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SR 10-25-2011 8B�r City Council, City of Public Financing Authority, Santa Rioniea° Parking Authority Report City Council Meeting: October 25, 2011 Agenda Item: To: Mayor and City Council Public Financing Authority Parking Authority From: Gigi Decavalles- Hughes, Acting Director of Finance Subject: Issuance of Lease Revenue /Refunding Bonds, Series 2011 Recommended Actions Staff recommends that the City Council: 1. Adopt the attached Resolution Authorizing Issuance of Series 2011 Bonds (Attachment G1), and approve the related documents required for the Issuance of Lease Revenue /Refunding Bonds, Series 2011 (Attachments A, B, D, E and F). 2. Authorize the City Manager to negotiate and execute the documents required to accept transfer of Parcel No. 4291 - 009 -904 from the Parking Authority to the City of Santa Monica. 3. Appropriate funds and adopt budget changes as set forth below. Staff recommends that the Public Financing Authority: 1. Adopt the attached Resolution Authorizing Issuance of Series 2011 Bonds (Attachment G2), and approve the related documents required for the Issuance of Lease Revenue /Refunding Bonds, Series 2011 (Attachments A, B, C, D, E and H). Staff recommends that the Parking Authority: 1. Authorize the Executive Director to negotiate and execute the documents required to transfer Parcel No.4291- 009 -904 to the City of Santa Monica. 2. Appropriate funds and adopt budget changes as set forth below. Executive Summary Staff is requesting the issuance of Lease Revenue Bonds in two series, Series 2011A and Series 2011 B. The net proceeds of the issuance of the proposed Lease Revenue Bonds, Series 2011A ( "Series 2011A Bonds ") will be used to finance a portion of the Parking Structure 6 project, and pay the costs incurred in connection with the issuance of the Series 2011A Bonds. The net proceeds of the issuance of the proposed Lease Revenue Refunding Bonds, Series 2011B ( "Series 2011B Bonds ") will be used to refund the Santa Monica Public Financing Authority's outstanding Series 2002 Bonds to take advantage of a reduction in interest rates since the 2002 issuance, and pay the costs incurred in connection with the issuance of the Series 2011B Bonds. These bonds will be collateralized by a lease agreement for the right to use the City's Main Library. Background In January of 2002, the Public Financing Authority ( "PFA ") issued Series 2002 Bonds in the amount of $17,310,000 to finance a portion of the construction of the Public Safety Facility. At present, $10,690,000 of the Series 2002 Bonds remain outstanding with interest rates ranging from 4.00% to 4.75% and a final maturity date of July 1, 2021. On May 9, 2006, Council approved the Downtown Parking Program and authorized staff to proceed with the next steps of implementation. The Program recommended that Parking Structures 1, 3 and 6 be demolished and rebuilt in the same locations with additional spaces. The structures were to add 712 spaces and include ground floor retail. On September 8, 2009, Council adopted the Walker Parking Study recommendations for City parking operations and for financing of the Downtown parking Program. On January 11, 2011 and April 26, 2011, respectively, Council approved the proposed conceptual design and the proposed schematic design for Parking Structure 6 (PS6). On July 26, 2011, Council reviewed the 50% design development plans and directed staff to move forward with construction documents. Finally, on September 27, 2011, Council authorized the City Manager to negotiate and execute a Guaranteed Maximum Price (GMP) amendment to Design -Build Contract No. 9212 (CCS) for construction services with Morley Construction Company in an amount not to exceed $39,276,453 (includes 8% contingency) for a contract total of $43,165,803 for the demolition and rebuilding of Parking Structure 6. At that time, staff said it would return in October with the recommended debt financing plan. Discussion To finance the demolition and reconstruction of PS6, Staff and the City's financial advisors reviewed available options that include various debt financing plans and current fund balance designations and reserves. As a result, Staff recommends utilizing OA, approximately $9 million in pay as you go ( "PAYGO ") funding, drawn from available balances in the In -Lieu Parking Fee Reserve ($7.5 million) and the Parking Authority Fund ($1.6 million), and issuing the proposed Series 2011A Bonds for the remaining funds required to complete PS6. The proposed issuance of the Series 2011B Bonds is intended to redeem the PFA's Series 2002 Bonds. Refunding the Series 2002 Bonds takes advantage of lower current interest rates and thereby reduces future lease payments. Based on current tax exempt interest rates, the reduction in interest cost and the release of a portion of the Series 2002 Bonds debt service reserve fund is expected to save approximately $300,000 each year in Lease payments paid by the General Fund, with an expected present value savings of approximately $2.5 million, or $800,000 when taking into account the use of the debt service reserve fund of the Series 2002 Bonds. The actual savings achieved through the proposed refunding plan, however, will depend on interest rates at the time the Series 2011B Bonds are sold. The Series 2002 Bonds may be redeemed on any date upon 15 days of notice. Issuance of the Series 2011B Bonds in November will permit the PFA to redeem the Series 2002 Bonds soon to begin saving on interest cost. The yields on the new Series 2011 Bonds are expected to range from 0.50% to 4.75% based on current tax - exempt interest rate levels. The proposed Series 2011B Bonds designated to refund the Series 2002 Bonds are intended to have a final maturity date of June 1, 2021, to correspond with the July 1, 2021 final maturity date of the.Series 2002 Bonds. The PFA's Series 2011 Bonds are payable from base rental payments to be made by the City of Santa Monica to the PFA for rights to the use of certain real property consisting of the City's Main Library, pursuant to a lease agreement by and between the City, as lessee, and the PFA, as lessor. The Library is planned to be initially used to avoid the need for bonding for capitalized interest (interest payable during the construction of the parking structure where no lease payments are due, which must be 3 borrowed) and therefore reduce interest costs. Once PS6 is completed, the City expects to substitute it for the Main Library as security for the lease. Because a portion of the land at the Main Library site is currently owned by the Parking Authority, title to Parcel No. 4291 - 009 -904 must be transferred to the City before the bonds can be issued. The value of the land on the Parking Authority's books is $200,000. The City will remunerate the Parking Authority with parking equipment valued at $200,000. The City has previously sold its bonds through a competitive bid process where the bond offering is advertised and bids for the bonds are taken on a specific date and time and awarded to the bidder offering the lowest cost. The City's financial advisor believes that, at the present time, due to the high level of volatility in the municipal bond market, the heightened focus on credit quality, the ability to increase retail investor participation and the absence of a competitive bond insurance industry, a negotiated sale has the best chance of providing the lowest borrowing cost to the City for the Series 2011 Bonds. Accordingly, Staff is proposing to sell the Series 2011 Bonds through a negotiated sale whereby the bond underwriter is predetermined and the Bond interest rates are set through a process of negotiation. Upon Council approval of the Series 2011 Bond issuance, the City's financial advisor will assist staff in determining the fair market value for the Bond interest rates. In selecting the bond underwriter, the City's financial advisor distributed a Request for Qualifications ( "RFQ ") to seven commercial and investment banking institutions active in the California tax - exempt bond market. Of the seven firms that responded to the RFQ, the recommended firm bid the second lowest compensation and more importantly, has the most relevant experience with the City of Santa Monica and similar financings, having refunded the City's 1999 lease revenue bonds in 2009. The attached resolutions and documents permit the City and PFA to proceed with all steps necessary for the issuance of the Series 2011 Bonds and refunding of the Series 2002 Bonds. The resolutions approve the attached documents and authorize their 9 execution and delivery by the specified agency's officials and employees. The resolutions also approve the preparation, execution, and delivery of a Final Official Statement as well as the execution and delivery of any additional documents, certificates, and the performance of such acts or related actions as may be necessary or desirable to effect the offering, sale, and issuance of the Series 2011 Bonds. The Resolutions authorize the issuance of the Series 2011 Bonds with a maximum principal amount of $45,000,000 and with a final maturity date of June 1, 2031 and a maximum true interest cost of 5.00 %. Due to the use of the PFA as the issuer of the Series 2011 Bonds, a public hearing relating to the public benefits of financing the PS6 improvements through the PFA is required by the City. Notice of such public hearing was published in the Santa Monica Daily Press at least 5 days prior to October 25, 2011 as required by the JPA law. Financial Impacts & Budget Actions The PFA will issue up to $45,000,000 in tax - exempt Lease Revenue Bonds. At current interest rates, it is anticipated that the principal amount of the Bonds will be approximately $41,100,000. The estimated annual debt service on the Series 2011 Bonds, to be paid from base rental payments received from the City pursuant to the Lease Agreement, would be approximately $3.7 million through fiscal year 2021 (when the Series 2011 B Bonds mature) and approximately $2.7 million thereafter. The City will make the annual base rental payments from the General Fund for the Series 2011 B Bonds, and from incremental parking revenues generated from recent parking rate increases for the Series 2011 A Bonds. It is necessary to establish revenue budgets for the proceeds from the issuance of the Series 2011 Bonds and expenditure budgets for the defeasance of the Series 2002 Bonds and payment of issuance costs. Revenue and appropriation budget actions necessary, at this time, to record the sale of the Series 2011 Bonds and defeasance of the Series 2002 Bonds follow: 5 necessary, at this time, to record the sale of the Series 2011 Bonds and defeasance of the Series 2002 Bonds follow: Account Amount Other Financing Sources (proceeds from 01990.601001 $45,000,000 the sale of the Series 2011 Bonds, net of any original issue discount): Other Financing Uses (redemption of 01990.601003 $10,000,000 Series 2002 Bonds): Parking Structure 6 Construction C014049.589000 $33,825,616 Parking Structure 6 Construction 0774049.589000 $1,586,193 Parking Structure 6 Construction 0044049.589000 $7,516,818 Release from Designation — Mall Parking 4.365901 $(7,516,818) Levy Series 2011 Bond Issue Costs (costs of 01274.555980 $600,000 issuance, underwriter's discount and bond insurance): Parking Structure 6 lease payment (debt 01274.567220 $900,000 service on 2011 Series A Bonds (first year is interest only): Parking Authority Land Transfer C014070.589000 $200,000 Purchase of Parking Meters C778740.589000 $200,000 Purchase of Parking Meters (reduction) 0018740.589000 ($200,000) Prepared By: Steve Traeger, Principal Urban Designer (Mgmt. Rotation Program- Finance) M Forwarded to Council: Rod Gould City Manager Attachments: A: Indenture B: Lease Agreement C: Assignment Agreement D: Ground Lease E: Continuing Disclosure Certificate and Preliminary Official Statement F: Bond Purchase Agreement G1: Resolution Authorizing Issuance of Series 2011 Bonds — Council Series G2: Resolution Authorizing Issuance of Series 2011 Bonds — Public Financing Authority Series H: Escrow Agreement ATTACHMENT A Stradling Yocca Carlson & ,Rauth Draft of 10119111 INDENTURE by and among SANTA MONICA PUBLIC FINANCING AUTHORITY and CITY OF SANTA MONICA and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS TRUSTEE Dated as of November 1, 2011 Relating to Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A and Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B DOCSO C/1513656v5/200119 -0005 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; EQUAL SECURITY Section1.01 Definitions ....................................................................................... ..............................2 Section1.02 Equal Security ................................................................................ .............................14 ARTICLE II THE BONDS Section 2.01 Authorization of Bonds .................................................................. .............................14 Section 2.02 Terms of Series 2,011 Bonds ........................................................... .............................14 Section 2.03 Form of Series 2011 Bonds .......:.................................................... .............................16 Section 2.04 Transfer and Exchange of Bonds ................................................... .............................16 Section 2.05 Registration Books ......................................................................... .............................16 Section 2.06 Execution of Bonds ........................................................................ .............................17 Section 2.07 Authentication of Bonds ................................................................ .............................17 Section 2.08 Temporary Bonds ........................................................................... .............................17 Section 2.09 Bonds Mutilated, Lost, Destroyed or Stolen .................................. .............................17 Section 2.10 Book -Entry Bonds ......................................................................... .............................18 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01 Issuance of Series 2011 Bonds ...................................................... .............................19 Section 3.02 Application of Proceeds of the Series 2011 Bonds ........................ .............................19 Section3.03 [Reserved] ...................................................................................... .............................20 Section 3.04 Costs of Issuance Fund ................................................................ ............................... 20 Section 3.05 Construction Fund ........................................................................ ............................... 20 Section 3.06 Conditions for the Issuance of Additional Bonds ........................ ............................... 21 Section 3.07 Procedure for the Issuance of Additional Bonds ......................... ............................... 22 Section 3.08 Additional Bonds ........................................................................... .............................23 ARTICLE IV REDEMPTION OF BONDS Section 4.01 Redemption of Series 2011 Bonds ............................................... ............................... 23 Section 4.02 Notice of Redemption .................................................................... .............................24 Section 4.03 Selection of Bonds for Redemption ............................................... .............................24 Section 4.04 Partial Redemption of Bonds ....................................................... ............................... 25 Section 4.05 Effect of Notice of Redemption ..................................................... .............................25 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01 Pledge; Special Obligations ........................................................... .............................25 Section5.02 Flow of Funds ................................................................................ .............................25 Section 5.03 Application of Net Insurance Proceeds ........................................ ............................... 26 Section5.04 Title Insurance ............................................................................... .............................27 Section5.05 Rebate Fund ................................................................................... .............................28 Section 5.06 Investment of Moneys .................................................................... .............................28 i DOCSOC/1513656v5/200119 -0005 Section 6.01 Section 6.02 Section 6.03 Section 6.04 Section 6.05 Section 6.06 Section 6.07 Section 6.08 Section 6.09 Section 6.10 Section 7.01 Section 7.02 Section 7.03 Section 7.04 Section 7.05 Section 7.06 Section 7.07 Section 7.08 Section 7.09 Section 7.10 TABLE OF CONTENTS (continued) Page ARTICLE VI COVENANTS Compliance with Agreements ........................................................ .............................29 Compliance with Ground Lease and Lease Agreement ................. .........................:...29 Observance of Laws and Regulations ............................................ .............................29 OtherLiens ..............................:.................................................... ............................... 29 Prosecution and Defense of Suits ................................................. ............................... 30 Accounting Records and Statements ............................................ ............................... 30 Recordationand Filing .... : ......................................................................... :................. 30 TaxCovenants ............................................................................. ............................... 30 ContinuingDisclosure ........................................................:........ ............................... 31 FurtherAssurances ........................................:.............................. ............................... 31 ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY Actionon Default ......................................................................... ............................... 31 Other Remedies of the Trustee ..................................................... ............................... 31 Non - Waiver .................................................................................. ............................... 32 RemediesNot Exclusive .............................................................. ............................... 32 No Liability by the Authority to the Owners ............................... ............................... 32 No Liability by the City to the Owners .......................................... .............................32 No Liability of the Trustee to the Owners ................................... ............................... 33 Application of Amounts After Default .. ............................... Trustee May Enforce Claims Without Possession of Bonds Limitationon Suits ................................. ............................... ARTICLE VIII THE TRUSTEE Section 8.01 Employment of the Trustee ....................... ............................... Section 8.02 Duties, Removal and Resignation of the Trustee ..................... Section 8.03 Compensation of the Trustee .................... ......................... .I..... Section 8.04 Protection of the Trustee ........................... ............................... 33 ARTICLE IX MODIFICATION OR AMENDMENTS ............................... 33 ............................... 33 ............................... 33 . ............................... 34 . ............................... 34 ............................... 35 ............................... 35 Section 9.01 Modifications and Amendments Permitted .................................. ............................... 38 Section 9.02 Effect of Supplemental Indenture .............................::................. ............................... 39 Section 9.03 Endorsement of Bonds; Preparation of New Bonds ................... ............................... 39 Section 9.04 Amendment of Particular Bonds .................................................. ............................... 39 ARTICLE X DEFEASANCE Section 10.01 Discharge of Indenture ................................................................... .............................39 Section 10.02 Bonds Deemed To Have Been Paid ............................................. ............................... 40 Section 10.03 Payment of Bonds After Discharge of Indenture ......................... ............................... 41 ii DOCSOC/1513656v5/200119.0005 TABLE OF CONTENTS (continued) ARTICLE XI MISCELLANEOUS Page Section 11.01 Benefits Indenture Limited to Parties ............................................ .............................41 Section 11.02 Successor Deemed Included in all References to Predecessor .... ............................... 41 Section 11.03 Execution of Documents by Owners ............................................. .............................41 Section 11.04 Waiver of Personal Liabil ity .......................................................... .............................42 Section 11.05 Destruction of Bonds ..................................................................... .............................42 Section 11.06 Funds and Accounts ....................................................................... .............................42 Section 11.07 Article and Section Headings Gender and References .................. .............................42 Section 11.08 Partial Invalidity ............................................................................. .............................42 Section 11.09 Disqualified Bonds ......................................................................... .............................43 Section 11.10 Money Held for Particular Bonds ................................................ ............................... 43 Section 11.11 Payment on Non-Business Days .................................................... .............................43 Section11.12 California Law ............................................................................. ............................... 43 Section11.13 Notices ......................................................................................... ............................... 43 Section 11.14 Notice to Rating Agencies ........................................................... ............................... 44 Section 11.15 Execution in Counterparts ............................................................ ............................... 44 EXHIBIT A FORM OF SERIES 2011 BOND ................................................. ............................A -1 DOCSOC/1513656v5/200119 -0005 un . 11'10 THIS INDENTURE (this "Indenture "), executed and entered into as of November 1, 2011, is by and among the SANTA MONICA PUBLIC FINANCING AUTHORITY, a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California (the "Authority"), the CITY OF SANTA MONICA, a municipal corporation and charter city duly organized and existing under and by virtue of the Constitution and laws of the State of California and its Charter (the "City") and The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States, as Trustee (the "Trustee "); WITNESSETH: WHEREAS, the City desires to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public parking facility and related improvements, facilities and equipment or such other improvements as approved by an Opinion of Counsel to the effect that such other improvements will not adversely affect the exclusion of interest on any tax- exempt Bonds from gross income for federal income tax purposes (the "2011 Project "); WHEREAS, the City and the Authority desire to refinance the Authority's Lease Revenue Bonds, Series 2002A (the "2002A Bonds ") and the City's lease obligations in connection therewith, the proceeds of which were used to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public safety facility and related improvements, facilities and equipment (the "2002 Project" and, together with the 2011 Project, the "Project "); WHEREAS, in order to finance the 2011 Project and refinance the 2002 Project, the City will lease certain real property and the improvements located thereon (the "Property ") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the. Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the "Lease Agreement "); WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to finance the 2011 Project and refinance the 2002 Project through the issuance by the Authority of bonds payable from the -base rental payments (the "Base Rental Payments ") to be made by the City under the Lease Agreement; WHEREAS, all rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee pursuant to an Assignment Agreement, dated as of the date hereof; WHEREAS, the Authority and the City desire to provide for the issuance by the Authority of Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A (the "Series 2011A Bonds "), in the aggregate principal amount of $ in order to finance the 2011 Project; WHEREAS, the Authority and the City desire to provide for the issuance by the Authority of Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 201113 (the DOCSOC/1513656v5/200 11 9 -0 0 05 "Series 2011B Bonds" and, together with the Series 2011A Bonds, the "Series 2011 Bonds "), in the aggregate principal amount of $ ; WHEREAS, the Series 2011 Bonds will be payable equally and ratably from the Base Rental Payments; WHEREAS, the Authority and the City desire to provide for the issuance of additional bonds (the "Additional Bonds ") payable from the Base Rental Payments on a parity with the Series 2011 Bonds (the Series 2011 Bonds and any such Additional Bonds being collectively referred to as the "Bonds "); WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Authority and the City have authorized the execution and delivery of this Indenture; and WHEREAS, the Authority and the City have determined that all acts and proceedings. required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture has been in all respects duly authorized; NOW THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties do hereby agree as follows: ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01 Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes hereof and of any amendment hereof or supplement hereto and of the Bonds and of any certificate, opinion, request or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Lease Agreement. "Additional Bonds" means Bonds other than the Series 2011 Bonds issued hereunder in accordance with the provisions of Sections 3.06 and 3.07 hereof. "Act" means the Marks -Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code. "Additional Rental Payments" means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.02 of the Lease Agreement. "Assignment Agreement" means the Assignment Agreement, dated as of the date hereof, by and between the Authority and the Trustee. 2 DOCS6C/1513656v5/200119 -0005 "Authority" means the Santa Monica Public Financing Authority, a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California. "Authorized Authority Representative" means the Chairman, the Executive Director or the Treasurer of the Authority, or any other person authorized by the Board of Directors of the Authority to act on behalf of the Authority under or with respect to this Indenture. "Authorized City Representative" means the Mayor of the City, the City Manager of the City, the Director or Finance of the City, the Treasurer of the City, or any other person authorized by the City Council of the City to act on behalf of the City under or with respect to this Indenture. "Authorized Denominations" means $5,000 or any integral multiple thereof. "Base Rental Payment Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Base Rental Payments" means all amounts payable to the Authority by the City as Base Rental Payments pursuant to Section 3.01 of the Lease Agreement. "Beneficial Owner" means, whenever used with respect to a Book -Entry Bond, the person whose name is recorded as the beneficial owner of such Book -Entry Bond or a portion of such Book - Entry Bond by a Participant on the records of such Participant or such person's subrogee. "Bonds" means the Series 2011A Bonds, the Series 2011B Bonds and any Additional Bonds. issued hereunder. "Book -Entry Bonds" means the Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 2.10 hereof. "Business Day" means a day which is not (a) a Saturday, Sunday or legal holiday, (b) a day on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to a Series of Book -Entry Bonds. "City" means the City of Santa Monica, a municipal corporation and charter city duly organized and existing under and by virtue of the Constitution and laws of the State of California and the City's Charter. "Closing Date" means 12011. "Code" means the Internal Revenue Code of 1986. "Construction Fund" means the fund by that name established in accordance with Section 3.05 hereof. DOCSOC/1513656v5/200119 -0005 "Continuing Disclosure Certificate" means the Continuing Disclosure Certificate, dated as of the date hereof, executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Costs of Issuance" means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with this Indenture, the Lease Agreement, the Ground Lease, the Assignment Agreement, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, market study fees, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and Escrow Agent and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. "Costs of Issuance Fund" means the fund by that name established in accordance with Section 3.04 hereof. "DTC" means The Depository Trust Company, a limited- purpose Lust company organized under the laws of the State of New York, and its successors as securities depository for any Series of Book -Entry Bonds, including any such successor appointed pursuant to Section 2.10 hereof. "Escrow Agent" means The Bank of New York Mellon Trust Company, N.A., as escrow agent pursuant to the Escrow Agreement. "Escrow Fund" means the fund established and held by the Escrow Agent pursuant to the Escrow Agreement. . "Escrow Agreement" means the escrow agreement dated as of November 1, 2011 by and between the Authority and the Escrow Agent relating to the defeasance of the 2002 Bonds. "Federal Securities" means (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. "Fitch" means Fitch Ratings, Inc., or its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. "Forward Purchase and Sale Agreement" means an agreement entered into by the Trustee and /or the Authority and /or the City and a bank or financial institution (the "Provider ") rated "A2" or higher by Moody's and "A" or higher by S &P providing for the Provider to tender, and for the Trustee to purchase, certain eligible securities on one or more dates occurring at least thirty (30) business days after the date of such agreement; provided that (1) securities tendered by the Provider are purchased on a delivery versus payment basis, (2) securities purchased constitute Permitted Investments at the time they are tendered, and (3) the Authority and the City receive an opinion of counsel acceptable to the Authority, to the City and to the Trustee which states that the agreement constitutes a legally valid, binding, and enforceable obligation of the Provider and that in the event of 4 DOCSOC/1513656v5/200119 -0005 a bankruptcy of the Provider, securities sold by the Provider to the Trustee pursuant to the agreement do not constitute property of the estate of the Provider within the applicable bankruptcy or insolvency laws. "Ground Lease" means the Ground Lease, dated as of the date hereof, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and of the Lease Agreement. "Indenture" means this Indenture, as originally executed and as it may be amended or supplemented from time to time by any Supplemental Indenture. "Information Services" means Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (EMMA) website; and, in accordance with then culTent guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. "Interest Fund" means the fund by that name established in accordance with Section 5.02 hereof "Interest Payment Date" means June 1 and December 1 of each year, commencing on June 1, 2012. "Lease Agreement" means the Lease Agreement, dated as of the date hereof, by and between the City and the Authority, as originally executed and as it may be from time to time amended in accordance with the provisions thereof. "Moody's" means Moody ', s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. "Office of the Trustee" means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City by the Trustee in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or the agency of the Trustee at which, at any particular time, its corporate trust agency shall be conducted as specified to the Authority and the City by the Trustee in writing. . "Opinion of Counsel" means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority or the City and which written opinion is satisfactory to the Trustee. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09 hereof) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; DOCSOC/1513656v5/200119 -0005 (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.01 hereof; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture. "Owner" means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. "Participant" means any entity which is recognized as a participant by DTC in the book - entry system of maintaining records with respect to Book -Entry Bonds. "Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Certificate. "Permitted Investments" means any of the following to the extent then permitted by the general laws of the State of California: (1) (a) Direct obligations (other than an obligation subject to— Variation in principal repayment) of the' United States of America ( "United States Treasury Obligations "), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated (collectively "United States Obligations "). These include, but are not necessarily limited to: -U.S. Treasury obligations All direct or fully guaranteed obligations - Farmers Home Administration Certificates of beneficial ownership - General Services Administration Participation certificates -U.S. Maritime Administration Guaranteed Title XI financing -Small Business Administration Guaranteed participation certificates Guaranteed pool certificates - Government National Mortgage Association (GNMA) GNMA - guaranteed mortgage- backed securities GNMA- guaranteed participation certificates -U.S. Department of Housing & Urban Development Local authority bonds - Washington Metropolitan Area Transit Authority Guaranteed transit bonds DOCSOC/1513656v5/200119 -0005 (2) Federal Housing Administration debentures. (3) The listed obligations of government- sponsored agencies which are not backed by the full faith and credit of the United States of America: - Federal Home Loan Mortgage Corporation (FHLMC) Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) Senior debt obligations -Farm Credit Banks (formerly: Federal Land Banks, Federal intermediate Credit Banks and Banks for Cooperatives) Consolidated systemwide bonds and notes - Federal Home Loan Banks (FHL Banks) Consolidated debt obligations - Federal National Mortgage Association (FNMA) Senior debt obligations Mortgage- backed securities (excluded are stripped mortgages securities which are purchased at prices exceeding their principal amounts) - Student Loan Marketing Association (SLMA) Senior debt obligations (excluded are securities that do not have a fixed par value and /or whose terms do not promise a fixed dollar amount at maturity or call date) - Financing Corporation (FICO) Debt obligations - Resolution Funding Corporation (REFCORP) Debt obligations (4) Unsecured certificates of deposit, time deposits, and bankers' acceptances (having maturities of not more than 180 days) of any bank, including the Trustee and its affiliates, the short-term obligations of which are rated "A -1 +" or better by S &P and "P -1" or better by Moody's. (5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks, including the Trustee and its affiliates, which have capital and surplus of at least $5 million. (6) Commercial paper (having original maturities of not more than 270 days) rated "A -1 +" by S &P and "Prime -1" by Moody's. (7) Money market funds rated "AAm" or "AAm -G" or better by S &P and "Aa2" or better by Moody's, including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services. (8) Repurchase agreements: (a) With any domestic bank the long term debt of which is rated "AA" or better by S &P and. "Aa" by Moody's (so long as an opinion is rendered that the repurchase agreement is a "repurchase agreement" as defined in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ( "FIRREA ") and that DOCSOC/1513656v5/200119 -0005 such bank is subject to FIRREA); or any foreign bank rated at least "AA" by S &P and "Aaa" by Moody's or "AA" by 'S & P and at least "Aa2" by Moody's; provided the term of such repurchase agreement is for one year or less. (b) With (i) any broker- dealer with "retail customers" which has, or the parent company of which has, long -term debt rated at least "AA" by S &P and "Aa2" by Moody's, which broker- dealer falls under the jurisdiction of the Securities Investors Protection Corp. (SIPC); provided that: A. The market value of the collateral is maintained for United States Treasury Obligations, at the levels shown below under "Collateral Levels for United States Treasury Obligations"; B. Failure to maintain the requisite collateral percentage will require the City or the Trustee to liquidate the collateral; C. The Trustee, the City or a thud party acting solely as agent therefor (the "Holder of the Collateral ") has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor's books); D. The repurchase agreement states, and an opinion of counsel is rendered to the effect, that the Trustee has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); E. The transferor represents that the collateral is free and clear of any third -party liens or claims; F. An opinion is rendered that the repurchase agreement is a "repurchase agreement" as defined in the United States Bankruptcy Code; G. There is or will be a written agreement governing every repurchase transaction; H. The City represents that it has no knowledge of any fraud involved in the repurchase transaction; and I. The City and the Trustee receive an opinion of counsel (which opinion shall be addressed to the City and the Trustee) that such repurchase agreement is legal, valid and binding and enforceable against the provider in accordance with its terms. (9) State Obligations (a) Direct general obligations of any state of the United States or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated "A2" by Moody's and "A" by DOCSOC/1 513 656v5/200119-0005 S &P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (b) Direct, general short-term obligations of any state agency or subdivision described in (a) above and rated "A -1 +" by S &P and "Prime -1" by Moody's. (c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (a) above and rated "AA" or better by S &P and "Aa2" or better by Moody's. (10) Investment agreements with a domestic or foreign bank or corporation (other than a life or property casualty insurance company) the long -term debt of which, or, in the case of a guaranteed corporation the long -term debt of the guarantor, or in the case of a monoline financial guaranty insurance company the claims paying ability of the guarantor, is rated at least "AA" by S &P and "Aa2" by Moody's; provided, that prior written notice of an investment in the investment agreement is provided to S &P and, provided, further, by the terms of the investment agreement: (a) interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on the Bonds; (b) the invested funds are available for withdrawal without penalty or premium, at any time for purposes identified in this Indenture other than acquisition of alternative investment property upon not more than seven days prior notice (which notice may be amended or withdrawn at any time prior to the specified withdrawal date); provided that the Indenture specifically requires the Trustee or the City to give notice in accordance with. the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; (c) the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof; (d) a guaranteed rate of interest is to be paid on invested funds and all future deposits, if any, required to be made to restore the amount of such funds to the level specified under the Indenture; (e) the Trustee and the City receive the opinion of domestic counsel (which opinion shall be addressed to the City) that such investment agreement is legal, valid and binding and enforceable against the provider in accordance with its terms and of foreign counsel (if applicable); (f) the investment agreement shall provide that if during its term (A) the provider's or the guarantor's rating by either Moody's or S &P is withdrawn or suspended or falls below "AA" or "Aa2 ", respectively, or, with respect to a foreign bank, below the ratings of such provider at the delivery date of the investment agreement, the provider must, at the direction of the City or the Trustee (acting at the direction of the City) within 10 days of receipt of such direction, either 9 DOCSOC/1513656v5/200119 -0005 (1) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books) to the Trustee, the City or a Holder of the Collateral, United States Treasury Obligations which are free and clear of any third -party liens or claims at the Collateral Levels set forth below; or (2) repay the principal of and accrued but unpaid interest on the investment (the choice of (1) or (2) above shall be that of the City or Trustee (acting at the direction of the City), as appropriate), and (B) the provider's or the guarantor's raring by either Moody's or S &P is withdrawn or suspended or falls below "A" or "A2," or, with respect to a foreign bank, below "AA" or "Aa2" by S &P or Moody's, as appropriate, the provider must, at the direction of the City or the Trustee (acting at the direction of the City), within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the City or Trustee; (g) the investment agreement shall state, and an opinion of counsel shall be rendered to the effect, that the Trustee has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Trustee is in possession); and (h) the investment agreement must provide that if during its term (A) the provider shall default in its payment obligations, the provider's obligation under the investment agreement shall, at the direction of the City or the Trustee, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the City or Trustee, as appropriate, and (B) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be'declared bankrupt, etc. ( "event of insolvency "), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the City or Trustee, as appropriate. (11) Pre - refunded municipal obligations rated "AAA" by S &P and "Aaa" by Moody's meeting the following requirements: (a) the municipal obligations are (i) not subject to redemption prior to maturity or (ii) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (b) the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; (c) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any; due and to become due on the municipal obligations ( "Verification "); 10 DOCSOC/1513656v5/200119 -0005 (d) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; and (e) no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and (t) the cash or the United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. Collateral Levels For United States Treasury Obligations Remaining Maturity Frequency of 1 year 5 years 10 years 15 years 30 years Valuation or less or less or less or less or less Daily 102 105 106 108 114 Weekly 103 111 112 114 120 Monthly 105 117 120 125 133 Quarterly 107 120 130 133 140 Further Requirements: (a) On each valuation date, the City, or the custodian who shall confirm to the City and the Trustee, shall value the market value (exclusive of accrued interest) of the collateral, which market value will be an amount equal to the requisite collateral percentage times the principal amount of the investment (including unpaid. accrued interest thereon) that is being secured, (b) in the event the collateral level is below its collateral percentage on a valuation date, such percentage shall be restored within the following restoration periods: one Business Day for daily valuations, two Business Days for weekly and monthly valuations, and one month for quarterly valuations (the use of different restoration periods affect the requisite collateral percentage), (c) the City or the Trustee (acting at the direction of the City) shall terminate the repurchase agreement or the investment agreement, as the case may be, upon a failure to maintain the requisite collateral percentage, after the restoration period and, if not paid by the counterparty in federal funds against transfer of the collateral, liquidate the collateral. The Trustee shall have no responsibility to monitor the ratings of Permitted Investments after the initial purchase of such Permitted Investments. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Principal Fund" means the fund by that name established in accordance with Section 5.02 hereof. 11 DOCSOC/1513656v5/200119 -0005 "Project Costs" means all costs of acquiring, constructing and installing the 2011 Project, including, but not limited to: (a) all costs which the Authority or the City shall be required to pay to a seller or any other person under the terms of any contract or contracts for the purchase of the 2011 Project; (b) all costs which the Authority or the City shall be required to pay a contractor or any other person for the acquisition, construction and installation of the 2011 Project; (c) obligations of the Authority or the City incurred for services (including obligations payable to the Authority or the City for actual out -of- pocket expenses of the Authority or the City) in connection with the acquisition, construction and installation of the 2011 Project, including reimbursement to the Authority or the City for all advances and payments made in connection with the 2011 Project prior to or after delivery of the Bonds; (d) the actual out -of- pocket costs of the Authority or the City for test borings, surveys, estimates and preliminary investigations therefor, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the 2011 Project, including administrative expenses under the Lease Agreement and hereunder relating to the acquisition, construction and installation of the 2011 Project; and (e) any sums required to reimburse the Authority or the City for advances made by the Authority or the City for any of the above items or for any other costs incurred and for work done by the Authority or the City which are properly chargeable to the 2011 Project. "Rebate Fund" means the fund by that name established in accordance with Section 5.06 hereof. "Rebate Requirement" has the meaning ascribed thereto in the Tax Certificate. "Record Date" means the fifteenth day of the month next preceding an Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.05 hereof. "Rental Payments" means, collectively, the Base Rental Payments and the Additional Rental Payments. "Rental Period" means the period from the Closing Date through May 31, 2012 and, thereafter, the twelve -month period, commencing on June 1 of each year during the term of the Lease Agreement. 12 DOCSOC/1513656v5/200119 -0005 "Representation Letter" means the Letter of Representations from the Authority to DTC, or any successor securities depository for any Series of Book -Entry Bonds, in which the Authority makes certain representations with respect to issues of its securities for deposit by DTC or such successor depository. "S &P" means Standard & Poor's Ratings Services, a division of The McGraw -Hill Companies, Inc„ a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term "S &P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax - (516) 227 -4039 or 4190; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and /or such other securities depositories as the Authority may designate in a Written' Certificate of the Authority delivered to the Trustee. "Series" means the Series 2011A Bonds or the Series 2011B Bonds executed, authenticated and delivered on the Closing Date and identified pursuant to this Indenture and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. "Series 2011 Bonds" means the Series 2011A Bonds and the Series 2011B Bonds. . "Series 2O11A Bonds" means the Santa Monica Public, Financing Authority Lease Revenue Bonds, Series 2011A issued hereunder, "Series 2O11B Bonds" means the Santa Monica Public, Financing Authority Lease Revenue Refimding Bonds, Series 201113 issued hereunder. , "Supplemental Indenture" means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Certificate" means the Tax Certificate executed by the Authority and the City at the time of issuance of the Series 2011 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Trustee" means The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States, or any successor thereto as Trustee hereunder, appointed as provided herein. "Written Certificate of the Authority" and "Written Request of the Authority" mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Authority Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument "Written Certificate of the City" and "Written Request of the City" mean, respectively, a written certificate or written request signed in the name of the City by an Authorized City 13 DOCSOC/1513656v5 /200119 -0005 Representative. Any such certificate or request may, but need, not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02 Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the Authority, the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the Authority or the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. ARTICLE H Section 2.01 Authorization of Bonds. The Authority hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture and applicable laws of the State of California for the purpose of financing the 2011 Project and refinancing the 2002 Project. The Bonds may consist of one or more Series of Bonds of varying denominations, dates, maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. Section 2.02 Terms of Series 2011 Bonds. (a) The Series 2011A Bonds shall be designated the "Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A." The Series 2011B Bonds shall be designated the "Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 201113. Each Series of Additional Bonds shall bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series, of Bonds. (b) The Series 2011A Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Series 2011A Bond shall have more than one maturity date. The Series 2011A Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $ , shall mature on June 1 or December 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: 14 DOCSOC/1513656v5 /200119 -0005 Maturity Date Principal Amount Interest Rate (c) The Series 201113 Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Series 2011B Bond shall have more than one maturity date. The Series 2011B Bonds shall be dated as of the Closing Date, shall be.issued in the aggregate principal amount of $ , shall mature on June 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: Maturity Date (June 1) PrincipalAmount Interest Rate (d) Interest on the Series 2011 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2011 Bond is authenticated 15 DOCSOC/1513656v5/200119 -0005 on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a Series 2011 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the dated date thereof, or (iii) interest on any Series 2011 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series 2011 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2011 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. (e) The principal and premium, if any, of the Series 2011 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. (f) The Series 2011 Bonds shall be subject to redemption as provided in Article IV. Section 2.03 Form of Series 2011 Bonds. The Series 2011 Bonds shall be in substantially the form set forth in Exhibit A hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.04 Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall_ require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. Section 2.05 Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the Authority; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. 16 DOCSOC/1513656v5/200119 -0005 Section 2.06 Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority with the facsimile signature of an Authorized Officer of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers of the Authority before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers of the Authority, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. Section 2.07 .Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee 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. Section 2.08 Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such authorized denominations as may be determined by the Authority, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds of a Series it, will execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds of such Series, may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of such Series in Authorized Denominations. Until so exchanged, the temporary Bonds of such Series shall be entitled to the same benefits under this Indenture as definitive Bonds of such Series authenticated and delivered hereunder. Section 2.09 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and Series in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or in accordance with the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and Series in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee. Any 17 DOCSOC/1513656v5/200119 -0005 Bond of a Series issued under the provisions of this Section in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall' constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds of such Series secured by this Indenture. Section 2.10 Book -Entry Bonds. (a) Prior to the issuance of a Series of Bonds, the Authority may provide that such Series of Bonds shall initially be issued as Book -Entry Bonds and, in such event, the Bonds of such Series for each maturity shall be in the form of a separate single fully registered Bond (which may be typewritten). The Series 2011 Bonds shall initially be issued as Book -Entry Bonds. . Except as provided in subsection (c) of this Section, the registered Owner of all of the Book -Entry Bonds shall be Cede & Co., as nominee of DTC. Notwithstanding anything to the contrary contained in this Indenture, payment of interest with respect to any Book -Entry Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same - day funds to the account of Cede & Co. on the Interest Payment Date at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter. (b) The Trustee and the Authority may treat DTC (or its nominee) as the sole and exclusive Owner of Book -Entry Bonds registered in its name for the purposes of payment of the principal, premium, if any, or interest with respect to Book -Entry Bonds, selecting Book -Entry Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Book -Entry Bonds under this Indenture, registering the transfer of Book -Entry Bonds, obtaining any consent or other action to be taken by Owners of Book -Entry Bonds and for all other purposes whatsoever, and neither the Trustee nor the Authority shall be affected by any notice to the contrary. Neither the Trustee nor the Authority shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in Book - Entry Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant, the payment by DTC or any Participant of any amount in respect of the principal, premium, if any, or interest with respect to Book -Entry Bonds, any notice which is permitted or required to be given to Owners of Book -Entry Bonds under this Indenture, the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of Book -Entry Bonds, or any consent given or -other action taken by DTC as Owner of Book -Entry Bonds. The Trustee shall pay all principal., premium, if any and interest with respect to Book -Entry Bonds, only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to the principal, premium, if any, and interest with respect to the Book -Entry Bonds to the extent of the sum or sums so paid. Except under the conditions of subsection (c) of this Section, no person other than DTC shall receive an executed Book -Entry Bond for each separate stated maturity. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co.,. and subject to the provisions herein with respect to record dates, the term "Cede & Co." in this Indenture shall refer to such new nominee of DTC. (c) In the event (i) DTC, including any successor as securities depository for a Series of Bonds, determines not to continue to act as securities depository for such Series of Bonds, 18 DOCSOC/1513656v5/200119 -0005 or (ii) the Authority determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the book -entry system with the incumbent securities depository for such Series of Bonds. If the Authority determines to replace the incumbent securities depository for such Series of Bonds with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate fully registered Bond of such Series for the aggregate outstanding principal amount of Bonds of such Series of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the Authority, the Trustee and the successor securities depository for the Bonds of such Series as are not inconsistent with the terms of this Indenture. If the Authority fails to identify another qualified successor securities depository for such Series of Bonds to replace the incumbent securities depository, then the Bonds of such Series shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository for such Series of Bonds, or its nominee, shall designate. In such event the Authority shall execute, and deliver to the Trustee, a sufficient quantity of Bonds of such Series to carry out the transfers and exchanges provided in Sections 2.04, 2.08 and 2.09 hereof. All such Bonds of such Series shall be in fully registered form in Authorized Denominations. (d) Notwithstanding any other provision of this Indenture to the contrary, so long as any Book -Entry Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium, if any, and interest with respect to such Book -Entry Bond and all notices with respect to such Book -Entry Bond shall be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book -Entry Bonds pursuant to this Indenture by the Authority, the City or the Trustee with respect to any consent or other action to be taken by Owners, the Authority, the City or the Trustee, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01 Issuance of Series 2011 Bonds. The Authority may, at any time, execute the Series 2011 Bonds for issuance hereunder and deliver the same to the Trustee. The Trustee shall authenticate the Series 2011 Bonds and deliver the Series 2011 Bonds to the original purchaser . thereof upon receipt of a Written Request of the Authority and upon receipt of the purchase price therefor. Section 3.02 Application of Proceeds of the Series 2011 Bonds. On the Closing Date, the proceeds of the sale of the Series 2011A Bonds received by the Trustee, $ shall be. deposited by the Trustee as follows: (a) The Trustee shall deposit the amount of $ in the Costs of Issuance Fund. 19 DOCSOC/1513656v5/200119 -0005 (b) The Trustee shall deposit the amount of $ in the Construction Fund. On the Closing Date, the proceeds of the sale of the Series 201113 Bonds received by the Trustee, $ , shall be deposited by the Trustee as follows: (c) The Trustee shall deposit the amount of $ in the Costs of Issuance Fund. (d) The Trustee shall transfer $ to the Escrow Agent for deposit into the Escrow Fund. Section 3.03 [Reserved] Section 3.04 Costs of Issuance Fund. The Trustee shall establish and maintain a separate fund designated the "Costs of Issuance Fund." On the Closing Date, there shall be deposited in the Costs of Issuance Fund the amount specified in Section 3.02 hereof. There shall be additionally be deposited in the Cost of Issuance Fund the portion, if any, of the proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Authority in the form attached hereto as Exhibit _ stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. On May 1, 2012, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Construction Fund. Section 3.05 Construction Fund. (a) The Trustee shall establish and maintain a separate fund designated the "Construction Fund." On the Closing Date there shall be deposited in the Construction Fund the amount specified in Section 3.02(c) hereof. (b) The moneys in the Construction Fund shall be used and withdrawn by the Trustee from time to time to pay the Project Costs upon submission of a Written Request of the City the form attached hereto as Exhibit _ stating (i) the Person to whom payment is to be made, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment constitutes a Project Cost and is a proper charge against the Construction Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Construction Fund, in each case together with a statement or invoice for each amount requested thereunder. (c) Upon the filing of a Written Certificate of the City stating that the Project has been completed and that all Project Costs have been paid, the Trustee shall transfer and apply the amount, if any, remaining in the Construction Fund (x) if such amount is equal to or greater than [$50,000], to the Redemption Fund to be used to optionally redeem Bonds, provided that the amount 20 DOCSOC/1513656v5/200119 -0005 so transferred shall not exceed the amount required to provide for the redemption of all Outstanding Bonds and (y) if such amount is less than [$50,000], to the Base Rental Payment Fund to be used for the purposes thereof. Section 3.06 Conditions for the Issuance of Additional Bonds. The Authority may at any time issue one or more Series of Additional Bonds (in addition to the Series 2011 Bonds) payable from Base Rental Payments as provided herein on a parity with all other Bonds theretofore issued hereunder, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant hereto and shall have been provided for by a Supplemental Indenture which shall specify the following: (1) The application of the proceeds of the sale of such Additional Bonds; (2) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory.sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, however, that (i) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on June 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on June 1, (ii) the Additional Bonds shall be payable as to interest semiannually on December 1 and June 1 of each year, except that the first installment of interest may be payable on either December 1 or June 1 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on December 1 and June 1, (iii) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; Bonds; (4) The redemption premiums and terms, if any, for such Additional (5) The form of such Additional Bonds; and (6) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (b) The Authority shall be in compliance with all agreements, conditions, covenants and terms contained herein, in the Lease Agreement and in the Ground Lease required to be observed or performed by it; (c) The City shall be in compliance with all agreements, conditions, covenants and terms contained herein, in the Lease Agreement and in the Ground Lease required to be observed or performed by it; and 21 DOCSOC/151365601200119 -0005 (d) The Ground Lease shall have been amended, to the extent necessary, and the Lease Agreement shall have been amended so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds, payable at such times and in such manner as may be necessary to provide for the payment of the principal of and interest on such Additional Bonds; provided, however, that no such amendment shall be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period shall be in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith (evidence of the satisfaction of such condition shall be made by a Written Certificate of the City). Nothing contained herein shall limit the issuance of any bonds or other obligations payable from Base Rental Payments if, after the issuance and delivery of such bonds or other obligations, none of the Bonds theretofore issued hereunder will be Outstanding. Section 3.07 Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, such Additional Bonds shall be executed by the Authority for issuance hereunder and shall be delivered to the Trustee and thereupon shall be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following: (a) Certified copies of the Supplemental Indenture authorizing the issuance of such Additional Bonds, the amendment to the Lease Agreement requited by Section 3.06 hereof and the amendment to the Ground Lease, if any, required by Section 3.06 hereof, together with satisfactory evidence that such amendment to the Lease Agreement and such amendment to the Ground Lease, if any, have been duly recorded; (b) A Written Request of the Authority as to the delivery of such Additional Bonds; (c) An opinion of Bond Counsel substantially to the effect that (i) the Indenture (including all Supplemental Indentures), the Lease Agreement (including the amendment thereto required by Section 3.06 hereof) and the Ground Lease (including any amendment thereto required by Section 3.06 hereof) have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of, the Authority and the City, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), (ii) such Additional Bonds constitute valid and binding special obligations of the Authority payable solely from Base Rental Payments as provided herein and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and (iii) the issuance of such Additional Bonds, in and of itself, will not adversely affect the exclusion of interest on the Bonds Outstanding prior to the issuance of such Additional Bonds from gross income for federal income tax purposes; (d) a Written Certificate of the Authority that the requirements of Section 3.06 hereof have been met; 22 DOCSOC/1513656v5 /200119 -0005 (e) a Written Certificate of the City that the requirements of Section 3.06 hereof and Sections 5.01 and 5.02 of the,Lease Agreement have been met, and a Written Certificate of the City as to the fair rental value of the Property, after giving effect to the execution and delivery of the Additional Bonds, and to the use of proceeds received therefrom; and (f) Such further documents as are required by the provisions hereof or by the provisions of the Supplemental Indenture authorizing the issuance of such Additional Bonds. Section 3.08 Additional Bonds. So long as any of the Bonds remain Outstanding, the Authority shall not issue any Additional Bonds or obligations payable from the Base Rental Payments, except pursuant to Sections 3.06 and 3.07 hereof. ARTICLE IV REDEMPTION OF BONDS Section 4.01 Redemption of Series 2011 Bonds. (a) Extraordinary Redemption. The Series 2011 Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to Sections 5.03 and 5.04 hereof, at a Redemption Price equal to the principal amount of the Series 2011 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. (b) Optional Redemption. The Series 2011A Bonds maturing on or after June 1, 20_, shall be subject to optional redemption, in whole or. in part, on any date on or after June 1, 20 , in Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant to subsection (a) of Section 7.02 of the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2011A Bonds to be redeemed, plus accrued interest thereon to the date of redemption. The Series 2011B Bonds are not subject to optional redemption prior to maturity. (c) Mandatory Sinking Fund Redemption. The Series 2011A Bonds maturing June 1, 20_ are subject to redemption in part, on June Lin each of the following years from sinking account payments as set forth below at a redemption price equal to the principal amount thereof to be redeemed, without premium; provided, however, that if some but not all of the Series 2011A Term Bonds have been redeemed pursuant to an extraordinary or optional redemption, the total amount of all future sinking fund payments will be reduced by the aggregate principal amount of the Series 2011A Term Bonds so redeemed as nearly as practicable on a pro rata basis in integral multiples of $5,000. In addition, in lieu of redemption thereof, the Series 2011A Term Bonds maybe purchased by the City and tendered to the Trustee pursuant to the provisions hereof. 23 DOCSOC/1513656v5/200119 -0005 Mandatary Sinking Fund Payment Date Sinking Fund (June 1) Payment * Final Maturity Section 4.02 Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 15 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Such notice may state that such redemption is conditioned upon sufficient funds being on deposit on the redemption date to redeem the Bonds so called for redemption. Such notice of redemption may also state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Bonds. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Section 4.03 Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the Authority, (b) with respect to any redemption pursuant to Section 4.01(a) hereof and the corresponding provision of any Supplemental Indenture pursuant to which Additional Bonds are issued, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable, and (c) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. 24 D OCSOC/1513656v5/200119 -0005 Section 4.04 Partial Redemption of Bonds, Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.05 Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01 Pledge; Special Obligations, Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund are hereby pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Indenture and the Act. Said pledge shall constitute a first lien on such assets. All obligations of the Authority under this Indenture shall be special obligations of the Authority, payable solely from Rental Payments and the other assets pledged therefor hereunder; provided, however, that all obligations of the Authority under the Bonds shall be special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Section 5.02 Flow of Funds. (a) The Trustee shall establish and maintain separate funds designated the "Base Rental Payment Fund," the "Interest Fund," the "Principal Fund" and the "Redemption Fund." All Base Rental Payments shall be paid directly by the City to the Trustee, and if received by the Authority at any time shall be transferred by the Authority with the Trustee within 25 DOCSOC/1513656v5/200119 -0005 one Business Day after the receipt thereof All Base Rental Payments received by the Trustee shall be deposited by the Trustee in the Base Rental Payment Fund. (b) The Trustee shall transfer the amounts on deposit in the Base Rental Payment Fund, at the times and in the manner hereinafter provided, to the following respective funds: (i) Interest Fund. On the Business Day immediately preceding each Interest Payment Date, the Tiastee shall transfer from the Base Rental Fund to the Interest Fund the amount, if any, necessary to cause the amount on deposit in the Interest Fund to be equal to the interest due on the Bonds on such Interest Payment Date (ii) Principal Fund. On the Business Day immediately preceding each June 1, commencing June 1, 2012, the Trustee shall transfer from the Base Rental Fund to the Principal Fund the amount, if any, necessary to cause the amount on deposit in the Principal Fund to be equal to the principal amount of the Bonds. due on such June 1, either as a result of the maturity thereof or mandatory sinking fund redemption payments required to be made with respect thereto. Moneys in the Principal Fund shall be used by the Trustee for the purpose of paying the principal of the Bonds when due and payable at their maturity dates or upon earlier mandatory sinking fund redemption. (iii) Redemption Fund. The Trustee, on the redemption date specified in the Written Request of the City filed with the Trustee at the time that any prepaid Base Rental Payment is paid to the Trustee pursuant to the Lease Agreement, shall deposit in the Redemption Fund that amount of moneys representing the portion of the Base Rental Payments designated as prepaid Base Rental Payments. Additionally, the Trustee shall deposit in the Redemption Fund any amounts required to be deposited therein pursuant to Section 5.03 or Section 5.04 hereof. Moneys in the Redemption Fund shall be used by the Trustee for the purpose of paying the principal of and interest and premium, if any, on Series 2011 Bonds redeemed pursuant to the provisions of subsections (a) and (b) of Section 4.01 hereof and Additional Bonds redeemed pursuant to the corresponding provisions of the Supplemental Indenture pursuant to which such Additional Bonds are issued. . Section 5.03 Application of Net Insurance Proceeds. If the Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of this Section, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Property or the affected portion thereof in accordance with the provisions hereof. The Net Insurance Proceeds (other than Net Insurance Proceeds of rental interruption insurance), including the proceeds of any self - insurance, received on account of any damage or destruction of the Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may be invested by the Trustee as directed by the City in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. 26 DOCSOC/1513656v5/200119 -0005 Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Property or the portions of the Property which were damaged or destroyed. If the City does intend to replace or repair the Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account. If the damage, destruction or loss was such that there resulted a substantial interference with the City's right to the use or occupancy of the Property and an abatement, of Rental Payments results from such damage or destruction pursuant to Section 3.06 of the Lease Agreement, then the City shall be required either to (a) apply sufficient funds from the insurance proceeds and other legally available funds to the replacement or repair of the Property or the portions thereof which have been damaged to the condition which existed prior to such damage or destruction, or (b) apply sufficient funds from the insurance proceeds and other legally available funds to the redemption, as set forth in subsection (a) of Section 4.01 hereof and the corresponding provisions. of any Supplemental Indenture pursuant to which Additional Bonds are issued, in full of all the Outstanding Bonds or all of those Outstanding Bonds which would have been payable from that portion of the Base Rental Payments which are abated as a result of the damage or destruction. Funds to be applied to the redemption of Bonds in accordance with clause (b) above shall be deposited in the Redemption Fund. If the City is not required to replace or repair the Property, or the affected portion thereof, as set forth in clause (a) above or to use such amounts to redeem Bonds as set forth in clause (b) above, then such proceeds shall, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Property after such damage or destruction is at least equal to the principal amount of the Outstanding Bonds, be paid to the City to be used for any lawful purpose. The proceeds of any award in eminent domain received in respect to the Property shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to subsection (a) of Section 4.01 hereof and the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued. Section 5.04 Title Insurance. Proceeds of any policy of title insurance received by the Trustee in respect of the Property shall be applied and disbursed by the Trustee as follows: (a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof, or (b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Property and will result in an abatement of Rental Payments payable by the City under the Lease Agreement, then the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in subsection (a) of Section 4.01 hereof and the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued. 27 DOCSOC/1513656v5/200119 -0005 Section 5.05 Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the "Rebate Fund." There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the Authority. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to Article X hereof or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is incorporated herein by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Authority, and shall have no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate. The Trustee may conclusively rely upon the Authority's determinations, calculations and certifications required by the Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the Authority's calculations. (b) Any funds remaining in the Rebate.Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall be withdrawn by the Trustee and remitted to the Authority. Section 5.06 Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture and held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in writing by the Authority. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture; provided, however, that such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date. Absent timely written direction from the Authority, the Trustee shall hold any funds held by it uninvested. Subject to the provisions of Section 5.06 hereof, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Indenture shall be retained therein. Permitted Investments acquired as an investment of moneys in any fund established under this Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued by the Trustee at the fair market value thereof, such valuation to be performed not less frequently than semiannually on or before each May 15 and November 15. In determining fair market value, the Trustee may use and rely conclusively (Contract Liability) on any generally recognized securities pricing service available to it (including brokers and dealers in securities). The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the Authority, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. 28 DOCSOC/1513656v5 /200119 -0005 The Trustee may make any investments hereunder through the bond or investment department or trust investment department of the entity acting as Trustee hereunder, or those of such entity's parent or any affiliate, and such entity, or its parent or affiliate, as applicable, shall be entitled to its normal, customary and reasonable compensation for such services. The entity acting as Trustee hereunder, or any of its affiliates, may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder and such entity, or its affiliate, as applicable, shall be entitled to its normal, customary and reasonable compensation for such services. The Authority and the City acknowledge that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority and the City the right to receive brokerage confirmations of security transactions as they occur, at no additional cost, the Authority and the City specifically waive receipt of such confirmations to the extent permitted by law. ARTICLE VI COVENANTS Section 6.01 Compliance with Agreements. The Trustee will not authenticate or deliver any Bonds in any manner other than in accordance with the provisions hereof, and the Authority and the City will not suffer or permit any default by them to occur hereunder, but will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms hereof required to be complied with, kept, observed and performed by them. Section 6.02 Compliance with Ground Lease and Lease Agreement. The Authority and the City will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Ground Lease and the Lease Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Ground Lease and the Lease Agreement against the other party thereto in accordance with their respective terms. Section 6.03 Observance of Laws and Regulations. The Authority, the City and the Trustee will faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America or of the State of California, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by them, including their right to exist and carry on their respective businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired. Section 6.04 Other Liens. The City will keep the Property and all parts thereof free from judgments and materiahnen's and mechanics' liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability which materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days' written notice to comply therewith and failure of the City to so comply within such ten -day period) may, but is in no event obligated to, defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in 29 DOCSOC/1513656v5/200119.0005 paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its liability hereunder and to perform such agreements and covenants. So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof. The Authority and the Trustee shall not encumber the Property other than in accordance with the Ground Lease, the Lease Agreement, the Indenture and the Assignment Agreement. Section 6.05 Prosecution and Defense of Suits. The City will promptly, upon request of the Trustee (which request the Trustee is not required to make), take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Property or any part thereof, whether now existing or hereafter developing, will prosecute all actions, suits or other proceedings as may be appropriate for such purpose and will indemnify and save the Trustee harmless from all cost, damage, expense or loss, including attorneys' fees and expenses, which it or the Owners may incur by reason of any such cloud, defect, action, suit or other proceeding. Section 6.06 Accounting Records and Statements. The Trustee will keep proper accounting records in which complete and correct entries shall be made of all transactions relating to the receipt, deposit and disbursement of the Base Rental Payments, and such accounting records shall be available for inspection by the Authority and the City at reasonable hours and under reasonable conditions. Section 6.07 Recordation and Filing. The City will record, or cause to be recorded, with the appropriate county recorder, the Lease Agreement, the Ground Lease and the Assignment Agreement, or memoranda thereof. Section 6.08 Tax Covenants. (a) Neither the Authority nor the City will take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on any tax - exempt Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the Authority and the City will comply with the requirements of the Tax Certificate, which is incorporated herein as if fully set forth herein, This covenant shall survive payment in full or defeasance of the Bonds. (b) In the event that at any time the Authority is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the Authority shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the Authority shall provide to the Trustee an Opinion of Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds, the Trustee may conclusively rely on 30 DOCSOC/1513656v5 /2 0 0 1 19 -0 0 0 5 such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.09 Continuing Disclosure. The City will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an event of default hereunder; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% of the aggregate principal amount of Outstanding Bonds, and upon being indemnified to its reasonable satisfaction therefor, shall) or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.10 Further Assurances. Whenever and so often as requested to do so by the Trustee, the Authority and the City will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Trustee all advantages, benefits, interests, powers, privileges and rights conferred or intended to be conferred upon it hereby or by the Assignment Agreement, the Ground Lease or the Lease Agreement. ARTICLE VII DEFAULT AND LEMTATIONS OF LIABILITY Section 7.01 Action on Default. If an event of default (within the meaning of Article VI of the Lease Agreement) shall happen, then such event of default shall constitute an event of default hereunder. The Trustee shall give notice, as assignee of the Authority, of an event of default under the Lease Agreement to the City. In each and every case during the continuance of an event of default, the Trustee may and, at the direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, and upon being indemnified to its reasonable satisfaction therefor, shall, upon notice in writing to the City and the Authority, exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to. enforce its rights as assignee pursuant to the Assignment Agreement or to protect and enforce any of the rights vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.02 hereof. Section 7.02 Other Remedies of the Trustee. Subject to the provisions of Section 7.01 hereof, the Trustee shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee.to perform or can -y out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein; 31 DOCSOC/1513656v5/200119 -0005 (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or (c) by suit in equity upon the happening of any event of default hereunder to require the Authority and the City to account as the trustee of an express trust. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.03 Non - Waiver. A waiver of any default or breach of duty or contract by the Trustee shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee by law or by this Article may be enforced and exercised from time to time and as often the Trustee shall deem expedient. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse determination, the Trustee, such Owner, the Authority and the City shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. Section 7.04 Remedies Not Exclusive. Subject to the provisions of Section 7.01 hereof, no remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 7.05 No Liability by the Authority to the Owners. Except as expressly provided herein, the Authority shall not have any obligation or liability to the Owners with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of the other agreements and covenants required to be performed by it contained in the Lease Agreement or herein, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein. Section 7.06 No Liability by the City to the Owners. Except for the payment when due of the Base Rental Payments and the performance of the other agreements and covenants required to be performed by it contained in the Lease Agreement, the Ground Lease or herein, the City shall not have any obligation or liability to the Owners with respect to the Trust Indenture or the preparation, execution, delivery or transfer of the Bonds or the disbursement of the Base Rental Payments by the Trustee to the Owners, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein. 32 DOCSOC/1513656v5/200119 -0005 Section 7.07 No Liability of the Trustee to the Owners. Except as expressly provided herein, the Trustee shall not have any obligation or liability to the Owners with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the Authority or the City of the other agreements and covenants required to be performed by them contained in the Lease Agreement, the Ground Lease or herein. Section 7.08 Application of Amounts After Default. All payments received by the Trustee with respect to the rental of the Property after a default by the City pursuant to Article VI of the Lease Agreement (including, without limitation, any proceeds received in connection with the sale, assignment or sublease of the Authority's right, title and interest in the Ground Lease), and all damages or other payments received by the Trustee for the enforcement of any rights and powers of the Trustee under Article VI of the Lease Agreement, shall be deposited into the Base Rental Payment Fund and as soon as practicable thereafter applied, together with all other funds held hereunder (except funds in the Rebate Fund): (a) to the payment of all amounts due the Trustee under Article VIII hereof; (b) to the payment of all amounts then due for interest -on the Bonds, in respect of which, or for the benefit of which, money has been collected (other than Bonds which have become payable -prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable; and (c) to the payment of all amounts then due for principal of the Bonds, in respect of which, or for the benefit of which, money has been collected (other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal of such Bonds due and payable. Section 7.09 Trustee May Enforce Claims Without Possession of Bonds. All rights of action and claims under this Indenture or the Bonds may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Owners in respect of which such judgment has been recovered. Section 7.10 Limitation on Suits. No Owner of any Bond shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or Trustee, or for any other remedy hereunder, unless (a) such Owner shall have previously given written notice to the Trustee of a continuing event of default, (b) the Owners of not less than 25% of the aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee to institute proceedings in respect of such event of default in its own name as Trustee hereunder, (c) such Owner or Owners shall have afforded to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such proceedings, and (e) no direction inconsistent with such written request shall have been given to the Trustee during such 60 day period by the Owners of 33 DOCSOC/1513656v5/200119 -0005 a majority of the aggregate principal amount of Bonds then Outstanding; it being understood and intended that no one or more Owners shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Owner, or to obtain or seek to obtain priority or preference over any other Owner or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Owners. ARTICLE VIII THE TRUSTEE Section 8.01 Employment of the Trustee. The Authority hereby appoints and employs the Trustee to receive, deposit and disburse the Base Rental Payments, to authenticate, deliver and transfer the Bonds and to perform the other functions contained herein, all in the manner provided herein and subject to the conditions and terms hereof. By executing and delivering this Indenture, the Trustee accepts the appointment and employment hereinabove referred to and accepts the rights and obligations of the Trustee provided herein, subject to the conditions and terms hereof. Other than when an event of default has occurred and is continuing, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. In case an event of default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Trustee hereby covenants and agrees that it will not encumber the Property. Section 8.02 Duties, Removal and Resignation of the Trustee. The Authority may, by an instrument in writing, remove the Trustee initially a party hereto and any successor thereto unless an event of default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if at any time (a) requested to do so by an instrument or concurrent instruments in writing signed by the Owners of a majority of the aggregate principal amount of Bonds at the time Outstanding (or their attorneys duly authorized in writing), or (b) the Trustee shall cease to be eligible in accordance with the following sentence, and shall appoint a successor Trustee. The Trustee and any successor Trustee shall be a banking corporation or association or trust company having (or if such banking corporation or association or trust company is a member of a bank holding company, its bank holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authorities. If such banking corporation or association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice of such resignation to the Authority and the City and by giving notice, by first class mail, postage prepaid, of such resignation to the Owners at their addresses appearing on the Registration Books. Upon receiving such notice of resignation, the Authority shall promptly appoint a'successor Trustee by an instrument in writing; provided, however, that in the event the Authority does not appoint a successor Trustee within 30 days following receipt of such notice of resignation, the resigning Trustee may, at the expense of the Authority, petition the appropriate court having jurisdiction to appoint a successor Trustee. Any 34 DOCSOC/1513656v5/200119 -0005 resignation or removal of a Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. Any corporation, association or agency into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust .business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided that, such entity meets the combined capital and surplus requirements of this Section, ipso facto, shall be and become successor trustee under this Indenture and vested with all the trusts, powers, discretion, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.03 Compensation of the Trustee. The City shall from time to time, subject to any written agreement then in effect with the Trustee, pay the Trustee reasonable compensation for all its services rendered hereunder and reimburse the Trustee for all its reasonable advances and expenditures (which shall not include "overhead expenses" except as such expenses are included as a component of the Trustee's stated annual fees) hereunder, including but not limited to advances to and reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys retained by the Trustee, employed by it in the exercise and performance of its rights and obligations hereunder. The Trustee may take whatever legal actions are lawfully available to it directly against the Authority or the City. The. City shall, to the extent permitted by law, indemnify and save the Trustee harmless against any liabilities, costs, claims or expenses, including those of,its attorneys, which it may incur in the exercise and performance of its powers and duties hereunder, under the Lease Agreement, or in connection with any document or transaction contemplated hereunder or thereunder, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its misconduct. The duty of the City to indemnify the Trustee shall survive the termination and discharge of this Indenture and the earlier removal or resignation of the Trustee. No provision of this Indenture shall require the Trustee 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 hereunder. Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, and interest on any Bond, upon the trust estate for the foregoing fees, charges and expenses incurred by it. When the Trustee incurs expenses or renders services after the occurrence of an Event of Default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. Section 8.04 , Protection of the Trustee. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent, notice, request, requisition, resolution, statement, telegram, voucher, waiver or other paper or document which it shall in good faith believe to be genuine and to have been adopted, executed or delivered by the proper party or pursuant to any of the provisions hereof, and the Trustee shall be under no duty to 35 DOCSOC/1513656v5/200119 -0005 make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Owners of the Bonds pursuant to this Indenture, unless such Owners shall have offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against the reasonable costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect to any action taken or suffered by it hereunder in good faith in accordance therewith. The Trustee shall not bexesponsible for the sufficiency of the Bonds or the Lease Agreement, or of the assignment made to it by the Assignment Agreement, or for statements made in any preliminary or final official statement relating to the Bonds, or of the title to the Property. Whenever in the administration of its rights and obligations hereunder the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the City or a Written Certificate of the Authority, and such certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it deems reasonable. The Trustee may buy, sell, own, hold and deal in any of the Bonds and may join in any action which any Owner may be entitled to take with like effect as if the Trustee were not a party hereto, The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the City, and may act as agent, depository or trustee for any committee or body of Owners or of owners of obligations of the Authority or the City as freely as if it were not the Trustee hereunder. The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers hereof and perform any rights and obligations required of it hereunder by or through agents, attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its rights and obligations hereunder, and the Trustee shall not be answerable for the negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable care; provided, however, that in the event of any negligence or misconduct of any such attorney, agent or receiver, the Trustee shall in a commercially reasonable manner pursue all remedies of the Trustee against such agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or for anything whatsoever in connection with the funds established hereunder, except only for its own willful misconduct, negligence or breach of an obligation hereunder. The Trustee shall not be deemed to have knowledge of an event of default unless it has actual knowledge thereof. 36 DOCSOC/1513656v5/200119 -0005 The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which the Authority or the City is a party and which, in the opinion of the Trustee and its counsel, affects the Bonds or the security therefor, and shall do so if requested in writing by the Owners of at least 5% of the aggregate principal amount of Bonds then Outstanding, provided the Trustee shall have no duty to take such action unless it has been indemnified to its reasonable satisfaction against all risk or liability arising from such action. The Trustee's rights to immunities and protection from liability hereunder and its rights to payment of its fees and expenses shall survive its resignation or removal and final payment or defeasance of the Bonds. All indemnifications and releases . from liability granted herein to the Trustee shall extend to the directors, officers, employees and agents of the Trustee. The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default. The Trustee shall have no responsibility or liability with respect to any information, statements or recitals in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of these Bonds. The Trustee shall not be accountable for the use or application by the Borrower of any of the Bonds or the proceeds thereof or for the use or application of any money paid over by the Trustee in accordance with the provisions of this Indenture or for the use and application of money received by any paying agent. The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided, however, that the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Authority or the City elects to give the Trustee e -mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Authority and the City agree to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including, without limitation, the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. In acting or omitting to act pursuant to the Lease Agreement or Ground Lease, the Trustee shall be entitled to all of the rights, immunities and indemnities accorded to it under this Indenture and the Lease Agreement, including, but not limited to, this Article VIII. 37 DOCSOC/1513656v5/200119 -0005 ARTICLE IX MODIFICATION OR AMENDMENTS Section 9.01 Modifications and Amendments Permitted (a) This Indenture and the rights and obligations of the Authority, the City, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or the rate of interest thereon, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Base Rental Payments and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture or deprive the Owners of the Bonds of the lien created by this Indenture on such Base Rental Payments and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. (b) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Bond Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority or the City in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III hereof; (iv) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said actor similar federal statute; (v) to modify, amend or supplement this Indenture in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and 38 DOCSOC/1513656v5/200119 -0005 (vi) in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the Authority, the City and the Trustee. (c) Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, die Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. (d) No Supplemental Indenture shall modify any of the rights or obligations of the Trustee without its prior written consent. Section 9.02 Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the City, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.03 Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Authority so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Trustee a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same. interest rate and maturity. Section 9.04 Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. ARTICLE X DEFEASANCE Section 10.01 Discharge of Indenture. If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners of such Bonds shall cease to be entitled to the pledge of the Base Rental and the 39 DOCSOC/1513656v5/200119 -0005 other assets as provided herein, and all agreements, covenants and other obligations of the Authority and the City to the Owners of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto which are not required for the payment of the principal of and interest and premium, if any, on such Bonds, Subject to the provisions of the above paragraph, when any of the Bonds shall have been paid and if, at the time of such payment, the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by them on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bonds and such Bonds shall cease to be entitled to the lien of this Indenture and such lien and all covenants, agreements and other obligations of the Authority and the City hereunder shall cease, terminate become void and be completely discharged as to such Bonds. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non- presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners of the Bonds and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any, Bonds, those provisions of this Indenture relating to the compensation and indemnity of the Trustee shall remain in effect and shall be binding upon the Trustee, the City and the Authority. Section 10.02 Bonds Deemed To Have Been Paid. If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bonds and the interest thereon at the . maturity or redemption date thereof, such Bonds shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01 hereof. Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 hereof if (a) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.02 hereof, notice of redemption of such Bonds on said redemption date, said notice to be given in accordance with Section 4.02 hereof, (b) there shall have been deposited with the Trustee either (i) money in an amount which shall be sufficient, or (ii) Federal Securities that are not subject to redemption other than at the option of the holder thereof, the interest on and principal of which when paid will provide money which, together with the money, if any deposited with the Trustee at the same time, shall, as verified by an independent certified public accountant, be sufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bonds, and (c) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in, form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of such Bonds that the deposit required by :1 DOCSOC/1513656v5/200119 -0005 clause (b) above has been made with the Trustee and that such Bonds, are deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bonds. Section 10.03 Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, to the extent permitted by law, any moneys held by the Trustee intrust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys, shall be repaid to the Authority (without liability for interest) free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee may (at the cost of the Authority) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. ARTICLE XI NIISCELLANEOUS Section 11.01 Benefits Indenture Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the Authority, the City, the Trustee and the Owners any claim, remedy or right under'or pursuant hereto, and any agreement, condition, covenant or term required herein to be observed or performed by or on behalf of the Authority or the City shall be for the sole and exclusive benefit of the Trustee and the Owners. Section 11.02 Successor Deemed Included in all References to Predecessor. Whenever the Authority, the City or the Trustee, or any officer thereof, is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority, the City or the Trustee, or such officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Authority, the City or the Trustee, or any officer thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.03 Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any declaration, request or other instrument or of any writing appointing such attorney may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the person signing such declaration, request or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer, or by such other proof as the Trustee may accept which it may deem sufficient. The ownership of any Bonds and the amount, payment date, number and date of owning the same may be proved by the Registration Books. 41 DOCSOC/1513656v5/200119 -0005 Any declaration, request or other instrument in writing of.the Owner of any Bond shall bind all future Owners of such Bond with respect to anything done or suffered to be done by the Authority, the City or the Trustee in good faith and in accordance therewith. Section 11.04 Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the Authority or the City shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained herein shall relieve any member, officer or employee of the City or the Authority from the performance of any official duty provided by any applicable provisions of law, by the Lease Agreement or hereby. Section 11.05 Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee may, in lieu of such cancellation and delivery, destroy such Bonds. Section 11.06 Funds and Accounts. Any fund or account required to be established and maintained herein by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund, but all such records with respect to all such funds and accounts shall at an times be maintained in. accordance with sound accounting practice and with due regard for the protection of the security of the Bonds and the rights of the Owners. The Trustee may commingle any of the moneys held by it hereunder for investment purposes only; provided, however, that the Trustee shall account separately for the moneys in each fund or account established pursuant to this Indenture. The Trustee may establish such funds and accounts as it deems necessary or appropriate to perform its obligations hereunder. Section 11.07 Article and Section Headings Gender and References. The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of any gender shall include correlative words of the other genders. The headings or titles of the several Articles and Sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof. All references herein to "Articles," "Sections," subsections or clauses are to the corresponding Articles, Sections, subsections or clauses hereof, and the words "hereby," "herein," "hereof," "hereto, "herewith," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, subsection or clause thereof. Section 11.08 Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Authority, the City or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary.to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The Authority, the City and the Trustee hereby declare that they would have executed this Indenture, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution and delivery of the Bonds pursuant hereto irrespective of the 42 DOCSOC/1513656v5/200119 -0005 fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.09 Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are actually known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; except that, in determining whether the Trustee shall be protected in relying upon any such demand; request, direction, consent or waiver of an Owner, only Bonds which the Trustee actually knows to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded unless all Bonds are so owned or held, in which case such Bonds shall be considered Outstanding for the purpose of such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 11.10 Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside omits books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.03 hereof but without any liability for interest thereon. Section 11.11 Payment on Non - Business Days. hi the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non - Business Day. Section 11.12 California Law. This Indenture shall be construed and governed in accordance with the laws of the State of California. Section 11.13 Notices. All written notices to be given hereunder shall be given by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: City of Santa Monica 1685 Main Street Santa Monica, California 90401 Attention: City Manager With a copy to: City of Santa Monica 1685 Main Street Santa Monica, California 90401 Attention: City Attorney 43 DOC SO C/1513656v5/260119 -0005 And to: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director If to the Authority: Santa Monica Public Financing Authority c/o City of Santa Monica 1685 Main Street Santa Monica, California 90401 Attention: Executive Director With a copy to: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attention: Corporate Trust Department Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the parry to whom it is addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic communication, whether by telex, telegram or telecopier, upon the sender's receipt of an appropriate answer back or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (d) if given by any other means, upon delivery at the address specified in this Section. Section 11.14 Notice to Rating Agencies. The Trustee shall provide S &P, if the Bonds are then rated by S &P, and Fitch, if the Bonds are then rated by Fitch, with prompt notice of any substitution or release of property pursuant to Section 9.03 of the Lease Agreement. Section 11.15 Execution in Counterparts. This Indenture may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. 44 DOCSOC/1513656v5/200119 -0005 IN WITNESS WHEREOF, the Authority and the City have caused this Indenture to be signed in their respective names by their representative thereunto duly authorized, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written, ATTEST: Maria M. Stewart, Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel ATTEST: Maria M. Stewart, City Clerk Marsha Jones Moutrie, City Attorney SANTA MONICA PUBLIC FINANCING AUTHORITY By: Rod Gould, Executive Director CITY OF SANTA MONICA U-6A Rod Gould, City Manager THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee In Authorized Officer 45 DOCSOC/ 1513656v5/200119 -0005 APPROVED AS TO FORM: STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation Bond Counsel 46 DOCSOC/1513656v5/200119 -0005 No. I ..�i�i 1Y71 FORM OF SERIES 2011 BOND SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE [REFUNDING] BOND SERIES 2011 [A] [B] INTEREST RATE MATURITY DATE DATED DATE CUSIP [June 1] [December 11, 20_ REGISTERED OWNER: The Santa Monica Public Financing Authority (the "Authority "), for value received, hereby promises to pay, solely from the Base Rental Payments (as hereinafter defined) or amounts in certain funds and accounts held under the Indenture (as hereinafter defined), to the Registered Owner identified above or registered assigns (the "Registered Owner "); on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof payable semiannually on June 1 and December 1 in each year, commencing June 1, 2012 (the "Interest Payment Dates "), until payment of such Principal Amount in full. This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth calendar day of the month next preceding such Interest Payment Date, whether or not such day is a Business Day, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to May 15, 2012, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, interest on this Bond shall be payable from the date to which interest hereon has been paid in full, payable on each Interest Payment Date). The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the Office of the Trustee (as hereinafter defined). Interest hereon is payable by wire or check of The Bank of New York Mellon Trust Company, N.A., as Trustee (the "Trustee "), mailed by first class mail, postage prepaid, on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner shown on the Registration Books at the close of business on the fifteenth calendar day of the month next preceding such Interest Payment Date. "Office of the Trustee" means. the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City by the Trustee in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or the agency of the Trustee at which,. at any A -1 DOCSOC/1513656v5/200119 -0005 particular time, its corporate trust agency shall be conducted as specified to the Authority and the City by the Trustee in writing. This Bond is one of a series of a duly authorized issue of bonds issued for the purpose of [financing] [refinancing] the acquisition, construction and installation of certain capital improvements constituting a public safety facility and related improvements, facilities and equipment (the "Project "), and is one of the series of bonds designated "Santa Monica Public Financing Authority Lease Revenue [Refunding] Bonds, Series 2011[A][B]" (the "Series 2011 Bonds ") in the aggregate principal amount of $ . The Series 2011 Bonds are issued pursuant to the Indenture, dated as of November 1, 2011 (the "Indenture "), by and among the Authority, the City of Santa Monica (the "City") and the Trustee, and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Indenture, additional bonds, including the Santa Monica Public Financing Authority Lease Revenue [Refunding] Bonds, Series 2011[A][B] issued concurrently herewith (collectively, "Additional Bonds "), may be issued by the Authority secured by a lien on a parity with the lien securing the Series 2011 Bonds. The Series 2011 Bonds and any Additional Bonds are collectively referred to as the "Bonds." The Indenture is entered into, and this Bond is issued under, the Marks -Roos Local Bond Pooling Act of 1985 (the "Act ") and the laws of the State of California. Pursuant to the Indenture, the principal of and interest on the Bonds are payable solely from certain base rental payments (the "Base Rental Payments ") under and pursuant to that certain Lease Agreement, dated as of November 1, 2011 (the "Lease Agreement"), by and between the City, as lessee, and the Authority, as lessor, all of which rights to receive such Base Rental Payments have been assigned without recourse by the Authority to the Trustee. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund established under the Indenture are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets. The Series 2011 Bonds are authorized to be issued in the form of fully registered bonds without .coupons in denominations of $5,000 or any integral multiple thereof ( "Authorized Denominations "). The Series 2011 Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized - Denominations, from and to the extent of any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the property leased under the Lease Agreement, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof, deposited by the Trustee in the Redemption Fund established under the Indenture, at a Redemption Price equal to the principal amount of the Series 2011 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. The Series 2011 Bonds maturing on or after June 1, 20. shall be subject to optional redemption, in whole or in part, on any date on or after June 1, 20, in Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2011 Bonds to be redeemed, plus accrued interest thereon to the date of redemption. A -2 DOCSOC/1513656v51200119 -0005 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2011 Bonds designated for redemption, at their respective addresses appearing on the Registration Books, at least 15 but not more than 60 days prior to the date fixed for redemption; provided, however, that neither failure to receive any such notice so mailed, nor any defect therein, shall affect the validity of the proceedings for the redemption of such Series 2011 Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. The Redemption Price of the Series 2011 Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Office of the Trustee. From and after the date fixed for redemption of any Series 2011 Bonds, interest on such Series 2011 Bonds will cease to accrue and become payable. Subject to the limitations and upon payment of the charges, if any, provided in the Indenture, fully registered Series 2011 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount and' maturity of fully registered Series 2011 Bonds of other authorized denominations. . This Bond is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series 2011 Bond or Series 2011 Bonds, in Authorized Denominations, for the same aggregate principal amount will be issued to the transferee in exchange herefor. The Authority, the City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and Authority, the City and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority, - the City, the owners of the Bonds and the Trustee 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 Indenture; provided that no such modification or amendment shall (a) extend the fixed maturity of any Bonds, or reduce the principal thereof or the rate of interest thereon, or extend the time of payment, without the consent of the owner of each Bond so affected; or, (b) reduce the percentage of Bonds the consent of the owners of which is required to effect any such amendment or modification, or (c) permit the creation of any lien on the Base Rental Payments and other assets pledged under the Indenture prior to or on a panty with the lien created by the Indenture or deprive the owners of the Bonds of the lien created by the Indenture on such the Base Rental Payments and such other assets (except as expressly provided in the Indenture), without the consent of the owners of all Bonds then outstanding. The Indenture contains provisions permitting the Authority to make provision for the payment of interest on, and the principal and premium, if any, of any of the Bond so that such Bonds shall no longer be deemed to be outstanding under the terms of the Indenture. All obligations of the Authority under the Indenture shall be special obligations of the Authority, payable solely from Rental Payments and the other assets pledged therefor under the Indenture; provided, however, that all obligations of the Authority under the Bonds shall be special obligations of the Authority, payable solely from. Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. A -3 DOCSOC/1513656v5/200119 -0005 Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository -Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of its Executive Director and Secretary, all as of the Dated Date identified above. SANTA MONICA PUBLIC FINANCING AUTHORITY 0 Executive Director of the Santa Monica Public Financing Authority Attest: Secretary of the Santa Monica Public Financing Authority A -4 DOCSOC/1513656v5/200119 -0005 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION¶ This is one of the Series 2011 Bonds described in the within - mentioned Indenture and registered on the Registration Books. Date: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS TRUSTEE C Authorized Signatory A -5 DOCSOC/1513656v5/200119 -0005 ASSIGNMENT For value, received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is the within- mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible Note: The signature(s) on this Assignment must guarantor. correspond with the name(s) as written on the face of the within pond in every particular without alteration or enlargement or any change whatsoever. A -6 DOCSOC/1513656v51200 1 1 9 -00 05 ATTACHMENT B Stradling Yocca Carlson & Raath Draft of 10119/11 LEASE AGREEMENT by and between CITY OF SANTA MONICA and SANTA MONICA PUBLIC FINANCING AUTHORITY Dated as of November 1, 2011 Relating to Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A And Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B DOCSOC /1513597v5/200119 -0005 Section 1.01 Definitions...... TABLE OF CONTENTS ARTICLE I DEFINITIONS ....................... ............................... ARTICLE II LEASE OF PROPERTY; TERM Section 2.01 Lease. of Property .......................... Section 2.02 Term; Occupancy .......................... ARTICLE III RENTAL PAYMENTS Section 3.01 Base Rental Payments:........ Section 3.02 Additional Rental Payments Section 3.03 Fair Rental Value ................ Section 3.04 Payment Provisions ............. Section 3.05 Appropriations Covenant.... Section 3.06 Rental Abatement ................ Page ..................... 2 ........ ............................... 4 ........ ............................... 4 .................................................... ............................... 4 .................................................... ............................... 5 ..................................................... ............................... 6 .................................................... ............................... 6 ............................ :...................................................... 6 .................................................... ............................... 6 ARTICLE IV ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT; MAINTENANCE; ALTERATIONS AND ADDITIONS Section 4.01 Acquisition, Construction and Installation of the 2011 Project ....................... Section 4.02 Maintenance and Utilities ................................................. ............................... Section 4.03 Additions to Property ........................................................ ............................... Section 4.04 Installation of City's. Equipment ....................................... ............................... ARTICLE V 11 N 1`1_ MIRRIG 7 7 7 8 Section 5.01 Commercial General Liability and Property Damage Insurance; Workers' Compensation Insurance ................................................................ ............................... 8 Section 5.02 Title Insurance .................................................... .. ......................... ...... ... ...................... 9 Section 5.03 Additional Insurance Provision; Form of Policies ......................... ............................... 9 Section 5.04 Self- Insurance ................................................................................ .............................10 ARTICLE VI DEFAULTS AND REMEDIES Section 6.01 Defaults and Remedies ............. ............................... Section 6.02 Waiver ....................................... ............................... i DOCSOC/1513597v51200119 -0005 ........ .............................10 ........ .............................13 TABLE OF CONTENTS (continued) Page ARTICLE VII EMINENT DOMAIN; PREPAYMENT Section7.01 Eminent Domain .......................................................................... ............................... 13 Section7.02 Prepayment .................................................................................... .............................14 ARTICLE VIll IVIAT067INW, Section8.01 Right of Entry ..............................:................................................. .............................15 Section8.02 Liens ............................................................................................... .:...........................15 Section8.03 Quiet Enjoyment ............................................................................ .............................15 Section8.04 Authority Not Liable ...................................................................... .............................15 Section $.05 Assignment and Subleasing ........................................................... .............................16 Section8.06 Title to Property .............................................:............................. ............................... Section 8.07 Authority's Purpose ....................................................................... .............................16 Section 8.08 Representations of the City ............................................................ .............................16 Section 8.09 Representation of the Authority ................................................... ............................... 16 ARTICLE IX NO CONSEQUENTIAL DAMAGES; USE OF THE PROPERTY; SUBSTITUTION OR RELEASE Section 9.01 No Consequential Damages ................. Section 9.02 Use of the Property .............................. Section 9.03 Substitution or Release of the Property ARTICLE X MISCELLANEOUS Section 10.01 Law Governing ........................ Section 10.02 Notices ...... ............................... Section 10.03 Validity and Severability ......... Section 10.04 Net - Net -Net Lease ................... Section 10.05 Taxes ......... ............................... Section 10.06 Section Headings ..................... Section 10.07 Amendments ............................ Section 10.08 Assignment .............................. Section 10.09 Execution .. ............................... 17 17 17 ....................18 .....................18 .....................19 .....................19 .....................19 .....:...............19 .....................19 ..................... 20 ..................... 20 EXHIBIT A DESCRIPTION OF THE SITE .................................................... ............................A -1 EXHIBITPROJECT ...................................................................................... ............................B -1 EXHIBIT C BASE RENTAL PAYMENT SCHEDULE .............................. ............................... C -1 ii DOCSOC/1513597v5/200119 -0005 LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease Agreement ") executed and entered into as of November 1, 2011, is by and between the CITY OF SANTA MONICA (the "City"), a municipal corporation and charter city duly organized and existing under and by virtue of the Constitution and laws of the State of California and its Charter, as lessee, and the SANTA MONICA PUBLIC FINANCING AUTHORITY (the "Authority"), a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California, as lessor. RECITALS WHEREAS, the City desires to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public parking garage and related improvements, facilities and equipment or such other public improvements as approved by an Opinion of Counsel to the effect that such other improvements will not adversely affect the exclusion of interest on any tax - exempt Bonds from gross income for federal income tax purposes (the "2011 Project "); WHEREAS, the City and the Authority desire to refinance the Authority's Lease Revenue Bonds, Series 2002A (the "2002A Bonds ") and the City's lease obligations in connection therewith, the proceeds of which were used to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public safety facility and related improvement, facilities and equipment (the "2002 Project" and, together with the 2011 Project, the "Project "); WHEREAS, in order to finance the 2011 Project and refinance the 2002 Project, the City will lease certain real property and the improvements located thereon (the "Property") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the Property back from the Authority pursuant to this Lease Agreement; WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to finance the 2011 Project and refinance the 2002 Project through the issuance by the Authority of bonds payable from the base rental payments (the "Base Rental Payments ") to be made by the City under this Lease Agreement; WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide for the issuance of such bonds payable from the Base Rental Payments pursuant to an Indenture, dated as of the date hereof, by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A.; WHEREAS, all rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee pursuant to an Assignment Agreement, dated as of the date hereof; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease Agreement do exist, have happened and have been performed in regular and due time, form DOCSOC/1513597v5/200119 -0005 and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease Agreement; NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Lease Agreement, have the meanings herein specified, which meanings shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Indenture. "Additional Bonds" means Bonds other than the Series 2011A Bonds and the Series 2011B Bonds issued under the Indenture in accordance with the provisions thereof "Additional Rental Payments" means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.02 hereof. "Authority" means the Santa Monica.Public Financing Authority, a joint exercise of powers entity organized and existing under the laws of the State of California. "Base Rental Deposit Date" means the 15th day of the month next preceding each Interest Payment Date. "Base Rental Payments" means all amounts payable to the Authority from the City as Base Rental Payments pursuant to Section 3.01 hereof.. "Base Rental Payment Schedule" means the schedule of Base Rental Payments payable to the Authority from the City pursuant to Section 3.01 hereof and attached hereto as Exhibit C. "Bonds" means the Santa Monica Public Financing Authority Lease Revenue Bonds issued under the Indenture, including the Series 2011A Bonds; the Series 2011B Bonds and any Additional Bonds. "City" means the City of Santa Monica, a municipal corporation and charter city duly organized and existing under and by virtue of the Constitution and laws of the State of California and the City's Charter. "Delivery Date" means November _; 2011. "Ground Lease" means the Ground Lease, dated as of the date hereof, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with to the provisions thereof and hereof. DOCSOC/1513597v5/200119 -0005 "Indenture" means the Indenture, dated as of the date hereof, by and among the Authority, the City and the Trustee, as originally executed and as it may from time to time be amended or supplemented in accordance with the provisions thereof. "Joint Powers. Agreement" means the Joint Exercise of Powers Agreement, dated as of July 25, 1995, by and between the City and the Redevelopment Agency of the City of Santa Monica as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Lease Agreement" means this Lease Agreement, as originally executed and as it may from time to thne be amended in accordance with the provisions hereof. "Net Insurance Proceeds" means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. "Permitted Encumbrances" means, with respect to the Property, as of any particular time, (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of Article V hereof, permit to remain unpaid, (b) the Assignment Agreement, (c) this Lease Agreement, (d) the Ground Lease, (e) any right or claim of any mechanic, laborer, materiahnan, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Property for the purposes for which it was , acquired or is held by the City, (f) casements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants; conditions or restrictions which exist of record as of the Delivery Date which the City certifies in writing will not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture and the Assignment Agreement and to which the Authority and the City consent in writing, and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Delivery Date which the City certifies in writing do not affect the intended use of the Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture and the Assignment Agreement and to which the Authority and the City consent in writing. "2011 Project" means the improvements, facilities and equipment described in Exhibit B hereto. "Property" means the real property described in Exhibit A hereto and the improvements located thereon. "Rental Payments" means, collectively, the Base Rental Payments and the Additional Rental Payments. "Rental Period" means the twelve -month period commencing on July 1 of each year during the term of the Lease Agreement. "Series 2011 Bonds" means the Santa Monica Public Financing Authority Lease Revenue/Refunding Bonds, Series 2011, issued under the Indenture. 3 DOCSOC/1513597v5/20 0 1 1 9 -0 0 05 "Termination Date" means June 1, 2031, unless extended or sooner terminated as provided in Section 2.02 hereof. "Trustee" means the trustee appointed under the Indenture and referred to therein as the Trustee. ARTICLE H LEASE OF PROPERTY; TERM Section 2.01 Lease of Property. (a) The Authority hereby leases to the City and the City hereby leases from the Authority the Property, on the terms and conditions hereinafter set forth, subject to all Permitted Encumbrances. (b) The leasing of the Property by the City to the Authority pursuant to the Ground Lease shall not effect or result in a merger of the City's leasehold estate pursuant to this Lease Agreement and its fee estate as lessor under the Ground Lease, and the Authority shall continue to have a leasehold estate in the Property pursuant to the Ground Lease throughout the term thereof and hereof. The leasehold interest granted by the City to the Authority pursuant to the Ground Lease is and shall be independent of this Lease Agreement; this Lease Agreement shall not be an assignment or surrender of the leasehold interest granted. to the Authority under the Ground Lease. Section 2.02 Term; Occupancy (a) The term of this Lease Agreement shall commence on the Delivery Date and shall end on the Termination Date, unless such term is extended or sooner terminated as hereinafter provided. If on the Termination Date the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments shall remain due and payable or shall have been abated at any time and for any reason, then the term of this Lease Agreement shall be extended until the date upon which all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, the Indenture shall be .discharged by its terms and all Rental Payments shall have been paid in full, except that the term of this Lease Agreement shall in no event be extended more than ten years beyond such Termination Date, such extended date being the "Maximum Lease Term" if prior to the Termination Date, all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, the Indenture shall be discharged by its terms and all Rental Payments shall have been paid in full, the term of this Lease Agreement shall end simultaneously therewith. ARTICLE III RENTAL PAYMENTS Section 3.01 Base Rental Payments. (a) Subject to the provisions hereof relating to a revision of the Base Rental Payment Schedule pursuant to subsection (b) of this Section, the City shall pay to the Authority, as 11 DOCSOC/1513597v5/200119 -0005 Base Rental Payments (subject to the provisions of Section 3.06 and Article VII hereof) the amount at the rimes specified in the Base Rental Payment Schedule, a portion of which Base Rental Payments 'shall constitute principal, and a portion of which shall constitute interest. Rental Payments, including Base Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or of the State of California, or of any political subdivision thereof, within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. (b) If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of this Lease Agreement (as so extended pursuant to Section 2.02 hereof). Upon such extension, the Base Rental Payments shall be established so that they will be sufficient to pay all extended and unpaid Base Rental Payments; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Property. Section 3.02 Additional Rental Payments. The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: (a) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; (b) all reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees; (c) insurance premiums for all insurance required pursuant to Article V hereof; (d) any amounts with respect to the Lease Agreement or the Bonds required to be rebated to the federal government in accordance with Section 148(f) of the Code; and (e) all other payments required to be paid by the City under the provisions of this Lease Agreement or the Indenture. Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any DOCSOC/1 513 597v5/200119-0005 other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Section 3.03 Fair Rental Value. The parties hereto have agreed and determined that the annual fair rental value of the Property is not less than $ [MADS]. In making such determination of fair rental value, consideration has been given to the uses and purposes that may be served by the Property and the benefits therefrom which will accrue to the City and the general public. Payments of the Rental Payments for the Property during each Rental Period shall constitute the total rental for said Rental Period. Section 3.04 Payment Provisions. Each installment of Base Rental Payments payable hereunder shall be paid in lawful money of the United States of America to or upon the order of the Authority at the principal office of the Trustee in Los Angeles, California, or such other place or . entity as the Authority shall designate. Each Base Rental Payment shall, be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment which shall not be paid by the City when due and payable under the terms of this Lease Agreement shall bear interest from the date when the same is due hereunder until the same shall be paid at the rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due hereunder or refunded at the time of such determination. Amounts required to be deposited by the City with the Trustee pursuant to this Section on any date shall be reduced to the extent of available amounts on deposit in the Base Rental Payment Fund, the Interest Fund or the Principal Fund. Section 3.05 Appropriations Covenant. The City covenants to take such action as may be necessary to include all Rental Payments due hereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City will deliver to the Authority and the Trustee a Certificate of the City stating that its final annual budget includes all Base Rental Payments due in such fiscal year within ten days after the filing or adoption thereof. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City. Section 3.06 Rental Abatement. Except as otherwise specifically provided in this Section, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property, Rental Payments shall be abated proportionately, and the City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement shall continue in full force and effect. The amount of such abatement shall be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. The City and the G DOCSOC/1513597v5/200119 -0005 Authority shall calculate such abatement and shall provide the Trustee with a certificate setting forth such calculation and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of this Lease Agreement shall be extended as provided in Section 2.02 hereof, except that the term shall in no event be extended beyond the Maximum Lease Term. Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments in any of the funds and accounts established under the Indenture, Rental Payments shall not be abated as provided above but, rather, shall be payable by the City as a special obligation payable solely from said funds and accounts. ARTICLE IV ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT; MAINTENANCE; ALTERATIONS AND ADDITIONS Section 4.01 Acquisition, Construction and Installation of the 2011 Project. The Authority hereby appoints the City as its agent to carry out all phases of the acquisition, construction and installation of the 2011 Project. The City hereby accepts such appointment and, as such agent, hereby assumes all duties, rights, responsibilities and liabilities of the Authority regarding the acquisition, construction and installation of the 2011 Project. The City, as agent of the Authority, will, in all respects, supervise and provide for, or cause to be supervised and provided for, the acquisition, construction and installation of the 2011 Project. In connection with the acquisition, construction and installation of the 2011 Project, payment of a portion of the Project Costs shall be made from the moneys deposited with the Trustee in the Construction Fund, which shall be disbursed for such purposes in accordance and upon compliance with Article III of the Indenture. Other than such moneys deposited in the Construction Fund, and investment earnings thereon, the Authority shall have no obligation to provide moneys to pay any portion of the Project Costs. Section 4.02 Maintenance and Utilities. Throughout the term of this Lease Agreement, as part of the consideration for rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Property, which may include, without limitation, janitor service, security, power gas, telephone, light, heating, ventilation; air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof In exchange for the Rental Payments, the Authority agrees to provide only the Property. Section 4.03 Additions to Property. Subject to Section 8.02 hereof, the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements 7 DOCSOC/1513597v5/200119 -0005 shall not in any way damage the Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value which is at least equal to the value of the Property immediately prior to the malting of such additions, modifications and improvements. Section 4.04 Installation of City's Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and restore any and all damage to the Property resulting from the installation, modification or removal of any such items. Nothing in this Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this Section under a conditional sale or lease purchase contract, or subject to a vendor's lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Property. ARTICLE V 11►6Y117\►[�111 Section 5.01 Commercial General Liability and Property Damage Insurance; Workers' Compensation Insurance. (a) The City shall maintain or cause to be maintained; throughout the term of this Lease Agreement, a standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such commercial general liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City, and may be maintained in whole or in part in the form of self - insurance by the City provided such self - insurance complies with the provisions of Section 5.04 hereof. The Net Insurance Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Insurance Proceeds of such insurance shall have been paid. (b) The City shall maintain or cause to be maintained, throughout the term of this Lease Agreement, workers' compensation insurance issued by a responsible carrier authorized under the laws of the State of California to insure employers against liability for compensation under the California Labor Code, or any act enacted as an amendment or supplement thereto or in lieu thereof, such workers' compensation insurance to cover all persons employed by the City in connection with the Property and to cover full liability for compensation under any such act; provided, however, that DOCSOC/151M97v5/200119 -0005 the City's obligations under this subsection may be satisfied by self - insurance, provided such self - insurance complies with the provisions of Section 5.04 hereof. (c) The City shall maintain or cause to be maintained, fire, lightning and special extended coverage insurance (which shall include coverage for vandalism and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding principal amount of the Bonds. Each such policy of insurance shall contain a standard replacement cost endorsement providing for no deduction for depreciation and a stipulated amount endorsement. All insurance required to be maintained pursuant to this subsection may be subject to a deductible in an amount not to exceed $500,000. The City's obligations under this subsection may be satisfied by self - insurance, provided such self - insurance complies with the provisions of Section 5.04 hereof. (d) The City shall maintain rental interruption insurance to cover the Authority's loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to subsection (c) of this Section in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The City shall not be permitted to self - insure its obligation under this subsection. (e) The insurance required by this :Section shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City's professionally certified risk manager or an independent insurance consultant, to be adequate for the purposes hereof. Section 5.02 Title Insurance. The City shall provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Series 2011A Bonds and the Series 2011B Bonds, Said policy or policies shall insure (a) the fee interest of the City in the Property, (b) the Authority's ground leasehold estate in the Property under the Ground Lease, and (c) the City's leasehold estate hereunder in the Property, subject only to Permitted Encumbrances. All Net Insurance Proceeds received under said policy or policies shall be deposited with the Trustee and applied as provided in Section 5.04 of the Indenture. So long as any of the Bonds remain Outstanding, each policy of title insurance obtained pursuant to the Indenture or this Lease Agreement or required thereby or hereby shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Bond Owners. Section 5.03 Additional Insurance Provision; Form of Policies. The City shall pay or cause to be paid when due the premiums for all insurance policies required by Section 5.01 hereof, and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall provide that the Trustee shall be given 30 days notice of the expiration thereof or any intended cancellation thereof. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Trustee. The City shall cause to be delivered to the Trustee on or before August 15 each year, commencing August 15, 2012, a schedule of the insurance policies being maintained in accordance herewith and a Certificate of the City stating that such policies are in full force and effect and that the u DOCSOC/1513597v51200119 -0005 City is in full compliance with the requirements of this Article. The Trustee shall be entitled to rely upon said Certificate of the City as to the City's compliance with this Article. The Trustee shall not be responsible for the sufficiency of coverage or amounts of such policies. Section 5.04 Self- Insurance. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance shall be deemed to be self - insurance for purposes hereof. Any self - insurance maintained by the City pursuant to this Article shall comply with the following terms: (a) the self - insurance program shall be approved in writing by the City's professionally certified risk manager or by an independent insurance consultant; (b) the self - insurance program shall include an actuarially sound claims reserve fund out of which each self - insured claim shall be paid, the adequacy of each such fund shall be evaluated on a bi- annual basis by the City's professionally certified risk manager or by an independent insurance consultant and any deficiencies in any self - insured claims reserve fund shall be remedied in accordance with the recommendation of the City's professionally certified risk manager or such independent insurance consultant, as applicable; and (c) in the event the self - insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City's professionally certified risk manager or by an independent insurance consultant, shall be maintained. ARTICLE VI DEFAULTS AND REMEDIES Section 6.01 Defaults and Remedies. (a) (i) If the City shall fail (A) to pay any Rental Payment payable hereunder when the same becomes due and payable, time being expressly declared to be of the essence in this Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained herein or in the Indenture to be kept or performed by the City, or (ii) upon the happening of any of the events specified in this subsection or in subsection (b) of this Section, the City shall be deemed to be in default hereunder and it shall be lawful, for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement. The City shall in no event be in default in the observance or performance of any covenant, condition or agreement in this Lease Agreement on its part to be observed or performed, other than as referred to in clause (i)(A) or (ii) of the preceding sentence, unless the City shall have failed, for a period of 30 days or such additional time as is reasonably required to correct any such default after notice by the Authority to the City properly specifying wherein the City has failed to perform any such covenant, condition or agreement. Upon any such default, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: (1) To terminate this Lease Agreement in the manner hereinafter provided on account of default by the City, notwithstanding any re -entry or re- letting of the Property as hereinafter provided for in subparagraph (2) hereof, and to re -enter the Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Property and place such personal property in storage in any warehouse or other suitable place, for the account of 10 D OCSOC/1513597v5/200119 -0005 . and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Property, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of default by the City, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re -entry upon the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. Neither notice to pay Rental Payments or to deliver up possession of the Property given pursuant to law nor any entry or re -entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re -entry or obtaining possession of the Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority's interest under this Lease Agreement shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of default by the City shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease Agreement. The City covenants and agrees that no surrender of the Property or of the remainder of the term hereof or any termination of this Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. (2) Without terminating this Lease Agreement, (x) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions hereof to be kept or performed by the City, regardless of whether or not the City has abandoned the Property, or (y) to exercise any and all rights of entry and re -entry upon the Property. In the event the Authority does not elect to terminate this Lease Agreement in the manner provided for in subparagraph (1) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions herein contained to be kept or performed by the City and, if the Property is not re -let, to pay the full amount of the Rental Payments to the end of the term of this Lease Agreement or, in the event that the Property is re -let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and /or Rental Payment deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of Rental Payments hereunder, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments herein specified, and notwithstanding any entry or re -entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re -entry or obtaining possession of the Property. Should the Authority elect to re -enter as herein provided, the City hereby irrevocably appoints the Authority as the agent and attorney -in -fact of the City to re -let the Property, or any part thereof, from time to time, either in the Authority's name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re -entry upon and re- letting of the Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Authority to re -let the Property in the event of such re -entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Authority in effecting such re- letting shall constitute a surrender or termination of this Lease Agreement irrespective of the use or the term for which such re- letting is made or the terms and conditions of such re- letting, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease Agreement shall 11 DOCSO C/1513597v5/200119 -0005 vest in the Authority to be effected in the sole and exclusive manner provided for in subparagraph (1) hereof. The City further agrees to pay the Authority the cost of any alterations or additions to the Property necessary to place the Property in condition for re- letting immediately upon notice to the City of the completion and installation of such additions or alterations. The City hereby waives any and all claims for damages caused or which may be caused by the Authority in re- entering and taking possession of the Property as herein provided and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Property. (b) If (i) the City's interest in this Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Authority and, as hereinafter provided for, or (ii) the City or any assignee shall file any petition or institute any proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or all of the City's debts or obligations, or offers to the City's creditors to elect a composition or extension of time to pay the City's debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of the City's debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the. City, or if a receiver of the business or of the property or assets of the City shall be appointed by any court, except a receiver appointed at the instance or request of the Authority, or if the City shall make a general assignment for the benefit of the City's creditors, or (iii) the City shall abandon or vacate the Property, then the City shall be deemed to be in default hereunder. (c) In addition to the other remedies set forth in this Section, upon the occurrence of an event of default, the Authority and its assignee shall be entitled to proceed to protect and enforce the rights vested in the Authority and its assignee by the Lease Agreement or by law. The provisions of the Lease Agreement and the duties of the City and of its city council, officers or employees shall be enforceable by the Authority or its assignee by mandamus or other appropriate. suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority and its assignee shall have the right to bring the following actions: (i) Accounting. By action or suit in equity to require the City and its city council, officers and employees and its assigns to account as the trustee of an express trust. (ii) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Authority or its assignee. (iii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority's or its assignee's rights against the City (and its city council, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided herein. Each and all of the remedies given to the Authority hereunder or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege hereunder shall not impair the right of the Authority to the further exercise thereof or the exercise of 12 DOCSO C/1513597v5/200119 -0005 any or all other rights, powers or privileges. The term "re -let" or "re- letting" as used in this Section shall include, but not be limited to, re- letting by means of the operation by the Authority of the Property. If any statute or rule of law validly shall limit the remedies given to the Authority hereunder, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. Irr the event the Authority shall prevail in any action brought to enforce any of the terms and provisions of this Lease Agreement, the City agrees to pay a reasonable amount as and for attorney's fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority hereunder. Notwithstanding anything to the contrary contained in this Lease Agreement, the Authority shall have no right upon a default hereunder by the City to accelerate Rental Payments. (d) Notwithstanding anything to the contrary contained in this Lease Agreement, the termination of this Lease Agreement by the Authority and its assignees on account of a default by the City under this Section shall not effect or result in a termination of the Ground Lease. Section 6.02 Waiver. Failure of the Authority to take advantage of any default on the part of the City shall not be, or be construed as, a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of the Authority to insist upon performance by the City of any term, covenant or condition hereof, or to exercise any rights given the Authority on account of such default. A waiver of a particular default shall not be deemed to be a waiver of any other default or of the same default subsequently occurring. The acceptance of Rental Payments hereunder shall not be, or be construed to be, a waiver of any term, covenant or condition of this Lease Agreement. ARTICLE VII EMINENT DOMAIN; PREPAYMENT Section 7.01 Eminent Domain. If all of the Property (or portions thereof such that the remainder is not usable for public purposes by the City) shall be taken under the power of eminent domain, the term hereof shall cease as of the day that possession shall be so taken. If less than all of the Property shall be taken under the power of eminent domain and the remainder is usable for public purposes by the City at the time of such taking, then the Lease Agreement shall continue in full force and effect as to such remainder, and the parties waive the benefits of any law to the contrary, and in such event there shall be a partial abatement of the Rental Payments in accordance with the provisions of Section 3.06 hereof. So long as any Bonds shall be Outstanding, any award made in eminent domain proceedings for the taking of the Property, or any portion thereof, shall be paid to the Trustee and applied to the redemption of Bonds as provided in subsection (a) of Section 4.01 of the Indenture, in the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued and in Section 5.03 of the Indenture. Any such award made after all of the Bonds; and all other amounts due under the Indenture and hereunder, have been fully paid, shall be paid to the Authority and to the City as their respective interests may appear. 13 DOCSOC/r 513597v5 /200119 -0005 Section 7.02 Prepayment. (a) The City may prepay all or a portion of the Base Rental Payments attributable to the Series 2011A Bonds and the Series 2011B Bonds which are payable after June 1, 2021, from any source of available funds, on any date on or after June 1, 2021, by paying (i) all or a portion, as selected by the City, of the principal components of such Base Rental Payments, and (ii) the accrued but unpaid interest component of such Base Rental Payments to be prepaid to the date of such prepayment. (b) The City may prepay, ftom any source of available funds, all or any portion of the Base Rental Payments attributable to the Series 2011A Bonds and the Series 201 1B Bonds by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in Article X of the Indenture sufficient to make such Base Rental Payments when due or to make such Base Rental Payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to subsection (a) of this Section, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with subsection (a) of this Section. (c) If less than all of the Base Rental Payments attributable to the Series 2011A Bonds and the Series 2011B Bonds are prepaid pursuant to this Section then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the principal and interest components of such Base Rental Payments shall be recalculated in order to take such prepayment into account. The City agrees that if, following a partial prepayment of such Base Rental Payments, the Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the City shall not be entitled to any reimbursement of such Base Rental Payments. (d) If all of the Base Rental Payments are prepaid in accordance with the provisions of this Lease Agreement then, as of the date of such prepayment pursuant to subsection (a) of this Section and, if applicable, the corresponding provisions hereof relating to the prepayment of Base Rental Payments attributable to Additional Bonds, or deposit pursuant to subsection (b) of this Section and, if applicable, such corresponding provisions, and payment of all other amounts owed under this Lease Agreement, the term of this Lease Agreement shall be terminated. (e) Prepayments of Base Rental Payments attributable to the Series 2011A Bonds or the Series 2011B Bonds made pursuant to this Section shall be applied to the redemption of Series 2011A Bonds or the Series 2011B Bonds as directed by the City and as provided in Section 4.01 of the Indenture. (f) Before making any prepayment pursuant to this Article, the City shall give written notice to the Authority and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than 45 nor more than 60 days from the date such notice is given to the Authority. 14 DOCSOC/1513597v5/200119 -0005 ARTICLE VIII COVENANTS Section 8.01 Right of Entry. The Authority and its assignees shall have the right to enter upon and to examine and inspect the Property during reasonable business hours (and in emergencies at all times) for any purpose connected with the Authority's rights or obligations under this Lease Agreement, and for all other lawful purposes. Section 8.02 Liens. In the event the City shall at any time during the term of this Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Property and which may be secured by a mechanics', materialmen's or other lien against the Property or the Authority's interest therein, and will cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contestment is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. Section 8.03 Quiet Enjoyment. The parties hereto mutually covenant that the City, by keeping and performing the covenants and agreements herein contained, shall at all times during the term of this Lease Agreement peaceably and quietly have, hold and enjoy the Property without suit, trouble or hindrance from the Authority. Section 8.04 Authority Not Liable. The Authority and its directors, officers, agents and employees, shall not be liable to the City or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Property. To the extent permitted by law, the City shall, at its expense, indemnify and hold the Authority and the Trustee and all directors, members, officers and employees thereof harmless against and from any and all claims by or on behalf of any person, firm, corporation or governmental authority arising from the acquisition, construction, occupation, use, operation, maintenance, possession, conduct or management of or from any work done in or about the Property or from the subletting of any part thereof, including any liability for violation of conditions, agreements, restrictions, laws, ordinances, or regulations affecting the Property or the occupancy or use thereof, but excepting the negligence or willful misconduct of the persons or entity seeking indemnity. The City also covenants and agrees, at its expense, to pay and indemnify and save the Authority and the Trustee and all directors, officers and employees thereof harmless - against and from any and -all claims arising from (a) any condition of the Property and the adjoining sidewalks and passageways, (b) any breach or default on the part of the City in the performance of any covenant or agreement to be performed by the City pursuant to this Lease Agreement, (c) any act or negligence of licensees in connection with their use, occupancy or Operation of the Property, or (d) any accident, injury or damage whatsoever caused to any person, firm or corporation in or about the Property or upon or under the sidewalks and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in any action or proceeding brought by reason of any claim referred to in this Section, but excepting the negligence or willful misconduct of the person or entity seeking indemnity. In the event that any action or proceeding is brought against the Authority or the Trustee or any director, 15 DOCSOC/1513597v5/200119 -0005 member, officer or employee thereof, by reason of any such claim, the City, upon notice from the Authority or the Trustee or such director, member, officer employee thereof, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to the Authority or the Trustee or such director, member, officer or employee thereof. Section 8.05 Assignment and Subleasing. Neither this Lease Agreement nor any interest of the City hereunder shall be sold, mortgaged, pledged, assigned, or transferred by the City by voluntary act or by operation by law or otherwise. The Property may not be subleased in whole or in part by the City without the prior written consent of the Authority. Any such sublease shall be subject to all of the following conditions: (a) this Lease Agreement and the obligation of the City to make all Rental Payments hereunder shall remain the primary obligation of the City; (b) the City shall, within '30 days after the delivery thereof, furnish or cause to be Tarnished to the Authority and the Trustee a hue and complete copy of such sublease; (c) no such sublease by the City shall cause the Property to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the Constitution and laws of the State of California; (d) any sublease of the Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under the Lease Agreement, including, the right to re -enter and re -let the Property or terminate the Lease Agreement upon a default by the City; and (e) the City shall furnish the Authority and the Trustee with an Opinion of Counsel to the effect that such sublease will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. Section 8.06 Title to Property. Upon the termination or expiration of this Lease Agreement (other than as provided in Section 6.01 and Section 7.01 hereof), and the first date upon which the Bonds are no longer Outstanding, all right, title and interest in and to the Property shall vest in the City. Upon any such termination or expiration, the Authority shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. Section 8.07 Authority's Purpose. The Authority covenants that, prior to the discharge of this Lease Agreement and the Bonds, it will not engage in any activities inconsistent with the purposes for which the Authority is organized, as set forth in the Joint Powers Agreement. Section 8.08 Representations of the City. The City represents and warrants to the Authority that (a) the City has the full power and authority to enter into, to execute and to deliver this Lease Agreement and the Indenture, and to perform all of its duties and obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement and the Indenture, and (b) the Property will be used in the performance of essential governmental functions. Section 8.09 Representation of the Authority. The Authority represents and warrants to the City that the Authority has the full power and authority to enter into, to execute and to deliver this Lease Agreement, the Assignment Agreement and the Indenture, and to perform all of its duties and 16 DOCSOC/1 513 597v5/200119-0005 obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement, the Assignment Agreement and the Indenture. ARTICLE IX NO CONSEQUENTIAL DAMAGES; USE OF THE PROPERTY; SUBSTITUTION OR RELEASE Section 9.01 No Consequential Damages. In no event shall the Authority or the Trustee be liable for any incidental, indirect, special or consequential damage in connection with or arising out of this Lease Agreement or the City's use of the Property. Section 9.02 Use of the Property. The City will not use, operate or maintain the Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner which does not, in the opinion of the Authority,. adversely affect the estate of the Authority in and to any of the Property or its interest or rights under this Lease Agreement. Section 9.03 Substitution or Release of the Property. The City shall have the right to substitute alternate real property for any portion of the Property or to release a portion of the Property from this Lease Agreement. All costs and expenses incurred in connection with such substitution or release shall be borne by the City. Notwithstanding any substitution or release of Property pursuant to this subsection, there shall be no reduction in or abatement of the Base Rental Payments due from the City hereunder as a result of such substitution or release. Any such substitution or release of any portion of the Property shall be subject to the following specific conditions, which are hereby made conditions precedent to such substitution or release: (a) an independent certified real estate appraiser selected by the City shall have found (and shall have delivered a certificate to the City and the Trustee setting forth its findings) that the Property, as .constituted after such substitution or release, (i) has an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period, and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds; notwithstanding the foregoing, upon the completion of the Series 2011 Project, the City shall have the option to substitute the 2011 Project for the Property, provided that the City certifies to the Trustee that (x) the 2011 Project has been substantially completed and is available for use and occupancy and (y) the construction cost of the 2011 Project was not less than $ ; (b) the City shall have obtained or caused to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in the amount at least equal to the aggregate principal amount of any Outstanding Bonds of the type and with the endorsements described in Section 5.02 hereof; (c) . the City shall have provided the Trustee with an Opinion of Counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes; 17 DOCSOC/1513597v5/200119 -0005 (d) the City, the Authority and the Trustee shall have executed, and the City shall have caused to be recorded with the Los Angeles County Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained herein and in the Ground Lease; and (e) the City shall have provided notice of such substitution to each rating agency then rating the Bonds. ARTICLE X MISCELLANEOUS Section 10.01 Law Governing. THIS LEASE AGREEMENT SHALL BE GOVERNED EXCLUSIVELY BY THE PROVISIONS HEREOF AND BY TBE LAWS OF THE STATE OF CALIFORNIA AS THE SAME FROM TIME TO TIME EXIST. Section 10.02 Notices. All written notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder shall be given. to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: City of Santa Monica 1685 Main Street Santa Monica, California 90401 Attention: City Manager With a copy to: City of Santa Monica 1685 Main Street Santa Monica, California 90401 Attention: City Attorney And to: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director If to the Authority: Santa Monica Public Financing Authority c/o City of Santa Monica 1685 Main Street Santa Monica, California 90401 Attention: Executive Director With a copy to: City of Santa Monica 1717 4th Street, Suite 250 Santa Monica, California 90401 Attention: Finance Director Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is 18 DOCSOC/1513597v5/200119 -0005 addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic communication, whether by telex, telegram Or telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other means, upon delivery at the address specified in this Section. Section 10.03 Validity and Severability. If for any reason this Lease Agreement shall be held by a court of competent jurisdiction to be void, voidable or unenforceable by the Authority or by the City, or if for any reason it is held by such a court that any of the covenants and conditions of the City hereunder, including the covenant to pay Rental Payments, is unenforceable for the full term hereof; then and in such event this Lease Agreement is and shall be deemed to be a Lease Agreement under which the Rental Payments are to be paid by the City annually in consideration of the right of the City to possess, occupy and use the Property, and all of the terms, provisions and conditions of this Lease Agreement, except to the extent that such terms, provisions and conditions are contrary to or inconsistent with such holding, shall remain in full force and effect. Section 10.04 Net - Net -Net Lease. This Lease Agreement shall be deemed and construed to be a "net- net -net lease" and the City hereby agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever and notwithstanding any dispute between the City and the Authority. Section 10.05 Taxes. The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the term of this Lease Agreement as and when the same become due. The City or any sublessee may, at the City's or such sublessee's expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority or the Trustee shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Property will be materially endangered or the Property, or any part thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority and the Trustee. Section 10.06 Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Lease Agreement. Section 10.07 Amendments. (a) This Lease Agreement and the Ground Lease may be amended and the rights and obligations of the Authority and the City hereunder and thereunder may be amended at any time by an amendment hereto or thereto which shall become binding upon execution and delivery by the 19 DOCSOC/1513597v5/200119 -0005 Authority and the City, but only with the prior written consent of the Owners of a majority of the principal amount of the Bonds then Outstanding, pursuant to the Indenture, provided that no such amendment shall (i) extend the payment date of any Base Rental Payments, reduce the interest component or principal component of any Base Rental Payments or change the prepayment terms and provisions, without the prior written consent of the Owner of each Bond so affected, or (ii) reduce the percentage of the principal amount of the Bonds the consent of the Owners of which is required -for the execution of any amendment of this Lease Agreement or the Ground Lease. (b) This Lease Agreement and the Ground Lease and the rights and obligations of the Authority and the City hereunder and thereunder may also be amended at any time by an amendment hereto or thereto which shall become binding upon execution by the Authority and the City, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed herein or therein other agreements, conditions, covenants and temps thereafter to be observed or performed by the Authority or the City, or to surrender any right or power reserved herein or therein to or conferred herein or therein on the Authority or the City, and which in either case shall not materially adversely affect the interests of the Owners, as evidenced by an Opinion of Bond Counsel; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or therein or in regard to questions arising hereunder or thereunder which the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and which shall not materially adversely affect the interests of the Owners, as evidenced by an Opinion of Bond Counsel; (iii) to make such additions, deletions or modifications as may be .necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest on the Bonds; (iv) to provide for the substitution or release of a portion of the Property in accordance with the provisions of Section 9.03 hereof; (v) to provide for the issuance of Additional Bonds in accordance with Article III of the Indenture; or (vi) to make such other changes herein or therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and which shall not materially adversely affect the interests of the Owners, as evidenced by an Opinion of Bond Counsel. Section 10.08 Assignment. The City and the Authority hereby acknowledge the assignment of this Lease Agreement (except for the Authority's obligations and its rights to give consents or approvals hereunder), and the Base Rental Payments payable hereunder, to the Trustee pursuant to the Assignment Agreement. Section 10.09 Execution. This Lease Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all together shall constitute but one and the same Lease Agreement. 20 DOCSOC/1513597v5/200119 -0005 IN WITNESS WHEREOF, the Authority and the City have caused this Lease Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. CITY OF SANTA MONICA LIZ ATTEST: Maria M. Stewart, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney Rod Gould, City Manager SANTA MONICA PUBLIC FINANCING AUTHORITY Rod Gould, Executive Director ATTEST: Maria M. Stewart, Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel 21 DOCSOC/1513599v5/200119 -0005 APPROVED AS TO FORM: STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation Bond Counsel 22 DOCSOC/1513597v5/200119 -0005 DESCRIPTION OF THE PROPERTY All that real property situated in the County of Los Angeles, State of Califomia, described as follows, together with any improvements thereto: [To be inserted] A -1 DOCSOC/1513597v5/200119 -0005 i �V. 2011 PROJECT The 2011 Project consists of the demolition and reconstruction of the City's Parking Structure 6 located at 1431 2nd Street, Santa Monica, including, but not limited to, the construction of approximately 746 parking spaces, bicycle racks, motorcycle parking spaces, retail space fronting 2° Street and related improvements, facilities and equipment, or such other improvements as selected by the City as approved by an Opinion of Counsel to the effect that such other improvements, if included, would not affect the exclusion of interest on any tax- exempt Bonds from gross income for federal tax purposes. B -1 DOCSOC/1513597v5200119 -0005 (M.11:3 Y ITtJ BASE RENTAL PAYMENT SCHEDULE Date Principal Component Interest Component Total Base Rental C -1 DOCSOC/1513597v5/200119 -0005 L 1:11: Y_ BASE RENTAL PAYMENT SCHEDULE ATTRIBUTABLE TO SERIES 2011A BONDS Date Principal Component Interest Component Total Base Rental C -1 -1 DOCSOC/1513597v5/200119 -0005 BASE RENTAL PAYMENT SCHEDULE ATTRIBUTABLE TO SERIES 2011B BONDS Date Principal Component Interest Component Total Base Rental C -2 -1 DOCSOC/1513597v5/200119 -0005 ATTACHMENT C Stradling Yocca Carlson & Routh Draft of 10119111 TO BE RECORDED AND WHEN RECORDED RETURN TO: STRADLING YOCCA CARLSON & RAUTH 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attention: Brian Forbath, Esq. TIES TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11921 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. ASSIGNMENT AGREEMENT by and between SANTA MONICA PUBLIC FINANCING AUTHORITY and TIIE BANK OF NEW YORK ME' LLON TRUST COMPANY, N.A., as Trustee Dated as of November 1, 2011 Relating to Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A and Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B DOCSOC/1513704v5/200119 -0005 ASSIGNME NT AGREEMENT THIS ASSIGNMENT AGREEMENT (this "Assignment Agreement "), executed and entered into as of November 1, 2011, is by and between the SANTA MONICA PUBLIC FINANCING AUTHORITY (the "Authority"), a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California (the "Authority"), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized and existing under the laws of the United States, as Trustee (the "Trustee "). WITNESSETH: WHEREAS, the City desires to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public parking facility and related improvements, facilities and equipment or such other improvements as approved by an opinion of Counsel to the effect that such other improvements will not adversely affect the exclusion of interest on any tax - exempt Bonds from gross income for federal income tax purposes(the "2011 Project "); WHEREAS, the City and the Authority desire to refinance the Authority's Lease Revenue Bonds, Series 2002A (the "2002A Bonds ") and the City's lease obligations in connection therewith, the proceeds of which were used to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public safety facility and related improvement, facilities and equipment (the "2002 Project" and, together with the 2011 Project, the "Project "); WHEREAS, in order to finance the 2011 Project and refinance the 2002 Project, the City will lease certain real property and the improvements located thereon (the "Property ") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the Property back from the Authority pursuant to this Lease Agreement; WHEREAS, the Property is more particularly described in Exhibit A hereto; WHEREAS, under the Lease Agreement, the City is obligated to make Base Rental Payments (as defined in the Lease Agreement) to the Authority; WHEREAS, the Authority desires to assign without recourse certain of its rights in the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of bonds (the "Bonds ") to be issued pursuant to the Indenture, dated as of the date hereof (the "Indenture "), by and among the Authority, the City and the Trustee; WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Assignment Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Assignment.Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: DOCSOC/1513704v5/200119 -0005 Section 1. Assignment. The Authority, for good and valuable consideration, the receipt of which is, hereby aclmowledged, does hereby sell, assign and transfer to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the owners of the Bonds, all of its right, title and interest in and to the Ground Lease and the Lease Agreement including, without limitation, its right to receive the Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided, however, that the Authority shall retain its obligations under the Lease Agreement and Ground Lease, the rights to indemnification, to give approvals and consents under the Lease Agreement and the Ground Lease and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. Section 2. Acceptance. The Trustee hereby accepts the foregoing assignment, subject to the terms and provisions of the Indenture, and all such Base Rental Payments shall be applied and the rights so assigned shall be exercised by the Trustee as provided in the Lease Agreement and the Indenture. Section 3. Conditions. This Assignment Agreement shall impose no obligations upon the Trustee beyond those expressly provided in the Indenture. Section 4. Further Assurances. The Authority shall make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to cant' out the intention or to facilitate the performance of this Assignment Agreement, and for the better assuring and confirming to the Trustee, for the benefit of the owners of the Bonds, the rights intended to be conveyed pursuant hereto. Section 5. Governing Law. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED EXCLUSIVELY BY THE PROVISIONS HEREOF AND BY THE LAWS OF THE STATE OF CALIFORNIA AS THE SAME FROM TIME TO TIME EXIST. Section 6. Execution. This Assignment Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all together shall constitute but one and the same Assignment Agreement. 2 DOCSOCn513704v5n00119 -0005 IN WITNESS WHEREOF, the Authority and the Trustee have caused this Assignment Agreement to be executed by their respective officers thereunto duly authorized,. all as of the day and year first above - written. SANTA MONICA PUBLIC FINANCING AUTHORITY By: Ron Gould, Executive Director ATTEST: Maria M. Stewart, Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee Authorized Officer DOCSOC/1513704v5/200119 -0005 ACKNOWLEDGMENT STATE OF CALIFORNIA ss. COUNTY OF On before me, Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and aclinowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC STATE OF CALIFORNIA ss. COUNTY OF On before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and aclmowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC/1513704v5/200119 -0005 STATE OF CALIFORNIA ss. COUNTY OF On before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his /her /their authorized capacity(ies), and that by his /her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC/1513704v5/200119 -0005 EXHIBIT A DESCRIPTION OF THE PROPERTY All that real property situated in the County of Los Angeles, State of California, described as follows, together with any improvements thereto: [To be inserted] DOCSOC/1513704v5/200119 -0005 ATTACHMENT D Stradling Yocca Carlson & Rauth Draft of 10119111 TO BE RECORDED AND WHEN RECORDED RETURN TO: STRADLING YOCCA CARLSON & RAUTH 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attention: Brian Forbath, Esq. THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11921 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. GROUND LEASE by and between CITY OF SANTA MONICA and SANTA MONICA PUBLIC FINANCING AUTHORITY Dated as of November 1, 2011 Relating to Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A and Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B DOCSOC/1513701v5/200119 -0005 GROUND LEASE THIS GROUND LEASE (this "Ground Lease "), executed and entered into as of November 1, 2011, is by and between the CITY OF SANTA MONICA (the "City"), a municipal corporation and charter city duly organized and existing under and by virtue of the Constitution and laws of the State of California and its Charter, as lessor, and the SANTA MONICA PUBLIC FINANCING AUTHORITY (the "Authority"), a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California, as lessee. WITNESSETH: WHEREAS, the City desires to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public parking facility and related improvements, facilities and equipment or such other improvements as approved by an Opinion of Counsel to the effect that such other improvements will not adversely affect the exclusion of interest on any tax - exempt Bonds from gross income for federal income tax purposes (the "2011 Project "); WHEREAS, the City and the Authority desire to refinance the Authority's Lease Revenue Bonds, Series 2002A (the "2002A Bonds ") and the City's lease obligations in connection therewith, the proceeds of which were used to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public safety facility and related improvement, facilities and equipment (the "2002 Project" and, together with the 2011 Project, the "Project "); WHEREAS, in order to finance the 2011 Project and refinance the 2002 Project, the City will lease certain real property and the improvements located thereon (the "Property ") to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City will sublease the Property back from the Authority pursuant to this Lease Agreement; WHEREAS, the Property is more particularly described in Exhibit A hereto; WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide the funds necessary to finance the 2011 Project and refinance the 2002 Project through the issuance by the Authority of bonds payable from the base rental payments (the "Base Rental Payments ") to be made by the City under this Lease Agreement; WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and the Authority to provide for the issuance of such bonds payable from the Base Rental Payments pursuant to an Indenture, dated as of the date hereof, by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A.; WHEREAS, all rights to receive the Base Rental Payments have been assigned without recourse by the Authority to the Trustee pursuant to an Assignment Agreement, dated as of the date hereof (the "Assignment Agreement "); WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Ground Lease do exist, have happened and have been performed in regular and due time, form and DOCSOC/1513701v5/200119 -0005 manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Ground Lease; NOW, TBEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Except as otherwise defined herein, or unless the context clearly otherwise requires, words and phrases defined in Article I of the Lease Agreement shall have the same meaning in this Ground Lease. ARTICLE B LEASE OF THE PROPERTY; RENTAL Section 2.01 Lease of Property. The City hereby leases to the Authority, and the Authority hereby leases from the City, for the benefit of the Owners of the Bonds, the Property, subject only to Permitted Encumbrances, to have and to hold for the term of this Ground Lease. Section 2.02 Rental. The Authority shall pay to the City as and for rental of the Property hereunder, the sum of $1.00, the receipt of which is hereby acknowledged: ARTICLE III QUIET ENJOYMENT The parties intend that the Property will be leased back to the City pursuant to the Lease Agreement for the term thereof. It is further intended that, to the extent provided herein and in the Lease Agreement, if an event of default occurs under the Lease Agreement, the Authority, or its assignee, will have the right, for the then remaining term of this Ground Lease to (a) take possession of the Property, (b) if it deems it appropriate, cause an appraisal of the Property and a study of the then reasonable use thereof to be undertaken, and (c) relet the Property. Subject to any rights the City may have under the Lease Agreement (in the absence of an event of default) to possession and enjoyment of the Property, the City hereby covenants and agrees that it will not take any action to prevent the Authority from having quiet and peaceable possession and enjoyment of the Property during the term hereof and will, at the request of the Authority and at the City's cost, to the extent that it may lawfully do so, join in any legal action in which the Authority asserts its right to such possession and enjoyment. ARTICLE IV SPECIAL COVENANTS AND PROVISIONS Section 4.01 Waste. The Authority agrees that at . all times that it'is in possession of the Property, it will not commit, suffer or permit any waste on the Property, and that it will not willfully or knowingly use or permit the use of the Property for any illegal purpose or act. DOCSOC/1513701v5/200119 -0005 Section 4.02 Further Assurances and Corrective Instruments. The City and the Authority agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably he required for correcting any inadequate or incorrect description of the Property hereby leased or intended so to be or for crying out the expressed intention of this Ground Lease, the Indenture and the Lease Agreement. Section 4.03 Waiver of Personal Liability. All liabilities under this Ground Lease on the part of the Authority shall be solely liabilities of the Authority as a joint exercise of powers entity, and the City hereby releases each and every director, officer and employee of the Authority of and from any personal or individual liability under this Ground Lease. No director, officer or employee of the Authority shall at any time or.under any circumstances be individually or personally liable under this Ground Lease to the City or to any other party whomsoever for anything done or omitted to be done by the Authority hereunder. All liabilities under this Ground Lease on the part of the City shall be solely liabilities of the City as a public corporation, and the Authority hereby releases each and every member, officer and employee of the City of and from any personal or individual liability under this Ground Lease. No member, officer or employee of the City shall at any time or under any circumstances be individually or personally liable under this Ground Lease to the Authority or to any other party whomsoever for anything done or omitted to be done by the City hereunder. Section 4.04 Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Property. Section 4.05 Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Property at any reasonable time to inspect the same. Section 4.06 Representations of the City. The City represents and warrants to the Authority and the Trustee as follows: (a) the City has the,full power and authority to enter into, to execute. and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution of this Ground Lease; (b) except for Permitted Encumbrances, the Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the use of the Property for governmental purposes as contemplated by the City; (c) all taxes, assessments or impositions of any kind with respect to the Property, except current taxes, have been paid in full; and (d) the Property is necessary to the City in order for the City to perform its governmental functions. Section 4.07 Representations of the Authority. The Authority represents and warrants to the City and the Trustee that the Authority has the full power and authority to enter into, to execute 3 DOCSOC/1513701v5/200119 -0005 and to deliver this Ground Lease, and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Ground Lease. ARTICLE V ASSIGNMENT, SUBLEASING, MORTGAGING ANT) SELLING Section 5.01 Assignment and Subleasing. This Ground Lease may be sold or assigned and the Property subleased, as a whole or in part, by the Authority without the necessity of obtaining the consent of the City, if an event of default occurs under the Lease Agreement. The Authority shall, within 30 days after such an assignment, sale or sublease, furnish or cause to be furnished to the City a true and correct copy of such assignment, sale or sublease, as the case may be. . Section 5.02 Restrictions on City. The City agrees that, except with respect to Permitted Encumbrances, it will not mortgage, sell, encumber, assign, transfer or convey the Property or any portion thereof during the term of this Ground Lease. ARTICLE VI TERM; TERNIINATION Section 6.01 Term. The term of this Ground Lease shall commence as of the date of commencement of the term of the Lease Agreement and shall remain in full force and effect from such date to and including June 1, 2031, unless such term is extended or sooner terminated as hereinafter provided. Section 6.02 Extension; Early Termination. If, on June 1, 2031, the Bonds shall not be fully paid, or provision therefor made in accordance with Article X of the Indenture, or the Indenture shall not be discharged by its terms, or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of this Ground Lease shall be automatically extended until the date upon which all Bonds shall be fully paid, or provision therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, except that the term of this Ground Lease shall in no event be extended more than ten years. If, prior to June 1, 2031, all Bonds shall be fully paid, or provisions therefor made in accordance with Article X of the Indenture, and the Indenture shall be discharged by its terms, the term of this Ground Lease shall end simultaneously therewith. ARTICLE VII MISCELLANEOUS Section 7.01 Binding Effect. This Ground Lease shall inure to the benefit of and shall be binding upon the City, the Authority and their respective successors and assigns. Section 7.02 Severability. In the event any provision of this Ground Lease shall be held .invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. DOCSOC/1513701v5/20010* 0005 Section 7.03 Amendments, Changes and Modifications. This Ground Lease may be amended, changed, modified, altered or terminated only in accordance with the provisions of the Lease Agreement. Section 7.04 Assignment to Trustee. The Authority and City acknowledge that the Authority has assigned its right, title and interest in and to this Ground Lease (but none of its obligations and none of its rights to provide consents or approvals hereunder) to the Trustee pursuant to certain provisions of the Assignment Agreement. The City consents to such assignment. Section 7.05 Execution In Counterparts. This Ground Lease may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 7.06 Applicable Law. This Ground Lease shall be governed by and construed in accordance with the laws of the State of California. Section 7.07 Captions. The captions or headings in this Ground Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Ground Lease. 5 D OCSO C/1513701v5/200119 -0005 IN WITNESS WHEREOF, the Authority and the City have caused this Ground Lease to be executed by their respective officers hereunto duly authorized, all as of the day and year first above written. CITY OF SANTA MONICA to ATTEST: Maria M. Stewart, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney Rod Gould, City Manager SANTA MONICA PUBLIC FINANCING AUTHORITY to Rod Gould, Executive Director ATTEST: Maria M. Stewart, Secretary APPROVED AS TO FORM: Marsha Jones Moutrie, Authority Counsel 6 DOCSOC/1513701 v5/200119.0005 APPROVED AS TO FORM: STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation Bond Counsel DOCSOC/1513701 v5 /20 0119-0005 ACKNOWLEDGMENT STATE OF CALIFORNIA ) ss: COUNTY OF ) On before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC STATE OF CALIFORNIA ) ss. COUNTY OF ) On before me, Notary Public, personally appeared who proved to me on the basis of satisfactory, evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/ber /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC/1513701v5/200119 -0005 STATE OF CALIFORNIA ) ss. COUNTY OF ) On before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. W177NESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC /1513701 v5/200119 -0005 vvo:r_ DESCRIPTION OF THE PROPERTY All that real property situated in the County of Los Angeles, State of California, described as follows, together with any improvements thereto: [To be inserted] A -1 DOCSOC /I 513701 v5 /200119 -ODDS ATTACHMENT E Stradling Yocca Carlson & Rauth Draft of 10119111 PRELIMINARY OFFICIAL STATEMENT DATED AS OF , 2011 Ratings: Fitch: Moody's: Standard & Prow's: See "RATINGS" herein NEW ISSUE— BOOK -ENTRY ONLY In the opinion of Stradling Yocca Carlson & Routh, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions and assuming certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the Series 2011 Bonds is exchrded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal altm•native miniminn tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2011 Bonds is exempt from State of California personal income tax. See "TAX MATTERS " S - SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2011A Dated: Date of Delivery $ SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2011B Due: June 1, as shown on inside cover The Santa Monica Public Financing Authority Lease Revenue Bonds, Series 201 IA (the "Series 2011A Bonds') and the Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B (the "Series 2011B Bonds" and, together with the Series 201 IA Bonds, the "Series 2011 Bonds ") are payable from base rental payments (the "Base Rental Payments ") to be made by the City of Santa Monica (the "City ") for the right to the use of certain real property consisting of the City's Main Library (tire "Property ") pursuant to a Lease Agreement, dated as of November 1, 2011 (the "Lease Agreement', by and between the City, as lessee, and the Santa Monica Public Financing Authority (the "Authority"), as lessor. See "SECURITY FOR THE SERIES 2011 BONDS." The Series 2011A Bonds are being issued to provide funds to (i) finance a portion of the cost of construction of a public parking garage, and (ii) pay the costs incurred in connection with the issuance of the Series 2011A Bonds. The Series 2011B Bonds are being issued to provide funds to (i) refinance the Authority's outstanding Lease Revenue Bonds, Series 2002A (the "Refunded Bonds "), and (ii) pay the costs incurred in connection with the issuance of the Series 2011B Bonds. See "THE 2011 PROJECT" and "THE REFUNDING PLAN." The City has covenanted under the Lease Agreement to make all Base Rental Payments provided for therein, to include all such payments as a separate line item in its annual budgets, and to make all the necessary annual appropriations for such Base Rental Payments. The City's obligation to make Base Rental Payments is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City's right to use and occupy any portion of the Property. See "TUSK FACTORS Abatement." The Series 2011 Bonds are being, issued in fully registered book -entry only form, initially registered in the time of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC "). Interest on the Series 2011 Bonds is payable semiannually on June 1 and December 1 of each year, commencing June 1, 2012. Purchasers will not receive certificates representing their interest in the Series 2011 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest and premium, if any, on the Series 2011 Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee ") to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2011 Bands. See "THE SERIES 2011 BONDS— Book -Entry Only System" herein. The Series 2011 Bonds will be issued pursuant to an Indenture, dated as of November 1, 2011 (the "Indenture ") by and among the City, the Authority and The Bank of New York Mellon Turn Company, N.A., as trustee. The Series 2011 Bonds and any additional bonds issued pursuant to the Indenture ( "Additional Bonds ") are collectively refereed to as the "Bonds." The Series 2011A Bonds are subject to optional, mandatory sinking fond and extraordinary redemption prior to maturity as described herein. The Series 2011E Bonds are subject to extraordinary redemption prior to maturity as described herein. See "THE SERIES 2011 BONDS Redemption" herein. The Series 2011 Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Series 2011 Bonds. The Authority has no taxing power. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Series 2011 Bonds will be offered when, as and if issued and received by the Undenvriters, subject to the approval as to their validity by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Stradling Yacca Carlson and Rauth, a Professional Corporation, Newport Beach, California, is also acting as Disclosure Counsel to the City. Certain legal matters will be passed upon for the City by its City Aaorney and for the Undenpriters by Jones Hall, A Professional Lear Corporation, San Francisco, California. It is anticipated that the Series 2011 Bonds in definitive fmvn will be available far delivwy to DTC in New York, New York on or about November _, 2011. [STIFEL LOGO] [De La Rosa Logo] Dated: November_ 2011 Preliminary, subject to change. DOCSOC/1515059v5/200119 -0005 $ SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2011A MATURl'YY SCHEDULE Maturity biahuity Principal - Interest Date Principal Interest Date Amount Rate Yield CUSIPt (June]) Amount Rate Yield 06/0112012 2021 12/01/2012 2022 06101/2013 2023 12/01/2013 2024 06/0112014 2025 12/01/2014 2026 06/01/2015 2027 12/01/2015 2028 06/01/2016 2029 12101/2016 2030 06/01/2017 2031 12/01/2017 06/01/2018 12/01/2018 06/01/2019 12/01/2019 06/01/2020 12/01/2020 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2011B MATURITY SCHEDULE Maturity Maturity Date Principal Interest Date Principal Interest (June 1) Amount Rate Yield CUSIPt (Jane 1) Amount Rate Yield 2012 2017 2013 2018 2014 2019 2015 2020 2016 2021 CUSIPt CUSW 'Preliminary, subject to change. P Copyright 2011, American Bankers Association. CUSIP" data herein in provided by Standard & Poor's, CUSIPo Service Bureau, a division of The McGrc Hill Companies, Inc. The City, Authority and the Undenvriters take no responsibilityfor the accuracy of such data. DOCSOC/1515059v5/200119 -0005 No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Series 2011 Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2011 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the Series 2011 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. - The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of,.its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made. hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Series 2011 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Certain statements included or incorporated by reference in this Official Statement constitute "forward - looking statements° within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "project," "budget," "intend" or similar words. Such forward - looking statements include, but are not limited to, certain statements contained in the information under the caption "CITY OF SANTA MONICA FINANCES." THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD - LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY .FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD - LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD- LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD - LOOKING STATEMENTS. IN CONNECTION WITH THE OFFERING OF THE SERIES 2011 BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2011 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABH.IZING, IT COMMENCED, MAY BE DISCONTINUED AT ANY TIME. - THE UNDERWRITERS MAY OFFER AND SELL THE SERIES 2011 BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITE' SERIES 2011 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2011 Bonds. DOCSOC/1515059v5/200119 -0005 Gleam Davis, Mayor Pro Tempore Pam O'Connor Terry O'Day CITY OF SANTA MONICA (County of Los Angeles, California) City Council Richard Bloom, Mayor Santa Monica Public Financing Authority Gleam Davis, Chairperson Pro Tempore Pam O'Connor Terry O'Day. Richard Bloom, Chairperson City Manager /Authority Executive Director Rod Gould City Attorney /Authhori y Attorney Marsha Jones Moutrie City Clerk /Authority Secretary Maria M. Stewart Robert T. Holbrook I {evin McKeown Bobby Shriver Robert T. Holbrook Kevin McKeown Acting Director of Finance /Acting Authority Treasurer /Acting City Treasurer Gigi Decavalles- Hughes PROFESSIONAL SERVICES Financial Advisor Public Resources Advisory Group Los Angeles, California Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Trustee,Escrow Agent The Bank of New York Mellon Trust Company, N.A. Los Angeles, California DOCSOC/1515059v5/200119 -0005 Bobby Shriver TABLE OF CONTENTS Page INTRODUCTION................................................................:................................................. ..............................1 THESERIES 2011 BONDS ................................................................................................... ..............................3 General....... :...................................................................................................................................................... 3 Registration; Transfers and Exchanges ............................................................................... ..............................4 Redemption........................................................................................................................ ............................... 4 Boole -Entry Only System .................................................................................................... ..............................5 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS ............... ..............................6 Pledgeof Revenues ............................................................................................................. ..............................6 BaseRental Payments ......................................................................................................... ..............................7 Additional Rental Pa ......... yments .................................................................................... ..........................:...7 .. 8 Abatement.......................................................................................................................... ............................... Substitution and Removal of Property ................................................................................. .............................98 Actionon Default ................................................................................................................ :............................10 NoReserve Fund ............................................................................................................... .............................10 Insurance.......................................................................................................................... ............................... SOURCESAND USES OF FUNDS ..................................................................................... .............................11 BASERENTAL PAYMENT SCHEDULE .......................................................................... .............................12 THE2011 PROJECT ..............................................................................:.............................. .............................13 THEREFUNDING PLAN .................................................................................................... .............................13 THEPROPERTY .................................................................................................................. .............................13 THEAUTHORITY ....................................................................................:.......................... .............................14 CITYOF SANTA MONICA ................................................................................................. .............................14 General............................................................................................................................... .............................14 Governmentand Administration ........................................................................................ .............................14 Population.......................................................................................................................... .............................15 CityEnterprise Operations ................................................................................................. .............................15 RetirementSystem ............................................................................................................. .............................16 PensionFunding Information ............................................................................................ .............................18 OtherPost Employment Benefits ....................................................................................... .............................22 MedicalTrusts ................................................................................................................... .............................24 LaborRelations .................................................................................................................. .............................24 Industryand Employment .................................................................................................. .............................24 Per Capita Income .............................................................................................................. .........................:28 ... Education............................:.............................................................................................. .............................28 Culture and Recreation ...................................................................................................... .............................28 CapitalImprovements ...................................................................................................... .......................:....... 29 TaxableTransactions ........................................................................................................: .............................30 BuildingPermit Activity ..................................................................................................... ............'................31 PrincipalProperty Taxpayers ............................................................................................. .............................32 Utilities.............................................................................................................................. .............................32 CITYOF SANTA MONICA FINANCES ............................................................................ .............................32 Accounting Policies and Financial Reporting .................................................................... .............................33 BudgetaryProcess .............................................................................................................. .............................33 AssessedValuations .......................................................................................................... .....................:.......34 AdValorem Property Taxes ............................................................................................... .............................36 TaxReceipts ...................................................................................................................... .............................37 VehicleLicense Fee Reduction ......................................................................................... .............................39 Long -Term Debt ................................................................................................................ .............................40 GeneralFund Financial Summary .........:........................................................................... .............................42 DOCSOC/1515059v5/200119 -0005 Investment of City Funds ............................................... ............................... Insurance........................................................................ ............................... RISKFACTORS ............................................................... ............................... General Considerations — Security for the Series 2011 Bonds ................... Abatement...................................................................... ............................... NoReserve Fund ........................................................... ............................... SeismicActivity ............................................................. ............................... .. ............................... 45 .. ............................... 46 .............................. :.. 47 ..........................47 .......................... 48 OtherFinancial Matters ........................................................................................... ............................... StateBudget ............................................................................................................. ............................... Substitution, Addition and Removal of Property; Additional Bonds ........................... :.......................... Limited Recourse on Default; No Acceleration of Base Rental .............................. ............................... Possible Insufficiency of Insurance Proceeds .......................................................... ............................... Limitationson Remedies ......................................................................................... ............................... Lossof Tax Exemption .............................................................. :............................................................ No Liability of Authority to the Owners .................................................................. ............................... CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS .... ......48 ......48 ......49 ......49 ......54 ......55 ......55 ...... 56 ...... 56 ...... 56 ......56 Article XIIIA of the California Constitution ...................................................................... .............................56 Article XM of the California Constitution ...................................................................... .............................57 Proposition62 .................................................................................................................... .............................57 Proposition218 .................................................................................................................. .............................58 UnitaryProperty ................................................................................................................ .............................59 Proposition22 .................................................................................................................... .............................59 PropositionlA ................................................................................................................... .............................60 Proposition26 .................................................................................................................... .............................60 FutureInitiatives ...................:............................................................................................ .............................60 TAXMATTERS .................................................................................................................... .............:...............61 CERTAINLEGAL MATTERS ............................................................................................ .............................62 ABSENCE OF LITIGATION ............................................................................................... .............................62 UNDERWRITING................................................................................................................ .............................63 . RATINGS......................................:....................................................................................... .............................63 FINANCIALADVISOR ....................................................................................................... .............................63 CONTINUING DISCLOSURE ............................................................................................. .............................63 FINANCIAL STATEMENTS OF THE CITY ...................................................................... .............................64 MISCELLANEOUS.............................................................................................................. .............................64 APPENDIX A SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS ............... ............................A -1 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDEDJUNE 30, 2010 ..................................................................... ............................... B -1 APPENDIX C PROPOSED FORM OF BOND COUNSEL OPINION ..................... ............................... C -1 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE ................ ............................D -1 APPENDIX E BOOK -ENTRY ONLY SYSTEM ..................................................... ............................... E -1 ii DOCSOC/1515059v5/2 0 0 1 19 -00 0 5 OFFICIAL STATEMENT SANTA MONICA PUBLIC FINANCING SANTA MONICA PUBLIC FINANCING AUTHORITY AUTHORITY LEASE REVENUE REFUNDING BONDS, LEASE REVENUE BONDS, SERIES 2011A SERIES 2011B INTRODUCTION This Official Statement (which includes the cover page and Appendices hereto) (the "Official Statement"), provides certain information concerning the sale and delivery of $ aggregate principal amount of Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A (the "Series 2011A Bonds") and $ aggregate principal amount of Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B (the "Series 2011B Bonds" and, together with the Series 2011A Bonds, the "Series 2011 Bonds "). The net proceeds of the sale of the Series 2011A Bonds will be used to (i) finance a portion of the cost of construction of a public parking garage (the. "2011 Project "), and (ii) pay the costs incurred in connection with the issuance of the Series 2011A Bonds. The net proceeds of the sale of the Series 2011B Bonds will be used to (i) refinance the Santa Monica Public Financing Authority's (the "Authority ") outstanding Lease Revenue Bonds, Series 2002A (the "Refunded Bonds ") currently outstanding in the aggregate principal amount of $10,690,000, and (ii) pay the costs incurred in connection with the issuance of the Series 2011B Bonds. The Series 2011 Bonds are equally and ratably payable from base rental payments (the "Base Rental Payments ") to be made by the City of Santa Monica (the "City ") for the right to use certain real property consisting of the City's Main Library (the "Property ") pursuant to a Lease Agreement, dated as of November 1, 2011 (the "Lease Agreement "), between the City, as lessee, and the Authority, as lessor. The Series 2011 Bonds will be issued pursuant to an Indenture, dated as of November 1, 2011 (the "Indenture "), by and among the Authority, the City and the Trustee. Pursuant to the Indenture, the Authority may issue additional bonds (the "Additional Bonds ") payable from the Base Rental Payments on a parity with the Series 2011 Bonds (the Series 2011 Bonds and any such Additional Bonds being collectively referred to as the `Bonds "). Pursuant to a Ground Lease, dated as of November 1, 2611 (the "Ground Lease "), the City has leased the Property to the Authority. The Authority has subleased the Property to, the City under the Lease Agreement. The Lease Agreement obligates the City to make Base Rental Payments to the Authority. The Trustee and the Authority have entered into an Assignment Agreement, dated as of November 1, 2011, pursuant to which the Authority has assigned to the Trustee for the benefit of the Bond Owners substantially all of the Authority's right, title and interest in and to the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments due under the Lease Agreement. The City covenants under the Lease Agreement to take such action as may be necessary to include all Rental Payments, which are comprised of Base Rental Payments and Additional Rental Payments (which include taxes and assessments affecting the Property, administrative costs of the Authority relating to the Property, fees and expenses of the Trustee and other amounts payable under the Lease Agreement), due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as described herein. Preliminary, subject to change. DOCSOC/1515059v5/200119 -0005 Base Rental Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City's right to use and occupy the Property or any portion thereof. See "RISI{ FACTORS — Abatement." Abatement of Base Rental Payments under the Lease Agreement, to the extent payment is not made from alternative sources as set forth below, would result in all Bond Owners receiving less than the full amount of principal of and interest on the Bonds. To the extent proceeds of insurance are available, Base Rental Payments (or a portion thereof) may be made during periods of abatement. THE SERIES 2011 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA (THE "STATE "), OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2011 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The Authority is not funding a debt service reserve for the Series 2011 Bonds. The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission certain annual financial information and operating data and, in a timely manner, notice of certain listed events. These covenants have been made in order to assist the Underwriters in complying with SEC Rule 15c2- 12(b)(5). See "CONTINUING DISCLOSURE" herein for a description of the specific nature of the annual report and notices of listed events and a summary description of the terms of the disclosure agreement pursuant to which such reports are to be made. The Series 2011 Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC"). Interest on the Series 2011 Bonds is payable semiannually on June 1 and December 1 of each year, commencing June 1, 2012. Purchasers will not receive certificates representing their interest in the Series 2011 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest on the Series 2011 Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee ") to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2011 Bonds. See "THE SERIES 2011 BONDS— Book -Entry Only System" herein. The Series 2011 Bonds are subject to redemption prior to maturity as described herein. See "THE SERIES 2011 BONDS — Redemption." The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as Trustee with respect to the Series 2011 Bonds. The Series 2011 Bonds will be issued subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by Jones Hall, A Professional Law Corporation, San Francisco, California. The City's financial statements for the fiscal year ended June 30, 2010 included as Appendix B hereto have been audited by Mayer Hoffmann McCann, P.C., certified public accountants, Irvine, California (the "Auditor "). See Appendix B— "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30,2010" herein. The City's financial statements DOCSOC/1515059v5/200119 -0005 are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post -audit review of the financial condition of the City. Certain events could affect the ability of the City to make the Base Rental Payments when due. See "RISK FACTORS" for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Series 2011 Bonds. . The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and, except for budget discussion for Fiscal Year 2011 -12, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. The summaries or references to the Indenture, Lease Agreement, the Ground Lease, the Assignment Agreement and other documents, agreements and statutes referred to herein, and the description of the Series 2011 Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. All capitalized terms used in this Official Statement (unless otherwise defined herein) which are defined in the Indenture or the Lease Agreement shall have the meanings set forth therein, some of which are summarized in APPENDIX A— "SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS." THE SERIES 2011 BONDS General The Series 2011 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Series 2011 Bonds will be dated as of and bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) from the dated date thereof at the rates set forth on the inside cover page hereof. Interest on the Series 2011 Bonds will be paid semiannually on June 1 and December 1 (each, an "Interest Payment Date ") of each year, commencing June 1, 2012. Interest on the Series 2011 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2011 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (ii) a Series 2011 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the dated date thereof, or (iii) interest on any Series 2011 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest will be paid in lawful money of the United State's on each Interest Payment Date to the Persons in whose names the ownership of the Series 2011 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2011 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the precedin I g Record Date. The principal and premium, if any, of the Series 2011 Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Series 2011A Bonds will be subject to optional mandatory sinking land and extraordinary redemption as set forth herein. The Series 2011B Bonds will be subject to extraordinary redemption as set forth herein. DOCSOC/1515059v5/200119 -0005 Registration, Transfers and Exchanges The Series 2011 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Series 2011 Bonds (the `Beneficial Owners ") in the denominations set forth above, under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in Appendix E) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Series 2011 Bonds. See "THE SERIES 2011 BONDS —Book -Entry Only System." Redemption Optional Redemption. The Series 2011A Bonds maturing on or after June 1, 20 , shall be subject to optional redemption, in whole or in part, on any Interest Payment Date on or after June 1, 20 Authorized Denominations, from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease Agreement, at a Redemption Price equal to the principal amount of the Series 2011A Bonds to be redeemed, plus accrued interest thereon to the date of redemption. The Series 2011B Bonds are not subject to optional redemption. Mandatory Sinking Fund Redemption. The Series 2011A Bonds maturing June 1, 20 are subject to redemption in part, on June 1 in each of the following years from sinking account payments as set forth below at a redemption price equal to the principal amount thereof to be redeemed, without premium; provided, however, that if some but not all of the Series 2011A Term Bonds have been redeemed pursuant to an extraordinary or optional redemption, the total amount of all future sinking fund payments will be reduced by the aggregate principal amount of the Series 2011A Term Bonds so redeemed as nearly as practicable on a pro rata basis in integral multiples of $5,000. In addition, in lieu of redemption thereof, the Series 2011A Term Bonds may be purchased by the City and tendered to the Trustee pursuant to the provisions hereof. Mandatory Sinking Fund Payment Date Sinking Fund (June 1) Payment * Final Maturity Extraordinary Redemption from Condemnation Award or Insurance Proceeds. The Series 2011 Bonds are subject to redemption, in whole or in part, on any date, in denominations of $5,000 or any integral multiple thereof, from and to the extent of any insurance proceeds or condemnation award received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Series 2011 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. DOCSO C/1515059v5/200119 -0005 Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds of a. Series, among maturities of Bonds of such Series as directed in a Written Request of the Authority, (b) with respect to any redemption from and to the extent of any insurance proceeds or condemnation award received with respect to all or a portion of the Property and the corresponding provision of any Supplemental Indenture pursuant to which Additional Bonds are issued, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable, and (c) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Notice of Redemption. So long as the Bonds are held in book -entry form, notices of redemption will be mailed by the Trustee only to DTC and not to any Beneficial Owners. The Trustee on behalf and at the expense of the Authority shall mail (by first class mall) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 15 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Such notice may state that such redemption is conditioned upon sufficient funds being on deposit on the redemption date to redeem the Bonds so called for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been.set aside in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the principal corporate trust office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in host for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. Book -Entry Only System General. DTC will act as securities depository for the Series 2011 Bonds. The Series 2011 Bonds will be issued as fully- registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). One fully- registered Series 2011 Bond will be issued for each maturity of the Series 2011 Bonds, each in the DOCSOC/1515059v5/200119 -0005 initial aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIXE- "BOOK -ENTRY ONLY SYSTEM." Transfer and Exchange of Bonds. The following provisions regarding the exchange and transfer of the Series 2011 Bonds apply only during any period in which the Series 2011 Bonds are not subject to DTC's book- entry system. While the Series 2011 Bonds are subject DTC's book -entry system,.their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. Any Bond may, in accordance with its terms, be transferred upon the books required to be kept by the Trustee pursuant to the provisions of the Indenture by the Person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the principal corporate host office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS Pledge of Revenues The Series 2011 Bonds are equally and ratably payable from and secured by Base Rental Payments and certain amounts on deposit in the funds and accounts established under the Indenture. Base Rental Payments shall be paid by the City from any and all legally available funds. See, "CITY OF SANTA MONICA," "CITY OF SANTA MONICA FINANCES" and "RISK FACTORS." The City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor. The Authority, pursuant to the Assignment Agreement, will assign to the Trustee for the benefit of the Series 2011 Bond Owners all of the Authority's right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, its right to receive Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided that, the Authority will retain the rights to indemnification and to payment of reimbursement of its reasonable costs and expenses under the Lease Agreement. The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority.. See " —Base Rental Payments" below. Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on a parity with the Series 2011 Bonds. See APPENDIX A— "SUMMARY OF TBE PRINCIPAL LEGAL DOCUMENTS —The hrdenture- Additional Bonds." Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund are pledged by the Authority pursuant to the Indenture to secure the DOCSO C/1515059v5/200119 -0005 payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets. THE SERIES 2011 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2011 BONDS. THE AUTHORITY HAS NO TAXING POWER. Base Rental Payments Rental Payments, including Base Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. Each Base Rental Payment shall be deposited with the Trustee no later than the 15th day of the month next preceding each Interest Payment Date (the "Base Rental Deposit Date ") on.which such Base Rental Payment is due. All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority with the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Base Rental Payment Fund. Pursuant to the Indenture, on the Business Day immediately preceding each Interest Payment Date and on the Business Day immediately preceding each Principal Payment Date, the Trustee will transfer amounts in the Base Rental Payment Fund as are necessary to the Interest Fund and the Principal Fund to provide for the payment of the interest on and principal of the Series 2011 Bonds. Scheduled Base Rental Payments relating to the Series 2011 Bonds are set forth below under the heading `BASE RENTAL PAYMENT SCHEDULE." THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE CITY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. Additional Rental Payments For the right to use and occupy the Property, the Lease Agreement requires the City to pay, as Additional Rental payments thereunder, in addition to the Base Rental Payments, such amounts as shall be required for the payment of the following: (i) All taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein. (ii) All reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees. DOCSOC/1515059v5/200119.0005 (iii) Insurance premiums for all insurance required pursuant to the Lease Agreement. (iv) Any amounts with respect to the Lease Agreement or the Bonds required to be rebated to the federal government in accordance with section 148(f) of the Internal Revenue Code of 1986. (v) All other payments required to be paid by the City under the provisions of the Lease Agreement or the Indenture. Amounts constituting Additional Rental Payments payable under the Lease Agreement will be paid by the City directly to the person or persons to whom such amounts shall be payable. The City will pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Abatement Base Rental Payments and Additional Rental Payments are paid by the City in each Rental Period for and in consideration of the right to use and occupy the Property. Except as otherwise specifically provided in the Lease Agreement, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there'is substantial interference with the City's right to use and occupy any portion of the Property, Rental Payments shall be subject to abatement proportionately, and the City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement shall continue in full force and effect. The amount of such abatement shall be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City denting such Rental Period. Any such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement shall be extended as provided in the Lease Agreement, except that the term shall in no event be extended ten years beyond the stated termination date of the Lease Agreement. The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Base Rental Payments and Additional Rental Payments is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the City. See APPENDIX A--"SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement– Rental Abatement." Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments due under the Lease Agreement in any of the funds and accounts established under the Indenture (including as a result of the availability of insurance proceeds), such Rental Payments will not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from said funds and accounts. Substitution and Removal of Property The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and described below. After a substitution or release, the portion of the Property for which the substitution or release has been effected shall be released from the leasehold encumbrance of the Lease Agreement. DOCSOC/1515059v5/200119 -0005 The Lease Agreement provides that there shall be no reduction in or abatement of the Base Rental Payments due from the City thereunder as a result of such substitution or release. Any such substitution or release shall be subject to the following specific conditions precedent to such substitution or release: (a) an independent certified real estate appraiser selected by the City shall have found (and shall have delivered a certificate to the City and the Trustee setting forth its findings) that the Property, as constituted after such substitution or release, (i) has an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period, and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds. Notwithstanding the foregoing, upon the completion of the Series 2011 Project, the City shall have the option to substitute the 2011 Project for the Property, provided that the City certifies to the Trustee that (x) the 2011 Project has been substantially completed and is available for use and occupancy by the City and (y) the construction cost of the Series 2011 Project was not less than $ ; See "2011 PROJECT" herein. (b) the City shall have obtained or caused to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in an amount at least equal to the aggregate principal amount of any Outstanding Bonds, of the type and with the endorsements described in the Lease Agreement; (c) the City shall have provided the Trustee with an opinion of counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes; (d) the City, the Authority and the Trustee shall have executed, and the City shall have caused to be recorded with the Los Angeles County Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained in the Lease Agreement and in the Ground Lease; and (e) the City shall have provided notice of such substitution to each rating agency then rating the Bonds. See APPENDIX A— "SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement— Substitution or Release of the Property" Action on Default Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis, and will have the right to re -enter and re -let the Property. In the event such re- letting occurs, the City would be Fable for any resulting deficiency in Base Rental Payments. Base Rental Payments may not be accelerated upon a default under the Lease Agreement. See "RISK FACTORS — Limited Recourse on Default; No Acceleration of Base Rental." For purposes of certain actions of Bond Owners under the Indenture and the Lease, such as certain consents and amendments and the direction of remedies following default, Series 2011 Bond Owners do not act alone and may not control such matters to the extent such matters are not supported by the requisite number of the Owners of all Bonds and Additional Bonds, if any. For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see APPENDIX A— "SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement—Default" and " —The Indenture— Events of Default," " —Other Remedies of the Trustee," and "Limitation on Suits." DOCSOC/1515059v5/200119 -0005 No Reserve Fund The Authority has not funded a reserve fund in connection with the issuance of the Series 2011 Bonds. Insurance The Lease Agreement requires the City to maintain or cause to be maintained fire, lightning and special extended coverage insurance (which shall include coverage for vandalism. and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding principal amount of the Bonds. Each such policy of insurance shall contain a standard replacement cost endorsement providing for no deduction for depreciation and a stipulated amount endorsement. All insurance required to be maintained pursuant to the Lease Agreement may be subject to a deductible in amount not to exceed $500,000. The City's obligation to maintain the insurance described above (except for rental interruption insurance) may be satisfied by self - insurance, provided such self - insurance complies with the requirements of the Lease Agreement. See APPENDIX A— "SUINIAIARY OF TTIE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement — Insurance." The Lease Agreement requires the City to maintain 'rental interruption insurance to cover the Authority's loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards covered by the casualty insurance described in the preceding paragraph, in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The City is not permitted to self - insure its obligation to maintain rental interruption insurance. The City is also required to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees, and worker's compensation insurance as described in APPENDIX A— "SUMAIARY OF THE PRINCIPAL LEGAL DOCUMENTS —The Lease Agreement — Insurance." The City is required under the Lease Agreement to provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Series 2011 Bonds, insuring the fee interest of the City in the Property, the Authority's leasehold estate in the Property under the Ground Lease, and the City's subleasehold estate in the Property ,under the Lease Agreement, subject only to Permitted Encumbrances, and providing that all proceeds thereunder are payable to the Trustee for the benefit of the Owners. 10 DOCSOC/1515059v5/200119 -0005 SOURCES AND USES OF FUNDS The sources and uses of funds with respect to the Series 2011 Bonds are shown below. Series 2011A Series 2011B Bonds Bonds Total Sources Principal Amount of Seiies 2011 Bonds Plus: Available Series 2002A Bond Amounts(l) Plus: Original Issue Premium Total Sources Uses Construction Fund Escrow Fund Cost of Issuance Fund( �) Underwriters' Discount Total Uses n) " includes January 1, 2012 Refunded Bonds interest installment. (2) Includes legal, financial advisory, rating agency, printing fees and other miscellaneous costs of issuance. 11 DOCSOC/1515059v5/200119.0005 BASE RENTAL PAYMENT SCHEDULE Following is the annual schedule of Base Rental Payments due with respect to the Series 2011 Bonds Period Total Total Ending Series 2011A Series 2011E Series 2011A Series 2011E Series 2011E Series 2011B Total (June 1) Principal Interest Payments Principal Interest Payments Payments 2012 $ $ $ $ $ $ $ 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total $ $ 12 D C/1515059v5/200119 -0005 THE 2011 PROJECT The 2011 Project consists of the demolition and reconstruction of the City's Parking Structure 6 ("PS6 "). PS6 is located at 1431 2ud Street, Santa Monica. Upon completion, PS6 will contain approximately 746 parking spaces, bicycle racks for 90 bicycles, 19 motorcycle parking spaces and 7,400 square feet of retail space fronting 2nd Street. The City awarded a design -build contract to Morley Construction, Inter- national Parking Design and Behnish Architects. The City Council certified the final environmental impact report for the 2011 Project on February 28, 2006. Subsequently, on May 9, 2006, the City Council approved a resolution adopting a statement of overriding considerations and mitigation and monitoring and reporting program. Construction is anticipated to commence in the first quarter of 2012 and to be completed by the fourth quarter of 2013. Estimated cost of the PS6 is $43,000,000. In addition to proceeds from the Series 2011A Bonds, City and Parking Authority funds will be used to construct PS6. Pursuant to the Lease Agreement, the City has the authority to substitute other projects or improvements for all or a portion of PS6. See "RISK FACTORS —State Budget." THE REFUNDING PLAN The Series 2011B Bonds are being issued to provide a portion of the moneys, together with certain funds on deposit with The Bank of.New York Mellon Trust Company, N.A., acting as escrow agent (the "Escrow Agent'% to redeem the Authority's outstanding Refunded Bonds in the aggregate principal amount of $10,690,000 at a redemption. price equal to the principal amount thereof plus accrued interest to the date of redemption. Approximately $ aggregate principal amount of the Refunded Bonds will be redeemed on December _, 2011. The remaining approximately $ aggregate principal amount of the Refunded Bonds will be redeemed on December 10, 2011 from funds in excess of the reserve requirement released from the reserve fund for the Refunded Bonds and the Authority's Lease Revenue Refunding Bonds, Series 2009 on December 10, 2011. Pursuant to the Indenture, the Authority will deliver a portion of the proceeds of the Series 201113 Bonds to the Trustee to transfer to the Escrow Agent for deposit in an escrow fund (the "Escrow Fund ") established under the Escrow Agreement, dated as of November 1, 2011, by and between the Authority and the Escrow Agent (the "Escrow Agreement "). Proceeds of the Series 201113 Bonds and other moneys held in the Escrow Fund to redeem the Refunded Bonds will be held in cash. The cash deposited in the Escrow Fund will be sufficient to pay the redemption price of the Refunded Bonds, together with accrued interest to the respective dates of redemption. Amounts in the Escrow Fund will be irrevocably pledged to secure, when due, the payment of the principal of, interest and premium due with respect to the Refunded Bonds. THE PROPERTY The Property consists of the City's Main Library. The Main Library Complex includes 110,000 feet of building space housing the library, community meeting rooms, and a cafe. The project also includes a'3 story, 500 space subterranean parking structure. Construction was completed in 2005 at a total cost of $56,000,000. Designed by the world renowned architectural firm of Moore, Ruble and Yudell, the facility was awarded LEED Gold certification by the U.S. Green Building Council. The Main Library was financed in part from proceeds of general obligation bonds issued by the City. The Main Library also serves as the City's backup emergency operations center. The City has the right to substitute or release all or portion of the Property subject to certain conditions precedent. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS -- Substitution and Removal of Property." Upon completion of the 2011 Project, the City plans to substitute the 2011 Project for the City's Main Library pursuant to the Lease. Preliminary, subject to change. 13 DOCSOC/1515059v5/200119 -0005 THE AUTHORITY The Santa Monica Public Financing Authority was organized pursuant to the provisions of Article I of Chapter 15 of Division 7 of Title 1 of the State Government Code and a Joint Exercise of Powers Agreement, dated as of July 25, 1995, by and between the City and the Redevelopment Agency of the City of Santa Monica. The Authority was organized for the purpose of financing and assisting local agencies in financing capital improvements, working capital, liability or other insurance needs or projects. The Authority has no financial liability to the Owners of the Series 2011 Bonds with respect to the payment of Base Rental Payments by the City or with respect to the performance by the City of the other agreements and covenants it is required to perform. CITY OF SANTA MONICA General The City of Santa Monica is situated on the western side of Los Angeles County, bordered by the City of Los Angeles on three sides and by the Pacific Ocean to the west. The City encompasses an area slightly greater than eight square miles and, as of January 1, 2010, had an estimated population of 92,703 persons. The Santa Monica Freeway passes through the approximate center of the City on an east -west course and provides direct connection with downtown Los Angeles,; approximately 16 miles to the east. About six miles southeast of the City is Los Angeles International Airport, which is easily accessible via the San Diego Freeway, which runs about one mile beyond the eastern border of Santa Monica on a north -south course. Government and Administration The City of Santa Monica was incorporated in 1886 and adopted its City Charter in 1945. In 1947 a council- manager form of government was established following a vote of the City's residents and approval by the California Legislature. The City Council consists of seven members with overlapping terms of four years. Elections are held every two years, at which time three Council members or four Council members are elected. After each election, Council members select one of their group to act as Mayor, who then presides over Council meetings. The City Council appoints a City Manager, City Attorney and City Clerk. The City Manager is responsible for supervising day -to -day operations of the City and for carrying out policies set by the Council.. 14 DOCSOC/1515059v5/200119 -0005 Population The following table sets forth population data for the City of Santa Monica. City of Santa Monica Population Year Population 1970 88,289 1980 88,314 1990 86,905 2000 84,084 2001 85,576 2002 87,994 2003 89,339 2004 90,410 2005 90,678 2006 90,750 2007 91,124 2008 91,439 2009 92,494 2010 92,703 Source: 1970 -2000 data from US Census Bureau; 2001 -2010 data from State of California Department of Finance. City Enterprise Operations Santa Monica operates an airport, bus line, cemetery, pier and civic auditorium. The City also provides water, refuse collection, recycling, wastewater and stormwater services. A portion of the revenues from these enterprises is annually paid to the City's General Fund for various administrative support services provided to the enterprises. The Santa Monica Airport is a 227 -acre general aviation airport, located at the southeastern edge of the City. The Airport has the capacity to park a minimum of 550 based aircraft and 40 transient aircraft. The City rents an average of 205 of its own aircraft parking tie -down spaces, and also receives commercial lease revenues and commissions on fuel sold at the airport. In Fiscal Year 2010 -11, the City's 200 fixed route buses carried more than 20 million revenue passengers, while traveling approximately 6 million miles. The system provides coverage at low cost (a bus route operates within a quarter -mile of almost every resident; regular fares are $1.00 for local service and $2.00 for express service; discount fares are available for the elderly, handicapped and students through the purchase of tokens or a prepaid card). The City's Big Blue Bus also manages paratransit services, carrying 25,000 revenue passengers in Fiscal Year 2010 -11. In addition, Big Blue Bus provides charter and excursion programs. Woodlawn Cemetery was purchased by the City in 1897 and the mausoleum was purchased in 1972. It is operated as an enterprise competitive with comparable private facilities. It is located in the south - central portion of the City. The Santa Monica Pier is a local historical landmark built in 1909 and recently celebrated, its centennial. It currently contains an amusement park, carousel, games, aquarium, restaurants, entertainment venues, and retail. Santa Monica Amusements, a privately -owned enterprise, operates Pacific Park, with its 15 DocsoG1515059v5/200119 -0005 Ferris wheel, roller coaster, famous vintage wooden carousel, games and a food court. The Santa Monica Pier Aquarium has been operated by Heal the Bay since June 2003. The Water Division of Santa Monica is operated as a self - supporting enterprise. About 70% of the City's water is supplied by its own wells, stored in over 16 acres of well fields and reservoir grounds on City - owned property inside and outside the city limits. The remaining 30% of the water is purchased from the Metropolitan Water District of Southern California. The City's modern, automated system delivers over 12 million gallons per day to approximately 17,000 water accounts. The City's water chemists supervise over 9,500 separate water quality and safety tests per year in State - licensed laboratories, to ensure that the highest standards are met before delivering the water to the customer's tap. With monies provided from a settlement with a compendium of oil companies, the City was able to construct a water treatment plant that allowed it to begin utilizing a previously closed well field. This increased the City's water self - sufficiency by over 50 %. The City is implementing a plan to be 100% self- sufficient by 2020. During the State's drought years, the City implemented several conservation programs. One of the City's waterlwastewater conservation programs is a program of retrofitting bathrooms in the City with ultra low flow toilets and low flow showerheads. This program, which currently results in a wastewater reduction of approximately 1.4 million gallons per day, significantly reduces the City's wastewater treatment and disposal costs by eliminating the need for the City to acquire additional capacity in the local Hyperion Sewage Treatment Plant. The Wastewater Division of Santa Monica is also operated as a self - supporting enterprise. The City's local collection system collects sewage and transfers it to the Hyperion Treatment Plant in which the City has contracted for capacity rights. Santa Monica's Urban Runoff Recycling Facility, otherwise known as the "SMURRF," treats dry weather runoff water (from excessive irrigation, spills, construction sites, pool draining, car washing, the washing down of paved areas, and some wet weather runoff) to produce 200,000 gallons a day of recycled water that is safe for all landscape irrigation and dual - plumbed systems (buildings plumbed to accept recycled water for the flushing of toilets). Retirement System The City contributes to the State of California Public Employees' Retirement System (PERS), an agent multiple - employer public employee retirement system that acts as a common investment and administrative agent for cities in the State. A menu of benefit provisions as well as other requirements are established by State statues within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with PERS and adopts those benefits through local ordinance. The City's payroll for employees covered by PERS for the year ended June 30, 2011 was $163,130,772. Total payroll for the City for the year ended June 30, 2011 was $181,169,000. All full -time City employees and part-time City employees who have worked over 1,000 hours during a fiscal year are eligible to participate in PERS, with benefits vesting after 5 years of service. Employees are designated as safety (police officers, firefighters and others designated as safety by law) or miscellaneous (all others). Safety employees who retire at or after age 50 with at least 5 years of credited service are entitled to an annual retirement benefit, payable monthly for life, in an amount equal to a benefit factor multiplied by their final compensation which is the average monthly pay rate for the last consecutive 12 months of employment (or any 12 -month period in which pay was higher). For fire safety employees, the benefit factor is an amount equal to between 2.4% and 3.0 %multiplied by the number of years of credited employment. The percentage amount is based upon the age of the employee at retirement, increasing from age 50 to age 55. For IR DOCSO C11515059v5/200119 -0005 police safety employees the benefit factor is 3.0% multiplied by the number of years of service. This percentage starts at age 50 and does not increase. Miscellaneous members who retire at age 50 with at least 5 years of credited service are entitled to an annual retirement benefit, payable monthly for life, in an amount equal to a benefit factor multiplied by their final compensation. Final compensation for miscellaneous members is the average monthly pay rate for the last consecutive 12 months (or any 12 -month period in which pay was higher) of employment. The benefit factor is an amount equal to between 2.0% and 2.7% multiplied by the number of years of credited employment. The percentage amount is based upon the age of the employee at retirement, increasing from age 50 to age 55. PERS also provides death and disability benefits. These benefit provisions and all other requirements are established by state statute and City ordinance. PERS requires that miscellaneous employees contribute 8% and safety employees contribute 9% of their annual salary to PERS. However, this benefit, like all others, is subject to collective bargaining. Currently all of the City's bargaining units have negotiated for the City to contribute this portion on behalf of the employee. However, safety employees have agreed to begin to contribute an amount increasing from 1% to 3% of their annual salary from Fiscal Years 2011 -12, 2012 -13 and 2013 -14 and thereafter. The City is required to contribute the remaining amounts necessary to fund the benefits for its members using the actuarial basis recommended by the PERS actuaries and actuarial consultants and adopted by the PERS Board of Administration. As part of the City's agreement to increase miscellaneous employees' benefits from 2.0% to 2.5% multiplied by the number of years of service, the miscellaneous members agreed to reimburse the City for the cost of this enhanced benefit at a rate of 6.7% of annual compensation. The reimbursement was $7.4 million in Fiscal Year 2009 -10 and $7.7 million in Fiscal Year 2010 -11. The actuarial methods and assumptions used are those adopted by the PERS Board of Administration. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by PERS. For Fiscal Year 2010 -11, employer contribution rates were as follows: Annual Rate Miscellaneous Safety Category Components Category Fire Police A. Normal cost rate 9.374% 13.362% 17.843% B. Unfunded liability rate 5.749 8.414 15.692 C. Total Required 15.123% 21.776% 33.535% The contribution to PERS.for Fiscal Year 2010 -11 of $44,499,980 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 2009. The City contribution was $30,322,397 (18.6% of current covered payroll). The employees' contribution was $14,177,583 (8.7% of current covered payroll), of which $14,018,726, was paid by the City and $158,860 was paid by employees. Three -Year Trend Information for the Annual Pension Cost Fundine for the Plan (Unaudited) Fiscal Year ended June 30 2011 2010 2009 Annualpension costll/ (APQ $30,322,397 28,660,350 26,944,672 Percentage ofAPC Netpension contributed obligation 100% 100 — 100 — Excludes required employee contributions paid by the City. 17 DOCSOC/1515059v5/200119 -0005 Pension Funding Information The staff actuaries at PERS prepare annually an actuarial valuation which covers a Fiscal Year ending approximately 15 months before the actuarial valuation is delivered (thus, the actuarial valuation delivered to the City in October 2010.covered PERS' Fiscal Year ended June 30, 2009). The actuarial valuations express the City's required contribution rates in percentages of covered payroll, which percentages the City must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the City's contribution rate derived from the actuarial valuation as of June 30, 2009, that was delivered in October 2010, will affect such City's Fiscal Year 2011 -12 required contribution rate). PERS rules require the City to implement the actuary's recommended rates. In calculating the annual actuarially recommended contribution rates, the PERS actuary calculates on the basis of certain assumptions the actuarial present value of benefits that PERS will fund under the PERS Plans, which includes two components, the normal cost and the Unfunded Actuarial Accrued Liability (the "UAAL "). The normal cost represents the actuarial present value of benefits that PERS will fund under the PERS Plans that are attributed to the current year, and the actuarial accrued liability (the "AAL ") represents the actuarial present value of benefits that PERS will fund that are attributed to past years. The UAAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at PERS and the present value of the benefits that PERS will pay under the PERS Plans to retirees and active employees upon their retirement. The UAAL is based on several assumptions such as, among others, the rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the UAAL includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the UAAL may be considered an estimate of the unfunded actuarial present value of the benefits that PERS will fund under the PERS Plans to retirees and active employees upon their retirement and not as a fixed expression of the liability the City owes to PERS under its PERS Plans. In each actuarial valuation, the PERS actuary estimates the actuarial value of the assets (the "Actuarial Value ") of the PERS Plans at the end of the Fiscal Year (which assumes, among other things, that the rate of return during that Fiscal Year equaled the assumed rate of return of 7.75 %). The PERS actuary uses a smoothing technique to determine Actuarial Value that is calculated based on certain policies. As described below, these policies changed significantly in April 2005, affecting the Actuarial Value calculation beginning Fiscal Year 2006 -07. Actuarial Assumptions and Policies. On April 21, 2004, the PERS Board approved a change in the inflation assumption used in the actuarial valuations used to determine employer contribution rates. The inflation assumption was changed from 3.5 percent to 3 percent. The change impacted the inflation component of the annual investment return assumption and the long term payroll growth assumption as follows: • The annual assumed investment return has decreased from 8.25 percent to 7.75 percent. • The longterm payroll growth assumption has decreased from 3.75 percent to 3.25 percent. • The inflation component of individual salary scales has decreased from 3.75 percent to 3.25 percent. In April 2005, the PERS Board adopted new policies aimed at stabilizing rising employer costs. These policies have been used to set employer contribution rates for the City beginning in Fiscal Year 2006 -07 These policies include: • Spreading PERS market value asset gains and losses over 15 years rather than three years. 18 DOCSOC/1515059v5/200119 -0005 • Widening the "corridor" limits for establishing the actuarial value of assets from 90 to 110 percent of market value to 80 to 120 percent of market value (except for the 3 -year phase -in of investment losses from Fiscal Year 2009, as described below). Establishing a rolling 30 -year amortization on all remaining het unamortized gains or losses, instead of amortizing 10% of the net unamortized gain or loss each year pursuant to prior policy. Such an amortization schedule results in approximately 6% of unamortized gains and losses each year. Due to the excess of accrued liability over actuarial value of plan assets, the amortization payment of the total unfunded liability may be higher than the payment calculated over a 30 -year amortization period. • Requiring a minimum employer contribution rate equal to the employer normal costs minus a 30- year amortization of surplus (but not less than 0 %). Pursuant to the April 2005 policy change, multiple amortization bases (including those for benefit improvement or changes in actuarial methods or assumptions, which are typically less than 30 years) were combined into a single base (the gain and loss bases) and amortized over a rolling 30 -year period to effect a "fresh start" as of June 30, 2004. The April 2005 policy did not affect other existing amortization bases for benefit improvements, assumptions changes and method changes. . Due to significant market investment losses of approximately -24% in the PERS trust fund for fiscal year 2008 -09, PERS implemented a 3 -year phase -in of the 2008 -09 investment loss. This phased in approach will be achieved by temporarily relaxing the constraints on the smoothed value of assets around the actual market value. The corridor will be widened and then contracted as follows: • Increase the corridor limits from 80% -120% of market value to 60% to 140% of market value to determine the actuarial value of assets for the June 30, 2009 valuation, which impacts the 2011 -12 contribution rate. • Reduce the corridor limits from 60% -140% of market value to 70% to 130% of market value to determine the actuarial value of assets for the June 30, 2010 valuation, which impacts the 2012 -2013 contribution rate. • Return to the 80 %- 120% of market value corridor limits for the actuarial value of assets on June 30, 2011 and thereafter, which impacts contribution rates for• fiscal years 2013 -14 and beyond. • Asset losses outside of the 80% -120% corridor described above will be amortized pursuant to a fixed 30 -year amortization schedule. In addition, in February 2010, the PERS Board adopted a resolution requiring additional contributions for any plan or pool if the cash flows hamper adequate funding -progress by preventing the expected funded status on a market value of assets basis of the plan to either: • Increase by at least 15% by June 30, 2043; or • Reach a level of 75% funded by June 30, 2043. Such contributions have been factored into the City's contribution rates set by PERS. As of June 30, 2009, the date of the latest actuarial valuation, the City's unfunded liability was $224,641,625 million. This unfunded liability was primarily the result of a significant decline in the value of the plan assets, less than anticipated investment returns by PERS and an increase in benefits for Miscellaneous and Public Safety employees. The City has addressed the under funded liability through additional 19 DOCSOC/1515059v5/200119 -0005 contributions ($10,000,000 in Fiscal Year 2010 -11, of which approximately $7,300,000 related to the City's General Fund), as determined by PERS, in excess of the amount required to fund the current normal cost liability. Maintaining this funding schedule PERS has estimated that the under funded balance will be amortized over 15 years. The City cannot predict the level of future contributions to PERS which may be required by PERS but such amounts may increase significantly over current levels. ►T1 DOCSO C/151505910/200119 -0005 The City's Pension Plan includes separate valuations for Miscellaneous Members, Fire Safety Members and Police Safety Members. The funded status of the Plan for each of these member groups for the actuarial valuations performed as of June 30, 2007 through 2009 are as follows (valuations for 2010 are not yet available): Valuation date Entry age normal Actuarial value (June 30) accrued liability ofassets 2009 $ 608,461 $ 470,981 2008 523,122 438,590 2007 465,718 393,225 Valuation date Entry age normal Actuarial value (June 30) accrued liability ofassets .2009 $ 155,343 $ 129,054 2008 142,775 124,224 2007 133,026 116,798 Valuation date Entry age normal Actuarial' value (June 30) accrued liability ofassets 2009 $ 276,030 $ 215,162 2008 251,441 204,336 2007 235,336 190,765 DOCSOC/1515059v5/200119 -0005 Miscellaneous Members (dollars in thousands), Underfunded liability Annual covered UAAL as a percentage' (UAAL)- Funded ratio payroll of payroll $ 137,480 77.4 % $ 116,219 118.3 % 84,532 83.8 108,404 78.0 72,493 84.4 101,760 71.2 Fire Safety Members - (dollars in thousands) Underfunded liability _ Annual covered UAAL as a percentage (UAAL) Funded ratio payroll ofpayroll $ 26,289 83.1 % $ 13,350 196.9 % 18,551 87.0 12,514 148.2 16,228 87.8 11,951 _ 135.8 Police Safety Members (dollars in thousands) Underfunded liability (UAAL) $ 60,868 47,105 44,571 21 Annual covered UAAL as ape rce wage Funded ratio payroll of payroll 77.9 % $ 24,169 251.8 % 81.3 23,481 200.6 81.1 22,730 196.1 Other Post Employment Benefits In addition to providing pension benefits through PERS, the City, in accordance with agreements with various bargaining units and groups, provides medical insurance benefits that are considered other postemployment benefits ( "OPEB ") to certain refired employees. Employees of the Supervisory Team Associates bargaining unit are eligible for a medical insurance benefit if they were hired prior to June 30, 1990, fulfill length of service requirements and have more than 75 unused sick leave days upon retirement. Employees of the Executive Pay Plan group and management employees of the Rent Control Board are eligible for a city paid medical insurance benefit if their combined retirement age and years of public service equals or exceeds 70. Although not delineated in any written agreement, all retirees are allowed to continue participating in one of the City's health plans at the same rate as active employees. The City also maintains minimum benefits for police and fire employees provided by the City's contract with its healthcare provider. In Fiscal Year 2011, the City paid $116,000 for retiree health benefits. The Governmental Accounting Standards Board published Statement No. 45, requiring governmental agencies that fund post - employment benefits on a pay -as- you -go basis, such as the City, to account for and report the outstanding obligations and commitments related to such post - employment benefits in essentially the same manner as for pensions. The City retained AON Consulting (the "Actuarial Consultant ") to calculate the City's post employment benefits funding status. In a report dated September 16, 2011 (the "Report"), the Actuarial Consultant concluded that, as of June 30, 2011, the City's unfunded actuarial accrued liability for post employment benefits based upon a 5% discount rate was $20,173,000. The Report also concluded that the annual required contribution ( "ARC ") for the year beginning July 1, 2010 was $1,937,000. The ARC is the annual amount that would be necessary to fund the OPEB in accordance with the Governmental Accounting Standards Board's Statements No. 45. The City is not required to fund, and has not funded, the amortization of the unfunded actuarial liability. The City pays for OPEB on a pay -as- you -go basis. The City cannot predict the level of future contributions to PERS which may be required but such amounts may increase significantly over current levels. In the July 1, 2010 actuarial valuation update, the actuarial assumptions included a 5.0% rate of return, which is a blended rate of expected, long -term return on plan assets on the City's own investments calculated based on the funded level of the plan at the valuation date, and an annual health care cost trend of 10.5% initially, reduced by decrements to an ultimate rate of 5.0% after 11 years. Both rates include a 3.25% inflation assumption. The remaining amortization period at July 1, 2010 was thirty years. The table below sets forth unfunded actuarial accrued liability of the City with respect to OPEB as of July 1 for years 2007 through 2010. 22 DOCSOC/1515059v5/200119 -0005 The table below sets forth unfunded actuarial accrued liability of the City with respect to OPEB as of July r for years 2007 through 2011 (dollars in thousands). Unfunded Actuarial Accrued Valuation Actuarial Actuarial Type of Date Value of Accrued Valuation (July 1) Assets Liability Update 2010 $ -- $ 20,173 Actual 2009 156,214 18,747 Update 2008 128,622 17,721 Actual 2007 124,253 16,518 Unfunded Actuarial Accrued 3.25% Annual UAAL as a Liability Funded Covered Percentage of (UAAL) Ratio Payroll Payroll $ 20,173 —% $161,290 12.51% 18,747 —% 156,214 12.00% 17,721 —% 128,622 13.78% 16,518 —% 124,253 13.29% 23 DOCSOC/1515059v5/200119 -0005 LnterestRate Salary Scale 5.00% 3.25% 5.00 3.25 5.00 3.25 5.00 3.25 Medical Trusts hi addition to other post- employment benefits described above, the City has contracted, pursuant to bargaining unit agreements, to contribute monies to the medical trusts that provide post - employment medical benefits to employees. The amount of benefits provided to employees under these plans is limited solely to the amount contributed, related investment earnings, and forfeitures. During Fiscal Year 2010 -11 the City contributed $2,735,630 towards the retiree medical trusts. These are administered through third -party administrators and the City does not perform the investing function or have other significant responsibility relating to the management of plan assets. Thus, plan assets and any related liabilities have been excluded from the City's basic financial statements. Labor Relations In accordance with the Meyers - Milias -Brown Act, the City has adopted an Ordinance, which establishes the procedures for the administration of employer- employee relations. This includes the procedure by which the City meets and confers with representatives of recognized employee organizations (i.e., unions and associations) regarding matters within the scope of representation, including wages, hours and other terms and conditions of employment within the appropriate unit. Of the approximately 2,024 budgeted permanent City employees, most are represented by ten bargaining units, including 939 by the Municipal Employees Association, 215 by the Santa Monica Police Officers Association, 108 by Local 1109 of the Firefighters Association, 275 by the United Transportation Union, 42 by the Management Team Associates, 91 by the Supervisory Team Associates, 289 by the Administrative Team Associates, 23 by the Public Attorneys Union, and 22 by the Public Attorneys Legal Support Staff. An Executive Pay Plan covers 20 employees. All City employees are covered by existing multiple- or single -year contracts. Industry and Employment The Santa Monica business community is comprised of a diverse collection of businesses ranging from traditional retailers to hi -tech post - production and intemet firms. Tourism, health industries, and retail augment the large business service sector. Mainstay firms like Saint John's and UCLA -Santa Monica Hospitals, Loews and Marriott Hotels, and new car dealerships occupy a more traditional niche as large institutional property owners, sales tax producers, and employers. Major entertainment and multimedia - software industry firms like Universal Music Group, Apple, Google, Yahoo and MTV are among over 200 hi- tech, multimedia, and entertainment firms of all sizes that maintain a presence in the City. . The City invests significant governmental resources in its pedestrian - oriented commercial districts, including such nationally- recognized venues as the Third Street Promenade, Santa Monica Place Mall, which recently reopened after a $265 million renovation facelift and now includes such luxury retailers as Tiffany, Nordstroms, Bloomingdales, Louis Vuitton and Coach, the Santa Monica Pier, Main Street, and Montana Avenue. The City provides support for the Santa Monica Convention & Visitor's Bureau, and a variety of other services, including parking in the downtown. Recently completed City projects include the Annenberg Community Beach House, a public facility that was awarded a $27.5 million grant from the Annenberg Foundation, the award - winning Main Library (see "THE PROPERTY ") that expanded the City's ability to offer programs and services to library patrons, infrastructure improvements to the Pier including new public restrooms and the Virginia Avenue Park in the Pico Neighborhood. This investment has paid off in a healthy retail and restaurant sector and an active tourism industry which provides significant sales tax revenues to the City, and which has continued to do so even through the recent economic turndown. The three largest business types producing taxable goods in the City for Fiscal Year 2010 -11 are: New Motor Vehicle Dealers, 16% of the City's sales tax revenue; Restaurants with Liquor, 24 DOCSOC/1515059v5/200119 -0005 10% of the City's sales tax revenue; and Specialty Stores, 7% of the City's sales tax revenue. •When grouped into major business groups, General Consumer Goods provide 35% of the City's sales tax revenue, Autos and Transportation provide 25.0% of the City's sales tax revenue, and Restaurants and Hotels provide 21.0% of City's sales tax revenue, The City's economic condition has improved since the end of the recent economic recession. Taxable sales for the fiscal year ending June 30, 2011 were 5.5% higher than for the fiscal year ending June 30, 2010. Office vacancy rates were for the third quarter of calendar year 2011 were 7.4% lower than the fist quarter of calendar year 2010. The City's tourism industry and occupancy rates benefit from its proximity to Southern California points of interest, including the beach, Pacific Park on the Santa Monica Pier, the Third St. Promenade, and the Getty Center in nearby Brentwood. With over 3,500 available rooms, average hotel occupancy rates for calendar. year 2011 are 85.3%, up 3.7% for the year -to -date over 2010 totals. As of December 31, 2010, an estimated 73,018 people were employed by approximately 6,574 firms in the City with a total of almost $1.36 billion in payroll. This figure does not include a substantial number of self - employed persons or contract workers. Unemployment in the City is 10.5% compared to Los Angeles County which is 12.7% The City's focus on "quality of life" issues has created a positive environment on the west side of Los Angeles in which to live, work, and visit. The resulting environment has attracted a stable, dynamic business base and a strong local economy. 25 DOCSO C/1515059v5/200119 -0005 The following table summarizes employment and payroll information within the City as of December 31, 2010. City of Santa Monica 2010 Employment and Payroll By Major Industry Division As of December 31, 2010 Source: City of Santa Monica (from data by Major NAICS Sectors) 26 DOCSOC/1515059v5/200119 -0005 Average %of Total Annual %of Total Annual %of Total Major Division Industry Finns Finns Employment Employment Payroll Payroll Professional, Scientific, & Technical Services .. 1,207 18.3% 9,591 13.1% $ 253,929,806 18300/ Health Care & Social Assistance 849 12.9 8,111 11.1 113,940,793 8.4 Retail Trade 603 9.2 7,948 10.9 76,305,808 5.6 Information 599 9.1 8,020 11.0 281,508,603 20.8 Arts, Entertainment, & Recreation 570 8.7 1,754 2.4 79,444,729 5.9 Real Estate & Rental & Leasing 380 5.8 3,022 4.1 58,247,289 4.3 Accommodation & Food Services 402 6.1 11,792 16.1 71,959,950 5.3 Other Services 356 5.4 3,251 4.5 31,534,610 2.3 Finance & Insurance 249 3.8 2,656 3.6 110,520,833 8.2 Admin & Support & Waste Mgmt & Remediation 201 3.1 1,873 2.6 28,669,953 2.1 Wholesale Trade 208 3.2 2,422 3.3 63,376,668 4.7 Construction 211 3.2 1,419 1.9 23,109,684 1.7 Manufacturing 92 1.4 880 1.2 14,466,752 1.1 Educational Services 87 1.3 2,539 3.5 26,141,165 1.9 Local Govt 51 0.8 6,216 8.5 90,119,001 6.6 Transportation & Warehousing 35 0.5 377 0.5 3,348,881 0.2 Management Of Companies And Enterprises 22 0.3 350 0.5 11,365,659 0.8 Non - Classified 438 6.7 295 0.4 8,639,677 0.6 Utilities 6 0.1 236 0.4 4,897,360 0.4 Federal Govt 4 0.1 251 0.4 4,023,673 0.4 Agriculture, Forestry, Fishing & Hunmg 2 State Govt 1 * ** 15 * ** 75,120 * ** Mining 1 m ** * ** * ** s ** * ** Total 6.574 ZU18 $1355.626 -014 Source: City of Santa Monica (from data by Major NAICS Sectors) 26 DOCSOC/1515059v5/200119 -0005 The major employers within the City boundaries and the number of persons employed by each organization are shown below: City of Santa Monica Major Employers As of July 31, 2011 Company Number of Employees City of Santa Monica 2,190 Santa Monica College 2,086 Saint John's Hospital Medical Center 1,796 Santa Monica -UCLA Hospital 1,780 Santa Monica- Malibu Unified School District 1,500 The Rand Corporation 894 Universal Music Group 850 Activision Blizzard Inc. 692 ET Whitehall Santa Monica Partners LP 534 MTV Networks 506 Loews Hotels 434 Total jobs provided by principal employers 13,262 Total jobs in Santa Monica 74,103 Principal Employers As Percent Of Total Jobs 17.9% Source: Voluntary reporting of employment levels to the City of Santa Monica by individual organizations: Total jobs in Santa Monica as provided by the Labor Market Information Division, State of California Employment Development Department as of March 23, 2011. The following chart provides a comparison, for the years indicated, of the average annual unemployment rates in the City of Santa Monica, the City of Los Angeles, the County of Los Angeles, the State of California and the United States. The City's September 2011 unemployment rate was 10.5 %, reflecting the ongoing current difficult economic environment. Annual Average Unemployment Rates For Years 2003 through 2011 City of Santa . City of Los County of Los State of Year Monica Angeles Angeles California United States 2003 5.7% 7.7% 7.0% 6.8% 6.0% 2004 5.3 7.2 6.5 6.2 5.5 2005 4.4 5.9 5.4 5.4 5.1 2006 3.9 5.3 4.8 4.9 4.6 2007 4.1 5.6 5.1 5.3 4.6 2008 6.1 8.3 7.5 7.2 5.8 2009 9.5 12.7 11.5 11.3 9.3 2010 10.01 14.1 12.6 12.4 9.6 2011 10.5tr1 14.4 13.0 12.7 9.11 21 o As of January 1. (z) As of September 1. Source: State of California, Employment Development Department, Labor Market hrformation Division and U.S. Department - of Labor, Bureau of Labor Statistics. - 27 DOCSOC/1515059v5/200119 -0005 Per Capita Income The following table summarizes per capita personal income for the Los Angeles -Long Beach -Santa Ana Statistical Area, California and the United States for the years 2005 through 2010: I') As of April 21, 2011. Source: U.S. Department of Commerce, Bureau of Economic Analysis Education Public instruction in the City is provided by the Santa Monica -Malibu Unified School District with 10 elementary schools (three of which are in the City of Malibu), three middle schools (one of which is in the City of Malibu), two high schools (one of which is in the City of Malibu), one continuation high school, one alternative school, an adult education program and child care and development centers. Total average daily attendance for the last five school years was as follows: City of Santa Monica Public School Enrollment For 2006-07 through 2010 -11 Year 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11ti1 Projected. Source: Santa Monica - Malibu Unified School District. Average Daily Attendance 11,359 11,083 11,084 11,600 11,559 The Santa Monica -Malibu Unified School District also provides additional programs, such as bilingual education, computer literacy, the Gifted and Talented program, the Regional Occupation Program (vocational skills), and pre- school and school age child care programs. There are nine private nursery/kindergarten schools and 16 private /parochial schools in Santa Monica. The City also has one community college, Santa Monica College, which includes technical and vocational schools, including the Academy of Entertainment and Technology. Culture and Recreation Each year, Southern California's natural and commercial attractions bring millions of visitors to the region. Good weather, miles of Pacific coastline, and picturesque mountain ranges combine with world class destinations such as the Getty Center, Disneyland, Dodger Stadium, the Los Angeles Music Center, the Rose 28 DOCSOC/1515059v5/200119 -0005 Los Angeles -Long Bench- Santa Ana Year StatisticalArea(1) California United States 2005 $38,915 $38,731 $35,452 2006 42,185 41,518 37,725 2007 43,633 43,211 39,506 2008 44,462 43,993 40,947 2009 42,784 41,353 38,846 2010 N/A 42,578 39,945 I') As of April 21, 2011. Source: U.S. Department of Commerce, Bureau of Economic Analysis Education Public instruction in the City is provided by the Santa Monica -Malibu Unified School District with 10 elementary schools (three of which are in the City of Malibu), three middle schools (one of which is in the City of Malibu), two high schools (one of which is in the City of Malibu), one continuation high school, one alternative school, an adult education program and child care and development centers. Total average daily attendance for the last five school years was as follows: City of Santa Monica Public School Enrollment For 2006-07 through 2010 -11 Year 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11ti1 Projected. Source: Santa Monica - Malibu Unified School District. Average Daily Attendance 11,359 11,083 11,084 11,600 11,559 The Santa Monica -Malibu Unified School District also provides additional programs, such as bilingual education, computer literacy, the Gifted and Talented program, the Regional Occupation Program (vocational skills), and pre- school and school age child care programs. There are nine private nursery/kindergarten schools and 16 private /parochial schools in Santa Monica. The City also has one community college, Santa Monica College, which includes technical and vocational schools, including the Academy of Entertainment and Technology. Culture and Recreation Each year, Southern California's natural and commercial attractions bring millions of visitors to the region. Good weather, miles of Pacific coastline, and picturesque mountain ranges combine with world class destinations such as the Getty Center, Disneyland, Dodger Stadium, the Los Angeles Music Center, the Rose 28 DOCSOC/1515059v5/200119 -0005 Bowl, Knott's Berry Farm, Universal Studios Hollywood, and the Long Beach Aquarium to make the Los Angeles basin one of the most traveled to places in the world. Santa Monica's strong recreational identity is historically tied to the beachside community's extraordinary natural setting and mild climate. Residents walk, bike, skate, participate in cultural events, experience nature, and engage in a wide range of active sports throughout the year. For the past two years the City has hosted the finish line for the Los Angeles Marathon, allowing thousands of participants to be cheered on by residents and visitors. Santa Monica residents and visitors see the entire City as their park system — where users enjoy the community's renowned public gathering places including the Third Street Promenade and Santa Monica Pier, green streets, 245 acres of sandy beach and 24 parks to pursue their recreational activities of choice. Recently a bicycle action plan was adopted with a long range goal of creating a complete network of high - quality bicycle routes and facilities with the objective of increasing the number of people who use bicycles for everyday transportation. A secure bicycle parking station is due to open in Parking Structures 7 and 8 in the fall of 2011. The City continues to have a profound effect on the development of art and culture in this country. Moire visual and performing artists, arts presenters, designers, architects, and film and music producers per capita can be found in Santa Monica than in any other city in the State. Santa Monica has over 70 galleries, three major museums (including the Santa Monica Museum of Art, the California Heritage Museum, and the Museum of Flying), over a dozen theaters and performance spaces presenting a wide range of music, dance and performance art, bookstores, photography, video, film, and award - winning architecture - all thriving in its many walkable and attractive neighborhoods. The exceptional physical, recreational, and cultural environment in Santa Monica provides residents with a wide range of arts and leisure opportunities. Capital Improvements Consistent with its focus on community and infrastructure investment, the City has recently completed or is in the process of implementing a number of projects. With the assistance of funds from a legal settlement, two existing City- operated water service facilities, the Charnock Well Field site and the Santa Monica Arcadia Water Treatment Plant, were reconstructed. The improvements include a new water treatment system at the Chamock site and upgrades to the water treatment process plant at the Arcadia Water Treatment Plant to soften, disinfect, and fluoridate the water. The improvements will provide a multiple barrier treatment process to remove contaminants from groundwater and restore this resource as a water supply for the City. The planned Expo Light Rail Phase 2 project between Culver City and the City is a significant transit alternative that will connect to the regional rail system and provide new transit options for Santa Monica residents, employees, & visitors. The project will provide relief for the tremendous and growing congestion on the Interstate 10 /Santa Monica Freeway, one of the busiest travel corridors in the country. City staff is currently working to ensure rail line and stations will be seamlessly integrated into streets, neighborhoods and districts. Phase 2 construction has begun and service is anticipated to commence in 2014 -15. The Palisades Garden Walk and Town Square will create seven acres of park space bounded by Interstate 10 and Olympic Drive, City Hall and Ocean Avenue. Envisioned as a central component of the Civic Center Specific Plan ( "CCSP "), these new parks will provide a critical link between the Civic Center, Palisades Park, the Pier and downtown. The City prioritized $25 million in funding for this project. In Fiscal Year 2009 -10, following a competitive process, the City Council selected James Corner Field Operations and 29 DOCSOC/1515059v5/2 00 1 1 9 -00 0 5 placed them under contract to design the parks. Council also approved the launch of an extensive community engagement process. The new Pico Branch Library, an 8,690 square foot neighborhood library to be built in the Pico neighborhood at Virginia Avenue Park, on the comer Cloverfield and Pico Boulevards, is anticipated to begin construction in 2012, with an opening in 2013. The library will enhance existing park amenities, including the weekly Farmers Market, Community Center, Teen Center, and Park Center Building. Staff issued a Request for Proposals for the design of the new library in September 2009 and executed a contract with Konig Eizenberg Architecture in February 2010. An updated site survey and a geotechnical report were both started in spring of 2010 and in September 2011, Council approved the library's design development plans. Taxable Transactions Taxable transactions for the City in 2010 increased from the 2009 level. The future rate of growth of taxable transactions may be adversely affected by the growth of electronic commerce to the extent that Federal and /or State laws, policies and sales tax collection procedures are not altered to include taxable transactions via electronic commerce. The following table indicates the level of taxable transactions in the City by type of business fi•om calendar years 2006 through 2010. City of Santa Monica Taxable Transactions by Type of Business for Calendar Years 2006 - 2010 (in Thousands of Dollars) Business 2006 2007 2008 2009 2010 Apparel Stores $ 336,229 $ 327,768 $ 325,835 $ 272,133 $ 296,127 General Merchandise 65,731 60,131 48,371 26,308 65,804 Food Stores 81,546 85,551 87,818 85,034 80,927 Eating & drinking places 426,220 459,782 452,371 425,412 448,986 Building materials 125,567 132,959 119,383 90,123 87,510 Auto dealers & auto suppliers 714,543 724,018 678,604 607,195 605,107 Service stations 131,785 137,758 146,172 109,105 111,322. Other retail stores 656,917 682,816 640,299 527,997 577,165 Retail stores total 2,538,538 2,610,783 2,498,853 2,143,307 2,272,947 All other outlets 430,207 331,111 320,235 283,257 285,868 Total all outlets $ 2,968,745 $ 2,941,894 $ 2 819 088 $ 2,426 564 $ 2,558 815 Source: Hinderleiter, de Llamas and Associates. 30 DOCSOC /l 515059v5/200119 -0005 The table below compares 2011 fourth quarter calendar sales taxes with 2010 fourth quarter calendar sales taxes as indicated taxable sales. Sales taxes are up versus 2010 fourth quarter calendar figures, which is consistent with statewide trends. Revenues were also positively impacted by the re- opening of the renovated Santa Monica Place shopping mall. City of Santa Monica Fourth. Quarter Sales Taxes by Major Business Group (unadjusted) Business 2011 201n Difference New Motor Vehicle Dealers $ 1,036,186 $ 989,323 4.8% Restaurants Liquor 623,440 587,987 6.0 Auto Lease 364,547 373,465 (2.4) Electronics /Appliance Sales 496,757 380,551 30.5 Family Apparel 458,299 428,641 6.9 Restaurants No Alcohol 317,150 .278,914 13.7 Department Stores 299,047 63',112 373.8 Service Stations 281,924 278,496 1.2 Women's Apparel 224,489 180,130 24.6 Specialty Stores 267,291 256,639 4.2 Home Furnishings 210,047 177,212 18.5 Hotels — Liquor 164,236 155,436 5.7 Restaurants Beer & Wine 160,634 156,845 2.4 Grocery Stores Liquor 137,312 140,296 (2.1) All Others 1,802,826 1,549,114 16.4% Subtotal 6,844,785 5,996,161 14.2% County /State Pools 739,131 579.739 27.5% Total T7,583,916 6.575.900 15.3% Source: City of Santa Monica Finance Department Building Permit Activity The following table shows the number and value of building permits issued in the City during 2007 through August 2011. Source: Construction Industry Research Board * Through August 2011. 31 DOCSOC/1515059v5/200119 -0005 City of Santa Monica Building Construction For 2007 through 2011* Residential Residential Nonresidential Year Number of Units Construction Value Construction Value 2007 633 $128,120,760 $174,264,297 2008 187 87,863,887 171,541,504 2009 104 70,103,401 77,277,638 2010 302 82,067,065 209,348,887 2011* 274 75,707,561 105,033,101 Source: Construction Industry Research Board * Through August 2011. 31 DOCSOC/1515059v5/200119 -0005 Principal Property Taxpayers The ten principal property taxpayers in the City based on reported gross assessed values for Fiscal Year 2011 -12, are listed below. CITY OF SANTA MONICA Principal Property Taxpayers For Fiscal Year 2011 -12 (Based on Taxes Levied)(rl o) Does not reflect the impact of pending appeals of assessed valuation. Source: City of Santa Monica Finance Department (from data from Los Angeles County Assessor) Utilities Southern California Gas Company and Southern California Edison Company ( "SCE ") provide gas and electricity service within the City, respectively. The City purchases for its own use a large portion of renewable energy from Commonwealth Energy Corporation. Commonwealth provides this energy in conjunction with SCE services. Verizon California supplies local telephone service. Over 100 telecommunications companies provide long- distance and wireless service. The City provides water and wastewater service. CITY OF SANTA MONICA FINANCES The following selected financial information provides a brief overview of The City's finances. This financial information has been extracted from the City's audited financial statements and, in some cases, from unaudited information provided by the City's Finance Department. The most recent audited financial statements of the City with an unqualified auditor's opinion is included as AppendixB hereto. See "FINANCIAL STATEMENTS" and APPENDIX B— "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30,2010." The City's financial statements are public documents and are included within this Official Statement without the prior approval the Auditor. Accordingly, the Auditor has not performed any post -audit analysis of the financial condition of the City. Accompanying the Independent Auditor's Report in Appendix B is the City Management's Discussion and Analysis, which is not audited, but is supplementary information required by the Government Accounting Standards Board. Management's Discussion and Analysis presents a summary and overview of the City's financial condition. Management's Discussion and Analysis should be reviewed in conjunction with the information presented below to obtain an understanding of the City's financial condition. 32 DOCSOC/1515059v5/200119 -0005 Net Assessed Valuation (Incl. Secured & % of Property Taxpayer Unsecured) Total 1) California Colorado Center $ 472,844,007 1.92% 2) Water Garden Realty Holding 458,644,220 1.86 3) Douglas Emmett LLC 303,707,241 1.23 4) Macerich Santa Monica Place 279,142,184 1.13 5) SC Enterprises SMBP 265,000,000 1.08 6) CREP 2700 Holdings 227,973,476 0.93 7) Ocean Avenue 146,369,459 0.59 8) LU12 LA Lantana LP 140,909,172 0.57 9) New Santa Monica Beach Hotel 137,172,347 0.56 10) RAND Corporation 131,528,991 0_53 Top Ten Total 2,563.290.860 10_40% o) Does not reflect the impact of pending appeals of assessed valuation. Source: City of Santa Monica Finance Department (from data from Los Angeles County Assessor) Utilities Southern California Gas Company and Southern California Edison Company ( "SCE ") provide gas and electricity service within the City, respectively. The City purchases for its own use a large portion of renewable energy from Commonwealth Energy Corporation. Commonwealth provides this energy in conjunction with SCE services. Verizon California supplies local telephone service. Over 100 telecommunications companies provide long- distance and wireless service. The City provides water and wastewater service. CITY OF SANTA MONICA FINANCES The following selected financial information provides a brief overview of The City's finances. This financial information has been extracted from the City's audited financial statements and, in some cases, from unaudited information provided by the City's Finance Department. The most recent audited financial statements of the City with an unqualified auditor's opinion is included as AppendixB hereto. See "FINANCIAL STATEMENTS" and APPENDIX B— "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30,2010." The City's financial statements are public documents and are included within this Official Statement without the prior approval the Auditor. Accordingly, the Auditor has not performed any post -audit analysis of the financial condition of the City. Accompanying the Independent Auditor's Report in Appendix B is the City Management's Discussion and Analysis, which is not audited, but is supplementary information required by the Government Accounting Standards Board. Management's Discussion and Analysis presents a summary and overview of the City's financial condition. Management's Discussion and Analysis should be reviewed in conjunction with the information presented below to obtain an understanding of the City's financial condition. 32 DOCSOC/1515059v5/200119 -0005 The audited financial statements of the City for fiscal year ended June 30, 2011 are expected to be released during December, 2011. The City does not believe that the Fiscal Year 2010 -11 audited financial statements will show a material difference in the City's financial condition from the unaudited Fiscal Year 2010 -11 financial information provided herein. Accounting Policies and Financial Reporting The City's accounting records are organized and operated on a "fund" basis, which is the basic fiscal and accounting entity in governmental accounting. The three broad fund categories include governmental, proprietary and fiduciary funds. The operations of the different funds are accounted for with separate sets of self - balancing accounts with assets, liabilities, fund balance or net assets, revenues, and expenditures or expenses. The basis of accounting for all funds is more fully explained in the Notes to the City of Santa Monica combined audited financial statements contained in Appendix B. The Government Finance Officers Association has awarded its Certificate of Achievement for Excellence in Financial Reporting to the City for the past 26 years. Budgetary Process The budgetary process is guided by City Council's priorities, with input from residents, neighborhood groups, Boards, Commissions, and businesses following fall neighborhood meetings and various year -round opportunities for suggestions and comments. To improve efficiency of budget development, during the budget process for Fiscal Year 2011 -12, the City transitioned to the production of a biennial budget. In May of alternating years, the City Manager submits a proposed operating and capital budget to the City Council for the two fiscal years commencing on July 1. Study sessions and public hearings are conducted by the City Council to obtain staff and citizen comments to the proposed budget, and prior to June 30, the budget is adopted through passage of appropriate resolutions. See "— General Fund Financial Summary" for a summary of the City's general fund budget for Fiscal Year 2011 -12. Economic conditions have resulted in either flat or modest growth in key revenue sources for the City. The adopted biennial budget for Fiscal Years 2011 -13 reflects actions taken to offset the softened economic environment. Despite somewhat weak revenues and rising employment costs, the City has a balanced budget for the biennial Fiscal Years 2010 -11 through 2012 -13 period. In the budget process, the City Council endorsed a multipronged approach to address a potential deficit in future years, while maintaining services, staffing and infrastructure. Among the mitigations were negotiated changes in employee compensation and benefits, greater cost recovery through updated fees and charges, prudent use of an economic uncertainty reserve and the collection of revenues affected by the passage of Measure Y, which increases local sales tax by /z %. The City and SMMUSD entered into an agreement whereby the school district shares 50% of the Measure Y Sales tax. 'See "Tax Receipts —Sales Tax" herein. To specifically address personnel costs, in recently completed negotiations, employees agreed to contribute more for medical and retirement costs with some contributions to be phased in over a multi -year period. In addition, bonuses for some bargaining units have been eliminated. The City Council recognizes that continued vigilant and sound financial management is the key to budget stabilization without sacrificing services, staffing and community investments. Since the end of the recent recession, City sales taxes and transient occupancy taxes have improved significantly reflecting a general increase in economic activity after two difficult years, increased tourism leading to increases in hotel occupancy and room rental charges, and the re- opening of the Santa Monica Place shopping area. while the State continues to divert property taxes from cities, counties, and special districts, the passage of Proposition lA should limit additional diversions. See "RISK FACTORS —State Budget" below. In accordance with fiscal policy, the biennial budget for Fiscal Years 2010 -11 through 2012 -13 provides for a general fund reserve of 10% for emergencies or an unanticipated financial reversal; however, the total fund balance as of June 30, 2011 is significantly larger than this reserve amount, providing flexibility to respond to the uncertain economy. 33 DOCSOC/1515059v5/200119 -0005 Assessed Valuations The valuation of property in the City is established by the Los Angeles County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. See "CONSTITUTIONAL AND STATUTORY LWTATIONS ON TAXES AND APPROPRIATIONS." The California State Legislature adopted two types of State - reimbursed exemptions beginning in the tax year 1969 -70. The first currently exempts 100% of the full value of business inventories from taxation. The second exemption currently provides a credit of $7,000 of the full value of an owner- occupied dwelling for which application has been made to the Los Angeles County Assessor, Revenue estimated to be lost to local taxing agencies due to the above exemptions has in the past been reimbursed from State sources. Reimbursement is based upon total taxes due upon such exemption values and therefore is not reduced by any estimated amount of actual delinquencies. The breakdown of assessed value of taxable property within the City for Fiscal Years 2007 -08 through 2011 -12 is set forth in the table below. 34 DOCSOC/1515059v5/200119 -0005 City of Santa Monica Assessed Value of Taxable Property For Fiscal Years 2007 -08 through 2011 -12 Fiscal Year Ended Personal Public Less Total Assessed June 30 . Real Property Property Utilities Secured Gross Exemptions(') Secured Net Net Unsecured Valuadons 2008 $20,861,475,912 $230,361,744 $742,365 $21,092,580,021 $ .847,012,250 $20,245,567,771 $877,156,158 $21,122,723,929 2009 23,100,511,228 228,270,851 742,365 23,329,524,444 904,660,628 22,424,863,816 987,848,754 23,412,712,750 2010 23,951,442,065 234,194,136 742,365 24,186,378,566 1,134,966,580 23,051,411,986 969,009,242 24,020,421,228 2011 23,866,176,423 230,386,558 742,365 24,097,305,346 1,095,460,432 23,001,844,814 880,330,859 23,882,175,673 2012 24,584,916,083 228,783,669 742,365 24,814,442,117 1,073,027,474 23,741,414,643 902,707,005 24,644,121,648 (t) Includes Homeowner Exemption. City is reimbursed by State for taxes lost because of these exemptions Source: Los Angeles County Auditor- Controller 35 DOCSOC/1515059v5/200119 -0005 Ad Valorem Property Taxes Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of real property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date "). For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State and County assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS." The County levies a one percent property tax on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of "situs" growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county -wide or less than city -wide special districts and school districts. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax - defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one -half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax - defaulted property is subject to sale by the Treasurer and Tax Collector of the County of Los Angeles. Property taxes on the unsecured roll are assessed as of the January 1 lien date and become delinquent, if unpaid, on August 3 L A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one -half percent per month begins to accrue on November 1. The taxing authority has four mays of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer, (3) filing a certificate of delinquency for recordation in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. City taxes are collected on the same bill as County taxes. For a number of years, the State Legislature has shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund. The term `ERAF" is often used as a shorthand reference for this shift of property taxes. In 1992 -93 and 1993 -94, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts. The 2004 -05 California State Budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, to occur in Fiscal Years 2004 -05 and 2005 -06. The City's portion of such property tax shift for each of these two Fiscal Years was $2,716,305. To date, over $45 million has been shifted from the City. See "RISK FACTORS —State Budget" herein for a discussion of recent actions by the State with respect to redevelopment agencies and their funds. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS — Article XIIIA of the California Constitution". 36 DOCSOC/1515059v5/200119 -0005 The City's receipt of property taxes is affected by property tax delinquencies, appeals, refunds and collection of delinquent amounts. The countywide delinquency rate in Fiscal Year 2010 -11 was 3.4 %. Tax Receipts Taxes received by the City include Utility User's Taxes, Sales Taxes, Property Taxes, Business License Taxes, Transient Occupancy Taxes and other miscellaneous taxes. The City has a diversified tax base; for Fiscal Year 2010 -11, the five major tax sources listed above are estimated to account for between 10% and 14 %, each, of General Fund revenues. See APPENDIX B- "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30,20 10. " The following table sets forth tax revenues received by the City, by source: City of Santa Monica Tax Revenues by Sources �1 For Fiscal Years 2006 -07 through 2010 -11 ($'s in thousands) Fiscal Year Ended June 30 Source 2007 2008 2009 2010 201113/ Utility User's Tax $ 31,243 $ 31,622 $ 31,578 $ 31,620 $ 31,625 Sales Taxes 33,267 32,357 28,297 26,637 31,690 Property Taxes( �) 32,586 36,068 36,763 37,420 36,048 Transient Occupancy Tax 31,892 34,969 31,265 29,804 32,747 Business License Taxes 22,637 24,654 27,216 26,553 25,486 Parking Facility Taxes 7,400 7,826 7,980 7,848 1 8,785 Vehicle License Fees Real Property Transfer Tax 608 390 263 6,409 4,739 2,653 273 3,432 491 3,954 Condominium Taxes Total 39 50 35 1$ 166,081 $ 172,675 166 105 19 166 606 21 1 0 847 ('1 Does not include Highway Users' Taxes which are recorded in the Gas Tax Fund, Unit Dwelling Taxes, which are recorded in the Parks and Recreation Facilities Fund, or TORCA Conversion Taxes, which are recorded in the TORCA Fund. «� Includes ad valorem property taxes for purposes of paying debt service on general obligation bonds, vehicle license fee - backtill payments, redevelopment agency statutory pass through payments to the City and certain local public safety fund amounts. See "Sales Tax" and "- Vehicle License Fee Reduction" below. (s) Unaudited actuals. Source: City of Santa Monica Finance Department A brief discussion of Property Taxes, Utility User's Taxes, Transient Occupancy Taxes, Sales Taxes and Business License Taxes follows: Property Taxes. Property Tax receipts of approximately $36,048,000 provided the largest tax revenue source of the City, contributing approximately 21% of General Fund tax revenues and approximately 14% of total General Fund revenues during Fiscal Year 2010 -11. See "- Assessed Valuation," " -Ad Valorem Property Taxes" above, as well as "CITY OF SANTA MONICA- Principal Property Tax Payers" for discussion of pertinent aspects of the City's property tax revenues. Of the approximately $36,048,000 in property tax receipts of the City for Fiscal. Year 2010 -11, approximately $2.0 million is attributable to debt service on the City's general obligation bods that financed certain library improvements, and such amounts are not available to fund any other activities supported by the City's General Fund, including Base Rental Payments. Utility User's Tax. Utility user's tax receipts of approximately $31,625,000 provide a major tax revenue source for the City, contributing approximately 19% of General Fund tax revenues and approximately 37 DOCSOC/1515059v5/200119 -0005 12% of total General Fund revenues during Fiscal Year 2010 -11. The Utility User's Tax is imposed on all users of natural gas, electricity, water, wastewater, cable television and telephone services within the City's limits. The tax rate is 10.0% of all utility charges. This tax rate has been in effect since July 1, 1993, and the Utility User's Tax has been in effect since July 1, 1969. On November 4, 2008, City residents voted to update and modernize the City's Utility User's Tax ordinance to include new technologies. See "CONSTITUTIONAL AND STATUTORY LINIITATIONS ON TAXES AND APPROPRIATIONS." An exemption from the Utility User's Tax is available to senior citizens over the age. of 62 and to permanently disabled individuals, provided that the combined adjusted gross income of all household members is below $30,533, or $26,645 for persons living alone (as of July 1, 2010). As provided by the California Constitution, insurance companies are exempt from the Utility User's Tax. In addition, county, state, federal and foreign governments within the City are not subject to this tax, as the City has no authority to impose a tax on these entities. Exemptions account for a minor amount of the total Utility User's Tax base. All utility companies, including the City's water and wastewater operations, collect and transmit the Utility User's Tax monthly to the City's Finance Department which then deposits the tax revenues into the General Fund. Sales Tax. Sales tax receipts of approximately $31,690,000 provide another major tax revenue source for the City, contributing approximately 19% of General Fund tax revenues, and approximately 12% of total General Fund revenues during Fiscal Year 2010 -11. Approximately $7,200,000 of amounts shown as sales tax is attributable to State allocations of property taxes related to the "Triple Flip," described below. Eventually, these amounts should no longer be received as "Triple Flip" payments but should be substantially replaced with a return of the previous sales tax apportionment to the City. Amounts attributed to the "Triple Flip" in Fiscal Year 2009 -10 were $6,706,051 and such amounts are budgeted to equal approximately $7,638,000 for Fiscal Year 2011 -12. On March 2, 2004, voters approved a bond initiative formally known as the "California Economic Recovery Act." This act authorized the issuance of $15 billion of Economic Recovery Bonds to finance ongoing State budget deficits, which are payable from a fund established by the redirection of tax revenues known as the "Triple Flip." The State issued $11.3 billion of Economic Recovery Bonds prior to June 30, 2004. Under the "Triple Flip," one - quarter of local governments' one percent share of the sales tax imposed on taxable transactions within their jurisdiction is being redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, State legislation provides for certain property taxes to be redirected to local government. Because these property tax monies were previously earmarked for schools, the legislation provides for schools to receive other State general fund revenues. It is expected that the swap of sales taxes for property taxes will terminate once the Economic Recovery Bonds are repaid, some years in the future. See "RISK FACTORS — State Budget Information" herein. A sales tax is imposed on retail sales or consumption of personal property. The statewide sales tax rate is established by the State Legislature and local overrides may be approved by voters. In Los Angeles County the sales tax rate is 9.25 %. 7.25% is collected and administered by the State on taxes collected within the City as follows: State General Fund ....................... ............................... Proposition 172 (public safety use ) ............................. Proposition 57 (State financing bond) ......................... County Health/Welfare ................ ............................... County Transportation ................. ............................... City............................................... ............................... .. . ............................... ...........................5.00 % .... ............................... .........................0.50% ... ............................... .......................... 0.25% .... ............................... .........................0.50% .. ............................... ...........................0.25 % ... ............................... ..........................0.75% The 0.75% sales tax revenue collected by the State is deposited monthly into the City's General Fund. 38 DOCSOC/1 515059v5/200119 -0005 The 1.5% sales tax is authorized locally under Propositions A, C and R by the Metropolitan Transportation Authority for transportation including bus, rail and some streets and road projects. These funds are collected by the State but administered by the Los Angeles County Metropolitan Transportation Authority. A portion of the Proposition A, C and R funds are returned to cities for use on approved projects. On November 2, 2010, Santa Monica voters approved Measure Y, which created an additional 1/2 cent transaction and use tax. Beginning on April 1, 2011, eligible transactions have been subject to this tax. A non- binding Measure YY calling for 50% of the tax to be paid to the Santa Monica Malibu Unified School District also passed. Pursuant to Measure YY, the City is currently sharing 50% of Measure Y revenues with the Santa Monica Malibu Unified School District. $11,400,000 of Measure Y revenue is budgeted for the Fiscal Year 2011 -12, of which approximately $5,700,000 is budgeted to be paid to the Santa Monica Malibu Unified School District. Transient Occupancy Tax. Transient occupancy tax receipts of approximately $32,747,000 represent the second largest revenue source for the City, contributing approximately 19% of General Fund tax revenues and approximately 12% of total General Fund revenues during Fiscal Year 2010 -11. A transient occupancy tax ( "TOT ") is imposed on persons staying 30 days or less in a hotel, motel, inn, hostelry, tourist home, rooming house or other lodging place within the City. The TOT has been in effect since November 1963. The current tax rate is 14 %, last increased in 2005. Exemptions are granted to federal, State of California and City of Santa Monica officials or employees on official business. Exemptions account for a very minor amount of the total TOT base. Payments are made to the City on a monthly or quarterly basis and are then deposited to the City's General Fund. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS." Business License Tax. Business license tax receipts of approximately $25,486,000 are an additional significant source of tax revenue for the City contributing approximately 15% of General Fund tax revenues and approximately 10% of total General Fund revenues during Fiscal Year 2010 -11. The business license tax represents a City tax upon gross receipts of certain business activities located in the City. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS." Other Taxes. The City also imposes a parking facility tax on the use of certain parking garages and lots and a real. property transfer tax, which have contributed approximately $8,785,000 and $3,954,000, respectively, in Fiscal Year 2010 -11, approximately 5% of the General Fund total revenue. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS." Vehicle License Fee Reduction The State imposes a vehicle license fee ( "VLF "), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The vehicle license fee is based on vehicle value and declines as the vehicle ages. Prior to the adoption of the Fiscal Year 2004 -05 State Budget, the fee was 2 percent of the value of a vehicle. Through legislation in prior fiscal years, the State enacted vehicle license fee reductions under which the State was required to "backfill" local governments for their revenue losses resulting from the lowered fee. The Fiscal Year 2004 -05 State Budget permanently reduced the vehicle license fee from 2 percent to 0.65 percent and deleted the requirement for backfill payments, providing, instead, that the amount of the backfill requirement will be met by an increase in the property tax allocation to cities and counties, and such backfill amounts are reflected under "Property Taxes" above. See "RISK FACTORS —State Budget." For the Fiscal Year ended June 30, 2011, the City received approximately $491,000 in total vehicle license fees. 39 DOCSOC/1515059v5/200119 -0005 Long -Term Debt The City may issue general obligation bonds for the acquisition and improvement of real property, subject to the approval of two - thirds of the voters voting on the bond proposition. A tax on all real property within the City to pay principal of and interest on general obligation bonds is levied by the City and collected by the County on the secured and unsecured property tax bills. As of September 30, 2011, the City had $13,750,000 in general obligation bonds outstanding. The City Charter of the City limits general obligation bonded indebtedness to 10.0% of the total assessed valuation of property within the City, exclusive of any indebtedness that has been or may be incurred for the purpose of acquiring and establishing a system of waterworks for the supplying of water, or for the purpose of constructing sewers or drains in the City, for which purposes a further indebtedness may be incurred by the issuance of bonds, subject only to the provisions of the California Constitution and of the City Charter. The City may enter into certain long -term lease obligations without first obtaining voter approval. The City has entered into various lease arrangements under which the City is obligated to make annual payments. Securities have been issued which certificate or are payable from these lease arrangements. As of September 1, 2011, there were $58,155,000 in non -voter approved bonded or certificated City lease obligations outstanding. In addition to the Series 2011 Bonds, the City may enter into such arrangements in the future to fund City projects or initiatives, payable from moneys in the General Fund, and such obligations may be material. Contained within the City are overlapping local agencies providing public services which have issued general obligation bonds and other types of indebtedness. A table setting forth the direct and overlapping debt of the City as of June 30, 2011 is provided below: 40 DOCSO C/1515059v5/200119 -0005 City of Santa Monica Statement of Overlapping Debt As of June 30, 2011 2010 -11 Assessed Valuation: $23,882,175,673 Redevelopment Incremental Valuation: 7,212,023,562 Adjusted Assessed Valuation: $16,670,152,111 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Total Debt 6130111 % Applicable (-0 Los Angeles County Flood Control District $ 53,795,000 1.854% Metropolitan Water District 227,670,000 0.935 Los Angeles Community College District 3,536,745,000 0.010 Santa Monica Community College District 327,892,982 57.038 Los Angeles Unified School District 11,596,250,000 0.0002 Santa Monica- Malibu Unified School District 229,595,034 57.115 City of Santa Monica 15,000,000 100. Los Angeles County Regional Park and Open Space Assessment District 197,285,000 1.824 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT Ratios to 2010 -11 Assessed Valuation: Direct Debt ($15, 000, 000) .................. ............................... ........................0.06% Total Direct and Overlapping Tax and Assessment Debt ............................ 1.42% DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations $ 1,496,977,755 1.824% Los Angeles County Superintendent of Schools Certificates of Participation 12,204,890 1.824 Santa Monica Community College District Certificates of Participation 22,400,000 57.038 Los Angeles Unified School District Certificates of Participation 492,042,567 0.0002 Santa Monica- Malibu Unified School District Certificates of Participation 15,591,501 57.115 City of Santa Monica General Fund Obligations - 61,505,000 100. TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT Less: Los Angeles County General Fund Obligations supported by landfill revenues TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT TOTAL DIRECT DEBT GROSS TOTAL OVERLAPPING DEBT NET TOTAL OVERLAPPING DEBT GROSS COMBINED TOTAL DEBT NET COMBINED TOTAL DEBT - - Ratios to Adiusted Assessed Valuation Total Direct Debt ($76,505, 000) ..........................0.46% - Gross Combined Total Debt ......... ..........................2,71% Net Combined Total Debt ............. ..........................2.70% - STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/11: $0 AB: ($450) City's Share of Debt 6130111 $ 997,359 2,128,715 353,675 187,023,599 23,193 131,133,204 15,000,000 3.598.478. $ 340,258,223 $ 27,304,874 222,617 12,776,512 984 8,905,086 61.505.000 $ 110,715,073 324,771 $ 110,390,302 $ 76,505,000 $ 374,468,296 $ 374,143,525 $ 450,973129612) $ 450,648,5251 �1 Irl Percentage of overlapping agency's assessed valuation located within boundaries of the city. IZ) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and nobonded capital lease obligations. 41 DOCSOC/1515059v5/200119 -0005 A table setting forth the pro -forma statement of net debt of the City outstanding as of June 30, 2011 is provided below: City of Santa Monica Net Debt (As of June 30, 2011) Outstanding Type of Issue Principal Amount Final Maturity General Obligation Bonds Main Library Improvements 2002 $ 15,000,000 2022 Lease Obligations Lease Revenue Bonds (Public Safety Facilities) 2002tt1 11,535,000 2021 Lease Revenue Bonds (Public Safety Facilities) 2009 8,605,000 2021 Parking Authority Lease Revenue Bonds 2002 5,865,000 2016 Lease Revenue Bonds (Civic Center Parking Project) 2004 35,500,000 2034 Subtotal 61,505,000 Revenue Bonds Wastewater Enterprise Revenue Bonds 1993 9,670,000 2022 Wastewater Enterprise Refunding Revenue Bonds 2005 12,945,000 2018 Subtotal 22,615,000 Gross Direct Debt 99,120,000 Less: Revenue Bonds (22,615,000) Net Direct Debt 76,505,000 Plus: Tax Allocation DebP 106,310,000 Plus: Overlapping Debt 506,448,525 Total Net Debt 633.463.525 To be refunded by the Series 2011B Bonds. (�) Debt of the Santa Monica Redevelopment Agency. (3l City of Santa Monica Finance Department (from data from California Municipal statistics, Inc.) as of June 30, 2011. Source: City of Santa Monica Finance Department General Fund Financial Summary The information contained in the following tables of revenues, expenditures and changes in fund balances, and assets, liabilities and fund equity has been derived from the City's audited financial statements for the four Fiscal Years 2006 -07 through 2009 -10, the unaudited financial statements for Fiscal Year 2010 -11 and the City's adopted Budget for Fiscal Year 2011 -12. See APPENDIX B— "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR TIE YEAR ENDED JUNE 30,2010." On September 1, 2010, the Redevelopment Agency of the City of Santa Monica (the "Agency ") entered into a Master Cooperation Agreement and, thereafter, two separate implementing agreements (the "Implementation Agreements ") with the City for the Agency to commit $5.7 billion to the construction of various projects in support of the Agency's Five Year Implementation Plan goals of affordable housing, disaster prevention and mitigation, community revitalization and other purposes, all in accordance with Section 33445 of the Law. The Agency's obligations to the City under the Master Cooperation Agreement and Implementation Agreements are secured by a pledge of tax increment revenues on a basis subordinate to the 42 DOCSOC/1515059v5/200119 -0005 pledge of tax increment revenues securing the Agency's outstanding tax allocation bonds and certain outstanding bank loans. Pursuant to the Master Cooperation Agreement and the Implementation Agreements, the Agency has paid $177,541,000 to the City to satisfy the Agency's Fiscal Year 2010 -11 payments under the Master Cooperation Agreement and Implementation Agreements and to prepay its obligations under such agreements for Fiscal Years 2011 -12 and 2012 -13. Such payments and prepayments are reflected in the increase in restricted cash and deferred revenue shown in the table below. See "RISK FACTORS —State Budget" for a discussion of the State's adopted Fiscal Year 2011 -12 Budget and Assembly Bills 26 and 27, which if upheld by the California Supreme Court could invalidate some, if not all, of the Master Cooperation Agreement and the Implementation Agreements, including the financial provisions therein relating to the Agency's payment to the City for Fiscal Year 2010 -11 and prepayments of amounts due in Fiscal Years 2011- 12 and 2012 -13. A copy of the City's audited financial statements for the fiscal year ended June 30, 2010 is attached as Appendix B hereto. Audited financial statements for prior years are available upon request from the Finance Department of the City. Assets Cash and investments Receivables (net, where applicable, of allowance for uncollectibles Accounts Notes Property taxes Interest City of Santa Monica General Fund Balance Sheet For Fiscal Years 2006 -07 through 2010 -11 Fiseal Year Ended June 30 2007 2008 2009 2010 2011rrr $ 125,143,099 $ 114,281,987 $ 164,482,33612' $ 186,285,798 $ 205,733,039 8,306,186 7,301,931 6,804,986 6,885,295 8,314,533 2,956,229 2,916,229 2,876,229 3,836,229 2,490,653 487,428 1,038,841 1,197,298 1,279,241 1,168,314 1,046,361 1,456,881 1,033,694 929,068 907,678 Due from other funds 3,402,840 1,376,555 - 1,959,754 Inventory 909,796 938,999 1,381,714 1,348,954 1,042,923 Prepaids 189,741 855,343 300,046 387,130 392,303 Cash—restricted 13,249,853 10,177,842 8,530,444 3,150,761 241,776,685(2) Advances to other funds 34,269,608 35,105.966 32.208.198 38,196,477 TOTAL ASSETS - - $ 185,557,126 $ 180,202,851 $ 225,748,103 $ 242,599,555 $ 501,982,379 Liabilities and Fund Balance Liabilities Accounts payable and seemed liabilities $ 11,747,860 $ 12,293,534 $ 11,156,793 $ 10,266,766 $ 15,547,630 Contracts payable (retained percentage) 236,491 473,755 515,899 185,085 721,499 Due to other governments -- 438,629 -- -- -- Deferred revenue 16,977,041 17,440,343 996,991 16,180,610 258,686,802ot Deposits — payable from restricted assets 926.130 754.711 15.727.952 496,398 3.997.732 TOTAL LIABILITIES $ 29,887,522 $ 31,400,972 $ 28,793,873 $ 27,128,859 $278,953,663 Fund Balance: Total Reserved Fund Balance 91,843,183 81,056,800 41,432,273 36,257,776 34,017,505 Total Unreserved Fund Balance — Designated 54,416,418 62,572,543 147,861,391('x4) 171,347,411 160,821,986 Total Unreserved Fund Balance — Undesignated 9.410.003 5,172,53 7,660,566 7.865,509 28,189,225 TOTAL FUND BALANCE 155,669,604 148,801,87 196,954,230 215 - 470.696 223.028,716 TOTAL LIABILITIES & FUND BALANCE S 185.557.126 $ 180 202 85 t $ 225 748 103 - $_242 599 555 S 501982379 O1 Unaudited Actuals. - (n Increases in Cash - restricted and Deferred revenue for Fiscal Year 2011 reflect payments and prepayments in the amount of $177,541,000 made by the Agency to the City pursuant to the Master Cooperation Agreement and Implementation Agreements. See "RISK FACTORS— State Budget." 1rt Includes $56.4 million of funds received by the City in 2004 and 2006 in conjunction with a legal settlement related to contamination of the City's water and held in a special revenue fund until 2009 when all restrictions on expenditures of funds were lifted 43 DOCSOC/1515059v5/200119 -0005 ( +) Reflects a change in the presentation of amounts needed to fund the remaining full cost of uncompleted projects. Prior to Fiscal Year 2011, this balance was reported as Reserved Fund Balance; starting with Fiscal Year 2009, the balance is reported as Unreserved Fund Balance — Designated. Designation for Specific Continuing Capital Projects at Jane 30, 2011 is $48.1 million. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2009 -10; City of Santa Monica Finance Department for unaudited actuals for Fiscal Year 2010 -11. City of Santa Monica General Fund Summary of Revenues and Capital and Operating Expenditures For Fiscal Years 2006 -07 through 2010 -11 1O Unaudited acmals. (�) Includes $56.4 million in funds received by the City in 2004 and 2006 in conjunction with a legal settlement related to the contamination of the City's water and held in a special revenue fund until 2009 when all restrirtions on expenditures of funds were lifted ( Includes parking revenues. (4) Includes a one -time contribution of $2.4 million public safety and $4.9 million miscellaneous to PERS toward reducing unfunded liability. (') Includes transfers to the project capital fund. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2009 -10; City of Santa Monica Finance Department for unaudited actuals for Fiscal Year 2010 -11. 44 DOCSOC/1515059v5/200119 -0005 Fiscal Year Ended June 30 2007 2008 2009 2010 2011( Revenues Property taxes $ 32,586,134 $ 36,067,632 $ 36,763,026 $ 37,419,658 $ 36,048,258 Sales taxes 33,267,253 32,356,941 .28,296,696 26,636,653 31,689,532 Other taxes 100,228,061 104,250,391 100,991,562 99,548,866 103,104,849 Licenses andpemilts(') 19,093,485 - 20,109,435 20,315,341 20,595,032 27,467,858 Intergovernmental 1,101,941 446,800 652,174 - 759,204 639,034 Charges for services 25,578,687 25,778,223 28,122,186 33,176,413 32,361,832 Fines and forfeitures 14,191,722 14,567,262 14,113,906 - 17,492,928 15,952,958 Investment income 7,979,847 5,799,315 5,411,464 4,862,312 6,481,618 Rental income 5,873,728 5,696,255 5,388,721 6,299,606 7,497,867 Other 3.980.180 5.117.139 7.510.002 5.294.873 5.080.787 Total revenue $ 243,881,038 $ 250,189,393 $ 247,565,078 $ 252,085,550 $ 266,324,593 Expenditures General government $ 35,328,010 $ 40,722,122 $ 44,733,450 $ 55,672,474 $ 59,962,195(4) Public safety 86,716,041 88,308,262 93,282,777 98,340,403 99,557,944(4) General services 32,679,323 36,943,004 45,437,347 41,049,858 38,669,355 Cultural and recreation services 42,987,556 32,316,853 33,498,492 30,851,014 37,017,524 Library 9,218,047 10,219,930 10,024,203 10,057,815 10,579,882 Housing and community development 29,684,528 31,538,299 - 29,377,311 24,885,265 25,130,106 Other 609.225 219.405 - Total expenditures $ 237,222,730 $ 240,048,470 $ 256,353,580 $ 261,076,234 $ 270,917,006 Excess of revenues over expenditures $ (6,658,308) $ 10,140,923 $ (8,788,502) $ (8,990,684) $ (4,592,413) Other financing sources (uses) Proceeds from issuance of Refunding bonds — -- — 9,155,000 -- Payment to refunded bond escrow (9,478,850) agent Transfers in 9,811,028 11,408,818 72,076,580(') 38,110,047 20,701,994 Transfers out(') - (13,767,964) (28,417,466) (15,135,727) (10,837,746) (8,551,561) Premium on debt issued 558,69 Total other financing sources $ 3,956,936 $ (17,008,648) $ 56,940,853 $ 27,507,150 $ 12,150,433 Excess of revenues and other sources over expenditures and other uses $ 2,701,372 $ (6,867,725) $ 48,152,351 $ 18,516,466 $ 7,558,020 Fund balance at beginning of year $ 152968.232 $ 155,669.604 $ 148.801,879 $ 196.954,230 $ 215.470.696 Fund balance at end of year $ 155669.604 148.801.879 S 196.954230 $ 215A70.696 $ 223 02R 716 1O Unaudited acmals. (�) Includes $56.4 million in funds received by the City in 2004 and 2006 in conjunction with a legal settlement related to the contamination of the City's water and held in a special revenue fund until 2009 when all restrirtions on expenditures of funds were lifted ( Includes parking revenues. (4) Includes a one -time contribution of $2.4 million public safety and $4.9 million miscellaneous to PERS toward reducing unfunded liability. (') Includes transfers to the project capital fund. Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Years 2006 -07 through 2009 -10; City of Santa Monica Finance Department for unaudited actuals for Fiscal Year 2010 -11. 44 DOCSOC/1515059v5/200119 -0005 2011. The following table sets forth the budgetary information for Fiscal Year 2011 -12 as adopted June 21, City of Santa Monica General Fund Revenues and Expenditures - Appropriations Fiscal Year 2011 -12 Adopted Budget Budgeted Revenues: Property Taxes Sales Taxes Other Taxes(l) Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Other Total Revenues Appropriations General Government Public Safety General Services Cultural and Recreation Services Library Housing and Community Dev. Other Subtotal Capital Projects Total Appropriations Budgeted Fiscal Year Revenues Less Appropriations for Operating and Capital Fiscal Year 2011 -12 Adopted Budget ($000's) " $ 35,852,491 41,950,000 105,703,122 59,744,431 409,758 39,986,618 17,679,000 5,118,000 10.734,238 $ 286,177,658 $ 52,734,551 99,269,065 37,484,110 30,762,966 10,968,118 25,196,814 5.293,219 261,708,843 14,817,016 $ 276,525,859 9,651,799 0> Utility User's Tax is budgeted at approximately $31.9 million, Transient Occupancy Tax at approximately $34.9 million, and Business License Tax at approximately $25.7 million. _ Investment of City Funds The City may invest moneys not immediately required for operations in a manner consistent with the City's Investment Policy (the "Investment Policy ") and State law. The Investment Policy. An Investment Committee, consisting of the City Manager, Assistant City Manager, Deputy City Manager, Director of Finance /City Treasurer, and the Treasury Administrator, provides general oversight and acts in an advisory capacity regarding City investments. In addition, the Committee will include one other department head serving one -year terms on a rotating basis. The Committee meets at least 45 DOCSO C/1515059v5/200119 -0005 once each calendar quarter to review and evaluate previous investment activity, to review the current status of all funds held by the City, to discuss anticipated cash requirements and investment activity for the next quarter, and to discuss investment strategy with the Director of Finance /City Treasurer. The policy was recently certified by the Association of Public Treasurers, United States and Canada. The Investment Policy establishes three objectives for City investment: (1) Safety of principal: The overall value of City funds shall not be diminished in the process of securing and investing those funds or over the duration of the investments. (2) Liquidity of funds: Funds shall be made available to meet all anticipated City obligations and a prudent reserve shall be kept to meet unanticipated cash requirements. (3) Return on investment: Earn a market rate of interest from City funds commensurate with the objectives of safety and availability of the principal invested. Specific Investment Restrictions. The Investment Policy mandates "prudent" investment in those instruments specifically authorized by State law and establishes additional diversification guidelines with respect to instruments, maturity, and deposit institutions. It is the City Treasurer's policy to hold investments to maturity and she does not anticipate any event in the future that would require selling investments prior to maturity. The Investment Policy restricts the average weighted maturity of all pooled City investments to a maximum of three years. The City's practice is not to permit investment of the City's non -pool securities either in derivatives or reverse repurchase agreements, nor does it permit leveraging of the City's investment portfolio. The Investment Policy is annually submitted to the City Council for approval. There is no assurance that State law and/or the Investment Policy will not be amended in the future to allow for investments that are currently prohibited. The Monthly Report. Section 711 of the City Charter delegates investment authority to the City Treasurer. The Investment Policy requires the City Treasurer to keep a record of all investment transactions, and make monthly reports to the City Council and the City Manager detailing and summarizing all transactions and stating the present status of City investments (the "Monthly Report"). The Monthly Report dated as of August 31, 2011, indicates that 77.1% of the City's investment portfolio ($453.0 million) was invested in Federal Agency securities, 9.3% ($54.6 million, all of which is 100% guaranteed by the Federal Deposit Insurance Corporation through its Temporary Liquidity Guarantee Program) was invested in corporate medium term notes, 7.9 % ($46.4 million) was invested in the Local Agency Investment Fund of the State (LAIF) and 5.7% ($33.5 million) was invested in money market funds. The market value of the City's investment portfolio was 100.2% of its book value. As of August 31, 2011, the City Treasurer reports an average annual yield to maturity of the City's investment portfolio of 1.06% and an average weighted maturity of 653 days. Insurance The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and others; and natural disasters. The City has chosen to establish risk financing internal service funds where assets are set aside for claim settlements associated with such risks of loss up to certain limits and has obtained excess liability coverage through the Authority for California Cities Excess Liability ( "ACCEL "), a joint powers authority of twelve medium -size California municipalities. ACCEL is a member of the California State Association of Counties Excess Insurance Authority for the purpose of providing excess workers' compensation coverage for major employee injury risks through a program of pooled self insurance /re- insurance and insurance on a risk sharing basis. 46 DOCSOC/1515059v5/200119 -0005 The City retains self - insurance up to $1,000,000 for general liability, automobile liability, and bus operations liability. ACCEL covers up to an additional $4,000,000 for all liabilities and arranges placement of excess of liability insurance over $5,000,000 up to $100,000,000. The City retains self insurance up to $750,000 for workers' compensation. California State Association of Counties Excess Insurance Authority covers up to an additional $4,000,000 for workers' compensation and arranges for excess of workers compensation over $5,000,000 and up to statutory limits, No claim settlements have exceeded insurance coverage in any of the past three years. In order to provide funds to pay claims, ACCEL collects premiums from each member. The premiums paid are credited with investment income at the rate earning on the Authority's investments. Based on ACCEL's June 30, 2011 audited financial statements, the City had deposits of $ (% of ACCEL's total deposits) net of unpaid claims with ACCEL. Total assets of ACCEL at June 30, 2011 were $ . ACCEL has no unpaid contributions. The City's unpaid claims liabilities are based on the results of actuarial studies. The unpaid claims liabilities are compiled by the Risk Manager of the City and include amounts for claims incurred but not reported as of year end. Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. Net present values of the unpaid claims liabilities are estimated for the year ended June 30, 2011, based on interest rates of 1.5% to 5.0 %. Revenues of the risk management funds, together with funds to be provided in the future, are expected to provide adequate resources to meet liabilities as they come due. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Series 2011 Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Series 2011 Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. General Considerations — Security for the Series 2011 Bonds The Series 2011 Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Series 2011 Bonds. The Authority has no taxing power. The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Base Rental Payments and Additional Rental Payments from any source of legally available funds and the City has covenanted in the Lease Agreement that it will take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The City is currently liable and may become liable on other obligations payable from general revenues. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event the City's revenue sources are less than its total 47 DOCSOC/1515059v5/200119 -0005 obligations, the City could choose to fund other activities before making Base Rental Payments and other payments due under the Lease Agreement. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. However, the City's appropriations have never exceeded the limitation on appropriations under Article XIHB of the California Constitution. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS — Article XIIIB of the California Constitution." Abatement In the event of substantial interference with the City's right to use and occupy any portion of the Property by reason of damage to, or destruction or condemnation of the Property, or any defects in title to the Property, Base Rental Payments will be subject to abatement. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS — Abatement." In the event that such portion of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time in which proceeds of the City's rental interruption insurance will be available in lieu of Base Rental Payments, plus the period for which funds are available from the funds and accounts established under the Indenture, or in the event that casualty insurance proceeds are insufficient to provide for complete repair or replacement of such portion of the Property or redemption of the Series 2011 Bonds, there could be insufficient funds to make payments to Owners in full. The Authority has not funded a reserve fund for the Series 2011 Bonds. It is not possible to predict the circumstances under which such an abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Property is substantially higher or lower than its value at the time of the execution and delivery of the Series 2011 Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Series 2011 Bonds. If damage, destruction, title defect or eminent domain proceedings with respect to the Property results in abatement of the Base Rental Payments related to such Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), and eminent domain proceeds, if any, are insufficient to make all payments of principal and interest with respect to the Series 2011 Bonds during the period that the Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Series 2011 Bond Owners for nonpayment under such circumstances. No Reserve Fund The Authority has not funded a reserve fund for the Series 2011 Bonds. Seismic Activity The City, like most regions that border the Pacific Ocean, is an area of significant seismic activity and, therefore, is subject to potentially destructive earthquakes. The San Andreas fault is the major active fault in the State, and is approximately 40 miles from the City. Several active or potentially active faults are located closer to the City, including the Santa Monica, the San Jacinto, the Malibu Coast, and the Newport- Inglewood faults. According to the City of Santa Monica Local Hazard Mitigation Plan (2006), seismologists believe that a 6.0 earthquake on the Newport- Inglewood fault would cause more damage than a larger quake on the San Andreas fault. On January 17, 1994, a 6.8 magnitude earthquake occurred in Northridge, California which resulted in 450 injuries and 3 fatalities in the City. The City sustained damage to 530 buildings, including 2,300 housing units and the temporary shutdown of St. John's Hospital. Over the last two decades, significant earthquake 48 DOCSOC/1515059v5 /200119 -0005 mapping and mitigation measures have been completed and public awareness has improved. City officials implemented measures to expedite recovery efforts, including streamlined permitting and fee waivers, which allowed most damaged buildings to be repaired within five years of the earthquake. Federal funds ($93.4 million) were used to complete necessary repairs and retrofit buildings to reduce effects of future earthquakes. In the Earthquake Recovery Redevelopment Project Area, formed following the Northridge earthquake, the following key improvements have been made: seismic retrofitting was completed on public parking structures 2, 4, 7, and 8; Santa Monica College's Liberal Arts Building was reconstructed with Redevelopment Agency assistance; portions of St. Johns Health Center are being reconstructed in phases to be able to remain operational during high magnitude earthquakes; and the Santa Monica UCLA Hospital Medical Center, which also suffered damage in the earthquake, has undergone improvements. The City is susceptible to tsunami and seiche hazards. A tsunami is a sea wave generated by a submarine earthquake, landslide or volcanic eruption. According to the Santa Monica Local Hazard Mitigation Plan (2006), Santa Monica's tsunami threat is considered low to moderate. A seiche is another form of earthquake -or landslide - induced wave or oscillation that can be generated in an enclosed body of water such as a lagoon or harbor. Hazardous Substances An additional environmental condition that may result in the reduction in the assessed value of property, and therefor property tax revenue available to make Base Rental Payments, would be the discovery 6f a hazardous substance that would limit the beneficial use of taxable property within the City. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the Project Area be affected by a hazardous substance, could be to reduce the marketability and value of the property by the costs of remedying the condition. Other Financial Matters Due to weakness in the economy of the State and the United States, it is possible that the general revenues of the City will decline, particularly those based on tourism. Such a reduction in revenues may include, but may not be limited to, a decline in TOT and sales tax revenues. Such financial matters may have a detrimental impact on the City's General Fund, and, accordingly, may reduce the City's ability to make Base Rental Payments. See "CITY OF SANTA MONICA FINANCES Tax Receipts — Transient Occupancy Tax" for information on TOT revenues of the City; see "CITY .OF, SANTA MONICA FINANCES — Vehicle License Fee Reduction" for information on the loss of vehicle license fee revenue by the City. State Budget The following information concerning the State's budgets has been obtained from publicly available information which the City believes to be reliable; however, the City does not guaranty the accuracy or completeness of this information and has not independently verified such information. Furthermore, it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Series 2011 Bonds is payable by or the responsibility of the State of California. The State of California is experiencing significant financial and budgetary stress. State budgets are affected by national and state economic conditions and other factors over which the City has no control. The State's financial condition and budget policies affect communities and local public agencies throughout California. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. Each State budget contains a number of measures which impact the City's finances. 49 DOCSOC /1515059v5 /200119 -0005 The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget "). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior years. Following the submission of the Governor's Budget, the California Legislature takes up the proposal. Under the California State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary sources of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. Prior to the November 2, 2010 California General Election, the Budget Act required approval by a two - thirds majority vote of each House of the Legislature. On November 2, 2010, California voters passed Proposition 25, which amended this legislative vote requirement to a simple majority. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line item vetoes are subject to override by a two - thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K -14 education) must be approved by a two- thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K -14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. On January 10, 2011, the Governor released his proposed budget for fiscal year 2011 -12 ( "Proposed Budget "). The Proposed Budget was designed to address an estimated budget shortfall of $25.4 billion in the fiscal year 2011 -12 California State Budget, consisting of an $8.2 billion projected deficit for fiscal year 2010 -11 and a $17.2 billion gap between projected revenues and spending in fiscal year 2011 -12, with a proposed reserve of $1 billion. The Proposed Budget relied on a plan to submit to the voters at a special election in June a 5 -year extension of the temporary sales tax, income tax, and vehicle license fee increases and maintaining a lower dependent exemption credit that are set to expire on June 30, 2011. The 2011 -12 Proposed Budget also included $8.2 billion in one -time savings and borrowing. These include $1.8 billion in borrowing from special funds, $1.7 billion in property tax shifts, shifting $1.0 billion in Proposition 10 reserves to fund children's programs, and $0.9 million from Proposition 63 moneys to fund community and mental health services. The Governor proposed to restructure the state -local relationship by shifting funding and responsibility to local government for certain services, resulting in a shift of an aggregate amount of $5.9 billion in State program costs to counties. The Governor also proposed eliminating the current funding mechanism for redevelopment agencies (the "RDA Provisions "). The RDA Provisions would divert an estimated $1.7 billion in fiscal year 2011 -12 to offset State General Fund costs for Medi -Cal and trial courts. An additional estimated $210 million would be distributed on a one -time basis to cities, counties, and special districts proportionate to their current share of the countywide property tax. The RDA Provisions propose that, after fiscal year 2011 -12, the money available after payment of the redevelopment agency debt and contractual obligations would be distributed to schools, counties, cities, and non - enterprise special districts for general uses. As to Low and Moderate Income Housing Fund balances, the Proposed Budget provides that amounts in the redevelopment agency's balances reserved for low- moderate income housing would be shifted to local housing authorities for low and moderate income housing. 50 DOCSOC/1515059v5/200119 -0005 In March 2011, the Governor's proposed June 2011 special election was not approved. However, the Legislature passed a package of bills resulting in $11 billion in cuts and other solutions, including $5.5 billion in cuts to health and human services, $1.2 billion in cuts to the University of California and California State University systems, $2.2 billion in transportation debt service and other reductions, $531 million in revenue proposals and $2.8 billion in loans and transfers and other solutions. On May 16, 2011, the Governor released the May Revise to the Proposed Budget. In the May Revise, an assumed $6.6 billion in new state tax revenues over the current and budget years ($3.3 billion each year) have been taken into account, but certain expenditure increases are also recognized. After accounting for budget measures adopted by the Legislature, higher revenues and updates spending projections, the State's $26.6 billion estimated budget deficit is reduced in the May Revise to $9.6 billion. The remaining $9.6 billion deficit is composed of a carry -in deficit of $4.8 billion from Fiscal Year 2010 -11 and an operating shortfall of $4.8 billion in Fiscal Year 2011 -12. The projected operating shortfall increased to $10 billion and the Governor calls for the Legislature to adopt $11 billion in new solution's to rebuild a modest reserve. On June 15, 2011, both houses of the Legislature adopted a budget and related trailer bills which varied significantly from the May Revision. Provisions substantially similar to the RDA Provisions were adopted in a trailer bill by the Legislature, except that the trailer bills included an alternative in which redevelopment agencies could individually elect to make significant payments to school districts and other taxing entities and remain in existence. On June 17, 2011 . the Governor vetoed the approved budget, without acting on the trailer bills. On June 28, 2011, the State Legislature passed the State budget for Fiscal Year 2011 -12. The Governor signed the budget prior to July 1, 2011. The adopted State budget assumes that revenues will be an additional $4 billion higher than projected in the May Revision, and contains a "trigger" mechanism pursuant to which certain expenditure reductions will be made without further legislative action in the event that the newly projected revenues are not expected to be realized (as determined by the State Director of Finance). The adopted budget does not contain the tax extensions proposed in the May Revision. Additionally, on June 29, 2011, the Governor signed the trailer bills relating to redevelopment agencies discussed above. The City receives approximately $4 million annually in tax - increment funds from the Agency for the Agency's share of administrative expenses, a portion of which is related to the administration of capital improvement projects. Moreover, pursuant to the Master Cooperation Agreement and Implementing Agreements, the Agency has paid and prepaid to the City in calendar year 2011, $229,615,000 for capital projects identified in such agreements and the Agency has also conveyed to the City fee title for a number of Agency properties, including the property on which Parking Structure 6 is to be constructed with the proceeds of the Series 2011A Bonds as a part of the Project. See "THE PROJECT." Additionally, on January 9, 2003, the City, the Agency and the Parking Authority entered into a Sale and Performance Agreement pertaining to the Santa. Monica Downtown Parking Garage Retrofit Project, which was subsequently amended on June 20, 2003 and on December 14, 2004 (as amended, the "Sale and Performance Agreement "), pursuant to which the Agency purchased from the Parking Authority certain parking garages in the City. In connection with such acquisition, the Agency entered into two separate promissory notes with the Parking Authority and the City for a combined $60,000,000.. The Parking Authority annually remits to the City the receipts from the Agency from one of the promissory notes ("Promissory Note A ") for the costs of constructing the Civic Center Parking Garage. As of June 30, 2011, Promissory Note A is outstanding in the amount of $35,500,000. The City applies the monies transferred to it from the Parking Authority to pay its annual lease payments with respect to the Authority's Lease Revenue Bonds (Civic Center Parking Project) Series 2004 (the "2004 Bonds "). Annual payments with respect to Promissory Note A are approximately $2,550,000. Pursuant to the second promissory note ( "Promissory Note B ") which is outstanding in the principal amount of $12,380,000,. the Agency makes annual payments to the Parking Authority of approximately $1.19 million each year. These payments are also remitted by the Parking Authority annually to the City General Fund 51 DOCSOC/1515059v5/200119 -0005 As discussed above, in connection with the Master Cooperation Agreement and Implementing Agreements, the Agency transferred title to several of properties to the City. These properties included the six parking garages (including Parking Structure 6) which were purchased by the Agency pursuant to the Sale and Performance Agreement. Annual parking revenues from these six parking garages is approximately [$6.0] million., Such revenues have been remitted to the City General Fund after payment of operation and maintenance expenses for the garages. The adopted State Budget for Fiscal Year 2011 -12, as signed by the Governor on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordinary Session) ( "AB1X 26 ") and Assembly Bill No. 27 (First Extraordinary Session) ("AB 1X 27 "), which the Governor signed on June 29, 2011. AB 1X 26 and ABIX 27 embody the final legislative enactment of the RDA provisions referenced above. AB1X 26 suspends various redevelopment agency activities and prohibits redevelopment agencies from incurring indebtedness, malting loans or grants, or entering into contracts after June 29, 2011. On October 1, 2011, AB1X 26 dissolves all redevelopment agencies in existence and designates "successor agencies." Property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will be allocated to various taxing entities in the county and to specified expenses of the dissolved agency. AB1X 26 provides that the successor agencies will administer the redevelopment agencies' existing "enforceable obligations." As defined in AB1X 26, "enforceable obligations" include "loans of moneys borrowed by the redevelopment agency, for a lawful purpose, to the extent they are legally required to be repaid pursuant to a required repayment schedule or other mandatory loan terms" and "any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy." AB1X 26 generally provides that following dissolution of an agency, agreements between a redevelopment agency and the city or county that established the agency are not "enforceable obligations. This could include the agreements described above between the Agency and the City. However, AB 1X 26 provides that certain agreements between a redevelopment agency and the city or county that established the agency will be deemed "enforceable obligations" if certain criteria are met. While the City expects to assert the legality and binding nature of its agreements with the Agency, including the Master Cooperation Agreement and Implementing Agreements. The City notes that the validity of AB1X 26 is currently under review by the State Supreme Court, as described below, and there can be no assurances that, if the validity of the agreements between the City and the Agency is challenged, such agreements will ultimately be determined to constitute "enforceable obligations" pursuant to AB 1X 26, or will, otherwise be determined to be enforceable. AB 1X 26 also provides that a successor entity wishing to enter or reenter into agreements with the city or county that formed the redevelopment agency it is succeeding may do so upon obtaining the approval of its oversight board. Under ABIX 27, a redevelopment agency may continue to exist, notwithstanding AB1X 26, upon the enactment by the city or county that created the redevelopment agency of an ordinance to comply with AB1X 27's provisions for participation in an Alternative Voluntary Redevelopment Program and the satisfaction of other conditions no later than November 1, 2011. A participating city or county must make specified remittances on or before January 15 and May 15 of each year to the county auditor - controller, who will allocate the remittances for deposit into a Special District Allocation Fund for specified allocation to districts that provide fire protection services and transit districts, and into a county Educational Revenue Augmentation Fund. AB 1X 27 authorizes the city or county to enter into an agreement with the redevelopment agency in that jurisdiction, whereby the redevelopment agency will transfer a portion of its tax increment to the city or county for the purpose of financing certain activities within the redevelopment area. AB 1X 27 exempts redevelopment agencies from making allocations to the Low and Moderate Income Housing Fund for Fiscal Year 2011 -2012 in order to make the payments, if the agency makes certain findings. ABIX 27 imposes specified sanctions on a city or county that fails to make the required remittances, including the elimination of the related redevelopment agency pursuant to AB 1X 26. 52 DOCSOC/1515059v5/200119 -0005 The City's specified remittances would be approximately $26.8 million in Fiscal Year 2011 -12 and additional amounts annually thereafter from City resources or, if the City determines that such a use would be lawful, fi•om Agency resources, in an amount estimated for fiscal year 2012 -13 at $6.3 million. By Ordinance No. 2368 of the City adopted August 23, 2011, the City adopted the requisite ordinance agreeing to comply with the provisions of ABIX 27. On July 18, 2011, the California Redevelopment Association, the League of California Cities, and the Cities of Union City and San Jose filed petition for a writ of mandate (the "Petition ") with the Supreme Court of California alleging that ABxl 26 and ABxl 27 violate the California Constitution, as amended by Proposition 22. See "CONSTITUTIONAL AND STATUTORY PROVISIONS — Proposition IA and Proposition 22." The petitioners allege, among other things, that ABxl 26 and ABxl 27 seek to illegally divert tax increment revenue from redevelopment agencies by threatening such agencies with dissolution if payments are not made to support the State's obligation to fund education. The Petition was accompanied by an application for a stay seeking to delay implementation of the provisions of ABxl 26 and ABxl 27 until the claims are adjudicated: On August 11, 2011, the Supreme Court accepted the case and issued a stay, which was later modified on August 17, 2011, which among other things continued the period of time that redevelopment agencies are suspended pending a determination on the merits, and set a briefing schedule designed to allow a decision to be made by January 15, 2011, the time at which the first payment under AB X26 is otherwise due. By its terms, AB1X26 provides that AB1X26 shall take effect only if the Alternative Voluntary Redevelopment Program under Part 1.9 of AB1X 27 is enacted. While ABIX27 reciprocally provides for its contingent enactment and operation only if Parts 1.8 and 1.85 of A131X 26 are enacted, ABIX27 also contains a severability clause providing that even if ABIX27 is found to be invalid, the elimination of agencies under ABIX26 is not affected. The City Attorney's Office has reviewed the legal arguments pending before the Supreme Court of California regarding the severability of AB1X 26 from AB1X 27, and is of the opinion that the text, legislative history and intent of AB1X 26 and ABIX27 lead to the conclusion that the two bills are inextricably intertwined and functionally not severable. Nonetheless, the City cannot predict whether any of the legal arguments pending before the California Supreme Court will be successful. If AB 1X27 is upheld, the City would expect to make the required annual payments and continue to receive the funding from the Agency under the existing arrangements with the Agency. If AB1X27 is not upheld, but the elimination of redevelopment agencies pursuant to AB 1X26 is allowed to stand, the City would expect to assert that the payments to be received by it pursuant to the Master Cooperation Agreement and Implementing Agreements, Promissory Note A, Promissory Note B and other arrangements with the City should be treated as "enforceable obligations," but if this treatment is not upheld, the City would lose in future fiscal years the related payments and would likely cancel related capital projects and adjust related staffing associated with these activities. Additionally, if such treatment is not upheld, title to the parking garages conveyed to the City pursuant to the Master Cooperation Agreement and Implementing Agreements could revert back to the Agency and potentially be sold by the oversight committee for the benefit of other taxing entities, which would affect the availability of parking revenues from those parking garages to the City's General Fund. There can be no assurances that AB 1X 26 and/or AB 1X 27 will not interfere with the receipt by the City from the Agency of the amounts contemplated to be received by it pursuant to the Master Cooperation Agreement and Implementing Agreements, Promissory. Note A, Promissory Note B or parking revenues from parking garages conveyed to the City by the Agency pursuant to the Master Cooperation Agreement and Implementing Agreements. No Agency monies or payments received by the City from the Agency are pledged to the Series 2011 Bonds. City believes that the potential impact on the availability of Agency funds and parking revenues should AB 1X26 be upheld and AB 1X27 not be upheld will not impact the City's availability to make Base Rental payments when due. The City makes no representations regarding the viability of the claims in the Petition, nor can the City predict whether any of the petitioners will be successful. Moreover, the City makes no representations as to how any final decision by the State Supreme Court would affect subsequent legislative acts restricting or regulating redevelopment and relationships between the City and the Agency in particular in the future. 53 DOCSOC/1515059v5/200119 -0005 The State's financial difficulties may affect the amount and timing of payments to or for the benefit of cities of funds provided by the State. From time to time, some of the State's budget solutions may increase the financial stress of cities and other local governments because they (1) decrease local revenues (particularly the property tax, road improvement funding, public safety or other categorical funded initiatives) or (2) directly or indirectly increase demand for local programs (such as public safety or indigent health programs). There can be no assurances that the State's financial difficulties will not m_ aterially adversely affect the financial condition of the City. The financial condition of the State is subject to a number of other risks in the future, including particularly potential significant increases in required state contributions to the Public Employees' Retirement System, increased financial obligations related to other post - employment benefits, and increased debt service. As noted above, the State is facing significant financial stress. There can be no assurances that, as a result of the current or any future State financial stress, the State will not significantly reduce or delay revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address the State financial difficulties. Aside from AB1X 26 and AB IX 27 described above no new proposals to reduce or delay material sources of revenues to cities were included in the adopted Fiscal Year 2011 -12 Budget. However, in Fiscal Years 2008 -09 and 2009 -10 the State either deferred payments or issued IOU's which could not immediately be cashed. No prediction can be made by the City as to what measures the State will adopt to respond to the current or potential future financial difficulties. The City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on the City's finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. There can be no assurances that State actions to respond to State financial difficulties will not adversely affect the financial condition of the City. Other than the potential impacts relating to the Agency and its financial relationships with the City described above, the City does not believe that the State budget as enacted by the Legislature on June 28, 2011 will have a material adverse impact on the City's General Fund finances, however, the City cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State's current and future budget deficits. Future State budgets could be affected by national economic conditions and other factors over which the City will have no control. To the extent that the State's annual budget process results in reduced revenues or increased expenses to the City, the City will be required to make adjustments to its budget. Substitution, Addition and Removal of Property; Additional Bonds The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of or add additional real property to the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and summarized below. After a substitution or release, the portion of the Property for which the substitution or release has been effected shall be released from the leasehold encumbrance of the Lease Agreement. See "SECURITY FOR AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS — Substitution, Addition and Removal of Property." Moreover, the Authority may issue Additional Bonds secured by Base Rental Payments which are increased from current levels. Although the Lease Agreement requires, among other things, that the Property, as constituted after such substitution or release, has an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period, it does not require that such Property have an annual fair rental value equal to the annual fair rental value of the Property at the time of substitution or release. Thus, a portion of the Property could be replaced with less valuable real property, or could be released altogether. Such a replacement or release could have an adverse impact on the security for the Series 2011 Bonds, DOCSOC/1515059v5/200119 -0005 particularly if an event requiring abatement of Base Rental Payments were to occur subsequent to such substitution or release. See APPENDIX A— "SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS — The Lease Agreement — Substitution or Release of the Property." The Indenture requires, among other things, that upon the issuance of Additional Bonds, the Ground Lease and the Lease Agreement shall have been amended, to the extent necessary, so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds; provided, however, that no such amendment shall be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period shall be in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith. Limited Recourse on Default; No Acceleration of Base Rental Failure by the City to make Base Rental Payments or other payments required to be made under the Lease Agreement, or failure to observe and perform any other terms, covenants or conditions contained in the Lease Agreement or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, constitute events of default under the Lease Agreement and permit the Trustee or the Authority to pursue any and all remedies available. In the event of a default, notwithstanding anything in the Lease Agreement or in the Indenture to the contrary, there shall be no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable, nor shall the Authority or the Trustee have any right to re -enter or re -let the Property except as described in the Lease Agreement. The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. If the City defaults on its obligation to make Base Rental Payments with respect to the Property, the Trustee, as assignee of the Authority, may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City. Alternatively, the Authority or the Trustee may terminate the Lease Agreement, retake possession of the Property and proceed against the City to recover damages pursuant to the Lease Agreement. Due to the specialized nature of the Property or any property substituted therefor pursuant to the Lease Agreement and the restrictions on its use, no assurance can be given that the Trustee will be able to re -let the Property so as to provide rental income sufficient to make all payments of principal of, interest and premium, if any, on the Series 2011 Bonds when due, and the Trustee is not empowered . to sell the Property for the benefit of the Owners of the Series 2011 Bonds. Any suit for money damages would be subject to limitations on legal, remedies against cities in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and .interest. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS" and APPENDIX A— "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The Lease Agreement— Default." Possible Insufficiency of Insurance Proceeds The Lease Agreement obligates the City to keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Property in the event of damage, destruction or title defects, subject to certain exceptions. The Authority and the City make no representation as to the ability. of any insurer to falfrll its obligations under any insurance policy obtained pursuant to the Lease Agreement and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Series 2011 Bonds when due. In addition, certain risks, such as earthquakes and floods, are not covered by the insurance required under the Lease Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2011 BONDS — Insurance." 55 DOCSOC/1515059v5/200119 -0005 Limitations on Remedies The rights of the Owners of the Series 2011 Bonds are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the Owners of the Series 2011 Bonds, and the obligations incurred by the City, may become subject to the federal bankruptcy code (Title 11, United States Code) (the `Bankruptcy Code ") and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the U.S. Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public propose and the limitations on remedies against cities in the State. Bankruptcy proceedings, or the exercise of powers by the Federal or State government, if initiated, could subject the Owners of the Series 2011 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. Under Chapter 9 of the Bankruptcy Code, which governs the bankruptcy proceedings for public agencies such as the City, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Series 2011 Bonds, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement, and from taking any steps to collect amounts due from the City under the Lease Agreement. Loss of Tax Exemption As discussed under the heading "TAX MATTERS," the interest on the Series 2011 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Series 2011 Bonds, as a result of acts or omissions of the Authority or the City in violation of its covenants in the Indenture and the Lease Agreement. Should such an event of taxability occur, the Series 2011 Bonds would not be subject to a special redemption and would remain Outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture. No Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the Series 2011 Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and .covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. CONSTITUTIONAL AND STATUTORY LVMTATIONS ON TAXES AND APPROPRIATIONS There are a number of provisions in the State Constitution that limit the ability of the City to raise and expend tax revenues. Article XIIIA of the California Constitution On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis -Gann Initiative) to the California Constitution. This amendment, which added Article XHIA to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975/76 tax bill under `full cash value', or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the 56 DOCSOC/1515059v5/2 0 0 1 1 9 -0 00 5 consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to December 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after December 1, 1978 by two- thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities). Property taxes subject to Proposition 13 are a significant source of revenues to the City's General Fund. See "CITY OF SANTA MONICA FINANCES." Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. Redevelopment agencies may capture a significant portion of taxes attributable to the assessed value of real property located within redevelopment project areas of such agencies, and this is the case in the City. Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) is allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes put of each agency's allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other limited circumstances. Article XIM of the California Constitution At the statewide special election on November 6, 1979, the voters approved an initiative entitled "Limitation on Government Appropriations" which added Article XIIIB to the California Constitution. Under Article XIIIB, state and local government entities have an annual "appropriations limit" which limits the ability to spend certain moneys which are called "appropriations subject to limitation" (consisting of tax revenues and certain state subventions together called "proceeds of taxes" and certain other funds) in an amount higher than the "appropriations limit." Article XIIIB does not affect the appropriation of monies which are excluded from the definition of "appropriations limit" including debt service on indebtedness existing or authorized as of October 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the "appropriations limit" is to be based on certain 1978 -79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if those entities' revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. The City's appropriations have never exceeded the limitation on appropriations under Article XIIIB of the California Constitution. Proposition 62 A statutory initiative ("Proposition 62 ") was adopted by the voters of the State at the November 4, 1986 General Election which (a) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two- thirds vote of the governmental agency's legislative body and by a majority of the electorate of the governmental entity, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local 57 DOCSOC/1515059v5/200119 -0005 governmental entity be approved by a two- thirds vote of the voters within the jurisdiction, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax is imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. The requirements imposed by Proposition 62 were upheld by the California Supreme Court in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal.4th 220; 45 Cal.Rptr.2d 207 (1995). Proposition 62 applies to the imposition of any taxes or the effecting of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are largely subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5; 1996. See "— Proposition 218" below. The City has effected certain tax increases after the enactment of Proposition 62 in 1986 but prior to the effective date of Proposition 218 on November 5, 1996. The Guardino decision did not decide, and the California Supreme Court has not otherwise decided, whether Proposition 62 applies to charter cities. The City is a charter city. Cases decided by the California Coma of Appeals have indicated that the voter approval requirements of Proposition 62 do not apply to certain taxes imposed by charter cities. See Fielder v City of Los Angeles, 14 Cal. App. 4th 137 (1993), Fisher v County of Alameda, 20 Cal. App. 4th 120 (1993), and Trader Sports, Inc. v. City of San Leandro, 93 Cal. App. 4th 37, 112 Cal. Rptr. 2d 677 (2001). As of the date of the Official Statement, the City Attorney believes that the provisions of Proposition 62 do not apply to charter cities. However, the City Attorney cannot opine on whether this position may be the subject of future litigation and can give no assurance that this position will be upheld if properly challenged. If ultimately found applicable to charter cities, however, Proposition 62 could affect the ability of the City to continue the imposition of certain taxes, such as business license taxes, and may further restrict the City's ability to raise revenue. Proposition 218 On November 5, 1996, California voters approved Proposition 218 —Voter Approval for Local Government Taxes — Limitation on Fees, Assessments, and Charges — Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and X1I1D to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property - related fees and charges. Proposition 218 states that all taxes imposed by local governments are deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two -thuds vote. Proposition 218 also provides that no tax, assessment, fee or charge may be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XM and Article XI11A of the California Constitution, (ii) any special tax receiving a two -thuds vote pursuant to the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, 58 DOCSOC/1515059v5/200119 -0005 other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal of reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 "shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights" protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City's General Fund. Although a portion of the City's General Fund revenues are derived from general taxes purported to be governed by Proposition 218, all of such taxes were either imposed, extended or increased prior to the effective date of Proposition 218 or in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges, such as the transient occupancy tax and the utility tax which support the City's General Fund. For example, in Fiscal Year 2012, the City has budgeted to receive approximately $34.9 million in General Fund revenues (which constitute approximately 12% of General Fund revenues) from the transient occupancy tax, approximately $[33.2] million in General Fund revenues (which constitutes approximately 11% of General Fund revenues) from the utility user's tax, approximately $25.7 million from the business license tax and $5.7 million in General Fund revenues from Measure Y sales tax revenues. Each of these taxes, and other local taxes, assessments, fees and charges could be subject to reduction or repeal by initiative under Proposition 218. Unitary Property Some amount of property tax revenue of the City is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ("unitary property "). Under the State Constitution, such property is assessed by the State Board of Equalization ( "SBE ") as pail of a "going concern" rather than as individual pieces of real or personal property. State - assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county -wide rates, and the tax revenues distributed to taxing jurisdictions (including the City) according to statutory formula generally based on the distribution of taxes in the prior year. Proposition 22 On November 2, 2010, voters in the State approved Proposition 22, which eliminates the State's ability to borrow or shift local revenues and certain State revenues that fund transportation programs. It restricts the State's authority over a broad range of tax revenues, including property taxes allocated to cities (including the City), counties, special districts and redevelopment agencies, the Vehicle License Fee, State excise taxes on gasoline and diesel fuel, the State sales tax on diesel fuel, and the former State sales tax on gasoline. It also makes a number of significant other changes, including restricting the State's ability to use motor vehicle fuel tax revenues to pay debt service on voter - approved transportation bonds. 59 DOCSOC/1515059v5/200119 -0005 Proposition IA As part of Governor Schwarzenegger's agreement with local jurisdictions, Senate Constitutional Amendment No. 4 was enacted by the Legislature and subsequently approved by the voters as Proposition IA ( "Proposition 1A ') at the November 2004 election. Proposition lA amended the State Constitution to, among other things, reduce the Legislature's authority over local government revenue sources by placing restrictions on the State's access to local governments' property, sales, and vehicle license fee revenues as of November 3, 2004. Beginning with Fiscal Year 2008 -09, the State may borrow up to 8 percent of local property tax revenues, but only if the Governor proclaims such action is necessary due to a severe State fiscal hardship and two— thirds of both houses of the Legislature approves the borrowing. The amount borrowed is required to be paid back within three years. The State also will not be able to borrow from local property tax revenues for more than 2 fiscal years within a period of 10 fiscal years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of local governments to impose or change the distribution of the statewide local sales tax. The 2009 -10 State budget included a Proposition lA diversion of $1.935 billion in local property tax revenues from cities, counties, and special districts to the State to offset State general fund spending. Such diverted revenues must be repaid, with interest, no later than June 30, 2013. The amount of the Proposition lA diversion from the City was $3,147,515. The City participated in a State - sponsored program financing the Proposition lA diversion and, accordingly, received its full share of property tax revenues. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XHIC of the State Constitution to expand the definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local government" except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payer that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payer that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property- related fees imposed in accordance with the provisions of Article XM. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those casts are allocated to a payer bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. Future Initiatives Article XIIIA, Article XM and Propositions 62, 218, 1A, 22 and 26 were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time other initiative measures could be adapted, further affecting the City's current revenues or its ability to raise and expend revenues. 60 DOCSOC/1515059v5/200119 -0005 TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the Series 2011 Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on Series 2011 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Series 2011 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. The difference between the issue price of a Series 2011 Bond (the first price at which a substantial amount of the Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Series 2011 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to the owner of the Series 2011 Bond before receipt of cash attributable to such excludable income (with respect to the Series 2011 Bonds). The amount of original issue discount deemed received by the owner of a Series 2011 Bond will increase the owner's basis in the Series 2011 Bond. In the opinion of Bond Counsel original issue discount that accrues to the owner of a Series 2011 Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Bond Counsel's opinion as to the exclusion from gross income for federal income tax purposes of the portion of each Base Rental Payment constituting interest (and original issue discount) on the Series 2011 Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City and the Authority comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to issuance of the Series 2011 Bonds to assure that the portion of each Base Rental Payment constituting interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Series 2011 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2011 Bonds. The City and the Authority have covenanted to comply with all such requirements applicable to each, respectively. The amount by which a Series 2011 Bond Owner's original basis for determining loss on sale or exchange in the applicable Series 2011 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Series 2011 Bond premium, which must be amortized under Section 171 of the Code; such amortizable Series 2011 Bond premium reduces the Series 2011 Bond Owner's basis in the applicable Series 2011 Bond (and the amount of tax - exempt interest received with respect to the Series 2011 Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Series 2011 Bond premium may result in a Series 2011 Bond Owner realizing a taxable gain when a Series 2011 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Series 2011 Bond to the Owner. Purchasers of the Series 2011 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Series 2011 Bond premium. Bond Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture, the Lease Agreement, and the Tax Certificate permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Band Counsel expresses no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (and original issue discount) due with respect to any Series 61 DOCSOC/1515059v5/200119 -0005 2011 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. The Internal Revenue Service (the "IRS ") has initiated an expanded program for the auditing of tax - exempt bond issues, including both random and targeted audits. It is possible that the Series 2011 Bonds will be selected for audit by the IRS. It is also possible that the market value of the Series 2011 Bonds might be affected as a result of such an audit of the Series 2011 Bonds (or by an audit of similar securities). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Series 2011 Bonds to the extent that it adversely affects the exclusion from gross income of interest on the Series 2011 Bonds or their market value. It is possible that subsequent to the issuance of the Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Bonds or the market value of the Bonds. It is possible that proposed legislative changes could be introduced in Congress; which, if enacted, could result in additional federal income or state tax being imposed on owners of tax - exempt state or local obligations, such as the Bonds. If any of such changes or interpretations were to take effect, it is possible that the market value or liquidity of the Bonds would be adversely affected. No assurance can be given that subsequent to the issuance of the Bonds such changes (or other changes) or interpretations will not occur. Before purchasing any of the Bonds, all potential purchasers. should consult their tax advisors regarding possible statutory or regulatory changes, and collateral tax consequences relating to the Bonds. Although Bond Counsel has rendered an opinion that the interest (and original issue discount) on the Series 2011 Bonds is excluded from gross income for federal income tax purposes provided that the City and the Authority continue to comply with certain requirements of the Code, the ownership of the Series 2011 Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Series 2011 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Series 2011 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the Series 2011 Bonds. The form of Bond Counsel's proposed opinion with respect to the Series 2011 Bonds is attached hereto in Appendix C. CERTAIN LEGAL MATTERS The validity of the Series 2011 Bonds and certain other legal matters are subject to the approving opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel. Stradling Yocca Carlson & Rauth, a Professional Corporation, is also acting as Disclosure Counsel for the City. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix C hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Bond Counsel will receive compensation from the City contingent upon the sale and delivery of the Series 2011 Bonds. From time to time, Bond Counsel represents the Underwriters on matters unrelated to the Series 2011 Bonds. Certain legal matters will be passed upon for the City by its City Attorney and for the Underwriters by Jones Hall, A Professional Law Corporation, San Francisco, California. It is anticipated that the Series 2011 Bonds in definitive form will be available for delivery to DTC in New York, New York on or about November , 2011. ABSENCE OF LITIGATION To the best knowledge of the City, the Authority and the City Attorney, there is no action, suit or proceeding pending or threatened either restraining or enjoining the execution or delivery of the Series 2011 62 DOCSOC/1515059v51200119 -0005 Bonds, the Lease Agreement or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority or the City taken with respect to any of the foregoing. There are a number of lawsuits and claims pending against the City. In the opinion of the City and the City Attorney, and taking into account likely insurance coverage and litigation reserves, there are no lawsuits or claims pending against the City which will materially affect the City's finances so as to impair its ability to pay Base Rental Payments when due. UNDERWRITING The Series 2011 Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a division of Stifel Nicolaus, as representative of itself and E. I. De La Rosa & Co., Inc.. (collectively, the "Underwriters "). The Underwriters will purchase the Series 2011 Bonds from the Authority at an aggregate purchase price representing the principal amount of the Series 2011 Bonds, plus $ of original issue premium and less $ of Underwriters' discount. The Series 2011 Bonds are offered for sale at the initial prices stated on the inside cover page of this Official Statement, which may be changed from time to time by the Underwriters. The Series 2011 Bonds may be offered and sold to certain dealers at prices lower than the public offering prices. RATINGS Fitch Ratings, Moody's Investors Service, hie. and Standard & Poor's Ratings Services, have given the Series 2011 Bonds the ratings set forth on the cover page hereof. Such ratings reflect only the views of such rating agencies, and an explanation of the significance of the ratings may be obtained by contacting them at: Fitch, hie., One State Street Plaza, New York, New York 10004, Moody's Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York 10007, and Standard & Poor's Ratings Services, 55 Water Street, New York, New York 10041. Such ratings are not a recommendation to buy, sell or hold the Series 2011 Bonds. There is no assurance that such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by such organizations, if in their judgment circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2011 Bonds. FINANCIAL ADVISOR Public Resources Advisory Group, Los Angeles, California, served as financial advisor to the Authority and the City with respect to the sale of the Series 2011 Bonds. Public Resources Advisory Group will receive compensation contingent upon the sale and delivery of the Series 2011 Bonds CONTINUING DISCLOSURE The City has covenanted for the benefit of the Owners of the Series 2011 Bonds to provide annually certain financial information and operating data relating to the Series 2011 Bonds and the City (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. For a complete listing of items of information which will be provided in each Annual Report. and further description of the City's undertaking with respect to the Annual Report and certain enumerated events, see APPENDIXE— "FORM OF CONTINUING DISCLOSURE CERTIFICATE." The Annual Report is to be provided by the City not later than eight (8) months after the end of the City's fiscal year (which currently would be March 1), commencing with the report for the 2010 -11 Fiscal Year. The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5). The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. 63 DOCSOC/1515059v5/200119 -0005 FINANCIAL STATEMENTS OF THE CITY Included herein as Appendix B are the audited financial statements of the City as of and for the year ended June 30, 2010, together with the report thereon dated December 28, 2010 of Mayer Hoffinan McCann P.C., hvine, California, certified public accountants (the "Auditor "). Such audited financial statements have been included herein in reliance upon the report of the Auditor. The Auditor has not undertaken to update the audited financial statements of the City or its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated December 28, 2010. The City has prepared audited financial statements of the City. The audited financial statements of the City for fiscal year ended June 30, 2011 are expected to be released during December, 2011. The City believes that the Fiscal Year 2010 -11 audited financial statements will not show a material difference in the City's financial condition from the unaudited Fiscal Year 2010 -11 financial information provided herein and that there has not been any material adverse change in the financial conditions of the City's General Fund since June 30, 2010[, although certain tax revenues have declined since June 30, 2010]. See "CITY OF SANTA MONICA FINANCES." 1191 Me) 04aW411►IR1IIIMy References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Indenture, the Lease Agreement, the Ground Lease and other documents are available, upon request, and upon payment to the City of a charge for copying, mailing and handling, from the City Clerk at the City of Santa Monica, 1685 Main Street, Santa Monica, California 90401. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the City and the purchasers or Owners of any of the Series 2011 Bonds. the City. The execution and delivery of this Official Statement have been duty authorized by the Authority and SANTA MONICA PUBLIC FINANCING AUTHORITY By: Treasurer CITY OF SANTA MONICA City Manager 64 DOCSOC/1515059v5/200119 -0005 APPENDIX A SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS A -1 DOCSOC/1515059v5/200119 -0005 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2010 B -1 DOCSOC/1515059v5/200119 -0005 APPENDIX C PROPOSED FORM OF BOND COUNSEL OPINION [Date of Delivery]. Santa Monica Public Financing Authority 1685 Main Street Santa Monica, California 90401 Re: $ Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A $ Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B Ladies and Gentlemen We have acted as bond counsel in connection with the issuance by the Santa Monica Public Financing Authority (the "Authority ") of the Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A (the "Series 2011A Bonds ") and the Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B ( the "Series 2011B Bonds" and, together with the Series 2011A Bonds, the "Bonds ") in the aggregate principal amount of $ . In such connection, we have reviewed the Indenture, dated as of November 1, 2011 (the "Indenture "), by and among The Bank of New York Mellon Trust Company, N.A., as Trustee (the "Trustee "), the Authority and the City of Santa Monica (the "City "), the Lease Agreement, dated as of November 1, 2011 (the "Lease Agreement "), by and between the City and the Authority, the Ground Lease, dated as of November 1, 2011 (the "Ground Lease "), by and between the City and the Authority, the Assignment Agreement, dated as of November 1, 2011 (the "Assignment Agreement "), by and between the Authority and the Trustee, the Tax Certificate of the Authority and the City, dated as of the date hereof (the "Tax Certificate "), opinions of counsel to the Authority, the City and the Trustee, certificates of the Authority, the City and the Trustee and others and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The obligation of the City to pay Base Rental Payments in accordance with the terms of the Lease Agreement is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make Base Rental Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof. (2) The Lease Agreement and the Indenture have been duly authorized, executed and delivered by the City and the Authority and constitute valid and legally binding agreements of the City and the Authority enforceable against the City and the Authority in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to C -1 DOCSO C/1 515059v5/200119-0005 or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease Agreement or the Indenture with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver. (3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that, with respect to corporations, interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. (4) Interest (and original issue discount) on -the Bonds is exempt from personal income taxes imposed in the State of California. (5) The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Bond owner will increase the Bond owner's basis in the applicable Bond. Original issue discount that accrues to a Bond owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph 3 above) and is exempt from State of California personal income tax. (6) The amount by which a Bond owner's original basis for determining loss on sale or exchange in a Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond owner's basis in the applicable Bond (and the amount of tax - exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond owner realizing a taxable gain when a Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the owner. The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the Authority comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to the delivery of the Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) with respect to the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City and the Authority have covenanted to comply with all such requirements. Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any tax consequences with respect to the Bonds. Certain agreements, requirements and procedures contained or referred to in the Indenture, the Tax Certificate executed by the City and the Authority and other documents related to the Bonds may be changed and certain actions may be taken or omitted, under the circumstances and subject fo the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax - exempt obligations. We express no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (and original issue discount) due with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. C -2 DOCSOC/1515059,01200119 -0005 We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease Agreement, the Ground Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Bonds terminates on the date of their execution.and delivery. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds and expressly disclaim any duty to advise the owners of the Bonds with respect to matters contained in the Official Statement. Respectfully submitted, C -3 DOCSOC/1515059v5/200119 -0005 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate, dated as of November 1, 2011 (the "Disclosure Certificate ") is executed and delivered by the City of Santa Monica (the "City ") in connection with the execution and delivery of the Santa Monica Public Financing Authority's (the "Authority ") $ Lease Revenue/Refanding Bonds, Series 2011A (the "Series 2011A Bonds ") and the $ Lease Revenue Refunding Bonds, Series 2011B (the "Series 2011B Bonds" and, together with the Series 2011A Bonds, the "Bonds "). WHEREAS, the Bonds are being issued pursuant to an Indenture, dated as of November 1, 2011 (the "Indenture"), by and among the Authority, the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee "). WHEREAS, the Bonds are payable from the base rental payments to be made by the City under the Lease Agreement, dated as of November 1, 2011 (the "Lease Agreement "), between the City, as lessee, and the Authority, as lessor; and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with the Rule (defined below). NOW, THEREFORE, the City covenants as follows: SECTION 1. Definitions. hi addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Comprehensive Annual Financial Report provided by the City pursuant to, and as described in, Sections 2 and 3 of this Disclosure Agreement. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the City Manager of the City, the Finance Director of the City or their designee, or such other officer or employee as the City shall designate in writing from time to time. "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) and (b) of this Disclosure Certificate. "MSRB" shall mean the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. "Official Statement" shall mean the Official Statement relating to the Bonds, dated December 3, 2011. D -1 DOCSOC/1515059v5/200119 -0005 "Participating Underwriters" shall mean the original Underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Repository" shall mean the Municipal Securities Rulemaking Board, which can be found at http: / /emma.msxb.org. "Rule" shall mean Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to fine. "State" shall mean the State of California. SECTION 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing April 1, 2012, with the report for the 2010 -11 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate, with a copy to the Trustee. Not later than five (5) Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent, if other than the City. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section of this Disclosure Certificate. If the City's fiscal year changes, the City, upon becoming aware of such change, shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The City shall provide a written certification with each Annual Report famished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report. (b) If by five (5) Business Days prior to the Annual Report Date, the Dissemination Agent (if other than the City) has not received a copy of the Annual. Report, the Dissemination Agent shall notify the City of such non - receipt. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the Annual Report Date, the Dissemination Agent shall provide to the MSRB (with a copy to the Trustee and the Participating Underwriters) a notice, in substantially the form attached as Exhibit A. (d) Unless the City has done so pursuant to Section 3(a) above, the Dissemination Agent (if other than the City) shall: (i) determine each year prior to the Annual Report Date the then - applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports;. and (ii) if the Dissemination Agent is other than the City, file a certificate with the City to the effect that the Annual Report has been provided pursuant to this Disclosure Certificate, stating, to the extent it can confirm such filing of the Annual Report, the date it was provided. SECTION 3. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) The City's audited financial statements, prepared in accordance with generally accepted auditing standards for municipalities in the State of California. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the D -2 DOCSOC/1515059v5/200119 -0005 final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding subsection (a) by the date required by Section 4 hereof, updates of Tables entitled City of Santa Monica Net Debt (as of [June 30, 2011]) and the then current fiscal year budget in substantially the form set forth in the Official Statement. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. SECTION 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) days after the event, if material: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposal Issue (IRS Form 5701 -TEB); 6. Tender Offers; 7. Defeasances; 8. Rating changes; and 9. Bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2011 Bonds, if material in a timely manner not more than ten (10) days after occurrence: 1. unless described in Section 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. modifications to the lights of Bondholders; 3. optional, unscheduled or contingent Bond calls; D -3 DOCSO C/1515059v5/200119 -0005 4. release, substitution or sale of property securing repayment of the Bonds; 5. non - payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the Authority or the sale of all or substantially all of the assets of the City or the Authority, other than in_the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and appointment of a successor or additional trustee or the change of the name of a trustee. ' (c) If the City determines that knowledge of the occurrence of a Listed Event under subsection (b) would be material under applicable federal securities laws, and if the Dissemination Agent is other than the City, the City shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to file a notice of such occurrence with the MSRB in an electronic format as prescribed by the MSRB in a timely manner not more than ten (10) Business Days after the event. (d) If the City determines that the Listed Event under subsection (b) would not be material under applicable federal securities laws and if the Dissemination Agent is other than the City, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence. (e) The City hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the City and, if the Dissemination Agent is other than the City, the Dissemination Agent shall not be responsible for determining whether the City's instructions to the Dissemination Agent under this Section S comply with the requirements of the Rule. SECTION 5. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 6. Termination of Reporting Obligation. The obligations of the City, the Trustee and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City and shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or D -4 DOCSOC/1515059v5/200119 -0005 waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Repoli, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 4(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Bond to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City to comply with this Disclosure Agreement shall be an action to compel performance. No Bond holder or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. SECTION 11. Duties Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney's fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. D -5 DOCSOC/1515059v5/200119 70005 SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, if any, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. CITY OF SANTA MONICA M Rod Gould, City Manager Maria M. Stewart, City Clerk APPROVED AS TO FORM: Marsha Jones Moutrie, City Attorney D -6 DOCSOC/1515059v5/200119 -0005 _-4: r. •- NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Santa Monica Public Financing Authority Name of Issue: Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A and Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B Date of Issuance: November , 2011 NOTICE IS HEREBY GIVEN that the City of Santa Monica (the "City") has not provided an Annual Report with respect to the above -named Bonds as required by the Continuing Disclosure Certificate, dated as of November 1, 2011, executed by the City. [The City anticipates that the Annual Report will be filed by ] Dated: CITY OF SANTA MONICA D -7 DOCSOC/1515059v5/200119 -0005 APPENDIX E BOOK -ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC's book -entry only system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Series 2011 Bonds, payment of principal, premium, if any, accreted value and interest on the Series 2011 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Series 2011 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. 1. The Depository Trust Company ( "DTC"), New York, NY, will act as securities depository for the Series 2011 Bonds (the "Securities "). The Securities will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered Security certificate will be issued for each maturity of the Securities in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world's largest securities depository, is a limited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts.. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has Standard & Poor's highest rating: "AA +." The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org, 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual, purchaser of each Security ( "Beneficial Owner ") is in tam to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial E -I DOCSOC/1515059v5/200119 -0005 Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to hrdirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their, names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's NM Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. . Principal, redemption price and interest payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Authority or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. If applicable, a Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to tender /remarketing agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to tender /remarketing gent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered Securities to tender /remarketing agent's DTC account. E2 DOCSOC/1515059v5/200119 -0005 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Authority or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 11. The Authority may decide to discontinue use of the system of book - entry -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to, DTC. E -3 DOCSOC/1515059v5/200119 -0005 ATTACHMENT F Stradling Yocca Carlson & Rauth Draft of 10/19/11 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2011A SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2011B BOND PURCHASE AGREEMENT ,2011 Santa Monica Public Financing Authority 1685 Main Street Santa Monica, California 90401 City of Santa Monica 1685 Main Street Santa Monica, California 90401 Ladies and Gentlemen: The undersigned Stifel, Nicolaus & Company Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus, as representative of itself (the "Representatives ") and E. J; De La Rosa & Co., Incorporated (collectively, the "Underwriter "), acting not as a fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement (which, together with Exhibit A, is referred to as the "Purchase Contract') with the Santa Monica Public Financing Authority (the "Authority ") and the City of Santa Monica, California (the "City "), which, upon the acceptance of the Authority and the City, will be binding upon the Authority, the City and the Underwriter. This offer is made subject to acceptance by the Authority and by the City by the execution of this Purchase Contract and delivery of the same to the Underwriter prior to 9:00 A.M., California time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Authority and the City at any time prior to the acceptance hereof by the Authority and the City. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture, defined below. Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements herein set forth, the Underwriter hereby agrees to purchase from the Authority and the City, and the Authority and the City hereby agree to issue, sell and deliver to the Underwriter all (but not less than all) of the Santa Monica Public Financing Authority Lease Revenue Bonds, Series 2011A (the "Series 2011A Bonds ") in the aggregate principal amount of $ and the Santa Monica Public Financing Authority Lease Revenue Refunding Bonds, Series 2011B (the "Series 2011B Bonds ") in the aggregate principal amount of $ (collectively the Series 2011A. Bonds and the Series 2011B Bonds are referred to herein as the "Bonds "). The Bonds will be dated as of their date of delivery. Interest on the Bonds shall be payable semiannually on June 1 and December I in each year (each an "Interest DOCSOC /1518102v4/200119 -0005 Payment Date ") commencing June 1, 2012 and will bear interest at the rates and on the dates as set forth in Exhibit A hereto. The purchase price for the Bonds shall be $ (which includes an Underwriter's discount of $ and an original issue premium in the amount of The City and Authority acknowledge and agree that: (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm's- length commercial transaction among the City, the Authority and the Underwriter; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not acting as a Municipal Advisor (as defined in Section 15B of The Securities Exchange Act of 1934, as amended), financial advisor or fiduciary; (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the City or the Authority with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the City or the Authority on other matters); and (iv) the City and the Authority have consulted their own legal, financial and other advisors to the extent they have deemed appropriate. Section 2. The Bonds. The Bonds shall be secured by revenues consisting primarily of base rental payments ( "Base Rental ") to be paid by the City pursuant to a certain Lease Agreement, dated as of November 1, 2011 (the "Lease Agreement ") by and between the Authority and the City. The Authority's right to receive the Base Rental due under the Lease Agreement and to exercise remedies upon default under such Lease Agreement shall be assigned to the Trustee for the benefit of the owners of the Bonds pursuant to an Assignment Agreement, dated as of November 1, 2011 (the "Assignment Agreement "), by and between the Authority and The Bank of New York Mellon Trust Company, N.A.; as trustee (the "Trustee "). The Bonds shall be as described in, and shall be secured under and pursuant to an Indenture, dated as of November 1, 2011, by and among the Authority, the City and the Trustee (the "Indenture ") substantially in the form previously submitted to the Underwriter with only such changes therein as shall be mutually agreed upon by the Authority, the City and the Underwriter. The proceeds of the Bonds shall be used as follows: (i) a portion of the proceeds of the Series 2011B Bonds shall be used to provide for the refunding of the Authority's Lease Revenue Bonds, Series 2002A (the "Refunded Bonds ") and the City's lease obligations in connection therewith, the proceeds of which were used to finance a portion of the costs of the acquisition, construction and installation of certain capital improvements constituting a public safety facility and related improvements, facilities and equipment (the "2002 Project "), (ii) a portion of the proceeds of the Series 2011A Bonds shall be used to pay the cost of certain capital improvements of the City described generally as Parking Structure #6, subject to change as set forth in the Lease Agreement (the "2011 Project" and, together with the 2002 Project, the "Project "), and (iii) a portion of the proceeds of the Series 2011A Bonds and the Series 2011B Bonds shall be used to pay for the costs of issuance of the Bonds. Section 3. Public Offering. The Underwriter agrees to make an initial public offering of all the Bonds at the public offering prices (or yields) set forth on Exhibit A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as they deem necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth 2 DOCSOC/1518102v4/200119 -0005 on Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. The Representative shall provide to the Authority and the City on the Closing Date a certificate setting forth the offering prices to the public of each maturity of the Bonds at which a substantial amount of such maturities were sold, such certificate to be in a form mutually acceptable to Bond Counsel and the Underwriter. Section 4. The Official Statement. By its acceptance of this proposal, the Authority and the City ratify, confirm and approve of the use and distribution by the Underwriter prior to the date hereof of the preliminary official statement relating to the Bonds dated 2011 (including the cover page, all appendices and all information incorporated therein and any supplements or amendments thereto and as disseminated in its printed physical form or in electronic form in all respects materially consistent with such physical form, the "Preliminary Official Statement') that authorized officers of the City deemed "final" as of its date, for purposes of Rule 15c2 -12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2 -12 ") except for certain omissions permitted to be omitted therefrom by Rule 15c2 -12. The Authority and the City hereby agree to deliver or cause to be delivered to the Underwriter, within seven business days of the date hereof, copies of the final official statement, dated the date hereof, relating to the Bonds (including all information previously permitted to have been, omitted by Rule 15c2 -12, the cover page, all appendices, all information incorporated therein and any amendments or supplements as have been approved by the Authority, the City and the Underwriter (the "Official Statement')) in such quantity as the Underwriter shall reasonably request to comply with Securities and Exchange Commission Rule 15c2- 12(b)(4) and the rules of the Municipal Securities Rulemaking Board (the "MSRB"). The Underwriter hereby agrees that it will not request that payment be made by any purchaser of the Bonds prior to delivery by the Underwriter to the purchaser of a copy of the Official Statement. The Underwriter agrees to (i) provide the Authority and the City with final pricing information on the Bonds on a timely basis and (ii) promptly file a copy of the final Official Statement, including any supplements prepared by the Authority or the City with the Municipal Securities Rulemaking Board, which can be found at http: / /emma.msrb.org. The Authority and the City hereby approve of the use and distribution by the Underwriter of.the Official Statement in connection with the offer and sale of the Bonds. The Authority and the City will cooperate with the Underwriter in the filing by the Underwriter of the Official Statement with the Municipal Securities Rulemaking Board. Section 5. Closing. At 8:00 a.m., California time, on 2011, or at such other time or date as the Authority and the Representative agree upon, the Authority shall deliver or cause to be delivered to the Trustee, and the Trustee shall deliver or cause to be delivered to The Depository Trust Company, New York New York ( "DTC "), the Bonds in definitive form, duly executed and authenticated. Concurrently with the delivery of the Bonds, the Authority and the City will deliver the documents hereinafter mentioned at the offices of Stradling Yocca Carlson & Rauth, Newport Beach, California or another place to be mutually agreed upon by the Authority, the City and the Representative. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer in immediately available funds. This payment for and delivery of the Bonds, together with the delivery of the aforementioned documents, is herein called the "Closing." The Bonds of each series shall be registered in the name of Cede & Co., as nominee of DTC in denominations of five thousand dollars ($5,000) or any integral multiple thereof, at least three business days prior to the Closing and shall be made available to the Representative at least one DOCSOC/1518102v4/200119 -0005 (1) business day before the Closing for purposes of inspection and packaging. The Authority and the City acknowledge that the services of DTC will be used initially by the Underwriter in order to permit the issuance of the Bonds in book -entry form, and agree to cooperate fully with the Underwriter in employing such services. Section 6. Representations, Warranties and Covenants of the Authority. The Authority represents, warrants and covenants to the Underwriter and the City that: (a) The Authority is and will be at the date of Closing a public body, corporate and politic, duly organized and existing pursuant to and under the Constitution and laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Indenture, the Ground Lease Agreement, dated as of November 1, 2011 by and between the City and the Authority (the "Ground Lease "), the Lease Agreement, the Assignment Agreement, the Escrow Agreement dated as of November 1, 2011 (the "Escrow Agreement "), by and among the City, the Authority and The Bank of New York Mellon Trust Company, N.A., as Escrow Bank, and this Purchase Contract (collectively, the "Authority Documents "). (b) By official action of the Authority prior to or concurrently with the acceptance hereof, the Authority has duly approved the distribution of the Preliminary Official Statement and the distribution of the Official Statement (including in electronic form), and has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations on its part contained, in the Authority Documents. When executed and delivered, each Authority Document will constitute the legal, valid and binding obligation of the Authority enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors' rights generally. (c) Prior to the date hereof, the Authority has provided to the Underwriter for its review the Preliminary Official Statement that an authorized officer of the City has deemed final for purposes of Rule 15c2 -12, has approved the distribution of the Preliminary Official Statement and the Official Statement and has duly authorized the execution and delivery of the Official Statement (including in electronic form). The Preliminary Official Statement, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to The Depository Trust Company and its book -entry system, as to which no view is expressed), in light of the circumstances under which they were made, not misleading. At the date hereof and on the Closing, the Final Official Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to The Depository Trust Company and its book -entry system, as to which no view is expressed), in light of the circumstances under which they were made, not misleading. (d) To the best knowledge of the undersigned officer of the Authority, the execution and delivery by the Authority of the Authority Documents and the approval and execution by the Authority of the Official Statement and compliance with the provisions on the Authority's part contained in the Authority Documents, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject to, which conflict, breach or default has or may have a material adverse effect on the ability of the Authority to carry out its obligations under the Authority Documents, nor will any such execution, El DOCSOC /151 S 102x4/200119 -0005 delivery, adoption or compliance result in the creation or imposition of any material lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the Authority under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the Authority Documents. (e) The Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment. or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (f) To the best knowledge of the undersigned officer of the Authority, after reasonable inquiry, the Authority is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, in each case which breach or default has or may have a material adverse effect on the ability, of the Authority to perform its obligations under the Authority Documents. (g) As of the time of acceptance hereof and as of the date of Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before. or by any court, government agency, public board or body, is pending or, to the best knowledge of the officers of the Authority,. threatened (i) in any way questioning the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices, (ii) affecting, contesting or seeking to. prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby including with respect to the acquisition and construction of the 2011 Project, or contesting the exclusion of the interest on the Bonds from gross income for federal income tax purposes . or contesting the powers of the Authority to enter into the Authority Documents or (iii) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clause (i) through (iii) of this sentence. (h) Any certificate signed by any officer of the Authority authorized to execute such certificate in connection with the execution, sale and delivery of the Bonds and delivered to the Underwriter shall be deemed a representation and warranty of the Authority to the Underwriter and the City as to the statements made therein but not of the person signing such certificate. 5 DOCSOC/1 5 18 102v4/200119-0005 Section 7. Representations, Warranties and Covenants of the City. The City represents, warrants and covenants to the Underwriter and the Authority that: (a) The City is and will be at the date of Closing a charter city and a municipal corporation duly organized and existing pursuant to and under the Constitution and laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Continuing Disclosure Certificate relating to the Bonds (the "Continuing Disclosure Certificate "), the Ground Lease, the Lease Agreement, the Indenture, the Escrow Agreement and this. Purchase Contract (collectively, the "City Documents," and together with the Authority Documents, the "Legal Documents ") and has by official action duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in the City Documents for the purpose of financing and refinancing the Project. (b) By official action of the City prior to or concurrently with the acceptance hereof, the City has duly approved the distribution of the Preliminary Official Statement and the distribution of the Official Statement (including in electronic form), and has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained, in the City Documents. When executed and delivered, each City Document will constitute the legally valid and binding obligation of the City enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors' rights generally. (c) The Preliminary Official Statement heretofore delivered to the Underwriter is hereby deemed final by the City as of its date and as of the date hereof, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(i) of Rule 15c2 -12. The Preliminary Official Statement, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to The Depository Trust Company and its book -entry system, as to which no view is expressed), in the light of the circumstances under which they were made, not misleading. At the date hereof and on the Closing, the Final Official Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to The Depository Trust Company and its book -entry system, as to which no view is expressed), in the light of the circumstances under which they were made, not misleading. (d) To the best knowledge of the undersigned officer of the City, the execution and delivery by the City of the City Documents and the approval by the City of the Official Statement and compliance with the provisions on the City's part contained in the City Documents, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject to, which conflict, breach or default has or may have a material adverse effect on the ability of the City to carry out its obligations under the City Documents, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any material lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of City under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the City Documents including with respect to the acquisition and construction of the 2011 Project. M DOCSOC/1518102v4 /200119 -0005 (e) The City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental Authority prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (f) To the best knowledge of the undersigned officer of the City, after reasonable inquiry, the City is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, in each case which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents. (g) The financial statements relating to the receipts, expenditures and cash balances of the City as of June 30, 2011 as set forth in the Official Statement fairly represent the receipts, expenditures and cash balances of the General Fund. Except as disclosed in the Official Statement or otherwise disclosed in writing to the Underwriter, there has not been any materially adverse change in the financial condition of the General Fund or in its operations since June 30, 2011 and there has been no occurrence, circumstance or combination thereof which is reasonably expected to result in any such materially adverse change. (h) As of the time of acceptance hereof and as of the date of Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending or, to the best knowledge of the officers of the City, threatened (i) in any way questioning the corporate existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby including with respect to the acquisition and construction of the 2011 Project, or contesting the exclusion of the interest on the Bonds from gross income for federal income tax purposes or contesting the power of the City to enter into the City Documents; (iii) which may result in any material adverse change to the financial condition of the City or to its ability to pay the Base Rental when due;. or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clause (i) through (iv) of this sentence. (i) To the extent required by law, the City will undertake, pursuant to the Lease Agreement and the Continuing Disclosure Certificate, to provide annual reports and notices of certain events. A description of this undertaking is set forth in Appendix D to the Preliminary Official Statement and will also be set forth in the final Official Statement. 7 DOCSOC/1518102v4/200119 -0005 0) Any certificate signed by any officer of the City authorized to execute such certificate in connection with the execution, sale and delivery of the Bonds and delivered to the Underwriter shall be deemed a representation and warranty of the City to the Underwriter and the Authority as to the statements made therein but not of the person signing such certificate. (k) The City has never failed to comply in all material respects with any previous undertakings with regard to Rule 15c2 -12 to provide annual financial and operating data or notices of material events. Section 8. Conditions to the Obligations of the Underwriter. The Underwriter has entered into this Purchase Contract in reliance upon the representations and warranties of the Authority and the City contained herein. The obligations of the Underwriter to accept delivery of and pay for the Bonds on the date of the Closing shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the statements of the officers and other officials of the Authority and of the City, as well as authorized representatives of Bond Counsel, the Trustee, Disclosure Counsel and the Financial Advisor made in any Bonds or other documents furnished pursuant to the provisions hereof; to the performance by the Authority and the City of their obligations to be .performed hereunder at or prior to the date of the Closing; and to the following additional conditions: (a) The representations, warranties and covenants of the City and the Authority contained herein shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing. (b) At the time of Closing, the Legal Documents shall be in full force and effect as valid and binding agreements between or among the various parties thereto, and the Legal Documents and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter, and all such reasonable actions as, in the opinion of Bond Counsel, shall reasonably deem necessary in connection with the transactions contemplated hereby; (c) At the time of the Closing, no default shall have occurred or be existing under the Authority Documents, the City Documents, or any other agreement or document pursuant to which any of the City's financial obligations were executed and delivered, and the City shall not be in default in the payment of principal or interest with respect to any of its financial obligations, which default would adversely impact the ability of the City to make the Base Rental. (d) In recognition of the desire of the Authority, the City and the Underwriter to effect a successful public offering of the Bonds, and in view of the potential adverse impact of any of the following events on such a public offering, this Agreement shall be subject to termination in the absolute discretion of the Underwriter by notification, in writing, to the Authority and the City prior to delivery of and payment for the Bonds, if at any time prior to such time, regardless of whether any of the following statements of fact were in existence or known of on the date of this Purchase Contract: (i) any event shall occur which makes untrue any statement or results in an omission to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not 8 DOCSOC/1518102v4/200119 -0005 misleading, which event, in the reasonable opinion of the Underwriter would materially or adversely affect the ability of the Underwriter to market the Bonds; or (ii) the marketability of the Bonds or the market price thereof, in the opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State of California, or the amendment of legislation pending as of the date of this Purchase Contract in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority affecting the federal or State tax status of the Authority or the City, or the interest on or with respect to bonds or notes (including the Bonds); or (iii) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State, or a decision by any court of competent jurisdiction within the State shall be rendered which materially adversely affects the market price of the Bonds; or (iv) an order, decree or injunction issued by any court of competent jurisdiction, or order, ruling, regulation (final, temporary or proposed), official statement or other form of notice or communication 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: (i) obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended; or (ii) the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; or (v) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, to the effect that obligations of the general character of the Bonds, or the Bonds are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then W DOCSOC /1518102v4/200119 -0005 in effect, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; or (vi) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any domestic governmental authority or by any domestic national securities exchange, which are material to the marketability of the Bonds; or (vii) a general banking moratorium shall have been declared by federal, State or New York authorities, or the general suspension of trading on any national securities exchange; or (viii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is materially adverse such as to make it in the sole judgment of the Underwriter, impractical or inadvisable to proceed with the purchase or delivery of the Bonds as contemplated by the Final Official Statement (exclusive of any amendment or supplement thereto); or (ix) any rating of the Bonds or the rating of any obligations of the City secured by the City's general fund shall have been downgraded or withdrawn by a national rating service, which, in the opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (x) the commencement of any action, suit or proceeding described in Section 6(g) or Section 7(h); (e) at or prior to the Closing, the Underwriter shall receive the following documents, in each case to the reasonable satisfaction in form and substance of the Underwriter: (i) all resolutions relating to the Bonds adopted by the Authority and certified by an authorized official of the Authority authorizing the execution and delivery of the Bonds, the Authority Documents and the Official Statement; (ii) all resolutions relating to the Bonds adopted by the City and certified by an authorized official of the City authorizing the execution and delivery of the City Documents and the delivery of the Bonds and the Official Statement, together with proof of publication of notice of public hearing, as applicable; (iii) the Legal Documents duly executed and delivered by the respective parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Representative; (iv) the approving opinion of Stradling Yocca Carlson & Rauth, Bond Counsel, dated the date of Closing and addressed to the Authority and the City, in substantially the form attached as Appendix D to the Official Statement, and a reliance letter thereon addressed to the Representative; 10 DOCSOC/1518102v4/20 0 1 19 -0 0 0 5 (v) a supplemental opinion of Bond Counsel dated the date of Closing and addressed to the Representative, to the effect that: (A) the statements on the cover of the Official Statement and in the Official Statement under the captions "INTRODUCTION," "THE BONDS," "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ", "THE REFUNDING PLAN," and "TAX MATTERS," and in "APPENDIX A — SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS" and "APPENDIX C — PROPOSED FORM OF BOND COUNSEL OPINION," excluding any material that may be treated as included under such captions and appendices by any cross - reference, insofar as such statements expressly summarize provisions of the Bonds, the Ground Lease, the Lease Agreement, the Assignment Agreement, the Indenture, the Escrow Agreement and Bond Counsel's final opinion concerning certain federal tax matters relating to the Bonds, are accurate in all material respects as of the date of Closing, provided that Bond Counsel need not express any opinion with respect to any financial or statistical data contained therein or with respect, to the book -entry system in which the Bonds are initially delivered; (B) The Purchase Contract and the Escrow Agreement have been duly authorized, executed and delivered by the City and the Authority and are the valid, legal and binding agreements of the City and the Authority enforceable in accordance with their terms, except that the rights and obligations under the Purchase Contract and the Escrow Agreement are subject to bankniptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State, and provided that no opinion is expressed with respect to any indemnification or contribution provisions contained therein. (C) The Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended. (vi) the Official Statement, executed on behalf of the City; (vii) evidence that the Bonds have been rated " " by Moody's Investors Service, "_" by Standard &Poor's Ratings Services, and "_" by Fitch Ratings, as applicable; (viii) a certificate, dated the date of Closing, signed by a duly authorized officer of the Authority satisfactory in form and substance to the Representative to the effect that: (i) the representations, warranties and covenants of the Authority contained in this Purchase Contract are true and correct in all material respects on and as of the date of Closing with the same effect as if made on the date of the Closing by the Authority, and the Authority has complied with all of the terms and conditions of 11 DOCSOC/1518102v4/200119 -0005 this Purchase Contract required to be complied with by the Authority at or prior to the date of Closing; (ii) to the best of such officer's knowledge, no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the information and statements contained in the Official Statement (other than information relating to The Depository Trust Company and its book -entry system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact. necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (iv) to the best of its knowledge after reasonable investigation, the Authority is, not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority's ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument; (ix) a certificate, dated the date of Closing, signed by a duly authorized officer of the City satisfactory in form and substance to the Representative to the effect that: (i) the representations, warranties and covenants of the City contained in this Purchase Contract are true and correct in all material respects on and as of the date of Closing with the same effect as if made on the date of the Closing by the City, and the City has complied with all of the terms and conditions of the Purchase Contract required to be complied with by the City at or prior to the date of Closing; (ii) to the best of such officer's knowledge, no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the information and statements contained in the Official Statement (other than information relating to The Depository Trust Company and its book -entry system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (iv) to the best of its knowledge after reasonable investigation, the City is not in breach of or default tinder any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City's ability to perform its obligations under the Legal Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument; 12 DOCSOC/1518102v4/200119 -0005 (x) an opinion dated the date of Closing and addressed to the Representative, the Trustee and Bond Counsel, of the Office of the City Attorney of the City of Santa Monica, as Counsel to the Authority, to the effect that: (A) . the Authority is a public body, corporate and politic duly organized and validly existing under the Constitution and laws of the State of California; (B) the resolution of the Authority approving and authorizing the execution and delivery. of the Authority Documents, the Bonds and the Official Statement and other actions of the Authority was duly adopted at a meeting of the governing body of the Authority which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the resolution is now in full force and effect and has not been amended or superseded in any way; (C) the Authority Documents are valid, legal and binding agreements of the Authority (assuming due authorization, execution and delivery by and validity against the other parties thereto); (D) . to the best knowledge of such counsel there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the Authority has been served or, to the best of such counsel's knowledge, threatened against or affecting the Authority, except as may be disclosed in the Official Statement, which would materially adversely impact the Authority's ability to complete the transactions contemplated by the Authority Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement, the Authority Documents or the transactions described in and contemplated thereby wherein an unfavorable decision, ruling or finding would materially adversely affect the validity and enforceability of the Bonds or the Authority Documents or in which a final adverse decision could materially adversely affect the operations of the Authority; (E) the execution and delivery of the Authority Documents and the issuance of the Bonds and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Authority is .subject, which breach or default- has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents; (F) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the Authority 13 DOCSOC /1518102v4/200119 -0005 Documents or the Official Statement by the Authority or the consummation by the Authority of the transactions on its part contemplated therein, except such as have been obtained and except such as may be required under state' securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter; and (G) based on the information made available to such counsel in its role as counsel to the Authority, and without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement under the caption entitled "THE AUTHORITY," nothing has come to its attention which would lead it to believe that the statements contained in the above - referenced caption as of the date of the Official Statement and as of the date of Closing (excluding therefrom the financial and statistical data and forecasts included therein, as to which no opinion is expressed) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (xi) an opinion dated the date of Closing and addressed to the Representative, the Trustee and the Bond Counsel, of the Office of the City Attorney of the City of Santa Monica, to the effect that: (A) the City is a charter city and a municipal corporation duly organized and validly existing under the Constitution and laws of the State of California; (B) the resolution of the City approving and authorizing the execution and delivery of the City Documents and approving and authorizing the issuance of the Bonds and the delivery of the Official Statement and other actions of the City was duly adopted at a meeting of the governing body of the City which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the resolution is now in full force and effect and has not been amended or superseded in any way; (C) the City Documents are valid, legal and binding agreements of the City (assuming due authorization, execution and delivery by and validity against the other parties thereto); (D) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the City has been served or, to the best of such City Attorney's knowledge, threatened against or affecting the City, except as may be disclosed in the Official Statement, which would materially adversely impact the City's ability to complete the transactions contemplated by the City Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental 14 DOCSOCVI5 islozr4izool t9 -0005 with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement or the City Documents; (E) the execution and delivery of the City Documents and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents; (F) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the City Documents or the consummation by the City of the transactions on its part contemplated therein, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter; and (G) based on the information made available to City Attorney, and without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, nothing has come to its attention which would lead it to believe that the Official Statement as of its date and as of the date of Closing (excluding therefrom the financial and statistical data and forecasts included therein, as to which no opinion is expressed and information relating to the Authority and The Depository Trust Company and its book entry system) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (xii) an opinion of Stradling Yocca Carlson & Rauth, Disclosure Counsel to the Authority and the City dated the date of Closing and addressed to the Representative in form and substance satisfactory to the Representative; (xiii) an opinion of counsel to the Trustee, addressed to the Representative and the Authority, dated the date of the Closing, to the effect that: (A) the Trustee is a banking corporation duly organized and validly existing under the laws of the State of California, having full corporate power to undertake the trust created under the Indenture; (B) the Indenture and the Assignment Agreement (collectively, the "Trustee Documents ") have each been duly authorized, executed and delivered by the Trustee and, assuming due authorization, execution and delivery by the other parties thereto, the Trustee Documents constitute the valid, legal and binding obligations of the Trustee enforceable in accordance 15 DOCSO C/1 518102v4/200119-0005 with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought; (C) the Trustee has duly authenticated the Bonds upon the order of Authority; (D) the Trustee's actions in executing and delivering the Trustee Documents are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel's knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and (E) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the . Trustee of its obligations under the Trustee Documents. (xiv) a certificate, dated the date of Closing, signed by a duly authorized official of the Trustee satisfactory in form and substance to the Representative, to the effect that: (A) the Trustee is duly organized and existing as a banking association under the laws of the United States of America, having the full corporate power and authority to enter into and perform its duties under the Trustee Documents; (B) the Trustee is duly authorized to enter into the Trustee Documents and has duly executed and delivered the Trustee Documents, and assuming due authorization and execution by the other parties thereto, the Trustee Documents are legal, valid and binding upon the Trustee or Escrow Agent, as applicable, and enforceable against such party in accordance with its terms; (C) the Trustee has duly authenticated the Bonds under the Indenture and delivered the Bonds to or upon the order of the Underwriter; and (D) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents. 16 DOCSOC/1518102v4/200119 -0005 (xv) an opinion of counsel to the Escrow Bank, addressed to the Representative and the Authority, dated the date of the Closing, to the effect that: (A) the Escrow Bank is a banking association duly organized and validly existing under the laws of the United States of America, having full corporate power to undertake the duties created under the Escrow Agreement; (B) the Escrow Agreement has been duly authorized, executed and delivered by the Escrow Bank and, assuming due authorization, execution and delivery by the other parties thereto, the Escrow Agreement constitutes the valid, legal and binding obligation of the Trustee enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought; (C) the Trustee's actions in executing and delivering the Escrow Agreement are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel's knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Escrow Agent is a party or any administrative or judicial decision by which the Escrow Agent is bound; and (D) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the Escrow Agent of its obligations under the Escrow Agreement. (xvi) a certificate, dated the date of Closing, signed by a duly authorized official of the Escrow Agent satisfactory in form and substance to the Representative, to the effect that: (A) the Escrow Agent is duly organized and existing as a banking corporation under the laws of the State of California, having the full corporate power and authority to enter into and perform its duties under the Escrow Agreement; (B) . the Escrow Agent is duly authorized to enter into the Escrow Agreement and has duly executed and delivered the Escrow Agreement, and assuming due authorization and execution by the other parties thereto, the Escrow Agreement is legal, valid and binding upon the Escrow Agent and enforceable against such party in accordance with its terms; and (C) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is required for the execution and delivery of the Escrow Agreement or the consummation by the Trustee of its obligations under the Escrow Agreement. 17 DOCSOC/1518102v4/200119 -0005 (xvii) the preliminary and final Statement of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the Government Code and Section 8855(g) of the Government Code; (xviii) a copy of the executed Blanket Issuer Letter of Representations by and between the City and DTC relating to the book -entry system, and a Copy of the Operational Arrangements Letter of Representations executed by the Trustee. (xix) the tax and nonarbitrage certificate by the City in form and substance to the reasonable satisfaction of Bond Counsel and the Representative; (xx) an opinion of Jones Hall, a Professional Corporation ("Underwriter's Counsel ") in form and substance acceptable to the Representative. (xxi) a certificate, dated the date of the Preliminary Official Statement, of the City, as required under Rule 15c2 -12; (xxii) a certificate, dated the date of the Preliminary Official Statement, of the Authority, as required under Rule 15c2 -12; (xxiii) such additional legal opinions, Bonds, proceedings, instruments or other documents as Bond Counsel or Underwriter's Counsel may reasonably request. Section 9. Changes in Official Statement. After the Closing, neither the Authority nor the City will adopt any amendment of or supplement to the Official. Statement to which the Representative shall reasonably object in writing. Within 90 days after the Closing or within 25 days following the "end of the underwriting period" (as defined in Section 240 15c -12 in Chapter II of Title 17 of the Code of Federal Regulations (Rule "15c2 -12 "), whichever occurs first, if any event relating to or affecting the Bonds, the Trustee, the City or the Authority shall occur as a result of which it is necessary, in the opinion of the Representative, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the Authority will forthwith prepare and furnish to the Representative an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City and the Authority shall cooperate with the Representative in the filing by the Underwriter of such amendment or supplement to the Official Statement with the MSRB. The Underwriter acknowledges that the "end of the underwriting period" will be the date of Closing unless the Representative otherwise notifies the City in writing that it still owns some or all of the Bonds. Section 10. Expenses. Whether or not the transactions contemplated by this Purchase Contract are consummated, the Underwriter shall be under no obligation to pay, and the Authority shall pay only from the proceeds of the Bonds, but only as the Authority and such other party providing such services may agree, all expenses and costs of the Authority and the City incident to the performance of their obligations in connection with the authorization, execution, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Trustee and Escrow Agent, including fees and disbursements of its counsel, if any, fees and disbursements of Bond Counsel, Disclosure Counsel and other 18 DOCSOC/1518102v4/200119 -0005 professional advisors employed by the Authority or the City, costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds and for expenses (included in the expense component of the spread) incurred by the Underwriter on behalf of City's employees which are incidental to implementing this agreement, including, but not limited to, meals, transportation, lodging, and entertainment of those employees. The Underwriter shall pay all out -of- pocket expenses of the Underwriter, including, without limitation, the fees and expenses of its counsel, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds. Section 11. Notices. Any notice or other communication to be given to the Representative or the Underwriter under this Purchase Contract may be given by delivering the same in writing to Stifel, Nicolaus & Company Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus, 515 South Figueroa Street, Suite 1800, Los Angeles, California 90071, Attention: Sara Brown, Managing Director. All notices or communications hereunder by any party shall be given and served upon each other parry. Any notice or communication to be given the Authority under this Purchase Contract may be given by delivering the same in writing to the Santa Monica Public Financing Authority, 1685 Main Street„ Santa Monica, California 90401, Attention: Executive Director. Any notice or communication to be given the City under this Purchase Contract may be given by delivering the same in writing to the City of Santa Monica, 1685 Main Street„ Santa Monica, California 90401, Attention: Finance Director. Section 12. Parties in Interest. This Purchase Contract is made solely for the benefit of the Authority, the City and the Underwriter (including the successors . or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the Authority and the City in this Purchase Contract shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds. Section 13. Counterparts. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 19 DOCSOC/1518102v4/200119 -0005 Section 14. Governing Law, This Purchase Contract shall be governed by the laws of the State of California. STIFEL, NICOLAUS INCORPORATED By: Title: Managing Director Accepted: SANTA MONICA PUBLIC FINANCING AUTHORITY By: Rod Gould Executive Director Accepted: CITY OF SANTA MONICA By: Rod Gould City Manager APPROVED AS TO FORM: STRADLING YOCCA CARLSON & RAUTH, A Professional Corporation Bond Counsel 20 DOCSOC/1519102v4 /200119 =0005 6'.�WOUT17\21VA Marsha Jones Moutrie Authority Counsel APPROVED AS TO FORM Marsha Jones Moutrie City Attorney I *v:11 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2011A MATURITY SCHEDULE Maturity Date Principal (June I) Amount Interest Rate Yield SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE REFUNDING BONDS, SERIES 2011B MATURITY SCHEDULE Maturity Date Principal (June I) Amount Interest Rate Yield A -1 DOCSOC /I 518102v4/200119 -0005 Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Section 8. Section 9. Section 10. Section 11. Section 12. Section 13. Table of Contents ATTACHMENT H Page Appointmentof Escrow Bank ......................................................... ..............................1 Establishment of 2002A Bonds Escrow Fund ............................... ............................... 2 Depositof Funds ............................................................................ ............................... 2 Applicationof Deposit .................................................................... ..............................2 Instructions as to Application of Deposit; Call and Redemption of 20.02A Bonds ......2 Application of Certain Terms of 2002A Bonds Indenture ............. ............................... 2 Compensationto Escrow Bank ...................................................... ............................... 3 Liabilities and Obligations of Escrow Bank .................................. ............................... 3 Amendment.................................................................................... ............................... 5 PartialInvalidity ............................................................................. ............................... 5 Executionin Counterparts .............................................................. ............................... 5 GoverningLaw .............................................................................. ............................... 5 Notices........................................................................................... ............................... 5 i DOCSOC/1514466v5/200119 -0005 Stradling Yocca Carlson & Rauth Draft of 10/19/11 ESCROW DEPOSIT AND TRUST AGREEMENT by and between the SANTA MONICA PUBLIC FINANCING AUTHORITY and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Bank Dated.as of November 1, 2011 Relating to $17,310,000 SANTA MONICA PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS SERIES 2002A (PUBLIC SAFETY FACILITY PROJECT) DOCSOC/151446W/200119 -0005 ESCROW DEPOSIT AND TRUST AGREEMENT This ESCROW DEPOSIT AND TRUST AGREEMENT, dated as of the 1st day of November, 201 t (thus "Agreement "), by and between the SANTA MONICA PUBLIC FINANCING AUTHORITY, a joint exercise of powers entity duly organized and existing under and by virtue of the laws of the State of California (the "Authority "), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. , a national banking association organized and existing under the laws of the United States of America, as escrow holder hereunder (the "Escrow Bank ") and as successor trustee with respect to the 2002A Bonds (the Escrow Bank being hereinafter referred to in such respect as the "Trustee "): WITNESSETH: WHEREAS, the Authority has previously issued its Santa Monica Public Financing Authority Lease Revenue Bonds Series 2002A (Public Safety Facilities Project) 1999, Refunding Series (the "2002A Bonds ") pursuant to an Indenture, dated as of September 1, 1999, as supplemented by a First Supplemental Indenture, dated as of January 1, 2002, and a Second Supplemental Indenture, dated as of December 1, 2009, each by and among the Authority, the City of Santa Monica (the "City "), and Trustee (as supplemented, the "2002A Bonds Indenture "); WHEREAS, the Escrow Bank is the trustee under the 2002A Bonds Indenture (the "Trustee "); WHEREAS, the City has determined to issue its Santa Monica Public Financing Authority Lease Revenue Refunding Bonds Series 2011B (the "2011 Bonds ") pursuant to a Bond Indenture dated as of November 1, 2011, by and among the City, the Authority and the Trustee, for the purpose of providing funds, together with other available moneys, to refund and discharge the 2002A Bonds (the "2002A Bonds "); WHEREAS, the 2002A Bonds Indenture contains provisions relating to the defeasance of the 2002A Bonds upon the deposit with the Escrow Bank, as 2002A Bonds Trustee, of cash and Federal Securities sufficient to pay when due the principal and interest due and to become due on the 2002A Bonds on and prior to the maturity date or earlier redemption thereof, and the City wishes to make such a deposit with the Escrow Bank and to enter into this Agreement for the purpose of providing the terms and conditions for the deposit and application of amounts so deposited; and WHEREAS, the Escrow Bank has full powers to act with respect to the irrevocable escrow and trust created herein and to perform the duties and obligations to be undertaken pursuant to this Agreement; NOW, THEREFORE, in consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: Section 1. Appointment of Escrow Bank. The Authority hereby appoints the Escrow Bank, as escrow holder for all purposes of this Agreement and in accordance with the terms and provisions of this Agreement, and the Escrow Bank hereby accepts such appointment. 1 DOCSOC/1514466v5/200119 -0005 Section 2. Establishment of 2002A Bonds Escrow Fund. The Escrow Bank agrees to establish and maintain a special trust account designated the "2002A Bonds Escrow Fund," which shall be held by the Escrow Bank, as a segregated fund separate and distinct from all other funds and accounts held by the Escrow Bank, in trust as security for the payment of the principal of and interest on the 2002A Bonds. Section 3. Deposit of Funds. Concurrently with the issuance and delivery of the Series 2011 Bonds, the Authority shall cause the Trustee to transfer from the proceeds of the Series 2011 Bonds to the Escrow Bank for deposit into the 2002A Bonds Escrow Fund in immediately available funds the amount of $ . In addition, on or prior to the issuance and delivery of the Series 2011 Bonds, the Authority shall transfer to the Escrow Bank for deposit into the 2002A Bonds Escrow Fund in immediately available funds the amount of $ Additionally, on December 10, 2011, the Trustee shall transfer to the Escrow Bank for deposit into the Escrow Fund $ released from the Reserve Fund in accordance with the 2002A Bonds Indenture. Section 4. Application of Deposit. The total amount of $ deposited in the 2O02A Bonds Escrow Fund pursuant to Section 3 hereof shall be held uninvested as cash and the Authority warrants that the amount deposited in the 2002A Bonds Escrow Fund shall be sufficient to redeem the 2002A Bonds on dates specified in Section 5 below. After the Escrow Bank shall have paid or have made provision for payment of all principal of and interest on the 2002A Bonds as provided in Section 6 hereof, the Escrow Bank shall promptly transfer to the Trustee any surplus amounts remaining in the 2002A Bonds Escrow Fund to be used by the Trustee solely to pay debt service on the 2011 Bonds. Section 5. Instructions as to Application of Deposit; Call and Redemption of 20O2A Bonds. The total amount of cash held in the 2002A Bonds Escrow Fund pursuant to Section 4 hereof shall be deemed to be and shall constitute the deposit permitted to be made by the Authority to pay in full the 2002A Bonds pursuant to Section 10.02 of the 2002A Bonds Indenture. In accordance with said Section 10.02, the Authority hereby irrevocably directs and instructs the Escrow Bank to apply the cash in the 20O2A Bonds Escrow Fund to pay all principal, premium and interest due and payable upon call and redemption of the $ aggregate principal amount of 2O02A Bonds (identified on Exhibit A) prior to maturity on [December 1], 2011, and to pay all principal, premium and interest due and payable upon call and redemption of $ aggregate principal amount of 20O2A Bonds (identified on Exhibit A) prior to maturity on December 10, 2011, the date of early redemptions of the 2002A Bonds, all as more particularly set forth in Exhibit A, attached hereto and hereby made a part hereof. For such purpose of call and redemption prior to maturity, the Authority hereby instructs the Escrow Bank, as the Trustee, and the Escrow Bank, as the Trustee, hereby agrees to give notice of redemption of the 2002A Bonds (the form of which is attached hereto as Exhibit B), such notice of redemption to be given timely for redemption of the 2002A Bonds on [December 1, 2011] and December 10, 2011, respectively, in accordance with the further applicable provisions of the 2O02A Bonds Indenture. Further, in accordance with said Section 10.02 of the 2O02A Bonds Indenture, this Agreement shall constitute the election of the Authority to pay and defease the 2002A Bonds. Section 6. Application of Certain Terms of 2002A Bonds Indenture. All of the terms of the 2002A Bonds Indenture relating to the call and prepayment of the 20O2A Bonds prior to maturity DOCSO C/1514466v5/200119 -0005 and to the making of payments of principal and interest on the 2002A Bonds, as applicable, are incorporated in this Agreement as if set forth in full herein. The provisions of the 2002A Bonds Indenture relating to the resignation and removal of the Trustee are also incorporated in this Agreement as if set forth in full herein and shall be the procedure to be followed with respect to any resignation or removal of the Escrow Bank hereunder. Section 7. Compensation to Escrow Bank. The Authority shall pay or cause the Authority to pay the Escrow Bank full compensation for its duties under this Agreement, including out -of- pocket costs such as publication costs, redemption costs and expenses, legal fees and expenses, which fees and expenses shall include the allocated costs and disbursements of in -house counsel (to the extent such counsel's services are not redundant of services provided by external counsel to Escrow Bank) and other costs and expenses relating hereto, pursuant to separate agreement between the Authority and the Escrow Bank. Such compensation shall not affect.the right of Escrow Bank, as Trustee for the 2002A Bonds, to compensation for its duties (including but not limited to, exchanges and transfers of 2002A Bonds), under the 2002A Bonds Indenture. Under no circumstances shall amounts deposited in the 2002A Bonds Escrow Fund be deemed to be available for said purposes prior to the payment in full of all of the principal of and interest on the 2002A Bonds in accordance with Section 5 hereof. Section 8. Liabilities and Obligations of Escrow Bank. The Escrow Bank shall have no obligation to make any payment or disbursement of any type or incur any financial liability in the performance of its duties under this Agreement unless the Authority shall have deposited sufficient funds with the Escrow Bank. The Escrow Bank may rely and shall be protected in acting upon the written instructions of the Authority or its agents relating to any matter or action as Escrow Bank under this Agreement. The Escrow Bank shall not be required to act upon any oral instructions, but may request that such instruction be given in writing. The Authority covenants to indemnify and hold harmless the Escrow Bank and its officers, directors, agents and employees against any loss, liability, claim, cost, suite, judgment or expense, including legal fees and expenses, which fees and expenses shall include the allocated costs and disbursements of in -house counsel (to the extent such counsel's services are not redundant of services provided by external counsel to Escrow Bank) in connection with the performance of any of its duties hereunder, except the Escrow Bank shall not be indemnified against any loss, liability or expense resulting from its negligence or willful misconduct. Such indemnification shall survive the termination and discharge of this Agreement or the removal or resignation of the Escrow Bank. The Escrow Bank undertakes only such duties as are expressly and specifically set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against the Escrow Bank. The Escrow Bank shall not be responsible for any of the recitals or representations made herein other than that the Escrow Bank is qualified to accept and administer the trusts created hereunder. The Escrow Bank shall not be liable for the accuracy of any calculations provided as to the sufficiency of the moneys deposited with it to pay the principal of and interest on the 2002A Bonds. The Escrow Bank shall not have any liability hereunder except to the extent of its own negligence or willful misconduct. The Escrow Bank may consult with counsel of its own choice and the opinion of such counsel shall be full and complete authorization to take or suffer any action in accordance with such opinion of counsel. Except as otherwise provided in this Agreement, whenever in the administration of this Agreement the Escrow Bank shall deem it necessary or desirable that a matter be proved or DOCSOC/1514466v5/200119 -0005 established prior.to taking or suffering any action hereunder, such matter (rmless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Escrow Bank, be deemed to be conclusively proved and established by a certificate of any authorized representative of the Authority, and such certificate shall, in the absence of negligence or willful misconduct on the part of the Escrow Bank, be full warrant to the Escrow Bank for any action taken or suffered by it under the provisions of this Agreement upon the faith thereof. The Escrow Bank may conclusively rely, as to the truth and accuracy of the statements and correctness of the opinions and the calculations provided, and shall be protected and indemnified, in acting or refraining from acting, upon any written notice, instruction, request, certificate, document or opinion furnished to the Escrow Bank signed or presented by the proper party, and it need not investigate any . fact or matter stated in such notice, instruction, request, certificate or opinion. The Escrow Bank may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care, and shall not be responsible for any willful misconduct or negligence on the part of any agent, attorney, custodian or nominee so appointed. The Escrow Bank agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided; however, that the Escrow Bank shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Authority elects to give the Escrow Bank e -mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Bank in its discretion elects to act upon such instructions, the Escrow Bank's understanding of such instructions shall be deemed controlling. The Escrow Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Bank's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Authority agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Escrow Bank, including, without limitation, the risk of the Escrow Bank acting on unauthorized instructions, and the risk of interception and misuse by third parties. 4 DOCSOC/1514466v5/200119 -0005 Section 9. Amendment. This Agreement may be amended by the parties hereto if such amendment shall be for the purpose of curing or correcting any ambiguous or defective provision hereof, but only, in either case, if there first shall have been filed with the Escrow Bank a written opinion of bond counsel stating that such amendment will not cause interest on the 2OO2A Bonds or the Series 2011 Bonds to become includable in gross income for federal tax purposes. Section 10. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Agreement shall for any reason be held illegal, invalid or unenforceable, such holding shall not affect the validity of the remaining portions of this Agreement. The Authority and the Escrow Bank hereby declare that they would have entered into this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof would have been authorized irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 11. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 12. Governing Law. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of California. Section 13. Notices. All notices, instructions, accounting and other communications under this Agreement shall be in writing and shall be deemed duly given to the parties hereto if,sent by facsimile transmission (telecopy) or sent by U.S. Postal Service mail, 48 hours after deposit thereto, postage prepaid and addressed as follows: Authority: Santa Monica Public Financing Authority City Hall 1685 Main Street Santa Monica, CA 90407 Attention: Treasurer Escrow Bank: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, CA 90017 Attention: Corporate Trust Services 5' DOCSOC/1514466v5/200119 -0005 IN WITNESS WHEREOF, the Authority and the Escrow Bank have each caused this Agreement to be executed by their duly authorized officers all as of the date first above written. ATTEST: Secretary of the Santa Monica Public Financing Authority APPROVED AS TO FORM Authority Counsel SANTA MONICA PUBLIC FINANCING AUTHORITY Bv: Its: Executive Director THE BAND OF NEW YORK MELLON TRUST COMPANY, N.A., as Escrow Bank By: Its: Authorized Officer 6 DOCSOC/1514466v5/200119.0005 Period Ending [December 1, 2011 .] December 10, 2011 •n: 2002A BONDS REDEMPTION SCHEDULE Interest Principal Redeemed Redemption Premium Total [Add schedule or description of 2002A Bonds to be redeemed on December 1 and December 10.] A -1 DOCSOC/1514466v5/200119 -0005