and delivery of the Bond Purchase Agreement. Section 8. The Fiscal Agent is hereby authorized and directed to authenticate the Bonds and to deliver them to The Depository Trust Company on behalf of the Underwriter upon payment of the purchase price thereof. Section 9. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary or advisable in order to consummate the sale and delivery of the Bonds and otherwise to effectuate the purposes of this resolution; and any actions previously taken by such officers for these purposes are hereby ratified and confirmed. 22-9 Resolution 2019 - Page 5 of 5 Section 10. Any action authorized or directed in this resolution to be taken or performed by an Authorized Officer may be taken or performed by their designee with the same force and effect as if taken or performed by such Authorized Officer. Section 11. if any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 12. The City Council finds the adoption of this resolution is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Division 6, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 13. This Resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 25th day of June, 2019. DIANE B. DIXON, Mayor ATTEST: LEILANI 1. BROWN City Clerk APPROVED AS TO FORM: CIT ATTORNEY'SFFICE -_ C, Aar6n C. Harp City Attorney Attachment: Exhibit A 22-10 EXHIBIT A 1. The maximum term of the Bonds: 20 years (final maturity on September 2, 2039) 2. The estimated maximum annual debt service on the Bonds: $107,950 3. The call provisions for the Bonds: a. The Bonds are expected to be subject to optional redemption prior to maturity on and after a date that is no later than ten years after the issuance thereof. It is possible that a shorter call period would result in better pricing for the Bonds, but that won't be known until the time that the Bonds are priced. b. Pursuant to Part 11.1 of the Improvement Bond Act of 1915, the Bonds must be available for redemption from the prepayment of Assessments on each interest payment date after the issuance thereof. 4. The estimated costs of issuance of the Bonds: $171,881 5. The list of consultants hired with respect to the Bonds: a. Bond and Disclosure Counsel: Stradling Yocca Carlson & Rauth b. Assessment Engineer: Harris & Associates, Inc. C. Assessment District Consultant: Willdan Financial Services d. Trustee: U.S. Bank National Association e. Municipal Advisor: KNN Public Finance f. Underwriter: Stifel, Nicolaus & Company, Incorporated. 22-11 Attachment B Location Map 22-12 P A C I O C E e 75 Feet SUPERIOR AVE F I C A N COAST HWY W BALBpq COVES A N D _C N A N N E L Assessment District 116 02 NBGS N E W P O R T B E A C H City of Newport Beach GIS Division May 15, 2019 22-13 11-14 Attachment C Bond Purchase Agreement 22-15 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A BOND PURCHASE AGREEMENT , 2019 City of Newport Beach 100 Civic Center Drive Newport Beach, California 92660 Ladies and Gentlemen: Stifel, Nicolaus & Company, Incorporated (the "Underwriter"), acting not as fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement (the "Purchase Agreement") with the City of Newport Beach (the "City") in connection with Assessment District No. 116 (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. Capitalized terms that are used in this Purchase Agreement and not otherwise defined herein shall have the respective meanings ascribed to them in the Fiscal Agent Agreement (as hereinafter defined). The City acknowledges and agrees that: (i) the purchase and sale of the Bonds (as such term is defined below) pursuant to this Purchase Agreement is an arm's-length commercial transaction between the City and the Underwriter; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not and has not been acting as a "municipal advisor" (as such term is defined in Section 15B of the Securities Exchange Act of 1934, as amended) to the City; (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the City with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the City on other matters); (iv) the Underwriter has financial interests that may differ from and be adverse to those of the City; and (v) the City has consulted its own legal, financial and other advisors to the extent that it has deemed appropriate for this transaction. The Underwriter has provided to the City prior disclosures under Rule G-17 of the Municipal Securities Rulemaking Board which have been received by the City. Purchase, Sale and Delivery of the Bonds; Establishment of Issue Price. (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. 116 Limited Obligation Improvement 4840-9262-3767.2 22-16 Bonds 2019 Series A (the "Bonds"), bearing interest (payable semiannually on March 2 and September 2 in each year, commencing September 2, 2019) at the rates per annum and maturing on the dates and in the amounts set forth in Appendix A attached hereto and incorporated herein. (b) The purchase price for the Bonds shall be $ (representing a price of par, plus/less an original issue premium/discount of $ and less an Underwriter's discount of $ ). (c) The Bonds are being issued to (i) fund the Reserve Fund for the Bonds, (ii) finance capitalized interest on the Bonds through approximately September 2, 2019, (iii) pay costs of issuance, (iv) reimburse for the costs of forming the Assessment District, and (v) pay the costs for the design and undergrounding of certain utilities. (d) The Underwriter agrees to assist the City in establishing the issue price of the Bonds and shall execute and deliver to the City at Closing an "issue price" or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Appendix B with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the City and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds. (e) The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the "initial offering price"), or at the corresponding yield or yields, set forth in Appendix A attached hereto. Appendix A also sets forth, identified under the column "Subject to Hold the Offering Price Rule," as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the Underwriter represents that (i) the 10% test has been satisfied (assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement) and (ii) the 10% test has not been satisfied and for which the City and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the City to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the "hold -the -offering -price rule"). So long as the hold -the -offering -price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (1) the close of the fifth (5th) business day after the sale date; or (2) the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Underwriter shall promptly advise the City when it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public, if that occurs prior to the close of the fifth (5th) business day after the sale date. (f) The Underwriter confirms that: (1) Any selling group agreement and any third -party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will 2 4840-9262-3767.2 22-17 contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a parry to such third -party distribution agreement, as applicable: (A) (i) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be reasonable periodic intervals or otherwise upon request of the Underwriter and (ii) to comply with the hold -the -offering -price rule, if applicable, if and for so long as directed by the Underwriter, (B) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below), and (C) to acknowledge that, unless otherwise advised by the dealer or broker- dealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public. (2) Any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third -party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a parry to such third -party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold -the -offering -price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires. (g) The City acknowledges that, in making the representation set forth in this section, the Underwriter will rely on (1) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold -the -offering -price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (2) in the event that a third -party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold -the -offering -price rule, if applicable to the Bonds, as set forth in the third -party distribution agreement and the related pricing wires. (h) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: (1) "public' means any person other than an underwriter or a related party; 4840-9262-3767.2 22-18 (2) "underwriter" means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third -parry distribution agreement participating in the initial sale of the Bonds to the public); (3) a purchaser of any of the Bonds is a "related party" to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and (4) "sale date" means the date of execution of this Purchase Agreement by all parties. (i) 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 Fiscal Agent Agreement, by and between the City and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"), dated as of 1, 2019 (the "Fiscal Agent Agreement"), approved by a resolution (the "Resolution"), adopted by the City Council of the City (the "City Council") on , 2019. (j) Pursuant to the authorization of the City, the Underwriter has distributed copies of the Preliminary Official Statement, dated , 2019, relating to the Bonds, which, 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 Fiscal Agent Agreement, the Official Statement, the Continuing Disclosure Agreement, dated , 2019 (the "Disclosure Agreement"), by and between the City and Digital Assurance Certification, LLC, as dissemination agent, and other documents or contracts to which the City is a party, including this Purchase Agreement, and all information contained therein, and all other documents, certificates and statements furnished by the City to the Underwriter in connection with the transactions contemplated by this Purchase Agreement, in connection with the offer and sale of the Bonds by the Underwriter. (k) 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 Rule 15c2-12 0 4840-9262-3767.2 22-19 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12"). Terms defined in the Official Statement are used herein as so defined. (1) 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 to be "final" as of its date for purposes of Rule 15c2-12. By acceptance of this Purchase Agreement, 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. (m) At approximately 8:30 a.m., Pacific Time, on , 2019, 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 (i) through the facilities of The Depository Trust Company, all Bonds (being in 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 Fiscal Agent Agreement and with facsimile seals printed thereon, and (ii) to the Underwriter at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation, 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 right, power and authority (i) to execute, deliver and perform its obligations under this Purchase Agreement, the Fiscal Agent Agreement, the Resolution and the Disclosure Agreement (collectively, the "City Documents"), (ii) to execute and deliver the Official Statement, and to carry out all transactions contemplated by each of the City Documents, (iii) to adopt the Resolution approving the Fiscal Agent Agreement and enter into the other authorizing documents, (iv) to issue, sell and deliver the Bonds to the Underwriter pursuant to the Fiscal Agent Agreement as provided herein, and (v) 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 November 10, 2015 (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 Preliminary Official Statement and 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, 4840-9262-3767.2 22-20 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; (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; 4840-9262-3767.2 22-21 (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 furnish 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) If the information contained in the Official Statement is amended or supplemented pursuant to paragraph (h) above, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph), at all times subsequent thereto up to and including the Closing Date, the Official Statement so supplemented or amended (including any financial and statistical data contained therein) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein, in light of the circumstances under which it was presented, not misleading; (j) The Fiscal Agent Agreement creates a valid pledge of the Assessments and the moneys in the Assessment Fund, the Redemption Fund, the Improvement Fund and the Reserve Fund established pursuant to the Fiscal Agent Agreement, including the investments thereof, subject in all cases to the provisions of the Fiscal Agent Agreement 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; (k) Except as disclosed in the Preliminary Official Statement and 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 (i) 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 Fiscal Agent Agreement, 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 final subdivision map or building permits applicable to property within the Assessment District, any other instruments relating to the 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; 7 4840-9262-3767.2 22-22 (1) The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter to qualify the 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 of America 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; (m) 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; (n) The City will apply the proceeds of the Bonds in accordance with the Fiscal Agent Agreement and as described in the Official Statement; (o) 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 sufficient to make timely payment of principal and interest on the Bonds; (p) The City is not aware of any toxic waste conditions or adverse soils condition which would impair development within the Assessment District; (q) The City will undertake, pursuant to the Disclosure Agreement, to provide annual reports and notice of certain events. Except as described in the Preliminary Official Statement and the Official Statement, the City has not failed to comply, in any material respects, with any continuing disclosure undertaking previously entered into by it pursuant to the provisions of Rule 15c2-12 for each of the past five (5) years; (r) The Official Statement (except the portions thereof relating to DTC or its book -entry only system and the information under the sections entitled "CONCLUDING INFORMATION - Legal Opinion" and " - Tax Matters," and APPENDIX E - "BOOK -ENTRY ONLY SYSTEM," 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 (s) 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 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 or electronic 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. 4840-9262-3767.2 22-23 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 Agreement, all such actions as, in the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, 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 reasonable 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 that 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 Fiscal Agent Agreement 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 character of the Bonds, or of the Bonds, including any or all underlying 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; E 4840-9262-3767.2 22-24 (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; (4) any event occurring, or information becoming known, which, in the reasonable 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; (5) the declaration of war or the escalation of, or engagement in, military hostilities by the United States or the occurrence of any other national or international emergency or calamity relating to the effective operation of the government of, or the financial community in, the United States which, in the judgment of the Underwriter, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Bonds on the terms and in the manner contemplated in the Official Statement; (6) the declaration of a general banking moratorium by federal, State of New York or State of California authorities, or the general suspension of trading on any national securities exchange or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on the New York Stock Exchange or other national securities exchange, whether by virtue of determination by that exchange or by order of the Securities and Exchange Commission (the "SEC") or any other governmental authority having jurisdiction that, in the Underwriter's reasonable judgment, makes it impracticable for the Underwriter to market the Bonds or enforce contracts for the sale of the Bonds; (7) the imposition by the New York Stock Exchange or other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Bonds or obligations of the general character of the Bonds or securities generally, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of, the Underwriter; (8) a material disruption in securities settlement, payment or clearance services affecting the Bonds shall have occurred; (9) there shall have been any material adverse change in the affairs of the City that in the Underwriter's reasonable judgment will materially adversely affect the market for the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds; (10) there shall be established any new restriction on transactions in securities materially affecting the free market for securities (including the imposition of any limitation on interest rates) or the extension of credit by, or a change to the net capital requirements of, underwriters established by the New York Stock Exchange, the SEC, any other federal or State agency or the Congress of the United States, or by Executive Order; or (11) any proceeding shall have been commenced or be threatened in writing by the SEC against the City; or 10 4840-9262-3767.2 22-25 (12) the commencement of any action of the character described in Section 2(r); or (13) a stop order, release, regulation, or no -action letter by or on behalf of the SEC or any other governmental agency having jurisdiction of the subject matter shall have been issued or made to the effect that the issuance, offering, or sale of the Bonds, including all the underlying obligations as contemplated hereby or by the Official Statement, or any document relating to the issuance, offering or sale of the Bonds is or would be in violation of any provision of the federal securities laws at the Closing Date, including the Securities Act of 1933, as amended, the Exchange Act, and the Trust Indenture Act of 1939, as amended. (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 Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel for the City, substantially in the form set forth in Appendix D to the Official Statement and a reliance letter dated the Closing Date and addressed to the Underwriter, to the effect that such approving opinion addressed to the City may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it; (4) A supplemental opinion, dated the Closing Date and addressed to the Underwriter, of Bond Counsel to the effect that (i) the statements contained in the Official Statement on the cover and under the captions "INTRODUCTION," "THE BONDS," "SECURITY FOR THE BONDS," "CONCLUDING INFORMATION — Legal Opinion" and "CONCLUDING INFORMATION — Tax Matters," APPENDIX C — "SUMMARY OF THE FISCAL AGENT AGREEMENT" and APPENDIX D — "OPINION OF BOND COUNSEL," insofar as such statements purport to summarize certain provisions of the Fiscal Agent Agreement, Bond Counsel's final approving legal opinion with respect to the Bonds, and federal and State tax law, present an accurate summary of such provisions; (ii) the Bonds are exempt from registration under the Securities Act of 1933, as amended, and the Fiscal Agent Agreement is exempt from qualification under the Trust Indenture Act of 1939, as amended; and (iii) the Fiscal Agent Agreement, the Purchase Agreement and the Disclosure Agreement have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding agreements of the City enforceable in accordance with their respective terms, subject to laws relating to bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and the application of equitable principles if equitable remedies are sought; (5) An opinion, dated the Closing Date and addressed to the City and the Underwriter, of Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel, 11 4840-9262-3767.2 22-26 to the effect that, without passing upon or assuming any responsibility for the accuracy, completeness or fairness of any of the statements contained in the Official Statement or making any representation that they have independently verified the accuracy, completeness or fairness of any such statements, but on the basis of their participation in telephone conferences with the City's representatives, Bond Counsel, representatives of the Underwriter and others, during which conferences the contents of the Official Statement and related matters were discussed and in reliance thereon and on the records, documents, certificates and opinions herein mentioned (as set forth above), during the course of their representation of the City on the matter, no facts came to the attention of the attorneys in such firm rendering legal services in connection with such representation which caused such firm to believe that the Preliminary Official Statement as of its date and 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 any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that no opinion need be expressed as to the Appendices of the Official Statement or any financial, statistical, economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion or any information about feasibility, valuation, appraisals, absorption, real estate, archaeological or environmental matters, or any information about book -entry, tax exemption or The Depository Trust Company included or referred to therein); (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 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 the City Attorney, 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 Assessment District, 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 Fiscal Agent Agreement, 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 Fiscal Agent Agreement, the Resolution of Formation, the Purchase Agreement or any action of the City or which 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 its obligations under the Purchase Agreement, the Bonds and the Fiscal Agent Agreement; (iii) the Resolution, which authorized issuance of the Bonds and approved the form and substance of the Fiscal Agent 12 4840-9262-3767.2 22-27 Agreement, the Purchase Agreement and the Disclosure Agreement has been duly adopted by the City Council of the City, (iv) 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 Fiscal Agent Agreement, except that no opinion is expressed regarding compliance with "blue sky" or other securities laws or regulations whatsoever; (v) 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 resolutions and the Resolution of Formation are now in full force and effect and have not been amended; (vi) the City has duly authorized, executed and delivered the Purchase Agreement, the Fiscal Agent Agreement and the Bonds and has duly authorized the preparation and delivery of the Official Statement; and (vii) the Purchase Agreement, the Disclosure Agreement, the Bonds and the Fiscal Agent Agreement 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 Fiscal Agent, dated the Closing Date, to the effect that (i) the Fiscal Agent is duly organized and existing as a national association under the laws of the State having the full power and authority to perform its duties under the Fiscal Agent Agreement; (ii) the Fiscal Agent is duly authorized to accept the obligations created by the Fiscal Agent Agreement and to authenticate the Bonds pursuant to the terms of the Fiscal Agent Agreement; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Fiscal Agent that has not been obtained is or will be required for the authentication of the Bonds or the consummation by the Fiscal Agent of the other transactions contemplated to be performed by the Fiscal Agent in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Fiscal Agent Agreement; and (iv) compliance with the terms of the Fiscal Agent Agreement 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 Fiscal Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Fiscal Agent or any of its activities or properties; (10) A certified copy of the general resolution of the Fiscal Agent authorizing the execution and delivery of any City Documents to which the Fiscal Agent is a party; (11) An opinion, dated the Closing Date and addressed to the Underwriter and the City, of counsel to the Fiscal Agent in form and substance acceptable to the Underwriter; (12) The Disclosure Agreement; (13) A certificate of Harris & Associates, Inc., dated the Closing Date, to the effect that (i) 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 13 4840-9262-3767.2 22-28 information furnished 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 and (ii) in the opinion of Harris & Associates, Inc., the assessments, as set forth in the Engineer's Report, have been spread in conformance with the requirements of the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code); (14) 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; (15) A copy of Internal Revenue Service Form 8038-G, executed by an authorized officer of the City; (16) An opinion of Kutak Rock LLP, counsel to the Underwriter, addressed to the Underwriter and in form and substance acceptable to the Underwriter; and (17) Such additional legal opinions, certificates, instruments and other documents as the Underwriter or Bond Counsel 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 and the Fiscal Agent at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by either of them in connection with the transactions contemplated hereby by the City Documents 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 Agreement, 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 Agreement, this Purchase Agreement 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's 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 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 Disclosure Counsel referred to in Section 3 hereof, dated as of the Closing Date. 5. Expenses. 14 4840-9262-3767.2 22-29 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 Fiscal Agent Agreement, 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 Fiscal Agent for the Bonds, Disclosure Counsel and 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]and any advertising expenses. The City acknowledges that the Underwriter will pay from the underwriter's expense allocation of the underwriting discount certain fees, including the applicable per bond assessment charged by the California Debt and Investment Advisory Commission. 6. Notices. Any notice or other communication to be given to the City under this Purchase Agreement may be given by delivering the same in writing to the City of Newport Beach, 100 Civic Center Drive, Newport Beach, California 92660; any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, One Montgomery Street, 35th Floor, San Francisco, California 94104. 7. Parties in Interest. This Purchase Agreement 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. This Purchase Agreement shall not be assigned by the City or the Underwriter. 8. Survival of Representations, Warranties and Agreements. The representations, warranties and agreements of the City set forth in or made pursuant to this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Agreement and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the City and regardless of delivery of and payment for the Bonds. 9. Effective. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance. This Purchase Agreement may be signed in counterparts by each party. 15 4840-9262-3767.2 22-30 10. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto in relation to the sale of Bonds by the City and represents the entire agreement of the parties as to the subject matter herein. 11. Governing Law. This Purchase Agreement shall be governed by the laws of the State of California. 16 4840-9262-3767.2 22-31 12. Counterparts. This Purchase Agreement 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, STIFEL, NICOLAUS & COMPANY, INCORPORATED LOIR Managing Director A C',C',F.PTFD CITY OF NEWPORT BEACH U50 Authorized Officer Time of Execution: p.m. California time ATTEST: By: City Clerk APPROVED AS TO FORM: Office of the City Attorney By: Assistant City Attorney 17 Signature Page of Bond Purchase Agreement relating to City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A 4840-9262-3767.2 22-32 APPENDIX A MATURITY SCHEDULE CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A Subject to 10% Test Hold -The - Maturity Principal Interest 10% Test Not Offering - (September 2) Amount Rate Yield Price Satisfied* Satisfied Price Rule 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 20 (T) (") Priced to optional call at [par] on September 2, 20_. (T) Term Bond. . At the time of execution of this Purchase Agreement and assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement. FEW 4840-9262-3767.2 22-33 APPENDIX B FORM OF ISSUE PRICE CERTIFICATE CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A The undersigned, on behalf of Stifel, Nicolaus & Company, Incorporated (the "Underwriter") hereby certifies as set forth below with respect to the sale and issuance of the above - captioned obligations (the "Bonds"). 1. Sale of the Bonds. As of the date of this certificate, for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A. 2. Initial Offering Price of the Hold -the -Offering -Price Maturities. (a) Underwriter offered the Hold -the -Offering -Price Maturity to the Public for purchase at the respective initial offering price listed in Schedule A (the "Initial Offering Price") on or before the Sale Date. (b) As set forth in the Bond Purchase Agreement, dated , 2019, by and between the Issuer and Underwriter, Underwriter has agreed in writing that, (i) for the Hold -the - Offering -Price Maturity, it would neither offer nor sell any of the Bonds of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the "hold -the -offering -price rule"), and (ii) any selling group agreement shall contain the agreement of each dealer who is a member of the selling group, and any retail distribution agreement shall contain the agreement of each broker-dealer who is a party to the retail distribution agreement, to comply with the hold -the -offering -price rule. Pursuant to such agreement, no Underwriter (as defined below) will offer or sell any Hold -the -Offering -Price Maturity at a price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the Holding Period. 3. Defined Terms. (a) Issuer means City of Newport Beach. (b) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities. (c) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term "related party" for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. KBI 4840-9262-3767.2 22-34 (d) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the Underwriter's interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate relating to the Bonds and with respect to compliance with the federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth, a Professional Corporation in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. STIFEL, NICOLAUS & COMPANY, INCORPORATED LE Name: Lo Name: Dated: , 2019 4840-9262-3767.2 22-35 Attachment D Preliminary Official Statement (with Continuing Disclosure Agreement as appendix F) 22-36 PRELIMINARY OFFICIAL STATEMENT DATED , 2019 o -Z NEW ISSUE – BOOK ENTRY ONLY NOT RATED In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, subject o to certain qualifications described in the Official Statement, under existing statutes, regulations, rules and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described in the Official Statement, the interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, such interest (and woriginal issue discount) is exempt from State of California personal income taxes. See "CONCLUDING INFORMATION—Tax Matters" E o herein. ; $1,575,000* CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A BASE CUSIV: MATURITY SCHEDULE Maturity Date Principal (September 2) Amount Interest Rate Yield CUSIPt 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 Preliminary, subject to change. CUSIP® Copyright 2019, American Bankers Association. CUSIP® data in this Official Statement is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of the American Bankers' Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. Neither the City nor the Underwriter takes any responsibility for the accuracy of CUSIP data in this Official Statement. The CUSIP® number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. 22-38 CITY OF NEWPORT BEACH COUNTY OF ORANGE, CALIFORNIA CITY COUNCIL Diane Dixon, Mayor Will O'Neill, Mayor Pro Tem Duffy Duffield, Councilmember Brad Avery, Councilmember Jeff Herdman, Councilmember Joy Brenner, Councilmember Kevin Muldoon, Councilmember CITY OFFICIALS Grace Leung, City Manager Dan Matusiewicz, Finance Director Aaron Harp, City Attorney Leilani Brown, City Clerk BOND COUNSEL AND DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California MUNICIPAL ADVISOR KNN Public Finance Los Angeles, California FISCAL AGENT U.S. Bank National Association Los Angeles, California ASSESSMENT ENGINEER Harris & Associates, Inc. Irvine, California 22-39 No dealer, broker, salesperson or other person has been authorized by the City, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the Fiscal Agent or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 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 or Owners of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with a nationally recognized municipal securities depository. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information set forth herein which has been obtained by the City from third party sources is believed to be reliable but is not guaranteed as to accuracy or completeness by the City or the Fiscal Agent. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, the landowners within the City or any other parties described herein since the date hereof. All summaries of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. While the City maintains an internet website for various purposes, none of the information on that website is incorporated by reference herein or 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. 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 Securities 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," "project," "budget' or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption "THE ASSESSMENT DISTRICT." THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. 22-40 TABLE OF CONTENTS INTRODUCTION.......................................................... 1 Purpose....................................................................... 1 Forward Looking Statements ...................................... 1 The Assessment District ............................................. 2 Property Values and Value -to -Assessment Lien FDIC/Federal Government Interests in Parcels Ratios...................................................................... 2 No Additional Bonds .................................................. 2 The Improvements...................................................... 2 Professionals Involved in the Offering ....................... 3 Continuing Disclosure ................................................ 3 Bond Owners' Risks ................................................... 3 Other Information....................................................... 3 ESTIMATED SOURCES AND USES OF FUNDS ...... 4 THE BONDS..................................................................4 IIID........................................................................25 General........................................................................ 4 Redemption of Bonds ................................................. 5 Purchase of Bonds ...................................................... 6 Notice of Redemption ................................................. 6 Selection of Bonds for Redemption ............................ 6 RefundingBonds ........................................................ 6 Registration, Exchange or Transfer ............................ 7 Annual Debt Service ................................................... 8 SECURITY FOR THE BONDS ..................................... 8 Limited Obligation...................................................... 8 Assessment Liens and Installments ............................. 9 Limited Obligation Upon Delinquency ....................... 9 Reserve Fund............................................................ 10 Covenant to Foreclose and Court Foreclosure Proceedings........................................................... 10 Priority of Assessment Lien ...................................... 11 No Additional Bonds ................................................ 11 THE ASSESSMENT DISTRICT ................................. 12 Description of the Assessment District ..................... 12 Description of Improvements .................................... 12 Formation Proceedings ............................................. 13 Allocation of Assessments ........................................ 13 Maximum Annual Assessment for Administrative Costs and Expenses ............................................... 13 Value -to -Assessment Lien Ratios ............................. 13 Property Owners with Largest Assessments ............. 16 Historical Assessed Values ....................................... 17 Direct and Overlapping Indebtedness ....................... 18 Delinquency History ................................................. 18 BONDOWNERS' RISKS ............................................ 19 General...................................................................... 19 Risks of Real Estate Secured Investments Generally............................................................... 19 Limited Obligations .................................................. 19 Delinquency Resulting in Ultimate or Temporary Loss on Bonds ....................................................... 20 Non -Cash Payments of Assessments ........................ 20 Potential Early Redemption of Bonds from Prepayments or Other Sources .............................. 20 Limited City Obligation Upon Delinquency ............. 20 Disclosures to Future Purchasers .............................. 20 Payment of the Assessments is not a Personal ASSESSMENT DIAGRAM........ Obligation of the Owners.......................................21 APPENDIX B Property Values.........................................................21 Bankruptcy and Foreclosure......................................21 SUMMARY OF THE FISCAL FDIC/Federal Government Interests in Parcels .........22 No Acceleration Provision.........................................23 C-1 Limitation on Remedies.............................................23 OPINION OF BOND Natural Disasters........................................................23 Hazardous Substances...............................................23 D-1 Limited Secondary Market........................................24 BOOK -ENTRY ONLY Future Debt Issuance.................................................24 Ballot Initiatives........................................................24 E-1 Constitutional Amendment — Articles IIIC and FORM OF CONTINUING IIID........................................................................25 CONCLUDING INFORMATION................................25 F-1 Continuing Disclosure...............................................25 LegalOpinion............................................................26 TaxMatters................................................................26 Litigation...................................................................28 Financial Interests......................................................28 NoRating...................................................................28 Underwriting..............................................................28 Miscellaneous............................................................28 APPENDIX A ASSESSMENT DIAGRAM........ A-1 APPENDIX B ENGINEER'S REPORT...............B-1 APPENDIX C SUMMARY OF THE FISCAL AGENT AGREEMENT ............... C-1 APPENDIX D OPINION OF BOND COUNSEL ................................... D-1 APPENDIX E BOOK -ENTRY ONLY SYSTEM ...................................... E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT .... F-1 22-41 ASSESSMENT DISTRICT AERIAL 22-42 $1,575,000' CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A INTRODUCTION Purpose The purpose of this Official Statement, which includes the cover page, the table of contents and the attached appendices (collectively, the "Official Statement"), is to provide certain information concerning the issuance by the City of Newport Beach (the "City") of the $1,575,000 City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A (the "Bonds"). The proceeds of the Bonds will be used to (i) fund the Reserve Fund for the Bonds, (ii) finance capitalized interest on the Bonds through approximately September 2, 2019, (iii) pay costs of issuance, (iv) reimburse the City for the costs of forming the Assessment District, and (v) pay the costs for the design and undergrounding of certain utilities (the "Improvements") within the City of Newport Beach Assessment District No. 116 (the "Assessment District"). See "ESTIMATED SOURCES AND USES OF FUNDS" and "THE ASSESSMENT DISTRICT" herein. The Bonds are to be issued pursuant to a Fiscal Agent Agreement by and between the City and U.S. Bank National Association (the "Fiscal Agent"), dated as of July 1, 2019 (the "Fiscal Agent Agreement"). The Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon the Assessments (as defined therein) and all moneys on deposit in the Assessment Fund, the Redemption Fund and the Reserve Fund. See "SECURITY FOR THE BONDS." This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by more complete and detailed information contained in, this entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined herein shall have the meanings set forth in APPENDIX C—"SUMMARY OF THE FISCAL AGENT AGREEMENT—Definitions" herein. Forward Looking Statements 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 Securities 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 a "plan," "expect," "estimate," "project," "budget" or similar words. Such forward- looking statements include, but are not limited to certain statements contained in the information under the caption "THE ASSESSMENT DISTRICT." THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH . Preliminary; subject to change. 22-43 FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. The Assessment District The Assessment District is located in the southern portion of the City on the Balboa Peninsula in an area generally bounded by 44th Street, the channel east of River Avenue, 38th Street and Balboa Boulevard. There are 82 parcels in the Assessment District with unpaid assessments securing the Bonds. The property in the Assessment District is zoned residential and all parcels with unpaid Assessments have been developed. See "THE ASSESSMENT DISTRICT" herein. Assessment proceedings were initiated by the City Council of the City pursuant to the Municipal Improvement Act of 1913, Division 12 of the California Streets and Highways Code (the "Act") by adoption of Resolution No. 2015-97 on November 10, 2015, declaring its intention to form the Assessment District. Harris & Associates, Inc., Irvine, California, (the "Assessment Engineer"), prepared a written report which contained among other things, the proposed assessment for each parcel of land in the Assessment District. The written report was filed and preliminarily approved by the City Council by Resolution No. 2015-94 adopted on November 10, 2015 (the "Engineer's Report"). On January 12, 2016, a public hearing was duly held as noticed, and all persons interested and desiring to be heard were given an opportunity to speak and be heard, and all matters pertaining to the levy were fully heard and considered by the City Council, and all oral statements and all written protests or communications were duly considered. Following the public hearing, the assessment ballots were tabulated by the Assessment Engineer and the City Clerk and it was found that a majority protest as defined by Article XIIID of the California Constitution did not exist. On January 12, 2016 the City Council adopted its resolution confirming the proposed assessments. The City Council confirmed a total assessment of $1,925,000 and recorded such confirmed assessments. After confirmation and recordation, the assessments became liens against the various assessed parcels. All property owners in the Assessment District were then given mailed notice of the opportunity to pay all or a portion of their Assessments in cash after the recording of the Assessments. Originally, there were 103 assessed parcels with Assessments totaling $1,925,000. During the cash prepayment period, 21 parcels fully prepaid their Assessments. There remains $1,578,596 of unpaid Assessments securing the Bonds (the "Assessments"). See "SECURITY FOR THE BONDS." Property Values and Value -to -Assessment Lien Ratios The aggregate assessed value of the parcels in the City with unpaid Assessments, as shown in the County of Orange assessor's roll for fiscal year 2018-19, was $77,763,314. The ratio of the assessed value of such parcels to the total amount of the unpaid Assessments, is approximately 49.26 to 1. See "THE ASSESSMENT DISTRICT—Value-to-Lien Assessment Ratios" for certain value -to -lien information with respect to the parcels within the Assessment District. No Additional Bonds The City is not authorized to issue additional bonds (other than the Bonds or any refunding bonds) secured by the Assessments. The Improvements Bond proceeds will primarily be used to provide financing to underground overhead power, telephone and cable facilities in the Assessment District. The proposed underground utility improvements will provide conversion to an upgraded utility system and are expected to enhance neighborhood aesthetics, safety and reliability. See APPENDIX B—"ENGINEER'S REPORT." 2 22-44 Professionals Involved in the Offering U.S. Bank National Association, Los Angeles, California, will act as Fiscal Agent under the Fiscal Agent Agreement. Digital Assurance Certification, LLC, Orlando, Florida, will serve as the initial Dissemination Agent under the City's Continuing Disclosure Agreement. KNN Public Finance, Los Angeles, California, will act as Municipal Advisor to the City in connection with the Bonds. The legal proceedings in connection with the issuance and delivery of the Bonds are subject to the approval as to their legality of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel and Disclosure Counsel. Certain legal matters will be passed on for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California. Other professional services have been performed by Harris & Associates, Inc., Irvine, California, as Assessment Engineer, and Willdan Financial Services, as Assessment District Consultant. For information concerning financial or other interests which certain of the above-mentioned professionals, advisors, counsel and agents may have in the offering of the Bonds, see "CONCLUDING INFORMATION—Financial Interests" herein. Continuing Disclosure The City has agreed to provide, or cause to be provided, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission, certain annual financial information and operating data. The City has further agreed to provide notice of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2 -12(b)(5). See "CONCLUDING INFORMATION—Continuing Disclosure" herein and Appendix F hereto for a description of the specific nature of the annual reports and notices of enumerated events to be provided by the City. Bond Owners' Risks Certain events could affect the timely repayment of the principal of and interest on the Bonds when due. See the section of this Official Statement entitled `BONDOWNERS' RISKS" for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds. The purchase of the Bonds involves risks, and the Bonds are not suitable investments for some types of investors. See `BONDOWNERS RISKS" herein. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the Bonds and the Fiscal Agent Agreement are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Fiscal Agent Agreement, the Bonds and the constitution and laws of the State as well as the proceedings of the City Council of the City, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by reference to the Fiscal Agent Agreement. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Fiscal Agent Agreement. Copies of the Fiscal Agent Agreement, the Continuing Disclosure Agreement and other documents and information referred to herein are available for inspection and (upon request and payment to the Fiscal Agent of a charge for copying, mailing and handling) for delivery from the Fiscal Agent. 22-45 ESTIMATED SOURCES AND USES OF FUNDS The Fiscal 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: Par Amount of Bonds $ [Less] [Net] Original Issue [Discount] Less Underwriter's Discount Total Sources $ USES: Improvement Fund0) $ Costs of Issuance Fund(2) Interest Account(3) Reserve Fund Total Uses $ 0) Amounts to be used to finance the construction of the Improvements. (Z) Includes costs of issuance, such as Fiscal Agent, Municipal Advisor, Bond Counsel and Disclosure Counsel fees and costs, printing costs and other related costs for the issuance of Bonds, reimbursable expenses of the City, certain upfront design and engineering costs and the costs of the formation of the Assessment District. (3) To fund interest on the Bonds through approximately September 2, 2019. THE BONDS General The $1,575,000* aggregate principal amount of the Bonds was authorized for issuance by a resolution adopted by the City Council of the City and are being issued by the City pursuant to the Act and the Fiscal Agent Agreement between the City and the Fiscal Agent. The Bonds will be dated their date of delivery and mature on September 2 in the years and in the amounts shown on the cover page of this Official Statement. Interest shall be payable semiannually on March 2 and September 2 of each year until maturity commencing September 2, 2019. The Bonds are issued as fully registered bonds, with authorized denominations of $5,000 and any increment of $5,000 in excess thereof. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated after a Record Date and on or before the immediately succeeding Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated before the close of business on the first Record Date, in which event it shall bear interest from its dated date; provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon or from the date of original delivery of the Bonds, if no interest has previously been paid or made available for payment on the Outstanding Bonds. Interest on the Bonds is payable by the Fiscal Agent on each Interest Payment Date, until the principal amount of a Bond including mandatory sinking fund payments thereon, if any, has been paid or made available for payment, to the registered Owner thereof at such registered Owner's address as it appears on the registration books maintained by the Fiscal Agent at the close of the Business Day on the Record Date preceding the Interest Payment Date. The Bonds will be held in book -entry form and registered in the name of * Preliminary, subject to change. 4 22-46 Cede & Co., as nominee of The Depository Trust Company ("DTC"), all interest payments will be made directly to DTC for distribution to the beneficial owners in accordance with DTC's procedures. See APPENDIX E—"BOOK-ENTRY ONLY SYSTEM" herein. Redemption of Bonds Optional Redemption. The Bonds are subject to redemption prior to their stated maturity dates on any date on and after September 2, 2026 from such maturities as selected by the City, from any source of funds other than Prepayment of Assessments, including, but not limited to, surplus monies on deposit in the Improvement Fund, at the following redemption prices (expressed as a percentage of the principal amount being redeemed), together with accrued interest to the date of redemption: Redemption Date Redemption Prices September 2, 2026 through September 1, 2027 103% September 2, 2027 through September 1, 2028 102 September 2, 2028 through September 1, 2029 101 September 2, 2029 and any date thereafter 100 Mandatory Sinking Fund Redemption. The outstanding Bonds maturing on September 2, are subject to mandatory sinking fund redemption, in part, on September 2, and on each September 2 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, and from sinking payments as follows: Bonds Maturing on September 2, Sinking Fund Redemption Date (September 2) (Maturity) Sinking Payments The amounts in the foregoing schedule shall be reduced by the City pro rata among redemption dates, in order to maintain substantially level debt service on the Bonds, as a result of any prior or partial optional or other mandatory redemption of the Bonds. Mandatory Redemption From Assessment Prepayments. Whenever, as of an Interest Payment Date, there are sufficient funds in the Prepayment Account of the Redemption Fund from the proceeds of prepayments of Assessments, the Bonds shall be called for redemption as provided in Part 11.1 of the Improvement Bond Act of 1915 (the "1915 Act"). Each Bond, or any portion thereof, in the principal amount of $5,000 or any integral multiple thereof, may be redeemed and paid in advance of maturity on any Interest Payment Date in any year pro rata among maturities, by giving notice to the Owner thereof and by paying the principal amount thereof, plus interest to the date of redemption, unless sooner surrendered, in which event said interest will be paid to the date of payment, together with a redemption premium (expressed as percentages of the principal amount of the Bonds to be redeemed) at the following redemption prices: 22-47 Redemption Date Redemption Prices Interest Payment Dates on or prior to March 2, 2027 103% September 2, 2027 and March 2, 2028 102 September 2, 2028 and March 2, 2029 101 September 2, 2029 and thereafter 100 Mandatory redemption from prepayments of Assessments could reduce the otherwise expected yield on the Bonds. See `BONDOWNERS' RISKS — Potential Early Redemption of Bonds from Prepayments or Other Sources." Purchase of Bonds In lieu of payment at maturity or redemption, moneys in the Redemption Fund may be used and withdrawn by the Fiscal Agent for purchase of outstanding Bonds, upon the filing with the Fiscal Agent of an Officer's Certificate requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer's Certificate may provide, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, plus the premium, if any, which would be paid upon redemption, plus interest accrued to the date of purchase. Notice of Redemption With respect to the Bonds held in book -entry form, notices of redemption will be mailed only to The Depository Trust Company and not to any beneficial owner of the Bonds. The Fiscal Agent shall cause notice of any redemption to be mailed by registered or certified mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, to the securities depository and to certain information services, and to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Fiscal Agent; but the actual receipt of any notice shall not be a condition precedent to such redemption and failure to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A notice of redemption for optional redemption may be conditioned on the receipt by the City of sufficient funds to effect the redemption. If sufficient funds are not received by the City by the redemption date, the redemption shall not occur and the Bonds will remain outstanding under the Fiscal Agent Agreement. If any redemption is cancelled due to lack of sufficient funds, the Fiscal Agent shall mail a notice to the Bondowners stating that such redemption was cancelled and did not occur. Selection of Bonds for Redemption Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds, the City shall select the Bonds for redemption in such a way that the ratio of Outstanding Bonds to issued Bonds shall be approximately the same in each maturity of the Bonds insofar as possible. The Fiscal Agent shall select the particular Bonds to be redeemed from each maturity by lot. Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds (Division 11.5 of the Streets and Highways Code) (the "1984 Act"), the City may issue refunding bonds for the purpose of redeeming the Bonds. The City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the Assessment District or giving notice to the owners of the Bonds if the City Council makes the findings required in the 1984 Act. m 22-48 Registration, Exchange or Transfer The registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation at the office of the Fiscal Agent, accompanied by delivery of a written instrument of transfer in a form acceptable to the Fiscal Agent and duly executed by the Bondowner or his or her duly authorized attorney. Bonds may be exchanged at the office of the Fiscal Agent for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity. The Fiscal Agent will not charge the Owner for any new Bond issued upon any exchange or transfer, but shall require the Owner requesting such exchange or transfer to pay any tax or other governmental charge required to be paid with respect to such exchange or transfer. The cost of printing any Bonds and any services rendered or any expenses incurred by the Fiscal Agent in connection with any exchange or transfer shall be paid by the City as Administrative Expenses. Whenever any Bond or Bonds shall be surrendered for registration of transfer or exchange, the City shall execute, and the Fiscal Agent shall authenticate and deliver, a new Bond or Bonds of the same maturity for a like aggregate principal amount; provided, that the Fiscal Agent shall not be required to register transfers or make exchanges of Bonds (a) 15 days prior to the date established by the Fiscal Agent for selection of Bonds for redemption, or (b) with respect to a Bond after such Bond has been selected for redemption. 7 22-49 Annual Debt Service Table 1 below sets forth the annualized debt service on the Bonds based on the maturity schedule and interest rates set forth on the cover page of this Official Statement assuming no earlier redemption thereof (other than mandatory sinking fund redemption, if any). TABLE 1 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A Annualized Debt Service Year Ending September 2 Principal Interest Total 2019 $ $ $ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 Total $ Source: Underwriter. SECURITY FOR THE BONDS Limited Obligation The obligation of the City relating to the Bonds is not a general obligation of the City, but is a limited obligation, payable solely from the Assessments and from the funds pledged therefor under the Fiscal Agent Agreement. Neither the faith and credit nor the taxing power of the City, the County or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Notwithstanding any other provision of the Fiscal Agent Agreement, the City is not obligated to advance available surplus funds from the City treasury to cure any deficiency in the Redemption Fund. 22-50 Assessment Liens and Installments The Bonds are issued upon and secured by and payable solely from the unpaid Assessments on parcels of property within the Assessment District together with interest thereon, and such unpaid Assessments, together with interest thereon, constitute a fund for the redemption and payment of the principal, including mandatory sinking fund payments, if any, of the Bonds and the interest thereon and premium, if any. The Bonds are secured by the moneys in the Assessment Fund, the Redemption Fund and the Reserve Fund created pursuant to the Fiscal Agent Agreement. Amounts in the Reserve Fund will secure the payment of debt service on the Bonds. THE BONDS ARE NOT SECURED BY THE GENERAL TAXING POWER OF THE CITY, THE COUNTY OF ORANGE OR THE STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL SUBDIVISIONS, NOR IS THE FULL FAITH AND CREDIT OF THE CITY, THE COUNTY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS PLEDGED TO THE PAYMENT OF THE BONDS. Although the unpaid Assessments constitute fixed liens on the parcels assessed, they do not constitute a personal indebtedness of the respective owners of such parcels. There can be no assurance as to the ability or the willingness of such owners to pay the unpaid Assessments when due. See `BONDOWNERS' RISKS" herein. The unpaid Assessments will be collected in annual installments, together with interest, on the County secured tax roll on which general taxes on real property are collected (the "Assessment Installments"). The Annual Installments will also nclude an amount for the payment of administrative expenses in the amount set forth in the Engineer's Report; such amounts are not available to pay debt service on the Bonds. The Assessment Installments 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. The properties upon which the Assessments are levied are subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes. The City shall immediately deposit the annual Assessment Installments into the Assessment Fund held by the City upon receipt from the County. Amounts in the Assessment Fund shall secure the payment of debt service on the Bonds. On or prior to the first day of March and September of each year, the City shall transfer to the Fiscal Agent for deposit into the Redemption Fund and the Reserve Fund the amount required in the Fiscal Agent Agreement. The Assessment Installments billed against each of the parcels in the Assessment District each year represent a pro rata share of the total principal, including mandatory sinking fund payments, if any, and interest coming due on all of the Bonds that year, including any amounts needed to replenish the Reserve Fund. The amount billed against each parcel is based on the percentage which the unpaid Assessment against the property bears to the total of unpaid Assessments in the Assessment District. The failure of a property owner to pay an annual Assessment Installment will not result in an increase in Assessment Installments against other property in the Assessment District. Each property owner has a statutory right to prepay the Assessment on a parcel in whole or in part on any date. Amounts received as prepaid Assessments will be deposited in the Prepayment Account of the Redemption Fund and shall be used solely for the purpose of redeeming Bonds. See "THE BONDS— Redemption of Bonds Mandatory Redemption from Assessment Prepayments." Limited Obligation Upon Delinquency THE BONDS ARE LIMITED OBLIGATIONS OF THE CITY AND ARE PAYABLE SOLELY FROM THE ASSESSMENTS AND THE ASSETS PLEDGED THEREFOR UNDER THE FISCAL AGENT AGREEMENT. THE CITY HAS DETERMINED NOT TO OBLIGATE ITSELF AND HAS NO LEGAL OR MORAL OBLIGATION TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO W 22-51 PAY BOND DEBT SERVICE IN THE EVENT OF DELINQUENT ASSESSMENT INSTALLMENTS. BONDOWNERS SHOULD NOT RELY UPON THE CITY TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO THE REDEMPTION FUND. NOTWITHSTANDING THE FOREGOING, THE CITY MAY, AT ITS SOLE OPTION AND IN ITS SOLE DISCRETION, ELECT TO ADVANCE SUCH FUNDS. Reserve Fund The Fiscal Agent Agreement provides that a Reserve Fund must be maintained. As established by the Fiscal Agent Agreement, the Reserve Fund is to be held by the Fiscal Agent. The amount to be maintained in the Reserve Fund is to equal the Reserve Requirement. The Reserve Requirement means, as of any date of calculation, 50% of the then maximum annual debt service due on the Bonds. Upon issuance of the Bonds, the Reserve Requirement shall be $ . Moneys in the Reserve Fund shall be held for the benefit of the Owners of the Bonds as a reserve for the payment of the principal of, including mandatory sinking fund payments, if any, and interest on the Bonds and shall be subject to a lien in favor of the Owners of the Bonds. See APPENDIX C—"SUMMARY OF FISCAL AGENT AGREEMENT." In connection with an Assessment prepayment, the amount of each Assessment prepaid shall be reduced by the amount the Fiscal Agent is required to transfer from the Reserve Fund for deposit in the Prepayment Account of the Redemption Fund. Under the Fiscal Agent Agreement, the Fiscal Agent is to transfer the portion of the balance then in the Reserve Fund equal to the proportion that the Assessment prepaid bears to the total of all Assessments remaining unpaid as of such date. The City shall notify, or shall cause the Fiscal Agent to be notified of the amount so transferred. After each such transfer, the Reserve Requirement shall be reduced by the amount of the related transfer. Whenever there are insufficient funds in the Redemption Fund to meet the next maturing installment of principal of, including mandatory sinking fund payments, if any, or interest on the Bonds, the Fiscal Agent shall transfer from the Reserve Fund for deposit into the Redemption Fund an amount necessary to satisfy such deficiency. The City agrees in the Fiscal Agent Agreement that if such insufficiency was caused by delinquent payment of Assessment Installments, then an amount equal to the amount so transferred shall be reimbursed and transferred by the City to the Fiscal Agent, for deposit in the Reserve Fund from the proceeds of redemption or sale of the delinquent parcel. If at any time the amount of interest earned by the investment of any portion of the Reserve Fund, together with the principal amount in the Reserve Fund, shall exceed the Reserve Requirement, such excess shall, at the written direction of the City, be transferred by the Fiscal Agent to the Redemption Fund and shall be credited by the City upon the unpaid Assessments in the manner set for the in the 1913 Act. Whenever the balance in the Reserve Fund and the Redemption Fund is sufficient to retire all the remaining outstanding Bonds, the Fiscal Agent shall transfer at the written direction of the City the balance in the Reserve Fund to the Redemption Fund and the City shall cease the collection of the principal and interest on the unpaid Assessments. In such case, the City shall credit the balance so transferred against the Assessments remaining unpaid in the manner set forth in the 1915 Act. 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. Covenant to Foreclose and Court Foreclosure Proceedings The 1913 Act provides that in the event any Assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of the unpaid Assessment. In such an action, the real property subject to the unpaid Assessment may be sold at judicial 10 22-52 foreclosure sale. This foreclosure sale procedure is not mandatory. However, pursuant to the Fiscal Agent Agreement, 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 1 of each year to determine the amount of Assessment Installments collected in the prior Fiscal 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 1 of each 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. The 1913 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 in the 1913 Act. The court may also include subsequent delinquent Assessment Installments and all other delinquent amounts. If the property to be sold fails to sell for the minimum price described above, 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. In certain circumstances, the court may modify the judgment after a hearing if the court makes certain determinations, including, but not limited to, a determination that the sale at less than the minimum price will not result in an ultimate loss to the Owners of the Bonds, or a determination that the Owners of at least 75% of the principal amount of the Bonds outstanding have consented to the petition and the sale will not result in an ultimate loss to the nonconsenting Bond Owners. Neither the property owner, nor any holder of a security interest in the property, nor any defendant in the foreclosure action, nor any agent thereof may purchase the property at the foreclosure sale for less than the minimum price. For any lot or parcel with not more than 4 dwelling units, a period of 140 days must elapse after the date of the notice of levy of the interest in real property is served on the judgment debtor before the sale of such lot or parcel 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. In the event court foreclosure proceedings are commenced by the City, there may be delays in payments to Owners of the Bonds pending prosecution of the foreclosure proceedings to completion, including the receipt of the City of the proceeds of the foreclosure sale. It is also possible that no qualified bid will be received at the foreclosure sale. See "BONDOWNERS' RISKS" herein. Priority of Assessment Lien The Assessments (and any further assessment or reassessment) and each installment thereof and any interest and penalties thereon constitute a lien against the lots and parcels of land on which they were imposed until paid. Such lien has priority over all fixed special assessment liens which may thereafter be created against the property, and also has priority over all private liens, including the lien of any mortgage or deed of trust whenever created. Such lien is co -equal to and independent of the lien for general taxes. See "THE ASSESSMENT DISTRICT—Direct and Overlapping Indebtedness" and "BONDOWNERS' RISKS— FDIC/Federal Government Interests in Parcels." No Additional Bonds The City is not authorized to issue additional bonds (other than the Bonds or any refunding bonds) secured by the Assessments. See "THE BONDS—Refunding Bonds" above. 11 22-53 THE ASSESSMENT DISTRICT Description of the Assessment District The property in the Assessment District is zoned residential and consists of a variety of completed structures. Originally, there were 103 assessed parcels with Assessments totaling $1,925,000. During the cash prepayment period, 21 parcels fully prepaid their Assessments. There remains $1,578,596 of unpaid Assessments secured against the remaining parcels within the Assessment District. The first installment of Assessments is expected to be levied in Fiscal Year 2019-20. The Assessment District is located in the southern portion of the City on the Balboa Peninsula in an area generally bounded by 44th Street, the channel east of River Avenue, 38th Street and Balboa Boulevard. The aggregate assessed value of parcels in the Assessment District with unpaid Assessments was $77,763,314 for Fiscal Year 2018-19. The Improvements financed by the Assessment District will consist of the design and undergrounding of certain utilities within the Assessment District. Costs of the Improvements are estimated to be $1,563,100. See "ESTIMATED SOURCES AND USES OF FUNDS." Any surplus monies on deposit in the Improvement Fund may be used to redeem Bonds. See "THE BONDS—Redemption of Bonds." Description of Improvements The Assessment District was formed to provide financing to underground power, telephone and cable facilities within the Assessment District. The proposed underground utility improvements will provide conversion to an upgraded utility system and will enhance neighborhood aesthetics, safety and reliability. The undergrounding project is expected to be completed by the end of 2021 and each parcel will be responsible for connecting to the undergrounded utilities after project completion at its owner's expense. The following table shows a summary of the District Improvement Project Cost Estimate as contained in the Final Engineer's Report prepared by the Assessment Engineer, a copy of which is attached hereto as Appendix B. TABLE 2 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 ENGINEER'S ESTIMATE OF COSTS AND EXPENSES UTILITY ENGINEERING & CONSTRUCTION Southern California Edison AT&T Time Warner Contingency 10% INCIDENTAL EXPENSESM FINANCIAL COSTS(2) Total Construction: Total Incidental Expenses: Total Construction and Incidental Expenses: Total Financial Costs0): TOTAL ESTIMATE: $ 850,000.00 416,000.00 155,000.00 142,100.00 $ 1,563,100.00 $ 222,900.00 $ 1,786,000.00 $ 139,000.00 1.925.000.00 (1) Includes costs for inspection, engineering, administration, printing, consultants and legal fees. (2) Includes Bond Reserve (5.0%), Underwriter's Discount (1%) and Capitalized Interest (1.3%). (3) Amount shown does not include savings due to payments received during cash collection period. 12 22-54 Source: Assessment Engineer's Report. Formation Proceedings The City Council has taken proceedings under the 1913 Act for the formation of the Assessment District and has confirmed the Assessments, which Assessments and a related diagram were recorded in the office of the Superintendent of Streets, and with the County Recorder of the County. A notice of assessment, as prescribed in Section 3114 of the Streets and Highways Code, was recorded with the County Recorder of the County, whereupon the Assessments attached as a lien upon the property assessed within the Assessment District as provided in Section 3115 of the Streets and Highways Code. On January 12, 2016 the City Council conducted a duly noticed public hearing regarding the formation of the Assessment District. As of the close of the public hearing, there was no majority protest. Property owners were then given an opportunity to prepay their assessments in cash or to pay them in annual installments following the issuance of the Bonds. At the end of the cash collection period, a list of unpaid assessments was filed with the Director of Finance of the City, acting as treasurer pursuant to Section 8620 of the 1915 Act totaling $1,578,596. Allocation of Assessments The Assessment District was formed under the authority of the Act and Article XIIID of the California State Constitution, together with its implementing legislation (collectively "Proposition 218"), which require that local agencies levy assessments according to the special benefit and prescribe the procedures for such levy. Costs and expenses of the proposed Improvements must be apportioned against the parcels in the Assessment District by a formula which proportionally and equitably distributes the costs in direct proportion to the estimated special benefits these parcels receive from the Improvements. Neither the Act or Proposition 218 specifies the method that is used to apportion the benefits. In the Engineer's Report, the engineer identified the benefits the proposed Improvements will render to the properties within the Assessment District and determined that the property owners will receive a unique and special benefit distinguished from general benefits to the area at large. The unique and special benefit from the Improvements identified in the Engineer's Report is the enhancement of neighborhood aesthetics, safety and reliability which will provide a higher level of utility service and increase the desirability and specifically enhance the values of the properties within the Assessment District. See APPENDIX B— "ENGINEER'S REPORT" herein for a description of the method of apportionment of the assessments. Assessments range from a high of $25,142.10 to a low of $9,688.43 depending on the special benefit each property will receive from the Improvements as set forth in the Engineer's Report confirmed by the City Council. Maximum Annual Assessment for Administrative Costs and Expenses The costs associated with administering the Assessment District will be spread to each parcel in the Assessment District with unpaid Assessments on a pro -rata basis. Administrative costs for the Assessment District cannot exceed a total of $50 per parcel per year, subject to an annual increase based on the U.S. Consumer Price Index, All Urban Consumers, for Los Angeles -Riverside -Orange County, as of January 1 of each year. Costs of administering the Assessment District will first be paid in Fiscal Year 2019-20. Value -to -Assessment Lien Ratios The value of the land within the Assessment District with unpaid Assessments is significant because in the event of a delinquency in the payment of Assessment Installments, the Assessment District may foreclose only against delinquent parcels. The assessed value of the property within the Assessment District with unpaid Assessments was $77,763,314 for fiscal year 2018-19. As a result of Proposition 13, assessed values generally increase by no more than two percent annually. See `BONDOWNERS' RISKS – Property Values." Based on fiscal year 2018-19 assessed values and the unpaid Assessments, the parcels within the 13 22-55 Assessment District with unpaid Assessments have an aggregated assessed value -to -assessment lien ratio of 49.26 to 1. Table 3 below categorizes the parcels with unpaid Assessments within the Assessment District by value -to -lien range. TABLE 3 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 VALUE -TO -ASSESSMENT LIEN RATIOS Fiscal Year 2018-19 Assessed Value(V Number Value to of Assessment Overlapping Percent of Lien Ratio Parcels Land Structure Total Lien Debt(2) Lien Greater than 49.99:1 36 $ 46,070,554 $ 9,360,359 $ 55,430,913 $ 656,648 $ 497,250 41.60% 40.00:1 to 49.99:1 11 6,725,614 2,367,218 9,092,832 206,696 81,568 13.09 30.00:1 to 39.99:1 6 2,993,834 1,381,508 4,375,342 123,747 39,250 7.84 20.00:1 to 29.99:1 9 2,836,159 1,693,941 4,530,100 182,343 40,638 11.55 10.00:1 to 19.99:1 9 1,786,842 1,001,261 2,788,103 183,183 25,011 11.60 5.00:1 to 9.99:1 8 916,076 399,137 1,315,213 165,384 11,798 10.48 Less than 5.00:1 3(4) 175,713 55,098 230,811 60,597 2,071 3.84 Totals(3) 82 $ 61,504,792 $16,258,522 $ 77,763,314 $ 1,578,596 $ 697,586 100.00% (1) Assessed Value and Ownership as of January 1, 2018 as provided by the County of Orange Assessor. (2) Overlapping Debt provided by California Municipal Statistics, Inc. (3) Totals may not tie due to rounding. (4) These parcels have low value -to -lien ratios because they have been owned by the same owners for several decades and the assessed values have generally increased by no more than two percent annually since 1978. See `BONDOWNERS' RISKS — Property Values." Source: Orange County Assessor's Offices compiled by Willdan Financial Services. 14 22-56 Table 4 below categorizes the parcels with unpaid Assessments within the Assessment District by land use. TABLE 4 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 VALUE -TO -LIEN BY LAND USE Fiscal Year 2018-19 Assessed Value( ) Number Total Direct and Of Assessment Overlapping Overlapping Value to Percentage Land Use Category Parcels Land Structure Total Lien Debt(2) Debt Lien(3) of Lien Single Family Residential 45 $ 32,811,608 $ 10,014,349 $ 42,825,957 $ 819,062 $ 384,176 $ 1,203,238 35.59 51.89% Multi -Family Residential 37 28,693,184 6,244,173 34,937,357 759,535 313,410 1,072,945 32.56 48.11 Totals(4) 82 $ 61,504,792 $16,258,522 $ 77,763,314 $ 1,578,596 $ 697,586 $ 2,276,183 34.16 100.00% 0) Assessed Value and Ownership as of January 1, 2018 as provided by the County of Orange Assessor. (2) Overlapping Debt provided by California Municipal Statistics, Inc. (3) Represents "Total" divided by the "Total Direct and Overlapping Debt." (4) Totals may not tie due to rounding. Source: Orange County Assessor's Offices compiled by Willdan Financial Services. 15 22-57 Property Owners with Largest Assessments No single property owner within the Assessment District is responsible for more than 2.94% of the total unpaid Assessments and no owner owns more than two parcels within the Assessment District. Table 5 below sets forth the top ten property owners within the Assessment District by share of unpaid Assessments. TABLE 5 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 TOP 10 PROPERTY OWNERS Source: Orange County Assessor's Offices compiled by Willdan Financial Services. 16 22-58 Fiscal Year 2018-19 Assessed Value( ) Number Value - of Assessment Percent of to -Lien Property Owner(z) Parcels Land Structure Total Lien Lien Ratio( ) 1. OWNER NO. 1 2 $ 1,613,042 $ 952,934 $ 2,565,976 $ 46,454 2.94% 55.24 2. OWNER NO. 2 2 3,520,718 1,288,790 4,809,508 39,704 2.52 121.14 3. OWNER NO. 3 1 1,351,215 87,963 1,439,178 25,142 1.59 57.24 4. OWNER NO. 4 1 125,019 95,608 220,627 22,538 1.43 9.79 5. OWNER NO. 5 1 654,854 106,610 761,464 21,338 1.35 35.69 6. OWNER NO. 6 1 588,419 415,426 1,003,845 21,312 1.35 47.10 7. OWNER NO. 7 1 2,237,632 86,153 2,323,785 21,312 1.35 109.04 8. OWNER NO. 8 1 504,681 378,121 882,802 21,312 1.35 41.42 9. OWNER NO. 9 1 1,967,688 32,312 2,000,000 21,312 1.35 93.84 10. OWNER NO. 10 1 2,024,753 827,895 2,852,648 21,312 1.35 133.85 SUBTOTAL(4): 12 $ 14,588,021 $ 4,271,812 $ 18,859,833 $ 261,736 16.58% 72.06 ALL OTHER PROPERTY OWNERS 70 $ 46,916,771 $ 11,986,710 $ 58,903,481 $ 1,316,860 83.42 44.73 TOTALS (4): 82 $ 61,504,792 $ 16,258,522 $ 77,763,314 $ 1,578,596 100.00% 49.26 (1) Assessed Value and Ownership as of January 1, 2018 as provided by the County of Orange Assessor. (Z) Property ownership as listed on the County of Orange secured tax roll for Fiscal Year 2018-19. (3) Represents "Total" divided by "Assessment Lien." (4) Totals and subtotals may not tie due to rounding. Source: Orange County Assessor's Offices compiled by Willdan Financial Services. 16 22-58 Historical Assessed Values The following table summarizes the historical and current assessed values of parcels with unpaid Assessments within the Assessment District over the past 5 Fiscal Years. TABLE 6 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 HISTORIC ASSESSED VALUE Increase/(Decrease) Fiscal Aggregate in Property Year Assessed Value Assessed Value 2014-15 $58,174,471 N/A 2015-16 61,725,812 6.10% 2016-17 64,996,580 5.30 2017-18 70,779,463 8.90 2018-19 77,763,314 9.87 Sources: Orange County Assessor's office as compiled by Willdan Financial Services. 17 22-59 Direct and Overlapping Indebtedness The ability of an owner of land within the Assessment District to pay the Assessment Installments could be affected by the existence of other taxes and assessments imposed upon the property. These other taxes and assessments securing the repayment of overlapping debt in the Assessment District are set forth in Table 7 (the "Debt Report"). The Debt Report sets forth those entities which have issued debt and does not include entities which only levy or assess fees, charges, ad valorem taxes or special taxes. The Debt Report does not include the principal amount of the Bonds. The Debt Report has been derived from data assembled and reported to the City by California Municipal Statistics, Inc. as of May 1, 2019. The Debt Report includes information for all parcels with unpaid Assessments. Neither the City nor the Underwriter has independently verified the information in the Debt Report and neither guarantees its completeness or accuracy. TABLE 7 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 DIRECT AND OVERLAPPING ASSESSMENT INDEBTEDNESS 2018-19 Local Secured Assessed Valuation: $77,763,314 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District General Obligation Bonds Coast Community College District General Obligation Bonds Newport Mesa Unified School District General Obligation Bonds City of Newport Beach Assessment District No. 116 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT Ratios to 2018-19 Assessed Valuation: Direct Debt ($1,578,596) Total Direct and Overlapping Tax and Assessment Debt 0) Original Assessment. Source: California Municipal Statistics, Inc. Delinquency History % Applicable Debt 5/1/19 0.003% $ 1,281 0.055 415,931 0.109 280,374 100.000 1,578,5960) $ 2,276,182 2.03% 2.93% Historically, the parcels within the Assessment District have had a low property tax delinquency rate. Table 8 below summarizes the three year delinquency history of the parcels within the Assessment District as of May 29, 2019 based on the annual property tax levy. TABLE 8 CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 PROPERTY TAX DELINQUENCY HISTORY Fiscal Parcels Delinquent % of Parcels Year Number of Parcels as of May 29, 2019 Delinquent 2016-17 82 0 0.00% 2017-18 82 0 0.00 2018-19 82 2 2.44 Sources: Orange County Tax Collector as compiled by Willdan Financial Services. 18 22-60 BONDOWNERS' RISKS General In order to pay debt service on the Bonds, it is necessary that unpaid Assessment Installments on parcels within the District are paid in a timely manner. The Reserve Fund will be used to pay debt service on the Bonds if delinquent Assessment Installments should occur. The Assessments are a lien on the parcels of land and the City has covenanted to institute foreclosure proceedings under certain circumstances against parcels with 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 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. The 1915 Act provides that except under certain circumstances property is to be sold upon foreclosure at a Minimum Price. "Minimum Price" as defined 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 to Foreclose and Court Foreclosure Proceedings." Unpaid Assessment Installments do not constitute a personal indebtedness of the owners of the parcels within the Assessment District. There is no assurance the owners will be able to pay the Assessment Installments or that they will pay such installments even though financially able to do so. Risks of Real Estate Secured Investments Generally The Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the Assessment District, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses. No assurance can be given that the individual homeowners will pay Assessments in the future or that they will be able to pay such Assessments on a timely basis. See "—Bankruptcy and Foreclosure" below, for a discussion of certain limitations on the City's ability to pursue judicial proceedings with respect to delinquent parcels. Limited Obligations The Bonds and related interest are not payable from the general funds of the City. Except with respect to the Assessments, the credit and the taxing power of the City is not pledged for the payment of principal or interest of the Bonds, and, except as provided in the Fiscal Agent Agreement, no Owner of the Bonds may compel the exercise of any taxing power by the City or force the forfeiture of any City property. The principal 19 22-61 of, premium, if any, and interest on the Bonds are not a debt of the City or a legal or equitable pledge, charge, lien or encumbrance upon any of the City's property or upon any of the City's income, receipts or revenues, except the Assessments and other amounts pledged under the Fiscal Agent Agreement. Delinquency Resulting in Ultimate or Temporary Loss on Bonds If a temporary deficiency occurs in the Redemption Fund with which to pay the principal of or interest on Bonds that have then matured, or the principal and interest on Bonds coming due during the current year, unless it appears to the Treasurer that there will be an ultimate loss to the Bondowners, the Treasurer shall cause the Fiscal 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 Fiscal Agent Agreement. If it appears to the Treasurer that there is a danger of an ultimate loss accruing to the Bondowners for any reason, the Treasurer 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 so that the City may take proper action to equitably protect all Bondowners. See APPENDIX C—"SUMMARY OF FISCAL AGENT AGREEMENT." 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. Potential Early Redemption of Bonds from Prepayments or Other Sources Property owners within the Assessment District are permitted to prepay their Assessments at any time. Such prepayments could also be made from the proceeds of bonds issued by or on behalf of an overlapping special assessment district or community facilities district. Such prepayments will result in an extraordinary redemption of the Bonds on the Interest Payment Date for which timely notice may be given under the Fiscal Agent Agreement following the receipt of the prepayment. The resulting extraordinary redemption of Bonds that were purchased at a price greater than par could reduce the otherwise expected yield on such Bonds. See the caption "THE BONDS—Redemption of Bonds—Mandatory Redemption From Assessment Prepayments." 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. Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Assessments even if the value of the parcel is sufficient may be affected by whether or not the owner was given due notice of the Assessments 20 22-62 authorization at the time the owner purchased the parcel, was informed of the amount of the Assessments on the parcel and the risk of such a levy, and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The City has caused a notice of the Assessment lien to be recorded in the Office of the Recorder for the County against each parcel. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Assessments obligation in the purchase of a property within the Assessment District or lending of money thereon. Payment of the Assessments is not a Personal Obligation of the Owners An owner of a parcel subject to an Assessment is not personally obligated to pay such Assessment. Rather, the Assessment is an obligation which is secured only by a lien against the parcel. If the value of a parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Assessment, the City has no recourse against the owner. Property Values The value of the property within the Assessment District is a critical factor in determining the investment quality of the Bonds. If a property owner is delinquent in the payment of Assessment Installments, the Assessment 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, sea level rise, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the assessments. See "THE ASSESSMENT DISTRICT—Value-to-Assessment Lien ratios" herein. The development and marketing of land within the Assessment District may be particularly dependent on factors which are unique to Southern California. Between 2007 and 2012, the real estate market in Southern California experienced a significant downturn with taxable values dropping significantly and many homeowners and developers experiencing foreclosure, bankruptcy and other financial strains. In 2013 the real estate market in Southern California began to stabilize and the taxable value of real property in Southern California has been increasing ever since. The City can make no assurance with respect to whether taxable values of real property will decline in the future. The assessed values set forth in this Official Statement 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, generally not to exceed an increase of more than 2% per Fiscal Year. No assurance can be given that a parcel could actually be sold for its assessed value. Additionally, market values within the Assessment District could be impacted by a failure to complete the Improvements in a timely manner. 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 to Foreclose and Court Foreclosure Proceedings." Bankruptcy and Foreclosure The payment of Assessments and the ability of the City to foreclose the lien of delinquent unpaid Assessment Installments, as discussed in the section entitled "SECURITY FOR THE BONDS—Covenant to Foreclose and Court Foreclosure Proceedings" herein, may be limited by bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the law of the State of California relating to judicial foreclosure. In addition, the prosecution of a foreclosure could be delayed due to crowded local court calendars or procedural delays. 21 22-63 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, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the Assessments to become 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. If a parcel with unpaid Assessments within the Assessment District is owned by a federal governmental entity, or a private deed of trust secured by a parcel with unpaid Assessments within the Assessment District is owned by a federal governmental entity, the ability to foreclose on the parcel to collect delinquent Assessments may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel with unpaid Assessments within the Assessment District but does not pay taxes and assessments levied on the parcel (including Assessments), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the City wishes to foreclose on the parcel as a result of delinquent Assessments, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Assessments and preserve the federal government's mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association ("FNMA") is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States. The City has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels with unpaid Assessments 22 22-64 within the Assessment District, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. The City's remedies may also be limited in the case of delinquent Assessment Installments with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest. 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. No Acceleration Provision The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the Bonds or the Fiscal Agent Agreement or in the event interest on the Bonds becomes included in gross income for federal income tax purposes. See "—Limitations on Remedies" below. Limitation on Remedies Remedies available to the owners of the Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditors' rights, by equitable principles and by the exercise of judicial discretion. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners of the Bonds. Natural Disasters The Assessment District, like many California communities, may be subject to unpredictable seismic activity, fires, flood, tsunami 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 Assessment District. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. The property within the Assessment District is not located in an Alquist Priolo Earthquake Study Zone though it is located in close proximity to the Newport -Inglewood fault. The Assessment District is not located in a flood plain area. In the event of a severe earthquake, fire, flood, tsunami or other natural disaster, there may be significant damage to both property and infrastructure in the Assessment 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 Assessment 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 23 22-65 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 Assessment 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. 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 along with notice of certain enumerated events, 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 or enumerated event notices 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. Future Debt Issuance The ability of an owner of land within the Assessment District to pay the Assessment Installments could be affected by the existence of other taxes and assessments imposed upon parcels in the Assessment District with unpaid Assessments. In addition, the City and other public agencies whose boundaries overlap those of the Assessment District could impose additional taxes or assessment liens on the property within the Assessment District in order to finance public improvements or services to be located or provided inside of or outside of such area. The lien created on the property within the Assessment District through the levy of such additional taxes may be on a parity with the lien of the assessments levied by the City. See "THE ASSESSMENT DISTRICT—Direct and Overlapping Indebtedness" herein. The imposition of additional liens on a parity with the Assessment Installments may reduce the ability or willingness of the landowners to pay the Assessment Installments and increase the possibility that foreclosure proceeds will not be adequate to pay delinquent Assessment Installments. The City does not have control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes or assessments payable from all or a portion of the property within the Assessment District. In addition, the landowners within the Assessment District may, without the consent or knowledge of the City, petition other public agencies to issue public indebtedness secured by special taxes, ad valorem taxes or assessments. Any such special taxes, ad valorem taxes or assessments could reduce the estimated value -to -lien ratios for property within the Assessment District described herein. 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 24 22-66 local districts to increase revenues or to increase appropriations, or on the ability of the landowners to complete their developments. 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 XIIIC ("Article XIIIC") and Article XIIID ("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 XIIID 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 XIIID. The City completed its proceedings for the levy of assessments in the Assessment District on January 12, 2016 after complying with the procedural requirements of Section 4 of Article XIIID. 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 XIIIC removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. Article XIIIC 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 of the Bonds are outstanding, commencing with property tax year 2019-20, 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 has been and will continue to 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 any future determination. CONCLUDING INFORMATION Continuing Disclosure The City has agreed to execute a Continuing Disclosure Agreement (the "Disclosure Agreement") in connection with the delivery of the Bonds for the benefit of the Underwriter, holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City by the April 1 following the end of the City's fiscal year (the "Annual Report") commencing April 1, 2020 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 Digital Assurance Certification, LLC (the "Dissemination Agent") with the Municipal Securities Rulemaking Board (the "Repository"). Notices of Listed Events will be filed by the Dissemination Agent with the Repository. 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—"FORM OF CITY CONTINUING DISCLOSURE 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), as amended (the "Rule"). 25 22-67 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 inclusion of this information does not mean that the Bonds are secured by any resources or property of the City other than the Assessments and amounts pledged under the Fiscal Agent Agreement. See "BONDOWNERS' RISKS—Limited City Obligation Upon Delinquency." It should also be noted that the list of Listed Events which the City has agreed to report includes items related to credit enhancements and ratings. These items have been included in the list solely to satisfy the requirements of the Rule. The Bonds have not been assigned a credit rating and have no credit enhancement. Within the past five years, the City has not failed to comply in all material respects with any previous undertaking with regard to the Rule to provide annual reports or notices of Listed Events. The full text of the Disclosure Agreement is set forth in Appendix F. Legal Opinion Certain proceedings in connection with the issuance of the Bonds are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, 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. Certain legal matters will be passed upon for the City by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California. Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ("Bond Counsel"), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of the same maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the Bond Owner will increase the Bond Owner's basis in the Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of a Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals, and is exempt from State of California personal income tax. Bond Counsel's opinion as to the exclusion from gross income of interest (and original issue discount) on the Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City and others making such representations comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds to assure that interest (and original issue discount) on the Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City will covenant to comply with all such requirements. W 22-68 The amount by which a Bond Owner's original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond Owner's basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The Internal Revenue Service (the "IRS") has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of other similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE BONDS THERE MIGHT BE FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE, OR LOCAL TAX TREATMENT OF THE BONDS INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES BEING IMPOSED ON OWNERS OF TAX- EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE BONDS. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE BONDS STATUTORY CHANGES WILL NOT BE INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE BONDS. Bond Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Fiscal Agent Agreement and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) on the Bonds for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel will render an opinion that interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the City continue to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Bonds. Should interest on the Bonds (including any original issue discount) become includable in gross income for federal income tax purposes, the Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Fiscal Agent Agreement. 27 22-69 A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix D. Litigation There is no action, suit, 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 with respect to these matters simultaneously with the delivery of the Bonds. Financial Interests The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel and Underwriter's Counsel are contingent upon the issuance and delivery of the Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Bonds. No Rating The City has not applied to and does not contemplate applying to any bond rating agency for the assignment of a rating on the Bonds. Underwriting The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the "Underwriter"). The Underwriter has agreed to purchase the Bonds at a price of $ ($ principal amount, [less] [net] original issue [discount] in the amount of $ and less an Underwriter's discount of $ ). The Bond Purchase Agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. 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. Miscellaneous All quotations from, and summaries and explanations of, the Fiscal Agent Agreement, the Continuing Disclosure Agreement and other statutes and documents contained herein do not purport to be complete, and reference is made to said documents 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 or the Underwriter. The information contained herein should not be construed as representing all conditions affecting the City or the Bonds. 28 22-70 The execution and delivery of this Official Statement have been authorized by the City. CITY OF NEWPORT BEACH LZA 29 City Manager 22-71 APPENDIX A ASSESSMENT DIAGRAM A-1 22-72 APPENDIX B ENGINEER'S REPORT IM 22-73 APPENDIX C SUMMARY OF THE FISCAL AGENT AGREEMENT [TO COME] C-1 22-74 APPENDIX D OPINION OF BOND COUNSEL Upon issuance of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: , 2019 City Council City of Newport Beach Newport Beach, California Re: $ City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds, 2019 Series A Ladies and Gentlemen: We have examined certified copies of proceedings taken by the City of Newport Beach (the "City") for the issuance of bonds designated "City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds, 2019 Series A" (the "Bonds") pursuant to the Municipal Improvement Act of 1913, Division 12 of the Streets and Highways Code of the State of California (the "1913 Act") and under and by virtue of the Improvement Bond Act of 1915, Division 10 of said Code (the "1915 Act"). The Bonds are issued for the purpose of providing the means for paying for the work and improvements described in the City's Resolution No. and are issued pursuant to a resolution adopted by the City on June 25, 2019 (the "Resolution of Issuance") and a fiscal agent agreement (the "Fiscal Agent Agreement") dated as of July 1, 2019, by and between the City and U.S. Bank National Association as fiscal agent. This examination covers said proceedings down to and including the issuance of the Bonds; however, we have made no examination of the ownership or use of the property assessed. In rendering this opinion, we have relied upon certain representations of fact and certifications made by or on behalf of the City, the initial purchasers of the Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The Bonds are dated their date of delivery and mature on the dates and in the amounts set forth in the Fiscal Agent Agreement. The Bonds bear interest payable semiannually on each March 2 and September 2, commencing on September 2, 2019, at the rates per annum set forth in the Fiscal Agent Agreement. Based upon our examination of all of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: 1. The Fiscal Agent Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, constitutes the valid and binding obligation of the City enforceable in accordance with its terms. 2. The Bonds have been duly authorized and issued by the City and are valid and binding obligations of the City enforceable in accordance with their terms. The Bonds do not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and do not constitute an obligation for which the City, the State of California or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the City, the State of California or any political subdivision thereof has levied or pledged any form of taxation. D-1 22-75 3. Upon delivery and authentication of the Bonds in accordance with the Fiscal Agent Agreement, the Bonds will be entitled to the benefits of the Fiscal Agent Agreement. 4. Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. Interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. 6. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bondowner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Bondowner will increase the Bondowner's basis in the applicable Bond. Original issue discount that accrues for the Bondowner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and is exempt from State of California personal income tax. 7. The amount by which a Bondowner's original basis for determining loss on sale or exchange in the applicable Bond (generally the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended; such amortizable Bond premium reduces the Bondowner's basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bondowner realizing a taxable gain when a Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the owner. The opinions expressed in paragraphs (1), (2) and (3) above are limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors rights generally, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against cities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the Trust Agreement. Except as expressly set forth in paragraphs (4), (5), (6), and (7) above, we express no opinion regarding any tax consequences with respect to the Bonds. Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Bonds or other offering material relating to the Bonds and expressly disclaim any duty to advise the owners of the Bonds with respect to matters contained in the Official Statement. Respectfully submitted, 22-76 APPENDIX E BOOK -ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC's book -entry only system has been obtained from sources that the City believes to be reliable, but the City 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 to the City which the City believes to be reliable, but the City and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for 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 will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of 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 a Standard & Poor's rating of AA+. 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. 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 turn 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 Bonds representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. E-1 22-77 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 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 prepayments, 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 prepaid, 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 MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend 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 City or the Trustee, 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 Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Bond 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 Bonds 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 rights 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 City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC. E-2 22-78 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the City of Newport Beach (the "Issuer") and Digital Assurance Certification, LLC, as Dissemination Agent (the "Dissemination Agent") in connection with the issuance of City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A in the aggregate principal amount of $ (the "Bonds"). The Bonds are being issued pursuant to a Resolution adopted by the City Council of the Issuer on June 25, 2019 and a Fiscal Agent Agreement dated as of July 1, 2019 (the "Fiscal Agent Agreement") by and between the Issuer and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"). The Issuer and Dissemination Agent hereby covenant and agree as follows: Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Issuer for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with SEC Rule 15c2 -12(b)(5), as amended. Section 2. Definitions. In addition to the definitions set forth in the Resolution of Issuance which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Dissemination Agent" shall mean Digital Assurance Certification, LLC, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the Issuer a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "Participating Underwriter" shall mean Stifel, Nicolaus & Company, Incorporated. "Repository" shall mean the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. "Rule" shall mean Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 3. Provision of Annual Reports. (a) The Issuer shall, or shall cause the Dissemination Agent to, by April 1 of each year, commencing April 1, 2020, provide to the Repository, in an electronic format as prescribed by the Municipal Securities Rulemaking Board, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the Issuer shall provide the Annual Report to the Dissemination Agent (if other than the Issuer). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Issuer may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report. If the Issuer's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). F-1 22-79 (b) If the Issuer is unable to provide to the Repository or the Dissemination Agent an Annual Report by the date required in subsection (a), the Issuer shall in a timely manner send a notice to the Municipal Securities Rulemaking Board, in an electronic format as prescribed by the Municipal Securities Rulemaking Board, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) confirm the electronic filing requirements of the Municipal Securities Rulemaking Board for the Annual Report; and (ii) if the Dissemination Agent is other than the Issuer, file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the Repository. Section 4. Content of Annual Reports. The Issuer's Annual Report shall contain or incorporate by reference the following: (a) Audited Financial Statements of the Issuer prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board, together with the following statement: THE ISSUER'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15C2-12. NO FUNDS OR ASSETS FO THE ISSUER ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND THE ISSUER IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE ISSUER IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS. (b) The following information regarding the Bonds: (i) Principal amount of Bonds outstanding as of the preceding September 1; (ii) Balance in the Prepayment Account of Redemption Fund as of the preceding September 1; (ii) Balance in the Redemption Fund as of the preceding September 1; (iv) Balance in the Reserve Fund and a statement of the Reserve Requirement as of the preceding September 1; (v) Information regarding the annual aggregate special assessment installments, amount collected, delinquent amount and percent delinquent for the most recent fiscal year and the amount and percent remaining delinquent for any prior fiscal year; and (vi) Status of foreclosure proceedings and summary of results of foreclosure sales as of the preceding September 1, if available. (c) An update of the value -to -lien information set forth in Table 3 for the most recently completed fiscal year but only based on the Assessment Lien column and excluding the Overlapping Debt column. (d) A statement regarding the number of parcels that prepaid Assessments, and the amounts so prepaid, since the filing of the last Annual Report. (e) In addition to any of the information expressly required to be provided under paragraphs (a) through (d) of this Section, the Issuer shall provide such further information, if any, as may be F-2 22-80 necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Issuer shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Issuer shall give, or cause the Dissemination Agent to give, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) business days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB); 6. tender offers; 7. defeasances; 8. ratings changes; 9. bankruptcy, insolvency, receivership or similar proceedings; and 10. default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation, any of which reflect financial difficulties. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, trustee or similar officer for an obligated person in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. unless described in paragraph 5(a)(5) above, notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; F-3 22-81 2. the consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 3. appointment of a successor or additional trustee or the change of the name of a trustee; 4. nonpayment related defaults; 5. modifications to the rights of Owners of the Bonds; 6. notices of redemption; 7. release, substitution or sale of property securing repayment of the Bonds; and 8. incurrence of a financial obligation, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation, any of which affect Bondholders. (c) Upon the occurrence of a Listed Event under Section 5(b) above, the Issuer shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Issuer determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the Issuer shall file a notice of such occurrence with MSRB in a timely manner not more than 10 business days after the event. (e) The Issuer hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the Issuer and that the Dissemination Agent shall not be responsible for determining whether the Issuer's instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. (f) For purposes of the events identified in subparagraphs (a)(10) and (b)(8), the term "financial obligation" means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule. Section 6. Termination of Reporting Obligation. The Issuer's and the Dissemination Agent's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5(d). Section 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Digital Assurance Certification, LLC. Section 8. Amendment Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: F-4 22-82 (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity nature or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information in order to provide information to investors to enable them to evaluate the ability of the Issuer to meet its obligations. To the extent reasonably feasible the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repository in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Issuer or the Dissemination Agent to comply with any provision of this Disclosure Agreement any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an event of default under the Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Issuer to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination A ent. The Dissemination Agent shall have only duties as are specifically set forth in this Disclosure Agreement, and the Issuer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the Issuer under this Section shall survive resignation or removal of the F-5 22-83 Dissemination Agent and payment of the Bonds. The Dissemination Agent has no power to enforce performance on the part of the Issuer. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Issuer pursuant to this Disclosure Agreement. Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 13. Notices. Any notice or communication required or permitted hereunder shall be given in writing, sent by (a) personal delivery delivered by a representative of the party giving such notice, or (b) overnight delivery by recognized overnight courier, or (c) United States mail, postage prepaid, registered or certified mail, or (d) facsimile, addressed as follows: If to the Issuer: City of Newport Beach 100 Civic Center Drive Newport Beach, California 92660 If to the Dissemination Agent: Digital Assurance Certification, LLC 315 E. Robinson Street, Suite 300 Orlando, Florida 32801 or to such other address or to the attention of such other person as hereinafter shall be designated in writing by the applicable party sent in accordance herewith. Any such notice or communication shall be deemed to have been delivered either at the time of personal delivery actually received by the addressee or a representative of the addressee at the address provided above or, if delivered on a business day in the case of delivery service or certified or registered mail, as of the earlier of the date delivered or the date 72 hours following the date deposited in the United States mail at the address provided herein, or if by telecopier, upon electronic confirmation of good receipt by the receiving telecopier. Section 14. Future Determination of Obligated Persons. In the event that the Securities Exchange Commission amends, clarifies or supplements the Rule in such a manner that requires any landowner within the City to be an obligated person as defined in the Rule, nothing contained herein shall be construed to require the Issuer to meet the continuing disclosure requirements of the Rule with respect to such obligated person and nothing in this Disclosure Agreement shall be deemed to obligate the Issuer to disclose information concerning any owner of land within the City except as required as part of the information required to be disclosed by the Issuer pursuant to Section 4 and Section 5 hereof. Dated: , 2019 CITY OF NEWPORT BEACH By: City Manager DIGITAL ASSURANCE CERTIFICATION, LLC as Dissemination Agent By: Its: 110 22-84 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Newport Beach Name of Bond Issue: $ CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS, 2019 SERIES A Date of Issuance: 52019 NOTICE IS HERBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Bonds as required by the Fiscal Agent Agreement dated as of July 1, 2019, by and between the Issuer and U.S. Bank National Association, as Fiscal Agent. The Issuer anticipates that the Annual Report will be filed by Dated: as Dissemination Agent on behalf of Issuer F-7 22-85 Attachment E Fiscal Agent Agreement 22-86 FISCAL AGENT AGREEMENT By and Between CITY OF NEWPORT BEACH and U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent Relating to CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BONDS 2019 SERIES A Dated as of July 1, 2019 22-87 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section101. Definitions.................................................................................................................1 Section102. Interpretation..............................................................................................................7 Section 103. Equality of Bonds; Pledge of Assessments; No Obligation to Cure Deficiency.................................................................................................................. 7 ARTICLE II AUTHORIZATION AND ISSUANCE OF BONDS Section 201. Assessments............................................................................................................... 7 Section 202. Type and Nature of Bonds; Limited Liability............................................................ 7 Section 203. Authorization and Purpose of Bonds......................................................................... 8 ARTICLE III TERMS AND PROVISIONS OF BONDS Section 301. Terms of Bonds.......................................................................................................... 8 Section 302. Execution and Authentication.................................................................................. l l Section 303. Registration, Exchange or Transfer.........................................................................11 Section304. Bond Register..........................................................................................................11 Section 305. Mutilated, Lost, Destroyed or Stolen Bonds............................................................12 Section 306. Form of Bonds; Temporary Bonds..........................................................................12 ARTICLE IV REDEMPTION OF BONDS Section 401. Provisions for the Redemption of 2019A Bonds.....................................................12 Section 402. Selection of Bonds for Redemption.........................................................................13 Section 403. Notice of Redemption..............................................................................................13 Section 404. Partial Redemption of Bonds...................................................................................14 Section 405. Effect of Notice and Availability of Redemption Money........................................14 ARTICLE V CREATION OF FUNDS AND ACCOUNTS; APPLICATION OF PROCEEDS AND ASSESSMENTS Section 501. Funds and Accounts................................................................................................. 15 Section 502. Costs of Issuance Fund............................................................................................ 16 Section503. Assessment Fund..................................................................................................... 16 Section504. Redemption Fund.....................................................................................................16 Section505. Reserve Fund...........................................................................................................17 Section506. Rebate Fund.............................................................................................................18 Section507. Improvement Fund................................................................................................... 21 Section508. Investments.............................................................................................................. 21 Section 509. Delinquency Resulting in Ultimate or Temporary Loss on Bonds .......................... 23 1 22-88 ARTICLE VI ISSUANCE OF 2019A BONDS Section 601. Authorization and Designation of 2019A Bonds.....................................................24 Section 602. Denominations of 2019A Bonds.............................................................................. 24 Section 603. Interest Payment Date of 2019A Bonds................................................................... 24 Section 604. Form of 2019A Bonds............................................................................................. 25 Section 605. Application of Proceeds of the Sale of 2019A Bonds and of the Prepaid Amounts................................................................................................................... 31 ARTICLE VII COVENANTS AND WARRANTY Section701. Warranty.................................................................................................................. 31 Section702. Covenants................................................................................................................. 31 Section 703. Continuing Disclosure Agreement........................................................................... 33 ARTICLE VIII AMENDMENTS TO AGREEMENT Section 801. Amendments Not Requiring Bondowner Consent .................................................. 33 Section 802. Amendments Requiring Bondowner Consent......................................................... 34 Section 803. Notation of Bonds; Delivery of Amended Bonds .................................................... 35 ARTICLE IX FISCAL AGENT Section901. Fiscal Agent............................................................................................................. 35 Section 902. Removal of Fiscal Agent......................................................................................... 36 Section 903. Resignation of Fiscal Agent..................................................................................... 36 Section 904. Liability of Fiscal Agent.......................................................................................... 36 Section 905. Interested Transactions............................................................................................ 39 Section906. Agents...................................................................................................................... 39 ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 1001. Event of Default....... Section 1002. Remedies of Owners Section 1101. Defeasance ARTICLE XI DEFEASANCE ARTICLE XII MISCELLANEOUS 39 39 Rol Section 1201. Cancellation of Bonds.............................................................................................. 41 Section 1202. Execution of Documents and Proof of Ownership .................................................. 41 Section1203. Unclaimed Moneys.................................................................................................. 42 Section 1204. Provisions Constitute Contract; Successors.............................................................42 Section 1205. Further Assurances; Incontestability........................................................................ 43 ii 22-89 Section 1206. Severability ............................ Section 1207. General Authorization............ Section 1208. Liberal Construction .............. Section 1209. Notice ..................................... Section 1210. Action on Next Business Day Signatures EXHIBIT A Form of Written Delivery Requisition — [Costs of Issuing Bonds] [Improvement Fund]...................................................................... iii 43 43 43 43 43 S-1 A-1 22-90 FISCAL AGENT AGREEMENT This Fiscal Agent Agreement, dated as of July 1, 2019 (the "Agreement"), is made and entered into by the City of Newport Beach (the "City"), a charter city, duly established and existing under the laws of the State of California (the "State"), and U.S. Bank National Association (the "Fiscal Agent") in connection with Assessment District No. 116 (the "Assessment District"). WITNESSETH. WHEREAS, the City Council of the City of Newport Beach (the "City Council") has taken proceedings under the Municipal Improvement Act of 1913, Division 12 of the California Streets and Highways Code (the "1913 Act"), for the formation of Assessment District No. 116 and has confirmed an assessment, which assessment and a related diagram were recorded with the Superintendent of Streets, and a notice of assessment, as prescribed in Section 3114 of the 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 Assessment District as provided in Section 3115 of the Code; and WHEREAS, it is necessary and desirable that the City sell bonds (the "2019A Bonds") pursuant to the Improvement Bond Act of 1915, Division 10 of the California Streets and Highways Code (the "1915 Act"), to be issued to represent the unpaid assessments; In consideration of the mutual covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS Section 101. Definitions. Unless the context otherwise requires, the following terms shall have the following meanings: "Administrative Expense Fund" means the City of Newport Beach Assessment District No. 116 Administrative Expense Fund established with the Treasurer. "Administrative Expense Requirement" means an amount, not in excess of the aggregate maximum annual assessment for Administrative Expenses permitted to be levied within the Assessment District as set forth in the Engineer's Report, to be specified each year by the Treasurer to be used for Administrative Expenses. "Administrative Expenses" means the ordinary and necessary fees and expenses for determination of the Assessment and administering the levy and collection of the Assessment and servicing, calling and redeeming the Bonds, including any or all of the following: the fees and expenses of the Fiscal Agent (including any fees or expenses of its counsel), the expenses of the City in carrying out its duties hereunder (including, but not limited to, annual audits and costs incurred in the levying and collection of the Assessment) including the fees and expenses of its counsel and all other costs and expenses of the City or the Fiscal Agent incurred in connection with the discharge of their respective duties hereunder and, in the case of the City, in any way related to the administration of the Assessment District. 22-91 "Agreement" means this Fiscal Agent Agreement, as amended or supplemented pursuant to the terms hereof. "Annual Debt Service" means all principal of, including mandatory sinking fund payments, and interest on the Bonds due in a Bond Year. "Assessment" or "Assessments" means the special assessments levied in the Assessment District in accordance with the 1913 Act and the Resolution of Formation, exclusive of any assessments levied to pay Administrative Expenses, together with the net proceeds derived from any foreclosure proceedings and interest and penalties thereon. "Assessment District" means City of Newport Beach Assessment District No. 116. "Assessment Fund" means the City of Newport Beach Assessment District No. 116 Assessment Fund established and held by the City pursuant to Section 501 hereof. "Assessment Installment" means the annual portion of the Assessment levied to pay the principal of, including mandatory sinking fund payments, and interest on the Bonds which does not include assessments levied by the City to pay Administrative Expenses. "Authorized Investments" means, subject to applicable law, (1) Federal Securities; (2) an Investment Agreement, acceptable to, and approved in writing by, the Treasurer; (3) taxable government money market funds rated in one of the two highest rating categories by S&P Global Ratings, a Standard & Poor's Financial Services LLC business, restricted to obligations with average maturities of one year or less, insured or fully guaranteed as to the principal and interest thereon by the full faith and credit of the United States of America or by repurchase agreements collateralized by such obligations including money market funds for which the Fiscal Agent and affiliates provide investment advisory or other management services; (4) tax-exempt obligations, including tax exempt money market funds, rated at least "A" or higher by S&P Global Ratings, a Standard & Poor's Financial Services LLC business, and Moody's Investors Service; (5) commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service and S&P Global Ratings, a Standard & Poor's Financial Services LLC business„ limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for such corporation's debt, other than commercial paper, as provided for by Moody's Investors Service and S&P Global Ratings, a Standard & Poor's Financial Services LLC business, and which may not exceed 180 days maturity nor represent more than 10% of the outstanding paper of an issuing corporation; (6) notes, bonds or other obligations which are at all times secured by a perfected first security interest in securities of the types listed by Section 53651 of the California Government Code as eligible securities for the purpose of securing local agency deposits or which are listed as an Authorized Investment under any of the clauses (1) through (5) of this definition (except those described in this clause (6)) and which have a market value, determined at least weekly, at least equal to 102% of the amount of principal and accrued interest on such obligation, which shall be placed by delivery into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation and which bank shall be responsible for making any market value determinations, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted; (7) The State of California Local Agency Investment Fund; (8) time or demand deposits (including those of the Fiscal 2 22-92 Agent or its affiliates) fully insured by the Federal Deposit Insurance Corporation or with institutions rated in one of the two highest rating categories by Moody's Investors Service or S&P Global Ratings, a Standard & Poor's Financial Services LLC business; (9) repurchase agreements secured by Federal Securities; (10) the County of Orange Pooled Investment Fund; and (11) any other investment in which funds of the City may be legally invested. "Authorized Representative of the City" means the members of the City Council, the City Manager, the Finance Director or any other person or persons designated by the City Council of the City and authorized to act on behalf of the City by a written certificate signed on behalf of the City by any member of the City Council and containing the specimen signature of each such person. "Bond Counsel" means an attorney or a firm of attorneys, selected by the City, of nationally recognized standing in matters pertaining to the tax treatment of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. "Bond Purchase Agreement" means the Bond Purchase Agreement authorized and executed by the City and Stifel, Nicolaus & Company, Incorporated, as the initial purchaser of the 2019A Bonds. "Bond Register" means the books which the Fiscal Agent shall keep or cause to be kept pursuant to Section 304, on which the registration and transfer of the Bonds shall be recorded. "Bond Year" means the one year period or shorter period ending each year on September 2, or such other date as may be specified by the City. "Bondowner" or "Owner" means the person or persons in whose name or names any Bond is registered as shown on the Bond Register. "Bonds" means the 2019A Bonds. "Business Day" means any day of the year in New York, New York or Los Angeles, California other than a Saturday, Sunday, a day on which the New York Stock Exchange is closed or any day on which the Fiscal Agent is not open for business. "Certificate of the City" means a written certificate or warrant request executed by an Authorized Representative of the City. "City" means City of Newport Beach, a charter city organized under its charter and the laws of the State of California. "Cites" means the City Clerk of the City and his or her designee. "City Council" means the City Council of the City of Newport Beach. "Closing" means the date of delivery of each series of Bonds by the City and payment therefor by the original purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended. 22-93 "County" means the County of Orange. "Costs of Issuance Fund" means the City of Newport Beach Assessment District No. 116 Costs of Issuance Fund established with the Fiscal Agent pursuant to Section 501 hereof. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "DTC Participants" means securities brokers and dealers, banks, trust companies, clearing corporations and other organizations maintaining accounts with DTC. "Engineer's Report" means the report concerning the Assessment District prepared by Harris & Associates, Inc., as preliminarily approved by the City on November 10, 2015 and approved in final form by the City on January 12, 2016, and on file with the City Clerk. "Federal Securities" means, subject to applicable law, United States Treasury notes, bonds, bills or certificates of indebtedness, including United States Treasury Obligations, State and Local Government Series ("SLGS") or other direct obligations issued by the United States Treasury for which the faith and credit of the United States are pledged for the payment of principal and interest; and obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or other federal agencies or United States Government-sponsored enterprises. "Fiscal Agent" means U.S. Bank National Association, a national banking association duly organized and existing under and by virtue of the laws of the United States of America, or any other bank or trust company which may at any time be substituted in its place as provided in Sections 902 and 903 and any successor thereto. "Fiscal Year" means the twelve-month period terminating on June 30 of each year, or any other annual accounting period hereafter selected and designated by the City as its Fiscal Year in accordance with applicable law. "Improvements" means the design and undergrounding of utilities within the Assessment District, as described in the Engineer's Report. "Improvement Fund" means the City of Newport Beach Assessment District No. 116 Improvement Fund established pursuant to Section 501 of this Agreement. "Independent Financial Consultant" means a financial consultant or firm of such consultants generally recognized to be well qualified in the financial consulting field, appointed and paid by the City and who, or each of whom: (1) is in fact independent and not under the domination of the City; (2) does not have any substantial interest, direct or indirect, with the City; and (3) is not connected with the City as a member, officer or employee of the City, but who may be regularly retained to make annual or other reports to the City. al 22-94 "Interest Payment Date" means each March 2 and September 2, commencing September 2, 2019. "Investment Agreement" means one or more agreements entered into between the Fiscal Agent, for the benefit of the City, and an entity or entities whose long term uninsured, unsecured and unguaranteed debt or claims -paying ability is rated as of the date of the Investment Agreement in either of the two highest categories (without regard to gradations of plus and minus within such categories) by S&P Global Ratings, a Standard & Poor's Financial Services LLC business, or Moody's Investors Service, or an agreement between the Fiscal Agent, for the benefit of the City, and an entity which is rated as of the date of the Investment Agreement in either of the two highest categories (without regard to gradations of plus and minus within such categories) by S&P Global Ratings, a Standard & Poor's Financial Services LLC business, or Moody's Investors Service. "1913 Act" means the Municipal Improvement Act of 1913, being Division 12 (commencing with Section 10000) of the California Streets and Highways Code. "1915 Act" means the Improvement Bond Act of 1915, being Division 10 (commencing with Section 8500) of the California Streets and Highways Code. "Nonpurpose Investment" means Authorized Investments described as Nonpurpose Investments in the Tax Certificate. "Notice of Assessment" means the Notice of Assessment recorded in the Office of the County Recorder of the County of Orange on May 11, 2016, as Document No. 2016000210856. "Outstanding Bonds" or "Outstanding" means all Bonds theretofore issued by the City, except: (1) Bonds theretofore canceled or surrendered for cancellation in accordance with Section 1201 hereof, (2) Bonds for the payment or redemption of which moneys shall have been deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in this Agreement; and (3) Bonds defeased pursuant to Sections 1101(b) or (c) hereof. "Owner" means, with respect to any Bond, the person shown as the owner thereof in the Bond Register. "Rebate Fund" means the fund by that name established pursuant to Section 501 hereof in which there are established the accounts described in Section 501 hereof. "Rebate Regulations" means any final, temporary or proposed Regulations promulgated under Section 148(f) of the Code. "Rebate Requirement" shall have the meaning ascribed to it in the Tax Certificate. 5 22-95 "Record Date" means the fifteenth day of the month preceding an Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the City of Newport Beach Assessment District No. 116 Redemption Fund established with the Fiscal Agent pursuant to Section 501 hereof. "Reserve Fund" means the City of Newport Beach Assessment District No. 116 Reserve Fund established with the Fiscal Agent pursuant to Section 501 hereof. "Reserve Requirement" means, as of any date of calculation, 50% of the then maximum annual debt service due on the Bonds. "Resolution of Formation" means Resolution No. 2016-6, adopted by the City Council on January 12, 2016, forming the Assessment District and confirming the levy of assessments in accordance with the Engineer's Report presented at such meeting. "Resolution of Intention" means Resolution No. 2015-97, adopted by the City Council of the City on November 10, 2015, stating the City's intention, among other things, to issue the Bonds. "Resolution of Issuance" means the Resolution, adopted by the City Council of the City on , 2019, authorizing the issuance of the Bonds and approving the terms and provisions of this Agreement. "Six -Month Period" means the period of time beginning on the Closing Date of Bonds, as applicable, and ending six consecutive months thereafter, and each six-month period thereafter until the latest maturity date of the Bonds (and any obligations that refund an issue of the Bonds). "Securities Depositories" means The Depository Trust Company, 55 Water Street, New York, New York 10041, Attn: Redemption Area, Facsimile transmission: (212) 855 7232, (212) 855 7233, or such other securities depositories as are designated by the City and whose business is to perform the functions of a clearing agency with respect to exempted securities, as defined in Section 3(a)(12) of the Securities Exchange Act of 1934, and who is registered as a clearing agency under Section 17A of the Act, such other addresses and/or such other securities depositories as the City may designate in a Certificate of the City delivered to the Fiscal Agent. "Superintendent of Streets" means the Director of Public Works of the City, or his or her designee. "Supplemental Fiscal Aunt _ Agreement" or "Supplement" means any supplemental agreement amending or supplementing this Agreement. "Tax Certificate" means the Tax Certificate delivered upon the issuance of the 2019A Bonds. "Treasurer" means the City Treasurer or the City Manager, or his or her designee. "2019A Bonds" means City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A issued pursuant to the Resolution of Issuance and this Agreement. "Yield on the Bonds" has the meaning as described in the Tax Certificate. CI 22-96 Section 102. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural, and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. Section 103. Equality of Bonds; Pledge of Assessments; No Obligation to Cure Deficiency. Pursuant to the 1913 Act, the 1915 Act and this Agreement, the Bonds are equally secured by a first pledge of and shall be equally payable from the Assessments without priority for number, issue date, date of sale, date of execution or date of delivery, and the payment of the interest on and principal, including mandatory sinking fund payments, of the Bonds and any premiums upon the redemption thereof are equally secured by a first pledge of and shall be exclusively paid from the Assessments. The Bonds shall also be secured by a first pledge of moneys on deposit in the Assessment Fund, Redemption Fund and the Reserve Fund which are hereby set aside for the payment of the Bonds. The Assessments, the amounts in the foregoing funds and any interest earned on such amounts shall constitute a trust fund held for the benefit of the Owners of the Bonds to be applied to the payment of the interest on, premium, if any, and principal of, including mandatory sinking fund payments, the Bonds. So long as any of the Bonds remain Outstanding, such amounts shall not be used for any other purpose, except as permitted by the 1913 Act, the 1915 Act, this Agreement or any Supplemental Fiscal Agent Agreement. ARTICLE II AUTHORIZATION AND ISSUANCE OF BONDS Section 201. Assessments. The Assessments remaining unpaid, and the aggregate principal amount thereof, have been determined by the Treasurer and the Treasurer has filed a list of said Assessments in the office of the Superintendent of Streets. For a particular description of the lots or parcels of land bearing the respective assessment numbers set forth in said unpaid list and upon which Assessments remain unpaid, reference is hereby made to the Notice of Assessment and to the diagram recorded in the office of the Superintendent of Streets after confirmation of the Assessments by the City Council through the adoption of the Resolution of Formation, the several lots or parcels of land represented by said assessment numbers being so numbered and designated upon the diagram and Assessments as so confirmed and recorded. Collection of the remaining Assessments shall cease in the event sufficient moneys are available to redeem the Bonds as provided in Section 505. Section 202. Type and Nature of Bonds; Limited Liability. Notwithstanding anything contained herein, in the Bonds, in the 1915 Act, any other provision of law, or in any of the resolutions adopted in connection with the proceedings for the Assessment District to the contrary, all Bonds authorized pursuant to this Agreement shall be a special obligation of the City, and the City shall not under any circumstances (including, without limitation, after any installment of principal or interest of any Assessment levied on any lot or parcel in the Assessment District becomes delinquent 7 22-97 or after the City acquires title to any such lot or parcel whether through foreclosure or otherwise) be obligated to pay principal, premium, if any, or interest on the Bonds from any source whatsoever other than the Redemption Fund (including any transfers thereto from the Improvement Fund, the Assessment Fund and Reserve Fund). Neither the City, the City Council, the officers or employees of the City, any person or entity acting for or on behalf of the City in connection with the issuance of the Bonds or in connection with the formation or operation of the Assessment District, nor any persons executing the Bonds, shall be liable personally on the Bonds or be subject to any personal liability for the Bonds or any personal liability or accountability whatsoever by reason of or in connection with the issuance of the Bonds or by reason of any act or acts or the failure or omission to take any act or acts (including, without limitation, a negligent act or omission) in connection with or related to the formation or operation of the Assessment District. Section 203. Authorization and Purpose of Bonds. The Bonds shall be designated "City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A" and shall be issued by the City under and pursuant to the 1915 Act and under and pursuant hereto in the aggregate principal amount equal to a portion of the aggregate amount of the unpaid Assessments determined by the Treasurer pursuant to Section 201. The designation of the Bonds shall include, in addition to the name "City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A," such further appropriate particular designation added to or incorporated in the title for the Bonds as the City may determine or as shall be required by the 1915 Act; and each Bond shall bear upon its face the designation so determined. The Bonds may contain or have endorsed thereon such other descriptive provisions, specifications and words not inconsistent with the provisions hereof as may be desirable or necessary to comply with custom or the rules of any securities exchange or commission or brokerage board or otherwise as may be determined by the City prior to the delivery thereof. The primary purpose for which the Bonds are to be issued is to provide funds to pay the cost of the Improvements heretofore ordered by the City Council. ARTICLE III TERMS AND PROVISIONS OF BONDS Section 301. Terms of Bonds. (a) The interest on and principal of, including mandatory sinking fund payments, and redemption premiums, if any, on the Bonds shall be payable in lawful money of the United States of America at the office of the Fiscal Agent designated by the Fiscal Agent. Interest on the Bonds shall be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. (b) All Bonds shall be initially issued in the form of a separate single certificated fully registered Bond for each maturity date, and the ownership of each Bond shall be registered in the Bond Register in the name of Cede & Co., as nominee of DTC. Except as provided in subsection (e) hereof, all outstanding Bonds shall be registered in the Bond Register in the name of Cede & Co., as nominee of DTC. (c) With respect to Bonds registered in the Bond Register in the name of Cede & Co., as nominee of DTC, the City and the Fiscal Agent shall have no responsibility or obligation as to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership 22-98 interest in the Bonds, (ii) the delivery to any DTC Participant or any other person of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person of any amount with respect to principal of, including mandatory sinking fund payments, premium, if any, and interest on the Bonds. The City and the Fiscal Agent may treat and consider the person in whose name each Bond is registered in the Bond Register as the holder and absolute owner of such Bond for the purpose of payment of principal, including mandatory sinking fund payments, premium, if any, and interest on such Bond, for the purpose of giving notices of redemption 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 Fiscal Agent shall pay all principal of, including mandatory sinking fund payments, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of, including mandatory sinking fund payments, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner shall receive a certificated Bond evidencing the obligation of the City to make payments of principal, including mandatory sinking fund payments, premium, if any, and interest pursuant to this Agreement. Upon delivery by DTC to the Fiscal Agent of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions herein with respect to record dates, the word "Cede & Co." in this Agreement shall refer to such new nominee of DTC. (d) The delivery of a representation letter by the City and the Fiscal Agent (if delivery by the Fiscal Agent is required by DTC) shall not in any way limit the provisions of subsection (b) hereof or in any other way impose upon the City or the Fiscal Agent any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners. The Fiscal Agent shall take all action necessary for all representations in the representation letter with respect to the Fiscal Agent to be complied with at all times. (e) (i) DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice to the City and the Fiscal Agent and discharging its responsibilities with respect thereto under applicable law. (ii) The City, in its sole discretion and without the consent of any other person, may terminate the services of DTC with respect to the Bonds if the City determines that: (A) DTC is unable to discharge its responsibilities with respect to the Bonds, or (B) a continuation of the requirement that outstanding Bonds be registered in the Bond Register in the name of Cede & Co., or any other nominee of DTC, is not in the best interest of the Beneficial Owners of such Bonds. (iii) Upon the termination of the services of DTC with respect to the Bonds pursuant to subsection (e)(ii)(B) hereof, or upon the discontinuance or termination of the services of DTC with respect to the Bonds pursuant to subsection (e)(i) or subsection (e)(ii)(A) hereof after which no substitute securities depository willing to undertake the functions of DTC hereunder can be found which, in the opinion of the City, is willing and able to undertake such functions upon reasonable and customary terms, the City is obligated to deliver Bond certificates, as described in this Agreement and the Bonds shall no longer be restricted to being registered in the Bond Register in the M 22-99 name of Cede & Co. as nominee of DTC, but may be registered in whatever name or names DTC shall designate to the Fiscal Agent in writing, in accordance with the provisions of this Agreement. (f) Notwithstanding any other provisions of this Agreement to the contrary, as long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal, including mandatory sinking fund payments, or, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the DTC representation letter for the Bonds. (g) Each Bond shall bear interest from the Interest Payment Date next preceding its date of authentication, unless (i) its date of authentication is after a Record Date and on or before the immediately succeeding Interest Payment Date, in which event the Bond shall bear interest from such Interest Payment Date or (ii) its date of authentication is before the close of business on the first Record Date, in which event the Bond shall bear interest from its dated date; provided, that if at the time of authentication of any Bond interest is then in default on the Outstanding Bonds, such Bonds shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the Outstanding Bonds. Payment of interest on the Bonds due on or before the maturity or prior redemption thereof shall be made only to the person whose name appears in the Bond Register as the registered owner thereof at the close of business on the Record Date, such interest to be paid by check mailed by first class mail on the Interest Payment Date to such registered owner at his address as it appears on such books or at such other address as he may have filed with the Fiscal Agent for that purpose; provided, however, that, in the case of a registered owner of $1,000,000 or more in aggregate principal amount of Bonds, upon written request of such registered owner to the Fiscal Agent at least 15 days prior to an Interest Payment Date, such payment may be made by wire transfer to an account within the United States designated by such owner. Payment of the principal of, including mandatory sinking fund payments, and redemption premiums, if any, on the Bonds shall be made by check only to the person whose name appears in the Bond Register as the registered owner thereof, such principal, including mandatory sinking fund payments, and redemption premiums, if any, to be paid only on the surrender of the Bonds at the office of the Fiscal Agent at maturity or on redemption prior to maturity. (h) The Bonds shall recite, in substance, that the interest on and principal of, including mandatory sinking fund payments, and redemption premiums, if any, on the Bonds are payable solely from the levy of the Assessments, that the Bonds are limited obligations of the City and that the City will not obligate itself to advance available funds from its treasury to cure any deficiency in the Redemption Fund. (i) From and after the issuance of the Bonds, the findings and determinations of the City Council shall be conclusive evidence of the existence of the facts so found and determined in any action or proceeding in any court in which the validity of such Bonds is at issue; and no bona fide purchaser of any of such Bonds shall be required to independently establish the existence of any fact or the performance of any condition or the taking of any proceeding required prior to such issuance or the application of the purchase price paid for such Bonds. The recital contained in the Bonds that the Bonds are issued under and pursuant to the 1915 Act and under and pursuant hereto shall be conclusive evidence of their validity and of the regularity of their issuance and all Bonds shall be incontestable from and after their issuance. Bonds shall be deemed to be issued, within the meaning 10 22-100 hereof, whenever the definitive Bonds (or any temporary Bonds exchangeable therefor) have been delivered to the purchaser thereof and the purchase price thereof received. Section 302. Execution and Authentication. The Bonds shall be signed on behalf of the City by the manual or facsimile signature of the Treasurer of the City and by the manual or facsimile signature of the City Clerk in their capacity as officers of the City, and the seal of the City (or a facsimile thereof) may be impressed, imprinted, engraved or otherwise reproduced thereon, and attested by the signature of the City Clerk. In case any one or more of the officers who shall have signed or sealed any of the Bonds shall cease to be such officer before the Bonds so signed and sealed have been authenticated and delivered by the Fiscal Agent (including new Bonds delivered pursuant to the provisions hereof with reference to the transfer and exchange of Bonds or to lost, stolen, destroyed or mutilated Bonds), such Bonds shall nevertheless be valid and may be issued as if the person who signed or sealed such Bonds had not ceased to hold such office. Only such Bonds as shall bear thereon such certificate of authentication in the form set forth in Section 604 hereof shall be entitled to any right or benefit under this Agreement, and no Bond shall be valid or obligatory for any purpose until such certificate of authentication shall have been manually executed by the Fiscal Agent. Section 303. Registration, Exchange or Transfer. The registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation at the aforesaid office of the Fiscal Agent, accompanied by delivery of a written instrument of transfer in a form acceptable to the Fiscal Agent and duly executed by the Bondowner or his or her duly authorized attorney. Bonds may be exchanged at the aforesaid office of the Fiscal Agent for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity. The Fiscal Agent will not charge the Owner for any new Bond issued upon any exchange or transfer, but shall require the Owner requesting such exchange or transfer to pay any tax or other governmental charge required to be paid with respect to such exchange or transfer. The cost of printing any Bonds and any services rendered or any expenses incurred by the Fiscal Agent in connection with any exchange or transfer shall be paid by the City as Administrative Expenses. Whenever any Bond or Bonds shall be surrendered for registration of transfer or exchange, the City shall execute, and the Fiscal Agent shall authenticate and deliver, a new Bond or Bonds of the same maturity for a like aggregate principal amount; provided, that the Fiscal Agent shall not be required to register transfers or make exchanges of Bonds (a) 15 days prior to the date established by the Fiscal Agent for selection of Bonds for redemption, or (b) with respect to a Bond after such Bond has been selected for redemption. Section 304. Bond Register. The Fiscal Agent will keep or cause to be kept, at its corporate trust office, sufficient books for the registration and transfer of the Bonds which shall at all times during regular business hours upon reasonable prior notice be open to inspection by the City; and, upon presentation for such purpose, the Fiscal Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be transferred on said Bond Register, Bonds as herein provided. The City and the Fiscal Agent may treat the Owner of any Bond whose name appears on the Bond Register as the absolute Owner of such Bond for any and all purposes, and the City and the 11 22-101 Fiscal Agent shall not be affected by any notice to the contrary. The City and the Fiscal Agent may rely on the address of the Owner as it appears in the Bond Register for any and all purposes. It shall be the duty of the Bondowner to give written notice to the Fiscal Agent of any change in the Owner's address so that the Bond Register may be revised accordingly. Section 305. Mutilated, Lost, Destroyed or Stolen Bonds. If any Bond shall become mutilated, the City shall execute, and the Fiscal Agent shall authenticate and deliver, a new Bond of like tenor, date, maturity and principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Fiscal Agent of the Bond so mutilated. Every mutilated Bond so surrendered to the Fiscal Agent shall be handled in accordance with Section 1201 of this Agreement. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Fiscal Agent; and, if such evidence is satisfactory to the Fiscal Agent and, if indemnity satisfactory to the Fiscal Agent shall be given, the City, at the expense of the Bondowner, shall execute and the Fiscal Agent shall authenticate and deliver, a new Bond of like tenor and maturity, numbered and dated as such Fiscal Agent shall determine in lieu of and in substitution for the Bond so lost, destroyed or stolen. Any Bond issued in lieu of any Bond alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits hereof with all other Bonds issued hereunder. The Fiscal Agent shall not treat both the original Bond and any replacement Bond as being Outstanding Bonds for the purpose of determining the principal amount of Bonds which may be executed, authenticated and delivered or for the purpose of determining any percentage of Bonds Outstanding hereunder, but both the original and replacement bond shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Bond to replace a Bond which has been mutilated, lost, destroyed or stolen, and which has matured or is about to mature, the Fiscal Agent may make payment with respect to such Bond upon receipt of indemnity satisfactory to it and the City. Section 306. Form of Bonds; Temporary Bonds. At the option of the City, the definitive Bonds may be typewritten, and the Bonds and the certificate of authentication shall be substantially in the form provided in Section 604. Until definitive Bonds shall be prepared, the City may cause to be executed and delivered, in lieu of such definitive Bonds, temporary Bonds in typed, written, printed, lithographed or engraved form and in fully registered form, subject to the same provisions, limitations and conditions as are applicable in the case of definitive Bonds, except that they may be in any denominations authorized by the City. Until exchanged for definitive Bonds, any temporary Bonds shall be entitled and subject to the same benefits and provisions of this Agreement as definitive Bonds. If the City issues temporary Bonds, it will execute and furnish definitive Bonds without unnecessary delay and thereupon any temporary Bond may be surrendered to the Fiscal Agent at the aforesaid office, without expense to the Owner, in exchange for a definitive Bond of the same maturity, interest rate and principal amount in any authorized denomination. All temporary Bonds so surrendered shall be canceled by the Fiscal Agent and shall not be reissued. ARTICLE IV REDEMPTION OF BONDS Section 401. Provisions for the Redemption of 2019A Bonds. 12 22-102 (a) Mandatory Redemption from Assessment Prepayments. Whenever, as of an Interest Payment Date, there are sufficient funds in the Prepayment Account of the Redemption Fund from the proceeds of prepayments of Assessments, the 2019A Bonds shall be called for redemption as provided in Part 11.1 of the 1915 Act. Each 2019A Bond, or any portion thereof, in the principal amount of $5,000 or any integral multiple thereof, may be redeemed and paid in advance of maturity on any Interest Payment Date in any year pro rata among maturities, by giving notice to the Owner thereof as provided in Section 403 below and by paying the principal amount thereof, plus interest to the date of redemption, unless sooner surrendered, in which event said interest will be paid to the date of payment, together with a redemption premium (expressed as percentages of the principal amount of the 2019A Bonds to be redeemed) at the following redemption prices: Redemption Date Price Interest Payment Dates on or prior to March 2, 2027 103% September 2, 2027 and March 2, 2028 102 September 2, 2028 and March 2, 2029 101 September 2, 2029 and thereafter 100 (b) Optional Redemption of 2019A Bonds from Other Funds, Excluding Assessment Prepayments. The 2019A Bonds are subject to redemption prior to their stated maturity date on any date on and after [September 2, 2029] from such maturities as selected by the City, from any source of funds other than prepayment of Assessments, including, but not limited to, surplus monies on deposit in the Improvement Fund, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium. Section 402. Selection of Bonds for Redemption. If less than all of the Outstanding Bonds are to be redeemed, the City shall designate the principal amount of Bonds of each maturity to be redeemed as provided for in Section 8768 of the 1915 Act such that the ratio of Outstanding Bonds to issued Bonds shall be approximately the same in each maturity of the Bonds insofar as possible, and the Fiscal Agent shall select the particular Bonds to be redeemed from each maturity in said designated amount by lot in such manner as the Fiscal Agent may choose. The Fiscal Agent shall promptly notify the City in writing of the Bonds, or portions thereof, selected for redemption. In lieu, or partially in lieu, of such call and redemption, moneys deposited in the Redemption Fund may be used to purchase Outstanding Bonds in the manner hereinafter provided. Purchases of Outstanding Bonds may be made by the City prior to the selection of Bonds for redemption by the Fiscal Agent, at public or private sale as and when and at such prices as the City may in its discretion determine, but only at prices (including brokerage or other expenses) of not more than par, plus the premium, if any, which would be payable with respect to such Bonds upon the redemption thereof, plus accrued interest, and any accrued interest payable upon the purchase of Bonds may be paid from the amount in the Interest Account of the Redemption Fund for payment of interest on the next following Interest Payment Date. The Fiscal Agent shall disburse moneys in the Redemption Fund for such purpose upon written direction of the City. Section 403. Notice of Redemption. When Bonds are to be called for redemption under Section 401 and the Fiscal Agent has received the required notice from the City, the Fiscal Agent shall give notice, in the name of the City, of the redemption of such Bonds. Such notice of redemption shall (a) specify the serial numbers and the maturity date or dates of the Bonds selected for redemption, except that where all the Bonds subject to redemption, or all the Bonds of one 13 22-103 maturity, are to be redeemed, the serial numbers thereof need not be specified; (b) state the date fixed for redemption and for surrender of the Bonds to be redeemed; (c) state the redemption price; (d) state the place or places where the Bonds are to be surrendered for redemption; and (e) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is 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 thirty (30) days but no more than sixty (60) days prior to the redemption date, the Fiscal Agent shall mail a copy of such notice, by registered or certified mail, postage prepaid, to the respective Owners of Bonds selected for redemption 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 Fiscal Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties. A notice of redemption for a redemption pursuant to Section 401(b) above may be conditioned upon receipt by the City of sufficient funds to effect the redemption. If sufficient funds are not on deposit with the Fiscal Agent at least one day prior to the redemption date, the redemption shall not occur and the Bonds shall remain Outstanding hereunder. If any redemption is cancelled due to a lack of sufficient funds, the Fiscal Agent shall mail a notice to the Owners stating that such redemption was cancelled and did not occur. Notices of redemption of Bonds registered in the name of DTC's nominee will be mailed by the Fiscal Agent to DTC, or its nominee, and not to the owners of beneficial interests in the Bonds. Notice of redemption will be provided to such beneficial owners only in accordance with the procedures governing the DTC book -entry system. The Fiscal Agent shall take the following additional actions with respect to such notice of redemption provided that neither the failure to take such actions nor any defect in the action taken shall affect the validity of the proceedings for such redemption. On the date on which the notice to redemption is mailed to the Owners of the Bonds pursuant to the provisions above, such notice of redemption shall be given to one or more of the Securities Depositories if DTC is not the owner of all of the Bonds selected by the City by (i) first class mail, postage prepaid, (ii) confirmed facsimile transmission, or (iii) overnight delivery service. Section 404. Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the 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 same interest rate and the same maturity. Section 405. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in Section 403, 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: (a) 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 Agreement, anything in this Agreement or in the Bonds to the contrary notwithstanding; 14 22-104 (b) upon presentation and surrender thereof at the corporate trust office of the Fiscal Agent, the redemption price of such Bonds shall be paid to the Owner thereof; (c) 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; and (d) from and after the date fixed for redemption no Owner of any of the Bonds or portions thereof so designated for redemption shall be entitled to any of the benefits of this Agreement, 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. ARTICLE V CREATION OF FUNDS AND ACCOUNTS; APPLICATION OF PROCEEDS AND ASSESSMENTS Section 501. Funds and Accounts. There are hereby created and established the following funds and accounts, which funds and accounts the City agrees and covenants to maintain with the Fiscal Agent so long as any Bonds are Outstanding hereunder: (a) the City of Newport Beach Assessment District No. 116 Costs of Issuance Fund (the "Costs of Issuance Fund"); (b) the City of Newport Beach Assessment District No. 116 Redemption Fund (the "Redemption Fund"), in which there shall be established and created a Principal Account, an Interest Account and a Prepayment Account; (c) the City of Newport Beach Assessment District No. 116 Reserve Fund (the "Reserve Fund"); and (d) the City of Newport Beach Assessment District No. 116 Improvement Fund (the "Improvement Fund"). The City covenants and agrees to establish with the Treasurer the City of Newport Beach Assessment District No. 116 Administrative Expense Fund (the "Administrative Expense Fund") and the City of Newport Beach Assessment District No. 116 Assessment Fund (the "Assessment Fund"). Except for the Administrative Expense Fund, all moneys in the funds and accounts established hereunder shall be held by the Fiscal Agent and the Treasurer for the benefit of the Bondowners (other than the Improvement Fund), shall be accounted for separately and apart from all other accounts, funds, money or other resources of the City held by the Fiscal Agent and shall be allocated, applied and disbursed solely to the uses and purposes hereinafter set forth in this Article. The Fiscal Agent may establish such additional funds, accounts or subaccounts of the funds or accounts listed above as it deems necessary or prudent to further its duties pursuant to this Agreement or any Supplemental Fiscal Agent Agreement and shall establish any additional funds, accounts or subaccounts which the City directs it to establish. 15 22-105 Section 502. Costs of Issuance Fund. The Fiscal Agent shall deposit into the Costs of Issuance Fund the amounts specified in Section 605. The Fiscal Agent shall pay the costs of issuing the Bonds from the Costs of Issuance Fund as set forth in written requisitions submitted by an Authorized Representative of the City from time to time which requests shall be substantially in the form set forth in Exhibit A hereto. Amounts on deposit in the Costs of Issuance Fund after the completion of the Improvements and the payment of all claims with respect thereto shall be used as determined by the City in the manner provided in Section 10427 of the 1913 Act. At the direction of an Authorized Representative of the City, the Fiscal Agent shall transfer any remaining balance in the Costs of Issuance Fund for deposit in the Improvement Fund and the Costs of Issuance Fund shall be closed. Section 503. Assessment Fund. Upon receipt of Assessment Installments, the Treasurer shall immediately deposit the Assessment Installments into the Assessment Fund. On or prior to the first day of March and September of each year commencing September 1, 2019, the City shall transfer to the Fiscal Agent for deposit to the Redemption Fund the amounts set forth in the following clauses, in the following order of priority: (a) the Interest Account of the Redemption Fund, an amount sufficient to make the payment of interest due on the next succeeding Interest Payment Date for the Bonds; (b) the Principal Account of the Redemption Fund, the amount needed to make the payment of principal, including mandatory sinking fund payments, due on the following September 2 on the Outstanding Bonds; (c) the Reserve Fund, the amount needed to restore the Reserve Fund to the Reserve Requirement; and (d) the Rebate Fund, the amount, if any, as specified in a written direction of the City. At the election of the City, some or all of the moneys remaining in the Assessment Fund after the deposits described above shall be transferred by the Treasurer to the Prepayment Account of the Redemption Fund to redeem Bonds as provided in Section 504. To the extent that the amounts in the Assessment Fund are insufficient to redeem Bonds in an authorized denomination, such moneys shall be used for the payment of interest or principal, including mandatory sinking fund payments, on the next Interest Payment Date. The City shall apply such amounts, as a credit against each of the unpaid Assessments in amounts equal to each parcel's share or portion thereof, of the total amount of Assessment. Upon provision for payment or redemption of all Bonds and after payment of any amounts due to the Fiscal Agent, all moneys remaining in the Assessment Fund shall be paid to the City. Section 504. Redemption Fund. The principal of, including mandatory sinking fund payments, and interest on the Bonds until maturity shall be paid by the Fiscal Agent from the Redemption Fund. At the maturity of the Bonds, and after all principal, including mandatory sinking fund payments, and interest then due on any Outstanding Bonds has been paid or provided for, moneys in the Redemption Fund shall be transferred to the Assessment Fund. (a) On or prior to the first day of March or September of each year, commencing September 1, 2019, the Fiscal Agent shall transfer from the Redemption Fund to the Interest Account 16 22-106 of the Redemption Fund an amount such that the balance in the Interest Account one day prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds on said Interest Payment Date. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same becomes due. (b) On or prior to the first day of September of each year, commencing September 1, 2020, the Fiscal Agent shall transfer from the Redemption Fund to the Principal Account of the Redemption Fund an amount up to the principal payment, including mandatory sinking fund payments, due on the Bonds on the following September 2. Moneys in the Principal Account shall be used to pay the principal, including mandatory sinking fund payments, of the Bonds as the same become due at maturity or as a result of mandatory sinking fund redemption. (c) Any amounts remaining in the Redemption Fund, other than in the Prepayment Account, on September 15 of each year, after all principal, including mandatory sinking fund payments, if any, and interest payments due on the prior September 2 have been paid, shall be remitted to the City for deposit into the Assessment Fund. (d) Moneys set aside in the Prepayment Account of the Redemption Fund shall be used solely for the purpose of redeeming Bonds and shall be applied on or after the redemption date to the payment of principal of, including mandatory sinking fund payments, and premium, if any, on the Bonds to be redeemed upon presentation and surrender of such Bonds. Upon receiving any prepayment of an Assessment, the City shall transfer all or a portion of such prepayment to the Fiscal Agent for deposit in the Prepayment Account, which when coupled with the moneys transferred from the Reserve Fund pursuant to Section 505 to the Prepayment Account, shall be used to redeem Bonds pursuant to Section 401(a) or any Supplemental Fiscal Agent Agreement on the next Interest Payment Date for which proper notice pursuant to Section 403 or applicable provision of a Supplemental Fiscal Agent Agreement can be given by the Fiscal Agent. Upon receipt of written instructions from the City, the Fiscal Agent shall transfer that portion, if any, of the prepayment representing accrued interest owing on the Bonds to the Interest Account of the Redemption Fund and that portion representing principal, including mandatory sinking fund payments, if any, and premium due on the Bonds on the next principal payment date to the Principal Account of the Redemption Fund. If less than all of the amounts in the Prepayment Account, together with the money transferred from the Reserve Fund, can be used to redeem Bonds in increments of $5,000, the remaining portion is to be retained in the Prepayment Account and, when at the written direction of an Authorized Representative of the City there is sufficient money to redeem Bonds, shall be used to redeem Bonds as herein provided or as provided in a Supplemental Fiscal Agent Agreement. Money received from the City from funds other than the prepayment of Assessments, including any surplus amount in the Improvement Fund transferred to the Fiscal Agent in accordance with Section 10427(d) of the 1913 Act, shall be deposited in the Prepayment Account and used to redeem Bonds as provided in Section 401(b) hereof or pursuant to the terms of a Supplemental Fiscal Agent Agreement. If, after all of the Bonds have been redeemed and canceled or paid and canceled, there are moneys remaining in any account of the Redemption Fund, said moneys shall be transferred to the City for deposit to the Assessment Fund. Section 505. Reserve Fund. The Fiscal Agent shall initially deposit into the Reserve Fund the amount specified in Section 605. Thereafter, the Treasurer shall transfer sufficient funds from the 17 22-107 Assessment Fund as provided in Section 503 in order to maintain the Reserve Requirement in the Reserve Fund at all times. On or before each February 15 and August 15, the Fiscal Agent shall determine whether the amount on deposit in the Reserve Fund equals the Reserve Requirement. Moneys in the Reserve Fund shall be used solely for the purpose of paying the principal of, including mandatory sinking fund payments, and interest on the Bonds when due in the event that the moneys in the Redemption Fund are insufficient therefor. The Fiscal Agent shall withdraw moneys as necessary from the Reserve Fund for deposit in the Redemption Fund on or before the first day of March and September of each year. In the event an Assessment is prepaid in whole or in part and used to redeem Bonds, the Assessment being prepaid shall be reduced by the amount transferred from the Reserve Fund pursuant to this paragraph to the Prepayment Account of the Redemption Fund. The amount transferred shall be that portion of the balance then in the Reserve Fund equal to the proportion that the Assessment prepaid bears to the total of all Assessments remaining unpaid as of such date. The City shall notify, or shall cause the Fiscal Agent to be notified, of the amount to be transferred. In the event that moneys in the Reserve Fund and the moneys in the Redemption Fund and the Assessment Fund are sufficient to retire all of the Outstanding Bonds plus accrued interest thereon, such moneys in the Reserve Fund and the Assessment Fund shall at the written direction of City be transferred to the Redemption Fund for the payment of the Bonds. All amounts remaining in the Reserve Fund in the year in which the last Assessment Installments become due and payable shall be credited toward said Assessment Installments as set forth below: On or prior to July 1st of the Fiscal Year next preceding the Fiscal Year in which the last unpaid Assessment Installment securing the Bonds becomes due and payable, the City shall determine the amount remaining in the Reserve Fund, and shall declare such amount to be surplus and direct the Fiscal Agent as to the transfer of such amount in order that it may be credited in the manner set forth in Section 10427.1 of the 1913 Act; provided that if all or any part of such Assessments remain unpaid and are payable in installments, the amount apportioned to each parcel shall be credited against the last of such unpaid Assessment Installments and, if the amount apportioned to each parcel exceeds the amount of said last installment, then such excess shall be credited against the next to last of such Assessment Installments. Notwithstanding any provisions herein to the contrary, moneys in the Reserve Fund in excess of the Reserve Requirement shall be withdrawn from the Reserve Fund by the Fiscal Agent on or before each February 15 and August 15, and shall be transferred to the Interest Account, the Principal Account or the Prepayment Account in an amount directed in writing by an Authorized Representative of the City received at least one Business Day prior to each February 15 and August 15. In the absence of written direction from the City, all amounts shall be transferred to the Redemption Fund and shall be used as provided in Section 503. Section 506. Rebate Fund. (a) The Fiscal Agent shall establish and maintain a fund separate from any other fund established and maintained hereunder designated as the Rebate Fund and shall establish a separate Rebate Account and Alternative Penalty Account therein. All money at any time deposited in the IN 22-108 Rebate Account or the Alternative Penalty Account of the Rebate Fund shall be held by the Fiscal Agent, for payment to the United States Treasury. All amounts on deposit in the Rebate Fund with respect to the Bonds shall be governed by this Section 506 and the Tax Certificate, unless the City obtains an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest payments on the Bonds will not be adversely affected if such requirements are not satisfied. (i) Rebate Account. The following requirements shall be satisfied with respect to the Rebate Account: (A) Annual Computation. Within 55 days of the end of each Bond Year, the City shall calculate or cause to be calculated the amount of rebatable arbitrage for the Bonds in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Rebate Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage described in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and (C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the "1'/z% Penalty") has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148- 1(b) of the Rebate Regulations (the "Rebatable Arbitrage"). The City shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (B) Annual Transfer. Within 55 days of the end of each Bond Year for which Rebatable Arbitrage must be calculated as required by the Tax Certificate, upon the written direction of an Authorized Representative of the City, an amount shall be deposited to each subaccount of the Rebate Account by the Fiscal Agent from any funds so designated by the City if and to the extent required, so that the balance in the Rebate Account shall equal the amount of Rebatable Arbitrage so calculated by or on behalf of the City in accordance with (i)(A) above. In the event that immediately following any transfer required by the previous sentence, or the date on which the City determines that no transfer is required for such Bond Year, the amount then on deposit to the credit of the applicable subaccount of the Rebate Account exceeds the amount required to be on deposit therein, upon written instructions from an Authorized Representative of the City, the Fiscal Agent shall withdraw the excess from the Rebate Account and then credit the excess to the Assessment Fund. (C) Payment to the TreasurX. The Fiscal Agent shall pay, as directed in writing by an Authorized Representative of the City, to the United States Treasury, out of amounts in the Rebate Account, (1) Not later than 60 days after the end of (A) the fifth Bond Year for the Bonds, and (B) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year for the Bonds, as applicable; and (2) Not later than 60 days after the payment or redemption of all of the Bonds, as applicable, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code. In the event that, prior to the time of any payment required to be made from the Rebate Account, the amount in the Rebate Account is not sufficient to make such payment when 19 22-109 such payment is due, the City shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a)(i)(C) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T, or shall be made in such other manner as provided under the Code. The Fiscal Agent shall be deemed conclusively to have complied with such provisions, if it follows the written directions of the City, and shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate. (ii) Alternative Penalty Account. (A) Six -Month Computation. If the 1 %2% Penalty has been elected for the Bonds, within 85 days of each particular Six -Month Period, the City shall determine or cause to be determined whether the 1'/2% Penalty is payable (and the amount of such penalty) as of the close of the applicable Six -Month Period. The City shall obtain expert advice in making such determinations. (B) Six -Month Transfer. Within 85 days of the close of each Six -Month Period, the Fiscal Agent, at the written direction of an Authorized Representative of the City, shall deposit an amount in the Alternative Penalty Account from any source of funds held by the Fiscal Agent pursuant to this Fiscal Agent Agreement and designated by the City in such written directions or provided to it by the City, if and to the extent required, so that the balance in the Alternative Penalty Account equals the amount of 1'/2% Penalty due and payable to the United States Treasury determined as provided in subsection (a)(ii)(A) above. In the event that immediately following any transfer provided for in the previous sentence, or the date on which the City determines that no transfer is required for such Bond Year, the amount then on deposit in the Alternative Penalty Account exceeds the amount required to be on deposit therein to make the payments required by subsection (a)(ii)(C) below, the Fiscal Agent, at the written direction of an Authorized Representative of the City, may withdraw the excess from the Alternative Penalty Account and credit the excess to the Assessment Fund. (C) Payment to the Treasury. The Fiscal Agent shall pay, as directed in writing by an Authorized Representative of the City, to the United States Treasury, out of amounts in a subaccount of the Alternative Penalty Account, not later than 90 days after the close of each Six - Month Period the 11/z% Penalty, if applicable and payable, computed with respect to the Bonds in accordance with Section 148(f)(4) of the Code. In the event that, prior to the time of any payment required to be made from the Alternative Penalty Account, the amount in the Alternative Penalty Account is not sufficient to make such payment when such payment is due, the City shall calculate the amount of such deficiency and direct the Fiscal Agent, in writing, to deposit an amount equal to such deficiency into the Alternative Penalty Account from any funds held by the Fiscal Agent pursuant to this Fiscal Agent Agreement and designated by the City in such written directions prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a)(ii)(C) shall be made to the Internal Revenue Service, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Accounts of the Rebate Fund with respect to the Bonds after redemption and payment of such issue and after making 20 22-110 the payments described in subsection (a)(i)(C) or (a)(ii)(C) (whichever is applicable), shall be withdrawn by the Fiscal Agent at the written direction of the City and utilized in any manner by the City. (c) Survival of Defeasance and Final Payment. Notwithstanding anything in this Section or this Fiscal Agent Agreement to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance and final payment of the Bonds with respect to which an account has been created in the Rebate Fund. (d) Amendment Without Consent of Owners. This Section 506 may be deleted or amended in any manner without the consent of the Owners, provided that prior to such event there is delivered to the City an opinion of Bond Counsel to the effect that such deletion or amendment will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. Section 507. Improvement Fund. The moneys in the Improvement Fund shall be applied to pay the costs of the Improvements and shall be disbursed by the Fiscal Agent as specified in a written direction from an Authorized Representative of the City which must be submitted in connection with each requested disbursement substantially in the form set forth in Exhibit A hereto. Upon receipt of a certificate of an Authorized Representative of the City stating that all or a specified portion of the amount remaining in the Improvement Fund is no longer needed to pay costs of the Improvements, the Fiscal Agent shall transfer all or such specified portion, as applicable, of the moneys remaining on deposit in the Improvement to the Prepayment Account of the Redemption Fund to be used to redeem Bonds or for such other purposes as permitted by the 1913 Act and the 1915 Act, all as directed in said certificate. Section 508. Investments. Moneys held in any of the funds and accounts under this Agreement shall be invested at the written direction of an Authorized Representative of the City only in Authorized Investments which shall be deemed at all times to be a part of such funds and accounts. The Fiscal Agent shall provide monthly statements or reports of the principal balances and investment earnings thereon in each fund and account maintained by the Fiscal Agent hereunder. Authorized Investments shall be purchased at such prices as directed by an Authorized Representative of the City in written directions (or telephonic directions confirmed in writing) delivered to the Fiscal Agent. The Fiscal Agent may conclusively reply upon the written instructions of the Authorized Representative as to both the suitability and legality of directed investments. Directions as to the purchase of all Authorized Investments shall be subject to the limitations hereinafter in this Section set forth and such additional limitations or requirements consistent with the foregoing as may be established by the Treasurer. Moneys in all funds and accounts except for the Reserve Fund shall be invested in Authorized Investments maturing, or with respect to which payments of principal and interest are scheduled or otherwise payable, not later than the date on which the Treasurer has estimated that such moneys will be required by the Fiscal Agent for the purposes specified in this Agreement. Moneys in the Reserve Fund shall be invested in Authorized Investments. All interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Agreement shall be retained therein, except as transfers from 21 22-111 such funds or accounts are authorized in this Agreement. For investment purposes only, the Fiscal Agent may commingle the funds and accounts established hereunder, and administered by the Fiscal Agent, but shall account for each separately. Notwithstanding anything to the contrary contained in this Section, an amount of interest received with respect to any Authorized Investment equal to the amount of accrued interest, if any, paid as part of the purchase price of such Authorized Investment shall be credited to the fund or account for the credit of which such Authorized Investment was acquired. For the purpose of determining the amount in any fund or account other than the Reserve Fund, all Authorized Investments credited to such fund or account shall be valued at the lower of the cost or the market value thereof, exclusive of accrued interest. Amounts in the Reserve Fund shall be valued at their market value at least semi-annually on or before February 15 and August 15 (or more frequently as may be requested by the Treasurer, but in no event more often than monthly). In making any such valuation, the Fiscal Agent may utilize nationally recognized securities valuation or pricing services available to it through its accounting system. The Fiscal Agent may rely on such valuations and shall not be responsible for the accuracy thereof. The Fiscal Agent, or any of its affiliates, may act as principal or agent in the making or disposing of any investment or as a sponsor, depository, manager for or advisor to any issuer of Authorized Investments. The Fiscal Agent shall sell, or present for redemption, any Authorized Investment so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Authorized Investment is credited, and, subject to the provisions of Section 904, the Fiscal Agent shall not be liable or responsible for any loss resulting from such investment, or any other investment made at the direction of the City or otherwise made in accordance with this Agreement. In the absence of written investment direction from the Treasurer received at least two Business Days prior to the maturity of an Authorized Investment, the Fiscal Agent shall invest solely in Authorized Investments set forth in subsection (3) of the definition thereof The Fiscal Agent shall be entitled to rely conclusively upon the written instructions of the City directing investments in Authorized Investments as to the fact that each such investment is permitted by the laws of the State of California and is an Authorized Investment as required by this Agreement and shall not be required to make further investigation with respect thereto. With respect to any restrictions set forth in the list of Authorized Investments which embody legal conclusions (e.g., the existence, validity and perfection of security interests in collateral), the Fiscal Agent shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Authorized Investment obtained at the City's expense. Except as specifically provided in this Agreement, the Fiscal Agent shall not be liable to pay interest on any moneys received by it, but shall be liable only to account to the City for earnings derived from funds that have been invested. The City acknowledges that regulations of the Comptroller of the Currency grant the City the right to receive brokerage confirmation of security transactions to be effected by the Fiscal Agent hereunder as they occur. The City specifically waives the right to receive such confirmation to the extent permitted by applicable law and agrees that it will instead receive periodic cash transaction statements which include detail for the investment transactions effected by the Fiscal Agent 22 22-112 hereunder; provided, however, that the City retains its right to receive brokerage confirmation on any investment transaction requested by the City. Section 509. Delinquency Resulting in Ultimate or Temporary Loss on Bonds. If a temporary deficiency occurs in the Assessment 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 Treasurer that there will be an Ultimate Loss (as defined herein) to the Bondowners, the Treasurer shall transfer moneys on deposit in the Assessment Fund to the Fiscal Agent and shall cause the Fiscal 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 following order of priority: (1) All matured interest payments shall be made before the principal of any Bonds is paid. (2) Interest on Bonds of earlier maturity shall be paid before interest on Bonds of later maturity. (3) Within a single maturity, interest on lower -numbered Bonds shall be paid before interest on higher -numbered Bonds. (4) The principal of Bonds shall be paid in the order in which the Bonds are presented for payment. Any Bond which is presented but not paid shall be assigned a serial number according to the order of presentment and shall be returned to the Bondowner. When funds become available for the payment of any Bond which was not paid upon presentment, the Treasurer shall cause the Fiscal Agent to notify the registered owner of such Bond by registered mail to present the Bond for payment. If the Bond is not presented for payment within ten days after the mailing of the notice, interest shall cease to run on such Bond. If it appears to the 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. Upon the receipt of such notification from the Treasurer, the City Council shall fix a date for a hearing upon such notice. At the hearing the City Council must determine whether in its judgment there will ultimately be insufficient money in the Assessment Fund to pay the principal of the unpaid Bonds and interest thereon. If the City Council determines that in its judgment there will ultimately be a shortage in the Assessment Fund to pay the principal of the unpaid Bonds and interest thereon (an "Ultimate Loss"), the City Council shall direct the Treasurer to pay to the Owners of all Outstanding and unpaid Bonds such proportion thereof as the amount of funds on hand in the Assessment Fund bears to the total amount of the unpaid principal of the Bonds and interest which has accrued or will accrue thereon. Similar proportionate payments shall thereafter be made periodically as moneys come into the Assessment Fund. Upon the determination by the City Council that an Ultimate Loss will occur, the Treasurer shall cause the Fiscal Agent to notify all Bondowners to surrender their Bonds to the Treasurer for cancellation. Upon cancellation of the Bonds, the Bondowner shall be credited with the principal 23 22-113 amount of the Bond so canceled. The Treasurer shall then pay by warrant the proportionate amount of principal and accrued interest due on the Bonds of each Bondowner as may be available from time to time out of the money in the Redemption Fund. Interest shall cease on principal payments made from the date of such payment, but interest shall continue to accrue on the unpaid principal at the rate specified on the Bonds until payment thereof is made. No premiums shall be paid on payments of principal on Bonds made pursuant to this Section in advance of the maturity date thereon. If a Bond is not surrendered for registration and payment, the Treasurer shall cause the Fiscal Agent to give notice at the expense of the City to the Bondowner by registered mail, at the Bondowner's last address as shown on the registration books, of the amount available for payment. Interest on such amount shall cease as of ten days from the date of mailing of such notice. If the City Council determines that in its judgment there will not be an Ultimate Loss, it shall direct the Treasurer to pay matured Bonds and interest as long as there is available money in the Redemption Fund. The priority of payments will be as set forth in the first paragraph hereof. ARTICLE VI ISSUANCE OF 2019A BONDS Section 601. Authorization and Designation of 2019A Bonds. The City has reviewed all proceedings heretofore taken relative to the authorization of the 2019A Bonds and has found, as a result of such review, and hereby finds and determines, that all acts, conditions and things required by law to exist, happen and be performed precedent to and in the issuance of the 2019A Bonds do exist, have happened and have been performed in due time, form and manner as required by the 1915 Act, and that the City is now authorized, pursuant to each and every requirement of the 1915 Act and hereof, to issue the 2019A Bonds upon the security of the Assessments in the aggregate principal amount described in the Bond Purchase Agreement and in the form and manner provided herein, which 2019A Bonds shall be entitled to the benefit, protection and security of the provisions hereof. Section 602. Denominations of 2019A Bonds. The 2019A Bonds shall be issued as fully registered 2019A Bonds in the denomination of $5,000 or any increment of $5,000 in excess thereof. Section 603. Interest Payment Date of 2019A Bonds. The 2019A Bonds shall be dated their Closing Date and shall mature on September 2 of the years, and in the respective principal amounts set forth opposite such years, and shall bear interest at the respective rates per annum, set forth in the following table: Maturity Date (September 2) Principal Amount Interest Rate 24 22-114 Section 604. Form of 2019A Bonds. The 2019A Bonds shall be in substantially the following form, the blanks to be filled in with appropriate words and figures, conforming to the terms of this Agreement: 25 22-115 [FORM OF 2019A BOND] R- $ UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE FISCAL AGENT AGREEMENT) TO THE BOND REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 116 LIMITED OBLIGATION IMPROVEMENT BOND 2019 SERIES A INTEREST RATE MATURITY DATE DATED DATE CUSIP NUMBER % September 2, , 2019 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: AND 00/100 DOLLARS Under and by virtue of the Improvement Bond Act of 1915, Division 10 (commencing with Section 8500) of the California Streets and Highways Code (the "Act") and Resolution No. (the "Resolution of Issuance") adopted by the City Council of the City of Newport Beach (the "City") on , 2019, the City will, out of the redemption fund for the payment of the bonds issued upon the unpaid portion of assessments made for the acquisition, work, and improvements more fully described in proceedings taken pursuant to Resolution No. 2015- 97 (the "Resolution of Intention") adopted by the City Council of the City on the 10th day of November, 2015, pay to the registered owner stated above, on the maturity date stated above, the principal sum stated above in lawful money of the United States of America, all as provided for in a Fiscal Agent Agreement dated as of July 1, 2019 (the "Fiscal Agent Agreement'), by and between U.S. Bank National Association, as fiscal agent (the "Fiscal Agent') and the City. In like manner, the City will pay interest on this bond from the Interest Payment Date (as defined below) next preceding the date on which this bond is authenticated, unless (i) its date of authentication is after the fifteenth day of the month preceding an Interest Payment Date (the "Record Date") and on or before the immediately succeeding Interest Payment Date, in which event the bond shall bear interest from such Interest Payment Date or (ii) its date of authentication is before the close of business on the first Record Date, in which event the bond shall bear interest from the date of this bond; provided, however, that if at the time of authentication of this bond, interest is in default, interest on this bond shall be payable from the last Interest Payment Date to which the interest has been paid or made 26 22-116 available for payment. Such interest shall be payable on March 2 and September 2 of each year, commencing September 2, 2019 (each, an "Interest Payment Date"). Both the principal hereof and redemption premium hereon, if any, are payable at the office of the Fiscal Agent, and the interest hereon is payable by check mailed by first class mail, postage prepaid, on the Interest Payment Date to the owner hereof at the owner's address as it appears on the records of the Fiscal Agent or at such address as may have been filed with the Fiscal Agent for that purpose, at the close of business on the applicable Record Date; provided, however, that at the written request of an owner of at least $1,000,000 in aggregate principal amount of bonds, filed with the Fiscal Agent prior to any Record Date, interest on such bonds will be paid to such owner on such succeeding Interest Payment Date by wire transfer of immediately available funds to an account within the United States of America designated in such written request. This bond will continue to bear interest after maturity at the rate above stated provided it is presented at maturity and payment hereof is refused upon the sole ground that there are not sufficient moneys in said redemption fund with which to pay the same. If it is not presented at maturity, interest hereon will run only until maturity. This bond is one of several annual maturities of bonds (the "Bonds") of like date, tenor and effect, but differing in amounts, maturities and interest rates, issued by the City under the Act and the Fiscal Agent Agreement for the purpose of providing means for paying for the improvements described in the proceedings; and it is secured by the moneys in the redemption fund and by the unpaid portion of certain assessments made for the payment of those improvements, and, including principal and interest, is payable exclusively out of said fund. Whenever, as of an Interest Payment Date, there are sufficient funds in the Prepayment Account of the Redemption Fund from the proceeds of prepayments of Assessments, this bond shall be called for redemption as provided in Part 11.1 of the Act. This bond, or any portion hereof, in the principal amount of $5,000 or any integral multiple thereof, may be redeemed and paid in advance of maturity on any Interest Payment Date in any year pro rata among maturities, by giving notice to the owner hereof and by paying the principal amount hereof, plus interest to the date of redemption, unless sooner surrendered, in which event said interest will be paid to the date of payment, together with a redemption premium (expressed as percentages of the principal amount of the bond to be redeemed) at the following redemption prices: Redemption Date Price Interest Payment Dates on or prior to March 2, 2027 103% September 2, 2027 and March 2, 2028 102 September 2, 2028 and March 2, 2029 101 September 2, 2029 and thereafter 100 This bond is subject to redemption prior to its stated maturity date on any date on and after September 2, 2029 from such maturities as selected by the City, from any source of funds other than prepayment of Assessments, including, but not limited to, surplus monies on deposit in the Improvement Fund, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium. This bond is transferable by the registered owner hereof, in person or by the owner's attorney duly authorized in writing, at the office of the Fiscal Agent, subject to the terms and conditions 27 22-117 provided in the Fiscal Agent Agreement, including the payment of certain 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, of the same maturity, for the same aggregate principal amount, will be issued to the transferee in exchange herefor. Bonds shall be registered only in the name of an individual (including joint owners), a corporation, limited liability company, a partnership, a trust or other legal entity validly existing and authorized to own the Bonds. Neither the City nor the Fiscal Agent shall be required to make such exchanges or to register such transfers of bonds (a) during the 15 days prior to any Interest Payment Date or the date established by the Fiscal Agent for selection of Bonds for redemption, or (b) with respect to a bond after such bond has been selected for redemption. The City and the Fiscal Agent may treat the owner hereof, as shown on the bond register kept by the Fiscal Agent, as the absolute owner for all purposes; and the City and the Fiscal Agent shall not be affected by any notice to the contrary. The Fiscal Agent Agreement is incorporated by reference herein and by acceptance hereof the registered owner assents to said terms and conditions. This bond is subject to refunding pursuant to the procedures of the Refunding Act of 1984 for 1915 Improvement Act Bonds. This bond shall not be entitled to any benefit under the Act or the Fiscal Agent Agreement or become valid or obligatory for any purpose, until the certificate of authentication and registration hereon endorsed shall have been manually signed by the Fiscal Agent. THE CITY HAS DECLARED AND DETERMINED IN THE RESOLUTION OF INTENTION THAT PURSUANT TO SECTION 8769 OF THE IMPROVEMENT BOND ACT OF 1915 IT WILL NOT OBLIGATE ITSELF TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO CURE ANY DEFICIENCY WHICH MAY OCCUR IN THE REDEMPTION FUND. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OF NEWPORT BEACH, THE COUNTY OF ORANGE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM THE SOURCES DESCRIBED IN THE FISCAL AGENT AGREEMENT. 22-118 IN WITNESS WHEREOF, the City of Newport Beach has caused this bond to be signed in manual or facsimile form by the Treasurer of said City and attested to by the City Clerk of the City Council of said City, all as of the day of , 20_. CITY OF NEWPORT BEACH Treasurer for the City of Newport Beach ATTEST: City Clerk [FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION] This is one of the bonds described in the within -mentioned Fiscal Agent Agreement, which bond has been authenticated and registered on _'2019. U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent M. Authorized Signatory 29 22-119 [FORM OF LEGAL OPINION] The attached is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, in connection with the issuance of, and dated as of the date of the original delivery of, the Bonds. A signed copy is on file in my office. City Clerk of the City of Newport Beach [FORM OF ASSIGNMENT] For value received the undersigned do(es) hereby sell, assign and transfer unto TAX I.D. #: the within bond and do(es) hereby irrevocably constitute and appoint attorney to transfer the same on the register of the Fiscal Agent with full power of substitution in the premises. Date: NOTE: The signature(s) to this Assignment must correspond with the name(s) as written on the face of the within bond in every particular, without alteration or enlargement or any change whatsoever and the signature(s) must be guaranteed by an eligible guarantor. SIGNATURE GUARANTEED: Signature(s) must be guaranteed by an eligible guarantor institution 30 22-120 Section 605. Application of Proceeds of the Sale of 2019A Bonds and of the Prepaid Amounts. Proceeds from the sale of the 2019A Bonds shall be used as follows: (i) $ shall be deposited by the Fiscal Agent into the Reserve Fund equaling the Reserve Requirement; (ii) $ shall be deposited by the Fiscal Agent in the Costs of Issuance Fund; Account; and Fund. (iii) $ shall be deposited by the Fiscal Agent in the Interest (iv) $ shall be deposited by the Fiscal Agent in the Improvement ARTICLE VII COVENANTS AND WARRANTY Section 701. Warranty. The City shall preserve and protect the security of the Bonds and the rights of the Owners against all claims and demands of all persons. Section 702. Covenants. So long as any of the Bonds are Outstanding and unpaid, the City makes the following covenants with the Owners under the provisions of the 1913 Act, the 1915 Act and this Agreement (to be performed by the City or its proper officers, agents or employees), which covenants are necessary, convenient and desirable to secure the Bonds and tend to make them more marketable; provided, however, that said covenants do not require the City to expend any funds or moneys other than the Assessments: (a) Punctual Payment; Covenant Against Encumbrances. The City covenants that it will receive all Assessment Installments in trust and will, consistent with Section 503 hereof, deposit the Assessment Installments in the Assessment Fund, and the City shall have no beneficial right or interest in the amounts so deposited except as provided by this Agreement. All such Assessment Installments, whether received by the City in trust or deposited with the Fiscal Agent, all as herein provided, shall nevertheless be disbursed, allocated and applied solely to the uses and purposes herein set forth, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the City. The City covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued hereunder, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with this Agreement to the extent Assessments and interest earnings transferred to the Redemption Fund are available therefor, and that the payments into the Redemption Fund and the Reserve Fund will be made, all in strict conformity with the terms of the Bonds and this Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of this Agreement and all Supplements and of the Bonds issued hereunder. If at any time the total balance in the Redemption Fund and the Reserve Fund is sufficient to redeem all Outstanding Bonds pursuant to Section 401 hereof, the Treasurer may direct the Fiscal Agent to effect such redemption on the earliest date on which all Outstanding Bonds may be redeemed. 31 22-121 The City will not mortgage or otherwise encumber, pledge or place any charge upon any of the Assessment Installments, and will not issue any obligation or security superior to the Bonds, payable in whole or in part from the unpaid Assessments. (b) Covenant to Lew. The City will cause the Assessment Installments required to pay the principal of and interest on the Bonds when due to be placed on the tax bills of the owners of the parcels assessed and covenants to levy assessments, as permitted by law and the Resolution of Formation, to satisfy the Administrative Expense Requirement. (c) Commence Foreclosure Proceedings. 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 1 of each year to determine the amount of Assessment Installments collected in the prior Fiscal 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 1 of each 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. (d) Books and Accounts. The City will cause the Fiscal Agent to keep proper books of record and accounts, separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions made by its Fiscal Agent hereunder. Such books of record and accounts shall at all times during business hours and upon reasonable prior notice be subject to the inspection of the City or of the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding or their representatives authorized in writing. (e) Tax Covenants. Notwithstanding any other provision of this Agreement, absent an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds will not be adversely affected for federal income tax purposes by reason of the City's failure to do so, the City covenants to comply with all applicable requirements of the Code, necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows: Private Activity. The City will not take or omit to take any action or make any use of the proceeds of the Bonds or of any other moneys or property which would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code. Arbitrage. The City will make no use of the proceeds of the Bonds or of any other amounts or property, regardless of the source, or take or omit to take any action which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. Federal Guarantee. The City will make no use of the proceeds of the Bonds or take or omit to take any action that would cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code. Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code. 32 22-122 Rebate Requirements. The City will take no action inconsistent with its expectations stated in the Tax Certificate and will comply with the covenants and requirements stated therein and incorporated by reference herein. Without limiting the generality of the foregoing, the City agrees that there shall be paid from time to time all amounts required to be rebated to the United States pursuant to Section 148(f) of the Code and any temporary, proposed or final Treasury Regulations as may be applicable to the Bonds from time to time. In particular, the City shall direct the Fiscal Agent to transfer to the Rebate Fund amounts sufficient to pay and shall instruct the Fiscal Agent to pay to the United States Treasury any amounts required to be paid as set forth in Section 506 hereof. (f) Collection of the Administrative Expense Requirements. The City covenants that it will collect annually an amount specified by the Treasurer to be the Administrative Expense Requirement to pay for Administrative Expenses. The Administrative Expense Requirement so collected shall not exceed the amount specified in the Engineer's Report. Section 703. Continuing Disclosure Agreement. The City hereby covenants and agrees that it will comply with and carry out all of its obligations under the Continuing Disclosure Agreements to be executed and delivered by the City in connection with the issuance of each series of Bonds. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Agreements shall not be considered an event of default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section 703. For purposes of this Section, `Beneficial Owner" means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). ARTICLE VIII AMENDMENTS TO AGREEMENT Section 801. Amendments Not Requiring Bondowner Consent. The City may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplements hereto for any of the following purposes: (a) to cure any ambiguity or to correct or supplement any provisions herein provided that such action shall not materially adversely affect the interests of the Bondowners; (b) to add to the covenants and agreements of, and the limitations and the restrictions upon, the City contained in this Agreement, other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with this Agreement as theretofore in effect; (c) to modify, amend or supplement this Agreement in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not, materially adversely affect the interests of the Owners of the Bonds; or 33 22-123 (d) to modify, alter, amend or supplement this Agreement in any other respect which is not materially adverse to the Bondowners. Section 802. Amendments Requiring Bondowner Consent. Exclusive of the Supplements described in Section 801, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding shall have the right to consent to and approve such Supplements as shall be deemed necessary or desirable by the City for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Agreement; provided, however, that nothing herein shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bond, (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon, (c) a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplement without the consent of the Owners of all the Bonds then Outstanding. If at any time the City shall desire to enter into a Supplement, which pursuant to the terms of this Section shall require the consent of the Bondowners, the City shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplement. The Fiscal Agent shall, at the expense of the City, cause notice of the proposed Supplement to be mailed, by first class mail postage prepaid, to all Bondowners and their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplement and shall state that a copy thereof is on file at the office of the Superintendent of Streets and the corporate trust office of the Fiscal Agent for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding as required by this Section. Whenever at any time within one year after the date of the first mailing of such notice the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, which instrument or instruments shall refer to the proposed Supplement described in such notice, and shall specifically consent to and approve the Supplement substantially in the form of the copy referred to in such notice as on file with the Superintendent of Streets and the Fiscal Agent, such proposed Supplement, when duly executed by the City, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplement, Bonds which are owned by the City or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the City, shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon request, the City shall designate to the Fiscal Agent those Bonds disqualified by this Section 802. Upon the execution and delivery by the City and the Fiscal Agent of any Supplement and the receipt of consent to any such Supplement from the Owners of not less than a majority in aggregate principal amount of Bonds Outstanding in instances where such consent is required pursuant to the provisions of this Section, this Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Agreement of the City, the Fiscal Agent and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments. 34 22-124 No Supplement pursuant to either Section 801 or Section 802 shall modify or amend any of the rights or obligations of the Fiscal Agent without its written consent thereto. The Fiscal Agent shall be provided an opinion of counsel, at the expense of the City, that any such Supplement complies with the provisions of this Article VIII and the Fiscal Agent may conclusively rely upon such opinion. Section 803. Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as hereinabove provided, the City may determine that the Bonds may bear a notation, by endorsement in form approved by the City, as to such action, and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for the purpose at the office of the Fiscal Agent, a suitable notation as to such action shall be made on such Bonds. If the City shall so determine, new Bonds so modified as, in the opinion of the City, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Bond Outstanding at such effective date such new Bonds shall be exchanged at the office of the Fiscal Agent without cost to each Owner, for Bonds then Outstanding, upon surrender of such Outstanding Bonds. ARTICLE IX FISCAL AGENT Section 901. Fiscal Agent. U.S. Bank National Association is hereby appointed Fiscal Agent for the City for the purpose of receiving all money which the City is required to deposit with the Fiscal Agent hereunder and to allocate, use and apply the same as provided in this Agreement. The Fiscal Agent is hereby authorized to and shall mail by first-class mail, postage prepaid, interest payments to the Bondowners, select Bonds for redemption, and maintain the Bond Register. The Fiscal 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 upon redemption, to provide for the registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the cancellation of Bonds, and to provide for the authentication of Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Agreement. The Fiscal Agent shall keep accurate records of all funds administered by it and all Bonds paid and discharged by it. The Fiscal Agent is hereby authorized to pay the Bonds when duly presented for payment at maturity, or on redemption prior to maturity. The Fiscal Agent shall cancel all Bonds upon payment thereof or upon the surrender thereof by the City pursuant to Section 1201 hereof. The Fiscal Agent shall keep accurate records of all Bonds paid and discharged and canceled by it for six years or such longer period as required by applicable law or the policies of the Fiscal Agent. The Fiscal Agent shall supply information regarding investments made under Article V at the written request of the City including: (i) purchase date, (ii) purchase price, (iii) any accrued interest paid, (iv) face amount, (v) coupon rate, (vi) periodicity of interest payments, (vii) disposition price, (viii) any accrued interest, received, and (ix) disposition date. In the event a Nonpurpose Investment is subject to a receipt of bids, the City shall maintain a record of all information establishing fair market value on the date such investment became a Nonpurpose Investment. Such detailed record keeping is required for the calculation of the Rebate Requirement which shall be performed by the City and, in part, will require a determination of the difference between the actual aggregate earnings 35 22-125 of all Nonpurpose Investments and the amount of such earnings assuming a rate of return equal to the Yield on the Bonds. The City shall from time to time, subject to any agreement between the City and the Fiscal Agent then in force, pay to the Fiscal Agent compensation for its services, reimburse the Fiscal Agent for all its advances and expenditures, including, but not limited to, advances to and fees and expenses of independent accountants, counsel, agents, receiver and engineers or other experts employed by it in the exercise and performance of its powers and duties hereunder, and indemnify, defend and save the Fiscal Agent harmless against any losses, costs, expenses or liabilities, including reasonable fees and expenses of its attorneys (including the allocated costs and disbursements of in-house counsel, to the extent such services are not redundant with those provided by outside counsel), not arising from its own negligence or willful misconduct which it may incur in the exercise and performance of its powers and duties hereunder, which indemnity shall survive discharge of the Bonds. Any bank or trust company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any bank or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or trust company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such bank or trust company shall be eligible under Section 902, shall be the successor to such Fiscal Agent without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 902. Removal of Fiscal Agent. The City may in the absence of an event of default at any time, in the exercise of its sole discretion, upon thirty (30) days prior written notice to the Fiscal Agent, remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto; provided that any such successor shall be a bank or trust company doing business and having a corporate trust office in Los Angeles or San Francisco, California, having a combined capital (exclusive of borrowed capital and surplus) (or whose parent or holding company has a combined capital (exclusive of borrowed capital and surplus) of at least fifty million dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus shall be as set forth in its most recent report of condition so published. The City shall notify the Bondowners in writing of any such removal of the Fiscal Agent and appointment of a successor thereto. Section 903. Resignation of Fiscal Agent. The Fiscal Agent may at any time resign by giving written notice to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing; provided, however, that in the event that the City does not appoint a successor Fiscal Agent within thirty (30) days following receipt of such notice of resignation, the resigning Fiscal Agent may petition, at the expense of the City, an appropriate court having jurisdiction to appoint a successor Fiscal Agent. Any resignation or removal of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective only upon the written acceptance of appointment by the successor Fiscal Agent, and notice to the Bondowners of the Fiscal Agent's identity and address. Section 904. Liability of Fiscal 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 Fiscal Agent assumes no responsibility for the correctness of the 36 22-126 same and makes no representations as to the validity or sufficiency of this Agreement 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 authentication assigned to or imposed upon the Fiscal Agent. The Fiscal Agent shall have no duties or obligations other than as specifically set forth herein and no implied duties, covenants or obligations shall be read into this Agreement against the Fiscal Agent. The Fiscal Agent shall be under no responsibility or duty with respect to the issuance of the Bonds for value. The Fiscal Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Fiscal Agent shall have no liability or obligation to the Bondowners with respect to the payment of debt service by the City or with respect to the observance or performance by the City of the other conditions, covenants and terms contained in this Agreement, or with respect to the investment of any moneys in any fund or account established, held or maintained by the City pursuant to this Agreement or otherwise. The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, bond or other paper or documents believed by it to be genuine and to have been signed or presented by the proper party or parties. The Fiscal Agent may consult with counsel, who may be counsel to the City, at the expense of the City, with regard to legal questions, and the opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered hereunder and in accordance therewith. The Fiscal Agent shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed. Whenever in the administration of its duties under this Agreement the Fiscal 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 willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by a written certificate of the City, and such certificate shall be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of this Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. The Fiscal Agent shall have no duty or obligations whatsoever to enforce the collection of Assessments or other funds to be deposited with it hereunder, or as to the correctness of any amounts received, but its liability shall be limited to the proper accounting for such funds as it shall actually receive. The Fiscal Agent shall have no duty or obligation to monitor the City's compliance with the 1913 Act or the 1915 Act. No provision in this Agreement shall require the Fiscal 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 its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Fiscal Agent shall be entitled to interest on all amounts advanced by it at the maximum rate permitted by law. The Fiscal Agent shall have no responsibility, opinion or liability with respect to any information, statement or recital in any official statement or other disclosure material prepared or distributed with respect to the issuance of the Bonds. 37 22-127 All protections extended to the Fiscal Agent shall also extend to its officers, directors, employees and agents. The Fiscal Agent's rights to indemnification hereunder and to payment of its fees and expenses shall survive its resignation or removal and the final payment or defeasance of the Bonds. The Fiscal Agent makes no covenant, representation or warranty concerning the current or future tax status of interest on the Bonds. The Fiscal Agent may become an Owner with the same rights it would have if it were not Fiscal Agent; may acquire and dispose of other bonds or evidence of indebtedness of the City with the same rights it would have if it were not the Fiscal Agent; and may act as a depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of the majority in principal amount of the Bonds then Outstanding. The Fiscal Agent may execute any of the duties or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, or receivers, shall not be responsible for the actions or omissions of such attorneys, agents or receivers if appointed by it with reasonable care, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. The Fiscal Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Fiscal Agent shall only perform those duties specifically set forth herein and no implied duties, covenants or obligations whatsoever shall be read into this Agreement. No action by the Fiscal Agent shall be construed or deemed to expand the limitations on the scope of the Fiscal Agent's duties. The Fiscal Agent shall not be considered in breach of or in default in its obligations hereunder in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Assessment District, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Fiscal Agent. In accepting the duties hereby created, the Fiscal Agent acts solely as Fiscal Agent for the Owners and not in its individual capacity, and all persons, including, without limitation, the Owners and the City, having any claim against the Fiscal Agent arising from the Agreement shall look only to the funds and accounts held by the Fiscal Agent hereunder for payment, except as otherwise provided herein or where the Fiscal Agent has breached its standard of care as described in this Section. Under no circumstances shall the Fiscal Agent be liable in its individual capacity for the obligations evidenced by the Bonds. The Fiscal Agent shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Fiscal Agent or in the exercise of 22-128 any right hereunder. In the event of conflicting instructions hereunder, the Fiscal Agent shall have the right to decide the appropriate course of action and be protected in so doing. The Fiscal Agent shall have no responsibility or liability with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed in any respect relating to the Bonds. The Fiscal Agent shall not to be deemed to have knowledge of any event of default hereunder unless it has actual knowledge thereof at its Principal Office. Section 905. Interested Transactions. The Fiscal Agent and its officers and employees may acquire and hold Bonds with the same effect as if it were not Fiscal Agent. The Fiscal Agent, either as principal or agent, may engage in or be interested in any financial or other transaction with the City. Section 906. Agents. The Fiscal Agent may execute any of its duties or powers or perform its duties through attorneys, agents or receivers and the Fiscal Agent shall not be answerable for the default or misconduct of any such attorney, agent or receiver selected by it with reasonable care. ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 1001. Event of Default. Any one or more of the following events shall constitute an "event of default": (a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or from mandatory redemption; (b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or (c) Default by the City in the observance of any of the other agreements, conditions or covenants on its part in this Agreement or in the Bonds contained, and the continuation of such default for a period of thirty (30) days after the City shall have been given notice in writing of such default by the Fiscal Agent or any Owner, provided that if within thirty (30) days the City has commenced curing of the default and diligently pursues elimination thereof, such period shall be extended to permit such default to be eliminated. Section 1002. Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: (a) By mandamus or other suit or proceeding at law or in equity to enforce his or her rights against the City and any of the members, officers and employees of the City, and to compel the City or any such members, officers or employees to perform and carry out their duties under the 1913 Act or the 1915 Act and their agreements with the Owners as provided in this Agreement; (b) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or 39 22-129 (c) By a suit in equity to require the City and its members, officers and employees to account as the trustee of an express trust. Nothing in this article or in any other provisions of this Agreement, or in the Bonds, shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as herein provided, out of the Assessments pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in this Agreement. A waiver of any default of breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the 1913 Act or the 1915 Act or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the City and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the 1913 Act, the 1915 Act or any other law. In no event shall the Fiscal Agent have any responsibility to cure or cause the City or any other person or entity to cure an event of default hereunder. ARTICLE XI DEFEASANCE Section 1101. Defeasance. If the City shall pay or cause to be paid, or there shall otherwise be paid, to the Owners of any Outstanding Bonds the interest due thereon and the principal thereof, at the times and in the manner stipulated therein and in this Agreement, then the Owners of such Bonds shall cease to be entitled to the pledge of Assessments and other amounts hereunder, and all covenants, agreements and other obligations of the City to the Owners of such Bonds under this Agreement shall thereupon cease, terminate and become void and be discharged and satisfied except for the City's covenant under Section 702(a) hereof. In such event, the Fiscal Agent shall execute and deliver to the City all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over or deliver to the City after payment of any amounts due the Fiscal Agent hereunder all money or securities held by it pursuant to this Agreement which are not required for the payment of the interest due on, and the principal of, such Bonds. Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in the first paragraph of this Section if such Bond is paid in any one or more of the following ways: HE 22-130 (a) by paying or causing to be paid the principal of and interest with respect to such Bond, as and when the same become due and payable; (b) by depositing with the Fiscal Agent at or before maturity, money which, together with the amounts then on deposit in the Assessment Fund, the Reserve Fund and the Redemption Fund, is fully sufficient to pay the principal of, premium and interest on such Bond as and when the same shall become due and payable; or (c) by depositing with the Fiscal Agent Federal Securities in such amount as an Independent Financial Consultant shall determine will, together with the interest to accrue thereon and moneys then on deposit in the Assessment Fund, the Reserve Fund and the Redemption Fund which is available to pay such Bond, together with the interest to accrue thereon without further investment, be fully sufficient 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, notwithstanding that such Bond shall not have been surrendered for payment, all obligations of the City under this Agreement with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owner of any Bond not so surrendered and paid, all sums due thereon from funds provided to it by the City and except for the City's covenant under Section 702(e) hereof. Any money or securities deposited with the Fiscal Agent to defease any Bond or Bonds shall be accompanied by a certificate of a certified public accountant confirming the accuracy of the calculations establishing the sufficiency of such deposit. Any funds held by the Fiscal Agent at the time of payment or defeasance of all Outstanding Bonds, which are not required for the purpose above mentioned, or for payment of amounts due the Fiscal Agent hereunder shall be paid over to the City. ARTICLE XII MISCELLANEOUS Section 1201. Cancellation of Bonds. All Bonds surrendered to the Fiscal Agent for payment upon maturity or for redemption shall upon payment therefor, and any Bond purchased by the City as authorized herein shall be, cancelled forthwith and shall not be reissued. The Fiscal Agent shall destroy such Bonds as provided by law and furnish to the City a certificate of destruction. Section 1202. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by this Agreement to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor, may be signed or executed by such Owners in person or by their attorneys appointed by an instrument in writing for that purpose, or by the commercial bank, trust company or other depository for such Bonds. Proof of the execution of any such instrument, or of any instrument appointing any such attorney, and of the ownership of Bonds shall be sufficient for the purposes of this Agreement (except as otherwise herein provided), if made in the following manner: (a) The fact and date of the execution by any Owner or his or her attorney of any such instrument and of any instrument appointing any such attorney, may be proved by a signature guarantee of any commercial bank or trust company located within the United States of America. Where any such instrument is executed by an officer of a corporation or association or a member of a im 22-131 partnership on behalf of such corporation, association or partnership, such signature guarantee shall also constitute sufficient proof of his authority. (b) As to any Bond, the person in whose name the same shall be registered in the Bond Register shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal of any such Bond, and the interest thereon, shall be made only to or upon the order of the registered Owner thereof or his or her legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond and the interest thereon to the extent of the sum or sums to be paid. The Fiscal Agent shall not be affected by any notice to the contrary. Nothing contained in this Agreement shall be construed as limiting the Fiscal Agent to such proof, it being intended that the Fiscal Agent may accept other evidence of the matters herein stated which the Fiscal Agent may deem sufficient. Any request or consent of the Owner of any Bond shall bind every future Owner of the same Bond in respect of anything done or suffered to be done by the Fiscal Agent in pursuance of such request or consent. Section 1203. Unclaimed Moneys. Anything in this Agreement to the contrary notwithstanding, any money held by the Fiscal Agent in trust for the payment and discharge of any of the Bonds which remains unclaimed for one year after the Bonds become due and payable, if such money was held by the Fiscal Agent at such date, or for one year after the date of deposit of such money if deposited with the Fiscal Agent after said date when such Bonds become due and payable, shall be repaid by the Fiscal Agent to the City, as its absolute property and free from trust, and the Fiscal Agent shall thereupon be released and discharged with respect thereto and the Owners shall look only to the City for the payment of such Bonds; provided, however, that, before being required to make any such payment to the City, the Fiscal Agent shall, at the written request and the expense of the City, cause to be mailed to the registered Owners of such Bonds, at their addresses as they appear on the Bond Register, a notice that said money remains unclaimed and that, after a date named in said notice, which date shall not be less than thirty (30) days after the date of the mailing of such notice, the balance of such money then unclaimed will be returned to the City. Section 1204. Provisions Constitute Contract; Successors. The provisions of this Agreement shall constitute a contract between the City and the Bondowners and the provisions hereof shall be construed in accordance with the laws of the State of California. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and the Fiscal Agent shall prevail, the Fiscal Agent shall be entitled to receive from the Assessment District reimbursement for reasonable costs, expenses, outlays and attorneys' fees (including the allocated costs and disbursements of in-house counsel, to the extent such services are not redundant with those provided by outside counsel), and should said suit, action or proceeding be abandoned, or be determined adversely to the Fiscal Agent, then the City, the Fiscal Agent and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. After the issuance and delivery of the Bonds this Agreement shall be irrepealable, but shall be subject to modifications to the extent and in the manner provided in this Agreement, but to no greater extent and in no other manner. This Agreement shall be binding upon and inure to the benefit of the City and the Fiscal Agent, and their respective successors and assigns. M 22-132 Section 1205. Further Assurances; Incontestability. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Agreement. After the sale and delivery of the Bonds by the City, the Bonds shall be incontestable by the City. Section 1206. Severability. If any covenant, agreement or provision, or any portion thereof, contained in this Agreement, or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or unenforceable, the remainder of this Agreement and the application of any such covenant, agreement or provision, or portion thereof, to other persons or circumstances, shall be deemed severable and shall not be affected thereby, and this Agreement and the Bonds shall remain valid and the Bondowners shall retain all valid rights and benefits accorded to them under the laws of the State of California. Section 1207. General Authorization. Authorized Representatives of the City are hereby respectively authorized to do and perform from time to time any and all acts and things consistent with this Agreement necessary or appropriate to carry the same into effect. Section 1208. Liberal Construction. This Agreement shall be liberally construed to the end that its purpose may be effected. No error, irregularity, informality and no neglect or omission herein or in any proceeding had pursuant hereto which does not directly affect the jurisdiction of the City Council shall void or invalidate this Agreement or such proceeding or any part thereof, or any act or determination made pursuant thereto. Section 1209. Notice. Any notices required to be given to the City with respect to the Bonds for this Agreement shall be mailed, first class, or personally delivered to the City Manager at 100 Civic Center Drive, Newport Beach, California 92660, and all notices to the Fiscal Agent shall be mailed, first class, or personally delivered to the Fiscal Agent at U.S. Bank National Association, 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Global Corporate Trust Services. Section 1210. Action on Next Business Day. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Agreement, is not a Business Day, such payment, with no interest accruing for the period from and after such nominal date, may be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the nominal date provided therefore in this Agreement. M 22-133 IN WITNESS WHEREOF, the City and the Fiscal Agent have executed this Agreement, effective the date first written above. ATTEST: City Clerk CITY OF NEWPORT BEACH Finance Director/Treasurer U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent S-1 Authorized Officer 22-134 EXHIBIT A FORM OF WRITTEN DELIVERY REQUISITION — [COSTS OF ISSUING BONDS] [IMPROVEMENT FUND] U.S. Bank National Association, as Fiscal Agent (the "Fiscal Agent") RE: Disbursement from the [Improvement Fund pursuant to Section 507] [Costs of Issuance Fund pursuant to Section 502] of the Fiscal Agent Agreement, dated as of July 1, 2019 (the "Fiscal Agent Agreement"), by and between the City of Newport Beach ("City") and the Fiscal Agent, in connection with the issuance of $ City of Newport Beach Assessment District No. 116 Limited Obligation Improvement Bonds 2019 Series A (the "Bonds"). REQUISITION NO. 1 You are hereby instructed to pay to the parties listed on Schedule I attached hereto the amounts set forth on Schedule I, such amounts being [costs of issuing the Bonds as provided in Section 502] [costs of the Improvements as provided in Section 507] of the Fiscal Agent Agreement. These costs have been properly incurred, are a proper charge against the [Costs of Issuance Fund] [Improvement Fund] and have not been the basis of any previous disbursements. The Fiscal Agent is hereby instructed to pay an amount which shall not exceed the amounts listed on Schedule I attached hereto upon receipt of an invoice of the payee. CITY OF NEWPORT BEACH Finance Director/Treasurer A-1 22-135 SCHEDULEI Party Purpose Amount Schedule I 22-136 Attachment F Memo Recommending Financing Scenario and Financing Scenario Analyses 22-137 wKNN public finance Date: May 28, 2019 To: Dan Matusiewicz, Finance Director, City of Newport Beach From: Mark Young and Larry Lom, KNN Public Finance Re: Recommended Financing Scenario and Financing Scenario Analyses for Assessment District No. 116, Limited Obligation Improvement Bonds, 2019 Series A and Assessment District No. 116B, Limited Obligation Improvement Bonds, 2019 Series B Recommended Structure In connection with the City of Newport Beach $1,575,000 Assessment District No. 116, Limited Obligation Improvement Bonds, 2019 Series A and $665,000 Assessment District No. 116B, Limited Obligation Improvement Bonds, 2019 Series B, KNN Public Finance, as Municipal Advisor, has analyzed various financing scenarios to help evaluate different financing options available to the City, including method of sale and structuring of the Debt Service Reserve Fund ("DSRF"). In summary, we recommend the City pursue a public offering of its bonds as more cost competitive than a private placement offering in the current market. Also, the DSRF of the bonds may be funded at 50% of Maximum Annual Debt Service ("MADS"), which is less than 5% of the par amount. A smaller DSRF allows additional funds to be available for the projects without market penalty. The following discussion details the approach and analyses undertaken to reach these recommendations. Request for Proposals and Method of Sale On behalf of the City of Newport Beach, KNN solicited Request for Proposals for Underwriting Services for the Underground Utility Assessment Districts 116 and 116B ("AD116" and "AD116B") financings. We asked firms to consider the use of a private placement over a negotiated public offering, as well as provide indicative rates for each method of sale. Firms indicated a public sale as more favorable in the current market (as of 4/12/2019) with less debt service of about $40,000 to $200,000. Using the rates provided, KNN structured our own public and private sale numbers and reach similar results - see Appendix A. This also negates any Cost of Issuance (i.e. fees) savings the private placement may offer. Since then, the public municipal market has continued to improve with benchmark yields declining 10 to 26 basis points across the term of the financings as of 5/23/2019 - see adjacent table. In addition to higher debt service being less favorable, the process efficiencies of a private placement (i.e. no Preliminary Official Statement and no rating) are less compelling. The form of the Preliminary Official Statement had already been prepared following the City's 2018 Assessment District No. 117 financing and a public offering would also be nonrated. Underwriters estimated the benefit of an "A" rated Term AAA GO 4/12/2019 AAA GO 5/23/2019 Change 1 1.53 1.43 (0.10) 2 1.55 1.44 (0.11) 3 1.57 1.45 (0.12) 4 1.61 1.46 (0.15) 5 1.67 1.47 (0.20) 6 1.71 1.51 (0.20) 7 1.74 1.55 (0.19) 8 1.78 1.59 (0.19) 9 1.85 1.65 (0.20) 10 1.93 1.72 (0.21) 11 2.01 1.79 (0.22) 12 2.09 1.86 (0.23) 13 2.15 1.93 (0.22) 14 2.21 1.99 (0.22) 15 2.26 2.04 (0.22) 16 2.31 2.08 (0.23) 17 2.36 2.12 (0.24) 18 2.41 2.16 (0.25) 19 2.46 2.20 (0.26) 20 2.50 2.24 (0.26) 1300 Clay Street, Suite 1000 I Oakland, CA 94612 I Main 510-839-8200 I Fax 510-208-8282 1451 Quail Street, Suite 200 I New ort Beach, CA 92660 I Main 949-346-4900 I Fax 510-208-8282 5901 W. Century Boulevard, Suite 750 Los Angeles, CA 90045 I Main 310-348-2901 I Fax 510-208-8282 A Limited Liability Company 22-138 Recommended Financing Scenario and Financing Scenario Analyses for AD116 and AD116B I May 28, 2019 1 pg. 2 scale to be approximately $15,000 in debt service savings, but the rating cost alone would $12,500. Because the net cost advantage is de minimis, and arguably eliminated when considering work for the rating presentation, we do not recommend the rating on a cost basis. Moreover, given the City's market experience of selling nonrated assessment districts bonds last year and strong value -to -lien ratios of 49.26 and 46.90 for AD 116 and AD116B, respectively, we have no concern issuing the bonds nonrated. For all these reasons, we recommended the City pursue the public offering. Analysis of Financing Scenarios We also asked firms to comment on structuring, which included: a DSRF of 5% of par, capitalized interest for the first assessment installment, 20 -year term, non -rated, and 10 -year optional call. All respondents agreed this approach was a good starting place. Additional considerations included an alternative optional call as well as the reduction or elimination of the DSRF. A 103% premium can option in 2026 sliding to a 100% par call option in 2029 allows the City to refund the bonds three years earlier for a 3% premium and may be advantageous with the loss of advance refundings. However, the refundability of the bonds, and thus the call option preference, will largely depend on the final couponing of the bonds to be decided at the time of pricing. Reducing the DSRF to 50% of MADS will downsize the reserve requirements by approximately $25,000 and $10,000 for AD 116 and AD116B, respectively, which allows the funds to be available for projects — see Appendix B. We do not recommend eliminating the DSRFs entirely, regardless of market acceptance, because the City will lose flexibility and discretion regarding the initiation of foreclosure proceedings should assessments become delinquent. Also, Appendix B provides an analysis of the foreclosure implications of the two different DSRF sizings based on the City's 70% funding threshold to initiate foreclosure. To summarize, the 50% MADS funded DSRF, being smaller, will reach the 70% funding threshold sooner than a 5% Par funded DSRF. However, there is still likely enough time for a delinquency to resolve itself or be addressed before the City's discretion to foreclose is removed. Therefore, with no expected market penalty for reducing the DSRFs (i.e. higher interest rates for the loss of bondholder security), we recommend the 50% MADS funded DSRF to increase project funds while maintaining flexibility with respect to initiating foreclosure proceedings. WillVN public finance 22-139 Appendix A - Public Sale and Negotiated Sale Analysis Public Sale Number Comparison Private Placement Number Comparison Based on provided scales, underwriter's discount and structuring recommendations Based on provided scales, underwriter's discount and structuring recommendations I Hilltop BAML Hilltop Pipedaffray Stifel WellsFargo I PiperJaffray Stifel Par Amount 2,445,000 2,435,000 2,470,000 2,455,000 2,220,000 ParAmount 2,380,000 2,405,000 2,375,000 Net Premium / (Net Discount) 0 26,973 0 -34,222 107,435 Cash Collection (2/28/19) 347,850 347,850 347,850 347,850 347,850 Cash Collection (2/28/19) 347,850 347,850 347,850 2,792,850 2,809,823 2,817,850 2,768,628 2,675,285 2,727,850 2,752,850 2,722,850 Project Fund 2,274,100 2,274,100 2,274,100 2,274,100 2,274,100 Project Fund 2,274,100 2,274,100 2,274,100 Reserve Fund (see note below) 122,250 121,750 123,500 84,353 0 Reserve Fund (see note below) 59,500 60,125 42,253 Capitalized Interest Fund 11,539 7,940 7,424 7,234 7,763 Capitalized Interest Fund 8,328 10,031 8,542 Cost of Issuance 346,600 346,600 346,600 346,600 346,600 Cost of Issuance 381,600 401,600 391,600 Underwriter's Discount 35,653 52,767 59,106 50,565 43,270 Underwriter's Discount 0 0 0 Additional Proceeds 2,708 6,666 7,120 5,776 3,552 Additional Proceeds 4,322 6,994 6,355 2,792,850 2,809,823 2,817,850 2,768,628 2,675,285 2,727,850 2,752,850 2,722,850 Reserve Fund calculation 5% Par 5% Par 5% Par 50% MADS None Reserve Fund calculation 2.5% Par 2.5% Par 15% MADS Assumed Bank Counsel Fee of $15K across all for comparison purposes True Interest Cost (TIC) 4.60% 3.23% 3.29% 3.31% 3.19% Bank Rate 3.23% 3.85% 3.32% All -In TIC 6.44% 4.96% 5.02% 5.07% 5.03% All -In TIC 5.19% 5.96% 5.35% Period Ending Total Net Debt Service Period Ending Total Net Debt Service 9/2/2019 0 0 0 0 0 9/2/2019 0 0 0 9/2/2020 186,513 163,294 168,527 166,778 156,663 9/2/2020 161,874 177,593 163,850 9/2/2021 188,313 166,494 166,897 164,778 154,963 9/2/2021 164,129 174,320 161,028 9/2/2022 184,913 164,594 165,097 162,778 153,263 9/2/2022 166,222 171,048 163,206 9/2/2023 186,513 166,744 163,167 165,778 156,563 9/2/2023 163,153 177,775 165,218 9/2/2024 187,913 163,744 166,087 163,678 154,313 9/2/2024 165,085 174,118 167,064 9/2/2025 189,113 165,744 163,787 161,316 156,613 9/2/2025 161,855 175,460 163,744 9/2/2026 184,863 162,594 166,404 158,953 158,763 9/2/2026 163,625 171,610 165,424 9/2/2027 185,613 169,444 168,808 166,591 155,763 9/2/2027 160,233 172,760 161,938 9/2/2028 191,150 165,994 166,048 164,003 157,763 9/2/2028 166,842 178,718 168,452 9/2/2029 186,263 167,544 168,161 166,128 155,138 9/2/2029 163,127 174,290 164,634 9/2/2030 186,375 163,944 164,993 162,972 152,513 9/2/2030 164,413 174,863 165,816 9/2/2031 185,975 165,344 166,669 159,672 159,363 9/2/2031 160,537 170,243 161,832 9/2/2032 190,350 166,594 168,057 166,072 155,625 9/2/2032 166,661 175,623 167,848 9/2/2033 189,275 167,694 169,157 167,172 156,888 9/2/2033 162,462 175,618 163,532 9/2/2034 182,975 163,644 164,972 163,122 157,688 9/2/2034 163,263 170,420 164,216 9/2/2035 186,675 164,594 165,652 164,072 158,000 9/2/2035 163,902 175,223 164,734 9/2/2036 184,925 165,219 166,032 164,690 157,800 9/2/2036 164,380 174,640 165,086 9/2/2037 187,950 165,506 166,174 165,152 157,400 9/2/2037 164,697 173,865 165,272 9/2/2038 185,525 165,631 166,074 165,277 156,800 9/2/2038 159,852 177,898 160,292 9/2/2039 60,625 43,650 47,242 75,886 156,000 9/2/2039 100,507 116,420 123,060 Total 3,611,813 3,188,006 3,207,999 3,194,866 3,127,875 Total 3,206,812 3,432,500 3,246,246 18,806 224,502 51,379 Note: Numbers are preliminary as of 4/23/2019 and subject to change. 22-140 Appendix B - Analysis of DSRF Sizings 5% PAR DSRF 116 1168 50% MADS DSRF 116 1168 Par Amount 1,575,000 665,000 Par Amount 1,575,000 665,000 Net Premium 7,558 3,166 Net Premium 7,558 3,166 Project Fund 1,285,991 455,223 Project Fund 1,310,666 464,798 Reserve Fund 78,750 33,250 Reserve Fund 54,075 23,675 Capitalized Interest Fund 5,119 2,161 Capitalized Interest Fund 5,119 2,161 Cost of Issuance 186,450 166,450 Cost of Issuance 186,450 166,450 Underwriter's Discount 26,248 11,082 Underwriter's Discount 26,248 11,082 Change in Project 24,675 9,575 Change in DSRF (24,675) (9,575) Foreclosure Analysis Foreclosure Analysis 70% Threshold 55,125 23,275 70% Threshold 37,853 16,573 DSRF loss to 70% (23,625) (9,975) DSRF loss to 70% (16,223) (7,103) Largest Unpaid Assess 25,142 21,896 Largest Unpaid Assess 25,142 21,896 Total Unpaid Assess 1,578,596 668,643 Total Unpaid Assess 1,578,596 668,643 Largest Unpaid Assess % of total 1.59% 3.27% Largest Unpaid Assess % of total 1.59% 3.27% MADS 107,950 47,350 MADS 107,950 47,350 Largest Unpaid Assess % of MADS 1,719 1,551 Largest Unpaid Assess % of MADS 1,719 1,551 Est. Years to reach 70% Threshold 13.7 6.4 Est. Years to reach 70% Threshold 9.4 4.6 compared to 5% Par DSRF (4.3) (1.9) *Based on the largest unpaid assessment in both districts, so the time to reach the 70% threshold could be shorter or longer depending on the size and number of delinquencies. 22-141 Attachment G Good Faith Estimates 22-142 GOOD FAITH ESTIMATES - Assessment District No. 116 All figures are good faith estimates based on market conditions at the time of preparation and are subject to change. (A) The true interest cost of the Bonds: 3.1238% (B) The finance charge of the Bonds, which means the sum of all fees and charges paid to third parties: $197,553 (C) The amount of proceeds of the Bonds to be received less the finance charge described above and any reserves or capitalized interest to be paid or funded with proceeds of the Bonds: Total Proceeds: $1,582,558 Less amount in (B): ($197,553) Less DSRF: ($54,075) Less CAPI: ($5,119) Net Proceeds: $1,325,811 (D) the sum total of all debt service payments on the Bonds calculated to the final maturity of the Bonds plus the fees and charges to be paid to third parties not paid with the proceeds of the Bonds: Total Debt Service: $2,122,819 Third party costs not paid with Bond proceeds: $0 Total Payment Amount: $2,122,819 22-143