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Home My WebLink About08 - CIOSA ResolutionAgenda Item # 8 CITY OF NEWPORT BEACH DEPARTMENT OF ADMINISTRATIVE SERVIC Interdepartmental Memorandum November 1, 1995 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUN FROM: Dennis Danner, Director of Finance Ato SUBJECT: CIOSA RESOLUTION DISCUSSION: COUNCIL NOV 1 31995 The City of Newport Beach and The Irvine Company entered into the Circulation Improvement and Open Space Agreement (CIOSA) on June 30, 1993. This agreement allows for the petition of the Council to form a Special Improvement District for the sale of debt to finance public improvements including the construction of various street improvements, including access roads, sidewalks, street widening, signal relocations, median rework and landscaping, and storm drain facilities. This debt will be serviced by assessments on the improved property. At the Council meeting of June 12, 1995, the City Council approved the Special Improvement District Report, a Resolution of Formation of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA), a Resolution Determining the Necessity to Incur Bonded Indebtedness, and a Resolution Calling for a Special Election. At the Council meeting of June 26, 1995 the City Council approved the Official Ballot, a Resolution Declaring the Results of the Special Election, an Ordinance Levying Special Taxes, and a Notice of Special Tax Lien. Subsequently, at the Council meetings of October 9 and 19, 1995, the City Council adopted an ordinance that altered the Rate and Method of Apportionment of the special tax. To proceed with the CIOSA financing, the City Council must now adopt the proceedings to issue bonds. This is accomplished by adopting the attached resolution which authorizes the issuance of not to exceed $7,500,000 aggregate principal amount of City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A; approving the execution and delivery of a Fiscal Agent Agreement, a Purchase Contract, a Continuing Disclosure Certificate and a Protocol Agreement; and the preparation of an Official Statement. RECOMMENDATION: It is respectfully recommended that the City Council approve the Resolution authorizing the issuance of Special Tax Bonds, and approve the execution and delivery of a Fiscal Agent Agreement, a Purchase Contract, a Continuing Disclosure Certificate and a Protocol Agreement; and the preparation of an Official Statement. 11/01/95 4:19 PM CIOSA.DOC t RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ...:.., , »..>.,..._-,._. EWPORT BEACH AUTHORIZING THE ISSUANCE OF NOT O EXCEED $7,500,000 AGGREGATE PRINCIPAL AMOUNT OF CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS, SERIES A, APPROVING THE EXECUTION AND DELIVERY OF A FISCAL AGENT AGREEMENT, A PURCHASE CONTRACT, A CONTINUING DISCLOSURE AGREEMENT AND A PROTOCOL AGREEMENT AND THE PREPARATION OF AN OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO WHEREAS, the City Council has conducted proceedings under and pursuant to the City of Newport Beach Special Improvement District Financing Code (the "Code"), to form the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) (the "District"), to authorize the levy of special taxes upon the land within the District, and to issue bonds secured by said special taxes, the proceeds of which are to be used to finance certain public facilities (the "Facilities"), all as described in the resolutions entitled, "A Resolution of the City Council of the City of Newport City of Formation of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA), Authorizing the Levy of a Special Tax Within the District and Preliminarily Establishing an Appropriations Limit for the District" and "A Resolution of the City Council of the City of Newport Beach Determining the Necessity to Incur Bonded Indebtedness Within the City of Newport Beach Special Improvement District No. 95-1 (CIOSA)", adopted by the City Council on June 12,1995; WHEREAS, pursuant to said resolutions, an election was held within the District on June 26, 1995 and on that date the qualified electors approved the propositions of the incurrence of the bonded debt and the levy of the special tax by more than two-thirds of the votes cast at said special election; WHEREAS, the City Council has conducted proceedings under and pursuant to the Code to alter the rate and method of apportionment of the special tax to be levied in the District; WHEREAS, an election was held within the District on October 9, 1995 and on that date the qualified electors approved the proposition to alter the rate and method of apportionment of the special tax to be levied in the District; WHEREAS, in order to provide the moneys required to finance a portion of the Facilities, the City desires to authorize the issuance of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the 'Bonds"), in an aggregate principal amount of not to exceed $7,500,000; WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City proposes to enter into a Fiscal Agent Agreement with U.S. Trust Company of California, N.A., as fiscal agent (such Fiscal Agent Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Fiscal Agent Agreement"); WHEREAS, Stone & Youngberg (the "Underwriter") has presented the City with a proposal, in the form of a Purchase Contract, to purchase the Bonds from the City (such Purchase Contract, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Purchase Contract"); WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12") requires that, in order to be able to purchase or sell the Bonds, the Underwriter must have reasonably determined that the City has undertaken in a written agreement or contract for the benefit of the holders of the Bonds to provide disclosure of certain financial information and certain material events on an ongoing basis; WHEREAS, in order to cause such requirement to be satisfied, the City desires to enter into a Continuing Disclosure Agreement with the Fiscal Agent (such Continuing Disclosure Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Continuing Disclosure Agreement"); WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Fiscal Agent Agreement; (b) the Purchase Contract.- (c) ontract;(c) the Continuing Disclosure Agreement; (d) the Preliminary Official Statement to be used in connection with the offering and sale of the Bonds (such Preliminary Official Statement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Preliminary Official Statement"); (e) the Protocol Agreement between the City and The Irvine Company, which provides for certain rights and obligations of the City and The Irvine Company with respect to the District and the Bonds (such Protocol Agreement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution being referred to herein as the "Protocol Agreement"); and WHEREAS, the City desires to proceed to issue and sell the Bonds and to authorize the execution of such documents and the performance of such acts as may be necessary or desirable to effect the offering, sale and issuance of the Bonds; NOW, THEREFORE, BE IT RESOLVED by the City Council the City of Newport Beach as follows: -2- , Section 1. Subject to the provisions of Section 2 hereof, the issuance of the Bonds, in the aggregate principal amount of not to exceed $7,500,000, on the terms and conditions set �- forth in, and subject to the limitations specified in, the Fiscal Agent Agreement, is hereby authorized and approved. The Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be issued in the form, and shall be as otherwise provided in the Fiscal Agent Agreement, as the same shall be completed as provided in this Resolution. Section 2. The Fiscal Agent Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Mayor of the City, or such other member of the City Council as the Mayor may designate, the City Manager of the City and the Director of Finance of the City (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Fiscal Agent Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Fiscal Agent Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Bonds in excess of $7,500,000, shall not result in a final maturity date of the Bonds later than September 2, 2021 and shall not result in a true interest cost for the Bonds in excess of 8.0%. Section 3. The Purchase Contract, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Purchase Contract in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Contract by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwriter's discount (not including any original issue discount) from the principal amount of the Bonds in excess of 1.75% of the aggregate principal amount of the Bonds. The City Council hereby finds and determines that the sale of the Bonds at negotiated sale as contemplated by the Purchase Contract will result in a lower overall cost. Section 4. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. Section 5. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale -3- of the Bonds is hereby authorized and approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to certify to the Underwriter that the Preliminary Official Statement has been "deemed final" for purposes of Rule 15c2-12. Section 6. The preparation and delivery of a final Official Statement (the "Official Statement"), and its use in connection with the offering and sale of the Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute the final Official Statement and any amendment or supplement thereto, for and in the name of the City. Section 7. The Protocol Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Protocol Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Protocol Agreement by such Authorized Officer. Section 8. The Authorized Officers are, and each of them hereby is, authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the issuance of the Bonds and the transactions contemplated by the Fiscal Agent Agreement, the Purchase Contract, the Continuing Disclosure Agreement, the Official Statement, the Protocol Agreement and this Resolution. Section 9. All actions heretofore taken by the officers and employees of the City with respect to the District or the issuance and sale of the Bonds, or in connection with or related to any of the agreements or documents referenced herein, are hereby approved, confirmed and ratified. Section 10. This Resolution shall take effect immediately upon its adoption. -4- i APPROVED and ADOPTED by the City Council of the City of Newport Beach on -November 13, 1995. ATTEST: Wanda E. Raggio, City Clerk -5- John W. Hedges, Mayor STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss I, Wanda E. Raggio, City Clerk of the City of Newport Beach, California hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a special meeting of the City Council of said City duly and regularly held at the regular meeting place thereof on November 13, 1995, of which meeting all of the members of said City Council had due notice and at which a majority thereof were present; and that at said meeting said Resolution was adopted by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: An agenda of said meeting was posted at least 72 hours before said meeting at 3300 Newport Boulevard, Newport Beach, California, a location freely accessible to members of the public, and a brief general description of said Resolution appeared on said agenda. I further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office; that the foregoing Resolution is a full, true and correct copy of the original Resolution adopted at said meeting and entered in said minutes; and that said Resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: 1995 Wanda E. Raggio, City Clerk 24005-02 JHI-IW: GH:bct FISCAL AGENT AGREEMENT by and between the CITY OF NEWPORT BEACH and U. S. TRUST OF CALIFORNIA, N.A., as Fiscal Agent Dated as of 1,1995 RELATING TO CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTIRCT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS 9/13/95 TABLE OF CONTENTS Page ARTICLE I STATUTORY AUTHORITY AND DEFINITIONS Section 1.01. Authority for this Agreement............................................................................ 2 Section1.02. Definitions.........................................................................................................2 Section1.03. Interpretation.....................................................................................................8 Section 1.04. Agreement Constitutes Contract....................................................................... 8 ARTICLE H THE BONDS Section 2.01. Authorization of Bonds................................................................................... 10 Section 2.02. Terms of Series A Bonds................................................................................ 10 Section 2.03. Transfer and Exchange of Bonds.................................................................... 11 Section 2.04. Registration Books.......................................................................................... 11 Section 2.05. Execution of Bonds......................................................................................... 11 Section 2.06. Authentication of Bonds................................................................................. 11 Section 2.07. Temporary Bonds............................................................................................ 12 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen ................................................... 12 Section 2.09. Limited Obligation.......................................................................................... 12 ARTICLE III ISSUANCE OF BONDS Section 3.01. Issuance of Series A Bonds............................................................................. 13 Section 3.02. Application of Proceeds of the Series A Bonds .............................................. 13 Section 3.03. Costs of Issuance Fund................................................................................... 13 Section 3.04. Improvement Fund.......................................................................................... 13 Section 3.05. Conditions for the Issuance of Additional Bonds ........................................... 14 Section 3.06. Procedure for the Issuance of Additional Bonds ............................................ 15 Section3.07. Additional Bonds............................................................................................ 16 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series A Bonds....................................................................... 17 Section 4.02. Notice of Redemption..................................................................................... 18 Section 4.03. Selection of Bonds for Redemption................................................................ 18 Section 4.04. Partial Redemption of Bonds.......................................................................... 18 Section 4.05. Effect of Notice of Redemption...................................................................... 18 -i- ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section5.01. Pledge.............................................................................................................. 20 Section5.02. Special Tax Fund............................................................................................ 20 Section5.03. Bond Fund........................................................................................................ 20 Section5.04. Redemption Fund............................................................................................ 20 Section5.05. Reserve Fund...................................................................................................21 Section 5.06. Administrative Expense Fund......................................................................... 21 Section 5.07. Investment of Moneys..................................................................................... 22 ARTICLE VI COVENANTS OF THE CITY Section 6.01. Collection of Special Tax Revenues............................................................... 23 Section6.02. Foreclosure......................................................................................................23 Section 6.03. Punctual Payment............................................................................................23 Section 6.04. Extension of Payment of Bonds...................................................................... 24 Section 6.05. Against Encumbrances.................................................................................... 24 Section 6.06. Power to Issue Bonds and Make Pledge and Assignment .............................. 24 Section 6.07. Accounting Records and Financial Statements ............................................... 24 Section 6.08. Compliance with Law; Completion of Project. Section6.09. Tax Covenants................................................................................................. 24 Section 6.10. Continuing Disclosure to Owners................................................................... 25 Section 6.11. Further Assurances.......................................................................................... 25 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default............................................................................................ 26 Section7.02. Foreclosure...................................................................................................... 26 Section7.03. Other Remedies............................................................................................... 26 Section 7.04. Application of Special Tax Revenues After Default ...................................... 26 Section 7.05. Fiscal Agent to Represent Bond Owners........................................................ 27 Section 7.06. Bond Owners' Direction of Proceedings........................................................ 28 Section 7.07. Limitation on Bond Owners' Right to Sue ..................................................... 28 Section 7.08. Absolute Obligation of City............................................................................ 28 Section 7.09. Termination of Proceedings............................................................................ 28 Section 7.10. Remedies Not Exclusive................................................................................. 29 Section 7.11. No Waiver of Default...................................................................................... 29 ARTICLE VIII FISCAL AGENT Section 8.01. Duties and Liabilities of Fiscal Agent............................................................. 30 Section 8.02. Merger or Consolidation................................................................................. 31 Section 8.03. Liability of Fiscal Agent................................................................................. 31 Section 8.04. Right to Rely on Documents........................................................................... 32 Section 8.05. Preservation and Inspection of Documents..................................................... 32 Section 8.06. Compensation and Indemnification................................................................ 32 ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted................................................................................... 33 Section 9.02. Effect of Supplemental Agreement................................................................. 34 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ....................................... 34 Section 9.04. Amendment of Particular Bonds..................................................................... 34 ARTICLE X DEFEASANCE Section 10.01. Discharge of Agreement.............................................................................. 35 Section 10.02. Discharge of Liability on Bonds.................................................................. 35 Section 10.03. Deposit of Money or Securities with Fiscal Agent ...................................... 35 Section 10.04. Payment of Bonds After Discharge of Agreement ...................................... 36 ARTICLE XI MISCELLANEOUS Section 11.01, Limited Obligation....................................................................................... 37 Section 11.02. Successor Is Deemed Included in All References to Predecessor ............... 37 Section 11.03. Limitation of Rights to Parties and Bond Owners ....................................... 37 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ....................................... 37 Section 11.05. Destruction of Bonds................................................................................... 37 Section 11.06. Severability of Invalid Provisions................................................................ 37 Section11.07. Notices.........................................................................................................37 Section 11.08. Evidence of Rights of Bond Owners............................................................ 38 Section 11.09. Disqualified Bonds....................................................................................... 38 Section 11.10. Money Held for Particular Bonds................................................................ 38 Section 11.11. Funds and Accounts..................................................................................... 39 Section 11.12. Payment on Non -Business Days.................................................................. 39 Section 11.13. Waiver of Personal Liability........................................................................ 39 Section 11.14. Conflict with Act.......................................................................................... 39 Section 11.15. Conclusive Evidence of Regularity.............................................................. 39 Section 11.16. Execution in Several Counterparts............................................................... 39 Section 11.17. Governing Laws........................................................................................... 39 EXHIBITA - Form of Bond.................................................................................................A-1 EXHIBIT B - Written Request No. Requesting Disbursement from Administrative ExpenseAccount......................................................................................... B -I FISCAL AGENT AGREEMENT THIS FISCAL AGENT AGREEMENT (the "Agreement') is made and entered into as of 1, 1995, by and between the CITY OF NEWPORT BEACH, a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California and its charter (the "City"), for and on behalf of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) (the "District'), and U.S. TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States, as fiscal agent (the "Fiscal Agent'). WITNESSETH: WHEREAS, the City Council of the City has formed the District under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act') and Resolution No. of the City Council adopted on , 1995; WHEREAS, the City Council, as the legislative body with respect to the District, is authorized under the Act to levy special taxes to pay for the costs of facilities within the District and to authorize the issuance of bonds secured by said special taxes under the Act; WHEREAS, under the provisions of the Act, on , 1995, the City Council of the City adopted its Resolution No. (the "Resolution"), which, among other matters, authorized the issuance of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Series A Bonds") in the aggregate principal amount of not to exceed $ upon the security of the unpaid special taxes and provided that said issuance would be in accordance with the Act and this Agreement, and authorized the execution hereof; WHEREAS, the City desires to provide for the issuance of additional bonds (the "Additional Bonds") upon the security of the unpaid special taxes on a parity with the Series A Bonds, provided that said issuance is in accordance with the Act and this Agreement (the Series A Bonds and any such Additional Bonds being collectively referred to as the "Bonds"); WHEREAS, it is in the public interest and for the benefit of the City and the owners of the Bonds that the City enter into this Agreement to provide for the issuance of the Bonds, the disbursement of proceeds of the Bonds, the disposition of the special taxes securing the Bonds and the administration and payment of the Bonds; and WHEREAS, the City has determined that all things necessary to cause the Series A Bonds, when authenticated by the Fiscal Agent and issued as provided in the Act, the Resolution and this Agreement, to be legal, valid and binding special obligations in accordance with their terms, and all things necessary to cause the creation, authorization, execution and delivery of this Agreement and the creation, authorization, execution and issuance of the Series A Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, in consideration of the covenants and provisions herein set forth and for other valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I STATUTORY AUTHORITY AND DEFINITIONS Section 1.01. Authority for this Agreement. This Agreement is entered into pursuant to the provisions of the Act and the Resolution of Issuance. Section 1.02. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.02 shall for all purposes of this Agreement, of any Supplemental Agreement and of any certificate, opinion or other document herein or therein mentioned, have the meanings herein specified. "Act" means the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code. "Additional Bonds" means Bonds other than Series A Bonds issued hereunder in accordance with the provisions of Section 3.05 and 3.06. "Administrative Expenses" means costs directly related to the administration of the District, consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Fiscal Agent, the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under this Agreement, the costs of the City or its designee of complying with the disclosure provisions of the Continuing Disclosure Certificate and this Agreement, including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser, the costs of the City or its designee related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the City to comply with Section 6.09(b), an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto, costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, and the costs of foreclosure of delinquent Special Taxes. "Administrative Expense Fund" means the fiend by that name established and held by the Fiscal Agent pursuant to Section 5.06. "Agreement" means this Fiscal Agent Agreement, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Agreement. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). "Appraised Value" means the value of all or any portion of the taxable property within the District, as set forth in a Qualified Appraisal Report prepared by a Qualified Appraiser. "Auditor" means the auditor/controller of the County of Orange. "Authorized Representative" means: (a) with respect to the City, its City Manager or Finance Director, or any other Person designated as an Authorized Representative of the City in a Written Certificate of City filed with the Fiscal Agent, and (b) with respect to the Fiscal Agent, -2- the Senior Vice President, any Vice President, any Assistant Vice President or any Trust Officer of the Fiscal Agent, and when used with reference to any act or document also means any other Person authorized to perform such act or sign any document by or pursuant to a resolution of the Board of Directors of the Fiscal Agent or the by-laws of the Fiscal Agent. "Bond Counsel" means a firm of nationally recognized bond counsel selected by the City and acceptable to the Fiscal Agent. "Bond Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.03. "Bond Year" means each twelve-month period beginning on September 2 in each year and extending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on September 1, 1996. "Bonds" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds issued hereunder, and includes the Series A Bonds and any Additional Bonds. "Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California, or in any state in which the Office of the Fiscal Agent is located, are closed. "CIOSA Agreement" means the Circulation Improvement and Open Space Agreement, dated June 30, 1993, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "CIOSA Distrcit Improvement Fund Requirement" has the meaning ascribed thereto in the Rate and Method. "City" means the City of Newport Beach and any successor thereto. "Closing Date" means the date upon which the Series A Bonds are delivered to the Original Purchaser, being , 1995. "Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Series A Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Series A Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. "Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed by the City and dated the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Fiscal Agent and its counsel, including the Fiscal Agent's first annual administrative fee, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds. -3- "Costs of Issuance Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 3.03. "District" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA), formed pursuant to the Resolution of Formation. "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "fair market value" means the acquisitions price in a bona fide arm's length transaction (as referenced above) if (a) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (b) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (c) the investment is a United States Treasury Security --State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (d) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held in such fund its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. "Fair Share Fees" has the meaning ascribed thereto in CIOSA Agreement. "Federal Securities" means any of the following which at the time of investment are legal investments under the laws of the State of California for the funds proposed to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. "Fiscal Agent" means U.S. Trust Company of California, N.A., a national banking association organized and existing under the laws of the United States, or any successor thereto as Fiscal Agent hereunder, appointed as provided herein. "Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the City designated in a Written Certificate of the City delivered to the Fiscal Agent. "Improvement Fund" means the CIOSA District Improvement Fund established and held by the Fiscal Agent pursuant to Section 3.04. "Independent Consultant" means any consultant or firm of such consultants selected by the City and who, or each of whom (a) is generally recognized to be qualified in the financial consulting field, (b) is in fact independent and not under the domination of the City, (c) does not have any substantial interest, direct or indirect, with or in the City, or any owner of real property in the District, or any real property in the District, and (d) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; 0 Kenny Information Services' Called Bond Service, 55 Broad Street, 28th Floor, New York, New York 10004; "Moody's Investors Service Municipal and Government," 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; Standard & Poor's Corporation "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in a Written Certificate of the.City delivered to the Fiscal Agent. "Interest Payment Dates" means March 1 and September 1 of each year, commencing March 1, 1996, so long as any Bonds remain Outstanding. "Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds. "Moody's" means Moody's Investors Service, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Office" means the principal corporate trust office of the Fiscal Agent in Los Angeles, California, or such other office as may be specified to the City by the Fiscal Agent in writing. "Ordinance" means any ordinance of the City levying the Special Taxes. "Original Purchaser" means the original purchaser of the Series A Bonds from the City. "Other District Bonds" means, as of the date of determination, (a) any and all bonds issued under the Mello -Roos Community Facilities Act of 1982, as amended, then outstanding and payable at least partially from special taxes to be levied or parcels of land within the District, and (b) any and all bonds, other than the Bonds, issued under the Act then outstanding and payable at lease partially from special taxes to be levied on parcels of land within the District. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09) all Bonds theretofore, or thereupon being, authenticated and delivered by the Fiscal Agent under this Agreement except: (a) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (b) Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including Bonds (or portions of Bonds) disqualified under Section 11.09; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to this Agreement. "Owner" means, with respect to a Bond, the person in whose name such Bond is registered on the Registration Books. "Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. -5- "Permitted Investments" means the following, but only to the extent that the same are acquired at Fair Market Value: (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export -Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest-bearing demand or time deposits (including certificates of deposit) in federal or state chartered savings and loan associations or in federal or State of California banks (including the Fiscal Agent), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall be rated Al or better by S&P, or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-term rating category by S&P, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated in the highest short-term rating category by S&P, which mature not more than 270 days following the date of investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are rated A or better by S&P; (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S&P; (h) money market funds which are rated Am or better by S&P; (i) any investment agreement which is approved in writing by S&P prior to the time of initial investment; and (j) the Local Agency Investment Fund established pursuant to Section 16429.1 of the Government Code of the State of California to the extent the Fiscal Agent may deposit and withdraw funds directly, provided that the Fiscal Agent may restrict such investment if required to keep moneys available for the purposes of this Agreement. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Project" means the facilities more particularly described in the Resolution of Formation. ME t "Protocol Agreement" means the Protocol Agreement, dated as of , 1995, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "Qualified Appraisal Report" means a real estate appraisal report which (a) has been prepared by a Qualified Appraiser, (b) at the time it was submitted to the City is not more than six months old, or was updated by letter no more than six months prior to the date of submittal to the City, (c) states that it is prepared in accordance with the applicable standards of the American Institute of Real Estate Appraisers for such reports, (d) provides an appraisal of the aggregate retail value for all parcels appraised thereunder, and (e) with respect to any undeveloped property, applies a bulk sale discount to the aggregate retail values of such parcels to determine the Appraised Value thereof. "Qualified Appraiser" means a real estate appraiser selected by the City having an "M.A.I." designation from the American Institute of Real Estate Appraisers. "Rate and Method" means the rate and method of apportionment of the Special Taxes approved by the qualified electors of the District. "Record Date" means (a) the 15th calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day, and (b) any date established by the Fiscal Agent pursuant to Section 2.02(c) as a Record Date for the payment of defaulted interest on the Bonds, if any. "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Registration Books" means the records maintained by the Fiscal Agent for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.04. "Reserve Fund" means the fiend by that name established and held by the Fiscal Agent pursuant to Section 5.05. "Reserve Requirement" means, as of the date of any calculation, the lesser of (a) ten percent (10%) of the original aggregate principal amount of the Bonds, or (b) Maximum Annual Debt Service. "Resolution of Formation" means Resolution No. _, adopted by the City Council of the City on , 1995. "Resolution of Issuance" means Resolution No. , adopted by the City Council of the City on , 1995, authorizing the issuance of the Series A Bonds. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax - (516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures - Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605, Fax - (312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, -7- 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Dex - (215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. "Series" means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to this Agreement as the Series A Bonds, and any Additional Bonds issued pursuant to a Supplemental Agreement and identified as a separate Series of Bonds. "Series A Bonds" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A, issued hereunder. "Special Tax Fund" means the fiend by that name established and held by the Fiscal Agent pursuant to Section 5.02. "Special Tax Revenues" means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, to the amount of said lien and interest and penalties thereon. "Special Taxes" means the special taxes levied within the District pursuant to the Act, the Ordinance and this Agreement. "Supplemental Agreement" means any agreement amendatory of or supplemental to this Agreement, but only if and to the extent that such Supplemental Agreement is specifically authorized hereunder. "Written Certificate" and "Written Request" of the City mean, respectively, a written certificate or written request signed in the name of the City by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.03. 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 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. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. Section 1.04. Agreement Constitutes Contract. In consideration of the purchase and acceptance of any and all of the Bonds issued hereunder by those who shall hold the same from time to time, this Agreement shall be deemed to be and shall constitute a contract among the City, the Fiscal Agent and the Owners of the Bonds. The pledge made in this Agreement and the provisions, covenants and agreements herein set forth to be performed by or on behalf of the City shall be for the equal benefit, protection and security of the Owners of any and all of the Bonds. In All of the Bonds, without regard to the time or times of their issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof, except as expressly provided in or permitted by this Agreement. ARTICLE H THE BONDS Section 2.01. Authorization of Bonds. The City hereby authorizes the issuance of the Bonds under and subject to the terms of this Agreement, the Act and other applicable laws of the State of California for the purpose of providing a portion of the moneys to finance the Project. The Bonds may consist of one or more Series of varying denominations, dates maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. The Bonds shall be designated generally as the "City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds", each Series thereof to bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series of Bonds. The aggregate principal amount of Bonds that may be issued and Outstanding under this Agreement shall not exceed , except as may be otherwise provided in Section 2.08. Section 2.02. Terms of Series A Bonds. (a) The Series A. Bonds shall be designated "City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A". The aggregate principal amount of Series A Bonds that may be issued and Outstanding under this Agreement shall not exceed $ , except as may be otherwise provided in Section 2.08. (b) The Series A Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Series A Bond shall have more than one maturity date. The Bonds shall be dated as of , 1995, shall be issued in the aggregate principal amount of $ , shall mature on 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: Maturity Date Principal Interest (September 1) Amount Rate (c) Interest on the Series A Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series A Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a Series A Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from , 1995, or (iii) interest on any Series A Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series A Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Series A Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such Series A Bond is registered on the Registration Books at the close of business on a special Record Date to be established by the Fiscal Agent for the payment of such defaulted interest to be fixed by the Fiscal Agent, notice of which shall be given to such Owner not less than ten days prior to such special Record Date. Interest shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series A Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. (d) The principal of the Series A Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at . the Office of the Fiscal Agent. Payment of principal of any Series A Bond shall be made only upon presentation and surrender of such Bond at the Office of the Fiscal Agent. (e) The Series A Bonds shall be subject to redemption as provided in Article IV. (f) The Series A Bonds shall be in substantially the form set forth in Exhibit A hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Fiscal Agent shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount, in any authorized denomination. The Fiscal Agent shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Fiscal Agent for a like aggregate principal amount of Bonds of other authorized denominations. The Fiscal Agent shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Fiscal Agent shall not be obligated to make any transfer or exchange of Bonds pursuant to this Section 2.03 during the period established by the Fiscal Agent for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. Section 2.04. Registration Books. The Fiscal Agent will keep or cause to be kept, at the Office of the Fiscal Agent, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon 24 hours notice 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 registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. Section 2.05. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the City with the facsimile signature of the Mayor attested by the manual or facsimile signature of the City Clerk. The City's seal or a facsimile thereof, may be reproduced, imprinted or impressed on the Bonds. The Bonds shall then be delivered to the Fiscal Agent for authentication by it. In case any of the officers who shall have signed or attested any of the Bonds shall cease to be such officer or officers of the City before the Bonds so signed or attested shall have been authenticated or delivered by the Fiscal Agent, or issued by the City, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any Bonds may be signed and attested on behalf of the City by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the City although at the nominal date of such Bonds any such Person shall not have been such officer of the City. Section 2.06. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto for the Series A Bonds, manually executed by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Agreement, and such certificate of or on behalf of the Fiscal Agent shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Agreement. Section 2.07. Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such authorized denominations as may be determined by the City, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Agreement as may be appropriate. Every temporary Bond shall be executed by the City and authenticated by the Fiscal Agent upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, at the Office of the Fiscal Agent and the Fiscal Agent shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Agreement as definitive Bonds authenticated and delivered hereunder. Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the City, at the expense of the Owner of said Bond, shall execute, and the Fiscal Agent shall thereupon authenticate and deliver, a new Bond of like tenor 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 canceled by it and delivered to, or upon the order of, the City. 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 and indemnity satisfactory to the Fiscal Agent shall be given, the City, at the expense of the Owner, shall execute, and the Fiscal Agent shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a replacement Bond, the Fiscal Agent may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the City and the Fiscal Agent. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement with all other Bonds secured by this Agreement. -12- ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of Series A Bonds. Concurrent with the execution of this Agreement, the City shall execute and Fiscal Agent shall authenticate the Series A Bonds and deliver the Series A Bonds to the Original Purchaser in the aggregate principal amount of. Section 3.02. Application of Proceeds of the Series A Bonds. On the Closing Date, the proceeds of the sale of the Series A Bonds shall be paid to the Fiscal Agent and said amounts shall be deposited by the Fiscal Agent as follows: (a) The Fiscal Agent shall deposit the amount of $ in the Bond Fund, constituting accrued interest received with respect to the Series A Bonds and capitalized interest with respect to the Series A Bonds through (b) The Fiscal Agent shall deposit the amount of $ in the Reserve Fund, constituting the full amount of the Reserve Requirement. (c) The Fiscal Agent shall deposit the amount of in the Costs of Issuance Fund. (d) The Fiscal Agent shall deposit the amount of $ in the Proceeds Account of the Improvement Fund. Section 3.03. Costs of Issuance Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "Costs of Issuance Fund". On the Closing Date there shall be deposited in the Costs of Issuance Fund the amount specified in Section 3.02(c). The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund; in each case together with a statement or invoice for each amount requested thereunder. On 1, 1996, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Fiscal Agent and transferred to the Bond Fund. Section 3.04. Improvement Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "CIOSA District Improvement Fund" (the "Improvement Fund"). Within the Improvement Fund, the Fiscal Agent shall establish and maintain a separate account designated the "Proceeds Account" and a separate account designated the "Special Tax Account". On the Closing Date there shall be deposited in the Proceeds Account the amount specified in Section 3.02(d). There shall additionally be deposited in the Proceeds Account the portion, if any, of the proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Agreement pursuant to which such Additional bonds are issued. There shall be deposited in the Special Tax Account (a) Special Taxes required to be transferred thereto from the Administrative Expense Fund pursuant to Section 5.06, (b) the portion of the prepaid Special Taxes required to be deposited therein pursuant to Section 3 of the Protocol Agreement (which prepaid Special Taxes the City shall transfer to the Fiscal Agent for deposit in the Special Tax Account as soon as practicable after the receipt by the City thereof, but in any -13- event not later than ten Business Days after such receipt), and (c) the portion of Fair Share Fees required to be deposited therein pursuant to paragraph (d) of Section 2 of the Protocol Agreement (which Fair Share Fees the City shall transfer to the Fiscal Agent for deposit in the Special Tax Account as soon as practicable after the receipt by the City thereof, but in any event not later than ten Business Days after such receipt). The moneys in the Improvement Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the costs of the Project upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment constitutes a cost of the Project and is a proper charge against the Lllprovement Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Improvement Fund; in each case together with a statement or invoice for each amount requested thereunder. In withdrawing moneys from the Improvement Fund pursuant to any such Written Request, the Fiscal agent shall withdraw moneys first from the Proceeds Account and, to the extent moneys in the Proceeds Account are insufficient for such purpose, from the Special Tax Account. [Upon the filing of a Written Certificate of the City stating that the Project has been completed and that all costs of the Project have been paid or are not required to be paid from the Improvement Fund, the Fiscal Agent shall transfer the amount, if any, remaining in the Improvement Fund to the Redemption Fund to be used to optionally redeem Bonds.] Section 3.05. Conditions for the Issuance of Additional Bonds. The City may at any time issue one or more Series of Additional Bonds (in addition to the Series A Bonds) payable from Special Tax Revenues as provided herein on a parity with all other Bonds theretofore issued hereunder, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and under and pursuant hereto and shall have been provided for by a Supplemental Agreement which shall specify the following: (1) The purpose for which such Additional Bonds are to be issued; provided, that the proceeds of the sale of such Additional Bonds shall be applied for the purpose of providing funds (i) to pay costs of the Project, or (ii) to refund any Bonds issued hereunder; (2) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions are to be made, if any, for such Additional Bonds; provided, that (i) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on September 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on September 1, (ii) the Additional Bonds shall be payable as to interest semiannually on March 1 and September 1 of each year, except that the first installment of interest may be payable on either March 1 or September 1 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on March 1 and September 1, (iii) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; -14- (4) The redemption premiums and terms, if any, for such Additional Bonds; (5) The form of such Additional Bonds; (6) The amount to be deposited from the proceeds of sale of such Additional Bonds in the Reserve Fund; provided, that the Reserve Fund shall be increased at the time that such Additional Bonds become Outstanding to an amount at least equal to the Reserve Requirement, and an amount at least equal to the Reserve Requirement shall thereafter be maintained in the Reserve Fund; and (7) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (b) The City shall be in compliance with all agreements, conditions, covenants and terms contained herein and in all Supplemental Agreements required to be observed or performed by it; and (c) The City shall have received a certificate from one or more Independent Consultants which, when taken together, certify that (i) on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the proposed issuance of such Additional Bonds, the amount of maximum Special Taxes that may be levied within the District pursuant to the Act, the Ordinance and the Rate and Method for each Bond Year that the Bonds will be Outstanding is at least 110% of Maximum Annual Debt Service on all Outstanding Bonds and the Additional Bonds proposed to be issued, and (ii) the sum of (1) assessed valuation of taxable property within the District for which a Qualified Appraisal Report has not been provided, as such valuation is shown on the most recently equalized assessment roll, plus (2) the Appraised Value of taxable property within the District for which a Qualified Appraisal Report has been provided, as such Appraised Value is shown in such Qualified Appraisal Report, is at least three times the sum of (A) the aggregate principal amount of all Bonds then Outstanding, plus (B) the aggregate principal amount of Additional Bonds proposed to be issued, plus (C) the aggregate principal amount of all assessment district bonds then outstanding and payable from assessments levied on parcels of land within the District, plus (D) a portion of the aggregate principal amount of Other District Bonds equal to the aggregate principal amount of the Other District Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other District Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land (such fraction to be determined based upon the maximum special taxes which could be levied the year in which maximum annual debt service on the Other District Bonds occurs), based upon information from the most recent available Fiscal Year. For purposes of making the certifications required by this subparagraph (c), the Independent Consultants may rely on reports or certificates of such other persons as may be acceptable to the City and Bond Counsel. Nothing contained herein shall limit the issuance of any special tax bonds payable from Special Taxes if after the issuance and delivery of such special tax bonds none of the Bonds theretofore issued hereunder will be Outstanding. Section 3.06. Procedure for the Issuance of Additional Bonds. At any time after the \ sale of any Additional Bonds in accordance with the Act, such Additional Bonds shall be executed by the City for issuance hereunder and shall be delivered to the Fiscal Agent and thereupon shall be authenticated and delivered by the Fiscal Agent, but only upon receipt by the Fiscal Agent of the following: -15- (a) A certified copy hereof or of the Supplemental Agreement authorizing the issuance of such Additional Bonds; (b) A Written Request of the City as to the delivery of such Additional Bonds; (c) An opinion of Bond Counsel substantially to the effect that (i) the Agreement and all Supplemental Agreements have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of the City, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and (ii) such Additional Bonds constitute valid and binding special obligations of the City payable solely from Special Tax Revenues as provided herein and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California); (d) The proceeds of the sale of such Additional Bonds; (e) Such further documents or money as are required by the provision hereof or by the provisions of the Supplemental Agreement authorizing the issuance of such Additional Bonds. Section 3.07. Additional Bonds. So long as any of the Bonds remain Outstanding, the City will not issue any Additional Bonds or obligations payable from Special Tax Revenues, except pursuant to Sections 3.05 and 3.06. -16- f \ 1 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series A Bonds. (a) Optional Redemption. The Series A Bonds shall be subject to optional redemption in whole or in part, on any Interest Payment Date on or after September 1, 2005, from any source of available funds other than prepayment of Special Taxes, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 2005 and March 1, 2006 102% September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The City shall give the Fiscal Agent written notice of its intention to optionally redeem Series A Bonds not less than 60 days prior to the applicable redemption date, unless such notice shall be waived by the Fiscal Agent. (b) Mandatory Redemption From Special Tax Prepayments. The Series A Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date, from and to the extent of any prepayment of Special Taxes, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 1996 through March 1, 2005 103% September 1, 2005 and March 1, 2006 102 September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 (c) Mandatory Sinking Fund Redemption.. The Series A Bonds maturing September 1, shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, , at a Redemption Price equal to the principal amount of the Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September - -17- Principal Amount to be Redeemed If some but not all of the Series A Bonds are redeemed pursuant to Section 4.01(a), the principal amount of Series- A Bonds to be redeemed pursuant to Section 4.01(c) on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Fiscal Agent; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series A Bonds redeemed pursuant to Section 4.01(a). If some but not all of the Series A Bonds are redeemed pursuant to Section 4.01(b), the principal amount of Series A Bonds to be subsequently redeemed pursuant to Section 4.01(c) shall be reduced by the aggregate principal amount of the Series A Bonds so redeemed pursuant to Section 4.01(b), such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Fiscal Agent, notice of which determination shall be given by the Fiscal Agent to the City. Section 4.02. Notice of Redemption. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than sixty 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Fiscal Agent for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Section 4.03. Selection of Bonds for Redemption. Whenever provision is made in this Agreement for the redemption of less than all of the Bonds, the Fiscal Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any redemption pursuant to Section 4.01(a), as directed in a Written Request of the City, (b) with respect to any redemption pursuant to Section 4.01(b), among maturities on a pro rata basis as nearly as practicable, (c) with respect to any redemption of Additional Bonds, among maturities as provided in the Supplemental Agreement pursuant to which such Additional Bonds are issued, and by lot among Bonds with the same maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Section 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.05. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the redemption (including the interest to the applicable date fixed for redemption and including any applicable premium), having been set aside in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Fiscal Agent, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. -18- If, on said date fixed for redemption, moneys for the redemption of all the Bonds to be redeemed, together with interest to said date, shall be held by the Fiscal Agent so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Fiscal Agent for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and delivered to the City. -19- ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledge. Subject only to the provisions of this Agreement permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund, the Redemption Fund, the Reserve Fund and, until disbursed as provided herein, the Special Tax Fund are hereby pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Agreement and the Act. Said pledge shall constitute a first lien on such assets. Section 5.02. Special Tax Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "Special Tax Fund." As soon as practicable after the receipt by the City of any Special Tax Revenues (other than prepaid Special Taxes), but in any event no later than ten Business Days after such receipt, the City shall transfer such Special Tax Revenues to the Fiscal Agent for deposit in the Special Tax Fund. From time to time as needed to pay the obligations with respect to the District, but no later than five Business Days before each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer (a) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund equals the Reserve Requirement, and (b) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund, such that the amount in the Bond Fund equals the principal and interest due on the Bonds on the next two Interest Payment Dates with respect to Special Tax Revenues received during the period from September 1 through the last day of February in any year, and on the next Interest Payment Date with respect to Special Tax Revenues received during the period from March 1 through August 31 in any year. On September 2 of each year, the Fiscal Agent shall transfer all remaining amounts on deposit in the Special Tax Fund to the Administrative Expense Fund. Section 5.03. Bond Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "Bond Fund". There shall be deposited in the Bond Fund the amounts required to be deposited therein pursuant to Section 3.02(b) and Section 5.02. There shall additionally be deposited in the Bond Fund the portion, if any, of the proceeds of the sale of Additional Bonds required to be deposited therein under the Supplemental Agreement pursuant to which such Additional Bonds are issued. On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund for payment to the Owners of the Bonds the principal, if any, of and interest then due and payable on the Bonds, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent shall withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency, and shall transfer any amounts so withdrawn to the Bond Fund. Section 5.04. Redemption Fund. The Fiscal Agent shall establish and maintain a special fund designated the "Redemption Fund". As soon as practicable after the receipt by the City of prepaid Special Taxes required, pursuant to Section 3 of the Protocol Agreement, to be applied to the redemption of Bonds, but in any event not later than ten Business Days after such receipt, the City shall transfer such prepaid Special Taxes to the Fiscal Agent for deposit in the Redemption Fund. Additionally, the Fiscal Agent shall deposit in the Redemption Fund amounts received from the City in connection with the City's exercise of its rights to optionally redeem -20- Series A Bonds pursuant to Section 4.01(a) and any other amounts required to be deposited therein pursuant to any Supplemental Agreement. [Amounts form Improvement Fund and Administrative Expense Fund] Amounts in the Redemption Fund shall be disbursed therefrom for the payment of the Redemption Price of Series A Bonds redeemed pursuant to Section 4.01(a) or Section 4.01(b) and to pay the Redemption Price of Additional Bonds redeemed under the Supplemental Agreement pursuant to which such Additional Bonds are issued. Section 5.05. Reserve Fund. The Fiscal Agent shall establish and maintain a special fund designated the "Reserve Fund". The Fiscal Agent shall deposit in the Reserve Fund the amount specified in Section 3.02(b). There shall additionally be deposited in the Reserve Fund, in connection with the issuance of Additional Bonds, the amount required to be deposited therein under the Supplemental Agreement pursuant to which such Additional Bonds are issued. Except as otherwise provided in this Section, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds or, in accordance with the provisions of this Section, for the purpose of redeeming Bonds from the Bond Fund. Transfers shall be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund, in accordance with Section 5.03. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Fiscal Agent and shall be deposited in the Bond Fund. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the Special Tax Account of the Improvement Fund. Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund pursuant to this paragraph until after (i) the calculation, pursuant to Section 6.09(b), with respect to the Series A Bonds, and any comparable provision contained in a Supplemental Agreement, with respect to Additional Bonds, of any amounts due to the federal government following payment of the Bonds and the payment of such amounts, and (ii) payment of any fees and expenses due to the Fiscal Agent. Section 5.06. Administrative Expense Fund. The Fiscal Agent shall establish and maintain a special fund designated the "Administrative Expense Fund". On September 2 of each year, the Fiscal Agent shall deposit in the Administrative Expense Fund amounts transferred from the Special Tax Fund pursuant to Section 5.02. Amounts in the Administrative Expense Fund shall be disbursed by the Fiscal Agent to the City upon receipt by the Fiscal Agent of an appropriate requisition therefor, in the form of Exhibit B hereto, signed by an Authorized Representative of the City. On September 1 of each year, the Fiscal Agent shall withdraw any amounts then remaining in the Administrative Expense Fund that have not bee allocated to pay Administrative Expenses incurred but no yet paid, and which are not otherwise encumbered, and transfer such amounts to the Special Tax Account of the Improvement Fund; provided, however, that notwithstanding the foregoing, any portion of -21- any amount otherwise required to be transferred from the Administrative Expense Fund to the Special tax Account which exceeds the amount necessary to reduce the CIOSA District Improvement Fund Requirement to zero shall not be transferred to the Special Tax Account, but instead shall be transferred to the Redemption Fund and applied to the redemption of [Bonds]. Section 5.07. Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Agreement shall be invested by the Fiscal Agent solely in Permitted Investments, as directed in writing by the City two Business Days prior to the malting of such investment. Permitted Investments may be purchased at such prices as the City shall determine. All Permitted Investments shall be acquired subject to any restrictive instructions given to the Fiscal Agent pursuant to Section 6.10 and such additional limitations or requirements consistent with the foregoing as may be established by the Written Request of the City. Moneys in all funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Agreement; provided, however, that Permitted Investments in which moneys in the Reserve Fund are so invested shall mature no later than the earlier of five years from the date of investment or the final maturity date of the Bonds; provided, further, that if such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date, any amount in the Reserve Fund may be invested in such redeemable Permitted Investments maturing on any date on or prior to the final maturity date of the Bonds. Absent timely written direction from the City, the Fiscal Agent shall invest any funds held by it in Permitted Investments described in clause (h) of the definition thereof. 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. Permitted Investments acquired as an investment of moneys in any fund established under this Agreement shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at the Fair Market Value thereof, such valuation to be performed not less frequently than semiannually on or before each Interest Payment Date. The Fiscal Agent may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Fiscal Agent shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Fiscal Agent shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Fiscal Agent may commingle moneys in any of the funds and accounts established hereunder. -22- ARTICLE VI COVENANTS OF THE CITY Section 6.01. Collection of Special Tax Revenues. The City shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. Prior to August 1 of each year, the City shall ascertain from the Auditor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 1 that the Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The City shall fix and levy the amount of Special Taxes within the District in accordance with the Rate and Method, but in any event, subject to the limitations in the Rate ansd Method as to the maximum Special Tax that may be levied, in an amount sufficient to yield the amount required for the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation. The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property. Section 6.02. Foreclosure. Pursuant to Section 713 of the Act, the City hereby covenants with and for the benefit of the Owners of the Bonds that it will determine or cause to be determined, no later than February 15 and June 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and, if such delinquencies exist, the City will order and cause to be commenced no later than April 1 (with respect to the February 15 determination date) or August 1 (with respect to the June 15 determination date), and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due; provided, however, that the City shall not be required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5% of the total Special Tax levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the City determines that any single property owner in the District is delinquent in excess of $5,000 in the payment of the Special Tax, then it will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. Section 6.03. Punctual Payment. The City shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict -23- conformity with the terms of the Bonds and of this Agreement, according to the true intent and meaning thereof, but only out of Special Tax Revenues and other assets pledged for such payment as provided in this Agreement and received by the City or the Fiscal Agent. Section 6.04. Extension of Payment of Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 6.05. Against Encumbrances. The City shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Special Tax Revenues and other assets pledged under this Agreement while any of the Bonds are Outstanding, except as permitted by this Agreement. Section 6.06. Power to Issue Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to the Act to issue the Bonds and to enter into this Agreement and to pledge the Special Tax Revenues and other assets pledged under this Agreement in the manner and to the extent provided in this Agreement. The Bonds and the provisions of this Agreement are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Fiscal Agent (subject to the provisions of Article VIII) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge of Special Tax Revenues and other assets and all the rights of the Bond Owners under this Agreement against all claims and demands of all Persons whomsoever. Section 6.07. Accounting Records and Financial Statements. The Fiscal Agent shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with trust industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds, the Special Tax Revenues and all funds and accounts established pursuant to this Agreement. Such books of record and account shall be available for inspection by the City, during regular business hours and upon 24 hours' notice and under reasonable circumstances as agreed to by the Fiscal Agent. Section 6.08. Compliance with Law, Completion of Project. The City shall comply with all applicable provisions of the Act and other laws in completing the acquisition and construction of the Project. Section 6.09. Tax Covenants. (a) Private Activity Bond Limitation. The City shall assure that the proceeds of the Series A Bonds are not so used as to cause the Series A Bonds to satisfy the private business tests of Section 141(b) of the Code or the private loan financing test of Section 141(c) of the Code. (b) Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Series A Bonds. -24- (c) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Series A Bonds to be "Federally guaranteed" within the meaning of Section 149(b) of the Code. (d) Maintenance of Tax -Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Series A Bonds from gross income of the Owners to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Series A Bonds. (e) No Arbitrage. The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the Series A Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Series A Bonds would have caused the Series A Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code. Section 6.10. Continuing Disclosure to Owners.. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered a default hereunder; however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the City of its obligations thereunder, including seeking mandate or specific performance by court order. Section 6.11. Further Assurances. The City will make, execute and deliver any and all such further agreements, 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. -25- ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default: (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise. (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable. (c) Failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in this Agreement or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Fiscal Agent or the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 60 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The City shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02. Foreclosure. If any Event of Default shall occur under Section 7.01 then, and in each and every such case during the continuance of such Event of Default, the Fiscal Agent may, or at the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall, commence foreclosure against any parcels of land in the District with delinquent Special Taxes, as provided in Section 713 of the Act. Section 7.03. Other Remedies. If an event of Default shall have occurred under Section 7.01, the Fiscal Agent shall have the right: (a) by mandamus, suit, action or proceeding, to compel the City and its officers, agents or employees to perform each and every term, provision and covenant contained in this Agreement and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by this Agreement and the Act; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Fiscal Agent's or Bond Owners' rights; or (c) by suit, action or proceeding in any court of competent jurisdiction, to require the City and its officers and employees to account as if it and they were the trustees of an express trust. Section 7.04. Application of Special Tax Revenues After Default. If an Event of Default shall occur and be continuing, all Special Tax Revenues and any other funds thereafter -26- V received by the Fiscal Agent under any of the provisions of this Agreement shall be applied by the Fiscal Agent as follows and in the following order: (a) To the payment of any expenses necessary in the opinion of the Fiscal Agent to protect the interests of the Owners of the Bonds and payment of reasonable fees, charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Agreement; (b) To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of this Agreement, as follows: First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference. (c) Any remaining funds shall be transferred by the Fiscal Agent to the Bond Fund. Section 7.05. Fiscal Agent to Represent Bond Owners. The Fiscal Agent is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Fiscal Agent) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to the Owners under the provisions of the Bonds, this Agreement, the Act and applicable provisions of any other law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Fiscal Agent to represent the Bond Owners, the Fiscal Agent in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Fiscal Agent and such Owners under the Bonds, this Agreement, the Act or any other law. All rights of action under this Agreement or the Bonds or otherwise may be prosecuted and enforced by the Fiscal Agent without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Fiscal Agent shall be brought in the name of the Fiscal Agent for the benefit and protection of the Owners of such Bonds, subject to the provisions of this Agreement. -27- Section 7.06. Bond Owners' Direction of Proceedings. Anything in this Agreement to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Fiscal Agent, and upon indemnification of the Fiscal Agent to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Fiscal Agent hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Agreement, and that the Fiscal Agent shall have the right to decline to follow any such direction which in the opinion of the Fiscal Agent would be unjustly prejudicial to Bond Owners not parties to such direction. Section 7.07. Limitation on Bond Owners' Right to Sue. No Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Agreement, the Act or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Fiscal Agent written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, shall have made written request upon the Fiscal Agent to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Fiscal Agent indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Fiscal Agent shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Fiscal Agent. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Agreement or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, this Agreement, the Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Agreement. Section 7.08. Absolute Obligation of City. Nothing in Section 7.07 or in any other provision of this Agreement or in the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Special Tax Revenues and other assets herein pledged therefor and received by the City or the Fiscal Agent, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Section 7.09. Termination of Proceedings. In case any proceedings taken by the Fiscal Agent or any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Fiscal Agent or the Bond Owners, then in every such case the City, the Fiscal Agent and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the City, the Fiscal Agent and the Bond Owners shall continue as though no such proceedings had been taken. -28- Section 7.10. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Fiscal Agent or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.11. No Waiver of Default. No delay or omission of the Fiscal Agent or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of 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 given by this Agreement to the Fiscal Agent or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient. -29- ARTICLE VIII FISCAL AGENT Section 8.01. Duties and Liabilities of Fiscal Agent. (a) Duties of Fiscal Agent Generally. The Fiscal Agent shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Agreement. The Fiscal Agent shall, during the existence of any Event of Default which has not been cured, exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Removal of Fiscal Agent. The City may upon 30 days' prior written notice remove the Fiscal Agent at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Fiscal Agent if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Fiscal Agent shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Fiscal Agent or its property shall be appointed, or any public officer shall take control or charge of the Fiscal Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Fiscal Agent and thereupon shall appoint a successor Fiscal Agent by an instrument in writing. (c) Resignation. of Fiscal Agent. The Fiscal Agent may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the City, and to the Bond Owners notice of such resignation at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing. The Fiscal Agent shall not be relieved of its duties until such successor Fiscal Agent has accepted appointment. (d) Appointment of Successor Fiscal Agent. Any removal or resignation of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent; provided, however, that under any circumstances the successor Fiscal Agent shall be qualified as provided in subsection (e) of this Section. If no qualified successor Fiscal Agent shall have been appointed and have accepted appointment within 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Fiscal Agent or any Bond Owner (on behalf of himself and all other Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Fiscal Agent, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Fiscal Agent. Any successor Fiscal Agent appointed under this Agreement shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Fiscal Agent a written acceptance thereof, and to the predecessor Fiscal Agent an instrument indemnifying the predecessor Fiscal Agent for any costs or claims arising during the time the successor Fiscal Agent serves as Fiscal Agent hereunder, and after payment by the City of all unpaid fees and expenses of the predecessor Fiscal Agent, the such successor Fiscal Agent, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Fiscal Agent, with like effect as if originally named Fiscal Agent herein; but, nevertheless at the Written Request of the City or the request of the successor Fiscal Agent, such predecessor Fiscal Agent shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such -30- successor Fiscal Agent all the right, title and interest of such predecessor Fiscal Agent in and to any property held by it under this Agreement and shall pay over, transfer, assign and deliver to the successor Fiscal Agent any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Fiscal Agent, the City shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Fiscal Agent all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Fiscal Agent as provided in this subsection, the City shall mail or cause the successor Fiscal Agent to mail, by first class mail postage prepaid, a notice of the succession of such Fiscal Agent to the trusts hereunder to each rating agency which then maintains a rating on the Bonds and to the Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within 15 days after acceptance of appointment by the successor Fiscal Agent, the successor Fiscal Agent shall cause such notice to be mailed at the expense of the City. (e) Qualifications of Fiscal Agent. The Fiscal Agent shall be a trust company or bank having the powers of a trust company, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state agency. 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 agency above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Fiscal Agent shall cease to be eligible in accordance with the provisions of this subsection (e), the Fiscal Agent shall resign immediately in the manner and with the effect specified in this Section. Section 8.02. Merger or Consolidation. 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 subsection (e) of Section 8.01 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 8.03. Liability of Fiscal Agent. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the City, and the Fiscal Agent shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Agreement or of the Bonds or shall incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Fiscal Agent makes no representations as to the validity or sufficiency of the Agreement or of any Bonds, or in respect of the security afforded by the Agreement and the Fiscal Agent shall incur no responsibility in respect thereof. The Fiscal Agent shall be under no responsibility or duty with respect to: (i) the issuance of the Bonds for value, (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Fiscal Agent, or (iii) the application of any moneys paid to the City or others in accordance with the Agreement except as the application of any moneys paid to it in its capacity as Fiscal Agent. 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 not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Agreement. The Fiscal Agent may become the Owner of Bonds with the same rights it would have if it were not Fiscal Agent, and, -31- to the extent permitted by law, may act as 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 Bond Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (b) The Fiscal Agent shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. (c) 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 exercising any trust or power conferred upon the Fiscal Agent under this Agreement. Section 8.04. Right to Rely on Documents. The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document 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 of or to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith; provided, however, the Fiscal Agent shall in no event delay any payment with respect to the Bonds in anticipation of any such opinion. Whenever in the administration of the trusts imposed upon it by 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 be deemed to be conclusively proved and established by a Written Certificate of the City, and such Written Certificate shall be full warrant to the Fiscal Agent for any action taken or suffered in good faith under the provisions of this Agreement in reliance upon such Written Certificate, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 8.05. Preservation and Inspection of Documents. All documents received by the Fiscal Agent under the provisions of this Agreement shall be retained in its possession and shall be subject during business hours and upon 24 hours' notice to the inspection of the City, the Owners and their agents and representatives duly authorized in writing. Section 8.06. Compensation and Indemnification. Subject to the provisions of Section 11.0 1, the City shall pay to the Fiscal Agent from time to time all reasonable compensation for all services rendered under this Agreement, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Agreement. Subject to the provisions of Section 11.01, the City further agrees, to the extent permitted by law, to indemnify and save the Fiscal Agent harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Fiscal Agent shall survive the termination and discharge of this Agreement. -32- ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted. (a) This Agreement and the rights and obligations of the City, the Owners of the Bonds and the Fiscal Agent may be modified or amended from time to time and at any time by a Supplemental Agreement, which the City and the Fiscal Agent may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Fiscal Agent. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Special Tax Revenues and other assets pledged under this Agreement prior to or on a parity with the lien created by this Agreement or deprive the Owners of the Bonds of the lien created by this Agreement on such Special Tax Revenues and other assets (except as expressly provided in this Agreement), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Agreement, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Fiscal Agent of any Supplemental Agreement pursuant to this subsection (a), the Fiscal Agent shall mail a notice (the form of which shall be furnished to the Fiscal Agent by the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Agreement, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Agreement. This Agreement and the rights and obligations of the City, of the Fiscal Agent and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Agreement, which the City and the Fiscal Agent may enter into without the consent of any Bond Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the City in this Agreement contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Agreement; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III; (iv) 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; -33- (v) to modify, amend or supplement this Agreement in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the City and the Fiscal Agent. Section 9.02. Effect of Supplemental Agreement. Upon the execution of any Supplemental Agreement pursuant to this Article, this Agreement 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 Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and all purposes. Section 9.03. Endorsement of Bonds. Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Agreement pursuant to this Article may, and if the City so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Fiscal Agent as to any modification or amendment provided for in such Supplemental Agreement, and, in that case, upon demand of the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Fiscal Agent a suitable notation shall be made on such Bonds. If the Supplemental Agreement shall so provide, new Bonds so modified as to conform, in the opinion of the City and the Fiscal Agent, to any modification or amendment contained in such Supplemental Agreement, shall be prepared and executed by the City and authenticated by the Fiscal Agent, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Fiscal Agent, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same interest rate and maturity. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. -34- ARTICLE X DEFEASANCE Section 10.01. Discharge of Agreement. The Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable hereunder by the City: (a) by paying or causing to be paid the principal of and interest and premium (if any) on the Bonds, as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust (pursuant to an escrow agreement), at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem all Bonds then Outstanding; or (c) by delivering to the Fiscal Agent, for cancellation by it, all of the Bonds then Outstanding. If the City shall also pay or cause to be paid all other sums payable hereunder by the City, including without limitation any compensation due and owing the Fiscal Agent hereunder, then and in that case, at the election of the City (evidenced by a Written Certificate of the City, filed with the Fiscal Agent, signifying the intention of the City to discharge all such indebtedness and this Agreement), and notwithstanding that any Bonds shall not have been surrendered for payment, this Agreement and the pledge of Special Tax Revenues and other assets made under this Agreement and all covenants, agreements and other obligations of the City under this Agreement shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, and upon receipt of a Written Certificate of an Authorized Representative of the City and an opinion of Bond Counsel acceptable to the Fiscal Agent, each to the effect that all conditions precedent herein provided for relating to the discharge and satisfaction of the obligations of the City have been satisfied, the Fiscal Agent shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to this Agreement, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the City. Section 10.02. Discharge of Liability on Bonds. Upon the deposit with the Fiscal Agent, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any or all Outstanding Bonds (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 maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then all liability of the City in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Fiscal Agent as aforesaid for their payment, subject, however, to the provisions of Section 10.04. The City may at any time surrender to the Fiscal Agent for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 10.03. Deposit of Money or Securities with Fiscal Agent. Whenever in this Agreement it is provided or permitted that there be deposited with or held in trust by the Fiscal -35- Agent money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Fiscal Agent in the funds and accounts established pursuant to this Agreement and shall be -- (a) Lawful money of the United States of America, in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) Non -callable Federal Securities described in clause (a) of the definition thereof, the principal of and interest on which when due, in the opinion or report of an independent accountant selected by the City, will provide money sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice; provided, in each case, that the Fiscal Agent shall have been irrevocably instructed (by the terms of this Agreement or by Written Request of the City) to apply such funds to the payment of such principal and interest with respect to such Bonds. Section 10.04. Payment of Bonds After Discharge of Agreement. Notwithstanding any provisions of this Agreement, any moneys held by the Fiscal Agent in trust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys, shall be repaid to the City free from the trusts created by this Agreement, and all liability of the Fiscal Agent with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Fiscal Agent may (at the cost of the City) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Fiscal Agent with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. -36- i ARTICLE XI MISCELLANEOUS Section 11.01. Limited Obligation. All obligations of the City under this Agreement and the Bonds shall be special obligations of the City, payable solely from the Special Tax Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth herein) or of the State of California or any political subdivision thereof is pledged to the payment of the Bonds. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in this Agreement either the City or the Fiscal Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the City or the Fiscal Agent shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights to Parties and Bond Owners. Nothing in this Agreement or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Fiscal Agent, the City and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Agreement or any covenant, condition or provision therein or herein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Fiscal Agent, the City and the Owners of the Bonds. Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in this Agreement the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the Person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Agreement any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of Bonds. Whenever in this Agreement provision is made for the cancellation by the Fiscal Agent and the delivery to the City of any Bonds, the Fiscal Agent may, upon the Written Request of the City, in lieu of such cancellation and delivery, destroy such Bonds (in the presence of an officer of the City, if the City shall so require) as may be allowed by law, and deliver a certificate of such destruction to the City. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Agreement or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Agreement and such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The City hereby declares that it would have entered into this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 11.07. Notices. All notices or communications herein required or permitted to be given to the City or the Fiscal Agent shall be in writing and shall be deemed to have been -37- sufficiently given or served for all purposes by being delivered or sent by telecopy or by being deposited, postage prepaid, in a post office letter box, addressed as follows: If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: Finance Director If to the Fiscal Agent: Attention: Section 11.08. Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by this Agreement to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery, shall be sufficient for any purpose of this Agreement and shall be conclusive in favor of the Fiscal Agent and the City if made in the manner provided in this Section. The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Fiscal Agent or the City in accordance therewith or reliance thereon. Section 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Agreement, Bonds which are known by the Fiscal Agent to be owned or held by or for the account of the City, or by any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Fiscal Agent the pledgee's right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Fiscal Agent taken upon the advice of counsel shall be full protection to the Fiscal Agent. Section 11.10. Money Held for Particular Bonds. The money held by the Fiscal Agent for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such -38- I � \ date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.04 but without any liability for interest thereon. j Section 11.11. Funds and Accounts. Any fund or account required by this Agreement to be established and maintained by the Fiscal Agent may be established and maintained in the accounting records of the Fiscal Agent, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with industry standards to the extent practicable, and with due regard for the requirements of Section 6.07 and for the protection of the security of the Bonds and the rights of every Owner thereof. Section 11.12. Payment on Non -Business Days. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non -Business Day. Section 11.13. Waiver of Personal Liability. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of or premium or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such officer, agent or employee from the performance of any official duty provided by law or by this Agreement. Section 11.14. Conflict with Act. In the event of any conflict between any provision of this Agreement and any provision of the Act, the provision of the Act shall prevail over the provision of this Agreement. Section 11.15. Conclusive Evidence of Regularity. Bonds issued pursuant to this Agreement shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.16. Execution in Several Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 11.17. Governing Laws. This Agreement shall be governed by and construed in accordance with the laws of the State of California. -39- IN WITNESS WHEREOF, the City has caused this Agreement to be signed in its name by its officer thereunto duly authorized, and the Fiscal Agent, in token of its acceptance of the trusts created hereunder, has caused this Agreement to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. CITY OF NEWPORT BEACH, for and on behalf of the CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent LE .N No. EXHIBIT A FORM OF BOND CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BOND, SERIES A INTEREST RATE MATURITY DATE DATED DATE REGISTERED OWNER: PRINCIPAL AMOUNT: The City of Newport Beach, County of Orange, State of California (the "City"), for and on behalf of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) (the "District"), for value received, hereby promises to pay, solely from the Special Tax (as hereinafter defined) collected in the District or amounts in certain funds and accounts held under the Agreement (as hereinafter defined), to the Registered Owner identified above or registered assigns (the "Registered Owner"), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof payable semiannually on March 1 and September 1 in each year, commencing March 1, 1996, (the "Interest Payment Dates") until payment of such Principal Amount in full. This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to February 15, 1996, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or made available for payment). The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the principal corporate trust office (the "Trust Office") of U.S. Trust Company of California, N.A., as fiscal agent (the "Fiscal Agent"), in Los Angeles, California. Interest hereon is payable by check of the Fiscal Agent mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the Registration Books of the Fiscal Agent as of the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date. This Bond is one of the first series of a duly authorized issue of bonds in the aggregate principal amount of $____ approved by the qualified electors of the District on , 1995, pursuant to the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code (the "Act"), for the purpose of financing the construction and acquisition of certain public facilities within and in the vicinity of the District (the "Project"), and is one of the series of bonds designated "Newport A-1 Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A" (the "Series A Bonds") in the aggregate principal amount of $ . The creation of the Series A Bonds and the terms and conditions thereof are provided for by a resolution adopted by the City Council of the City on , 1995 (the "Resolution"), and the Fiscal Agent Agreement, dated as of 1, 1995 (the "Agreement"), between the City and the Fiscal Agent, and this reference incorporates the Resolution and the Agreement herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Resolution and in the Agreement, additional bonds ("Additional Bonds") may be issued by the City not to exceed the aggregate principal amount of $ secured by a lien on a parity with the lien securing the Series A Bonds. The Series A Bonds and any Additional Bonds are collectively referred to as the `Bonds". The Resolution is adopted and the Agreement is entered into under and this Bond is issued under, and all are to be construed in accordance with, the Act and the laws of the State of California. Pursuant to the Act, the Agreement and the Resolution, the principal of and interest on the Bonds are payable solely from the annual special tax authorized under the Act to be collected within the District (the "Special Tax") and certain funds held under the Agreement. This Bond shall not be entitled to any benefit under the Act, the Resolution or the Agreement, or become valid or obligatory for any purpose, until the certificate of authentication hereon shall have been dated and signed by the Fiscal Agent. IN WITNESS WHEREOF, said City has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of its Mayor and City Clerk, and has caused its corporate seal to be reproduced in facsimile hereon all as of the Dated Date identified above. (SEAL) Attest: LM City Clerk A-2 CITY OF NEWPORT BEACH LM Mayor i (FORM OF REVERSE OF BOND) The Series A Bonds shall be subject to optional redemption, in whole or in part, by lot, on any Interest Payment Date on or after September 1, 2005, from any source of available funds other than prepayment of Special Taxes, at the following respective redemption prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 2005 and March 1, 2006 102% September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The Series A Bonds shall be subject to mandatory redemption, in whole or in part, by lot, on any Interest Payment Date, from and to the extent of any prepayments of Special Taxes as more particularly set forth in the Agreement, at the following respective redemption prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption. Redemption Dates Redemption Price March 1, 1996 through March 1, 2005 103% September 1, 2005 and March 1, 2006 102 September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The Series A Bonds maturing September 1, shall be subject to mandatory sinking fund redemption, in part, by lot, on September 1 in each year, commencing September 1, , at a redemption price equal to the principal amount of the Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Agreement. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective owners of any Series A Bonds designated for redemption, at their respective addresses appearing on the Registration Books maintained by the Fiscal Agent, at least 30 but not more than 60 days prior to the redemption date; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series A Bonds or the cessation of the accrual of interest thereon. The redemption price of the Series A Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Trust Office of the Fiscal Agent. From and after the date fixed for redemption of any Series A Bonds, interest on such Series A Bonds will cease to accrue. The Series A Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 or any integral multiple thereof. Subject to the limitations and upon payment of the charges, if any, provided in the Agreement, fully registered Series A Bonds may be exchanged at the Trust Office of the Fiscal Agent for a like aggregate principal amount and maturity of fully registered Series A Bonds of other authorized denominations. A-3 This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office of the Fiscal Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Agreement, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series A Bond or Series A Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The City and the Fiscal Agent may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Fiscal Agent shall not be affected by any notice to the contrary. The Agreement and the rights and obligations of the City and of the owners of the Bonds and of the Fiscal Agent may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Agreement; provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or the amount of principal thereof without the express written consent of the owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) permit the creation of any lien on the Special Taxes and other assets pledged under the Agreement, or deprive the Bonds owners of the lien created under the Agreement on the Special Taxes and such other assets, without the consent of the owners of all outstanding Bonds. All obligations of the City under the Agreement and the Bonds shall be special obligations of the City, payable solely from Special Tax Revenues (as defined in the Agreement) and the other assets pledged therefor thereunder. Neither the faith and credit not the taxing power of the City (except to the limited extent set forth herein and in the Agreement) or of the State of California or any political subdivision thereof is pledged to the payment of the Bonds. [FORM OF FISCAL AGENT'S CERTIFICATE OF AUTHENTICATION] This is one of the Series A Bonds described in the within -mentioned Agreement and registered on the Registration Books. Date: A-5 U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent By Authorized Signatory ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto _ whose address and social security or other tax identifying number is _ _, the within -mentioned Bond and hereby irrevocably constitute(s) and appoint(s) _ attorney, to transfer the same on the registration books of the Fiscal Agent with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible Note: The signature(s) on this Assignment must guarantor. 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. A-6 EXHIBIT B CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) WRITTEN REQUEST NO. REQUESTING DISBURSEMENT FROM ADMINISTRATIVE EXPENSE ACCOUNT The undersigned hereby states and certifies that: (i) I am the duly appointed, qualified and acting of the City of Newport Beach, a charter city and municipal corporation (the "City") and as such am familiar with the facts herein certified and am authorized to certify the same; (ii) I am an Authorized Representative, as such term is defined in that certain Fiscal Agent Agreement, dated as of , 1995 (the "Fiscal Agent Agreement"), by and between the City and , as fiscal agent (the "Fiscal Agent"); (iii) pursuant to Section 5.06 of the Fiscal Agent Agreement, the undersigned hereby requests and authorizes the Fiscal Agent to disburse from the Administrative Expense Account established under the Fiscal Agent Agreement to the payee(s) designated on Schedule A attached hereto and by this reference incorporated herein, the amount (s) set forth opposite such payee, for payment or reimbursement of previous payment of the administrative expense for the above Special Improvement District; (iv) no portion of the amount(s) now being requested to be disbursed was set forth in any Written Request requesting disbursement previously filed with you. Dated: CITY OF NEWPORT BEACH LOW Authorized Representative SCHEDULE A Payee Name and Address Purpose of Obligation Amount Second Draft November 3, 1995 CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS, SERIES A PURCHASE CONTRACT Dated '1995 City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92663 Ladies and Gentlemen: The undersigned, Stone & Youngberg, as underwriter (the "Underwriter"), offers to enter into this Purchase Contract (the "Purchase Contract") with the City of Newport Beach (the "City") which, upon acceptance by the City, will be binding upon the City and the Underwriter. This offer is made subject to the City's acceptance on the date hereof, and if not so accepted will be subject to withdrawal by the Underwriter upon written notice delivered to the City at any time prior to the acceptance hereof by the City. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Fiscal Agent Agreement (defined below). 1. Purchase Sale and Delivery of the Bonds. (a) Subject to the terms and conditions, and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase from the City, for and on behalf of its Special Improvement District No. 95-1 (CIOSA) (the "District"), and the City, for and on behalf of the District, hereby agrees to sell to the Underwriter, all (but not less than all) of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Bonds"), dated , 1995, in the aggregate principal amount of $ , bearing interest (payable commencing March 1, 1996, and semiannually thereafter on September 1 and March 1 in each year) at the rates of interest, and maturing on the dates and in the amounts, as set forth in Exhibit A attached hereto and incorporated herein by this reference. The purchase price for the Bonds shall be $ (representing the principal amount of the Bonds, less an underwriter's discount of $ ), plus accrued interest, if any, from , 1995, to the Closing Date (as hereinafter defined). The Bonds shall be as described in, shall be issued and secured under the provisions of and shall be payable and subject to redemption as provided in the Fiscal Agent Agreement pertaining thereto (the "Fiscal Agent Agreement"), dated as of November 1, 1995, by and between the City and U.S. Trust Company of California, N.A., as Fiscal Agent (the Fiscal Agent"), which Fiscal Agent Agreement was approved b resolution adopted b the Cit Council of the Cit (the "Cit Council" on S Pl? Y P Y Y Y( Y ) November 13, 1995. The Bonds, and interest thereon, will be payable from (1) the proceeds of a special tax (the "Special Tax") levied and collected in accordance with the City of Newport Beach Special Improvement District Financing Code (the "Act"), the Fiscal Agent Agreement, and the Amended and Restated Rate and Method of Apportionment of Special Tax (the "Rate and Method") for the District, and SF2-50271.2 40484-28-SS4-11/04/95 (2) certain other moneys to be received, held and administered by the Fiscal Agent pursuant to the Fiscal Agent Agreement. Proceeds of the sale of the Bonds will be used (1) to pay the costs of the facilities described in Resolution No. 95-74, entitled "A Resolution of the City Council of the City of Newport Beach of Formation of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA), Authorizing the Levy of a Special Tax Within the District and Preliminarily Establishing an Appropriations Limit for the District", adopted by the City Council on June 12, 1995 (the "Resolution of Formation"), (2) to fund the Reserve Fund in the amount of the Reserve Requirement, (3) to fund the authorized capitalized interest, and (4) to pay the Costs of Issuance of the Bonds, all in accordance with and as prescribed by the Fiscal Agent Agreement and the Act. (b) The Preliminary Official Statement, dated November 13, 1995 relating to the Bonds, together with the cover page and all appendices thereto, is herein called the "Preliminary Official Statement." The City hereby ratifies the use by the Underwriter of the Preliminary Official Statement and authorizes the Underwriter to use and distribute the Preliminary Official Statement, the Official Statement (as defined below), the Fiscal Agent Agreement, the Resolutions (as hereinafter defined) and this Purchase Contract, and all information contained therein, in connection with the offer and sale of the Bonds by the Underwriter. The term "Official Statement" shall mean the Preliminary Official Statement, as modified with the prior approval of the Underwriter and the City, for use by the Underwriter in connection with the sale of the Bonds. (c) Subject to preparation of the Official Statement with the assistance of the Underwriter, the City shall deliver or cause to be delivered to the Underwriter promptly after acceptance hereof copies of the Official Statement. The City shall deliver no less than 300 copies of the Official Statement to the Underwriter, and such other amount of copies of the Official Statement as are requested by the Underwriter in order to comply with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12"). The City shall deliver these copies to the Underwriter within seven (7) business days after the execution of this Purchase Contract. (d) At 8:00 o'clock A.M., Pacific Standard Time, on _, 1995, or at such other time or date as shall be agreed upon by the Underwriter and the City (such time and date being herein referred to as the "Closing Date"), the City, on behalf of the District, will deliver to the Underwriter, at a location or locations to be designated by the Underwriter, the Bonds in book -entry form (all Bonds being printed or typed and having had the CUSIP numbers assigned to them thereon), duly executed by the officers of the City, on behalf of the District, as provided in the Fiscal Agent Agreement, and the other documents herein mentioned; and the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in paragraph (a) of this section in immediately available funds (such delivery and payment being herein referred to as the "Closing"). The Bonds shall be made available to the Underwriter, or its designee, not later than two business days before the Closing Date for purposes of inspection. Upon initial issuance, the ownership of such Bonds shall be registered in the registration books kept by the Fiscal Agent in the name of Cede & Co., as the nominee of The Depository Trust Company. 2. Representations, Warranties and Agreements of the Citv. The City hereby represents and warrants to and agrees with the Underwriter that: (a) The City is a charter city and municipal corporation, organized and existing under and by virtue of the Constitution and the laws of the State of California; (b) The City Council has duly authorized the formation of the District pursuant to the Resolution of Formation (as used herein, the Resolution of Formation and all other resolutions SF2--'M71.2 2 4041&4-28-ss4-11/04195 1 heretofore adopted by the City Council in connection with the formation of the District and the authorization and levy of the Special Tax are referred to collectively as the "Resolutions"); (c) The District is duly organized and validly existing as a special improvement district under the Act and the other laws of the State of California referred to in the Act; (d) The City has, and at the Closing Date will have, full legal right, power and authority (i) to execute, deliver and perform its obligations under this Purchase Contract and to carry out all other transactions on its part contemplated hereby, (ii) to issue, sell and deliver the Bonds to the Underwriter pursuant to the Fiscal Agent Agreement as provided herein, and (iii) to carry out, give effect to and consummate the transactions on its part contemplated by the Resolutions, the Fiscal Agent Agreement and this Purchase Contract; (e) The City is, and at the Closing Date will be, in compliance, in all respects, with its obligations under the Fiscal Agent Agreement, the Resolutions, the Act and this Purchase Contract; (f) The City Council has duly adopted the Resolutions and has duly authorized and approved the delivery and use of the Preliminary Official Statement, the execution, delivery and use of the Official Statement, the execution and delivery of the Bonds, this Purchase Contract, the Fiscal Agent Agreement and the performance by the City of its obligations contained therein, and the taking of any and all action on its part as may be necessary to carry out, give effect to and consummate the transactions on the part of the City contemplated by each of said documents, and at the Closing Date, the Fiscal Agent Agreement, and this Purchase Contract (assuming due authorization, execution and delivery by the other parties thereto, where necessary) will constitute the valid, legal and binding obligations of the City, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (g) The City is not in breach of or in default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either 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, the Fiscal Agent Agreement or this Purchase Contract; (h) The adoption by the City Council of the Resolutions, and the execution and delivery by the City of the Bonds, the Fiscal Agent Agreement and this Purchase Contract, and compliance by the City with the provisions hereof and thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either 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, the Fiscal Agent Agreement and this Purchase Contract; (i) All approvals, consents, authorizations, elections and orders of or filings or registrations with any 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 SF2-50271.2 3 40494-29-SS4-11/04195 performance by the City of its obligations hereunder, or under the Fiscal Agent Agreement or the Bonds, have been obtained and are in full force and effect; provided that no representation is made as to any necessary "blue sky" filings; 0) The descriptions of the Bonds, the Fiscal Agent Agreement and the Resolutions contained in the Official Statement are accurate, and when delivered to and paid for by the Underwriter on the Closing Date as provided herein, the Bonds will be validly issued and outstanding and entitled to all the benefits of the Fiscal Agent Agreement and the Resolutions; (k) The City has deemed the Preliminary Official Statement to be near final as of the date of the Preliminary Official Statement, as required by Rule 15c2-12. As of the date thereof and at all times up to the Closing Date, the information contained in the Preliminary Official Statement is true and correct in all material respects and does 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; (1) The information with respect to the City and the District contained in the Official Statement will be, as of the date that it is first made available and continuing through the Closing Date, true and correct in all material respects and will not, as of any of such dates, 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; (m) If between the date of this Purchase Contract and the End Date an event occurs, of which the City has knowledge, which might or would cause the information relating to the City, the District or the City's functions, duties and responsibilities described in the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading, the City will notify the Underwriter, and if, in the opinion of the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will cooperate with the Underwriter in the preparation of an amendment or supplement to the Official Statement in a form and in a manner approved by the Underwriter, provided all expenses thereby incurred for such preparation will be paid for by the City; (n) 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 officers of the City executing this Purchase Contract, is threatened, in any way affecting the existence of the City or the District or the titles of the City's officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Fiscal Agent Agreement, or the collection or application of the Special Tax or the proceeds thereof pledged or to be pledged 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, this Purchase Contract or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or the powers of the City or its authority with respect to the Bonds, the Fiscal Agent Agreement, the Resolutions, this Purchase Contract or any action of the City contemplated by any of said documents that would have a material adverse effect, or which would adversely affect the exemption of interest paid on the Bonds from federal income taxation or California personal income taxation; (o) 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 sF2-50271.2 4 40484-28-ss4-11/04/95 the Underwriter to qualify the Bonds for offer and sale under the blue sky'or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; provided, however, the City shall not be required to register as a dealer or a broker of securities or , consent to service of process or register as a foreign corporation in any such state or jurisdiction; (p) Any certificate signed by any authorized official of the City authorized to do so and delivered by the City to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the statements made therein; (q) The City has received permission from Gary L. Vogt and Associates (the "Appraiser") to quote from, distribute and otherwise utilize in connection with the production and distribution of the Preliminary Official Statement and the Official Statement, the appraisal report of the Appraiser dated September 20, 1995 (the Appraisal Report) and to include a copy of the Appraisal Summary Letter, dated September 22, 1995, including the three-page statement of Assumptions and Limiting Conditions attached thereto, as an appendix to the Preliminary Official Statement and the Official Statement; (r) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon; (s) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Fiscal Agent Agreement or which would cause the interest on the Bonds to be includable in gross income for federal income tax purposes; and (t) The City will undertake, pursuant to the Fiscal Agent Agreement and a Continuing Disclosure Certificate, to provide annual financial reports and notices of certain events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement, which description may take the form of the full text of the Continuing Disclosure Certificate. 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 warranties 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 and other persons and entities 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 (any of which may be waived by the Underwriter): (a) At the Closing Date, the Resolutions and the Fiscal Agent Agreement shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, ` with the issuance of the Bonds and with the transactions contemplated thereby and by this Purchase Contract, all such actions as, in the opinion of Jones Hall Hill & White, A Professional Law 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 shall not have been materially adversely affected, in the sF2-5ozn.2 5 Q484-28-ss4-11IW95 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 shall have been enacted by the United States or the State of California or shall have been reported out of committee or be pending in committee, or a decision shall have been rendered by a court of the United States or the Tax Court of the United States, or a ruling shall have been made or a regulation or a temporary regulation shall have been proposed or made or any other release or announcement shall have been made by the Treasury Department of the United States or the Internal Revenue Service, with respect to Federal or California taxation upon interest received on obligations of the general character of the Bonds, which in the reasonable opinion of the Underwriter materially adversely affects the market for the Bonds; (2) the occurrence of any outbreak of hostilities or other national or international calamity or crisis, or the escalation of an existing national or international calamity or crisis, the effect of such outbreak, calamity or crises on the financial markets of the United States being such as would make it impracticable, in the reasonable opinion of the Underwriter, for the Underwriter to sell the Bonds; (3) a general suspension of trading on the New York Stock Exchange or other 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 any other exchange, whether by virtue of a determination by the New York Stock Exchange or such other exchange or by orders of the Securities and Exchange Commission or any other governmental authority; (4) declaration of a general banking moratorium shall have been declared by either Federal, California or New York authorities having jurisdiction and be in force; (5) establishment of any new restrictions on securities materially affecting the free market for securities (including the imposition of any limitations on interest rates) or the charge to the net capital requirements of the Underwriter established by the New York Stock Exchange, the Securities and Exchange Commission, any other Federal or state agency or the Congress of the United States, or by Executive Order; (6) legislation 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, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Fiscal Agent Agreement is not exempt from qualification under 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, is or would be in violation of the Federal securities laws as amended and then in effect; (7) any amendment to the federal or California Constitution or action by any federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the City, its property, income or securities (or interest thereon), the validity or enforceability of the Special Tax or the ability of the City, to issue the Bonds and levy the Special Tax Sn-50271.2 6 4W4-28-ss4-11/04/95 i as contemplated by the Fiscal Agent Agreement, the Amended and Restated Rate and Method of Apportionment of Special Tax, and the Official Statement; (8) any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Preliminary Official Statement or the Official Statement, or results in the Preliminary Official Statement or 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 the light of the circumstances under which they were made, not misleading; or (9) the entry of an order by a court of competent jurisdiction which enjoins or restrains the City from issuing permits, licenses or entitlements within the District or which order, in the reasonable opinion of the Underwriter, otherwise materially and adversely affects the proposed development within the District; (c) On or prior to 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) One counterpart original or copy certified by a duly authorized officer of the City of a complete transcript of all proceedings of the City relating to the formation and establishment of the District, the recording in the official records of the Orange County Recorder of the Notice of Special Tax Lien, First Amendment to Notice of Special Tax Lien, and Second Amendment to Notice of Special Tax Lien, the levy of the Special Tax as provided in the ordinance pertaining to such levy, the approval of this Purchase Contract, the Preliminary Official Statement and the Official Statement and the authorization, issuance, sale and delivery of the Bonds, together with a certificate dated as of the Closing Date of a duly authorized officer of the City to the effect that each Resolution is a true, correct and complete copy of the one duly adopted by the City Council and that none have been amended, modified or rescinded since adoption (except as reflected in said transcript or as may have been agreed to in writing by the Underwriter) and is in full force and effect as of the Closing Date; (2) An executed copy of the Fiscal Agent Agreement; (3) An approving opinion, dated the Closing Date and addressed to the City, of Jones Hall Hill & White, A Professional Law Corporation, Bond Counsel for the City, in form and substance as attached as Appendix C to the Official Statement; (4) A supplemental opinion, dated the Closing Date and addressed to the Underwriter, of Jones Hall Hill and White, A Professional Law Corporation, Bond Counsel for the City, in substantially the form attached hereto as Exhibit B; (5) An opinion, dated the Closing Date and addressed to the Underwriter, of the City Attorney, in form and substance acceptable to the Underwriter to the effect that: (i) the City is a charter city and municipal corporation, duly organized and validly existing under and by virtue of the Constitution and the Constitution and laws of the State of California; (ii) the City has duly and validly adopted the Resolutions, and the Resolutions are now in full force and effect; SF2-50271.2 7 40484-28-ss4-11/04/95 (iii) 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 City Attorney threatened in any way affecting the existence of the City or the District or the titles of the City's officials to their respective offices, or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds or the application of the proceeds thereof in accordance with the Fiscal Agent Agreement, or the collection or application of the Special Tax 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, this Purchase Contract or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of the Official Statement or the powers of the City or its authority with respect to the Bonds, the Fiscal Agent Agreement, the Resolutions, this Purchase Contract or any action on the part of the City contemplated by any of said documents, wherein an unfavorable decision, ruling, or finding could materially adversely affect the validity or enforceability of the Bonds, the Fiscal Agent Agreement or this Purchase Contract; (iv) the City is not in breach of or in default under any applicable law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality of either 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, the Resolutions, the Fiscal Agent Agreement or this Purchase Contract as the case may be; and (v) to the best of such counsel's knowledge, as of the Closing Date, the information contained in the Official Statement under the caption "CONCLUDING INFORMATION - No Litigation" (as such information relates to the City and the District) does 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 made therein, in the light of the circumstances under which they were made, not misleading in any material respect; (5) An opinion of Orrick, Herrington & Sutcliffe, as Underwriter's Counsel, addressed to the Underwriter in form and substance satisfactory to the Underwriter; (6) A certificate, dated the Closing Date and signed by an authorized officer of the City certifying that (i) the representations and warranties of the City contained herein 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; and (ii) the City has complied with all the agreements and has satisfied all the conditions on its part to be performed or satisfied under this Purchase Contract or the Fiscal Agent Agreement at and prior to the Closing; (7) A certificate dated the Closing Date from Government Finance Group (the "Tax Consultant") to the effect that (i) it is of the opinion that the Special Tax, when levied and collected in accordance with the terms of the Rate and Method, assuming normal and reasonable delinquency rates, will provide a yearly cash flow at least sufficient to fulfill the obligations of the City under the Fiscal Agent Agreement, including without limitation the timely payment of principal of and interest on the Bonds and (ii) it has reviewed the Preliminary Official Statement and Official Statement and to the best of its knowledge the statements concerning rate and method of apportionment of the Special Tax under the caption " It are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated sF2-50271.2 8 40484-28-SS4-11/04195 therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (8) A certificate dated the Closing Date from the Appraiser to the effect that, (i) in its opinion, the assumptions made in the Appraisal Report are reasonable, (ii) it is not aware of any event or act which has occurred since the date of the Appraisal Report which, in its opinion, would materially and adversely affect the conclusions as to appraised value reached in the Appraisal Report, and (iii) it has reviewed the Preliminary Official Statement and Official Statement and to the best of its knowledge the statements concerning the Appraisal Report and the value of the property contained under the captions "SECURITY FOR THE BONDS - Appraised Property Values," "THE DISTRICT," "SPECIAL RISK FACTORS - Appraised Value," "APPENDIX F - Appraisal Summary Letter," are true, correct and complete in all material respects and do 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; (9) A certificate from The Irvine Company, as the developer of the Project, in substantially the form attached hereto as Exhibit C; (10) An executed copy of the Continuing Disclosure Certificate of the City, in form and substance as attached as APPENDIX E to the Official Statement, evidencing the City's undertaking to provide certain annual financial information and notices of the occurrence of certain events, if material; and (11) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the statements and information contained in the Official Statement, of the City's representations and warranties contained herein and the due performance or satisfaction by the City at or prior to the Closing Date of all agreements then to be performed and all conditions then to be satisfied by the City and the District in connection with the transactions contemplated on their part hereby and by the Fiscal Agent Agreement and the Official Statement. If any of the conditions to the obligations of the Underwriter contained in this section or elsewhere in this Purchase Contract shall not have been satisfied when and as required herein, all obligations of the Underwriter hereunder may be terminated by the Underwriter at, or at any time prior to, the Closing Date by written notice to the City. 4. Conditions of the Cites Obligation`s. The City's obligations hereunder are subject to the Underwriter's performance of its obligations hereunder, and are also subject to the following conditions (any of which conditions may be waived by the City): (a) As of the Closing Date, no litigation shall be pending or, to the knowledge of the City, 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, the Resolutions, the Fiscal Agent Agreement, this Purchase Contract or the existence or powers of the City; - (b) As of the Closing Date, the City shall receive the approving opinion referred to in subsection (c)(2) of Section 3 hereof, dated as of the Closing Date, and the Underwriter shall receive the opinions referred to in subsections (c)(3) and (c)(4) of Section 3 hereof; SF2-50271.2 9 40494-29-ss4-11/04/95 (c) As of the Closing Date, the market price or marketability of the Bonds shall not have been materially adversely affected, in the reasonable judgment of the City; and 5. Expenses. (a) The Underwriter shall be under no obligation to pay, and the City shall pay or cause to be paid out of the proceeds of the Bonds, all expenses incident to the performance of the City's obligations hereunder, including but not limited to: the cost of photocopying and delivering the Bonds to the Underwriter; the cost of preparing, printing (and/or word processing and reproducing), distributing and delivering the Fiscal Agent Agreement, this Purchase Contract, and the cost of printing, distributing and delivering the Preliminary Official Statement and the Official Statement in such reasonable quantities as requested by the Underwriter; and the fees and disbursements of Bond Counsel and any accountants, tax rate consultants, financial advisors or other engineers or experts or consultants the City has retained in connection with the Bonds. (b) Whether or not the Bonds are delivered to the Underwriter as set forth herein, the City shall be under no obligation to pay, and the Underwriter shall pay, 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 fees payable to the California Debt Advisory Commission, fees payable to the CUSIP Bureau, the fees and disbursements of its counsel and any advertising expenses. 6. Notices. Any notices, requests, directions, instruments or other communications required or permitted to be given hereunder shall be in writing and shall be given when delivered, against a receipt, or mailed certified or registered, postage prepaid, to the City and the Underwriter at their respective addresses below. If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92663 If to the Underwriter: Stone & Youngberg 4350 La Jolla Village Drive, Suite 840 San Diego, CA 92122 provided, however, that all such notices, requests or other communications may be made by telephone and promptly confirmed by writing. The City and the Underwriter may, by notice given as aforesaid, specify a different address for any such notices, requests or other communications. 7. Parties in Interest. This Purchase Contract is made solely for the benefit of the City and the Underwriter (including successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. 8. Survival of Representations and Warranties. The representations and warranties of the City set forth in or made pursuant to this Purchase Contract shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Purchase Contract and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the sF2-50271.2 10 40484-28-ss4-11/04/95 results of such investigations) concerning such representations and warranties of the City and regardless of delivery of and payment for the Bonds. 9. Effective. This Purchase Contract shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance. 10. Applicable Law: Nonassignability. This Purchase Contract shall be governed by the laws of the State of California. This Purchase Contract shall not be assigned. 11. Execution of Counterparts. This Purchase Contract may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same. 12. No Prior Agreements. This Purchase Contract 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. 13. Partial Unenforceabilitv. Any provision of this Purchase Contract which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Purchase Contract or affecting the validity or enforceability of such provision in any other jurisdiction. Very truly yours, STONE & YOUNGBERG Partner ACCEPTED: CITY OF NEWPORT BEACH By: [Name] [Title] M -M71.2 11 40494-29-ss4-11/04/95 EXHIBIT A Maturity Schedule for the Series A Bonds Maturity Principal Interest (September 1) Amount Rate SF2-50271.2 4048428-SS4-11/04/95 EXHIBIT B Form of Supplemental Opinion Ladies and Gentlemen: This opinion supplements our bond opinion, dated the date hereof, relating to the above referenced bonds (the "Bonds"), upon which bond opinion you may rely as though the same were addressed to you. Except as otherwise defined herein, the terms used herein shall have the meanings prescribed for them in the bond opinion. In addition to the documents specifically mentioned in the bond opinion, we have examined the portions of the Official Statement, dated _, 1995 respecting the Bonds (the "Official Statement"), insofar as they relate to this opinion. Based on our examination, we are of the opinion, as of the date hereof and under existing law, as follows: 1. The statements contained in the Official Statement under the captions "INTRODUCTION," THE BONDS," "SECURITY FOR THE BONDS," "THE FISCAL AGENT AGREEMENT," "ISSUANCE OF ADDITIONAL BONDS", "CONCLUDING INFORMATION - Legal Opinions," "CONCLUDING INFORMATION - Tax Matters," "APPENDIX C - Form of Opinion of Bond Counsel," and "APPENDIX D - Summary of Fiscal Agent Agreement," insofar as such statements expressly summarize certain provisions of the Bonds, the Fiscal Agent Agreement, the Resolutions and the Continuing Disclosure Certificate with respect to the Bonds or our opinion regarding exclusion of interest are accurate in all material respects. 2. The Bonds are exempt from registration pursuant to 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. 3. The Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization, execution and delivery by the Underwriter) constitutes a valid and binding agreement of the City enforceable according to its terms, subject to any applicable bankruptcy, reorganization, insolvency, moratorium or other law affecting the enforcement of creditors' rights generally. This opinion is being rendered to you solely for your benefit. SF2-50271.2 4048428-SS4-11/04!95 EXHIBIT C CERTIFICATE OF THE DEVELOPER The Irvine Company, a Michigan corporation, (the "Developer") is the owner as of the date hereof of certain land in the City of Newport Beach (the "City"). Capitalized terms used in this certificate not otherwise defined shall have the meaning set forth in the Purchase Contract dated _, 1995, by and between the City and Stone & Youngberg (the "Underwriter"). I, , as authorized representative of the Developer, do hereby certify on behalf of the Developer to the City, Jones Hall Hill & White, A Professional Corporation ("Bond Counsel"), the Underwriter, and Orrick, Herrington & Sutcliffe ("Underwriter's Counsel") in connection with the issuance and delivery of the $ Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Bonds") of the City as follows: 1. Any and all written information submitted by the Developer to the Underwriter, Underwriter's Counsel, Bond Counsel and the City in connection with the preparation of the Preliminary Official Statement dated _, 1995 and the Official Statement dated _, 1995 for the Bonds (jointly, the "Official Statement") was as of its date and is as of the date hereof true and correct. 2. The statements contained in the Official Statement under the captions "THE DISTRICT," do 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. 3. The Developer is a Michigan corporation, organized, validly existing and in good standing under the laws of the State of Michigan. No proceedings are pending or threatened in which the Developer may be adjudicated as bankrupt, or discharged from any or all of its debts or obligations, or granted an extension of time to pay its debt or obligations, or be allowed to reorganize or readjust its debts or obligations. 4. No action, suit, proceedings, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body, is pending or, to the Developer's knowledge after diligent investigation, threatened in any way seeking to restrain or to enjoin the continuation and/or completion of development of the project except as disclosed in the Official Statement. 5. None of the parcels which constitute land within the District owned by the Developer is delinquent in the payment of any taxes or assessments. Dated: _, 1995 THE IRVINE COMPANY, a Michigan corporation IM [Name] [Title] SF2-50271.2 40484 -28 -SSA -11/04/95 24005-02 JFlHW:GH:bct l0/3l/95 CONTINUING DISCLOSURE AGREEMENT by and between CITY OF NEWPORT BEACH and U.S. TRUST COMPANY OF CALIFORNIA, N.A. Dated as of , 1995 CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS, SERIES A CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (the "Disclosure Agreement") is made and entered into as of , 1995, by and between U.S. TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States, as Fiscal Agent (the "Fiscal Agent"), and the CITY OF NEWPORT BEACH, a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California and its Charter (the "City"); WITNESSETH: WHEREAS, pursuant to the Fiscal Agent Agreement, dated as of , 1995 (the "Fiscal Agent Agreement"), by and between the City and the Fiscal Agent, the City has issued its Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Bonds") in the aggregate principal amount of $ ; and WHEREAS, this Disclosure Agreement is being executed and delivered by the City and the Fiscal Agent for the benefit of the holders and beneficial owners of the Bonds and in order to assist the underwriters of the Bonds in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Fiscal Agent Agreement. In addition, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 2 and 3 of this Disclosure Agreement. "Disclosure Representative" means the Finance Director of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Fiscal Agent from time to time. "Dissemination Agent" means the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the Fiscal Agent a written acceptance of such designation. "Listed Events" means any of the events listed in Section 4(a) of this Disclosure Agreement. "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Official Statement" means the Official Statement, dated , 1995, relating to the Bonds. "Participating Underwriter" means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" means each National Repository and each State Repository. "Rule" means Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, provide to each Repository an Annual Report which is consistent with the requirements of Section 3 of this Disclosure Agreement, not later than eight (8) months after the end of the City's fiscal year (which currently would be March 1), commencing with the report for the 1995/96 fiscal year. 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 3 of this Disclosure Agreement; provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 4(f). (b) Not later than fifteen (15) business days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the City shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by such date, the Fiscal Agent has not received a copy of the Annual Report, the Fiscal Agent shall contact the City and the Dissemination Agent to determine if the City is in compliance with the first sentence of this subsection (b). (c) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) file a report with the City and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. Section 3. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements 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. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to that used for the City's audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. -2- (b) The following information: (i) The principal amount of Bonds Outstanding as of September 30 of the prior calendar year. (ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement as of September 30 of the prior calendar year. (iii) The total assessed value of all parcels within each Zone on which Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to September 30 of the prior calendar year, and a statement of assessed value -to -Aggregate Lien ratios therefor, either by individual parcel or by categories (e.g. "below 3:1", "3:1 to 4:1" etc.). (iv) The Special Tax delinquency rate for the District as of September 30 of the prior calendar year, the number of parcels within the District delinquent in payment of Special Taxes as of September 30 of the prior calendar year, the amount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the City; provided, however, that parcels with delinquencies of $2,5000 or less may be grouped together and such information may be provided by category. (v) The status of foreclosure proceedings and a summary of the results of any foreclosure sales as of September 30 of the prior calendar year. (vi) The identity of any property owner representing more than 5% of the Special Tax levy delinquent in payment of Special Taxes as of September 30 of the prior calendar year. (vii) A land ownership summary listing property owners responsible for more than 10°h of the Special Tax levy as of September 30 of the prior calendar year. (viii) The number of building permits issued by the City for new construction within each Zone during the one year period ending on September 30 of the prior calendar year. (ix) The number of certificates of occupancy issued by the City within each Zone during the one year period ending on September 30 of the prior calendar year. (x) A description of any conveyances by The Irvine Company to a third party of portions of property within each Zone during the one year period ending on September 30 of the prior calendar year, including the identification of each buyer and the number of acres conveyed. (xi) With respect to property within the District retained by The Irvine Company, a description of how much of such property has buildings constructed thereon, a description of the type (by function) of such buildings, a description of how much of such building space is leaseable and how much has been leased and the identity of any tenant leasing _ square feet or more of such leased space. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. -3- Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 4, the City shall give, or cause to be given, notice of the. occurrence of any of the following events with respect to the Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. (b) The Fiscal Agent shall, within one (1) business day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the City promptly notify the Fiscal Agent in writing whether or not to report the event pursuant to subsection (f). (c) Whenever the City obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (d) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly notify the Fiscal Agent in writing. Such notice shall instruct the Fiscal Agent to report the occurrence pursuant to subsection (f). V (e) If in response to a request under subsection (b), the City determines that the Listed Event would not be material under applicable Federal securities law, the City shall so notify the Fiscal Agent in writing and instruct the Fiscal Agent not to report the occurrence pursuant to i subsection (f). (f) If the Fiscal Agent has been instructed by the City to report the occurrence of a Listed Event, the Fiscal Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Fiscal Agent Agreement. Section 5. Termination of Reporting Obligation. The City'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 City shall give notice of such termination in the same manner as for a Listed Event under Section 4(f). Section 6. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the Fiscal Agent shall be the Dissemination Agent. Section 7. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent shall agree to any amendment so requested by the City), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to Sections 2(a), 3 or 4(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 (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of holders. 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 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 -5- 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 statements or information, in order to provide information to investors to enable them to evaluate the ability of the City 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 Repositories in the same manner as for a Listed Event under Section 4(f). Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City 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 City 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 City 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 9. Default. In the event of a failure of the City or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent may (and, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall), or 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 City or Fiscal Agent, as the case may be, 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, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article _ of the Fiscal Agent Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement. The Dissemination Agent (if other than the Fiscal Agent or the Fiscal Agent in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement. Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 12. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. -6- IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. ATTEST: City Clerk -7- CITY OF NEWPORT BEACH By: U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent Authorized Officer EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Bond Issue: Date of Issuance: NOTICE IS HEREBY GIVEN that the City of Newport Beach (the "City") has not provided an Annual Report with respect to the above-named Bonds as required by Section _ of the Fiscal Agent Agreement, dated as of 1, 1995, by and between U.S. Trust Company of California, N.A., as Fiscal Agent, and the City. [The City anticipates that the Annual Report will be filed by .] Dated: cc: City of Newport Beach A-1 U.S. TRUST COMPANY OF CALIFORNIA, N.A., on behalf of the City of Newport Beach I \ PRELEMNARY OFFICIAL STATEMENT NEW ISSUE - BOOK -ENTRY ONLY NO RATING In the opinion of Jones Hall Hill & White, A Professional Corporation, San Francisco, California, Bond Counsel, su (t, however to the qualifications set forth herein, under existing law, interest payable on the Bonds is excluded from gross inc federal income tax purposes, and such interest is not an item of tax preference for purposes of the federal alternative minimum 4 individuals and corporations; provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes) such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. See "TAX MATTERS" herein. Dated: , 1995 $7,500,000* CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-01 (CIOSA) SPECIAL TAX BONDS, SERIES A Due: September 1, as shown on the inside front cover The City of Newport Beach (the "City") Special Improvement District No. 95-01 (CIOSA) (the "District") Special Tax Bonds, Series A (the "Bonds") are being issued to provide funds (1) to pay the cost and expense of acquisition and construction of certain public improvements (the "Project"), (2) to fund authorized capitalized interest for the Bonds, (3) to establish a Reserve Fund for the Bonds, and (4) to pay the Costs of Issuance of the Bonds. Subject to the satisfaction of certain conditions described herein, additional series of bonds on a parity with the Bonds may be issued up to an amount such that the total of the special tax bonds of the District does not exceed $29,000,000. The Bonds are authorized pursuant to the City of Newport Beach Special Improvement District Financing Code (the "Act") and are issued pursuant to a Fiscal Agent Agreement approved by resolution of the City Council of the City and are payable fJ e proceeds of an annual Special Tax (as defined herein) to be levied according to the Amended and Restated Rate and Me, f Apportionment of Special Tax approved by the City Council and by The Irvine Company (the "Company"), as the qualified landowner elector within the District. The Special Tax will be collected in the same manner and at the same time as ad valorem property taxes are collected by the Treasurer -Tax Collector of the County of Orange, State of California. The Bonds are being issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Interest is payable semiannually on March 1 and September 1 of each year (commencing March 1, 1996) by check mailed to the registered owners of record as of the 15th day of the month preceding each interest payment date. Principal of and premium, if any, on the Bonds will be payable at the principal corporate trust office of U.S. Trust Company of California, N.A., or its successor, as Fiscal Agent, paying agent, transfer agent and registrar in Los Angeles, California. The Bonds are subject to redemption prior to maturity as described herein. Neither the full faith and credit nor the general taxing power of the District, the City, the State of California, or any other political subdivision thereof is pledged to the payment of the Bonds. The Bonds are not general obligations of the City or the District but are limited obligations of the City and the District, payable solely from the proceeds of the Special Tax, the limited Reserve Fund, and certain other moneys held and administered by the Fiscal Agent pursuant to the Fiscal Agent Agreement. Investment in the Bonds involves risks which may not be appropriate for some investors. See "SPECIAL RISK FACTORS" for a discussion of special risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds. The Bonds are offered when, as and if issued and delivered to the Underwriter subject to the approval as to their val y Jones Hall Hill & White, A Professional Law Corporation, San Francisco, California, Bond Counsel, and subject to certain-wther conditions. Certain legal matters will be passed upon for the Underwriter by its counsel, Orrick, Herrington & Sutcli„Q`e, San Francisco, California, andfor the City by the City Attorney. It is anticipated that the Bonds in will be available for delivery in book-entryform in New York, New York, on or about , 1995. Dated: , 1995 * Preliminary, subject to change SF2.45945.2 STONE & YOUNGBERG 40484-28-SS4-11/04/95 MATURITY SCHEDULE $7,500,000* CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS, SERIES A $ Serial Bonds Payment Date Principal Interest Price or Payment Date Principal Interest Price or (September 1) Amount Rate Yield (September 1) Amount Rate Yield (TO COME) $ Term Bonds Due September 1, 20_, - Price: _% * Preliminary, subject to change SF2-45945.2 2 40484-28-SS4-11/04/95 No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations with respect to the Bonds other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the City 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 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 be construed as a representation of facts. The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District and the City, since the date hereof. All summaries of the Indenture 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. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. SF2-45945.2 3 40484-28-SS4-11/04/95 CITY OF NEWPORT BEACH ORANGE COUNTY, CALIFORNIA CITY COUNCIL John W. Hedges, Mayor Jan Debay, Vice Mayor Dennis O'Neil Thomas Edwards Jean Watt Norma Glover John C. Cox, Jr. CITY STAFF Kevin J. Murphy, City Manager Dennis C. Danner, City Treasurer/Director of Adminstrative Services Don Webb, Director of Public Works/City Engineer Robert H. Burnham, City Attorney Wanda E. Raggio, City Clerk Fiscal Agent U.S. Trust Company of California, N.A. Los Angeles, California Bond Counsel Jones Hall Hill & White A Professional Law Corporation San Francisco, California Special Tax Consultant Government Finance Group Costa Mesa, California SF2-45945.2 4 40464-28-SS4-11/04/95 ,NTON EN F ;"147 �o 01.00 cove ft. VtUirA •f((j MW�I GYMS LAobbws f «.ad t 1W PARK �• • `�"`� •:.1� r ff • i i' / ax .� '. �' • t ,F IN �` r' cc. r iK INGE '" 1'Y•M :. M 1 . t. uroc • OYY..Y 11 y�•L '• �. 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N COAST � wE as cr r•Arttfl, lir_!`. l.'4 r,1 L f A. �iMlXiI 'AD( �'1 Jw'• �: M 11M / IMM �-= •A r CO t Krf N �I r .� 7 C.m10 U ` ��r �lf�\(Y� �? r,M • Z .;� ' w.wr MOf• _ / -- • � • � gyp,_ A ` n � •'• . ' • F � t � � it vy Cuo X& �W! U /c) < wwr IMlfll •AO.1 a.e ■ • E' ar=C=4ytid e 3d rtwr ,E r .; Iwrllme SAA/A rKtw 0,1M W5fl, ■ ' 4 p V ~r:"T/ ti�iRAHm is S 1 RI.b tl wu1 tl VA ,....... 36 ' t u 35 ...,� OL SALON f 2 fel _ d L 4 1. t L rlty rs ♦ ro 4 'h. 1 �� r ¢ ti •y ♦ �i i CORONA al X R P i sort of .� LOCATION MAP - UPPER CASTAWAYS and NEWPORTER NORTH SP245945. r 6 40164-26-SS4-1at sros TABLE OF CONTENTS Page INTRODUCTION.................................................. THEBONDS ..................................................... SOURCES AND USES OF FUNDS ....................................... SECURITY FOR THE BONDS .......................................... THEDISTRICT .................................................... ISSUANCE OF ADDITIONAL BONDS .................................... THE FISCAL AGENT AGREEMENT ..................................... SPECIAL RISK FACTORS ............................................. CONCLUDING INFORMATION ......................................... APPENDIX A: AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX ............... A-1 APPENDIX B: CERTAIN INFORMATION WITH RESPECT TO THE CITY. ...... B-1 APPENDIX C: FORM OF OPINION OF BOND COUNSEL .................. C-1 APPENDIX D: SUMMARY OF FISCAL AGENT AGREEMENT .............. D-1 APPENDIX E: CONTINUING DISCLOSURE CERTIFICATE ................ E-1 APPENDIX F: APPRAISAL SUMMARY LETTER ....................... F-1 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. SF2.45945.2 % 40464-28-SS4-11/04/95 OFFICIAL STATEMENT $7,500,000* CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS, SERIES A INTRODUCTION The purpose of this Official Statement is to provide certain information concerning the issuance of City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Bonds") in the aggregate principal amount of $7,500,000*. The City of Newport Beach Special Improvement District Financing Code (the "Act") was enacted by the City Council of the City, pursuant to its charter city powers to provide a method of financing certain public capital facilities and services in the City. Once duly established, a special improvement district is a legally constituted governmental entity within defined boundaries, with the governing City Council acting on its behalf. Subject to approval by a two-thirds vote of qualified electors and compliance with the provisions of the Act, the City Council may issue bonds for a special improvement district and may levy and collect a special tax within such district to repay such indebtedness. On May 8, 1995, the City Council of the City began the formal proceedings to establish its Special Improvement District No. 95-1 (CIOSA) (the "District") when it adopted its Resolution Declaring Intention to Establish a Special Improvement District and to Authorize the Levy Special Taxes, under the provisions of the Act. Following a duly noticed public hearing on June 12, 1995, the City adopted its Resolution of Formation of Special Improvement District No. 95-1 (CIOSA), Authorizing the Levy of a Special Tax Within the District and Preliminarily Establishing an Appropriations Limit for the District (the "Resolution of Formation"), and its Resolution Calling Special Election for Special Improvement District No. 95-1 (CIOSA). Thereafter an election was held within the District, at which election authorized representatives of The Irvine Company (the "Company"), as the sole landowner of all of the taxable property within the District, cast 100% of the ballots in favor of the proposition of approving formation of the District, authorizing the incurring of indebtedness, levying of a special tax, and establishing an appropriations limit within the District. Following the election, on June 26, 1995, the City Council adopted its Resolution Declaring Results of Special Election and Directing Recording of Special Tax Lien. Pursuant to such Council direction, the Notice of Special Tax Lien was recorded in the official records of the County Recorder of the County of Orange. As a result of these proceedings, taken pursuant to the Act, authority has been conferred upon the City Council to annually levy a special tax against parcels of land within the District and to issue special tax bonds in amounts not to exceed a total of $29,000,000 to finance certain costs and expenses relating to the construction and acquisition of public capital improvements as specified in Exhibit A to the Notice of Special Tax Lien. On , 1995, the City Council, by resolution, approved a Fiscal Agent Agreement (the "Fiscal Agent Agreement") pertaining to the Bonds, authorized issuance of the Bonds, approved the Purchase Contract for purchase of the Bonds by Stone & Youngberg (the "Underwriter"), and approved a Continuing Disclosure Certificate respecting the Bonds. * Preliminary, subject to change SF2.45945.2 X 40484-28-SS4-11/04/95 As used in this Official Statement, the term "Special Tax" means the annual special tax authorized pursuant to the Act and to be levied annually by the City. Pursuant to the Fiscal Agent Agreement, additional bonds (the "Additional Bonds") may be issued which will be payable from the Special Tax on a parity with the Bonds. The Reserve Fund (hereinafter described) will secure equally all Bonds issued under the Fiscal Agent Agreement. Neither the full faith and credit nor the general taxing power of the District, the City, the State of California, or any other political subdivision thereof is pledged to the payment of the Bonds. The Bonds are not general obligations of the City or the District but are limited obligations of the City and the District payable solely from the proceeds of the Special Tax authorized by the City Council. Brief descriptions of the Bonds, the security for the Bonds, the City, the District, and the status of development within the District are included in this Official Statement together with summaries of certain provisions of the Bonds and the Fiscal Agent Agreement. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Fiscal Agent Agreement are qualified in their entirety by reference to such document, copies of which are available for inspection at the office of City Director of Administrative Services, 3300 Newport Boulevard, Newport Beach, California 92663. THE BONDS Authority for Issuance The Bonds are issued pursuant to the Act, the Resolution Authorizing Issuance of the Bonds (the "Resolution"), and the Fiscal Agent Agreement. Amount and Purpose of the Bonds The Bonds in the aggregate principal amount of $7,500,000 [Preliminary, subject to change] are being issued to provide funds to (1) fund interest on the Bonds through , (2) establish a reserve fund for the Bonds in an amount equal to the Reserve Requirement, (3) pay costs and expenses of certain authorized public improvements and development -related fees, and (4) pay the costs of issuance of the Bonds. Description of the Bonds The Bonds will be issued only as fully registered bonds without coupons in the denomination of $5,000, or any integral multiple thereof (not exceeding the principal amount) and will be dated as set forth on the cover hereof. Interest on the Bonds will be paid semiannually on September 1 and March 1 (the "Interest Payment Dates") of each year, commencing March 1, 1996. The Bonds will bear interest at the rate shown on the cover hereof from the Interest Payment Date next preceding the date of registration of each Bond, except that if a Bond is registered on a day during the period from the 16th day of the month next preceding an Interest Payment Date to such Interest Payment Date, both inclusive, then such Bond will bear interest from that Interest Payment Date, and if a Bond is registered on a day on or before February 16, 1996, then such Bond will bear interest from the dated date. If, however, at the time of registration of any Bond, interest is then in default on the Bonds, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the Bond. The principal and redemption premium, if any, on the Bonds will be payable in lawful money of the United States of America at the principal corporate trust office of , as fiscal agent, (the "Fiscal Agent") in , California, upon presentation or surrender of the SF2.45945.2 9 40484-28SS4-11/04/95 Bonds. Payment of interest on the Bonds will be made to the owner thereof by check mailed to the owner at the owner's address as it appears on the registration books to be kept by the Fiscal Agent as of the close of business on the 15th day of the month next preceding each Interest Payment Date. The Bonds shall mature as indicated on the inside cover hereof. Optional Redemption The Bonds are subject to optional redemption by the City in advance of maturity as a whole on any date or in part on any Interest Payment Date on or after September 1, 2005, upon mailed notice as provided in the Fiscal Agent Agreement, at the following Redemption Prices (expressed as percentages of principal amount of the Bonds to be redeemed), plus accrued interest to the date of redemption, as follows: Redemption Dates Redemption Price September 1, 2005 and March 1, 2006 102% September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The City shall give the Fiscal Agent written notice of its intention to optionally redeem Bonds not less than 60 days prior to the applicable redemption date, unless such notice shall be waived by the Fiscal Agent. Mandatory Redemption Special Tax Prepayments The Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date, from and to the extent of any prepayment of Special Taxes, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption. Redemption Dates Redemption Price March 1, 1996 through March 1, 2005 103% September 1, 2005 and March 1 2006 102 September 1, 2006 and March 1 2007 101 September 1, 2007 and thereafter 100 Mandatory Sinking Fund Redemption The Bonds maturing September 1, shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, , at a Redemption Price equal to the principal amount of the Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Principal Redemption Date to be (September 1) Redeemed (to come) (to come) SF2-45945.2 10 40484-28-SS4-11/04/95 If some but not all of the Bonds are redeemed pursuant to Section 4.01(a) of the Fiscal Agent Agreement, the principal amount of Bonds to be redeemed pursuant to Section 4.01(c) of the Fiscal Agent Agreement on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Fiscal Agent; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Bonds % redeemed pursuant to Section 4.01(a) of the Fiscal Agent Agreement. If some but not all of the Bonds are redeemed pursuant to Section 4.01(b) of the Fiscal Agent Agreement, the principal amount of Bonds to be subsequently redeemed pursuant to Section 4.01(c) of the Fiscal Agent Agreement shall be reduced by the aggregate principal amount of the Bonds so redeemed pursuant to Section 4.01(b) of the Fiscal Agent Agreement, such reduction to be allocated amount redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Fiscal Agent, notice of which determination shall be given by the Fiscal Agent to the City. Selection of Bonds for Redemption Whenever provisions is made in this Agreement for the redemption of less than all of the Bonds, the Fiscal Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any redemption pursuant to Section 4.01(a) of the Fiscal Agent Agreement, as directed in a Written Request of the City, (b) with respect to any redemption pursuant to Section 4.01(b) of the Fiscal Agent Agreement, among maturities on a pro rata basis as nearly as practicable, (c) with respect to any redemption of Additional Bonds, among maturities as provided in the Supplemental Agreement pursuant to which such Additional Bonds are issued, and by lot among Bonds with the same maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Notice of Redemption The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least thirty (30) but not more than sixty (60) days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Fiscal Agent for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Partial Redemption of Bonds Upon surrender of any Bonds redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Effect of Notice Redemption Notice having been mailed as aforesaid, and moneys for the redemption (including the interest to the applicable date fixed for redemption and including any applicable premium), having been set aside SF2-45945.2 11 40484-28-SS4-11/04/95 in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Fiscal Agent, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. Transfer and Exchange of Bonds Any Bond may, in accordance with its terms, be transferred upon the Registration books or exchanged upon surrender thereof to the Fiscal Agent for cancellation, accompanied by a written instrument of transfer, duly executed by the Registered Owner or such Owner's duly authorized attorney, in a form acceptable to the Fiscal Agent. Upon surrender for transfer of any Bond at its principal corporate trust office, the Fiscal Agent will deliver in the name of the transferee or transferees a new authenticated and registered Bond or Bonds of authorized denomination of the same maturity for the aggregate principal amount which the Owner is entitled to receive. The Fiscal Agent shall require payment by the Owner of any tax or other governmental charge that may be imposed with respect to such transfer or exchange. Such taxes, fees, and charges shall be paid before any such new Bond will be delivered. SF2-45945.2 12 40484-28-SS4-11/04/95 rl/ f Debt Service Schedule The debt service schedule for the Bonds (including mandatory sinking fund redemption on their respective September 1 redemption date) is set forth below: Table 1 Debt Service Schedule Period Ending Principal Coupon Interest Debt Service September 1, 1996 _ _ $407,812.50 $407,812.50 September 1, 1997 $20,000.00 7.250% 543,750.00 563,750.00 September 1, 1998 30,000.00 7.250% 542,300.00 572,300.00 September 1, 1999 45,000.00 7.250% 540,125.00 585,125.00 September 1, 2000 60,000.00 7.250% 536,862.50 596,862.50 September 1, 2001 75,000.00 7.250% 532,512.50 607,512.50 September 1, 2002 95,000.00 7.250% 527,075.00 622,075.00 September 1, 2003 115,000.00 7.250% 520,187.50 635,187.50 September 1, 2004 135,000.00 7.250% 511,850.00 646,850.00 September 1, 2005 155,000.00 7.250% 502,062.50 657,062.50 September 1, 2006 180,000.00 7.250% 490,825.00 670,825.00 September 1, 2007 210,000.00 7.250% 477,775.00 687,775.00 September 1, 2008 235,000.00 7.250% 462,550.00 697,550.00 September 1, 2009 270,000.00 7.250% 445,512.50 715,512.50 September 1, 2010 300,000.00 7.250% 425,937.50 725,937.50 September 1, 2011 340,000.00 7.250% 404,187.50 744,187.50 September 1, 2012 375,000.00 7.250% 379,537.50 754,537.50 September 1, 2013 420,000.00 7.250% 352,350.00 772,350.00 September 1, 2014 465,000.00 7.250% 321,900.00 786,900.00 September 1, 2015 515,000.00 7.250% 288,187.50 803,187.50 September 1, 2016 570,000.00 7.250% 250,850.00 820,850.00 September 1, 2017 625,000.00 7.250% 209,525.00 834,525.00 September 1, 2018 685,000.00 7.250% 164,212.50 849,212.50 September 1, 2019 755,000.00 7.250% 114,550.00 869,550.00 September 1, 2020 825,000.00 7.250% 59,812.50 884,812.50 $7,500,000.00 $10,012,250.00 $17,512,250.00 SF2.45945.2 13 40484-28-SS4-11/04/95 SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the financing are set forth in the following table: Table 2 Sources and Uses of Funds Sources: Bond Proceeds: Par Amount $7,500,000.00 $7,500,000.00 Uses: Other Fund Deposits: Reserve Fund $ 750,000.00 Capitalized Interest $ 362,098.51 $1,112,098.51 Delivery Date Expenses: Estimated Issuance Costs $ 280,000.00 Other Uses of funds: Additional Proceeds $6,107,901.49 $7,500,000.00 SECURITY FOR THE BONDS General The Bonds and the interest thereon are secured by and are payable from a portion of the Special Taxes to be levied and collected on all the real property within the District subject to the Special Taxes, the proceeds of prepayment, if any, of Special Taxes, and from certain proceeds, if any, of any foreclosure actions brought following a delinquency in the payment of the Special Tax (the "Special Tax Revenues") and from amounts held in certain funds pursuant to the Fiscal Agent Agreement. The City is legally authorized under the Act and has covenanted in the Fiscal Agent Agreement, to cause the levy of the Special Taxes in an amount determined according to the Rate and Method. The amount of Special Taxes that the City may levy in the District in any year is strictly limited by the maximum rates approved by the company as the sole qualified elector within the District at the time of formation of the District. The Rate and Method apportions the total amount of Special Taxes to be collected annually among the taxable parcels in the District. See "APPENDIX A -- Amended and Restated Rate and Method of Apportionment of Special Tax" hereto. SF2-45945.2 14 40484-28-ss4-11/04/95 Special Tax Revenues The levy of the Special Taxes was authorized by vote of the Company, as the sole landowner and only qualified elector of the District, at a special election held on June 26, 1995. Pursuant to the Act, the City caused a Notice of Special Tax Lien (including a copy of the Rate and Method as an exhibit thereto) to be recorded in the Official Records of Orange County, California. The Bonds are secured by a pledge of Special Tax Revenues which include all scheduled payments, any prepayments, if any, of Special Taxes received by the City, and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of Special Taxes. The City has covenanted in the Fiscal Agent Agreement to levy the Special Taxes in each Fiscal Year that the Bonds are Outstanding. The Special Taxes are to be apportioned, levied and collected according to the Rate and Method approved by the qualified elector of the District and as provided by ordinance of the City adopted in accordance with the Act. Pursuant to the Rate and Method, the Special Taxes will be levied each year in amounts sufficient to cover debt service on the Bonds and administrative costs of the City (as defined in the Rate and Method). Special Tax Revenues collected each year will be applied first to replenish the Reserve Fund to an amount equal to the Reserve Requirement, next to debt service on the Bonds, and only then made available each September 2 for Administrative Expenses. The annual levy of Special Taxes on each parcel within the District is constrained by the maximum Special Tax rates applicable to such parcel. See "SPECIAL RISK FACTORS -- Maximum Rates" herein. Although the Special Tax, when levied, will constitute a lien on parcels subject to taxation within the District, it does not constitute a personal indebtedness of the owners of property within the District. There is no assurance that the owners of real property in the District will be financially able to pay the annual Special Tax or that they will pay such Special Tax even if financially able to do so. See "SPECIAL RISK FACTORS" herein. Special Tax Fund Special Tax Revenues include all scheduled payments and any prepayments of Special Taxes received by the City and the proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of Special Taxes. Upon receipt by the Fiscal Agent, the Special Tax Revenues will be deposited in the Special Tax Fund held by the Fiscal Agent. From time to time as needed to pay the obligations with respect to the District, but no later than five (5) Business Days before each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer (a) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund equals the Reserve Requirement, and (b) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund, such that the amount in the Bond Fund equals the principal and interest due on the Bonds on the next two Interest Payment Dates with respect to Special Tax Revenues received during the period from September 1 through the last day of February in any year, and on the next Interest Payment Date with respect to Special Tax Revenues received during the period from March 1 through August 31 in any year. On September 2 of each year, the Fiscal Agent shall transfer all remaining amounts on deposit in the Special Tax Fund to the Administrative Expense Fund. All amounts remaining in the Special Tax Fund following the above required transfers on September 2 of each year, shall be deposited in the Administrative Expense Fund for the payment of Administrative Expenses. SF2.45945.2 15 40484-28-SS4-11/14/95 Reserve Fund The Fiscal Agent shall initially deposit in the Reserve Fund an amount equal to the Reserve Requirement. There shall additionally be deposited in the Reserve Fund, in connection with the issuance of Additional Bonds, the amount required to be deposited therein under the Supplemental Agreement pursuant to which such Additional Bonds are issued. Except as otherwise provided in Section 5.05 of Fiscal Agent Agreement, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds. Transfers shall be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Fiscal Agent and shall be deposited in the Bond Fund. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all the Outstanding Bonds. In the event that the balance in the Reserve Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the excess in the Reserve Fund shall be transferred to the Special Tax Account of the Improvement Fund, provided that, before making such use of the Reserve Fund, the City shall first provide for (i) the payment of any amounts due to the federal government following payment of the Bonds and the payment of such amounts, and (ii) payment of any fees and expenses due to the Fiscal Agent. Prepaid Special Taxes The Rate and Method provides for the prepayment (in whole or in part) of the Special Tax obligation upon any parcel in the District by payment to the City of an amount calculated in accordance with Section H of the Rate and Method. Pursuant to Section 3.04 and 5.04 of the Fiscal Agent Agreement, the proceeds of any such prepayment are transferred to the Fiscal Agent, as soon as practicable after receipt by the City, and deposited in either the Special Tax Account of the Improvement Fund or the Redemption Fund, as prescribed by Section 3 of the Protocol Agreement, dated as of 1995, by and between the City and the Company. Permitted Investments Moneys in any of the funds or accounts established pursuant to the Fiscal Agent Agreement shall be invested by the Fiscal Agent solely in Permitted Investments, as directed in writing by the City. The Permitted Investments shall mature not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Fiscal Agent Agreement, subject to certain further restrictions on the maturity of any investment of moneys in the Reserve Fund. All interest, profits and other income received from the investment of moneys in any fund or account established pursuant to the Fiscal Agent Agreement shall be retained therein. Covenant for Superior Court Foreclosure In the event of the delinquency in the payment of any installment of Special Taxes, the City is authorized by the Act to order institution of a judicial foreclosure proceeding in the Orange County Superior Court to foreclose the lien therefor. In such action the real property subject to the Special Taxes SF2.45945.2 16 40484-28-SS4.11/04/95 may be sold at a judicial foreclosure sale. The ability of the City to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the property owner in the event that the property is owned by any receivership of the Resolution Trust Corporation (the "RTC") or the Federal Deposit Insurance Corporation (the "FDIC"). See "SPECIAL RISK FACTORS -- Bankruptcy" and "SPECIAL RISK FACTORS - Potential Delay and Limitation in Foreclosure Proceedings." Such judicial foreclosure proceedings are not mandatory under the Act. However, in the Fiscal Agent Agreement, the City has covenanted to determine or cause to be determined, no later than February 15 and June 15 of each year, the delinquency status of Special Taxes. In the event delinquencies in excess of $5,000 are found to exist respecting parcels owned by any one property owner, then the City is obligated to order and cause to be commenced such judicial foreclosure proceedings respecting such parcels no later than April 1 (with respect to the February 15 determination date) or August 1 (with respect to the June 15 determination date) and to thereafter diligently prosecute such proceedings. With respect to all other delinquencies found to exist, the City is not obligated to order foreclosure if (a) the total amount of such delinquencies at that time is less than 5% of the total Special Tax levied in such Fiscal Year and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days from the date of service of the Notice of Levy and 20 days from the subsequent notice of sale in which to redeem the property to be sold. If a judgment debtor fails to so redeem and the property is sold, the only remedy of such judgment debtor is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made. The constitutionality of the aforementioned legislation, which repeals the former one-year redemption period, has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. Any parcel subject to foreclosure sale must be sold at the minimum bid price (equal to the sum of delinquent Special Tax installments, penalties, interest attorney's fees and costs of collection and sale) unless a lesser minimum bid price is authorized by the Owners of 75% of the principal amount of Bonds Outstanding. No assurance can be given that the real property subject to sale or foreclosure will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the City or the District to purchase or otherwise acquire any lot or parcel of property offered for sale or subject to foreclosure if there is no other purchaser at such sale. The Act does specify that the Special Tax will have the same lien priority in the case of delinquency as for ad valorem property taxes. If the Reserve Fund is depleted, there could be a default or delay in payments to the Bond Owners pending prosecution of foreclosure proceedings and receipt by the City of foreclosure sale proceeds, if any. Appraised Property Values An appraisal of the property in the District dated September 20, 1995 (the "Appraisal") was prepared by Gary L. Vogt and Associates (the "Appraiser") to estimate the value of the land in the District (the "Appraised Property"). As requested by the City, the Appraiser has provided estimates of value as of July 1, 1995. An Appraisal Summary Letter of the Appraiser (the "Appraisal Summary Letter"), dated September 22, 1995, is set forth herein as APPENDIX F. As stated in the "Assumptions and Limiting Conditions" which are a part of the Appraisal Summary Letter, in arriving at the property valuations set forth in the Appraisal, consideration was given to the enhancement to such property values SF2-45e45.2 17 40484-28-ss4-11/04/95 by reason of the infrastructure improvements proposed to be financed by the District. No assurance can be given as to whether or when such infrastructure improvements will be completed. The Appraiser has made a variety of other assumptions in order to appraise the property within the District. The assumptions contained in the Appraisal report are not a warranty that such assumed events or facts will occur. There can be no assurance that any such assumption will be realized. Furthermore, as stated in the Appraisal Summary Letter, two different levels of appraisal investigation and analysis were undertaken with respect to the Appraised Property, listed on page 2 of the Appraisal Summary Letter. While a full appraisal was made of the Upper Castaways and Newporter North properties, a limited scope appraisal was made of the remaining properties. No assurance can be given that a full appraisal of those remaining properties would result in an opinion of market value as high as the value estimate which resulted from the limited scope appraisal. Subject to the qualifications, assumptions and limitations stated in the Appraisal Summary Letter, the Appraiser has estimated the market value of the Appraised Property as set forth on page F-2 of APPENDIX F, for a total aggregate market value estimate of $79,500,000. Value -to -Lien Ratio Based on the $7,500,000 [subject to change] aggregate principal amount of the Bonds and the $79,500,000 aggregate market value of the Appraised Property, the aggregate value -to -lien ratio for the property in the District is 10.6 to 1.0. This aggregate ratio does not take into account overlapping lien - secured (tax and assessment) and lease obligation debt allocable to the property, either existing or authorized but not yet issued or incurred. For tables of value -to -lien ratios by parcel, based on both County Assessor's assessed values and appraised values, see "THE DISTRICT - Parcel by Parcel Value to Lien Ratios" hereafter. This value -to -lien ratio is based on the assumptions included in the Appraisal Report, as summarized in the Appraisal Summary Letter, including the assumptions that funding for all improvements is assured and that actual improvements will be completed. Because substantial portions of the improvements have not yet been completed, no assurance can be given that this value -to -lien ratio will be achieved. See "SPECIAL RISK FACTORS -- Appraised Value." Furthermore, no assurance can be given that this ratio can or will be maintained during the period of time that the Bonds are outstanding because, in addition to the factors mentioned above, neither the City nor the District has control over the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See "SECURITY FOR THE BONDS -- Direct and Overlapping Debt" below. Direct and Overlapping Debt Based on an overlapping debt report prepared by California Municipal Statistics, Inc., and dated October 25, 1995 (the "Debt Report"), the County of Orange assessed valuation of land within the District for Fiscal Year 1995-96 was $97,729,134, and the District's share of the direct and overlapping tax and assessment debt on the property for Fiscal Year 1995-96 is $8,833,002, including the principal amount of Bonds being offered hereby at $7,500,000. When gross overlapping lease obligation debt is added, the District's share is $9,855,761. The City has not independently reviewed the Debt Report and makes no representations as to its completeness or accuracy. A copy of the Debt Report is available for inspection at the office of the City Finance Director, City Hall, 3300 Newport Boulevard, Newport Beach, California 92663. SF2-45945.2 18 40484-28-SS4.11/04/95 Table 3 Direct and Overlapping Debt Property within the District 1995-96 Assessed Valuation: $97,729,134 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: %Applicable Debt 11/1/95 Orange County 0.061% $ 241 Orange County Flood Control District 0.061 668 Metropolitan Water District 0.012 75,229 Irvine Ranch Water District, I.D. #1 0.075 120 Irvine Ranch Water District, I.D. #206 0.622 73,546 Irvine Ranch Water District, I.D. #261 0.581 5,608 Newport Mesa Unified School District Community Facilities District #90-1 21.627 1,177,590 Special Improvement District 95-1 100.000 7,500,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT 0.032 $8,833,002 OVERLAPPING LEASE OBLIGATION DEBT: Orange County General Fund Obligations 0.061% $343,881 Orange County Pension Obligations 0.061 190,140 Orange County Teeter Plan Obligations 0.061 94,550 Orange County Transit Authority 0.061 12,871 Coast Community College District Certificates of Participation 0.237 32,550 Saddleback Community College District Certificates of Participation 0.008 2,165 City of Newport Beach Certificates of Participation 0.821 59,399 Orange County Sanitation District #5 Certificates of Participation 0.756 174,986 Orange County Sanitation District #6 Certificates of Participation 0.390 67,264 Orange County Sanitation District #7 Certificates of Participation 0.032 8,953 Irvine Ranch Water District Certificates of Participation 0.060 36,000 TOTAL GROSS OVERLAPPING LEASE OBLIGATION DEBT $1,022,759 Less: Orange County Transit Authority (80% self-supporting) 10,297 TOTAL NET OVERLAPPING LEASE OBLIGATION DEBT $1,012,462 RATIOS TO ASSESSED VALUATION: Direct Debt ..................................... 7.67% Total Direct and Overlapping Tax and Assessment Debt ......... 9.04% Combined Gross Debt ($2,355,761) ...................... 10.08% Combined Net Debt ($2,345,464) ....................... 10.07% At the special election held on June 26, 1995, the Company as the sole landowner and qualified electorate of the District approved a maximum bonded indebtedness for the District of $29,000,000. Subject to the satisfaction of certain conditions set forth in the Fiscal Agent Agreement, the District may from time to time issue indebtedness payable from the Special Taxes on a parity with the Bonds, without further voter approval. The District has no control over the amount of additional debt payable from taxes or assessments on all or a portion of the property within the District, that may be issued in the future by other governmental entities or districts, including but not limited to school districts, water districts or any other district having jurisdiction over all or a portion of the land within the District. Nothing prevents the owners of land within the District from consenting to the issuance of additional debt by other public agencies which would be secured by Taxes or assessments on the same property subject to the Special SF2-45945.2 19 40484 -28 -SU -11104M Taxes. To the extent such indebtedness is payable from assessments or other special taxes, such assessments or special taxes may be secured by a lien on the property within the District in addition to and on a parity with the lien of the Special Taxes. Accordingly, the liens on the property within the District could greatly increase, without any corresponding increase in the value of the property within the District and thereby severely reduce the ratio that exists at the time the Bonds are issued between the value of the property and the debt secured by the special taxes and assessments thereon. The imposition of such additional indebtedness could also reduce the willingness and ability of the property owners within the District to pay the Special Taxes when due. See "SPECIAL RISK FACTORS -- Overlapping Indebtedness." Moreover, in the event of a delinquency in the payment of a Special Tax levy, no assurance can be given that the proceeds of any foreclosure sale would be sufficient to pay the delinquent Special Taxes and any other delinquent special taxes or assessments. See "SPECIAL RISK FACTORS -- Appraised Value." THE DISTRICT Introduction The property which comprises the District is comprised of nine different, non-contiguous development sites of the Company, all situated within the City. In connection with anticipated development of the property, the Company and the City entered into a development agreement entitled "Circulation Improvement and Open Space Agreement" (the "CIOSA Agreement"), dated June 30, 1993. Among other things, the Company agrees in the CIOSA Agreement to meet financial obligations for the construction of public roadway improvements within the City. The District has been formed and the issuance of the Bonds and Additional Bonds has been authorized to facilitate cooperation between the Company and the City in achieving compliance with the Company's obligations under the CIOSA Agreement. The nine separate development sites of the Company which comprise the District are discussed in some detail in the Appraisal Report and are summarized in the following. Upper Castaways The Upper Castaways site is approximately 26 net acres, located on the east side of Dover Drive, between Pacific Coast Highway and Westcliff Drive, and adjacent to Upper Newport Bay. See "LOCATION MAP - UPPER CASTAWAYS AND NEWPORTER NORTH", at page 6 hereof. The City has approved a tentative tract map for development of the site for 119 single family home sites. The Company has entered into an agreement for sale of the developable portions of the site in phases to Taylor Woodrow Company, a builder of residential projects. Among the improvements to be financed by the District are frontage improvements to Dover Drive adjacent to the Upper Castaways site. The Appraiser has estimated the market value of this property at $22,000,000. Newporter North The Newporter North site is approximately 26 net acres, located on the west side of Jamboree Road, between San Joaquin Hills Road and the Hyatt Newporter Resort, and adjacent to Upper Newport Bay. See "LOCATION MAP - UPPER CASTAWAYS AND NEWPORTER NORTH", at page 6 hereof. The City has approved a tentative tract map for development of the site for 173 single family home sites. The Company expects to sell the developable portion of the property to Standard Pacific Corporation, a builder of residential projects. Among the improvements to be financed by the District SF2.45945.2 20 40484-28-SS4-11/04/95 are frontage improvements to Jamboree Road adjacent to the Newporter North site. The Appraiser has estimated the market value of this property at $19,000,000. San Diego Creek South The San Diego Creek South site is approximately 18 net acres, located at the northeast corner of Jamboree Road and University Drive, and is bordered on the north by San Diego Creek and the east by Bonita Creek. Upper Newport Bay is located across Jamboree Road to the west. The City has approved a tentative tract map for development of the site for 300 units of multi -family residential. Among the improvements to be financed by the District are frontage improvements to Jamboree Road adjacent to the San Diego Creek South site. On the basis of the limited scope appraisal procedures, the Appraiser has estimated the market value of this property at $11,000,000. Block 800 The Block 800 site is approximately 6.5 net acres, located at the southeast corner of San Clemente Drive and Santa Barbara Drive, within the Newport Center complex. The City has approved a tentative tract map for development of the site for 245 units of multi -family residential. [Frontage Improvements - $130,000?] On the basis of the limited scope appraisal procedure, the Appraiser has estimated the market value of this property at $5,000,000. Bayview Landing The Bayview Landing site is approximately 5 net acres, located on the west side of Jamboree Road, between Pacific Coast Highway and Back Bay Drive. Immediately to the north, across Back Bay Drive, is the Hyatt Newporter Resort. Permitted uses of the developable portion of the site, as established by the CIOSA Agreement, are (1) restaurant, health club, or 120 senior residential units. Based upon the judgment of the Appraiser that the senior housing option represents the highest and best use of the site, and on the basis of the limited scope appraisal procedure, the Appraiser has estimated the market value of this property at $1,800,000. Freeway Reservation North The Freeway Reservation North site is a linear strip of approximately 7 net acres, extending south from Ford Road along the east side of MacArthur Boulevard. The area to the east of the site is developed with single family homes, and the area to the west, across MacArthur Boulevard, is developed as a gated residential and golf course project known as Big Canyon. The site is zoned for single family residential, and under the CIOSA Agreement, a maximum of 36 single family units is permitted. An interested party, Manning Development ("Manning"), is negotiating with the Company to purchase the site, for which Manning has developed a proposed site plan containing 32 lots. [Frontage Improvements - $1,000,000?] On the basis of the limited scope appraisal procedure, the Appraiser has estimated the market value of this property at $1,900,000. Corporate Plaza West The Corporate Plaza West site is approximately 9 net acres, located at the northwest corner of Pacific Coast Highway and Newport Center Drive, the main entrance to the Newport Center complex. Bordering the site to the north and and northwest are the Balboa Bay Tennis Club and the Newport Beach Country Club golf course, and a 2 -story office building is located adjacent to the property on the north. The site is zoned for 94,000 square feet of office and related commercial space. The Company indicates that, in view of current weak market demand for office space, preliminary consideration has been given to locating an auto dealership on the site, with no determination made. Based on the judgment of the Appraiser that office (with possible limited retail) space represents the highest and best use of the SF2.45945.2 21 40484-28-SS4-11/04/95 property, and on the basis of the limited scope appraisal procedure, the Appraiser has estimated the market value of this property at $6,500,000. Corporate Plaza The Corporate Plaza site consists of four separate, non-contiguous parcels, totaling approximately 6.5 net acres, within the Newport Center complex, on the inland side of the Pacific Coast Highway, between Newport Center Drive on the west and Avocado Avenue on the east. The four separate parcels are each approved for specified amounts of square footage of office and limited retail space in the Corporate Plaza Planned Community District. On the basis of the limited scope appraisal procedure, the Appraiser has estimated the market value of the four respective sites (known as 8, 9, 11, and 22 Corporate Plaza, respectively) at $1,500,000, $900,000, $1,300,000, and $1,200,000, respectively, for a combined total of $4,900,000. PCH/MacArthur The PCH/MacArthur site consists of three separate, non-contiguous parcels, totaling approximately 10 net acres, within the Newport Village Planned Community District, on the west side of MacArthur Boulevard, extending from the Pacific Coast Highway north to San Joaquin Hills Road. A substantial portion of this property is presently zoned restrictively for Governmental -Institutional uses, reflecting a previous intention to donate the property as the site for the Newport Harbor Art Museum. The Company has expressed its intentions to seek amendments of the City's General Plan and the Newport Village Planned Community District zoning to authorize retail uses of the property. [Frontage Improvements - $2,115,200?] Based on the Appraiser's judgment that there is a reasonable probability that the site will be rezoned to permit up to 100,000 square feet of retail uses, and on the basis of the limited scope appraisal procedure, the Appraiser has estimated the market value of this property at $7,400,000. Parcel by Parcel Value to Lien Ratios The following tables provides value -to -lien ratios respecting the individual parcels of land in the District, first using County Assessor's 1995-96 assessed values and second using the appraised values from the Appraisal Report. Table 4 Value -to -Lien Ratios by Parcel - Assessed Values Zone 1 Bayview Landing Block 800 Corporate Plaza Corporate Plaza West Freeway Reservation Newport Village - PCH/MacArthur Newporter North San Diego Creek Upper Castaways 1995/96 Direct and Assessed Assessed Overlapping Value to Values 2 Debt 3 Debt Ratio 1,752,232 39,729 44.10 12,476,401 572,930 21.78 10,564,600 585,476 18.04 14,310,219 805,029 17.78 1,069,905 662,842 1.61 14,884,683 1,076,858 13.82 15,961,183 815,484 19.57 4,703,658 1,208,590 3.89 20,938,741 2,910,652 7.19 96,661,622 8,677,590 11.14 SF2-45945.2 22 40484.28-SS4-1 1/04/95 1 (1) Zone designations taken from Amended and Restated Rate and Method of Apportionment of the Special Tax. See APPENDIX A (2) Source: APPENDIX A and Orange County Assessor (3) Total overlapping indebtedness incudes the Bonds and the principal amount associated with the Newport Mesa Unified School District CFD No. 90-1 which totals $1,177,590 according to California Municipal Statistics. See "Direct and Overlapping Debt" herein. Both the Bonds and the other overlapping debt were spread based on the Prepayment Amounts as shown in APPENDIX A, Page 1-6. Table 5 Value -to -Lien Ratios by Parcel - Appraised Values (1) Zone designations taken from Amended and Restated Rate and Method of Apportionment of the Special Tax. See APPENDIX A. (2) Source: The Appraiser. See APPENDIX F, page F-2. For the purposes of this table the values and liens for 8 Corporate Plaza, 9 Corporate Plaza, 11 Corporate Plaza and 22 Corporate Plaza were aggregated in the Zone designated as "Corporate Plaza" (3) Total overlapping indebtedness includes the Bonds and the principal amount associated with the Newport Mesa Unified School District CFD No. 90-1 which totals $1,177,590 according to California Municipal Statistics. See "Direct and Overlapping Debt" herein. Both the Bonds and the other overlapping debt were spread based on the Prepayment Amounts as shown in Appendix A, Page 1-6. ISSUANCE OF ADDITIONAL BONDS "Additional Bonds" are defined to mean Bonds other than the Series A Bonds issued under the Fiscal Agent Agreement and in accordance with the provisions of Sections 3.05 and 3.06 of the Fiscal Agent Agreement, and payable from the Special Tax Revenues on a parity with the Series A Bonds (the Series A Bonds are referred to in this Official Statement as the "Bonds"). Section 3.07 of the Fiscal Agent Agreement provides that, so long as any of the Bonds remain Outstanding, the City will not issue SF245945.2 23 40484-28-SS4-11/04/95 Direct and Appraised Appraised Overlapping Value to Zone 1 Values 2 Debt 3 Debt Ratio Bayview Landing 1,800,000 39,729 45.31 Block 800 5,000,000 572,930 8.73 Corporate Plaza 4,900,000 585,476 8.37 Corporate Plaza West 6,500,000 805,029 8.07 Freeway Reservation 1,900,000 662,842 2.87 Newport Village - PCH/MacArthur 7,400,000 1,076,858 6.87 Newporter North 19,000,000 815,484 23.30 San Diego Creek 11,000,000 1,208,590 9.10 Upper Castaways 22,000,000 2,910,652 7.56 79,500,000 8,677,590 9.16 (1) Zone designations taken from Amended and Restated Rate and Method of Apportionment of the Special Tax. See APPENDIX A. (2) Source: The Appraiser. See APPENDIX F, page F-2. For the purposes of this table the values and liens for 8 Corporate Plaza, 9 Corporate Plaza, 11 Corporate Plaza and 22 Corporate Plaza were aggregated in the Zone designated as "Corporate Plaza" (3) Total overlapping indebtedness includes the Bonds and the principal amount associated with the Newport Mesa Unified School District CFD No. 90-1 which totals $1,177,590 according to California Municipal Statistics. See "Direct and Overlapping Debt" herein. Both the Bonds and the other overlapping debt were spread based on the Prepayment Amounts as shown in Appendix A, Page 1-6. ISSUANCE OF ADDITIONAL BONDS "Additional Bonds" are defined to mean Bonds other than the Series A Bonds issued under the Fiscal Agent Agreement and in accordance with the provisions of Sections 3.05 and 3.06 of the Fiscal Agent Agreement, and payable from the Special Tax Revenues on a parity with the Series A Bonds (the Series A Bonds are referred to in this Official Statement as the "Bonds"). Section 3.07 of the Fiscal Agent Agreement provides that, so long as any of the Bonds remain Outstanding, the City will not issue SF245945.2 23 40484-28-SS4-11/04/95 any Additional Bonds or obligations payable from Special Tax Revenues, except pursuant to Sections 3.05 and 3.06 of the Fiscal Agent Agreement. Section 3.05 of the Fiscal Agent Agreement specifies the conditions which must be satisfied before any Additional Bonds may be issued, as follows: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and a Supplemental Agreement containing certain specified provisions pertaining to the use of the proceeds of such Additional Bonds and the terms and conditions of such Additional Bonds; (b) The City shall be in compliance with all agreements, conditions, covenants and terms contained in the Fiscal Agent Agreement and in all prior Supplemental Agreements, if any; and (c) The City shall have received a certificate from one or more Independent Consultants which, when taken together, certify compliance with (i) a 1.10 coverage test of the amount of mxaimum Special Taxes leviable compared to the Maximum Annual Debt Service on the combined Outstanding Bonds and the proposed Additional Bonds, and (ii) a 3 -to -1 ratio requirement of property value (measured by a Qualified Appraisal Report or, in the absence thereof, by the County's assessed valuation) to aggregate principal amount of lien -secured assessment and special tax obligations against the property. Section 3.06 of the Fiscal Agent Agreement specified the procedure for the issuance of such Additional Bonds in the event the conditions precedent to such issuance specified by Section 3.05 are satisfied. Section 3.06 conditions authentication and delivery of the Additional Bonds upon receipt by the Fiscal Agent of the following: Bonds; (a) A certified copy of the Supplemental Agreement authorizing the issuance of such Additional (b) A Written Request of the City respecting delivery of the Additional Bonds; (c) An opinion of Bond Counsel substantially to the effect that (i) the Supplemental Agreement has been duly authorized and constitutes the valid and binding obligation of the City and (ii) such Additional Bonds constitute valid and binding special obligations of the City payable solely from Special Tax Revenues; (d) The proceeds of sale of the Additional Bonds; and (e) Such further documents or money as may be required by the provisions of the Fiscal Agent Agreement or the Supplemental Agreement respecting the Additional Bonds. For a more detailed statement of the provisions relating to issuance of Additional Bonds, reference is made to the full text of the Fiscal Agent Agreement. THE FISCAL AGENT AGREEMENT A comprehensive summary of the Fiscal Agent Agreement is set forth herein as APPENDIX D. Reference is hereby made to APPENDIX D for information respecting the Fiscal Agent Agreement and the provisions thereof respecting the Bonds, the respective funds and accounts to be established, maintained and administered by the Fiscal Agent to administer both the Bond proceeds and the Special Tax Revenues, the covenants of the City, and the duties of the Fiscal Agent. The summary is not intended to be definitive, and reference is made to the full text of the Fiscal Agent Agreement, on file in the office of the Finance Director of the City, for the complete terms thereof. SF2-45945.2 24 40484-28-SS4-11/04/95 i SPECIAL RISK FACTORS Investment in the Bonds involves risks which may not be appropriate for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds, which are not rated. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the District to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the District. Concentration of Ownership All of the land within the District (the "Property") is currently owned by the Company. In the course of development of the property, the Company expects to transfer ownership of various portions of the property to other entities, some but not all of which are affiliated with the Company. However, until any such transfers occur, the timely payment of the Bonds depends on the willingness and ability of the Company to pay the Special Taxes when due. This lack of diversity in the obligation to pay Special Taxes may present risk to Bond Owners. Failure of the property owner within the District to pay the annual Special Taxes when due could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon a foreclosure or otherwise. In that event, there could be a default in payments of the principal of, and interest on, the Bonds. Failure to Develop Properties Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the standard of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such approval or satisfy such governmental requirements would adversely affect planned land development. Finally, development of land is subject to economic considerations. The failure to complete development or the required infrastructure for development in the District or substantial delays in the completion of the development or the required infrastructure for the development due to litigation, the inability to obtain required funding or other causes may reduce the value of the property within the District and may affect the willingness and ability of the owners of property within the District to pay the Special Taxes when due. Bond Owners should assume that any event that significantly impacts the ability to develop land in the District would cause the property values within the District to decrease from those estimated by the Appraiser and could affect the ability or willingness of the owners of land within the District to pay the Special Taxes when due. Failure to Achieve Development Expectations Both the recent recession in California generally and the uncertainty fostered by the Orange County bankruptcy in particular adversely affected both the real estate market in general and the housing market in particular in Orange County. While there are some indications of recovery from the recession and while some steps have been taken by Orange County toward establishment and implementation of a plan of recovery from the financial crisis which precipitated the County's bankruptcy proceedings, the City cannot provide any assurance that these recovery processes will continue so as to avoid adverse SP2-45945.2 25 40484-28-SS4-11ro095 impacts upon the ability of the Company on its successors in ownership of any of the property in the District to achieve their development schedules, which will be partially dependent upon rates of absorption of housing, office space, and retail commercial space in the District. Failure to achieve those development expectations may adversely affect the estimated value of the property, could impair the economic viability of the portions of the development projects and could reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds. Appraised Value The Appraiser has estimated the value of all property in the District, on the basis of certain assumptions and limiting conditions contained in the Appraisal Report, including the assumed completion of the infrastructure to be financed by the Bonds and by Additional Bonds which are authorized but not issued. See "APPENDIX F -- Appraisal Summary Letter" hereto. No assurance can be provided that the infrastructure can be completed on a timely basis or at cost levels consistent with the cost estimates utilized in signing the bond authorization of the District. Furthermore, issuance of Additional Bonds is conditioned upon satisfaction of certain conditions set forth in Section 3.07 of the Fiscal Agent Agreement, and the City cannot provide any assurance as to whether or when such conditions will be met. Government Approvals As summarized in the CIOSA Agreement, the Company has secured many of the approvals, permits and government entitlements necessary to develop the property in the District. However, portions of the development within the District are contingent upon the construction and acquisition of a public improvements, as well as the necessary local in -tract improvements. The installation of the necessary improvements is subject to the receipt of discretionary approvals from a number of public agencies concerning the layout and design of the development, the nature and extent of the improvements, land use, health and safety requirements and other matters. The failure to obtain any such approval could adversely affect land development within the District. No assurance can be given that necessary approvals, permits and government entitlements will be obtained in a timely fashion, if at all. The failure to do so may result in the prevention, or significant delays in the development of portions of the property in the District. A slow down or stoppage of the development process could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be default in the payment of principal of, and interest on, the Bonds. Endangered and Threatened Species It is illegal to harm or disturb any animals in their habitat that have been listed as an endangered species by the United States Fish & Wildlife Service (the "Service") under the Federal Endangered Species Act, or by the California Fish & Game Commission (the "Commission") under the California Endangered Species Act, without a permit from the Service or the Commission. It is possible that plants or animals already listed as endangered may be discovered or that plants or animals which inhabit the District and its surrounding area may be considered for listing as endangered species by the Commission or the Service or otherwise protected by actions of the State of California or the federal government. Such discovery or listing could delay or restrict development of portions of property in the District. The failure to develop the property in the District as planned, or substantial delays in the completion of the planned development of the property may effect the willingness and ability of the owners of property within the District to pay the Special Taxes when due. SF2-45945.2 26 40484-28SS4-11/04/95 Land Development Costs Development of land within the District is contingent upon construction or acquisition of major public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, drainage and flood protection facilities, gas, telephone and electrical facilities, j schools, parks and street lighting, as well as local in -tract improvements and on-site grading and related improvements. The cost of these improvements can be expected to increase the public and private debt for which the land within the District is security. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Resolution Trust Corporation or the Federal Deposit Insurance Corporation. See "SPECIAL RISK FACTORS -- Bankruptcy." Although private debt liens are subordinate to the lien of Special Taxes securing the Bonds, this increased private debt could reduce the ability or desire of the property owners to pay the annual Special Taxes levied against the property. If property owners in the District failed to pay the Special Taxes, and the Reserve Fund is depleted prior to collection of such delinquent Special Taxes through foreclosure sale or otherwise, there could be a default in the payment of principal of, and interest on, the Bonds. The Company or its successors must obtain private and public financing for significant costs relating to the development of the property in the District. The City offers no assurance that the Company or its successors will successfully obtain all such required private financing to complete the development as described herein. Overlapping Indebtedness The Special Taxes and any penalties thereon will constitute a lien against the parcels of land on which they will be annually imposed until they are paid. Such lien will be on a parity with all special taxes and special assessments which may be levied by other agencies and is co equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The City, however, has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessment payable from all or a portion of the property within the District. In addition, the landowners within the District may, without the consent or knowledge of the City, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes. See "SECURITY FOR THE BONDS -- Direct and Overlapping Debt." The ability of an owner of land within the District to pay the Special Taxes and the ad valorem property Tax levy could be adversely affected if additional debt is issued which is payable by the owners of land within the District. The imposition of additional liens, whether public or private, may reduce the ability or willingness of the landowners to pay the Special Tax and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Taxes. Potential Delay and Limitation in Foreclosure Proceedings The payment of property owners' taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE BONDS -- Covenant for Superior Court Foreclosure" and "SPECIAL RISK FACTORS -- Bankruptcy." In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. The ability of the District to foreclose the lien of a delinquent unpaid Special Tax payment may be limited with regard to properties in which the FDIC or the RTC may acquire an interest. Neither the Sn-45945.2 27 40484-28-SS4-11/04/95 FDIC nor the RTC currently have an interest in the Company. However, if a lender takes a security interest in any portion of the property in the District and becomes insolvent, such a lender could fall under the jurisdiction of the FDIC or the RTC. The RTC and FDIC have adopted substantially similar policies regarding the payment of state and local property taxes, including ad valorem and non -ad valorem special taxes and assessments. While these federal instrumentalities have acknowledged a policy of paying ad valorem and non -ad valorem special taxes and assessments in certain circumstances, they have also indicated an intention to assert federal preemptive power to challenge any prior taxes, special taxes and assessments where it is in their interest to do so, including the requirement that local agencies obtain the consent of the RTC or the FDIC in order to foreclose the lien of special taxes. If the District is required to obtain the consent of the RTC or the FDIC in order to foreclose on property located in the District, such consent could be denied and the District might be unable to pursue foreclosure proceedings. Additionally, although the RTC and the FDIC have agreed to attempt to respond to a request for consent to foreclose within 30-60 days, obtaining consent will delay the foreclosure proceedings. Any delay in foreclosure proceedings or the inability of the District to foreclose on properties in which the RTC or FDIC has an interest could result in a delay or default in payment of the Bonds. In addition, potential investors should be aware that judicial foreclosure proceedings are not summary remedies and can be subject to significant procedural and other delays caused by crowded court calendars and other factors beyond control of the District or the City. Potential investors should assume that, under current conditions, it is estimated that a judicial foreclosure of the lien of Special Taxes will take up to two or three years from initiation to the lien foreclosure sale. At a Special Tax lien foreclosure sale, each parcel will be sold for not less than the "minimum bid amount" which is equal to the sum of all delinquent Special Tax installments, penalties and interest thereon, costs of collection (including reasonable attorneys' fees), post judgment interest and costs of sale. Each parcel is sold at foreclosure for the amounts secured by the Special Tax lien on such parcel, and multiple parcels may not be aggregated in a single "bulk" foreclosure sale. If any parcel fails to obtain a "minimum bid," the City may, but is not obligated to, seek Superior Court approval to sell such parcel at an amount less than the minimum bid. Such Superior Court approval requires the consent of the holders of 75 % of the aggregate principal amount of the Outstanding Bonds. Delays and uncertainties in the Special Tax lien foreclosure process create significant risks for Bondholders. High rates of Special Tax payment delinquencies which continue during the pendency of protracted Special Tax lien foreclosure proceedings, could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon foreclosure. In that event, there could be a default in payments of the principal of, and interest on the Bonds. See "SPECIAL RISK FACTORS -- Concentration of Ownership" above. Bankruptcy 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 moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although a bankruptcy proceeding would not cause the Special Taxes to become extinguished, the amount and priority of any Special Tax lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim in the bankruptcy court. In addition, bankruptcy of a property owner could result in a delay in procuring Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Bonds and the possibility of delinquent tax installments not being paid in full. SP2-45945.2 28 40484-28-SS4-11/04/95 Maximum Rates Within the limits of the Special Tax, the City may adjust the Special Tax levied on all property within the District to provide an amount required to pay debt service on the Bonds and other obligations of the District, and the amount, if any, necessary to replenish the Reserve Fund to an amount equal to the Reserve Requirement and to pay all annual Administrative Expenses and make rebate payments to the United States government. However, the amount of the Special Tax may be levied against particular categories of property within the District is subject to the maximum rates provided in the Rate and Method. There is no assurance that the maximum rates will at all times be sufficient to pay the amounts required to be paid by the Fiscal Agent Agreement. Seismic Conditions The District is located in an area which has a history of seismic activity. The occurrence of seismic activity in the District could result in substantial damage to properties in the District which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes when due. Limited Secondary Market There can be no assurance 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 and District have committed to provide certain statutorily -required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Loss of Tax Exemption As discussed under the caption "CONCLUDING INFORMATION -- Tax Matters," the interest on the Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds as a result of a failure of the District to comply with certain provisions of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Indenture. Changes in Federal Tax Regulations The Internal Revenue Service has proposed regulations which if made final, would be applicable to future issues of debt securities by political subdivisions. In their present form, such regulations would severely limit the ability of the City to issue Additional Bonds on a tax-exempt basis, thereby increasing the probable cost of future debt financing to pay for additional public capital improvements necessary for further development in the District. No assurance can be given that such regulations will be adopted in their present form or in a form which completely eliminates the possibility of Additional Bonds being issued the interest on which is tax-exempt. SF2-45945.2 29 40484-28-SS4-11/04/95 CONCLUDING INFORMATION Legal Opinions The validity of the Bonds and certain other legal matters are subject to the approving opinion of Jones Hall Hill & White, A Professional Corporation, San Francisco, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix C, hereto and is printed on the Bonds. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Tax Matters Jones Hall Hill & White, A Professional Corporation, San Francisco, California, Bond Counsel, will render an opinion with respect to the Bonds substantially in the form set forth in Appendix C to this Official Statement. Copies of this opinion will be available at the time of delivery of the Bonds. Payment of the fees and expenses of Bond Counsel is contingent upon the sale and delivery of the Bonds. Certain legal matters will be passed upon for the Underwriter by Orrick, Herrington & Sutcliffe, San Francisco, California, and for the City by the City Attorney. Payment of the fees and expenses of Underwriter's counsel is contingent upon sale and delivery of the Bonds. The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. Underwriting The Bonds are being purchased for reoffering by Stone & Youngberg (the "Underwriter"). The Underwriter has agreed to purchase all of the Bonds for an aggregate purchase price of $ , plus accrued interest, subject to certain conditions set forth in the Purchase Contract between the City and the Underwriter. The purchase price reflects an underwriter's discount of $ . The initial offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. No Litigation At the time of delivery of and payment for the Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City affecting the existence of the City or the District or the titles of its officers to their respective offices or seeking to Sn-45945.2 30 40484-28-SS4-11/04/95 1 restrain or to enjoin the sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Fiscal Agent Agreement, or the collection or application of any revenues provided for the payment of the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Fiscal Agent Agreement, any action of the City contemplated by any of the said documents, or the collection or application of any revenues provided for the payment of the Bonds, or in any way / contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the Bonds or any action of the City contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor. No Rating The City has not and does not contemplate making an application to any rating agency for the assignment of a rating to the Bonds. Miscellaneous The quotations from, and the summaries and explanations of the Fiscal Agent Agreement and other municipal code provisions, statutes and documents contained herein do not purport to be complete, and reference is made to such documents, statutes and municipal code provisions for the full and complete statements of their respective 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 District or the City. The information contained herein should not be considered as representing all conditions affecting the City, the District or the Bonds. This Official Statement does not constitute a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement has been duly authorized by the City. CITY OF NEWPORT BEACH By: /s/ Kevin J. Murphy Kevin J. Murphy, City Manager SF2.45945.2 31 40484-28-SS4-11!04/95 APPENDIX A AMENDED AND RESTATED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) A Special Tax (the "Special Tax") shall be levied and collected in Newport Beach Special Improvement District No. 95-1 (CIOSA) (the "CIOSA District") each Fiscal Year in an amount determined by the City Council of the City of Newport Beach, or its designee, as described below. Commencing in Fiscal Year 1995-96 all of the property within the CIOSA District shall be subject to the Special Tax for the purposes, to the extent and in the manner herein provided. A. Deriinitions The terms hereinafter set forth have the following meanings: "Administrative Expenses" means any reasonably necessary or appropriate expenses incurred by the City in the administration of the CIOSA District. "Advance Amount" means the amount of the Advance as defined in the CIOSA Agreement. "Assessor's Parcel" means a lot or parcel with an assigned Assessor's Parcel number shown in an Assessor's Parcel Map. "Assessor's Parcel Map" means an official map of the County Assessor of the County of Orange designating parcels by Assessor's Parcel numbers. "Bayview Landing" means that portion of the CIOSA District described in Exhibit A hereto. "Block 800" means that portion of the CIOSA District described in Exhibit A hereto. "Bond Year" means, with respect to each issue of Bonds, the period which commences on the date on which such Bonds are issued and, subsequent to such issuance, on each September 2, and ends on the following September 1. "Bonds" means bonds, notes or other evidences of indebtedness issued by or on behalf of the CIOSA District pursuant to the Code which are payable from Special Taxes. "CIOSA Agreement" means the Circulation Improvement and Open Space Agreement dated June 30, 1993 by and between the City and The Irvine Company as the same may be amended from time to time. "CIOSA Agreement Amount" means the sum of (a) the Fair Share Fees Amount, (b) the Frontage Improvements Amount and (c) the Advance Amount. "CIOSA District" means Newport Beach Special Improvement District No. 95-1 (CIOSA) as formed by the City pursuant to the Code and as it may be amended from time to time. SF2-45945.2 A-1 40484-28-'30-11/04/95 "CIOSA District Improvement Fund" means the fund established and maintained by or on behalf of the City separate and apart from its other funds and accounts into which money is to be deposited and from which money is to be expended as provided herein and as may be provided in an agreement by and between the City and The Irvine Company. "CIOSA District Improvement Fund Requirement" means, as of any date of calculation, the CIOSA Agreement Amount as of such date, less the total amount deposited in the CIOSA District Improvement Fund on or before such date from (a) proceeds from the sale of Bonds, (b) Special Taxes, (c) the prepayment of Special Taxes, (d) repayments from the City pursuant to Section 3.7 of the CIOSA Agreement and (e) earnings derived from the investment of amounts on deposit in the CIOSA District Improvement Fund. "City" means the City of Newport Beach. "City Council" means the City Council of the City of Newport Beach, acting as the legislative body of the CIOSA District, or its designee. "City Engineer" means the City Engineer of the City or such other person or firm as may from time to time be authorized and directed by the City Council to undertake the duties of the City Engineer hereunder. "Code" means the City of Newport Beach Special Improvement District Financing Code. "Corporate Plaza" means that portion of the CIOSA District described in Exhibit A hereto. "Corporate Plaza West" means that portion of the CIOSA District described in Exhibit A hereto. "Debt Service Requirement" means for each Fiscal Year the sum of (a) one hundred percent (100%) of the principal of and interest on Bonds coming due in the Bond Year which ends in the next subsequent Fiscal Year, except to the extent such principal or interest is expected to be paid from proceeds from the sale of Bonds or other amounts then available in the applicable debt service fund for such purpose, (b) the product of the amount described in clause (a) times the larger of (i) the rate of delinquency in the payment of the Special Tax during the Fiscal Year immediately preceding the Fiscal Year for -which the Debt Service Requirement is being determined or (ii) ten percent (10%), (c) the sum of all deposits then required to be made into any reserve fund established with respect to any Bonds, and (d) the reasonably estimated Administrative Expenses for the Bond Year referred to in clause (a). "Developed Property" means for any Fiscal Year all Taxable Property within a Zone in which is located an Assessor's Parcel for which a building permit (other than a building permit for a structure in a model home complex) was issued prior to May 1 of the preceding Fiscal Year. "Fair Share Fees Amount" means the total amount of the Fair Share Fees as defined in the CIOSA Agreement. "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Freeway Reservation" means that portion of the CIOSA District described in Exhibit A hereto. "Frontage Improvements Amount" means the total cost of the Frontage Improvements as defined in the CIOSA Agreement. "Initial Final Subdivision Map" means for each Zone the first final subdivision map permitting the sale of lots for single family residential uses within the Zone. SP2-45945.2 A_2 40484-28-ss4-1 M4195 "Maximum Special Tax" means the highest Special Tax, determined in accordance with Sections C and H, that can be levied by the City Council on an Assessor's Parcel in any Fiscal Year. "Newport Village - PCH/MacArthur" means that portion of the CIOSA District described in Exhibit A hereto. "Newporter North" means that portion of the CIOSA District described in Exhibit A hereto. "Parcel Area" means the square footage of an Assessor's Parcel determined by the City Engineer from the subdivision map or parcel map creating such Assessor's Parcel. "Property Owner Association Property" means any Assessor's Parcel which is owned by a property owner association or which the City Engineer determines from the subdivision map or parcel map creating such Assessor's Parcel is intended to be so owned. "Proportionately" means, with respect to Developed Property, that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all Assessor's Parcels and, with respect to Undeveloped Property, means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all Assessor's Parcels. "Public Property" means any property within the boundaries of the CIOSA District owned by or dedicated to the federal government, the State of California, the City or any other public agency, provided that any leasehold or other possessory interest in such property (which leasehold or other possessory interest is not owned by a public agency) shall not be considered Public Property. "San Diego Creek" means that portion of the CIOSA District described in Exhibit A hereto. "Share of Zone Area" shall mean: (1) in the case of an Assessor's Parcel within a Zone which contains no Single Family Residential Property, the quotient obtained by dividing the Parcel Area of the Assessor's Parcel by the Zone Area of the Zone; and (2) in the case of an Assessor's Parcel within a Zone which contains any Single Family Residential Property: (a) prior to the recordation of the Initial Final Subdivision Map, the quotient obtained by dividing the Parcel Area of the Assessor's Parcel by the Zone Area of the Zone; (b) from and after the recordation of the Initial Final Subdivision Map, but (in the case of any Assessor's Parcel within the Zone not included within the Initial Final Subdivision Map) prior to the recordation of a Subsequent Final Subdivision Map: (i) for each Assessor's Parcel included within the Initial Final Subdivision Map which is Taxable Property other than Single Family Residential Property, the quotient obtained by dividing the Parcel Area of the Assessor's Parcel by the sum of the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Taxable Property plus the aggregate area which the City Engineer estimates (pursuant to clause (iii) hereof), at the time Initial Final Subdivision Map is recorded, will be Taxable Property of all Assessor's Parcels not included within the Initial Final Subdivision Map; SF2-45945.2 A-3 40484-28-SS4-11/04/95 (ii) for each Assessor's Parcel included within the Initial Final Subdivision Map which is Single Family Residential Property, the product of a fraction the numerator of which is the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Single Family Residential Property and the denominator of which is the sum of the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Taxable Property plus the aggregate area which the City Engineer estimates (pursuant to clause (iii) hereof), at the time Initial Final Subdivision Map is recorded, will be Taxable Property of all Assessor's Parcels not included within the Initial Final Subdivision Map, times a fraction the numerator of which is one (1) and the denominator of which is the number of Assessor's Parcels included within the Initial Final Subdivision Map which are Single Family Residential Property; and (iii) for each Assessor's Parcel within the Zone not included within the Initial Final Subdivision Map, the quotient obtained by dividing the area of the portion thereof which the City Engineer estimates, at the time the Initial Final Subdivision Map is recorded, will be Taxable Property upon the subdivision thereof by the sum of the aggregate Parcel Area of all Assessor's Parcels included within the Initial Final Subdivision Map which are Taxable Property plus the aggregate area which the City Engineer estimates, at the time Initial Final Subdivision Map is recorded, will be Taxable Property of all Assessor's Parcels within the Zone not included within the Initial Final Subdivision Map; and (c) subsequent to the recordation of each Subsequent Final Subdivision Map (in each case, for Assessor's Parcels within the Zone which had not theretofore been included within either the Initial Final Subdivision Map or a Subsequent Final Subdivision Map): (i) for each Assessor's Parcel included within such Subsequent Final Subdivision Map which is Taxable Property other than Single Family Residential Property, the product of a fraction the numerator of which is the Parcel Area of the Assessor's Parcel and the denominator of which is the actual total of the area of all the Assessor's Parcels included in such Subsequent Final Subdivision Map which are Taxable Property, times a fraction the numerator of which is the area which the City Engineer estimated would be Taxable Property pursuant to clause (b)(iii) of all the Assessor's Parcels included in such Subsequent Final Subdivision Map (as a whole, and not individually) and the denominator of which is the sum of the aggregate Parcel Area of all Assessor's Parcels described in clauses (b)(i) and (b)(ii) plus the aggregate area which the City Engineer estimated pursuant to clause (b)(iii) would be Taxable Property of all Assessor's Parcels within the Zone which were not included within the Initial Final Subdivision Map; (ii) for each Assessor's Parcel included within the Subsequent Final Subdivision Map which is Single Family Residential Property, the product of a fraction the numerator of which is the total Parcel Area of all Assessor's Parcels included within the Subsequent Final Subdivision Map which are Single Family Residential Property and the denominator of which is the actual total of the area of all the Assessor's Parcels included in such Subsequent Final Subdivision Map which are Taxable Property, times a fraction the numerator of which is the area which the City Engineer estimated would be Taxable Property pursuant to SF2.45945.2 A14 +0484-28-ss4-1 Iro4/95 clause (b)(iii) of all the Assessor's Parcels included in such Subsequent Final Subdivision Map (as a whole, and not individually) and the denominator of which is the sum of the aggregate Parcel Area of all Assessor's Parcels described in clauses (b)(i) and (b)(ii) plus the aggregate area which the City Engineer estimated pursuant to clause (b)(iii) would be Taxable Property of all Assessor's Parcels within the Zone which were not included within the Initial Final Subdivision Map, times a fraction the numerator of which is 1 and the denominator of which is the number of Assessor's Parcels which are included within such Subsequent Final Subdivision Map and which are Single Family Residential Property; and (iii) for each Assessor's Parcel within the Zone which is not included within such Subsequent Final Subdivision Map, the quotient obtained by dividing the area of such Assessor's Parcel which the City Engineer estimated would be Taxable Property pursuant to clause (b)(iii) by the sum of the aggregate Parcel Area of all Assessor's Parcels described in clauses (b)(i) and (b)(ii) plus the aggregate area which the City Engineer estimated pursuant to clause (b)(iii) would be Taxable Property of all Assessor's Parcels within the Zone which were not included within the Initial Final Subdivision Map. "Single Family Residential Property" means all Assessor's Parcels which are used, or are permitted under the City's planning and zoning laws to be used, as the site of one single family dwelling unit (either detached or attached) or a condominium unit, provided that Single Family Residential Property shall not include any Assessor's Parcel which is Property Owner Association Property or Public Property. "Special Tax" means the Special Tax, if any, to be levied in each Fiscal Year on each Assessor's Parcel within the CIOSA District. "Special Tax Reduction" means the product of 0.69 times a fraction the numerator of which is $14,300,000 minus the Advance Amount and the denominator of which is $14,300,000. "Subsequent Final Subdivision Map" means for each Zone a final subdivision map permitting the sale of lots for single family residential uses within the Zone which is recorded subsequent to the Initial Final Subdivision Map. "Taxable Property" means all of the Assessor's Parcels within the boundaries of the CIOSA District which are not exempt from the Special Tax pursuant to law or Section E below. "Undeveloped Property" means for any Fiscal Year all Taxable Property which is not classified as Developed Property for such Fiscal Year. "Upper Castaways" means that portion of the CIOSA District described in Exhibit A hereto. "Zone" means Bayview Landing, Block 800, Corporate Plaza, Corporate Plaza West, Freeway Reservation, Newport Village - PCH/MacArthur, Newporter North, San Diego Creek or Upper Castaways, as the case may be. "Zone Area" means the sum of the Parcel Area of each Assessor's Parcel of Taxable Property included in such Zone. SF2-45945.2 A-5 40484-28-&94-11/04195 "Zone Prepayment Amount" means the respective amount set forth in the following table minus the product of such amount times the Special Tax Reduction, if any: Zone Bayview Landing Block 800 Corporate Plaza Corporate Plaza West Freeway Reservation Newport Village - PCH/MacArthur Newporter North San Diego Creek Upper Castaways Prepayment Amount $ 95,000 1,370,000 1,400,000 1,925,000 1,585,000 2,575,000 7,950,000 2,890,000 6,960,000 "Zone Special Tax" means, for Fiscal Year 1995-96, the respective amount set forth in the following table and, for each Fiscal Year subsequent to Fiscal Year 1995-96, one hundred two percent (102%) of the amount for the preceding Fiscal Year, minus in each case the product of such amount (as increased in each Fiscal Year) times the Special Tax Reduction, if any. Zone Bayview Landing Block 800 Corporate Plaza Corporate Plaza West Freeway Reservation Newport Village - PCH/MacArthur Newporter North San Diego Creek Upper Castaways B. Determination as to Type of Property Special Tax $ 7,200 105,350 107,572 147,911 121,830 197,855 610,900 222,300 534,786 For each Fiscal Year, all Taxable Property within the CIOSA District shall be classified as Developed Property or Undeveloped Property and shall be subject to the Special Tax in accordance with the rate and method of apportionment determined pursuant to Sections C, D and H below. C. Maximum Special Tax Rate The Maximum Special Tax in each Fiscal Year for an Assessor's Parcel of Taxable Property shall be the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Special Tax then applicable to the Zone in which such Assessor's Parcel is located. Notwithstanding the foregoing, the Maximum Special Tax for an Assessor's Parcel shall be reduced to reflect a prepayment of the Special Tax applicable thereto as provided for in Section H. D. Method of Apportionment of Special Tax For each Fiscal Year, commencing with Fiscal Year 1995-96 until the earlier of (i) the date on which the CIOSA District Improvement Fund Requirement has been reduced to zero and there are no Bonds outstanding, or (ii) June 30, 2036, the City Council shall levy the Special Tax as follows: SF2.45945.2 A-6 40484-28-SS4-11/04/95 First: Until the CIOSA District Improvement Fund Requirement has been reduced to zero, the Special Tax shall be levied on each Assessor's Parcel of Developed Property at a rate equal to its Maximum Special Tax; Second: To the extent additional money is needed in order to equal the Debt Service Requirement prior to the reduction of the CIOSA District Improvement Fund Requirement to zero, the Special Tax shall be levied Proportionately on all Undeveloped Property in an amount not in excess of the Maximum Special Tax; Third: After the CIOSA District Improvement Fund Requirement has been reduced to zero, the Special Tax shall be levied Proportionately on each Assessor's Parcel of Developed Property such that the total thereof will equal the Debt Service Requirement, provided, however, that in no event shall the amount of the Special Tax so levied exceed the Maximum Special Tax; and Fourth: After the CIOSA District Improvement Fund Requirement has been reduced to zero, to the extent additional money is needed in order to equal the Debt Service Requirement, the Special Tax shall be levied Proportionately on all Undeveloped Property, provided, however, that in no event shall the amount of the Special Tax so levied exceed the Maximum Special Tax. E. Exemptions The City Council shall not levy a Special Tax on either (a) Property Owner Association Property, except the Property Owner Association Property within a Zone which was included in the estimate of Taxable Property made pursuant to clause (b)(iii) of the definition of "Share of Zone Area" and which first became Property Owner Association Property subsequent to the date of recordation of the Initial Final Subdivision Map or (b) Public Property, except the Public Property within a Zone which was included in the estimate of Taxable Property made pursuant to clause (b)(iii) of the definition of "Share of Zone Area" and which first became Public Property subsequent to the date of recordation of the Initial Final Subdivision Map as a result of acquisition through a negotiated transaction (other than the CIOSA Agreement) or by gift or devise or through eminent domain proceedings, provided that in the case of such property acquired through eminent domain proceedings the obligation to pay the Special Tax shall be treated as if it were a special annual assessment. F. Appeals Any landowner or resident who feels that the amount of the Special Tax is in error may file a notice with the CIOSA District appealing the amount of the Special Tax; provided, however, that if Bonds are outstanding any appeal must be accompanied by payment in full of the actual Special Tax levied. A representative of the CIOSA District will then review the appeal and, if necessary, meet with the applicant. If the findings of the CIOSA District representative verify that the amount of the Special Tax should be modified or changed, then, as appropriate, the Special Tax levy shall be corrected, or if the amount has been paid, then it shall be refunded from available Special Taxes levied and collected in the following Fiscal Year. G. Manner of Collection The Special Tax will be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, the CIOSA District may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations and may covenant to foreclose on delinquent parcels as permitted by the Code. SF2-45945.2 ' A_7 40484.28-SS4-11/04/95 H. Prepayment of Special Tax 1. Prior to Issuance of Bonds - Developed Property and Undeveloped Property: Prior to the initial issuance of Bonds, the Special Tax applicable to any Assessor's Parcel may be prepaid in whole by paying to the City Treasurer seventy-seven percent (77%) of the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located. Prior to the initial issuance of Bonds, the Special Tax applicable to any Assessor's Parcel may be prepaid in part by paying to the City Treasurer a specific dollar amount in lieu of the amount determined pursuant to the preceding sentence; and from and after the City Treasurer's receipt of such partial prepayment, the Maximum Special Tax applicable to such Assessor's Parcel shall be the product of the Maximum Special Tax which would have otherwise been applicable thereto times a fraction the numerator of which is the specific amount paid in lieu of the amount described in the first sentence of this paragraph and the denominator of which is the amount described in said sentence. 2. After Issuance of Bonds - Undeveloped Property If Test Met: Subsequent to the initial issuance of Bonds, if the aggregate amount of the Special Taxes applicable to all Developed Property is sufficient to satisfy the Debt Service Requirement for the Bonds then outstanding in the then current Fiscal Year and each Fiscal Year thereafter (determined without any credit for capitalized interest), the Special Tax applicable to any Assessor's Parcel which is then classified as Undeveloped Property may be prepaid in whole by paying to the City Treasurer seventy-seven percent (77 %) of the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located. Under the circumstances described in the preceding sentence, the Special Tax applicable to any Assessor's Parcel may be prepaid in part by paying to the City Treasurer a specific dollar amount in lieu of the amount determined pursuant to the preceding sentence; and from and after the City Treasurer's receipt of such partial prepayment, the Maximum Special Tax applicable to such Assessor's Parcel shall be the product of the Maximum Special Tax which would have otherwise been applicable thereto times a fraction the numerator of which is the specific amount paid in lieu of the amount described in the first sentence of this paragraph and the denominator of which is the amount described in said sentence. 3. After Issuance of Bonds - Developed Property and Undeveloped Property If Test Not Met: Except as otherwise provided in the preceding two paragraphs, the Special Tax applicable to any Assessor's Parcel may be prepaid in whole by paying to the City Treasurer the sum of - (a) The remainder of (i) the product obtained by multiplying the Share of Zone Area for such Assessor's Parcel times the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located minus (ii) the portion of said product which would have been amortized as principal through the application of the portion of the Special Taxes attributable to the principal of and interest on Bonds theretofore paid with respect to said Assessor's Parcel (as determined by the City Treasurer) assuming that said product had borne interest at an annual rate equal to the highest rate borne by any Bond (or, if no Bond is then outstanding, nine percent (9%)) and that it had been payable in annual installments (each of which is two percent (2%) larger than the prior year's installment) over the same number of years as the Bond with the longest maturity, measured from the date of issuance of such Bond (or, if no Bond is then outstanding, twenty-five (25) years); provided that, in the case of an Assessor's Parcel which is then classified as Developed Property, the remainder referred to in the previous clause of this subparagraph shall be reduced by twenty-three percent (23 %) of the product obtained by multiplying (iii) the Share of Zone Area for such Assessor's Parcel times (iv) a fraction the numerator of which is the Zone Prepayment Amount applicable to the Zone in which such Assessor's Parcel is located and the denominator of which is the aggregate Zone Prepayment Amounts for all Zones which then include Developed Property times (v) the amount, if any, by SF2-45945.2 A-8 40484-28-SS4-11/04/95 which the aggregate Zone Prepayment Amounts for all Zones which then include Developed Property exceeds the aggregate principal amount of Bonds then outstanding; and (b) The amount of any delinquent Special Taxes applicable to said Assessor's Parcel, together with penalties, interest, and Administrative Expenses incurred as a result of said delinquencies accrued to the date of prepayment; and (c) An amount equal to the product of the amount determined pursuant to paragraph (a) above times the highest redemption premium applicable to any Bond at the next call date (as defined in paragraph (e) below); and (d) A reasonable fee, fixed by the City Treasurer, for the cost of administering the prepayment and, if applicable, the advance redemption of Bonds; and (e) Interest to the next call date on the amount determined pursuant to paragraph (a) above, computed at the highest interest rate then applicable to any Bond. For purposes of this paragraph and paragraph (c) above, the next call date is the next Bond interest payment date which is not less than 90 days after the date of prepayment. A credit against the foregoing shall be given, or a refund paid, for the Special Tax applicable to said Assessor's Parcel posted to the current tax roll and actually paid. The Special Tax applicable to any Assessor's Parcel may be prepaid in part by paying to the City Treasurer a portion (in increments of five thousand dollars ($5,000)) of the amount determined pursuant to paragraph (a) above plus the respective amounts relative thereto described in paragraphs (b) through (e) above. From and after the City Treasurer's receipt of any such partial prepayment, the Maximum Special Tax applicable to such Assessor's Parcel shall be the product of the Maximum Special Tax which would have otherwise been applicable thereto times a fraction the numerator of which is the specific amount paid in lieu of the amount described in paragraph (a) above and the denominator of which is the amount described in paragraph (a) above. SF2-45945.2 A-9 40484-28-SS4-11/04/95 EXHIBIT A NEWPORT BEACH CIOSA ASSESSOR PARCELS Upper Castaways 117-801-12 Bayview Landing 440-132-06 440-132-08 Newporter North 440-132-21 440-132-24 San Diego Creek 442-061-09 442-061-11 442-061-14 Corporate Plaza West 442-011-54 Corporate Plaza 442-271-09 442-271-10 442-271-11 442-271-19 442-271-26 Block 800 442-262-04 Newport Village - PCH/MacArthur 442-014-28 442-272-03 442-272-04 Freeway Reservation 458-142-07 SF2-45945.2 A-10 40484-28-SS4-11/04/95 APPENDIX B CERTAIN INFORMATION WITH RESPECT TO THE CITY CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) The following information concerning the City of Newport Beach (the "City") and the surrounding area is included only for the purpose of supplying general information regarding the community. The Bonds are not a debt of the City, the County of Orange (the "County"), or the State of California (the "State") or any of its political subdivisions, and none of the City, the County or the State or any of its political subdivisions is liable therefor. General Description The City was incorporated September 1, 1906. The Council -Manager form of government was established by Municipal Charter on January 7, 1955. The City is located in Orange County, at the Pacific Ocean, and is approximately 75 miles north of San Diego, 15 miles south of Long Beach, and 50 miles south of Los Angeles. The tourist population is high throughout the year. The City's harbor, recreation and special attraction draws many to the City. Population (to come) SF2-45945.2 B-1 40484-28-SS4-11/04/95 APPENDIX C FORM OF OPINION OF BOND COUNSEL CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) Closing Date, 1995 City Council City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92658 OPINION: $ City of Newport Beach Special Improvement District No. 95-1 (CIOSA), Special Tax Bonds, ATax Bonds. Series A Members of the City Council: We have acted as bond counsel in connection with the issuance by the City of Newport Beach (the "City") of its $ Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Bonds") pursuant to the City of Newport Beach Special Improvement District Financing Code (the "Act"), a Fiscal Agent Agreement, dated as of 1, 1995 (the "Fiscal Agent Agreement"), by and between the City and , as fiscal agent, and Resolution No. , adopted by the City Council of the City on , 1995 (the "Resolution"). We have examined the law and such certified proceedings and other documents as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly created and validly existing as a charter city and municipal corporation, with the power to enact the Act, adopt the Resolution, enter into the Fiscal Agent Agreement and perform the agreements on its part contained therein and issue the Bonds. 2. The Fiscal Agent Agreement has been duly entered into by the City and constitutes a valid and binding obligation of the City enforceable upon the City. 3. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement for the security of the Bonds. SF2.45945.2 C-1 40484-28SS4-11/04/95 4. The Bonds have been duly authorized, executed and delivered by the City and are valid and binding limited obligations of the City, payable solely from the sources provided therefor in the Fiscal Agent Agreement. 5. The 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 the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that such interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds, the Resolution and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, A Professional Law Corporation SF2-45945.2 C_2 40484-28-SS4-11/04/95 II 1 APPENDIX D SUMMARY OF THE FISCAL AGENT AGREEMENT CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS, SERIES A The following is a brief summary of certain provisions of the Fiscal Agent Agreement not otherwise described in the text of this Official Statement under the headings "Introduction," "The Bonds", and "Security for the Bonds." Such summary is not intended to be definitive, and reference is made to the text of the Fiscal Agent Agreement for the complete terms thereof. DEFINITIONS Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary: "Act" means the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code. "Additional Bonds" means Bonds other than Series A Bonds issued in accordance with the provisions of Section 3.05 and 3.06 of this Agreement. "Administrative Expenses" means costs directly related to the administration of the District consisting of: the actual costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the actual costs of collecting the Special Taxes (whether by the County or otherwise); the actual costs of remitting the Special Taxes to the Fiscal Agent; actual costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs of the City or its designee of complying with the disclosure provisions of the Continuing Disclosure Certificate and this Agreement, including those .related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser; the actual costs of the City or its designee related to an appeal of the Special Tax; any amounts required to be rebated to the federal government under the Fiscal Agent Agreement; an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto. Administrative Expenses shall also include amounts advanced by the City for any administrative purpose of the District, including costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to pay rebate to the federal government to comply with Section 6.09(b) of this Agreement, and the costs of foreclosure of delinquent Special Taxes. "Administrative Expense Fund" means the fund by that name established by this Agreement. "Agreement" means this Fiscal Agent Agreement, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Agreement. "Annual Debt Service" means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of the provisions of the Fiscal Agent Agreement providing for mandatory sinking SF2-45945.2 D-1 40484-28-SS4-11/04/95 payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year pursuant to the Fiscal Agent Agreement). "Appraised Value" means the value of all or any portion of the taxable property within the District, as set forth in a Qualified Appraisal Report prepared by a Qualified Appraiser. "Auditor" means the auditor/controller of the County of Orange. "Authorized Representative" means: (a) with respect to the City, its City Manager or Finance Director, or any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Fiscal Agent, and (b) with respect to the Fiscal Agent, the Senior Vice President, any Vice President, any Assistant Vice President or any Trust Officer of the Fiscal Agent, and when used with reference to any act or document also means any other Person authorized to perform such act or sign any document by or pursuant to a resolution of the Board of Directors of the Fiscal Agent or the by-laws of the Fiscal Agent. "Bond Counsel" means a firm of nationally recognized bond counsel selected by the City and acceptable to the Fiscal Agent. "Bond Fund" means the fund by that name established by the Fiscal Agent Agreement. "Bond Year" means the one-year period beginning September 2nd in each year and extending to the next succeeding September 1st, both dates inclusive, except that the first Bond Year shall begin on the Closing Date for the Series A Bonds and end on September 1, 1996. "Bonds" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A and any Additional Bonds. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the state in which the Fiscal Agent has its principal corporate trust office are authorized or obligated by law or executive order to be closed. "CIOSA Agreement" means the Circulation Improvement and Open Space Agreement, dated June 30, 1993, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "CIOSA District Improvement Fund Requirement" has the meaning ascribed thereto in the Rate and Method. "CC" means the City of Newport Beach and any successor thereto. "Closing Date" means the date upon which the Series A Bonds are delivered to the Original Purchaser, being , 1995. "Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Series A Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Series A Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. "Commission" means the United States Securities and Exchange Commission. SF2.45945.2 D-2 40494-29-SS4-11ro4ro5 E "Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed by the City and dated the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Fiscal Agent and its counsel, including the Fiscal Agent's first annual administrative fee, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds. "Costs of Issuance Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 3.03. "Debt Service" means the scheduled amount of interest and amortization of principal payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Depository" means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to this Agreement. "District" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA), formed pursuant to the Resolution of Formation. "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security -State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. "Federal Securities" means any of the following which are non -callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Fiscal Agent: (i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as "stripped" obligations and coupons; or (ii) any of the following obligations of the following agencies of the United States of America: (a) direct obligations of the Export -Import Bank, (b) certificates of beneficial ownership issued by the Farmers Home Administration, (c) participation certificates issued by SF2-45945.2 D-3 40484-28-SS4-11!04/95 the General Services Administration, (d) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, (e) project notes issued by the United States Department of Housing and Urban Development, and (f) public housing notes and bonds guaranteed by the United States of America. "Fiscal Agent" means , a organized and existing under the laws of or any successor thereto as Fiscal Agent under this Agreement, appointed as provided herein. "Fiscal Year" means any twelve-month period extending from July I in a calendar year to June 30 of the succeeding year, both dates inclusive. "Improvement Fund" means the CIOSA District Improvement Fund established and held by the Fiscal Agent pursuant to Section 3.04. "Independent Consultant" means any consultant or firm of such consultants appointed by the City and who, or each of whom: (i) is generally recognized to be qualified in the financial consulting field, (ii) is in fact independent and not under the domination of the City, (iii) does not have any substantial interest, direct or indirect, with or in the City, or any owner of real property in the District, or any real property in the District; and (iv) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Street, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' Called Bond Service, 55 Broad Street, 28th Floor, New York, New York 10004, "Moody's Investors Service Municipal and Government," 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; Standard & Poor's Corporation "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. "Interest Payment Date" means March 1 and September 1 in each year, commencing March 1, 1996, so long as any Bonds remain Outstanding. "Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds. "Moody's" means Moody's Investors Service, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Office" means the principal corporate trust office of the Fiscal Agent at , or such other office as may be specified to the City by the Fiscal Agent in writing. "Ordinance" means any ordinance of the City levying the Special Taxes. "Original Purchasers" means the original purchasers of the Series A Bonds from the City. SF2-45945.2 D4 40484-28-SS4-11/04!95 "Other District Bonds" means, as of the date of determination, (a) any and all bonds issued under the Mello -Roos Community Facilities Act of 1982, as amended, then outstanding and payable at least partially from special taxes to be levied or parcels of land within the District, and (b) any and all bonds, other than the Bonds, issued under the Act then outstanding and payable at lease partially from special taxes to be levied on parcels of land within the District. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09) all Bonds theretofore, or thereupon being, authenticated and delivered by the Fiscal Agent under this Agreement except; (a) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (b) Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including Bonds (or portions of Bonds) disqualified under Section 11.09; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to this Agreement. "Owner" means, with respect to a Bond, the person in whose name such Bond is registered on the Registration Books. "Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. "Permitted Investments" means the following, but only to the extent that the same are acquired at Fair Market Value; (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export -Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest-bearing demand or time deposits (including certificates of deposit) in federal or state chartered savings and loan associations or in federal or State of California Banks (including the Fiscal Agent), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall be rated Al or better by S&P, or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-term rating category by S&P, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; SF2-45945.2 D-5 40484-28-SS4-11/04/95 (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated in the highest short-term rating category by S&P, which mature not more than 270 days following the date of investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are rated A or better by S&P; (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S&P; (h) money market funds which are rated Am or better by S&P; (i) any investment agreement which is approved in writing by S&P prior to the time of initial investment; and 0) the Local Agency Investment Fund established pursuant to Section 16249.1 of the Government Code of the State of California to the extent the Fiscal Agent may deposit and withdraw funds directly, provided that the Fiscal Agent may restrict such investment if required to keep moneys available for the purposes of this Agreement. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Project" means the facilities more particularly described in the Resolution of Formation. "Protocol Agreement" means the Protocol Agreement, dated as of , 1995, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "Qualified Appraisal Report" means a real estate appraisal report which (a) has been prepared by a Qualified Appraiser, (b) at the time it was submitted to the City is not more than six months old, or was updated by letter no more than six months prior to the date of submittal to the City, (c) states that it is prepared in accordance with the applicable standards of the American Institute of Real Estate Appraisers for such reports, (d) provides an appraisal 'of the aggregate retail value for all parcels appraised thereunder, and (e) with respect to any undeveloped property, applies a bulk sale discount to the aggregate retail values of such parcels to determine the Appraised Value thereof. "Qualified Appraiser" means a real estate appraiser selected by the City having an "M.A.I." designation from the American Institute of Real Estate Appraisers. "Rate and Method" means the rate and method of apportionment of the Special Taxes approved by the qualified electors of the District. "Record Date" means (a) the 15th calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day, and (b) any date established by the Fiscal Agent pursuant to Section 2.02(c) as Record Date for the payment of defaulted interest on the Bonds, if any. "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. Sn-45945.2 D-6 40484-28-SS4-11/04/95 "Registration Books" means the records maintained by the Fiscal Agent for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.04. "Reserve Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.05. "Reserve Requirement" means, as of the date of any calculation, the lesser of (a) ten percent (10%) of the original aggregate principal amount of the Bonds, or (b) Maximum Annual Debt Service. "Resolution of Formation" means Resolution No. , adopted by the City Council of the City on , 1995. "Resolution of Issuance" means Resolution No. , adopted by the City Council of the City on , 1995, authorizing the issuance of the Series A Bonds. "S&P" means Standard & Poor's Rating Group, a division of McGraw-Hill, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax - (516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures - Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605, Fax - (312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Dex - (215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. "Series" means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to this Agreement as the Series A Bonds, and any Additional Bonds issued pursuant to a Supplemental Agreement and identified as a separate Series of Bonds. "Series A Bonds" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A, issued hereunder. "Special Tax Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.02. "Special Tax Revenues" means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, to the amount of said lien and interest and penalties thereon. "Special Taxes" means the special taxes levied within the District pursuant to the Act, the Ordinance and this Agreement. "Supplemental Agreement" means any agreement amendatory of or supplemental to this Agreement, but only if and to the extent that such Supplemental Agreement is specifically authorized hereunder. SF2-45945.2 D-7 40484-28-SS4-11/04/95 "Written Certificate" and "Written Request" of the City mean, respectively, a written certificate or written request signed in the name of the City by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Funds and Accounts Improvement Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the City of Newport Beach Special Improvement District No. 95-1 (C105A) Special Tax Bonds, Series A, Improvement Fund, and within said fund two accounts, the Proceeds Account and the Special Tax Account. Moneys in the Improvement Fund shall be held in trust by the Fiscal Agent for the benefit of the City, and shall be disbursed for the payment of costs of the Project. Disbursements from the Improvement Fund will be made by the Fiscal Agent upon receipt of a Written Report of the City which shall: (i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made, that the disbursement is a proper charge against the Improvement Fund, and the Person to whom the disbursement is to be paid; and (ii) certify that no portion of the amount then being requested to be disbursed was set forth in any Written Report of the City previously filed requesting a disbursement. In making such disbursement, the Fiscal Agent shall withdraw moneys first from the Proceeds Account and to the extent moneys in the Proceeds Account are insufficient, from the Special Tax Account. Upon the filing of a Written Certificate of the City stating that the Project has been completed and that all costs of the Project have been paid, or that any such costs are not required to be paid from the Improvement Fund, the Fiscal Agent shall transfer the amount, if any, remaining in the Improvement Fund to the Redemption Fund to be used to redeem Bonds in accordance with the Fiscal Agent Agreement, and the Improvement Fund shall be closed. Special Tax Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the Special Tax Fund to the credit of which the City shall deposit, as soon as practicable after receipt, all Special Tax Revenues (other than prepaid Special Taxes) received by the City. From time to time as needed to pay the obligations of the District, but no later than five (5) Business Days before each Interest Payment Date, the Fiscal Agent is required to withdraw from the Special Tax Fund and transfer (a) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund equals the Reserve Requirement, and (b) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund, such that the amount in the Bond Fund equals the principal and interest due on the Bonds on the next two Interest Payment Dates with respect to Special Tax Revenues received during the period from September 1 through the last day of February in any year, and on the next Interest Payment Date with respect to Special Tax Revenues received during the period from March 1 through August 31 in any year. On September 2 of each year, the Fiscal Agent shall transfer all remaining amounts then in the Special Tax Fund to the Administrative Expense Fund. Administrative Expense Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the Administrative Expense Fund, to the credit of which deposits shall be made as required by the Fiscal Agent Agreement. Amounts in the Administrative Expense Fund will be disbursed by the Fiscal Agent to the City or its order upon receipt by the Fiscal Agent of an appropriate requisition in the form prescribed by the Fiscal Agent Agreement. On September 2 of each year, the Fiscal Agent shall withdraw any amounts SF2-45945.2 D_8 40484-28-SS4-11/04/95 i then remaining in the Administrative Expense Fund that have not been allocated to pay Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered, and transfer such amounts to the Special Tax Account of the Improvement Fund; provided that in certain circumstances, said amounts will be transferred to the Redemption Fund and applied to the redemption of Series A Bonds. Costs of Issuance Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the Costs of Issuance Fund to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement. Amounts in the Costs of Issuance Fund will be disbursed from time to time to pay Costs of Issuance, as set forth in a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that the payment is a property charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, and accompanied by a statement or invoice for each amount requested to be paid. Bond Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the Bond Fund, to the credit of which deposits shall be made as required by the Fiscal Agent Agreement and any other amounts required to be deposited therein by the Fiscal Agent Agreement or the Act. On each Interest Payment Date, the Fiscal Agent is required to withdraw from the Bond Fund and pay to the Owners of the Bonds the principal, if any, and interest and any premium, then due and payable on the Bonds, including any amounts due on the Bonds by reason of the mandatory sinking fund redemption of such Bonds. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent shall withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency, and shall transfer any amounts so withdrawn to the Bond Fund. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent shall withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency and shall transfer any amounts so withdrawn to the Bond Fund. Reserve Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the Reserve Fund. Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the Bonds or, in accordance with the provisions of the Fiscal Agent Agreement, for the purpose of redeeming Bonds. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Fiscal Agent and shall be deposited in the Bond Fund. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds; provided that no amounts shall be transferred from the Reserve Fund pursuant to the preceding paragraph until after (i) the calculation of any amounts due to the federal government pursuant to the rebate provision of the Fiscal Agent Agreement following payment of the Bonds and withdrawal of any such amount from the applicable subaccount of the Reserve Fund for purposes of making such payment to the federal government, and (ii) payment of any fees and expenses due to the Fiscal Agent. SF2.45945.2 D-9 40484-28-SS4-11/04/95 Covenants of the City The City will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Fiscal Agent Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of the Bonds. The Bonds are limited obligations of the City on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund, the Reserve Fund, the Special Tax Fund and the Redemption Fund created under the Fiscal Agent Agreement. In order to prevent any accumulation of claims for interest after maturity, the City may not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and may not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default under the Fiscal Agent Agreement, to the benefits of the Fiscal Agent Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. The City will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien under the Fiscal Agent Agreement for the benefit of the Bonds, except as permitted by the Fiscal Agent Agreement. The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, prepared in accordance with trust industry standards, in which complete and correct entries must be made of all transactions relating to the proceeds of the Bonds, the Special Tax Revenues and all funds and accounts established pursuant to this Agreement. Such books of record and accounts must be available for inspection by the City during regular business hours and upon 24 hours' notice and under reasonable circumstances as agreed to by the Fiscal Agent. The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 1 that the Bonds are outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The City shall fix and levy the amount of Special Taxes within the District in accordance with, but subject to the maximums prescribed by, the Rate and Method in an amount sufficient to yield (1) the amount required for the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and (2) an amount estimated to be sufficient to pay the Administrative Expenses during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation. The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, SF2.45945.2 D_10 40484-28-SS4-11/04/95 become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property. Pursuant to the Act, the City covenants in the Fiscal Agent Agreement with and for the benefit of the owners of the Bonds that it will order, and cause to be commenced not later than certain dates prescribed by the Fiscal Agent Agreement, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due; provided that, except as to parcels owned by any single property owner having total delinquent Special Taxes exceeding $5,000, the City shall not be required to order commencement of foreclosure proceedings if (a) the total amount of Special Tax delinquencies in the District for a given Fiscal Year is less than 5 % of the total Special Tax levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Investments Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent is required to be invested by the Fiscal Agent solely in Permitted Investments, as directed in writing by the City two (2) Business Days prior to the making of such investments. In the absence of timely written direction, the Fiscal Agent shall invest any such moneys in the Permitted Investments described in clause (h) of the definition thereof. Moneys in any fund or account created or established by the Fiscal Agent Agreement shall be invested in Permitted Investments maturing prior to the date on which such moneys are required to be paid out. The Fiscal Agent may act as principal or agent in the acquisition or disposition of any investment. The Fiscal Agent shall not be liable for losses arising from any investments made pursuant to the Fiscal Agent Agreement. The Fiscal Agent The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Fiscal Agent Agreement, and no implied covenants or obligations shall be read into the Fiscal Agent Agreement against the Fiscal Agent. Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall meet the qualifications of Fiscal Agent prescribed by the Fiscal Agent Agreement, shall be the successor to such Fiscal Agent without the execution or filing of any paper or any further act. The City may remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank or trust company having a combined capital and surplus of at least Fifty Million Dollars ($50,000,000), and be subject to supervision or examination by federal or state agency. 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 the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Fiscal Agent may at any time resign by giving written notice to the City and to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent. SF2-45945.2 D-11 40484-28.334-11/04/95 If no appointment of a successor Fiscal Agent shall be made within forty-five (45) days after the Fiscal Agent shall have given to the City written notice or after a vacancy in the office of the Fiscal Agent shall have occurred by reason of its inability to act, the Fiscal Agent or any Owner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent. The recitals of facts in the Fiscal Agent Agreement and in the Bonds contained shall be taken as statements of the City, and the Fiscal Agent assumes no responsibility for the correctness of the same, or makes any representations as to the validity or sufficiency of the Fiscal Agent Agreement or of the Bonds, or shall incur any responsibility in respect thereof, other than in connection with the duties or obligations in the Fiscal Agent Agreement or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful misconduct. The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Fiscal Agent may consult with counsel, who may be counsel to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Fiscal Agent Agreement in good faith and in accordance therewith. Whenever in the administration of its duties under the Fiscal Agent Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be in the Fiscal Agent Agreement specifically prescribed) may 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 the Fiscal Agent Agreement or any Supplemental 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 seem reasonable. Amendment of the Fiscal Agent Agreement The Fiscal Agent Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the amount of principal thereof, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, (iii) permit the creation of any lien on the Special Taxes and other assets pledged under the Fiscal Agent Agreement superior to or on a parity with the lien created for the benefit of the Bonds (except as otherwise permitted by the Fiscal Agent Agreement). The Fiscal Agent Agreement and the rights and obligations of the City, the Fiscal Agent and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, for any one or more of the following purposes: (i) to add to the covenants and agreements of the City contained in the Fiscal Agent Agreement, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power in the Fiscal Agent Agreement reserved to or conferred upon the City; SF2-45945.2 D-12 40484.28-SS4.11104/95 (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission or of curing or correcting any defective provision contained in the Fiscal Agent Agreement; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to j provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III; (iv) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to permit the qualification thereof 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; (v) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners under the Fiscal Agent Agreement, in the opinion of Bond Counsel filed with the City and the Fiscal Agent. Discharge of the Bonds and the Fiscal Agent Agreement The City shall have the option to pay and discharge the entire indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways: (a) by paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding, as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust (pursuant to an escrow agreement), at or before maturity, money or securities in the necessary amount (as provided in Section 10.03 of the Fiscal Agent Agreement) to pay or redeem all Bonds then Outstanding; or (c) by delivering to the Fiscal Agent, for cancellation by it, all of the Bonds then Outstanding. If the City shall also pay or cause to be paid all other sums payable hereunder by the City, including compensation due to the Fiscal Agent, then, at the election of the City (evidenced by a Written Certificate of the City, filed with the Fiscal Agent), the Fiscal Agent Agreement, the pledge of Special Tax Revenues and other assets, and all covenants, agreements and other obligations of the City under the Fiscal Agent Agreement shall cease and be discharged and satisfied. In such event, and upon receipt of a Written Certificate of an Authorized Representative of the City together with an opinion of Bond Counsel acceptable to the Fiscal Agent respecting satisfaction of the City's obligation under the Fiscal Agent Agreement, the Fiscal Agent shall (2) execute and deliver to the City instruments to evidence such satisfaction and (2) pay over, transfer, assign or deliver to the City all moneys, securities, or other property held pursuant to the Fiscal Agent Agreement and not required for the payment or redemption of Bonds. SF2-45945.2 D-13 40484-28-SS4-11/04/95 APPENDIX E CONTINUING DISCLOSURE CERTIFICATE CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) THIS CONTINUING DISCLOSURE CERTIFICATE (this "Disclosure Certificate") is executed and delivered by the City of Newport Beach (the "City") in connection with the issuance and delivery of $ City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Bonds"). The Bonds are being executed and delivered pursuant to a Fiscal Agent Agreement, dated as of 1, 1995 (the "Fiscal Agent Agreement"), by and between the City and , as Fiscal Agent (the "Fiscal Agent"). The City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c212(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Dissemination Agent" means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" means any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Participating Underwriter" means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" means each National Repository and each State Repository. "Rule" means Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate, not later than eight months after the end of the City's fiscal year (which currently would be March 1), SF2-45945.2 E-1 40484-28-SS4-11/04/95 commencing with the report for the 1995-96 Fiscal Year. Not later than fifteen (15) Business Days prior to said date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). 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 Certificate; provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the City is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the City shall send a notice to the Municipal Securities Rulemaking Board in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (a) Audited Financial Statements 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. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) The following items, providing financial and operating data substantially similar to that provided in the corresponding tables and charts in the official statement for the Bonds; [To be discussed] Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. \, (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. SF2-45945.2 E+-2 40484-28-SS4-11/04/95 (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled Bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable federal securities laws. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each state Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Fiscal Agent Agreement. Section 6. Termination of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (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 for amendments to the Fiscal Agent Agreement with the Sn-45945.2 E-3 40484-28-SS4-11/04/95 consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or 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 or operating data filed pursuant hereto containing the amended financial information or operating data shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of financial information or operating data being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial statements or 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 statements or information, in order to provide information to investors to enable them to evaluate the ability of the City 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 Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate 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 Certificate. If the City 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 Certificate, the City shall have no obligation under the Disclosure Certificate 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 City to comply with any provision of this Disclosure Certificate, the Fiscal Agent may (and, at the written direction of any Participating Underwriter or the holders of at least 25 % aggregate principal amount of Outstanding Bonds, shall), or 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 City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. sF245945.2 E-4 40484 -28 -M -11/o4/95 Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: , 1995 CITY OF NEWPORT BEACH L.'a SF2-45945.2 E-5 40484-28-SS4-11/04/95 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Newport Beach Name of Issue: City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A Date of Issuance: , 1995 NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Bonds as required by Section 6.10 of the Fiscal Agent Agreement, dated as of 1, 1995, by and between the City and , as Fiscal Agent. The City anticipates that the Annual Report will be filed by .................... Dated: CITY OF NEWPORT BEACH .0 Name Title SF2-45945.2 E-6 40484-28-SS4-11/04/95 APPENDIX F APPRAISAL SUMMARY LETTER CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) GARY L. VOGT AND ASSOCIATES REAL ESTATE APPRAISERS AND CONSULTANTS September 22, 1995 Mr. Dennis C. Danner Finance Director City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92658-8915 Re: Appraisal Summary Letter Special Improvement District 95-1 City of Newport Beach (CIOSA) Dear Mr. Danner: In accordance with your request and authorization by Purchase Order dated April 6, 1995, we have examined twelve vacant properties located within the boundaries of Special Improvement District 95-1 for the purpose of providing estimates of their market value as of July 1, 1995. The twelve properties are briefly described on attached Exhibit A. In accordance with your instructions, two different levels of appraisal investigation and analysis were undertaken with respect to the properties included within this appraisal assignment. A full and complete appraisal was made of the Upper Castaways and Newporter North properties for the purpose of expressing an opinion of market value for those two properties at date of value. On the other hand, a limited scope appraisal investigation and analysis was undertaken of the remaining ten properties for the purpose of expressing a qualified minimum or "at least" estimate of market value for those properties at date of value. The primary method of valuation for all parcels is the sales comparison approach. In addition, the developmental approach utilizing a discounted cash flow analysis is used for the full appraisal of the Upper Castaways and Newporter North properties. All twelve properties are valued as separate market entities and each is considered in its "as is" entitlement status and physical condition at date of value except as enhanced by improvements proposed to be financed and constructed by Newport Beach Special Improvement District 95-1 (CIOSA). SF2-45945.2 F-1 40484-28-SS4-1 iro4i95 It should be understood that this Appraisal Summary Letter is a supplement to the self-contained and fully documented narrative appraisal report dated September 20, 1995 and entitled Appraisal of Twelve Vacant Properties for Special Improvement District 95-1. Newport Beach, California. For more information, including pertinent market data, the reader is referred to that document, a copy of which is on rile with the City of Newport Beach Finance Director. Subject to the qualifications stated above and within the accompanying summary of Assumptions and Limiting Conditions, we have reached the following conclusions with respect to the market value of the fee simple interest in each property. Assessor Market Value Property Parcel(s) Estimate Upper Castaways 117-801-12 $22,000,000 Newporter North 440-132-21 & 24 19.000.000 Sub -total: $41,000,000 LIMITED SCOPE APPRAISALS: It should be understood that the value opinions resulting from the limited scope appraisals are not the product of a full and complete appraisal assignment. Moreover, it should be understood that a full and complete appraisal of the ten properties could result in an opinion of market value different than the value estimate contained in this limited scope appraisal report. Respectfully Submitted: /s/ Gary L. Gary L. Vow Gary L. Vogt, MAI /s/ Patrick M. Gorrien Patrick M. Gorrien SF2-45945.2 F-2 40484 -28 -SM -11/04M Minimum or Assessor "At Least" Property Parcel(s) Value Estimate San Diego Creek South 442-061-09,11,14 $11,000,000 Block 800 442-262-04 5,000,000 Bayview Landing 440-132-06,08 1,800,000 Freeway Reservation North 458-362-01,02,03 1,900,000 & 458-142-07 Corporate Plaza West 442-011-54 6,500,000 8 Corporate Plaza 442-271-26 1,500,000 9 Corporate Plaza 442-271-09 900,000 11 Corporate Plaza 442-271-11 1,300,000 22 Corporate Plaza 442-271-19 1,200,000 PCH/MacArthur 442-272-03,04 & 442-014-28 7,400,000 Sub -total: 38.500.000 TOTAL AGGREGATE MARKET VALUE ESTIMATE: $79,500,000 It should be understood that the value opinions resulting from the limited scope appraisals are not the product of a full and complete appraisal assignment. Moreover, it should be understood that a full and complete appraisal of the ten properties could result in an opinion of market value different than the value estimate contained in this limited scope appraisal report. Respectfully Submitted: /s/ Gary L. Gary L. Vow Gary L. Vogt, MAI /s/ Patrick M. Gorrien Patrick M. Gorrien SF2-45945.2 F-2 40484 -28 -SM -11/04M EXIIIBIT A SUMMARY OF APPRAISED PROPERTIES SPECIAL IMPROVEMENT DISTRICT 95-1 CITY OF NEWPORT BEACH (CIOSA) IDENTIFICATION LOCATION NET ACRES ZONING/PROPOSED USE Comprehensive Appraisals Upper Castaways E/S Dover Drive at 16th Street ±25.80 Approved TTM 15012 for 119 single family lots Newporter North SWC Jamboree Road & San ±26.50 Approved TTM 15011 for 173 Joaquin Hills Rd. SFR lots Limited Scope Appraisals San Diego Creek South NWC Jamboree Road and ±17.89 Approved TTM 14989 for 300 University Drive condos/apartments Block 800 SEC San Clemente and Santa ±6.45 Approved TTM 15178 for 245 Barbara Drive condos/apartments Bayview Landing S'ly comer Back Bay Drive and ±5.00 CIOSA approval for 120 Jamboree Rd senior units or health club or restaurant Freeway Reservation North SEC MacArthur Blvd. and Ford ±7.00 CIOSA approval for 36 Road residential units Corporate Plaza West NWC PCH and Newport Center ±9.00 CIOSA approval for 94,000 Drive SF of offices 8 Corporate Plaza W/S Avocado Avenue ±2.05_' PC approval for up to 25,000 S/O Farallon Drive SF of offices 9 Corporate Plaza W/S Avocado Avenue ±1.19' PC approval for up to 14,500 S/O Farallon Drive SF of offices 11 Corporate Plaza SWC Avocado Avenue and ±1.64' PC approval for up to 20,000 Farallon Drive SF of offices 22 Corporate Plaza N/O PCH and E/O Avocado ±1.66* PC approval for up to 20,347 Avenue SF of offices PCH/MacArthur NEC Pacific Coast and ±10.00 Proposed for 100,000 SF of Avocado Street retail space Estimated equivalent site area including pro -rata share of common area parking and driveways. SF2-45945.2 F-3 40484-28-Ss4-11ro4t95 CERTIFICATION The undersigned do hereby certify as follows: 1. We inspected the subject properties. 2. We have no present or contemplated future interest in the real estate that is the subject of this appraisal report nor do we have any personal interest or bias with respect to the subject matter or the parties hereto. 3. To the best of our knowledge and belief, the statements of fact contained in this report are true and correct. 4. The analyses and opinions contained herein are limited only by the reported qualifying assumptions and limiting conditions (imposed by the terms of my assignment or by the undersigned) and are our personal, unbiased professional analyses and opinions. 5. This appraisal report has been made in conformity with and is subject to the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics of the Appraisal Institute. Further, the use of this appraisal report is subject to the requirements of the Appraisal Institute relative to review by its duly authorized representatives. 6. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate valuation that are set forth in this report. 7. We hereby certify that the fee for this appraisal is not contingent upon the amount of the value reported, nor upon any other condition excepting the predetermined fee. The valuation assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. S. The Appraisal Institute conducts a program of continuing education for its designated members. MAI Is who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Gary L. Vogt has completed the requirements of the continuing education program of the Appraisal Institute. Gary L. Vogt, MAI Patrick M. Gorrien SF2-45945.2 F-4 4048448-SS4-11ro4/95 ASSUMPTIONS AND LIMITING CONDITIONS Standards Rule 2-2(g) of the "Standards of Professional Appraisal Practice" of the Appraisal Institute requires the appraiser to "clearly and unequivocally set forth all facts, assumptions and conditions upon which the appraisal is based." In compliance therewith, and to assist the reader in interpreting this report, such limiting conditions and assumptions are set forth as follows: 1. That the date of value to which the conclusions and opinions expressed in this report apply is set forth in the appraisal report. Further, that the dollar amount of any value opinion herein reported is based upon the purchasing power of the American dollar existing on that date. 2. That the appraisers assume no responsibility for economic or physical factors which may affect the opinions herein stated occurring at some date after the date of the letter transmitting this report. 3. That the appraisers reserve the right to make such adjustments to the valuation as may be required by consideration of additional data or more reliable data that may become available. 4. That no title report covering the appraised properties were made available to the appraisers. It is therefore a premise of these valuations that fee simple title to the properties was marketable at date of value and free and clear of any conditions of title which would have a material adverse impact upon the utility and/or marketability of the properties. 5. That no engineering survey was made by the appraisers. Data relative to land area, lot sizes, etc. was taken from Orange County Assessor maps, Tentative Tract Maps 14989, 15011, 15012 and 15178, or other available sources. Such information is assumed to be correct; however no warranty of same is implied or intended. 6. That maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. 7. That no opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. 8. That there exist no undisclosed restrictions or prohibitions concerning the possible use or development of the properties for any purpose for which they are available. SF2-45945.2 r+-5 40484 -28 -SSA -11/04/95 ASSUMPTIONS AND LIMITING CONDITIONS (Continued): 9. That no soils/geology reports covering the subject properties were available to the appraisers. It is therefore a premise of this valuation that soil and geological conditions within each appraised property are stable, or capable of being stabilized through conventional grading and slope stabilization techniques, and upon development in accordance with sound engineering practices will be capable of supporting standard construction consistent with highest and best use. 10. That these valuations assume that there are no toxic wastes, contaminants, or hazardous materials on or within the properties that may affect their value and/or utility. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. 11. That it is an underlying premise of these valuations that there is no coastal sage scrub, wetlands area, or any other environmentally sensitive habitat or condition on the appraised properties that could adversely effect the owner's ability to develop the properties to their highest and best use in a timely and cost efficient manner. 12. That the properties are appraised assuming that all applicable zoning and land use controls regulations have been complied with unless otherwise stated. Further, the properties are assumed to be under responsible ownership and competent management, and available for their highest and best use. 13. That the valuation considers the properties in their "as is" state at date of value with regard to physical condition and entitlement status but with consideration given to enhancement by reason of infrastructure improvements proposed to be financed by Newport Beach Special Improvement District 95-1. 14. That the appraisal relies in part upon land development cost estimates provided for the Upper Castaways, Newporter North, and Freeway Reservation parcels. It is an assumption that the available cost estimates fully and accurately reflect the remaining costs to place each of those properties in a "finished Lot" condition. It should be understood that if actual land development costs are substantially higher or lower than the cost estimates available to the appraisers, the value opinions rendered herein may be subject to adjustment. 15. That the valuation of the PCH/MacArthur property assumes that full entitlements for development of the property with ±100,000 SF of retail uses can be obtained within a reasonable time period. In the event that such entitlements sF2-45945.2 F-6 40484-28-ssa-1 1104ro5 ASSUMPTIONS AND LIMITING CONDITIONS (Continued): are not forthcoming, the value opinion rendered hereinafter for that property is invalid. 16. That, at the request of the client, limited scope appraisals have been made of ten of the twelve properties included in this assignment. In accordance with the limited scope nature of the assignment, the appraisers have conducted only such investigations and undertaken such analyses of those properties as was deemed necessary to express lower limit or "at least" estimates of market value for each property. It should be understood that the value opinions contained herein for those properties are not the product of a full and complete appraisal assignment. 17. That information furnished by others is believed to be reliable. However, no warranty is implied or intended for its accuracy. 18. Possession of the appraisal report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event only with the proper written qualification and only in its entirety. 19. Disclosure of the contents of this appraisal report is governed by the By -Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or any reference to the Appraisal Institute, or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the author. SF2.45945.2 F-7 40484-28-SS4-11/04/95 r 4 C JONES HALL HILL & WHITE, A PROFESSIONAL LAW CORPORATION CHARLES F. ADAMS STEPHEN R. CASALEGGIO MTGHAEL D. GASTELLI THOMAS A. DOWNEY ANDREW G. HALL. JR GREG HARRINGTON CHRISTOPHER K. LYNCH WILLIAM H. MADISON DAVID J. OSTER BRIAN D. QUINT PAUL J. THIMMIG DAVID A. WALTON SHARON STANTON WHITE VIA OVERNIGHT COURIER ATTORNEYS AT LAW November 7, 1995 To: Members of the attached Distribution List FOUR EMBARCADERO CENTER NINETEENTH FLOOR SAN FRANCISCO, CA 94111 (415) 391-5780 FACSIMILE (415) 391.5784 KENNETH L JONES OF COUNSEL ROBERT J. HILL (1822.1988) Re: City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds Enclosed please find a revised draft of the Fiscal Agent Agreement, which has been marked to show changes from the previous version thereof. Also enclosed is a first draft of the Continuing Disclosure Agreement, which incorporates the substantive provisions of the previously circulated Continuing Disclosure Certificate, together with the changes thereto that were discussed at our last meeting. I look forward to discussing the enclosed documents with you after you have had an opportunity to review them. Very truly yours, Greg Ha ngton I �\ 24005-02 JH[MGH:ba 9/13/95 11n/95 FISCAL AGENT AGREEMENT by and between the CITY OF NEWPORT BEACH and U. S. TRUST COMPANY OF CALIFORNIA, N.A. as Fiscal Agent Dated as of 1, 1995 RELATING TO CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BONDS TABLE OF CONTENTS Page ARTICLE I STATUTORY AUTHORITY AND DEFINITIONS Section 1.01. Authority for this Agreement .............................................. .......................... Section1.02. Definitions....................................................................................................2 Section1.03. Interpretation.................................................................................................9 Section 1.04. Agreement Constitutes Contract................................................................... 9 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds...............................................................................10 Section 2.02. Terms of Series A Bonds............................................................................10 Section 2.03. Transfer and Exchange of Bonds................................................................11 Section 2.04. Registration Books......................................................................................11 Section 2.05. Execution of Bonds.....................................................................................11 Section 2.06. Authentication of Bonds.............................................................................12 Section 2.07. Temporary Bonds.......................................................................................12 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen..............................................12 Section 2.09. Book -Entry Series A Bonds........................................................................12 Section 2.09. Limited Obligation......................................................................................14 ARTICLE III ISSUANCE OF BONDS Section 3.01. Issuance of Series A Bonds........................................................................15 Section 3.02. Application of Proceeds of the Series A Bonds..........................................15 Section 3.03. Costs of Issuance Fund...............................................................................15 Section 3.04. Improvement Fund......................................................................................15 Section 3.05. Conditions for the Issuance of Additional Bonds.......................................16 Section 3.06. Procedure for the Issuance of Additional Bonds........................................18 Section 3.07. Additional Bonds........................................................................................19 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series A Bonds................................................................... 20 Section 4.02. Notice of Redemption.................................................................................21 Section 4.03. Selection of Bonds for Redemption............................................................21 Section 4.04. Partial Redemption of Bonds......................................................................21 Section 4.05. Effect of Notice of Redemption.................................................................. 21 -i- ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section5.01. Pledge......................................................................................................... 23 Section 5.02. Special Tax Fund........................................................................................ 23 Section 5.03. Bond Fund and Capitalized Interest Account ............................................. 23 Section 5.04. Redemption Fund........................................................................................ 24 Section 5.05. Reserve Fund.............................................................................................. 24 Section 5.06. Administrative Expense Fund..................................................................... 25 Section 5.07. Investment of Moneys................................................................................ 25 ARTICLE VI COVENANTS OF THE CITY Section 6.01. Collection of Special Tax Revenues........................................................... 27 Section6.02. Foreclosure................................................................................................. 27 Section 6.03. Punctual Payment....................................................................................... 27 Section 6.04. Extension of Payment of Bonds................................................................. 28 Section 6.05. Against Encumbrances............................................................................... 28 Section 6.06. Power to Issue Bonds and Make Pledge and Assignment .......................... 28 Section 6.07. Accounting Records and Financial Statements .......................................... 28 Section 6.08. Compliance with Law; Completion of Project ........................................... 28 Section 6.09. Tax Covenants............................................................................................ 28 Section 6.10. Continuing Disclosure to Owners............................................................... 29 Section 6.11. Further Assurances..................................................................................... 29 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default........................................................................................ 30 Section7.02. Foreclosure................................................................................................. 30 Section7.03. Other Remedies.......................................................................................... 30 Section 7.04. Application of Special Tax Revenues After Default .................................. 30 Section 7.05. Fiscal Agent to Represent Bond Owners .................................................... 31 Section 7.06. Bond Owners' Direction of Proceedings.................................................... 32 Section 7.07. Limitation on Bond Owners' Right to Sue ................................................. 32 Section 7.08. Absolute Obligation of City........................................................................ 32 Section 7.09. Termination of Proceedings........................................................................ 32 Section 7.10. Remedies Not Exclusive............................................................................. 33 Section 7.11. No Waiver of Default................................................................................. 33 ARTICLE VIII FISCAL AGENT Section 8.01. Duties and Liabilities of Fiscal Agent ........................................................ 34 Section 8.02. Merger or Consolidation............................................................................. 35 Section 8.03. Liability of Fiscal Agent............................................................................. 35 Section 8.04. Right to Rely on Documents....................................................................... 36 I �\ Section 8.05. Preservation and Inspection of Documents ................................................ 36 Section 8.06. Compensation and Indemnification............................................................ 36 ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted.............................................................................. 38 Section 9.02. Effect of Supplemental Agreement............................................................ 39 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ................................... 39 Section 9.04. Amendment of Particular Bonds................................................................ 39 ARTICLE X DEFEASANCE Section 10.01. Discharge of Agreement..........:..................................................................40 Section 10.02. Discharge of Liability on Bonds................................................................. 40 Section 10.03. Deposit of Money or Securities with Fiscal Agent ..................................... 40 Section 10.04. Payment of Bonds After Discharge of Agreement ..................................... 41 ARTICLE XI MISCELLANEOUS Section 11.01. Limited Obligation...................................................................................... 42 Section 11.02. Successor Is Deemed Included in All References to Predecessor .............. 42 Section 11.03. Limitation of Rights to Parties and Bond Owners ...................................... 42 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ..................................... 42 Section 11.05. Destruction of Bonds.................................................................................. 42 Section 11.06. Severability of Invalid Provisions..............................................................42 Section11.07. Notices........................................................................................................42 Section 11.08. Evidence of Rights of Bond Owners.......................................................... 43 Section 11.09. Disqualified Bonds..................................................................................... 43 Section 11.10. Money Held for Particular Bonds............................................................... 43 Section 11.11. Funds and Accounts....................................................................................44 Section 11.12. Payment on Non -Business Days.................................................................44 Section 11.13. Waiver of Personal Liability....................................................................... 44 Section 11.14. Conflict with Act........................................................................................ 44 Section 11.15. Conclusive Evidence of Regularity ............................................................ 44 Section 11.16. Execution in Several Counterparts............................................................. 44 Section 11.17. Governing Laws.......................................................................................... 44 EXHIBITA - Form of Bond................................................................................................. A-1 FISCAL AGENT AGREEMENT THIS FISCAL AGENT AGREEMENT (the "Agreement") is made and entered into as of 1, 1995, by and between the CITY OF NEWPORT BEACH, a charter city and municipal corporation organized and existing under and by virtue of the Constitution and laws of the State of California and its charter (the "City"), for and on behalf of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) (the "District"), and U.S. TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States, as fiscal agent (the "Fiscal Agent"). WITNESSETH: WHEREAS, the City Council of the City has formed the District under the provisions of the City of Newport Beach Special Improvement District Financing Code (the "Act") and Resolution No. of the City Council adopted on , 1995; WHEREAS, the City Council, as the legislative body with respect to the District, is authorized under the Act to levy special taxes to pay for the costs of facilities within the District and to authorize the issuance of bonds secured by said special taxes under the Act; WHEREAS, under the provisions of the Act, on , 1995, the City Council of the City adopted its Resolution No. (the "Resolution"), which, among other matters, authorized the issuance of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A (the "Series A Bonds") in the aggregate principal amount of not to exceed $ upon the security of the unpaid special taxes and provided that said issuance would be in accordance with the Act and this Agreement, and authorized the execution hereof; WHEREAS, the City desires to provide for the issuance of additional bonds (the "Additional Bonds") upon the security of the unpaid special taxes on a parity with the Series A Bonds, provided that said issuance is in accordance with the Act and this Agreement (the Series A Bonds and any such Additional Bonds being collectively referred to as the "Bonds"); WHEREAS, it is in the public interest and for the benefit of the City and the owners of the Bonds that the City enter into this Agreement to provide for the issuance of the Bonds, the disbursement of proceeds- of the Bonds, the disposition of the special taxes securing the Bonds and the administration and payment of the Bonds; and WHEREAS, the City has determined that all things necessary to cause the Series A Bonds, when authenticated by the Fiscal Agent and issued as provided in the Act, the Resolution and this Agreement, to be legal, valid and binding special obligations in accordance with their terms, and all things necessary to cause the creation, authorization, execution and delivery of this Agreement and the creation, authorization, execution and issuance of the Series A Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, in consideration of the covenants and provisions herein set forth and for other valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: -1- ARTICLE I STATUTORY AUTHORITY AND DEFINITIONS Section 1.01. Authority for this Agreement. This Agreement is entered into pursuant to the provisions of the Act and the Resolution of Issuance. Section 1.02. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.02 shall for all purposes of this Agreement, of any Supplemental Agreement and of any certificate, opinion or other document herein or therein mentioned, have the meanings herein specified. "Act" means the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code. "Additional Bonds" means Bonds other than Series A Bonds issued hereunder in accordance with the provisions of Section 3.05 and 3.06. "Administrative Expenses" means costs directly related to the administration of the District, consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Fiscal Agent, the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under this Agreement, the costs of the City or its designee of complying with the disclosure provisions of the Continuing Disclosure Certificate and this Agreement, including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser, the costs of the City or its designee related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the City to comply with Section 6.09(b), an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto, costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, and the costs of foreclosure of delinquent Special Taxes. "Administrative Expense Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.06. "Agreement" means this Fiscal Agent Agreement, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Agreement. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). "Appraised Value" means the value of all or any portion of the taxable property within the District, as set forth in a Qualified Appraisal Report prepared by a Qualified Appraiser. "Auditor" means the auditor/controller of the County of Orange. "Authorized Representative" means: (a) with respect to the City, its City Manager or Finance Director, or any other Person designated as an Authorized Representative of the City in a Written Certificate of City filed with the Fiscal Agent, and (b) with respect to the Fiscal Agent, -2- the Senior Vice President, any Vice President, any Assistant Vice President or any Trust Officer of the Fiscal Agent, and when used with reference to any act or document also means any other Person authorized to perform such act or sign any document by or pursuant to a resolution of the Board of Directors of the Fiscal Agent or the by-laws of the Fiscal Agent. "Beneficial Owner" means, whenever used with respect to a Series A Bond, the person whose name is recorded as the beneficial owner of such Series A Bond or a portion of such Series A Bond by a Participant on the records of such Participant or such person's subrogee. "Book -Entry Bonds" means the Series A Bonds registered in the name of the nominee of DTC, or any successor securities depository for the Series A Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 2.09. "Bond Counsel" means a firm of nationally recognized bond counsel selected by the City and acceptable to the Fiscal Agent. "Bond Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.03. "Bond Year" means each twelve-month period beginning on September 2 in each year and extending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on September 1, 1996. "Bonds" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds issued hereunder, and includes the Series A Bonds and any Additional Bonds. "Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California, or in any state in which the Office of the Fiscal Agent is located, are closed. "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of 11 DTC with respect to the Series A Bonds. "CIOSA Agreement" means the Circulation Improvement and Open Space Agreement, dated June 30, 1993, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "CIOSA District Improvement Fund Requirement" has the meaning ascribed thereto in the Rate and Method. "City" means the City of Newport Beach and any successor thereto. "Closing Date" means the date upon which the Series A Bonds are delivered to the Original Purchaser, being , 1995. "Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Series A Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Series A Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. -3- i "Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed by the City and dated the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Fiscal Agent and its counsel, including the Fiscal Agent's first annual administrative fee, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds. "Costs of Issuance Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 3.03. "Developed Property" has the meaning ascribed thereto in the Rate and Method. "District" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA), formed pursuant to the Resolution of Formation. "DTC" means The Depository Trust Company, a limited -purpose trust companyll organized under the laws of the State of New York, and its successors as securities depository for the Series A Bonds, including any such successor appointed pursuant to Section 2.09. 11 "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "fair market value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (a) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (b) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (c) the investment is a United States Treasury Security --State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (d) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held in such fund its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. "Fair Share Fees" has the meaning ascribed thereto in CIOSA Agreement. "Federal Securities" means any of the following which at the time of investment are legal investments under the laws of the State of California for the funds proposed to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. -4- "Fiscal Agent" means U.S. Trust Company of California, N.A., a national banking association organized and existing under the laws of the United States, or any successor thereto as Fiscal Agent hereunder, appointed as provided herein. "Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the City designated in a Written Certificate of the City delivered to the Fiscal Agent. "Improvement Fund" means the CIOSA District Improvement Fund established and held by the Fiscal Agent pursuant to Section 3.04. "Independent Consultant" means any consultant or firm of such consultants selected by the City and who, or each of whom (a) is generally recognized to be qualified in the financial consulting field, (b) is in fact independent and not under the domination of the City, (c) does not have any substantial interest, direct or indirect, with or in the City, or any owner of real property in the District, or any real property in the District, and (d) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' Called Bond Service, 55 Broad Street, 28th Floor, New York, New York 10004; "Moody's Investors Service Municipal and Government," 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; Standard & Poor's Corporation "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. "Interest Payment Dates" means March 1 and September 1 of each year, commencing March 1, 1996, so long as any Bonds remain Outstanding. "Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds. "Moody's" means Moody's Investors Service, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Office" means the principal corporate trust office of the Fiscal Agent in at -Los Angeles, California, or such other office as may be specified to the City by the Fiscal Agent in writing. "Ordinance" means any ordinance of the City levying the Special Taxes. "Original Purchaser" means the original purchaser of the Series A Bonds from the City. "Other District Bonds" means, as of the date of determination, (a) any and all bonds issued under the Mello -Roos Community Facilities Act of 1982, as amended, then outstanding and payable at least partially from special taxes to be levied or parcels of land within the District, -5- and (b) any and all bonds, other than the Bonds, issued under the Act then outstanding and payable at least partially from special taxes to be levied on parcels of land within the District. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09) all Bonds theretofore, or thereupon being, authenticated and delivered by the Fiscal Agent under this Agreement except: (a) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (b) Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including Bonds (or portions of Bonds) disqualified under Section 11.09; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to this Agreement. "Owner" means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. "Participant" means any entity which is recognized as a participant by DTC in the II book -entry system of maintaining records with respect to Book -Entry Bonds. "Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. "Permitted Investments" means the following, but only to the extent that the same are acquired at Fair Market Value: (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export -Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest-bearing demand or time deposits (including certificates of deposit) in federal or state chartered savings and loan associations or in federal or State of California banks (including the Fiscal Agent), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall be rated Al or better by S&P, or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-term rating category by S&P, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; la (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated in the highest short-term rating category by S&P, which mature not more than 270 days following the date of investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the TaxCode and which are rated A or better by S&P; (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S&P; (h) money market funds which are rated Am or better by S&P; (i) any investment agreement which is approved in writing by S&P prior to the time of initial investment; and 0) the Local Agency Investment Fund established pursuant to Section 16429.1 of the Government Code of the State of California to the extent the Fiscal Agent may deposit and withdraw funds directly, provided that the Fiscal Agent may restrict such investment if required to keep moneys available for the purposes of this Agreement. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Project" means the facilities more particularly described in the Resolution of Formation. "Protocol Agreement" means the Protocol Agreement, dated as of , 1995, by and between the City and The Irvine Company, as originally executed or as it may from time to time be amended. "Qualified Appraisal Report" means a real estate appraisal report which (a) has been prepared by a Qualified Appraiser, (b) at the time it was submitted to the City is not more than six months old, or was updated by letter no more than six months prior to the date of submittal to the City, (c) states that it is prepared in accordance with the applicable standards of the American Institute of Real Estate Appraisers for such reports, (d) provides an appraisal of the aggregate retail value for all parcels appraised thereunder, and (e) with respect to residential property for which a final subdivision map has not been recorded , applies a bulk sale discount to the aggregate retail values of such parcels to determine the Appraised Value thereof. "Qualified Appraiser" means a real estate appraiser selected by the City having an "M.A.I." designation from the American Institute of Real Estate Appraisers. "Rate and Method" means the rate and method of apportionment of the Special Taxes approved by the qualified electors of the District. "Record Date" means (a) the 15th calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day, and (b) any date established by the Fiscal Agent pursuant to Section 2.02(c) as a Record Date for the payment of defaulted interest on the Bonds, if any. yC "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Registration Books" means the records maintained by the Fiscal Agent for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.04. "Representation Letter" means the Letter of Representations from the City and the Fiscal Agent to DTC, or any successor securities depository for the Series A Bonds, in which the City and the Fiscal Agent make certain representations with respect to the Series A Bonds, the payment with respect thereto and delivery of notices with respect thereto. "Reserve Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.05. "Reserve Requirement" means, as of the date of any calculation, the least lesseFof (a) ten --pe t—(10%) of the original aggregate principal amount of the Bonds, er (b) Maximum Annual Debt Service, and (c) 125% of average Annual Debt Service. "Resolution of Formation" means Resolution No. _, adopted by the City Council of the City on , 1995. "Resolution of Issuance" means Resolution No. , adopted by the City Council of the City on , 1995, authorizing the issuance of the Series A Bonds. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax - (516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures - Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605, Fax - (312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Dex - (215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. "Series" means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to this Agreement as the Series A Bonds, and any Additional Bonds issued pursuant to a Supplemental Agreement and identified as a separate Series of Bonds. "Series A Bonds" means the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A, issued hereunder. "Special Tax Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 5.02. "Special Tax Revenues" means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest and penalties thereon 10 and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, limited to the amount of said lien and interest and penalties thereon. "Special Taxes" means the special taxes levied within the District pursuant to the Act, the Ordinance and this Agreement. "Supplemental Agreement" means any agreement amendatory of or supplemental to this Agreement, but only if and to the extent that such Supplemental Agreement is specifically authorized hereunder. "Undeveloped Property" has the meaning ascribed thereto in the Rate and Method. "Written Certificate" and "Written Request" of the City mean, respectively, a written certificate or written request signed in the name of the City by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. "Zone" has the meaning ascribed thereto in the Rate and Method. "Zone Prepayment Amount" has the meaning ascribed thereto in the Rate and Method. Section 1.03. 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 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. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof .. "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. Section 1.04. Agreement Constitutes Contract. In consideration of the purchase and acceptance of any and all of the Bonds issued hereunder by those who shall hold the same from time to time, this Agreement shall be deemed to be and shall constitute a contract among the City, the Fiscal Agent and the Owners of the Bonds. The pledge made in this Agreement and the provisions, covenants and agreements herein set forth to be performed by or on behalf of the City shall be for the equal benefit, protection and security of the Owners of any and all of the Bonds. All of the Bonds, without regard to the time or times of their issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof, except as expressly provided in or permitted by this Agreement. 0 ARTICLE H THE BONDS Section 2.01. Authorization of Bonds. The City hereby authorizes the issuance of the Bonds under and subject to the terms of this Agreement, the Act and other applicable laws of the State of California for the purpose of providing a portion of the moneys to finance the Project. The Bonds may consist of one or more Series of varying denominations, dates maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. The Bonds shall be designated generally as the "City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds", each Series thereof to bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series of Bonds. The aggregate principal amount of Bonds that may be issued and Outstanding under this Agreement shall not exceed $ , except as may be otherwise provided in Section 2.08. Section 2.02. Terms of Series A Bonds. (a) The Series A Bonds shall be designated "City of Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A". The aggregate principal amount of Series A Bonds that may be issued and Outstanding under this Agreement shall not exceed $ , except as may be otherwise provided in Section 2.08. (b) The Series A Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Series A Bond shall have more than one maturity date. The Series A Bonds shall be dated as of , 1995, shall be issued in the aggregate principal amount of $ , shall mature on 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: Maturity Date Principal Interest (September 1) Amount Rate (c) Interest on the Series A Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series A Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a Series A Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from , 1995, or (iii) interest on any Series A Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series A Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Series A Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such Series A Bond is registered on the Registration Books at the close of business on a special Record Date to be established by the Fiscal Agent for the payment of such defaulted interest to be fixed by the Fiscal Agent, notice of which shall be given to such Owner not less than ten days prior to such special Record Date. Interest shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, on -10- each Interest Payment Date to the Series A Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. (d) The principal of the Series A Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Fiscal Agent. Payment of principal of any Series A Bond shall be made only upon presentation and surrender of such Bond at the Office of the Fiscal Agent. (e) The Series A Bonds shall be subject to redemption as provided in Article N. (f) The Series A Bonds shall be in substantially the form set forth in Exhibit A hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Fiscal Agent shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount, in any authorized denomination. The Fiscal Agent shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Fiscal Agent for a like aggregate principal amount of Bonds of other authorized denominations. The Fiscal Agent shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Fiscal Agent shall not be obligated to make any transfer or exchange of Bonds pursuant to this Section 2.03 during the period established by the Fiscal Agent for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. Section 2.04. Registration Books. The Fiscal Agent will keep or cause to be kept, at the Office of the Fiscal Agent, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon 24 hours notice 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 registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. Section 2.05. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the City with the facsimile signature of the Mayor attested by the manual or facsimile signature of the City Clerk. The City's seal or a facsimile thereof, may be reproduced, imprinted or impressed on the Bonds. The Bonds shall then be delivered to the Fiscal Agent for authentication by it. In case any of the officers who shall have signed or attested any of the Bonds shall cease to be such officer or officers of the City before the Bonds so signed or attested shall have been authenticated or delivered by the Fiscal Agent, or issued by the City, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any Bonds may be signed and attested on behalf of the City by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the City although at the nominal date of such Bonds any such Person shall not have been such officer of the City. Ste Section 2.06. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto for the Series A Bonds, manually executed by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Agreement, and such certificate of or on behalf of the Fiscal Agent shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Agreement. Section 2.07. Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such authorized denominations as may be determined by the City, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Agreement as may be appropriate. Every temporary Bond shall be executed by the City and authenticated by the Fiscal Agent upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, at the Office of the Fiscal Agent and the Fiscal Agent shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Agreement as definitive Bonds authenticated and delivered hereunder. Section 2.08. Bonds Mutilated Lost. Destroyed or Stolen. If any Bond shall become mutilated, the City, at the expense of the Owner of said Bond, shall execute, and the Fiscal Agent shall thereupon authenticate and deliver, a new Bond of like tenor 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 canceled by it and delivered to, or upon the order of, the City. 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 and indemnity satisfactory to the Fiscal Agent shall be given, the City, at the expense of the Owner, shall execute, and the Fiscal Agent shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a replacement Bond, the Fiscal Agent may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the City and the Fiscal Agent. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement with all other Bonds secured by this Agreement. Section 2.09. Book -Entry Series A Bonds. (a) Except as provided in subparagraph (c) of this Section 2.09, the registered Owner of all of the Series A Bonds shall be DTC and the Series A Bonds shall be registered in the name of Cede & Co., as nominee for DTC. Any additional Series of Bonds under a Supplemental Agreement may also be registered in the name of Cede & Co., as nominee of DTC, as provided in such Supplemental Agreement. Notwithstanding anything to the contrary contained in this Agreement, payment of interest with respect to any Series A Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same-day funds to the account of Cede & Co. on the payment date for the Series A Bonds at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter. SFS' (b) The Series A Bonds shall be initially issued in the form of separate single fully registered Series A Bonds in the amount of each separate stated maturity of the Series A Bonds. Upon initial issuance, the ownership of such Series A Bonds shall be registered in the Registration Books in the name of Cede & Co., as nominee of DTC. The Fiscal Agent and the City may treat DTC (or its nominee) as the sole and exclusive Owner of the Series A Bonds registered in its name for the purposes of payment of the principal, Redemption Price or interest with respect to the Series A Bonds, selecting the Series A Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Series A Bonds under this Agreement, registering the transfer of Series A Bonds, obtaining any consent or other action to be taken by Owners of Series A Bonds and for all other purposes whatsoever, and neither the Fiscal Agent nor the City shall be affected by any notice to the contrary. Neither the Fiscal Agent nor the City shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in the Series A Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant; the payment by DTC or any Participant of any amount in respect of the principal, Redemption Price or interest with respect to the Series A Bonds; any notice which is permitted or required to be given to Owners of Series A Bonds under this Agreement; the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Series A Bonds; or any consent given or other action taken by DTC as Owner of Series A Bonds. The Fiscal Agent shall pay all principal, premium (if any) and interest with respect to the Series A Bonds, only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to the principal, premium (if any) and interest with respect to the Series A Bonds to the extent of the sum or sums so paid. Except under the conditions of (c) below, no person other than DTC shall receive an executed Series A Bond for each separate stated maturity. 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 term "Cede & Co." in this Agreement', shall refer to such new nominee of DTC. (c) In the event (i) DTC, including any successor as securities depository for the Series A Bonds, determines not to continue to act as securities depository for the Series A Bonds, or (ii) the City determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Fiscal Agent to that effect, then the City will discontinue the book -entry system with the incumbent securities depository for the Series A Bonds. If the City determines to replace the incumbent securities depository for the Series A Bonds with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate fully registered Series A Bond for the aggregate outstanding principal amount of Series A Bonds of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the City, the Fiscal Agent and the successor securities depository for the Series A Bonds as are not inconsistent with the terms of this Agreement. If the City fails to identify another qualified successor securities depository of the Series A Bonds to replace the incumbent securities depository, then the Series A Bonds shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository for the Series A Bonds, or its nominee, shall designate. In such event the Fiscal Agent shall authenticate and deliver a sufficient quantity of Series A Bonds as to carry out the transfers and exchanges provided in Sections 2.03, 2.07 and 2.08. All such Series A Bonds shall be in fully registered form in denominations authorized by this Agreement. (d) Notwithstanding any other provision of this Agreement to the contrary, so long as any Series A Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium (if any) and interest with respect to such Series A Bond and all notices -13- with respect to such Series A Bond shall be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book -Entry Bonds pursuant to this Agreement by the City or the Fiscal Agent with respect to any consent or other action to be taken by Owners, the City or the Fiscal Agent, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. -14- ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of Series A Bonds. Concurrently with the execution of this Agreement, the City shall execute and Fiscal Agent shall authenticate the Series A Bonds and deliver the Series A Bonds to the Original Purchaser in the aggregate principal amount of Section 3.02. Application of Proceeds of the Series A Bonds. On the Closing Date, the proceeds of the sale of the Series A Bonds shall be paid to the Fiscal Agent and said amounts shall be deposited by the Fiscal Agent as follows: (a) The Fiscal Agent shall deposit the amount of $ in the Capitalized Interest Account within the Bond Fund, constituting accrued interest received with respect to the Series A Bonds and capitalized interest with respect to the Series A Bonds through (b) The Fiscal Agent shall deposit the amount of $ in the Reserve Fund, constituting the full amount of the Reserve Requirement. Fund. (c) The Fiscal Agent shall deposit the amount of $ in the Costs of Issuance (d) The Fiscal Agent shall deposit the amount of $ in the Proceeds Account of the Improvement Fund. Section 3.03. Costs of Issuance Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "Costs of Issuance Fund". On the Closing Date there shall be deposited in the Costs of Issuance Fund the amount specified in Section 3.02(c). The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund; in each case together with a statement or invoice for each amount requested thereunder. On June 1, 1996, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Fiscal Agent and transferred to the Bond Fund. Section 3.04. _Improvement Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "CIOSA District Improvement Fund" (the "Improvement Fund"). Within the Improvement Fund, the Fiscal Agent shall establish and maintain a separate account designated the "Proceeds Account" and a separate account designated the "Special Tax Account". On the Closing Date there shall be deposited in the Proceeds Account the amount specified in Section 3.02(d). There shall additionally be deposited in the Proceeds Account the portion, if any, of the proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Agreement pursuant to which such Additional Bonds are issued. There shall be deposited in the Special Tax Account (a) Special Taxes required to be transferred thereto from the Special Tax Administrative inistratiye Expense Fund pursuant to Section 5.025.06, (b) the portion of the prepaid Special Taxes required to be deposited therein pursuant to Section 3 of the -15- Protocol Agreement (which prepaid Special Taxes the City shall transfer to the Fiscal Agent for deposit in the Special Tax Account as soon as practicable after the receipt by the City thereof, but in any event not later than ten Business Days after such receipt), and (c) the portion of Fair Share Fees required to be deposited therein pursuant to paragraph (d) of Section 2 of the Protocol Agreement (which Fair Share Fees the City shall transfer to the Fiscal Agent for deposit in the Special Tax Account as soon as practicable after the receipt by the City thereof, but in any event not later than ten Business Days after such receipt). The moneys in the Improvement Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the costs of the Project upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment constitutes a cost of the Project and is a proper charge against the Improvement Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Improvement Fund; in each case together with a statement or invoice for each amount requested thereunder. In withdrawing moneys from the Improvement Fund pursuant to any such Written Request, the Fiscal agent shall withdraw moneys first from the Proceeds Account and, to the extent moneys in the Proceeds Account are insufficient for such purpose, from the Special Tax Account. {Upon the filing of a Written Certificate of the City stating that the Project has been completed and that all costs of the Project have been paid or are not required to be paid from the Proceeds Accoun , the Fiscal Agent shall transfer the amount, if any, remaining in the Proceeds Account T.,,., feyement-Find-to the Redemption Fund to be used to optionally redeem Bonds.] Section 3.05. Conditions for the Issuance of Additional Bonds. The City may at any time issue one or more Series of Additional Bonds (in addition to the Series A Bonds) payable from Special Tax Revenues as provided herein on a parity with all other Bonds theretofore issued hereunder, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and under and pursuant hereto and shall have been provided for by a Supplemental Agreement which shall specify the following: (1) The purpose for which such Additional Bonds are to be issued; provided, that the proceeds of the sale of such Additional Bonds shall be applied for the purpose of providing funds (i) to pay costs of the Project, or (ii) to refund any Bonds issued hereunder; (2) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions are to be made, if any, for such Additional Bonds; provided, that (i) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on September 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on September 1, (ii) the Additional Bonds shall be payable as to interest semiannually on March 1 and September 1 of each year, except that the first installment of interest may be payable on either March 1 or September 1 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on March 1 and September 1, (iii) all Additional Bonds of a Series of like -16- maturity shall be identical in all respects, except as to number or denomination, and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; (4) The redemption premiums and terms, if any, for such Additional Bonds; (5) The form of such Additional Bonds; (6) The amount to be deposited from the proceeds of sale of such Additional Bonds in the Reserve Fund; provided, that the Reserve Fund shall be increased at the time that such Additional Bonds become Outstanding to an amount at least equal to the Reserve Requirement, and an amount at least equal to the Reserve Requirement shall thereafter be maintained in the Reserve Fund; and (7) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (b) The City shall be in compliance with all agreements, conditions, covenants and terms contained herein and in all Supplemental Agreements required to be observed or performed by it; and (c) The City shall have received a certificate from one or more Independent Consultants which, when taken together, certify that (i) on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the proposed issuance of such Additional Bonds, the amount of maximum Special Taxes that may be levied within the District pursuant to the Act, the Ordinance and the Rate and Method for each Bond Year that the Bonds will be Outstanding is at least 110% of Maximum Annual Debt Service on all Outstanding.Bonds that will be Outstanding after the issuance of such and Bonds , ffiW (ii) the sum of (1) assessed valuation of Developed Property Distr-ietfor which a Qualified Appraisal Report has not been provided, as such valuation is shown on the most recently equalized assessment roll, plus (2) the Appraised Value of Developed Propert for which a Qualified Appraisal Report has been provided, as such Appraised Value is shown in such Qualified Appraisal Report, is at least three times the sum of (A) the sum of the Zone Prepayment Amounts for all Zones (B) the aggFegate prineipal amount of Additional Bonds proposed to be issue , plus (BG) the aggregate principal amount of all assessment distriet bonds then outstanding and payable from assessments levied on Develo ed Pro ertMarvels of land within the Distl4e , plus (CD) a portion of the aggregate principal amount of Other District Bonds equal to the aggregate principal amount of the Other District Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other District Bonds on Developed Pro e within the Distrie , and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land (such fraction to be determined based upon the maximum special taxes which could be levied the year in which maximum annual debt service on the Other District Bonds occurs), based upon information from the most recent Fiscal Year for which such information is available and (iii) the sum of (1) assessed valuation of which a Qualified Appraisal Report has not been provided, as most recently eaualized assessment roll. nlus (2) the Annraised ` of undeveloped Property for which a Qualified Appraisal Report has been provided, as such Appraised Value is shown in such Qualified Appraisal Report, is at least three times the sum of -17- the Zone Prenavment Amounts for all Zones containing U (C) a portion of the aggregate nrincioal amount of Other District Bonds eaual to the aggregate District Bonds multi the amount of special taxes levied for the Other District Bonds on Undeveloped Property, and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land (such fraction to be determined based upon the maximum special taxes which could be levied the year in which maximum annual debt service on the Other District Bonds occurs), based upon information from the most recent Fiscal Year for which such information is available. For purposes of making the certifications required by this subparagraph (c), the Independent Consultants may rely on reports or certificates of such other persons as may be acceptable to the City and Bond Counsel. Nothing contained herein shall limit the issuance of any special tax bonds payable from Special Taxes if after the issuance and delivery of such special tax bonds none of the Bonds theretofore issued hereunder will be Outstanding. Section 3.06. Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, such Additional Bonds shall be executed by the City for issuance hereunder and shall be delivered to the Fiscal Agent and thereupon shall be authenticated and delivered by the Fiscal Agent, but only upon receipt by the Fiscal Agent of the following: (a) A certified copy hereof or of the Supplemental Agreement authorizing the issuance of such Additional Bonds; (b) A Written Request of the City as to the delivery of such Additional Bonds; (c) An opinion of Bond Counsel substantially to the effect that (i) the Agreement and all Supplemental Agreements have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of the City, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and -(ii) such Additional Bonds constitute valid and binding special obligations of the City payable solely from Special Tax Revenues as provided herein and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and (iii) the issuance of such Additional Bonds. in and of itself. will not adversely affect the exclusion of interest on the Bonds Outstanding prior to income tax tax pu�oses; (d) The proceeds of the sale of such Additional Bonds; (e) Such further documents or money as are required by the provision hereof or by the provisions of the Supplemental Agreement authorizing the issuance of such Additional Bonds. Section 3.07. Additional Bonds. So long as any of the Bonds remain Outstanding, the City will not issue any Additional Bonds or obligations payable from Special Tax Revenues, except pursuant to Sections 3.05 and 3.06. -19- ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series A Bonds. (a) Optional Redemption. The Series A Bonds shall be subject to optional redemption in whole or in part, on any Interest Payment Date on or after September 1, 2005, from any source of available funds other than prepayment of Special Taxes, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 2005 and March 1, 2006 102% September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The City shall give the Fiscal Agent written notice of its intention to optionally redeem Series A Bonds not less than 60 days prior to the applicable redemption date, unless such notice shall be waived by the Fiscal Agent. (b) Mandatory Redemption From Special Tax Prepayments. The Series A Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date, from and to the extent of any prepayment of Special Taxes, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 1996 through March 1, 2005 103% September 1, 2005 and March 1, 2006 102 September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 (c) Mandatory Sinking.Fund Redemption. The Series A Bonds maturing September 1, shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, , at a Redemption Price equal to the principal amount of the Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 11 -20- Principal Amount to be Redeemed If some but not all of the Series A Bonds maturing on September 1, are redeemed pursuant to Section 4.01(a), the principal amount of Series A Bonds maturing on September 1, to be redeemed pursuant to Section 4.01(c) on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Fiscal Agent; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series A Bonds maturing on September 1 redeemed pursuant to Section 4.01(a). If some but not all of the Series A Bonds maturing on September 1, are redeemed pursuant to Section 4.01(b), the principal amount of Series A Bonds maturing on September 1, to be subsequently redeemed pursuant to Section 4.01(c) shall be reduced by the aggregate principal amount of the Series A Bonds maturing on September 1, so redeemed pursuant to Section 4.01(b), such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Fiscal Agent, notice of which determination shall be given by the Fiscal Agent to the City. Section 4.02. Notice of Redemption. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than sixty 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Fiscal Agent for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Section 4.03. Selection of Bonds for Redemption. Whenever provision is made in this Agreement for the redemption of less than all of the Bonds, the Fiscal Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any redemption pursuant to Section 4.01(a), among maturities as directed in a Written Request of the City, (b) with respect to any redemption pursuant to Section 4.01(b), among maturities on a pro rata basis as nearly as practicable, (c) with respect to any redemption of Additional Bonds, among maturities as provided in the Supplemental Agreement pursuant to which such Additional Bonds are issued, and by lot among Bonds with the same maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Section 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.05. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the redemption (including the interest to the applicable date fixed for redemption and including any applicable premium), having been set aside in the Redemption Fund, the -21- Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Fiscal Agent, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the redemption of all the Bonds to be redeemed, together with interest to said date, shall be held by the Fiscal Agent so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Fiscal Agent for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and delivered to the City. -22- ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledge. Subject only to the provisions of this Agreement permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund, the Redemption Fund, the Reserve Fund and, until disbursed as provided herein, the Special Tax Fund are hereby pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Agreement and the Act. Said pledge shall constitute a first lien on such assets. Section 5.02. Special Tax Fund. The Fiscal Agent shall establish and maintain a separate fund designated the "Special Tax Fund." As soon as practicable after the receipt by the City of any Special Tax Revenues (other than prepaid Special Taxes), but in any event no later than ten Business Days after such receipt, the City shall transfer such Special Tax Revenues to the Fiscal Agent for deposit in the Special Tax Fund. From time to time as needed to pay the obligations with respect to the District, but no later than five Business Days before each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer (a) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund equals the Reserve Requirement, and (b) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any amounts required to be transferred thereto from the Capitalized Interest Account pursuant hereto, such that the amount in the Bond Fund equals the principal and interest due on the Bonds on the next two Interest Payment Dates with respect to Special Tax Revenues received during the period from September 1 through the last day of February in any year, and on the next Interest Payment Date with respect to Special Tax Revenues received during the period from March 1 through August 31 in any year. On September 2 of each year, the Fiscal Agent shall withdraw from the Special Tax Fund and Citv received on or prior to such date as the amount necessary to be deposited therein in order to (b) to the Special Tax Account within the Improvement Fund. the remainder of the amount on an amount otherwise Account which exceeds the amount necessary to reduce the CIOSA District Improvement Fund to zero to Section 5.03. Bond Fund and Capitalized Interest Account. The Fiscal Agent shall establish and maintain a separate fund designated the "Bond Fund". Within the Bond Fund, the Fiscal Agent shall establish and maintain a separate account designated the "Capitalized Interest Account". There shall be deposited in the Capitalized Interest Account the amount required to deposited therein pursuant to Section 3.02(a). There shall be deposited in the Bond Fund the amounts required to be deposited therein pursuant to Section 3.0waPA-Section 5.02. There shall additionally be deposited in the Bond Fund and the Capitalized Interest Account the -23- portion, if any, of the proceeds of the sale of Additional Bonds required to be deposited therein under the Supplemental Agreement pursuant to which such Additional Bonds are issued. On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund for payment to the Owners of the Bonds the principal, if any, of and interest then due and payable on the Bonds, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent shall withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency, and shall transfer any amounts so withdrawn to the Bond Fund. Notwithstanding the foregoing, on each Interest Payment Date through and including September 1, 1996, the amount set forth in the following table shall be transferred from the Capitalized Interest Account to the Bond Fund. Any amount remaining in the Capitalized Interest Account to the Bond Fund. Any amount remaining in the Capitalized Interest Account on September 2, 1996, shall, unless otherwise provided in a Supplemental Agreement, be transferred to the Bond Fund. There shall additionally be transferred from the Capitalized Interest Account to the Bond Fund the amounts required to be so transferred under any Supplemental Agreement. Interest Payment Date Amount Transferred March 1, 1996 $ September 1, 1996 Section 5.04. Redemption Fund. The Fiscal Agent shall establish and maintain a special fund designated the "Redemption Fund". As soon as practicable after the receipt by the City of prepaid Special Taxes required, pursuant to Section 3 of the Protocol Agreement, to be applied to the redemption of Bonds, but in any event not later than ten Business Days after such receipt, the City shall transfer such prepaid Special Taxes to the Fiscal Agent for deposit in the Redemption Fund. Additionally, the Fiscal Agent shall deposit in the Redemption Fund amounts received from the City in connection with the City's exercise of its rights to optionally redeem Series A Bonds pursuant to Section 4.01(a) and any other amounts required to be deposited therein pursuant to Section 3.04 or Section 5.02 or pursuant to any Supplemental Agreement. ani' Amounts in the Redemption Fund shall be disbursed therefrom for the payment of the Redemption Price of Series A Bonds redeemed pursuant to Section 4.01(a) or Section 4.01(b) and to pay the Redemption Price of Additional Bonds redeemed under the Supplemental Agreement pursuant to which such Additional Bonds are issued. Section 5.05. Reserve Fund. The Fiscal Agent shall establish and maintain a special fund designated the "Reserve Fund". The Fiscal Agent shall deposit in the Reserve Fund the amount specified in Section 3.02(b). There shall additionally be deposited in the Reserve Fund, in connection with the issuance of Additional Bonds, the amount required to be deposited therein under the Supplemental Agreement pursuant to which such Additional Bonds are issued. Except as otherwise provided in this Section, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds or, in accordance with the provisions of this Section, for the purpose of redeeming Bonds from the Bond Fund. Transfers shall be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund, in accordance with Section 5.03. -24- So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Fiscal Agent and shall be deposited in the Bond Fund. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the Special Tax Account of the Improvement Fund. Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund pursuant to this paragraph until after (i) the calculation, pursuant to Section 6.09(b), with respect to the Series A Bonds, and any comparable provision contained in a Supplemental Agreement, with respect to Additional Bonds, of any amounts due to the federal government following payment of the Bonds and the payment of such amounts, and (ii) payment of any fees and expenses due to the Fiscal Agent. Section 5.06. Administrative Expense Fund. The Fiscal Agent shall establish and maintain a special fund designated the "Administrative Expense Fund". On September 2 of each year, the Fiscal Agent shall deposit in the Administrative Expense Fund amounts transferred from the Special Tax Fund pursuant to Section 5.02. The moneys in the Administrative Expense Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the Administrative Expenses upon submission of a Written Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Administrative Expense Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Administrative Expense Fund; in each case together with a statement or invoice for each amount requested thereunder. Section 5.07. Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Agreement shall be invested by the Fiscal Agent solely in Permitted Investments, as directed in writing by the City two Business Days prior to the making of such investment: Permitted Investments may be purchased at such prices as the City shall determine. All Permitted Investments shall be acquired subject to any restrictive instructions given to the Fiscal Agent pursuant to Section 6.10 and such additional limitations or requirements consistent with the foregoing as may be established by the Written Request of the City. Moneys in all funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Agreement; provided, however, that Permitted Investments in which -25- 1 moneys in the Reserve Fund are so invested shall mature no later than the earlier of five years from the date of investment or the final maturity date of the Bonds; provided, further, that if such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date, any amount in the Reserve Fund may be invested in such redeemable Permitted Investments maturing on any date on or prior to the final maturity date of the Bonds. Absent timely written direction from the City, the Fiscal Agent shall invest any funds held by it in Permitted Investments described in clause (h) of the definition thereof. 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. Permitted Investments acquired as an investment of moneys in any fund established under this Agreement shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued by the Fiscal Agent at the Fair Market Value thereof, such valuation to be performed not less frequently than semiannually on or before each Interest Payment Date. The Fiscal Agent may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Fiscal Agent shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Fiscal Agent shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Fiscal Agent may commingle moneys in any of the funds and accounts established hereunder. -26- ARTICLE VI COVENANTS OF THE CITY Section 6.01. Collection of Special Tax Revenues. The City shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. Prior to August 1 of each year, the City shall ascertain from the Auditor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 1 that the Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the City shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The City shall fix and levy the amount of Special Taxes within the District in accordance with the Rate and Method, but in any event, subject to the limitations in the Rate and Method as to the maximum Special Tax that may be levied, in an amount sufficient to yield the amount required for the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation. The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property. Section 6.02. Foreclosure. Pursuant to Section 713 of the Act, the City hereby covenants with and for the benefit of the Owners of the Bonds that it will determine or cause to be determined, no later than February 15 and June 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and, if such delinquencies exist, the City will order and cause to be commenced no later than April 1 (with respect to the February 15 determination date) or August 1 (with respect to the June 15 determination date), and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due; provided, however, that the City shall not be required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5% of the total Special Tax levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the City determines that any single property owner in the District is delinquent in excess of $5,000 in the payment of the Special Tax, then it will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. Section 6.03. Punctual Payment. The City shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict -27- conformity with the terms of the Bonds and of this Agreement, according to the true intent and meaning thereof, but only out of Special Tax Revenues and other assets pledged for such payment as provided in this Agreement and received by the City or the Fiscal Agent. Section 6.04. Extension of Payment of Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 6.05. Against Encumbrances. The City shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Special Tax Revenues and other assets pledged under this Agreement while any of the Bonds are Outstanding, except as permitted by this Agreement. Section 6.06. Power to Issue Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to the Act to issue the Bonds and to enter into this Agreement and to pledge the Special Tax Revenues and other assets pledged under this Agreement in the manner and to the extent provided in this Agreement. The Bonds and the provisions of this Agreement are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Fiscal Agent (subject to the provisions of Article VIII) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge of Special Tax Revenues and other assets and all the rights of the Bond Owners under this Agreement against all claims and demands of all Persons whomsoever. Section 6.07. Accounting Records and Financial Statements. The Fiscal Agent shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with trust industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds, the Special Tax Revenues and all funds and accounts established pursuant to this Agreement. Such books of record and account shall be available for inspection by the City, during regular business hours and upon 24 hours' notice and under reasonable circumstances as agreed to by the Fiscal Agent. Section 6.08. Compliance with Law: Completion of Project. The City shall comply with all applicable provisions of the Act and other laws in completing the acquisition and construction of the Project. Section 6.09. Tax Covenants. (a) Private Activity Bond Limitation. The City shall assure that the proceeds of the Series A Bonds are not so used as to cause the Series A Bonds to satisfy the private business tests of Section 141(b) of the Code or the private loan financing test of Section 141(c) of the Code. (b) Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Series A Bonds. -28- (c) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Series A Bonds to be "Federally guaranteed" within the meaning of Section 149(b) of the Code. (d) Maintenance of Tax -Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Series A Bonds from gross income of the Owners to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Series A Bonds. (e) No Arbitrage. The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the Series A Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Series A Bonds would have caused the Series A Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code. Section 6.10. Continuing Disclosure to Owners.. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered a default hereunder; however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the City of its obligations thereunder, including seeking mandate or specific performance by court order. Section 6.11. Further Assurances. The City will make, execute and deliver any and all such further agreements, 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. -29- ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default: (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise. (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable. (c) Failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in this Agreement or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Fiscal Agent or the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 60 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The City shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02. Foreclosure. If any Event of Default shall occur under Section 7.01 then, and in each and every such case during the continuance of such Event of Default, the Fiscal Agent may, or at the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall, commence foreclosure against any parcels of land in the District with delinquent Special Taxes, as provided in Section 713 of the Act. Section 7.03. Other Remedies. If an event of Default shall have occurred under Section 7.01, the Fiscal Agent shall have the right: (a) by mandamus, suit, action or proceeding, to compel the City and its officers, agents or employees to perform each and every term, provision and covenant contained in this Agreement and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by this Agreement and the Act; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Fiscal Agent's or Bond Owners' rights; or (c) by suit, action or proceeding in any court of competent jurisdiction, to require the City and its officers and employees to account as if it and they were the trustees of an express trust. Section 7.04. Application of Special Tax Revenues After Default. If an Event of Default shall occur and be continuing, all Special Tax Revenues and any other funds thereafter -30- received by the Fiscal Agent under any of the provisions of this Agreement shall be applied by the Fiscal Agent as follows and in the following order: (a) To the payment of any expenses necessary in the opinion of the Fiscal Agent to protect the interests of the Owners of the Bonds and payment of reasonable fees, charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Agreement; (b) To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of this Agreement, as follows: Fir : To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference. (c) Any remaining funds shall be transferred by the Fiscal Agent to the Bond Fund. Section 7.05. Fiscal Agent to Represent Bond Owners. The Fiscal Agent is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Fiscal Agent) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to the Owners under the provisions of the Bonds, this Agreement, the Act and applicable provisions of any other law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Fiscal Agent to represent the Bond Owners, the Fiscal Agent in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Fiscal Agent and such Owners under the Bonds, this Agreement, the Act or any other law. All rights of action under this Agreement or the Bonds or otherwise may be prosecuted and enforced by the Fiscal Agent without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Fiscal Agent shall be brought in the name of the Fiscal Agent for the benefit and protection of the Owners of such Bonds, subject to the provisions of this Agreement. -31- Section 7.06. Bond Owners' Direction of Proceeding. Anything in this Agreement to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Fiscal Agent, and upon indemnification of the Fiscal Agent to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Fiscal Agent hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Agreement, and that the Fiscal Agent shall have the right to decline to follow any such direction which in the opinion of the Fiscal Agent would be unjustly prejudicial to Bond Owners not parties to such direction. Section 7.07. Limitation on Bond Owners' Right to Sue. No Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Agreement, the Act or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Fiscal Agent written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, shall have made written request upon the Fiscal Agent to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Fiscal Agent indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Fiscal Agent shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Fiscal Agent. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Agreement or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, this Agreement, the Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Agreement. Section 7.08. Absolute Obligation of Citv. Nothing in Section 7.07 or in any other provision of this Agreement or in the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Special Tax Revenues and other assets herein pledged therefor and received by the City or the Fiscal Agent, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Section 7.09. Termination of Proceedings. In case any proceedings taken by the Fiscal Agent or any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Fiscal Agent or the Bond Owners, then in every such case the City, the Fiscal Agent and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the City, the Fiscal Agent and the Bond Owners shall continue as though no such proceedings had been taken. -32- Section 7.10. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Fiscal Agent or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.11. No Waiver of Default. No delay or omission of the Fiscal Agent or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of 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 given by this Agreement to the Fiscal Agent or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient. -33- ARTICLE VIII FISCAL AGENT Section 8.01. Duties and Liabilities of Fiscal Agent. (a) Duties of Fiscal Agent Generally. The Fiscal Agent shall act as trustee hereunder in accordance with the terms hereof. The Fiscal Agent shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Agreement. The Fiscal Agent shall, during the existence of any Event of Default which has not been cured, exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Removal of Fiscal Agent. The City may upon 30 days' prior written notice remove the Fiscal Agent at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Fiscal Agent if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Fiscal Agent shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Fiscal Agent or its property shall be appointed, or any public officer shall take control or charge of the Fiscal Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Fiscal Agent and thereupon shall appoint a successor Fiscal Agent by an instrument in writing. (c) Resignation of Fiscal Agent. The Fiscal Agent may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the City, and to the Bond Owners notice of such resignation at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing. The Fiscal Agent shall not be relieved of its duties until such successor Fiscal Agent has accepted appointment. (d) Appointment of Successor Fiscal Agent. Any removal or resignation of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent; provided, however, that under any circumstances the successor Fiscal Agent shall be qualified as provided in subsection (e) of this Section. If no qualified successor Fiscal Agent shall have been appointed and have accepted appointment within 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Fiscal Agent or any Bond Owner (on behalf of himself and all other Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Fiscal Agent, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Fiscal Agent. Any successor Fiscal Agent appointed under this Agreement shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Fiscal Agent a written acceptance thereof, and to the predecessor Fiscal Agent an instrument indemnifying the predecessor Fiscal Agent for any costs or claims arising during the time the successor Fiscal Agent serves as Fiscal Agent hereunder, and after payment by the City of all unpaid fees and expenses of the predecessor Fiscal Agent, the such successor Fiscal Agent, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Fiscal Agent, with like effect as if originally named Fiscal Agent herein; but, nevertheless at the Written Request of the City or the request of the successor Fiscal Agent, such predecessor Fiscal Agent shall execute -34- and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Fiscal Agent all the right, title and interest of such predecessor Fiscal Agent in and to any property held by it under this Agreement and shall pay over, transfer, assign and deliver to the successor Fiscal Agent any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Fiscal Agent, the City shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Fiscal Agent all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Fiscal Agent as provided in this subsection, the City shall mail or cause the successor Fiscal Agent to mail, by first class mail postage prepaid, a notice of the succession of such Fiscal Agent to the trusts hereunder to each rating agency which then maintains a rating on the Bonds and to the Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within 15 days after acceptance of appointment by the successor Fiscal Agent, the successor Fiscal Agent shall cause such notice to be mailed at the expense of the City. (e) Qualifications of Fiscal Agent. The Fiscal Agent shall be a trust company or bank having the powers of a trust company, having (or if such bank or trust company is a member of a bank holding company system, its parent bank holding company has a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state agency. 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 agency above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Fiscal Agent shall cease to be eligible in accordance with the provisions of this subsection (e), the Fiscal Agent shall resign immediately in the manner and with the effect specified in this Section. Section 8.02. Merger or Consolidation. 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 subsection (e) of Section 8.01 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 8.03. Liability of Fiscal Agent. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the City, and the Fiscal Agent shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Agreement or of the Bonds or shall incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Fiscal Agent makes no representations as to the validity or sufficiency of the Agreement or of any Bonds, or in respect of the security afforded by the Agreement and the Fiscal Agent shall incur no responsibility in respect thereof. The Fiscal Agent shall be under no responsibility or duty with respect to: (i) the issuance of the Bonds for value, (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Fiscal Agent, or (iii) the application of any moneys paid to the City or others in accordance with the nxeept as the appl�n..tion of any moneys paid to +t in its eapao�ty as Fiscal A gent greement �-,.��.Y� �„ �..�. �.rj.,.avaa�iv�a vi µ..y ...��.� cJzcaYasvi�y �iJ 11JV1i1 a �bv.,c. The Fiscal Agent shall not be liable in connection with the performance of its duties hereunder, -35- except for its own negligence or willful misconduct. The Fiscal Agent shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Agreement. The Fiscal Agent may become the Owner of Bonds with the same rights it would have if it were not Fiscal Agent, and, to the extent permitted by law, may act as 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 Bond Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (b) The Fiscal Agent shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. (c) 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 exercising any trust or power conferred upon the Fiscal Agent under this Agreement. Section 8.04. Right to Rely on Documents. The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document 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 of or to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith; provided, however, the Fiscal Agent shall in no event delay any payment with respect to the Bonds in anticipation of any such opinion. Whenever in the administration of the duties �rusts imposed upon it by 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 be deemed to be conclusively proved and established by a Written Certificate of the City, and such Written Certificate shall be full warrant to the Fiscal Agent for any action taken or suffered in good faith under the provisions of this Agreement in reliance upon such Written Certificate, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 8.05. Preservation and and Inspection of Documents. Documents. All documents received by the Fiscal Agent under the provisions of this Agreement shall be retained in its possession and shall be subject during business hours and upon 24 hours' notice to the inspection of the City, the Owners and their agents and representatives duly authorized in writing. Section 8.06. Compensation and Indemnification and Indemnification. Subject to the provisions of Section 11.01, the City shall pay to the Fiscal Agent from time to time all reasonable compensation for all services rendered under this Agreement, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Agreement. Subject to the provisions of Section 11.0 1, the City further agrees, to the extent permitted by law, to indemnify and save the Fiscal Agent harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and which are not due to -36- its negligence or its willful misconduct. The duty of the City to indemnify the Fiscal Agent shall survive the termination and discharge of this Agreement. -37- ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted. (a) This Agreement and the rights and obligations of the City, the Owners of the Bonds and the Fiscal Agent may be modified or amended from time to time and at any time by a Supplemental Agreement, which the City and the Fiscal Agent may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Fiscal Agent. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Special Tax Revenues and other assets pledged under this Agreement prior to or on a parity with the lien created by this Agreement or deprive the Owners of the Bonds of the lien created by this Agreement on such Special Tax Revenues and other assets (except as expressly provided in this Agreement), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Agreement, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Fiscal Agent of any Supplemental Agreement pursuant to this subsection (a), the Fiscal Agent shall mail a notice (the form of which shall be furnished to the Fiscal Agent by the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Agreement, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Agreement. This Agreement and the rights and obligations of the City, of the Fiscal Agent and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Agreement, which the City and the Fiscal Agent may enter into without the consent of any Bond Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the City in this Agreement contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Agreement; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III; (iv) 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; -38- (v) to modify, amend or supplement this Agreement in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the City and the Fiscal Agent. Section 9.02. Effect of Supplemental Agreement. Upon the execution of any Supplemental Agreement pursuant to this Article, this Agreement 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 Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and all purposes. Section 9.03. Endorsement of Bonds: Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Agreement pursuant to this Article may, and if the City so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Fiscal Agent as to any modification or amendment provided for in such Supplemental Agreement, and, in that case, upon demand of the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Fiscal Agent a suitable notation shall be made on such Bonds. If the Supplemental Agreement shall so provide, new Bonds so modified as to conform, in the opinion of the City and the Fiscal Agent, to any modification or amendment contained in such Supplemental Agreement, shall be prepared and executed by the City and authenticated by the Fiscal Agent, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Fiscal Agent, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same interest rate and maturity. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. -39- ARTICLE X DEFEASANCE Section 10.01. Discharge of Agreement. The Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable hereunder by the City: (a) by paying or causing to be paid the principal of and interest and premium (if any) on the Bonds, as and when the same become due and payable; (li) by depositing with the Fiscal Agent, in trust (pursuant to an escrow agreement), at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem all Bonds then Outstanding; or (c) by delivering to the Fiscal Agent, for cancellation by it, all of the Bonds then Outstanding. If the City shall also pay or cause to be paid all other sums payable hereunder by the City, including without limitation any compensation due and owing the Fiscal Agent hereunder, then and in that case, at the election of the City (evidenced by a Written Certificate of the City, filed with the Fiscal Agent, signifying the intention of the City to discharge all such indebtedness and this Agreement), and notwithstanding that any Bonds shall not have been surrendered for payment, this Agreement and the pledge of Special Tax Revenues and other assets made under this Agreement and all covenants, agreements and other obligations of the City under this Agreement shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, and upon receipt of a Written Certificate of an Authorized Representative of the City and an opinion of Bond Counsel acceptable to the Fiscal Agent, each to the effect that all conditions precedent herein provided for relating to the discharge and satisfaction of the obligations of the City have been satisfied, the Fiscal Agent shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to this Agreement, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the City. Section 10.02. Discharge of Liability on Bonds. Upon the deposit with the Fiscal Agent, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any or all Outstanding Bonds (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 maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then all liability of the City in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Fiscal Agent as aforesaid for their payment, subject, however, to the provisions of Section 10.04. The City may at any time surrender to the Fiscal Agent for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 10.03. Deposit of Money or Securities with Fiscal Auenta Whenever in this Agreement it is provided or permitted that there be deposited with or held in trust by the Fiscal -40- Agent money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Fiscal Agent in the funds and accounts established pursuant to this Agreement and shall be -- (a) Lawful money of the United States of America, in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) Non -callable Federal Securities described in clause (a) of the definition thereof, the principal of and interest on which when due, in the opinion or report of an independent accountant selected by the City, will provide money sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice; provided, in each case, that the Fiscal Agent shall have been irrevocably instructed (by the terms of this Agreement or by Written Request of the City) to apply such funds to the payment of such principal and interest with respect to such Bonds. Section 10.04. Payment of Bonds After Discharge of Agreement. Notwithstanding any provisions of this Agreement, any moneys held by the Fiscal Agent in trust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys, shall be repaid to the City free from the trusts created by this Agreement, and all liability of the Fiscal Agent with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Fiscal Agent may (at the cost of the City) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Fiscal Agent with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. -41- ARTICLE XI MISCELLANEOUS Section 11.01. Limited Obligation. All obligations of the City under this Agreement and the Bonds shall be special obligations of the City, payable solely from the Special Tax Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth herein) or of the State of California or any political subdivision thereof is pledged to the payment of the Bonds. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in this Agreement either the City or the Fiscal Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the City or the Fiscal Agent shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights to Parties and Bond Owners. Nothing in this Agreement or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Fiscal Agent, the City and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Agreement or any covenant, condition or provision therein or herein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Fiscal Agent, the City and the Owners of the Bonds. Section 11.04. Waiver of Notice: Requirement of Mailed Notice. Whenever in this Agreement the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the Person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Agreement any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of Bonds. Whenever in this Agreement provision is made for the cancellation by the Fiscal Agent and the delivery to the City of any Bonds, the Fiscal Agent may, upon the Written Request of the City, in lieu of such cancellation and delivery, destroy such Bonds (in the presence of an officer of the City, if the City shall so require) as may be allowed by law, and deliver a certificate of such destruction to the City. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Agreement or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Agreement and such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The City hereby declares that it would have entered into this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 11.07. Notices. All notices or communications herein required or permitted to be given to the City or the Fiscal Agent shall be in writing and shall be deemed to have been -42- sufficiently given or served for all purposes by being delivered or sent by telecopy or by being deposited, postage prepaid, in a post office letter box, addressed as follows: If to the City: City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Attention: Finance Director If to the Fiscal Agent: U.S. Trust Company of California, N.A. 515 South Flower Street, Suite 2700 Los Angeles, California 90071-2291 Attention: Section 11.08. Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by this Agreement to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery, shall be sufficient for any purpose of this Agreement and shall be conclusive in favor of the Fiscal Agent and the City if made in the manner provided in this Section. The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Fiscal Agent or the City in accordance therewith or reliance thereon. Section 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Agreement, Bonds which are known by the Fiscal Agent to be owned or held by or for the account of the City, or by any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Fiscal Agent the pledgee's right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Fiscal Agent taken upon the advice of counsel shall be full protection to the Fiscal Agent. Section 11.10. Money Held for Particular Bonds. The money held by the Fiscal Agent for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such -43- date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.04 but without any liability for interest thereon. Section 11.11. Funds and Accounts. Any fund or account required by this Agreement to be established and maintained by the Fiscal Agent may be established and maintained in the accounting records of the Fiscal Agent, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with industry standards to the extent practicable, and with due regard for the requirements of Section 6.07 and for the protection of the security of the Bonds and the rights of every Owner thereof. Section 11.12. Payment on Non -Business Days. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non -Business Day. Section 11.13. Waiver of Personal Liability. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of or premium or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such officer, agent or employee from the performance of any official duty provided by law or by this Agreement. Section 11.14. Conflict with Act. In the event of any conflict between any provision of this Agreement and any provision of the Act, the provision of the Act shall prevail over the provision of this Agreement. Section 11.15. Conclusive Evidence of Regularity. Bonds issued pursuant to this Agreement shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.16. Execution in Several Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 11.17. Governing Laws. This Agreement shall be governed by and construed in accordance with the laws of the State of California. -44- IN WITNESS WHEREOF, the City has caused this Agreement to be signed in its name by its officer thereunto duly authorized, and the Fiscal Agent, in token of its acceptance of the trusts created hereunder, has caused this Agreement to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. CITY OF NEWPORT BEACH, for and on behalf of the CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent By: -45- No. r` r-11 A FORM OF BOND CITY OF NEWPORT BEACH SPECIAL IMPROVEMENT DISTRICT NO. 95-1 (CIOSA) SPECIAL TAX BOND, SERIES A INTEREST RATE MATURITY DATE DATED DATE REGISTERED OWNER: PRINCIPAL AMOUNT: The City of Newport Beach, County of Orange, State of California (the "City"), for and on behalf of the City of Newport Beach Special Improvement District No. 95-1 (CIOSA) (the "District"), for value received, hereby promises to pay, solely from the Special Tax (as hereinafter defined) collected in the District or amounts in certain funds and accounts held under the Agreement (as hereinafter defined), to the Registered Owner identified above or registered assigns (the "Registered Owner"), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof payable semiannually on March 1 and September 1 in each year, commencing March 1, 1996, (the "Interest Payment Dates") until payment of such Principal Amount in full. This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to February 15, 1996, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or made available for payment). The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the principal corporate trust office (the "Trust Office") of U.S. Trust Company of California, N.A., as fiscal agent (the "Fiscal Agent"), in Los Angeles, California. Interest hereon is payable by check of the Fiscal Agent mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the Registration Books of the Fiscal Agent as of the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date. This Bond is one of the first series of a duly authorized issue of bonds in the aggregate principal amount of $____ approved by the qualified electors of the District on , 1995, pursuant to the City of Newport Beach Special Improvement District Financing Code, being Chapter 3.32 of the Newport Beach Municipal Code (the "Act"), for the purpose of financing the construction and acquisition of certain public facilities within and in the A-1 vicinity of the District (the "Project'), and is one of the series of bonds designated "Newport Beach Special Improvement District No. 95-1 (CIOSA) Special Tax Bonds, Series A" (the "Series A Bonds") in the aggregate principal amount of $ . The creation of the Series A Bonds and the terms and conditions thereof are provided for by a resolution adopted by the City Council of the City on , 1995 (the "Resolution"), and the Fiscal Agent Agreement, dated as of 1, 1995 (the "Agreement'), between the City and the Fiscal Agent, and this reference incorporates the Resolution and the Agreement herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Resolution and in the Agreement, additional bonds ("Additional Bonds") may be issued by the City not to exceed the aggregate principal amount of $ secured by a lien on a parity with the lien securing the Series A Bonds. The Series A Bonds and any Additional Bonds are collectively referred to as the `Bonds". The Resolution is adopted and the Agreement is entered into under and this Bond is issued under, and all are to be construed in accordance with, the Act and the laws of the State of California. Pursuant to the Act, the Agreement and the Resolution, the principal of and interest on the Bonds are payable solely from the annual special tax authorized under the Act to be collected within the District (the "Special Tax") and certain funds held under the Agreement. This Bond shall not be entitled to any benefit under the Act, the Resolution or the Agreement, or become valid or obligatory for any purpose, until the certificate of authentication hereon shall have been dated and signed by the Fiscal Agent. IN WITNESS WHEREOF, said City has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of its Mayor and City Clerk, and has caused its corporate seal to be reproduced in facsimile hereon all as of the Dated Date identified above. (SEAL) Attest: City Clerk A-2 CITY OF NEWPORT BEACH I: Mayor (FORM OF REVERSE OF BOND) The Series A Bonds shall be subject to optional redemption, in whole or in part, by lot, on any Interest Payment Date on or after September 1, 2005, from any source of available funds other than prepayment of Special Taxes, at the following respective redemption prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 2005 and March 1, 2006 102% September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The Series A Bonds shall be subject to mandatory redemption, in whole or in part, by lot, on any Interest Payment Date, from and to the extent of any prepayments of Special Taxes as more particularly set forth in the Agreement, at the following respective redemption prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption. Redemption Dates Redemption Price March 1, 1996 through March 1, 2005 103% September 1, 2005 and March 1, 2006 102 September 1, 2006 and March 1, 2007 101 September 1, 2007 and thereafter 100 The Series A Bonds maturing September 1, shall be subject to mandatory sinking fund redemption, in part, by lot, on September 1 in each year, commencing September 1, , at a redemption price equal to the principal amount of the Series A Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Agreement. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective owners of any Series A Bonds designated for redemption, at their respective addresses appearing on the Registration Books maintained by the Fiscal Agent, at least 30 but not more than 60 days prior to the redemption date; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series A Bonds or the cessation of the accrual of interest thereon. The redemption price of the Series A Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Trust Office of the Fiscal Agent. From and after the date fixed for redemption of any Series A Bonds, interest on such Series A Bonds will cease to accrue. The Series A Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 or any integral multiple thereof. Subject to the limitations and upon payment of the charges, if any, provided in the Agreement, fully registered Series A Bonds may be exchanged at the Trust Office of the Fiscal Agent for a like aggregate principal amount and maturity of fully registered Series A Bonds of other authorized denominations. A-3 This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office of the Fiscal Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Agreement, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series A Bond or Series A Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The City and the Fiscal Agent may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Fiscal Agent shall not be affected by any notice to the contrary. The Agreement and the rights and obligations of the City and of the owners of the Bonds and of the Fiscal Agent may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Agreement; provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or the amount of principal thereof without the express written consent of the owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) permit the creation of any lien on the Special Taxes and other assets pledged under the Agreement, or deprive the Bonds owners of the lien created under the Agreement on the Special Taxes and such other assets, without the consent of the owners of all outstanding Bonds. All obligations of the City under the Agreement and the Bonds shall be special obligations of the City, payable solely from Special Tax Revenues (as defined in the Agreement) and the other assets pledged therefor thereunder. Neither the faith and credit not the taxing power of the City (except to the limited extent set forth herein and in the Agreement) or of the State of California or any political subdivision thereof is pledged to the payment of the Bonds. A-4 [FORM OF FISCAL AGENT'S CERTIFICATE OF AUTHENTICATION] This is one of the Series A Bonds described in the within -mentioned Agreement and registered on the Registration Books. Date: U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Fiscal Agent M. UK, Authorized Signatory ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto _ whose address and social security or other tax identifying number is _ _, the within -mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Fiscal Agent with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible Note: The signature(s) on this Assignment must ,guarantor. 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.