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HomeMy WebLinkAbout04 - BA-058 - Assessment District 70 - BayshoresTO: FROM: SUBJECT: CITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 4 March 25, 2003 Mayor And Members Of The City Council Public Works Department Patrick Arciniega, Associate Engineer 949 - 644 -3311 parciniega@city.newport-beach.ca.us SALE OF BONDS FOR UNDERGROUND ASSESSMENT DISTRICT NO. 70 BAYSHORES RECOMMENDATIONS: Adopt attached conditions for the by the designated Resolution No. 2003- which sets forth the terms and sale of bonds and approves the Purchase Agreement submitted underwriter for Assessment District No. 70. Approve a Budget Amendment adjusting revenue estimates in Account No. 400- 6970 in the amount of $1,463,310.00 to reflect contributions from property owners and the sale of bonds and increase expenditure appropriations in the amount of $1,399,310.00 in Account No. 7401- C5200483 to accommodate contribution costs. DISCUSSION: On January 28, 2002, Assessment District No. 70 was formed and Bond Counsel, Robert Hessell, recommended the final proposal for the sale of bonds be addressed at the March 25, 2003, Council Meeting. The confirmed assessments were based on the first installments being collected by the 2003 -2004 tax bill — with provision made for capitalized interest. All transmittals must be in the hands of the Tax Collector by August 10, 2003. Interest rates and bond discounts have not been established yet. The resolution, in the form presented, approves all formal terms and conditions related to the sale of bonds through approval of the Bond Indenture, and approves the Bond Purchase Contract submitted by M.L. Stern & Company, subject to modifications as necessary and to approval by the City Manager. The final pricing of bonds will be delegated to the Finance Director (Administrative Services Director). Environmental Review: This project qualifies for a Class 2 California Environmental Quality Act (CEQA) exemption under Section 15302, item "d" of the Implementing Guidelines as follows: SUBJECT: SALE OF BONDS FOR UNDERGROUND ASSESSMENT DISTRICT NO. 70 BAYSHORES March 25, 2003 Page 2 "Conversion of overhead electric utility distribution system facilities to underground including connection to existing overhead electric utility distribution lines where the surface is restored to the condition existing prior to the undergrounding." Public Notice: None required. Assessment District 70 was formed by Public Hearing vote on January 28, 2003. Statement of Assessment and Notice of Recordation of Assessment and Diagram was published in the Daily Pilot on February 14 & 21, 2003. Letters were mailed February 3, 2003 to residents of Assessment District with instructions for assessment payment and the cash - payment deadline of February 28, 2003. Funding Availability: Funds will be available subject to the sale of bonds for this Assessment District. Prepared by: Submitted Patrick Arciniega t en G. Badum Associate Engineer iblic Works Director Attachments: Exhibit showing District Boundary Resolution — Sale of Bonds Bond Purchase Contract Bond Indenture Budget Amendment RESOLUTION NO. 2003 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING ISSUANCE OF BONDS AND APPROVING THE FORM OF CERTAIN BOND DOCUMENTS FOR ASSESSMENT DISTRICT NO. 70 WHEREAS, this City Council has previously adopted its Resolution of Intention and initiated proceedings for the acquisition of certain public works of improvement, together with appurtenances and appurtenant work, in a special assessment district designated as Assessment District No. 70 (hereinafter referred to as the "Assessment District ") pursuant to the terms and provisions of the "Municipal Improvement Act of 1913 ", being Division 12 of the Streets and Highways Code of the State of California (the "Improvement Act "); and WHEREAS, this legislative body, to finance the acquisition and construction of such improvements, declared in its Resolution of Intention to issue bonds against any unpaid assessments as certified by the Treasurer, such bonds to issue pursuant to the terms and provisions of the 'Improvement Bond Act of 1915', being Division 10 of such Code (the 'Bond Act'); and WHEREAS, at this time this legislative body desires to set forth the general terms and conditions relating to the authorization, issuance and administration of such bonds; and WHEREAS, there has been presented, considered and ready for approval the form of a bond indenture and a form of Preliminary Official Statement, which documents contain information including but not limited to the Assessment District and the terms and conditions of the bonds; WHEREAS, there has also been presented for consideration by this legislative body a form of Bond Purchase Contract authorizing the sale of bonds to M. L. Stern & Co. Inc., as underwriter; NOW, THEREFORE, it is hereby Resolved, Determined, and Ordered as follows: SECTION 1. Recitals. The above recitals are true and correct. SECTION 2. Bonds Authorized. Pursuant to the Bond Act, this Resolution and the Bond Indenture (hereafter defined), the issuance, sale, and delivery of limited obligation improvement bonds of the City for the Assessment District, to be designated as City of Newport Beach Assessment District No. 70 Limited Obligation Improvement Bonds (the 'Bonds "), is hereby authorized in an aggregate principal amount not to exceed the unpaid assessments. The date, manner of payment, interest rate or rates, interest payment dates, denominations, form, registration privileges, manner of execution, place of payment, terms of redemption and other terms, covenants and conditions of the Bonds shall be as provided in the Bond Indenture as executed. SECTION 3. Authorization and Conditions. The City Manager, the City Treasurer, and such other official of the City as may be designated by the City Council, or any of them (each an "Authorized Officer "), are hereby authorized and directed to execute and deliver the various documents and instruments described in this Resolution with such additions and changes as the Authorized Officer deems advisable, provided that no additions or changes shall authorize an aggregate principal amount of Bonds in excess of the unpaid assessments. The approval of such additions or changes shall be conclusively evidenced by the execution and delivery of such documents or instruments by an Authorized Officer, upon consultation with and review by the City Attorney and bond counsel. SECTION 4. Bond Indenture. The form of Bond Indenture with respect to the Bonds as presented to this City Council and on file with the City Treasurer is hereby approved. The Authorized Officer is hereby authorized and directed to cause the same to be completed and executed on behalf of the City. SECTION 5. Official Statement and Continuing Disclosure Agreement. The City Council hereby approves the form of the Preliminary Official Statement as presented to this City Council and on file with the Finance Director describing the financing described therein, together with any changes therein or additions thereto deemed advisable by the Authorized Officer. Pursuant to Rule 15c2 -12 under the Securities Exchange Act of 1934 (the "Rule ") the Authorized Officer is authorized to determine when the Preliminary Official Statement is deemed final, and the Authorized Official is hereby authorized and directed to provide written certification thereof. The execution of the final Official Statement, which shall include such changes and additions thereto deemed advisable by the Authorized Officer pursuant to the Rule, shall be conclusive evidence of the approval of the final Official Statement by the City. The Council hereby authorizes the distribution of the final Official Statement by the purchaser of the Bonds. The form of Continuing Disclosure Agreement as presented to this City Council and on file with the Finance Director is hereby approved. The Authorized Officer is hereby authorized and directed to cause the same to be completed and executed on behalf of the City, subject to Section 3 above. SECTION 6. Sale of Bonds. This City Council hereby authorizes and approves the sale of the Bonds by negotiation to M. L. Stern & Co. Inc. (the "Underwriter'). The form of the Bond Purchase Agreement as presented to this City Council and on file with the City Treasurer is hereby approved and the Authorized Officer is hereby authorized and directed to execute the Bond Purchase Agreement on behalf of the City upon the execution thereof by the Underwriter, subject to Section 3 and further subject to the following conditions: the aggregate principal amount of the bonds is equal to the unpaid assessments 2 within the Assessment District, the underwriter's discount does not exceed two percent (2 %) and the net interest rate on the bonds shall not exceed seven percent (7 %) per annum.. SECTION 7. Bonds Prepared and Delivered. Upon the execution of the Bond Purchase Agreement, the Bonds shall be prepared, authenticated and delivered, all in accordance with the applicable terms of the Bond Act and the Bond Indenture, and the Authorized Officer and other responsible City officials are hereby authorized and directed to take such actions as are required under the Bond Purchase Agreement and the Bond Indenture to complete all actions required to evidence the delivery of the Bonds upon the receipt of the purchase price thereof from the Underwriter. SECTION 8. Annual Assessment Installments. A copy of the resolution confirming the assessments, which assessments shall constitute the security for the Bonds, shall be delivered to the City Treasurer, and the City Treasurer shall keep or cause to be kept the record showing the several installments of principal and interest on the assessments by assessor's parcel number that are to be collected each year during the term of the bonds. The City Treasurer shall establish procedures to promptly respond to inquiries concerning installments on current tax roles as prescribed by section 53754 of the Government Code of the State of California. An annual portion of each assessment, together with annual interest on said assessment, shall be payable in the same manner and at the same time and in the same installment as the general property taxes of the County of Orange and shall be payable and become delinquent at the same time and in the same proportionate amount. Each year the annual installments shall be submitted to the County Auditor for purposes of collection. SECTION 9. Covenant to Initiate Foreclosure Proceedinqs. This legislative body does further specifically covenant for the benefit of the bondholders to commence and prosecute to completion foreclosure actions regarding delinquent installments of the assessments in the manner, within the time limits and pursuant to the terms and conditions as set forth in the Bond Indenture as submitted and approved through the adoption of this Resolution. SECTION 10. Actions. All actions heretofore taken by the officers and agents of the City with respect to the establishment of the Assessment District and the sale and issuance of the bonds are hereby approved, confirmed and ratified, and the proper officers of the City are hereby authorized and directed to do any and all things and take any and all actions and execute any and all certificates, agreements, contracts, and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance and delivery of the Bonds in accordance with Bond Act, this Resolution, the Bond Indenture, the Bond Purchase Agreement, and any certificate, agreement, contract, and other document described in the documents herein approved. 3 SECTION 11. Effective Date. This resolution shall take effect from and after its adoption. PASSED, APPROVED and ADOPTED this 25th day of March, 2003. AYES: NOES: ABSENT: Mayor ATTEST: City Clerk ENGINEER'S "REPORT" PART H CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 70 (Bay Shores) COST ESTIMATE Prelitninary Estimate Costs without with Final SCE ITCC Tax SCE ITCC Tax * ** Assessment A. CONSTRUCTION COSTS 1. Southern California Edison SCE Relocation Cost Invoice Underground Structures and Conduit Installation $698,966.00 $698,966.00 $698,966.00 Underground Cable and Equipment Installation $41,738.00 $41,738.00 $41,738.00 SCE ITCC Tax ** $206,740.08 $206,740.08 Subtotal, Southern California Edison Costs: Without SCE ITCC Tax $740,704.00 With SCE ITCC Tax $947,444,08 $947,444.08 2. Pacific Bell Contractor Final Cost Estimate $508,304.87 $508,304.87 $508,304.87 Subtotal, Pacific Bell Costs $5085304.87 $508,304.87 $508.304.87 Subtotal, Construction $1,249,008.87 $1,455,748.95 $1,455,748.95 Construction Contingencies 124 900.89 145.574.90 145.574.90 TOTAL CONSTRUCTION COSTS $1,373,909,76 $1,601,323.85 $1,601,323.85 B. INCIDENTAL COSTS 1. Design Engineering (SCE) $25,000.00 $25,000.00 $25,000.00 2. Design Engineering (Pac Bell) 14,000.00 14,000.00 14,000.00 3. Assessment Engineering 25,000.00 25,000.00 25,000.00 4. Construction Inspection 8,500.00. 8,500.00 8,500.00 5. City Administration 16,900.00 19,500.00 19,500.00 6. Printing, Advertising, Notices 250.00 250.00 250.00 7. Filing Fees 650.00 650.00 650.00 8. Bond Counsel 20,000.00 20,000.00 20,000.00 9. Paying Agent 9,500.00 9,500.00 9,500.00 10. Contingencies 12.600.00 12.900.00 * * ** 10 737.63 Subtotal, Incidentals $132,400.00 $135,300.00 $133,137.63 Subtotal, Construction & Incidentals $1,506,309.76 $1,736,623.85 $1,734,461.48 Continued -Next Page) ENGINEER'S "REPORT" PART Il CITY OF NEWPORT BEACH ASSESSMENT DISTRICT NO. 70 (Bay shares) COST ESTIMATE Pre mnnary Estimate Costs Final Assessment without SCE iICC Tax with SCE ITCC Tax * ** Subtotal Forward, Construction & Incidentals $1,506,309.76 $1,736,623.85 $1,734,461.48 C. FINANCING COSTS 1. Bond Discount (2 %) $33,849.66 $39,025.26 $38,976.66 2. Bond Reserve (5 %) 84,624.14 97,563.14 97,441.66 3. Capitalized Interest (4 %) 67,699.32 78,050.51 77,953.32 Subtotal, Financing Costs $186,173.12 $214,638.91 $214,371.64 TOTAL DISTRICT COSTS $1,692,482.88 $1,951,262.76 $1,948,833.12 $0.00 $0.00 D. CASH CONTRIBUTION $0.00 E. BALANCE TO ASSESSMENT $1,692,482.88 $1,951,262.76 $1,948,833.12 * * ** * Adelphia Cable is required to pay for undergrounding through the Franchise Agreement with the City. ** ITCC = Income Tax Component of Contribution (34%). [Section 18(b) of IRS Code] * ** 2nd bond issue for Federal Income Tax Component of Contribution (ITCC - 34 %) will only be issued if the Federal Government implements the tax. 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April _, 2003 City Council City of Newport Beach 3300 Newport Blvd. Newport Beach, CA 92659 -1768 RE: Bond Purchase Contract, City of Newport Beach, Assessment District No. 70 Dear Council Members: For not to exceed $ par value, legally issued City of Newport Beach Assess- ment District No. 70 Limited Obligation Improvement Bonds (the "Bonds "), dated , 2003, and maturing serially from September 2, 2004, through September 2, 2018, inclusive, subject to all of the terms and conditions following, we will pay _ per- cent (_.000 %) of the par value thereof, with accrued interest (if any) to the date of deliv- ery, for Bonds bearing interest at the rates and maturing in the amounts shown in Exhibit A and considered a part of this Bond Purchase Contract. Said Bonds shall be in "Book Entry Form" and shall be registered in the name of Cede & Co., as nominee of the Depository Trust Co., New York, New York ( "DTC "). This Purchase Contract is made for acceptance by the City on 2003, and is subject to the unqualified approving bond opinion of Robert E. Hessell, to be fur- nished to M.L. Stem & Co., LLC (the "Underwriter ") at your expense. Said legal opinion is to be printed on the Bonds at your expense. Delivery of these Bonds is to be made to Underwriter on or about April _, 2003 (the "Closing Date "). If the Bonds are not tendered for delivery to Underwriter accompanied by said approving legal opinion on this date, Underwriter shall have the right, at its op- tion, to cancel this Bond Purchase Contract. However, buy mutual agreement, the Closing Date may be extended. This Bond Purchase Contract is also made subject to the following terms and conditions A) The Bonds to be sold will equal in principal amount, and will be secured by, unpaid assessments levied upon private property within said Assessment District, and au- thorized by proceedings taken pursuant to the Municipal Improvement Act of 1913 (Divi- sion 12 of the Streets and Highways Code of the State of California), and are to be issued pursuant to the provisions of the Improvement Bond Act of 1915 (Division 10 of said Code). Proceeds from the sale of the Bonds will be used to pay the costs of the Im- provement Project as authorized by said proceedings. B) Any bond may be redeemed on any March 2, or September 2, prior to its fixed maturity date, at the option of the Treasurer of the City, upon giving at least 60 days prior notice, and upon the payment of the principal amount .thereof and interest accrued thereon to the date of redemption, plus a redemption premium of three percent (3.00 %) from September 2, 2003 through September 2, 2010; two percent (2.00 %) on March 2, 2011 and September 2, 2011; one percent (1.00 %) on March 2, 2012 and September 2, 2012; and par (100 %) on March 2, 2013 and thereafter, of the principal amount thereof. C) The City has covenanted for the benefit of the Bondowners that the City will review the public records of the County of Orange, California, in connection with the col- lection of the assessment installments not later than August 1 of each year to determine the amount of assessment installments collected in the prior Fiscal Year. If the City de- termines that any parcel or parcels are delinquent in the payment of assessment install- ments, then the City will cause judicial foreclosure proceedings to be filed in the Superior Court not later than December 1 of such year, and will prosecute diligently such foreclo- sure proceedings to judgement and judicial foreclosure sale; provided, however, the commencement of any foreclosure action may be deferred in the sole discretion of the City if, and only so long as, the amount in the Reserve Fund is not less than seventy per- cent (70 %) of the Reserve Requirement. D) A Reserve Fund will be created to provide available funds from which the City can advance and make payment on the amount of any delinquent assessments levied for these proceedings. Payments from the Reserve Fund shall be an advance to be reim- bursed from the proceeds of redemption or sale of the properties with respect to which payment has been made. The Special Reserve Account shall be maintained as a separate trust account distinct from all other funds of the City. The Special Reserve Fund shall be in amount equal to five percent (5.00 %) of the Bonds issued for these proceedings. The Special Reserve Fund shall be administered and payments shall be made all as authorized under the provisions of the Improvement Bond Act of 1915. E) If a delinquency occurs in the payment of any assessment installment, the City will have a duty only to transfer into the Redemption Fund the amount of the delin- quency out of the Reserve Fund. This duty on the part of the City shall be continuous dur- ing the period of the delinquency, only to the extent of funds available from the Reserve Fund, until reinstatement, redemption, or sale of the delinquent property. F) At the time of payment for and delivery of the Bonds, the City will furnish a .certificate that there is no litigation threatened or pending affecting the validity of the Bonds or the legality of the assessment. G) There shall be no Bonds issued secured by unpaid assessments levied upon any lot or parcel of land belonging to the United States, or to the State of California, or to any county, city, public agency mandatory of the government, school board, educational, penal or reform institution or institution for the feeble- minded or the insane, whether or not such lot or parcel of land is in use in the performance of any public function. H) The Bonds shall bear interest at the rate or rates to be mutually determined by Underwriter and the City. The Finance Director of the City is hereby designated, di- rected and authorized to act on behalf of the City to determine and agree to the purchase price to be paid and the rate or rates of interest to be borne by the Bonds, provided, how- ever, that the net interest cost shall not exceed seven percent (7.00 %). I) In order to assist the Underwriter in complying with S.E.C. Rule 15c2 -12 (b)(5), the City has agreed to provide certain annual financial information and operating data and notices of certain material events relating to the Assessment District, all as enu- merated in the Official Statement, "Form of Continuing Disclosure Certificate" and to execute and deliver to Underwriter a "Continuing Disclosure Certificate" as described in the Official Statement. K) The obligation 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 fol- lowing additional conditions; (a) At the Closing Date, the Resolution of Issuance and any applicable agree- ments shall be in full force and effect, and shall not have been amended, modified or supplemented except as may have been agreed 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 Bond Purchase Contract, all such actions as, in the opinion of Robert E. Hessell, Bond Counsel for the City, shall be necessary and appro- priate; (b) Between the date hereof and the Closing Date, the market price or market- ability of the Bonds at the initial offering prices set forth herein shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the Underwriter terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds) by reason of any of the following: (1) Legislation enacted (or resolution passed) by the Congress of the United States of America or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regula- tion (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department or the Inter- nal Revenue Service of the United States of America, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon the interest as would be received by the owners of the Bonds; (2) 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, tempo- rary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 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 underwriting arrangements, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securi- ties laws as amended and then in effect; (3) 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, securities (or interest thereon), validity or enforce- ability of the assessments or the ability of the City to construct or acquire the improvements as contemplated by the Resolution of Issuance and the Official Statement; or (4) Any event occurring, or information becoming known to the Under- writer which, in the judgment of the Underwriter makes untrue or mis- leading in any material respect any statement or information contained in the Official Statement concerning the Underwriter, the Improvement Project, the landowners, or the property assessed. This proposal is conditioned upon the successful consummation of the assessment pro- ceedings and should such proceedings for any reason fail to be successfully consummated there shall be no obligation on the part of the Underwriter or the City. This proposal is submitted in duplicate, one copy of which is to be officially signed and returned to Underwriter. Very truly yours, M.L. STERN & CO., LLC Miles L. Benickes Senior Vice President The foregoing proposal is hereby accepted on behalf of the City of Newport Beach. DATE AUTHORIZED SIGNATURE EXHIBIT A CITY OF NEWPORT BEACH, CALIFORNIA ASSESSMENT DISTRICT NO. 70 YEAR INTEREST RATE 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TOTAL PRINCIPAL AMOUNT OF BONDS: 5 DATED DATE: '12003 PURCHASE PRICE OF BONDS: % NET INTEREST COST: % PRINCIPAL AMOUNT Exhibit A is hereby accepted on behalf of the City of Newport Beach. AUTHORIZED SIGNATURE: DATE: BOND INDENTURE by and between City of Newport Beach, California and U.S. Bank National Association, as Paying Agent Dated as of April 1, 2003 S* City of Newport Beach Assessment District No. 70 Limited Obligation Improvement Bonds * To be determined TABLE OF CONTENTS i Page SECTION I. Authorization, Designation and Amount ......................... ............................... 1 SECTION 2. Issuance, Unpaid Assessments ........................................ ............................... 1 SECTION 3. Alternative Procedure for Advance Payment ................... ............................... 1 SECTION 4. Registered Bonds; Denominations and Book -Entry Only .. ............................... 1 SECTION 5. Date of Bonds ............................................................... ............................... 1 SECTION6. Maturity ...................................................................... ............................... 1 SECTION7. Interest ........................................................................ ............................... 1 SECTION 8. Place of Payment ........................................................... ..............................2 SECTION9. Redemption .................................................................. ..............................2 SECTION 10. Transfer of Registered Bonds .......................................... ..............................4 SECTION 11. Exchange of Bonds ........................................................ ..............................4 SECTION 12. Books of Registration ..................................................... ..............................5 SECTION 13. Execution of Bonds ........................................................ ..............................5 SECTION 14. Authentication ............................................................... ..............................5 SECTION 15. Ownership of Bonds ...................................................... ..............................5 SECTION 16. Mutilated, Destroyed, Stolen or Lost Bonds ...................... ..............................5 SECTION 17. Cancellation of Bonds .................................................... ..............................6 SECTION 18. Application of Bond Proceeds ......................................... ..............................6 SECTION 19. Creation of Funds .......................................................... ..............................6 SECTION20. Investments ................................................................... ..............................8 SECTION 21. No City Liability ............................................................ ..............................8 SECTION 22. Covenant for Superior Court Foreclosure ........................ ..............................8 SECTION 23. Covenant to Maintain Tax - Exempt Status ........................ ..............................9 SECTION 24. Order to Print and Authenticate Bonds ............................ ..............................9 SECTION25. Fiscal Agent .................................................................. ..............................9 SECTION 26. Liability of Fiscal Agent ................................................ .............................10 SECTION 27. Provisions Constitute Contract ....................................... .............................11 SECTION 28. Unclaimed Funds ........................................................... .............................11 SECTION 29. Modification or Amendment to this Indenture .................. .............................11 SECTION 30. Notices to and Demands on City and Fiscal Agent .......... ............................... 12 SECTION 31. Partial Invalidity ........................................................ ............................... 12 SECTION 32. Applicable Law .......................................................... ............................... 12 SECTION 33. Conflict with Act ........................................................ ............................... 12 SECTION 34. Payment on Business Day ............................................ ............................... 13 SECTION36. Defeasance ................................................................... .............................13 SECTION 37. Counterparts .............................................................. ............................... 13 i BONDINDENTURE This Bond Indenture (the "Indenture ") dated as of January 1, 2003, is entered into by and between the City of Newport Beach, a California municipal corporation (the "City "), and U.S. Bank National Association, as paying agent, registrar and transfer agent (the "Paying Agent "), to establish the terms and conditions pertaining to the issuance of bonds in a special assessment district known and designated as ASSESSMENT DISTRICT NO.70 (the "Assessment District "). SECTION 1. Authorization, Designation and Amount. Pursuant to the provisions of the "Improvement Bond Act of 1915" (the "Act "), being Division 10 of the Streets and Highways Code ofthe State ofCalifomia, the City does hereby authorize the issuance of a bond or bonds to represent the unpaid assessments within the Assessment District in an aggregate principal amount of $ , and to be designated as the City of Newport Beach Assessment District No. 70 Limited Obligation Improvement Bonds (the "Bonds "). SECTION 2. Issuance; Unpaid Assessments; No Parity Bonds. The City shall determine the assessments that are unpaid and the aggregate amount thereof and issue, sell and deliver bonds therefor as authorized by the Act. The Bonds shall be secured by, and the City does hereby pledge, (1) the unpaid assessments within the Assessment District and (2) the amounts held in the Redemption Fund and the Reserve Fund maintained pursuant to this Indenture and the invested earnings thereon (except to the extent earnings are to be transferred to the Rebate Fund under this Indenture). No additional bonds or other obligations will be issued or incurred that will be secured by or payable from the assessments of the Assessment District SECTION 3. Alternative Procedure for Advance Payment. The provisions of Part 11.1 of the Act, providing an alternative procedure for the advance payment of assessments and the calling of all or a portion of the Bonds shall apply. SECTION 4. Registered Bonds; Denominations and Book -Entry Only. The Bonds shall be issued only as fully registered Bonds in the denomination of $5,000, or any integral multiple thereof, except for one Bond (which Bond if a series of Bonds is issued shall be the Bond maturing in the first year of maturity) which shall include the amount by which the total aggregate principal amount of the Bonds exceeds the maximum integral multiple of $5,000. Notwithstanding any provisions herein to the contrary, the Bonds shall be initially issued in book -entry form in accordance with the terms of Exhibit B attached hereto and incorporated herein by this reference. SECTION 5. Date of Bonds. All of the Bonds shall be dated as of the date of the delivery of the Bonds to the initial purchase thereof (the "Date of Delivery"), and interest shall accrue from that date at the rates set forth in Exhibit A attached hereto and incorporated herein by this reference. SECTION 6. Maturity. The Bonds may be issued as serial bonds, term bonds, or both. The principal of the Bond or Bonds shall be payable on September 2 of every year, commencing September 2, 2004, until the whole is paid. The principal amount maturing or payable each year shall be the principal amounts maturing or payable in the respective years as shown on Exhibit A hereto. SECTION 7. Interest. Each serial Bond shall be of a single maturity and shall bear interest at the rate for their maturity as set forth in Exhibit A attached hereto. Interest on the Bonds shall be paid in lawful money of the United States of America on March 2 and September 2 of each year (each, an "Interest Payment Date "), commencing September 2, 2003, by check of the Paying Agent mailed by first -class mail, postage prepaid, on each Interest Payment Date to the registered owners thereof at the owner's addresses as they appear on the Paying Agent's books of registration on the 15th day of the month immediately preceding said Interest Payment Date regardless of whether such day is a business day (the "Record Date ") or by wire transfer to an account in the United States of America made on an Interest Payment Date upon written instructions received by the Paying Agent on or before the Record Date from an owner of $100,000 or more in aggregate principal amount of Bonds. Interest shall be calculated on the basis of a 360 -day year composed of twelve 30 -day months. Interest on any Bond shall be payable from the Interest Payment Date next preceding the date of authentication of that Bond, unless (i) the date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from that Interest Payment Date, or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest shall be payable from the Date of Delivery, provided, however, that if at the time of authentication of any Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or from the Date of Delivery, if no interest has been paid or made available for payment. SECTION 8. Place of Payment. The principal of, and any premium due on the redemption of the Bonds, shall be payable in lawful money of the United States of America upon surrender thereof at the corporate trust office of the Paying Agent in St. Paul, Minnesota (the "Principal Office "), or at such other office as the Paying Agent may designate, or at the corporate trust office of such other registrar, transfer agent, or paying agent as appointed by Section 25 hereof. SECTION 9. Redemption. (a) Optional Redemption. Any Bond or any portion of a Bond may be redeemed, in whole or in part in increments of $5,000, in advance of maturity on any Interest Payment Date, commencing September 2, 2003, from any source of funds including, without limitation, the prepayment of assessments, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, together with accrued interest to the date of redemption: Redemption Date Redemption Price September 2, 2003 through September 2, 2010 103% March 2, 2011 and September 2, 2011 102% March 2, 2012 and September 2, 2012 101% March 2, 2013 and thereafter 100% (b) Purchase of Bonds. In lieu of payment at maturity or redemption under this Section 9, monies in the Redemption Fund (other than monies representing prepaid assessments) may be used and withdrawn by the Paying Agent for purchase of outstanding Bonds which mature (or with respect to which a sinking fund payment is due) on the next principal payment date, upon the filing with the Paying Agent prior to the selection of Bonds for redemption of a written request from the City requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such request may provide, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, the premium, if any, plus interest accrued to the date of maturity or redemption that would otherwise be payable. (c) Selection of Bonds for Redemption. If less than all of the outstanding Bonds or portions thereof are to be redeemed, the Paying Agent shall select the Bonds to be redeemed in authorized denominations in such a way that the ratio of outstanding Bonds to issued Bonds shall be approximately the same for each annual maturity insofar as possible. (d) Notice of Redemption. When the Paying Agent shall receive notice from the City of its election to redeem Bonds at least sixty (60) days prior to the applicable redemption date, or when Bonds are otherwise to be redeemed pursuant to this Section 9, the Paying Agent shall give notice, in the name and at the expense of the City, of the redemption of such Bonds. Such notice of redemption shall (a) specify the numbers of the Bonds selected for redemption, except that where all the Bonds are subject to redemption or all the Bonds ofa maturity date are subject to redemption, the numbers thereof need not be specified; (b) state the date fixed for redemption; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the case of Bonds to be redeemed only in part, state the portion of the Bond which is to be redeemed; and (f) the CUSIP numbers of the Bonds to be redeemed. Such notice shall further state that on the date fixed for redemption there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 45 days prior to the redemption date, the Paying Agent shall mail by registered or certified mail, postage prepaid, or deliver by personal service, a copy of such notice, to the respective owners of the Bonds to be redeemed at their addresses appearing on the bond register. The actual receipt by the owner of any Bond of notice of such redemption shall not be a condition precedent thereto, and failure to receive such notice shall not affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Paying Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties, and it shall not be open to any Bondowner to show that he or she failed to receive notice of such redemption. In addition to the notice described in the foregoing paragraph, such redemption notice shall be given by the Paying Agent (i) by first class mail, postage prepaid, or (ii) by facsimile transmission on the same day as the date of the mailing required by the preceding paragraph, to M. L. Stern & Co., LLC, whose address for notice purposes hereunder shall be 8350 Wilshire Boulevard, Beverly Hills, California, 90211 Attention: Miles L. Benickes, Senior Vice President and to each ofthe following securities depositories: (1) The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Facsimile transmission: (516) 227 -4039, telephone: (516) 227 -4190; (2) Midwest Securities Trust Company, Capital Structures -Call Notification, 440 South La Salle Street, Chicago, Illinois 60605, Facsimile transmission: (312) 663 -2343; (3) Philadelphia Depository Trust Company Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Facsimile transmission: 215) 496 -5058. In addition to the foregoing notices, on the same day as the date of the mailing required by the second paragraph preceding this paragraph, such prepayment notice shall be given by the Paying Agent by (i) first - class mail, postage prepaid, or (ii) facsimile transmission, to one of the following services selected by the City: (1) Financial Information, Inc.'s, Financial Daily Called Bond Service, 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; (2) Kenny Information Service's, "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; (3) Moody's Investors Service, "Municipal and Government," 5250 77 Center Dr, #150, Charlotte, North Carolina 28217, Attention: Called Bonds Dept.; (4) Standard & Poor's Corporation, "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004. Neither failure to give the notice described in the two immediately preceding paragraphs nor any defect therein shall in any manner affect the redemption of the Bonds. (e) Partial Redemption of Bonds. Upon sun•ender of any Bond to be redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Bondowner, at the expense of the City, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bond surrendered, with the same interest rate and the same maturity. (f) Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in this Section 9, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in this Indenture, anything in this Indenture or in the Bonds to the contrary notwithstanding; (2) Upon presentation and surrender thereof at the Principal Office of the Paying Agent, such Bonds shall be redeemed at the specified redemption price; (3) From and after the redemption date, the Bonds or portions thereof so designated for redemption shall be deemed to be no longer outstanding and such Bonds or portions thereof shall cease to bear further interest; (4) From and after the date fixed for redemption, no owner of any of the Bonds or portion thereof so designated for redemption shall be entitled to any of the benefits of this Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. (g) Bonds Subject to Refunding. The Bonds shall be subject to refunding pursuant to Division 11.5 of the Streets and Highways Code of the State of California. SECTION 10. Transfer of Registered Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books of registration required to be kept pursuant to the provisions of Section 12, by the owner in whose name it is registered, or by his or her duly authorized attorney or legal representative, upon surrender of such Bond for registration of such transfer, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent and duly executed by the owner of said Bonds. The Paying Agent may require the payment by the Bondowner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer and such charges as provided for in the system of registration for registered debt obligations. The Paying Agent shall not be required to register the transfer of any Bonds during the fifteen (15) days preceding the selection of any Bonds for redemption prior to the maturity thereof, nor with respect to anyBond which has been selected for redemption prior to the maturity thereof. Upon any registration of transfer, a new Bond or Bonds shall be authenticated and delivered by the Paying Agent in exchange for such Bond, in the name of the transferee, in any denomination or denominations autho- rized by this Indenture, and in an aggregate principal amount equal to the principal amount of such Bond or principal amount of such Bond or Bonds so surrendered. In all cases in which Bonds shall be exchanged or transferred, the Paying Agent shall authenticate Bonds in accordance with the provisions of this Indenture. All Bonds surrendered in such exchange or registration transfer shall forthwith be canceled. SECTION 11. Exchange of Bonds. Bonds may be exchanged at the principal corporate trust office of the Paying Agent for a like aggregate principal amount of Bonds of the same series, interest rate and maturity, subject to the payment of any tax or governmental charges, if any, upon surrender and cancellation of the 13 Bond. Upon such transfer and exchange, a new registered Bond or Bonds of any authorized denomination or denominations of the same series and maturity for the same aggregate principal amount will be issued to the transferee in exchange therefor. The Paying Agent shall not be required to register the exchange of any Bonds during the fifteen (15) days preceding the selection of any Bonds for redemption prior to the maturity thereof, nor with respect to any Bond which has been selected for redemption prior to the maturity thereof. SECTION 12. Books of Registration. There shall be kept by the Paying Agent sufficient books for the registration and transfer of the Bonds and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said register, Bonds as hereinbefore provided. SECTION 13. Execution of Bonds. The Bonds shall be executed manually or in facsimile by the Treasurer and by the City Clerk of the City. The Bonds shall be delivered to the Paying Agent for authentication and registration. In case an officer who shall have signed or attested to any of the Bonds by facsimile or otherwise shall cease to be such officer before the authentication, delivery and issuance of the Bonds, such Bonds nevertheless may be authenticated, delivered and issued, and upon such authentication, delivery and issue, shall be as binding as though those who signed and attested the same had remained in office. SECTION 14. Authentication. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form below, manually executed by the Paying Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Paying Agent shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder, and are entitled to the benefits of this Indenture. FORM OF CERTIFICATE OF AUTHENTICATION This Bond has been authenticated on: [Date] U.S. Bank National Association, as Transfer Agent, Registrar, and Paying Agent By: Authorized signatory SECTION 15. Ownership of Bonds. The person in whose name any Bond shall be registered shall be deemed and regarded by the Paying Agent and the City as the absolute owner thereof for all purposes and shall not be affected by any notice to the contrary, and payment of or on account of the principal and redemption premium, if any, of any such Bond, and the interest on any such Bond, shall be made only to or upon the order of the registered owner thereof or his legal representative shown on the books of registration. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid. SECTION 16. Mutilated, Destroyed, Stolen or Lost Bonds. In case any Bond secured hereby shall become mutilated or be destroyed, stolen or lost, the City shall cause to be executed and authenticated a new Bond of like date and tenor and principal or maturity amount in exchange and substitution for and upon the cancellation of such mutilated Bond or in lieu of and in substitution for such Bond mutilated, destroyed, stolen or lost, upon the owner's paying the reasonable expenses and charges in connection therewith, and, in the case of a Bond destroyed, stolen or lost, his filing with the Paying Agent and City of evidence satisfactory to them that such Bond was destroyed, stolen or lost, and of his ownership thereof, and furnishing the Paying Agent and City with indemnity satisfactory to them. SECTION 17. Cancellation of Bonds. All Bonds paid or redeemed at or before maturity shall be canceled upon the payment or redemption and shall be delivered to the Paying Agent when such payment or redemption is made. The Paying Agent shall destroy all Bonds canceled under any provision of this Indenture and the Paying Agent shall execute a certificate describing the Bonds so destroyed and retain said executed certificate in its permanent files for the issue. SECTION 18. Application of Bond Proceeds. The proceeds of the sale of the Bonds in the aggregate principal amount of S (being the par amount of the Bonds less the underwriter's discount in the amount of $ shall be received by the City and deposited or transferred as follows: (1) $ of the sale proceeds, which represents the initial Reserve Requirement (as defined below), shall be deposited in the Reserve Fund established pursuant to Section 19 hereof, (3) $ of the sale proceeds, together with $ collected as prepaid assessments, of the sale proceeds shall be deposited into the Improvement Fund established pursuant to Section 19 hereof. SECTION 19. Creation of Funds. The Paying Agent and the City, as applicable, are hereby authorized and directed to establish the following funds for purposes of collecting assessment installments, making payment for the hereinafter designated costs and expenses and payment of principal and interest on the Bonds. The funds to be created are designated and subject to the terms as follows: (a) Redemption Fund: The Paying Agent is hereby authorized and directed to keep a Redemption Fund (the "Redemption Fund ") designated by the name of the Assessment District and to deposit therein from time to time (i) the amount of the proceeds of the Bonds which represents accrued and capitalized interest on the Bonds. (ii) all sums received from the City representing the collection of the assessments other than assessments for administrative costs and the interest thereon, and (iii) any surplus in the Improvement Fund to the extent as provided below. Except for money received with respect to assessment surcharges for administrative costs, the City shall transfer or cause to be transferred to the Paying Agent all sums received from the collection of the assessments and any interest thereon and all sums received for the partial or full prepayment of assessments as required by Streets and Highways Code Section 8767. Any transfer representing the payment of delinquent assessment installments or the proceeds of the redemption of or foreclosure on any property with respect to which any assessment installments are delinquent shall be accompanied by written instructions as to the amount, if any, of such transfer «hich is required to be transferred to the Reserve Fund. Any transfer representing the prepayment of assessments shall be accompanied by written instructions as to the disposition of such sums to redeem Bonds prior to maturity or to pay accrued interest on any Bonds to be redeemed. Principal of and interest on the Bonds shall be paid by the Paying Agent to the registered owners out of the Redemption Fund to the extent funds on deposit in said Redemption Fund are available therefor. In all respects not recited herein, said Bonds shall be governed by this Indenture or such other direction of the City to the Paying Agent given in accordance with the provisions of the Act. Under no circumstances shall the Bonds or interest thereon be paid out of any other fund except as provided herein. Prior to the interest Payment Date, there shall be established by the Paying Agent a prepayment subaccount within the Redemption Fund to be known as the Prepayment Account ( "Prepayment Account'). The City shall transfer to the Paying Agent for deposit in the Prepayment Account all monies received representing the principal of and redemption premium on any prepaid assessments, including any amounts transferred from the Escrow Account of the Improvement Fund pursuant to Section 19(c) below. Such monies shall be applied solely to the payment of the principal of and premium on Bonds to be redeemed prior to maturity pursuant to the provisions of Section 9 of this Indenture. (b) Reserve Fund: The City shall create and maintain a special reserve fund for the Bonds (the "Reserve Fund ") to be designated by the name of the Assessment District. Pursuant to Section 18 of this Indenture, the Reserve Fund shall be initially funded from a portion of the Bond proceeds in an amount equal to 5% of the principal amount of the Bonds. The City shall also deposit in the Reserve Fund funds which represent the proceeds of (i) payments made to redeem delinquent assessment installments or (ii) the judicial foreclosure sale of parcels pursuant to Section 22 below. Monies in the Reserve Fund shall be applied as follows: (1) Amounts in the Reserve Fund shall be transferred to the Paying Agent for deposit in the Redemption Fund if there are insufficient monies in said Redemption Fund to pay principal of and interest on the Bonds when due. Amounts so transferred shall be repaid to the Reserve Fund from proceeds from the redemption or foreclosure of property with respect to which an assessment is unpaid and from payments of the delinquent assessments. (2) Interest earned on the permitted investment of monies on deposit in the Reserve Fund shall remain in the Reserve Fund to the extent required to maintain the Reserve Fund at the Reserve Requirement. Not later than July 15 of each fiscal year the amount on deposit in the Reserve Fund in excess of the "Reserve Requirement" shall be transferred from the Reserve Fund to the Redemption Fund and credited to the unpaid assessment installments payable during such fiscal year. "Reserve Requirement" shall mean the least of (i) the maximum annual debt service on the outstanding Bonds, (ii) 125% of the average annual debt service on the outstanding Bonds, or (iii) 5% of the principal amount of Bonds (the "Reserve Requirement "). The Auditor's record shall reflect the credits against each of the unpaid assessments in amounts equal to each parcel's proportionate share of such transfer. Notwithstanding the above, interest earnings on monies on deposit in the Reserve Fund in excess of the "yield" on the Bonds, as that term is defined in the Internal Revenue Code of 1986 (the "Code "), shall be subject to transfer and rebate to the United States Treasury. (3) Whenever monies in the Reserve Fund are sufficient to fully pay all of theBonds, plus accrued interest thereon, the money shall be transferred to the Redemption Fund and collection of a corresponding amount of the remaining unpaid assessments shall cease. (4) In the event an assessment is prepaid in cash, the City shall credit the prepaid assessment with a proportionate share of the Reserve Fund and transfer an amount equal to such credit to the Redemption Fund to be utilized for the advance retirement of Bonds. (c) Improvement Fund: (1) General. The City shall create and maintain an improvement fund for the Bonds (the "Improvement Fund ") to be designated by the name of the Assessment District. (2) Project Costs. The monies in the Improvement Fund shall be used only for the payment of Project Costs as that term is defined hereinafter. "Project Costs" shall mean the costs of the conversion of certain overhead electrical and communication facilities to underground locations, together with appurtenances and appurtenant work in connection therewith (the "Improvements ") as authorized in the assessment proceedings and all incidental costs related thereto including the costs of issuing the Bonds, all as more particularly described in the Assessment Engineer's Report for the Assessment District on file in the Office of the City Clerk of the City as may be amended from time to time pursuant to the Municipal Improvement Act of 1913. The Treasurer of the City shall be responsible for the safekeeping and investment of the monies held in the Improvement Fund. Interest earned on the investment of the monies held in the Improvement Fund shall be deemed at all times to be part of the Improvement Fund . Upon completion of the acquisition and construction of the Improvements, the Superintendent of Streets of the City shall file a certificate of completion with the Treasurer. Any surplus in the Improvement Fund after completion of the Improvements but prior to May 1, 2005 shall remain in the Improvement Fund until at least May 1, 2005 and thereafter shall be utilized or distributed in any manner authorized by the Act. (d) Rebate Fund: The City shall establish and maintain a Rebate Fund. Amounts on deposit in the Rebate Fund shall be paid to the United States of America. Notwithstanding any other provisions of this Indenture, all earnings on amounts on deposit in the Rebate Fund shall remain therein until all amounts payable to the United States of America have been paid. SECTION 20. Investments. Obligations purchased as investments of monies in any of the funds in which investments are authorized shall be deemed at all times to be part of such funds. Subject to the restrictions set forth herein, the City may from time to time invest monies in said funds in Authorized Investments (as defined in Exhibit D hereto). Such monies shall be invested only in obligations which will by their terms mature on such dates so as to ensure the payment of principal of and interest on the Bonds as the same become due; provided, investments of money in the Reserve Fund shall mature not later than five years from the date of purchase except such money may be invested in a repurchase agreement or an investment agreement without such five year limitation so long as the agreement provides for withdrawals at par on any Interest Payment Date. The City shall sell investments at the best price reasonably obtainable or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide monies to meet any payment or transfer for such funds or from such funds. For the purpose of determining at any given time the balance in any such funds, any such investments constituting a part of such funds shall be valued at their market value. Notwithstanding anything herein to the contrary, the City shall not be responsible for any loss from any investments pursuant to this Indenture. The City may act as principal or agent in the acquisition or disposition of investments. City may commingle the funds established hereunder for investment purposes, but shall nonetheless account for each separately. SECTION 21. No City Liability. It is hereby further determined and declared that the City will notobligate itself to advance any available funds from its treasury to cure any deficiency or delinquency which may occur in the Redemption Fund by failure of property owners to pay annual special assessments. This determination shall be clearly set forth and state in the title of the Bonds to be issued pursuant to these proceedings as authorized and required by Section 8769 of the Streets and Highways Code of the State of California. SECTION 22. Covenant for Superior Court Foreclosure. The City will review the public records of the County of Orange, California, in connection with the collection of the assessment installments not later than August 1 of each year to determine the amount of assessment installments collected in the prior Fiscal Year. If the City determines that any parcel or parcels are delinquent in the payment of assessment installments, then the City will causejudicial foreclosure proceedings to be filed in the Superior Court not later than December 1 of such year, and will prosecute diligently such foreclosure proceedings to judgement andjudicial foreclosure sale; provided, however, the commencement of any foreclosure action maybe deferred in the sole discretion of the City if, and only so long as, the amount in the Reserve Fund is not less than seventy percent (70 %) of the Reserve Requirement. Upon the redemption or sale of the real property responsible for any such delinquent assessment installment, the City will apply the net proceeds thereof to: (a) deposit to the Reserve Fund the amount of any delinquency advanced therefrom to the Redemption fiord for payment of interest on or principal of the Bonds, and (b) the balance, if any, will be disbursed as set forth in the judgment of foreclosure or as required by law. SECTION 23. Covenant to Maintain Tax - Exempt Status. The City covenants that it will not make any use of the proceeds of the Bonds issued hereunder which would cause the Bonds to become "arbitrage bonds" subject to federal income taxation pursuant to the provisions of Section 148(k) of the Internal Revenue Code of 1986, as amended (the "Code'), or to become "federally- guaranteed obligations" pursuant to the provisions of Section 149(b) of the Code, or to become "private activity bonds" pursuant to the provisions of Section 141(a) of the Code. To that end, the City will comply with all applicable requirements of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements are, at the time, applicable and in effect. Additionally, the City agrees to implement and follow each and every recommendation provided by bond counsel and deemed to be necessary to be undertaken by the City to ensure compliance with all applicable provisions of the Code in order to preserve the exclusion of interest on the Bonds from gross income for federal income tax purposes. SECTION 24. Order to Print and Authenticate Bonds. The Treasurer is hereby instructed to cause Bonds, in form substantially similar to Exhibit C attached hereto, to be printed, and to proceed to cause said Bonds to be authenticated and delivered to an authorized representative of the purchaser, upon payment of the purchase price as set forth in the accepted proposal for the sale of Bonds. SECTION 25. Paying Agent. The City hereby appoints U.S. Bank National Association, and U.S. Bank National Association, hereby accepts appointment as Paying Agent for the Bonds. The Paying Agent is hereby authorized to and shall mail or wire transfer interest payments to the Bondowners, select Bonds for redemption, give notice of redemption of Bonds, maintain the Bond register and maintain and administer the Redemption Fund. The Paying Agent is hereby authorized to pay the principal of and premium, if any, on the Bonds when the same are duly presented to it for payment at maturity or on call and redemption, to provide for the registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the cancellation of Bonds, all as provided in this Indenture, and to provide for the authentication of Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Indenture. The Paying Agent shall keep accurate records of all funds administered by it and all Bonds paid and discharged by it. The City mayremove the Paying Agent, and any successor thereto, and a successor or successors may be appointed. So long as any Bonds are outstanding and unpaid the Paying Agent and any successor or successors thereto designated by the City shall continue to be Paying Agent of the City for all of said purposes until the designation of a successor or successors as Paying Agent. The City shall compensate the Paying Agent at its normal fee and charges pursuant to the schedule of fees and charges to be provided to the City for the performance of its services hereunder. The Paying Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Paying Agent may consult with counsel, who may be counsel to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of its duties under this Indenture the Paying Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Paying Agent, be deemed to be conclusively proved and established by a certificate of the City, and such certificate shall be full warrant to the Paying Agent for any action taken or suffered under the provisions of this Indenture or any Supplemental Indenture upon the faith thereof, but in its discretion the Paying Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence of such matter or may require such additional evidence as to it may seem reasonable. The City shall pay to the Paying Agent from time to time reasonable compensation for all services rendered as Paying Agent under this Indenture, and also all reasonable expenses, charges, counsel fees and other disbursements, including those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under this Indenture, and the Paying Agent shall have a lien therefor on any funds at any time held by it under this Indenture. The City further agrees, to the extent permitted by applicable law, to indemnify and save the Paying Agent, its officers, employees, and agents harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or willful misconduct. The obligation of the City under this Section shall survive resignation or removal of the Paying Agent under this Indenture and payment of the Bonds and discharge of this Indenture. A Paying Agent appointed hereunder may resign at any time upon written notice to the City and after appointment of a successor, provided the successor is either the Treasurer of the City or is a bank or trust company having (or, if such bank or trust company is a member of a bank holding company, its bank holding company has) combined capital (excluding borrowed capital) and surplus of at least $50,000,000 and is subject to State or federal supervision. Any company into which the Paying Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Paying Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under this Section 25, shall succeed to the rights and obligations of such Paying Agent without the execution or filing of any paper or further act. If the City does not appoint a successor to the Paying Agent is by within sixty (60) calendar days after notice of resignation by the Paying Agent, the Paying Agent may petition a court of competent jurisdiction to appoint a successor. SECTION 26. Liability of Paying Agent. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds shall be taken as statements, promises, covenants and agreements of the City, and the Paying Agent assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of this Indenture or of the Bonds, and shall incur no responsibility in respect thereof other than in connection with its duties or obligations herein, or in the Bonds or in the certificate of authorization assigned to or imposed upon the Paying Agent. No implied duties or obligations shall be read into this Indenture against the Paying Agent. The Paying Agent shall be under no responsibility or duty with respect to the issuance of the Bonds for value. The Paying Agent shall notbe liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Paying Agent shall be protected in acting on any notice, resolution, request, consent, certificate or other document believed by it to be genuine and to have been signed or presented by the proper party. The Paying Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds. The Paying :agent shall not be liable for any error of judgment made in good faith by a responsible officer of It: the Paying Agent unless it shall be proved that the Paying Agent was negligent in ascertaining the pertinent facts. No provision of this Indenture shall require the Paying Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. All indemnification and releases from liability granted herein to the Paying Agent shall extend to the officers and employees of the Paying Agent. The Paying Agent shall not be chargeable with taking any actions hereunder in accordance with the Act but shall solely be charged with taking action in accordance with this Indenture and any other written direction furnished by the City. SECTION 27. Provisions Constitute Contract. The provisions of this Indenture and the Bonds shall constitute a contract between the City and the Bondowners and the provisions hereof and thereof shall be enforceable by any Bondowner for the equal benefit and protection of all Bondowners similarity situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized under the laws of the State of California in any court of competent jurisdiction. Said contract is made under and is to be construed in accordance with the laws of the State of California. After the issuance and delivery of the Bonds, this Indenture shall not be subject to recission, but shall be subject to modification to the extent and in the manner provided in this Indenture, but to no greater extent and in no other manner. SECTION 28. Unclaimed Funds. Notwithstanding any provisions of this Indenture, subject to applicable state escheat laws, any monies held by the Paying Agent in trust for the payment ofthe principal or premium, if any, or interest on, any Bonds and remaining unclaimed for one year after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by declaration as provided in this Indenture), if such monies were held at such date, or one year after the date of deposit of such monies if deposited after said date when all of the Bonds became due and payable, shall be repaid to the City free from the lien created by this Indenture, and all liability of the Paying Agent with respect to such monies shall thereupon cease and the Bondowners shall, upon such payment, look only to the City for payment; provided, however, that before the repayment of such monies to the City as aforesaid, the Paying Agent shall (at the written request and cost of the City) first publish at least once in a nationally recognized financial publication published in New York, New York, and Los Angeles, California, a notice, in such form as may be deemed appropriate by the Paying Agent, with respect to the provisions relating to the repayment to the City of the monies held for the payment thereof. SECTION 29. Modification or Amendment to this Indenture. (a) This Indenture and the rights and obligations of the City and of the owners of the Bonds may be modified or amended at any time by a supplemental indenture pursuant to the affirmative vote at a meeting of the owners, or with the written consent without a meeting, of the owners of at least a majority in aggregate principal amount of the Bonds then outstanding. No such modification or amendment shall (i) extend the maturity of any Bond or the time for paying interest thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the assessments superior to or on a parity with the pledge and lien created for the benefit of the Bonds, (iii) reduce the percentage of Bonds required for the amendment hereof, or (iv) reduce the principal amount of or redemption premium on any Bond or reduce the interest rate thereon. Any such amendment may not modify any of the rights or obligations of the Paying Agent without its written consent. The Paying Agent may obtain an opinion of counsel that any such supplemental indenture entered into by the City and the Paying Agent complies with the provisions of this Section 29 and the Paying Agent may conclusively rely on such opinion. (b) This Indenture and the rights and obligations of the City and the owners may also be modified or amended at any time by a supplemental indenture, without the consent of any owners, only to the extent permitted by law and only for any one or more of the following purposes: (1) to add to the covenants and agreements ofthe City contained in this Indenture, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the City; (2) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provisions of this Indenture, orin regard to questions arising under this Indenture, as the City and the Paying Agent may deem necessary or desirable and not inconsistent with this Indenture, and which shall not materially adversely affect the rights of the owners; or (3) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of excess earnings to the United States of America or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the federal tax regulations. SECTION 30. Notices to and Demands on City and Paying Agent. Any notice or demand which by any provision of this Indenture is required or permitted to be given to or served on the City or the Paying Agent may be given or served by first class mail, postage prepaid, addressed (until another address is filed by the City or the Paying Agent) as follows: Paving Agent: U.S. Bank National Association 550 South Hope Street, Suite 500 Los Angeles, CA 90071 Attn: Corporate Trust Services Ref: Newport Beach AID#82 LOIB City: City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92658 Attn: Treasurer SECTION 31. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Indenture shall for any reason be held by a court of competent jurisdiction to be illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Indenture. The City hereby declares that it would have executed and delivered this Indenture and each and every other section, paragraph, sentence, clause or phrase thereof and authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more sections, paragraphs, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. SECTION 32. Applicable Law. This Indenture shall be governed by and enforced in accordance with the laws of the State of California applicable to contracts made and performed in the State of California. SECTION 33. Conflict with Act. In the event of a conflict between any provision of this Indenture with any provision of the Act as in effect on the closing date, the provision of the Act as in effect on the closing date shall prevail over the conflicting provision of this Indenture. 12 SECTION 34. Payment on Business Day. In any case where the date of the payment of principal of or interest (and premium, if any) on the Bonds or the date fixed for redemption is other than a business day (i.e., any day other than a Saturday or Sunday or any day the Paying Agent is authorized or obligated by law or executive order to be closed), the payment of interest or principal (and premium, if any) need not be made on the scheduled date but may be made on the next succeeding date which is a business day with the same force and effect as if made on the date required, and no interest shall accrue for the period after the scheduled date SECTION 35. Reserved. SECTION 36. Defeasance. If the City shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Bond Indenture, then other than as set forth below, all covenants, 'agreements and other obligations of the City to the Owner of such Bond under the Bond Indenture shall thereupon cease, terminate and become void and discharged and satisfied. Any outstanding Bond shall be deemed to have been paid within the meaning expressed in the preceding paragraph if such Bond is paid in any one or more of the following ways: (1) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; (2) by depositing with the Paying Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds established pursuant to the Bond Indenture (exclusive of the Rebate Fund) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or (3) by depositing with an escrow bank appointed by the City, in trust, noncallable United States Treasury Obligations, in such amount as a certified public accountant shall determine (as set forth in a verification report from such accountant) will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Bond Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the City, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the City under the Bond Indenture with respect to such Bond shall cease and terminate, except for the obligation of the Paying Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District to preserve the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Notice of such election shall be filed with the Paying Agent not less than ten (10) days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Paying Agent. In connection with a defeasance under (b) or (c) above, there shall be provided to the Paying Agent a certificate of a certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Paying Agent or the escrow bank, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Bond Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon to pay and discharge the principal of, premium, if any, and interest on all such Bonds to be defeased in accordance with the Bond Indenture as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the Bond Indenture. SECTION 37. Counterparts. This Indenture may be executed in counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have executed this Bond Indenture effective the date first written hereinabove. 13 City of Newport Beach 0 Treasurer U.S. Bank National Association, as Paying Agent In Authorized Officer 14 EXHIBIT A MATURITY SCHEDULE Year Principal Amount Interest Rate 2004 $,000 % 2005 $,000 % 2006 $,000 % 2007 $,000 % 2008 $,000 % 2009 $0,000 % 2010 $0,000 % 2011 $0,000 % 2012 $0,000 % 2013 $0,000 % 2014 $0,000 % 2015 $,000 % 2016 $ 000 % 2017 $ 000 % 2018 $ 000 % $0.00 A -1 EXHIBIT "B" Book -Entry Provisions The Bonds (other than the first maturity bonds) shall be initially issued in the form of a single, fully registered Bond for each maturity (which may be typewritten). Upon initial issuance, the ownership of such Bonds shall be registered in the name of the Nominee identified below as nominee of The Depository Trust Company, New York, and its successors and assigns (the "Depository" or "DTC "). Except as hereinafter provided, all of the Bonds shall be registered in the name of the nominee of the Depository, which maybe the Depository, as determined from time to time pursuant to this Section (the "Nominee "). With respect to the Bonds registered in the name of the Nominee, neither the Issuer nor the Paying Agent shall have any responsibility or obligation to any broker - dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository (the "Participant ") or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, neither the Issuer nor the Paying Agent shall have any responsibility or obligation (unless the Issuer is at such time the Depository) with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other person, her than an owner of a Bond as shown in the register, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Issuerredeems the Bonds in part, or (iv) the payment to any Participant or any other person, other than an owner of a Bond as shown in the register, of any amount with respect to principal of or interest on the Bonds. The Issuer and the Paying Agent may treat and consider the person in whose name each Bond is registered as the holder and absolute owner of such Bond for the purpose of payment of principal and interest with respect to such Bond, for the purpose of giving notices of prepayment if applicable, and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent shall pay all principal of and interest on the Bonds only to or upon the order of the respective owner of a Bond, as shown in the register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer's and the Paying Agent's obligations with respect to payment of principal of and interest on the Bonds to the extent of the sum or sums so paid. No person other than an owner of a Bond, as shown in the register, shall receive a Bond evidencing the obligation of the Issuer to make payments of principal and interest pursuant to this Indenture. Upon delivery by the Depository to the owners of the Bonds, and the Issuer of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Indenture shall refer to such nominee of the Depository. In order to qualify the Bonds for the Depository's book -entry system, the Issuer is executing and delivering to the Depository a Representations Letter. The execution and delivery of the Representations Letter shall not in any other way limit the provisions of this Section or in any other way impose upon the Issuer any obligation whatsoever with respect to persons having interests in the Bonds other than the owners of the Bonds, as shown on the register. In addition to the execution and delivery of the Representations Letter, the Issuer shall take such other actions, not inconsistent with this Indenture, as are reasonably necessary to qualify the Bonds for the Depository's book -entry program. In the event (i) the Depository determines not to continue to act as securities depository for the Bonds, or (ii) the Depository shall no longer so act and gives notice to the Issuer of such determination, then the Issuer will discontinue the book -entry system with the Depository. If the Issuer determines to replace the Depository LN] with another qualified securities depository, the Issuer shall prepare or direct the preparation of a new, single, separate, fully registered Bond, per maturity, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Issuer fails to identify another qualified securities depository to replace the Depository, then the Bonds shall no longer be restricted to being registered in the register in the name of the Nominee, but shall be registered in whatever name or names owners of the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of this Indenture, and the Issuer shall prepare and deliver Bonds to the owners thereof for such purpose. In the event of a reduction in aggregate principal amount of Bonds or an advance refunding of part of the Bonds, DTC, in its discretion, (a) may request the Issuer to prepare and issue a new Bond or (b) may make an appropriate notation on the Bond indicating the date and amounts of such reduction in principal, but in such event the Issuer records maintained by the Paying Agent shall be conclusive as to what amounts are on the Bond, except in the case of final maturity, in which case the Bond must be presented to the Paying Agentprior to payment. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments of principal and interest with respect to such Bond and all notices with respect to such Bonds shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed by the Depository and acceptable to the Issuer. The initial Nominee shall be Cede & Co., as Nominee of DTC. RCN No. R -_ EXHIBIT "C" FORM OF BOND United States of America State of California City of Newport Beach Assessment District No. 70 Limited Obligation Improvement Bond Interest Rate: Maturity Date: Bond Date: CUSIP: _% September 2, 20_ April _ , 2003 REGISTERED OWNER: Cede & Co. PRINCIPAL SUM: Dollars Under and by virtue of the Improvement Bond Act of 1915, being Division 10 of the Streets and Highways Code of the State of California (the "Act "), the City of Newport Beach, California (the "Issuer "), will, out of the Redemption Fund for the payment of the Bonds issued upon the assessments in Assessment District No.70 as more fully described in the Resolution of Intention for said Assessment District adopted by the City Council of the Issuer on September 24, 2002, pay to the registered owner stated above, on maturity date stated above, the principal sum stated above in lawful money of the United States of America upon presentation at the corporate trust office or agency of U.S. Bank National Association (together with any successor trustee under the Bond Indenture, the "Paying Agent ") in St. Paul, Minnesota (or such other office designated by the Paying Agent, herein called the "Principal Office" of the Paying Agent), with interest thereon from the Interest Payment Date next preceding the date on which this Bond is authenticated, unless this Bond is authenticated as of an Interest Payment Date, in which case it shall bear interest from said Interest Payment Date, or unless this Bond is authenticated and registered prior to the first Interest Payment Date, in which case it shall bear interest from its date or unless interest is in default on this Bond on such date, in which case it shall bear interest from the last date interest was paid in full or from its dated date if no interest has been paid, until payment of such principal sum has been discharged, at the rate per annum stated above, all as is hereinafter specified. This Bond is one of a series of Bonds of like date, tenor and effect, but differing in amounts, interest rates and maturities, issued by the Issuer under the Act for the purpose of providing means for paying for the work and improvements described in said Resolution of Intention, is secured by the monies in said Redemption Fund and by the unpaid assessments made for the payment of said work, and, including principal and interest, is payable exclusively out of the Redemption Fund. Further terms and conditions of the Bonds are provided for by a Bond Indenture by and between the Issuer and the Paying Agent, dated as of January 1. 2003 (the `Bond Indenture "), and this reference incorporates the Bond Indenture herein and by acceptance hereof the owner of this Bond assents to the terms and conditions of the Bond Indenture. All capitalized terms used herein shall have the same meanings given such terms in the Bond Indenture unless otherwise specified herein. The interest on this Bond is payable semiannually on March 2 and September 2 in each year, commencing September 2, 2003 (each an "Interest Payment Date "), to the registered owner hereof by check mailed by first class mail to the registered owner at the registered owner's address as it appears on the registration books of the Issuer kept by the Paying Agent on the fifteenth day of the month immediately preceding said Interest Payment Date C -1 regardless of whether such day is a business day (the "Record Date ") or by wire transfer to an account in the United States of America made on an Interest Payment Date upon written instructions received by the Paying Agent on or before the Record Date from an owner of $100,000 or more in aggregate principal amount of Bonds. This Bond will continue to accrue interest after maturity at the rate above stated, provided it is presented at maturity and payment thereof is refused upon the sole ground that there are not sufficient monies in the Redemption Fund with which to pay same. If this Bond is not presented at maturity, interest hereon will cease to accrue at maturity. The Bonds are issuable only as fully registered Bonds in denominations of $5,000.00 or any integral multiple thereof. This Bond is transferable by the registered owner hereof in person or by the registered owners attorney duly authorized in writing at the Principal Office of the Paying Agent, subject to the payment of any tax or governmental charges, if any, upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of any authorized denomination or denominations of the same maturity, for the same aggregate principal amount, will be issued to the transferee in exchange therefor. The Bonds are limited obligations of the Issuer and are not a lien or charge upon the funds or property of the Issuer, except to the extent of the funds in the Redemption Fund. The Bonds are not a debt of the Issuer or the State of California or any subdivision thereof, and neither the Issuer nor the State of California or any subdivision thereof is liable for the payment of the Bonds. THE ISSUER DETERMINED AND DECLARED THAT THE ISSUER WILL NOT OBLIGATE ITSELF TO ADVANCE AVAILABLE FUNDS FROM ITS TREASURY TO CURE ANY DEFICIENCY WHICH MAY OCCUR IN THE REDEMPTION FUND. This Bond or any portion of thereof may be redeemed, in whole or in part in increments of $5,000, in advance of maturity on any Interest Payment Date, from any source of funds including, without limitation, the voluntary prepayment of assessments, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, together with accrued interest to the date of redemption: Redemption Date Redemption Price September 2, 2004 through September 2, 2010 103% March 2, 2011 and September 2, 2011 102% March 2, 2012 and September 2, 2012 101% March 2, 2013 and thereafter 100% In lieu of payment at maturity or redemption as described above, monies in the Redemption Fund (other than monies representing prepaid assessments) may be used and withdrawn by the Paying Agent upon the direction of the Issuer for purchase of outstanding Bonds which mature (or with respect to which a sinking fund payment is due) on the next principal payment date, but in no event may Bonds be purchased at a price in excess of the principal amount thereof, the premium, if any, plus interest accrued to the date of maturity or redemption that would otherwise be payable. Notice of redemption in advance of maturity shall be given in accordance with the provisions of the Bond Indenture. If notice of redemption has been duly given and the amount necessary for the redemption has been made available for that purpose on the date fixed for such redemption, then from and after the redemption date, the Bonds or portions thereof so designated for redemption shall be deemed to be no longer outstanding and such Bonds or portions thereof shall cease to accrue further interest and no owner of any of the Bonds or portion thereof so designated for redemption shall be entitled to any of the benefits of the Bond Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. This Bond is subject to refunding pursuant to the Act. C -2 The Bond Indenture and the rights and obligations of the Authority and of the owners of the Bonds and of the Paying Agent may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Bond Indenture; provided that no such modification or amendment shall (i) extend the maturity of any Bond or the time for paying interest thereon, or otherwise alter or impair the obligation of the Issuer to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the assessments superior to or on a parity with the pledge and lien created for the benefit of the Bonds, (iii) reduce the percentage of Bonds required for the amendment, or (iv) reduce the principal amount of or redemption premium on any Bond or reduce the interest rate thereon. This Bond shall not be entitled to any benefit under the Act or the proceedings or become valid or obligatory for any purpose until the Certificate of Authentication hereon endorsed shall have been dated and signed by the designated transfer agent, registrar and fiscal agent. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed by the Treasurer of the Issuer and by the City Clerk, as of August 30, 2001. Treasurer CERTIFICATE OF AUTHENTICATION This Bond has been authenticated on: City Clerk U.S. Bank National Association, as Transfer Agent, Registrar and Paying Agent 0 ASSIGNMENT Authorized Officer For value received the undersigned do(es) hereby sell, assign and transfer unto (Name, Address, and Tax Identification or Social Security Number of Assignee) the within- mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s), to transfer the same on the books of the Paying Agent with full power of substitution in the premises. Dated: Guaranteed: Signature NOTICE: Signature must be guaranteed by a qualified guarantor. NOTICE: The signature on this assignment must correspond with the name as it appears on the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever. C -3 I WWRTITHE AUTHORIZED INVESTMENTS "Authorized Investments" is defined in the Bond Indenture to mean the following types of investments made by the City and the guidelines for investing in each. In all cases, investments shall be made in the context of the "Prudent Man" rule, which states, in part, that: "When investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part to (sic) an overall investment strategy, a trustee is authorized to acquire investments as authorized by law." In this light, the City of Newport Beach does not purchase or sell securities on .margin. Additionally, any institution, which holds either the collateral or the investment instruments themselves in safekeeping for the City, must maintain at least $500,000,000 in assets. A. Certificates ofDeposit Only fully collateralized certificates of deposit with FDIC insured institutions will be utilized in investment of City funds. Government securities having a market value of 110 percent of the total amount of investment are acceptable as collateral. As an alternative, first trust deeds having a value of 150 percent of the total amount of investment are acceptable as collateral if approved by the Administrative Services Director on a case by case basis. Noncollateralized CD investments may be made in amounts less than $100,000 so long as they are fully insured by the FDIC. Not more than 10 percent of the City's investment portfolio shal l be invested in certificates of deposit with any one institution. CD's will not be placed for a period of longer than one year. Further, an institution must meet the following criteria to be considered by the City: I . The institution must maintain at least $ I billion in assets (S 100 million for fully insured CD's of $100,000 or less). 2. The institution must have been in business at least three years. 1 The institution must have a net worth to asset ratio of at least 6 percent. 4. The institution must place and maintain on file with the City an audited financial statement not more than one year old. 5. Interest shall be paid to the City on a monthly basis. B. Negotiable Certificates ofDeposit As a matter of policy, the City invests in Negotiable Certificates of Deposit only with U.S. Banks whose underlying securities are rated A- I or P- I by one of the top two rating agencies and having assets in excess low of S 10 billion, so as to insure security and a large, well - established secondary market. Ease of subsequent marketability is further ascertained prior to initial investment by examining currently quoted bids by primary dealers and the acceptability of the issuer by these dealers. No one issuer shall exceed more than 10 percent of the portfolio, and maturity shall not exceed one year. The California Government Code Section 53601 limits investment in negotiable certificates of deposit to 30 percent of the portfolio. C. Bankers Acceptances The City may invest only in Bankers Acceptances written by the 100 largest banks in the world. In the case of foreign banks, the Bankers Acceptances must be written by their U.S. branches. Maximum maturity shall be nine months. No more than 30 percent of the City's overall investment portfolio shall be placed in Bankers Acceptances. D. U.S. Treasury Issues The City may invest in treasury notes, bills and bonds. Safekeeping documentation of these instruments in an acceptable and secure account in the City's name is required. Maximum maturity of any U.S. Treasury issue shall be five years. E. Federal Agency Securities Securities of this type that are acceptable for the City's investments are Federal Home Loan Bank notes, Federal National Mortgage Association notes, Federal Farm Credit Bank notes, or any other U. S. Government Agency security. Security requirements and maturity limitations are the same as those for U.S. Treasury issues. F. Commercial Paper The City may only invest in commercial paper issued by large, exceptionally well - established firms with the highest Moody's or Standard & Poor's ratings (AI/PI). Commercial paper shall be used solely as a short -term investment not to exceed 180 days. Additionally, not more than 15% of the portfolio shall be invested in commercial paper with a maturity beyond 30 days. Another 15% may be invested in commercial paper with a maturity of less than 30 days. Security requirements are the same as those listed above. Investment in commercial paper of any one issuer shall not exceed 10 percent of the portfolio. G. Repurchase Agreements ( Repos) and Reverse Repurchase Agreements Repos and reverse repos shall be used solely as a short-term investment not to exceed 30 days. The institution from which the City purchases a Repo must deliver adequate collateral to the City's safekeeping account (either directly or through a third party safekeeping agent), consisting of U.S. Treasury or Agency securities at the rate of 102 percent of the face value of the repo. The amount of this collateral mast be sufficient to compensate for fluctuating market conditions. Repos will only be purchased from Primary Dealers. Assets must be owned by the City for more than 30 days before they can be used as collateral for a reverse repurchase agreement. No more than 10% of the portfolio can be involved in reverse repos. H. Passbook Savings Accounts Savings accounts may be used as a repository for customer deposits, or for similar purposes. Consistent with the requirements for CD investments, funds deposited in savings accounts must either be FDIC insured or collateralized. D -2 Local Agency Investment Fund (L9IF) (State of Calijormia) State Regulation limits any one City's investment in this fund to $20 million at any one time, and prohibits more than 10 transactions (deposits or withdrawals) per month. Investment in this Pool is intended to be used as a temporary repository for short -term funds used for liquidity purposes. At no time shall more than 10 percent of the City's total investment portfolio be placed in this Pool with the exception that 25 percent of the portfolio may be placed in the Pool for a period not to exceed 30 days. J. County Investment Funds Both Orange and Los Angeles Counties provide a service similar to LAIF for municipal and other government entities. Both of these Funds are available to Newport Beach. Investment in these pools is intended to be used as a temporary repository for short -term funds used for liquidity purposes. At no time shall more than 10 percent of the City's total investment portfolio be placed in either of these Pools. K. Medium Tenn Notes Investments of this type will normally only be in corporations rated in the top three note categories by two of the three largest nationally recognized rating services. Maximum term to maturity for individual securities shall not exceed five years, and not more than 15% of the portfolio shall be invested in medium term notes of maturity greater than 2 years. No more than 30 percent of the City's investment funds shall be placed in securities of this type. L. Asset- backed Securities Investment in asset - backed securities is limited to those collateralized with consumer receivables, rated "AAA," or the equivalent, by Moody's Investor Services or Standard & Poor's, Inc., and which have a final, stated maturity of five years or less from the date of purchase. M. Municipal Bonds Municipal bonds rated AAA, or AA and insured, are acceptable investments for the City. Not more than 15% of the portfolio shall be in investments of this type. D -3 City of Newport Beach BUDGET AMENDMENT 2002 -03 EFFECT ON BUDGETARY FUND BALANCE: Increase Revenue Estimates X Increase Expenditure Appropriations Transfer Budget Appropriations SOURCE: from existing budget appropriations X from additional estimated revenues from unappropriated fund balance EXPLANATION: NO. BA- 058 AMOUNT: 51,463,310.00 Increase in Budgetary Fund Balance AND Decrease in Budgetary Fund Balance PX No effect on Budgetary Fund Balance This budget amendment is requested to provide for the following: To increase revenue estimates and expenditure appropriations related to the sale of bonds for Assessment District 70. ACCOUNTING ENTRY: Amount BUDGETARY FUND BALANCE Debit Credit Fund Accoun t Description 400 3605 Assessment District Fund Balance $64,000.00 REVENUE ESTIMATES (3601) Fund /Division Accoun t Description 400 6970 Assessment District 70 $1,463,310.00 EXPENDITUREAPPROPRIATIONS (3603) Description Division Number 7401 Assessment District Account Number C5200483 Assessment District 70 $1,399,310.00 Division Number Account Number Division Number Account Number Division Number Account Number Division Number Account Number Automatic System Entry. Signed: o Fina vial pprovall: Administrative ervices Director Date Signed: Administrative Appro I: City Manager Date i Signed: City Council Approval: City Clerk Date